the material contained in this presentation has been prepared solely for informational purposes by...
TRANSCRIPT
![Page 1: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/1.jpg)
The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”), and is not to be distributed outside of the organization to which it is presented. The material is based on sources believed to be reliable and/or from proprietary data developed by GR-NEAM, but we do not represent as to its accuracy or its completeness. This is not an offer to buy or sell any security or financial instrument. Certain assumptions, including tax assumptions, may have been made which have resulted in any returns detailed herein. Past performance results are not necessarily indicative of future performance. Changes to the assumptions, including valuations or cash flows of any instrument, may have a material impact on any results. Please consult with your tax experts before relying on this material. Additional information is available upon request. This document and its contents are proprietary to GR-NEAM. They were prepared for the exclusive use of your company. Neither this document nor its contents are to be given or discussed with anyone other than employees, directors, trustees or auditors of your company without our prior written consent.
Presented by Jerry Lynch
Life After Stimulus:
When Reflation Meets Deleveraging
![Page 2: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/2.jpg)
2Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
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3Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Conclusions
Deleveraging
Recession
Policy Response
Global
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4Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
U.S. Real Economic
Growth
Fiscal/ Monetary Stimulus
Global Forces
Secular Cyclical
Stimulus
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5Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Where Are We Now?
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6Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Real GDP Growth
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7Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Unemployment Rate vs. Broader Total Unemployed*
![Page 8: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/8.jpg)
8Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Source: www.calculatedriskblog.com
New Home Sales and Recessions
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9Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
U.S. Real Consumer Spending
Y/Y % Dec. – 1.7%
Source: ISI
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10Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Source: Federal Reserve Board, Merrill Lynch
Capital Utilization
Manufacturing (SIC) SA, % of Capacity
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11Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
World Industrial Production
Source: Big Picture.com
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12Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Sources of Remittances by Recipient Regions, 2008
Source: Global Economic Prospects 2006: Economic Implications of Remittances and Migration (World Bank). World Development Indicators 2007 and Global Development Finance 2007
![Page 13: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/13.jpg)
13Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Classic Non-Classic
Recession
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14Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Classic RecessionCharacterized by:
• Inventory cycle• 80% of decline in GDP due to de-stocking in manufacturing sector• Traditional stimulus almost always works to absorb excess by stimulating demand• Lasts 18 months
Non-Classic Recession
Characterized by:
• Balance sheet compression• Deleveraging• Debt elimination• Rising saving rates• Expansion of government’s balance sheet to offset contraction in private sector• 3 years or more
![Page 15: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/15.jpg)
15Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Job Losses in Recent Recessions
Current RecessionCurrent Recession
Source: www.calculatedriskblog.com
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16Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Job Losses* in Post WWII Recessions
Current Recession
Source: www.calculatedriskblog.com
![Page 17: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/17.jpg)
17Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Job Losses in Post WWII Recessions
CurrentRecession
Source: www.calculatedriskblog.com
![Page 18: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/18.jpg)
18Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Confidence New BankingSystem
Low Interest RatesLiquidity
LeverageLeverage
Leverage
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19Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Claims of Banks on East European Countries, as % of GDP
Source: Big Picture.com
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20Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Leverage
Deleveraging
Deleveraging is a process not an event.
Deleveraging
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21Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Components of GDP
Consumption 70% +
Investment 16% +
Net Exports <1>% +
Government 15%
Source: BLS, GR-NEAM Analytics
=GDP 100%
![Page 22: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/22.jpg)
22Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Total U.S. Debt
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23Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
The Leveraging of America
Source: Federal Reserve, via Haver Analytics The New York Times April 4, 2009
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24Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Leverage
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25Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Consumer
Source: NY Times
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26Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Consumer
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27Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
GDP Growth: With and Without Mortgage Equity Withdrawal
GDP Growth
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28Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Record Wealth Implosion
Source: Federal Reserve Board, Merrill Lynch
Households & Nonprofit Organizations: New Worth Difference – Year to Year NSA, Bil$
![Page 29: The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”),](https://reader036.vdocument.in/reader036/viewer/2022062517/56649f165503460f94c2ced5/html5/thumbnails/29.jpg)
29Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Market Cap
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30Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Stimulus
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31Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Summary
(in billions)
Disbursements or Committed Funding
Potential
Federal Reserve 1,238 4,316
Treasury 332 3,912
Other Agencies 1 2,207
1,571 10,435
(in billions)
MEMO: U.S. Nominal GDP, Estimated 2008 $14,500 Billion
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32Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
GDP in U.S. Dollars
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
UnitedStates
Japan China Germany France UnitedKingdom
Italy Russia U.S.BudgetDeficit
Spain
'09
GD
P U
.S. $
(in
bill
ion
s)
Source: www.ritholtz.com
GDP in U.S. Dollars
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33Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Mean Reverting Process
It’s a Non-Classic Recession
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34Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
PCE as a % of GDP & Population Demographics
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35Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Personal Consumption Expenditures (PCE) & Household Debt
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36Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Savings Rate Must Rise, And It Will
Source: Bureau of Economic Analysis, Merrill Lynch
Personal Saving Rate SAAR, %
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37Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
U.S. Homeownership Rate From 1965-2008
60
61
62
63
64
65
66
67
68
69
70
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
Annual Home Ow nership Percentage Average Home Ow nership Percentage from 1965 to 2008
Source: GR-NEAM Analytics
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38Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Source: Federal Reserve Board, Merrill Lynch
Total Household & Business Credit/GDP: Ratio
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39Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Ability of Policymakers to:• Recreate Credit Cycle • Reinflate Asset Values • Ignite a Consumer Led Recovery
Conclusion
Inhibited by Secular Change in Attitudes Toward:•Savings•Credit•Discretionary Spending•Homeownership
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40Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
New Normal
Global Economic Drivers
China
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41Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Chinese Banks’ New Loans
(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 Jun 06 Nov 06 Apr 07 Sep 07 Mar 08 Aug 08 Jan 09
(bn yuan)
Source: CLSA
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42Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Capital Markets
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43Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Worst Decade Yet
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44Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Growth in Total U.S. Credit Market After-Tax U.S. Corporate Profits
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45Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
10yr U.S. Corporate A vs. 10yr U.S. Gov’t on the Run
Source: GR-NEAM Analytics
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46Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Growth Story
Currency
Foreign Sales Trade
Inflation
Energy
Theme CyclicalSecular
Collapse in Demand
Deflation
Domestic
United States $
United StatesDeveloping Economies=
Restrained Capacity=
Higher Inflation=
International=
???=
=
Source: ISI
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47Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
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48Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Major Foreign Holders of U.S. Treasuries
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49Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Foreign Exchange Reserves
2000
($ in Trillions) percent
$1.94 100%
0.78 40
1.16 60
2007(3rd Quarter)
($ in Trillions) percent
$6.0 100%
1.44 24
4.56 76
Total
Industrial Countries
Developing Countries
Source: IMF
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50Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Composition of Foreign Exchange Reserves (Allocated)
2000 2007 2000 2007 2000 2007
U.S. Dollars 71% 63.8% 72% 69.7% 69.7% 60%
Pounds Sterling 3 4.7 2 3 3.5 6
YEN 6 2.7 6.1 3.1 5.8 2.5
Swiss France 0.5 0.2 0.2 0.2 0.3 0.1
Euro's 18 26 18 22 19.4 29
Other 1.5 2.1 1.7 1.6 1.3 2.5
Total Industrial Developing
Source: IMF
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51Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Dollar Dominated
Note: Currencies have not been identified for another $2,536 trillion in foreign-exchange reserves
Source: International Monetary Fund
What currencies nations of the world keep their reserves in
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52Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Source: International Monetary Fund
Note: Currencies have not been identified for another $2.67 billion in industrialized countries’ foreign-exchange reserves and another $2.533 trillion in developing countries’
reserves.
The Haves & The Have Moresforeign-exchange reserves, in trillions; quarterly data
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53Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Total Workforce (LHS) /Total Employed (LHS)vs. Civilian Non-institutional Population (RHS)
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54Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
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55Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
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56Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
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57Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
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58Proprietary & Confidential. © 2009 General Re–New England Asset Management, Inc.
Source: Chinese Central BankThe New York Times April 13, 2009
Cutting Back
Quarterly growth in China’s foreign reserves, mainly invested in Treasuries and other American bonds, has slowed significantly
China’s quarterly change in foreign reserves