Transcript Source - bribg

MARKET SIGNALS
Peter RICCHIUTI
THE MATERIAL COVERED IN THIS PRESENTATION IS
THE OPINION OF THE PRESENTER AND SHOULD NOT
BE CONSTRUED AS A RECOMMENDATION TO BUY
OR SELL ANY OF THE SECURITIES MENTIONED.
INVESTORS SHOULD SEEK THE COUNSEL OF THEIR
FINANCIAL ADVISOR BEFORE MAKING ANY KIND OF
INVESTMENT. THE PRESENTER MAY OR MAY NOT
HOLD LONG OR SHORT POSITIONS IN ANY OF THE
SECURITIES MENTIONED.
PETER VS. DA’ COACH
Source: Times Picayune
THE FACTS
We are not entering another Great
Depression. Following the Stock Market
crash of 1929 the government:
Increased interest rates

Increased Tariffs

Slowed Government Spending

Source: U.S. Department of Economic Advisors
AN ECONOMIC LESSON

We’ve had four recessions in the last 35
years (early 1980’s, early 1990’s,
2000 – 2001, 2008/2009).

Recessions always end and the economy
always rises to a higher plateau.
Source: U. S. Department of Economic Advisors
RECESSIONS

A scary term but, we shouldn’t use 2008/2009 as a
guide. That was a WHOPPER lasting 18 months.
At its worst point GDP fell at a quarterly rate of 5.1%
and unemployment rise to 10.2%


An average (post WWII) recession has lasted about 11
months with a significantly smaller contraction in GDP
and many fewer layoffs.
NEGATIVE NEWS?
WHAT IS THE FEDERAL RESERVE ?
Random Survey of Americans
50% - A Brand of Whiskey
 25% - A Wildlife Refuge
 25% - An Indian Reservation

SAFE HAVEN???
PROFITS COUNT, A LOT!
Since WW II
 Corporate profits up
100 fold

Stock prices have risen
90 fold
Source: Standard & Poor’s
RECORD EARNINGS*
$140
$120
$100
$107
$96
$114
$97
$117
$125
$106
$80
$60
$40
$20
$0
2011
2012
2013
2014
* As measured by the S&P 500, calculations are rounded
2015
2016
EARNINGS PER SHARE
2017
TEA PARTY
DONNER PARTY???
RANDOM THOUGHTS…

Tax evasion has added about three trillion
dollars to the national debt over the past
decade.

As a percentage of GDP, federal taxes are now
about at their lowest levels since 1950.

Just one in eight workers is of normal weight
without a chronic health problem.
Source: Motley Fool
AREA MAN PROUD HE CAN STILL
FIT INTO CAR FROM HIGH SCHOOL
The Onion June 2015
HEALTHCARE COSTS
50 Years Ago
Now
17%
16%
5%
Source: Conscious Capitalism
7%
OIL THOUGHTS
Saudi Arabia is the “low-cost producer” and
has just one asset/business.
 They want to be able to sell every drop they
own (and use these revenues to diversify
their economy).
 There is even an IPO of Saudi Aramco
 New greener fuel sources are
developing.

ECONOMIC IMPACT
□ Lower prices at the pump are the
equivalent of a $200 billion tax cut for U.S.
consumers.
□ This is good news for retailers, U.S.
manufacturers and other businesses
such as the airlines.
□ U.S. Foes “de-fanged”.
Source/Photo: Bloomberg
DISTINCTION
Electricity is generated by;
natural gas, coal, solar, wind, …
 BUT, planes, trains, (and boats),
and automobiles are nearly
entirely fueled by oil.

HALF FULL
Natural gas has a more positive outlook.
 It is domestically produced, cleaner
burning than oil.
 Demand is growing.
 The price in the U.S. is significantly lower
than it is around the globe.
 It’s market forces are sometimes
referred to as the “REDNECK OPEC”.

IT’S A GAS
I LOVE NUMBERS!
©Sesame Street Workshop
CORE INFLATION


Capacity Utilization (80% +)
We’re currently at 78.2%
Unemployment (5% or below)
We’re now at 4.9%
MANUFACTURING JOBS
25% of losses are due to cheap labor,
but now China’s wages are rising. If
productivity is factored in the
difference is just 4%.
75% of job losses in manufacturing are
due to automation/robotics.
THE KIDS ARE ALRIGHT

Women in this group
are better educated
than men and in 1/3 of
marriages, earn more
money.

As this large group ages, they will begin
hitting their big earning years and focus
more on retirement and investing.
Source: BARRONS
DEMOGRAPHICS
Over the next 30 years, the
population of working age people
will steadily increase in the U.S.
(most of this comes from
immigration).
 It will be declining in most
industrialized parts of the world,
including Europe, Japan and China.

Source: BARRONS
THE MILLENNIALS
Their Retirement Accounts are
Under Invested in Stocks.
 More Urban and More Mobile
 Starting Families Later
 Flexibility Is Important

How,
When & Where They Work
Work-Life Balance
Source: BARRONS
NO DOUBLE DIP
1. High but falling housing starts.
Low and Rising.
2. High but falling average weekly
hours worked.
High and Rising.
3. Inverted Yield Curve.
This Remains Steep.
(Currently about +130 basis points)
Source: Ed Leamer, UCLA
CURRENT SLOPE +130 BASIS POINTS
Ten year treasury note (1.60%) minus
3-month treasury bill (0.30%)
Source: Bloomberg
6/5/15
GAMBLING PROBLEM
DEFICIT/GDP
14
12
12.1
(the deficit is
not the debt.)
10.7
10.1
10
8.5
8
6
4.1
4
2.8
2.5
2014
2015
2
0
2009
2010
2011
SOURCE: WWW.TRADINGECONOMICS.COM/USTREASURY
2012
2013
OUR ECONOMY
70%
Consumer
Driven
“UNEVEN” BLUES
Since 1979 the U.S. economy has more
than doubled in size.
 Then the top 1% of population earned
10% of the nation’s income.
 Today, the top 1% earn about 24% of the
nation’s income. This group now
controls 50% of the country’s wealth.

Source: Bloomberg
HONEY, I SHRUNK …
WHY IS GROWTH SLOW?
CORPORATE DECISIONS
Since 2009, corporate earnings have
been terrific. But, the bulk of this
money has gone towards:
• Stockpiling Cash
• Mergers & Acquisitions
• Share Buybacks
HOARDING CASH
U.S. corporations are holding about
$1.50 trillion on the sidelines.
 For perspective, this is about the
size of the GDP of South Korea.
 This money is earning ….

SHRINKING MARKET
Source: www.money.com
SHARE BUYBACKS

There have been more than $3 trillion dollars in
share buybacks since the bull market began
(spring 2009).
Profits
________________ = Earnings Per
Shares Outstanding
Share (EPS)
THE RESULTS
Stock prices have more than tripled over the
course of this bull market.
 BUT, very little has been spent on economic
expansion or capital expenditures.
(particularly in the United States).
 This has created very little “organic”
growth (eating your seed corn)
 It has restricted productivity and
accelerated income inequality.

PSYCHIATRISTS DEEPLY
CONCERNED FOR 5% OF AMERICANS
WHO APPROVE OF CONGRESS
Source: The Onion
SLOW HAND
Research has shown *investors
who traded the least
outperformed those who
traded the most by a
remarkable 6.8 percentage
points annually.
*Source: Research by University of California
Economists Terrance Odean and Brad Barber
FINANCIAL MYTH BUSTING

High Unemployment
A GOOD TIME FOR STOCKS?
Since 1948 stock market
returns have been three
times as high in periods
where unemployment
rates have topped 6.6%.
Source: Jim Paulsen – Wells Capital Management
Data from 1948 to 2011
FINANCIAL MYTH BUSTING
High Unemployment
Most Americans
think we are on the
“wrong track”

IF A MAJORITY OF THE PEOPLE…
In the early 1990’s 2/3rds of Americans
felt the country was on the wrong
track…
 In 2000 80% of Americans believed the
country was on the right track…
 In 2010 nearly everyone thought the
country was on the wrong track and…

Source: Wells Capital Management
FINANCIAL MYTH BUSTING
High Unemployment
Most Americans think we are on
the “wrong track”
Don’t invest in stocks when
there is a Democrat in the White
House

POLITICAL PERFORMANCE
Total Return For The Standard & Poor’s 500
+99%
Clinton’s First Term
+83%
Clinton’s Second Term
-6%
Bush’s First Term
-26%
Bush’s Second Term
+101%
Obama’s First Term
+59% (through 8/15/2016)
Obama’s Second Term
-40
Source: Bloomberg
-20
0
20
40
60
80
100
120
HAPPINESS AND AGE

In the end, older people are happier and feel healthier when they are active and feel
needed.

A happy work-free retirement is a myth.

You Are Never Too Old To Set Another Goal Or To Dream A New Dream. – C.S. Lewis
*The Brookings Institute
GREECE OFFERS TO REPAY
BAILOUT WITH GIANT HORSE
Source:
The Onion
WHICH INNING?
□We’re probably in the
“late innings.”
□ The last three economic recoveries have
lasted about 90 months each.
----------------□ An odd part of the recovery where good
news for the economy is interpreted as bad
news by the stock market.
Source: Wells Capital Management
WHAT KEEPS ME UP?
Restrictions On Free Trade
 Gold and Bonds
 Immigration Restrictions

REAL 10-YEAR TREASURY BOND YIELD*
*10-year yield less annual core consumer price inflation rate
Source: Wells Capital Management
IMMIGRATION STAT
□ 40% of the Fortune 500 were
started by immigrants or
their children.
□ “We may have all arrived on
different ships but, we’re all in
the same boat.”
– Someone Smart
NEW AND IMPROVED
Things
are getting better for most of us.
The babies born in America today are the
luckiest crop in history (Warren Buffett)
The average American today enjoys access
to better transportation, entertainment,
communications and medical services than
the robber barons did in the 1930’s.
THINK DENTISTRY
GREAT READING & SOURCES
Popular Books
One Up On Wall Street, Peter Lynch (Simon & Schuster)
A Zebra in Lion Country, Ralph Wanger (Simon & Schuster)
The Money Masters, John Train (Harper & Row)
The Little Book That Beats The Market, Joel Greenblatt
Analytical Books
The Intelligent Investor, Benjamin Graham (Harper & Row)
Security Analysis, Benjamin Graham (McGraw-Hill)
Terrific (and free) Market Newsletters
Jim Paulsen
www.wellscap.com
Howard Marks
www.oaktreecapital.com
Jeremy Grantham www.gmo.com
U.S. LEADERSHIP
The U.S. is becoming a science-led
economic juggernaut.
 Energy; Producing more, using less
 Technology; Cloud computing,
mobile devices lead to increases in
productivity
 Life Sciences; Breakthrough Products
(personalized gene therapy, synthetic skin, …)

HMMN, BUT …
Science Skeptics, Conspiracy Theorists
Climate Change?
 Vaccinations?
 Evolution?
 The 1969 Moon
Walk?

WHAT WE’RE HEARING






Fiscal Cliff
Sequestration
Obamacare
Greece
Cyprus
Rate Increases?
WAIT …WHAT?
About 200,000+ new jobs each month
 Consumer confidence at a 11-year high
 Bank loans steadily rising
 Energy Independence
 The unemployment rate is at a 8-year low
 Record corporate profits and lots of cash

WHAT’S NEEDED
Lower the corporate tax rate and
eliminate the loopholes
 Training for higher-skilled
manufacturing
 Build the nation’s infrastructure
(roads, ports, research labs)

THINK ABOUT IT
“As long as people have babies, capital
depreciates, technology evolves and tastes and
preferences change, there is a powerful
underlying impetus for growth that is almost
certain to reveal itself in any reasonably wellmanaged economy”
-Tim Duy
www.burkenroad.org