GLOBAL MARKETS:
CRUMBLING WITH THE EMPIRE, OR
YOUR OPPORTUNITY TO THRIVE
FRANK TROTTER
PRESIDENT, EVERBANK DIRECT(A DIVISION OF EVERBANK)
© EverBank 2013, all rights reserved
All commentary, comments, and opinions are solely those of the speaker and are not in any way comments oropinions of EverBank or any affiliates. Additional information is available upon request.
Information in this presentation has been obtained from sources believed to be reliable, but the accuracy,completeness and interpretation are not guaranteed and have not been independently verified. Opinions expressedare subject to change without notice and, due to the rapidly changing nature of currency markets, may quicklybecome outdated.
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3
DISCLOSURES CONCERNING FORWARD LOOKING STATEMENTS
©2013 EVERBANK, ALL RIGHTS RESERVED
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DON’T WORRY,BE HAPPY
Stocks are up 5 years in a row
Dsource:: Tiburon Strategic Associates CEO Summit October 9, 2013: 10/2/13 Morningstar Web Site; 10/2/13 CNN Money Web Site; 9/18/13 Linked In Web Site; 9/13/13 YahooFinance Web Site; 4/3/13 AdvisorOne; 4/2/13 Alston & Bird Email (Moore); 4/2/13 TD Ameritrade Email (Schweiss); 3/31/13 Investment News; 3/30/13 Yahoo Finance Web Site;1/24/13 Yahoo Finance Web Site; 9/5/12 Reuters; 9/5/12 Google Finance; 8/28/12 CNN Money Web Site; 6/29/12 CNN Money Web Site; Tiburon Research & Analysis
Energy independence is around the corner
Source: Popular Mechanics onlineh]p://www.popularmechanics.com/science/energy/coal-‐oil-‐gas/top-‐10-‐myths-‐about-‐natural-‐gas-‐drilling-‐6386593#slide-‐1
7.0%
6.0% 6.0% 6.0%
5.0% 5.0%
3.9%
5.7%6.0%
5.7% 5.4%4.9%
4.4%5.0%
7.3%
9.9%9.4%
8.5%
7.8%7.3%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201 1 2012 Aug-13
Unemployment Rate
THE UNEMPLOYMENT RATE OFF ITS 9.9% PEAK IN 2009
Source: TIBURON CEO Summit October 8th, 2013: 9/28/13 The Economist; 9/27/13 San Francisco Chronicle (United States LaborDepartment); 9/20/13 San Francisco Chronicle; 9/19/13 Wall Street Journal; 9/16/13 Financial Times; 1/13/13 Wall StreetJournal; 9/4/12 DomesPc Human Needs.Org Web Site; 9/4/12 Bureau of Labor StaPsPcs Web Site; 4/17/12 Fidelity InvestmentsPresentaPon (Young); 4/7/12 Wall Street Journal; 3/25/12 Bureau of Labor StaPsPcs Web Site; Tiburon Research & Analysis
GDP is growing
Consumer HouseholdMedian Income
CONSUMER HOUSEHOLD MEDIAN INCOME IS $52,000, UP 15% SINCE 1970 BUT DOWNSINCE 2007
Source: Tiburon CEO Summit October 8th, 2013: 9/21/13 The Economist; 9/18/13 New York Times; 9/17/13 Wall Street Journal; 9/13 BusinessWeek; Tiburon Research & Analysis
$46,089 $46,995
$50,994
$55,987 $56,000 $55,627$53,644 $53,285
$51,892 $51,100 $51,017$52,000
1970 1980 1990 2000 2006 2007 2008 2009 2010 2011 2012 2013
$39.2
$46.0
$52.0
$61.2$65.6 $66.1
$53.6 $55.7$59.7 $60.6
$66.1
2002 2003 2004 2005 2006 2007 2008 2009 2010 201 1 2012
(Source: Tiburon Strategic Advisors -‐ $ Trillions)
Source: 12/31/12 Federal Reserve Flow of Funds Report; 6/30/12 Federal Reserve Flow of Funds Report; 3/31/12 Federal Reserve Flow of Funds Report;12/31/11 Federal Reserve Flow of Funds Report; 4/8/11 Fidelity Investments Email (Graham); 4/7/11 TD Ameritrade Email (Schweiss); 12/31/10Federal Reserve Flow of Funds Report; 6/30/10 Federal Reserve Flow of Funds Report; 3/15/10 Barron’s (Federal Reserve); Tiburon Research & Analysis
Household Net Worth is Back!
Housing prices are strong
Energy prices remains . . .
Source: hYp://www.indexmundi.com/commodi_es/?commodity=crude-‐oil-‐west-‐texas-‐intermediate&months=120
Rates are at 50+ year low
Rates are low
Refinancing is . . .
17
67%67%
68%68% 68%
69%69%
69%68% 68%
67%67%
67%
66%65%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US Home Ownership Rate
US HOME OWNERSHIP HAS BEEN DECLINING SINCE 2005
Source: 9/24/13 Financial Times; Tiburon Research & Analysis
United States Labor ForceParticipation Rate
THE US LABOR FORCE PARTICIPATION IS 63.2%, DOWN FROM 66.2% IN 2004
Source: TIBURON CEO Summit October 8th, 2013: 10/4/13 Wall Street Journal; 10/4/13 Business Week; 9/28/13 The Economist;9/20/13 San Francisco Chronicle; 9/19/13 Wall Street Journal; Tiburon Research & Analysis
66.2%66.0% 66.0% 66.0% 66.0%
65.0%
64.0% 64.0%63.6%
63.2%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
<$500,000Investable Assets
~ 113 millionhouseholds
Consumer Household Financial Assets
Source: 4/2/13 TD Ameritrade Email (Schweiss); 4/2/13 Envestnet Email (Asnes) (Cerulli Associates); Tiburon Research & Analysis
$500,000-$5 MillionInvestable Assets
~ 8.7 millionhouseholds
>$5 MillionInvestable Assets
Source: Tiburon Strategic Advisors
$32.2 trillion total
$8.7 trillion total
$7.25 million avg.
$16.1 trillion total
$1.85 million avg.
$7.4 trillion total
$65 thousand avg.
The world is a peaceful place
Source: BBC Online: hYp://www.bbc.co.uk/news/world-‐middle-‐east-‐23323874
POLITICAL POLARIZATION
1
0.5
0
-‐0.5
-‐1
1 0.5 -‐1-‐0.50 1 0.5 -‐1-‐0.50
1
0.5
0
-‐0.5
-‐1
© BCA Research 2013
DEMOCRATS
REPUBLICANS
109TH CONGRESS(2005-‐2007)
93rd CONGRESS(1973-‐1975)
LIBERAL CONSERVATIVE LIBERAL CONSERVATIVE
Source: Presentacon by Bob Doll at Tiburon CEO Summit April 2013 – balance of a]ribucon from Bob DollSource: Pool, Rosenthal, ET AL. (2011). Used with permission.Data used for polarizacon analysis uses nominate (nominal three-‐step escmacon), a mulcdimensional scaling method developed to analyze preference and choice. The two dimensions used in this methodaccount for the great bulk of all roll call vocng in the U.S. congress over its history. The primary dimenison (x-‐axis) is the liberal-‐conservacve spectrum on the basic role of the government in the economy. Thesecond depends on the era, picking up regional differences on a number of social issues such as the civil rights movement. The data illustrates that the second dimenison has declined in importance, with socialissues now largely considered within the liberal-‐conservacve spectrum of the primary dimension. The primary dimension now accounts for approximately 93% of all roll call vocng choices and the two parces arehighly polarized on this spectrum.
DEMOCRATS
REPUBLICANS
THEORY #1
“If we could manage 4 or 5 percentinflation over that stretch, so that prices were 25percent higher
…the real value of mortgage debt would besubstantially lower than it looks on currentprospect
…and the economy would therefore besubstantially farther along the road to sustainedrecovery.”
Krugman, End This Depression Now!Quoted in New York Times Review of Books
Image: http://en.wikipedia.org/wiki/File:Paul_Krugman-press_conference_Dec_07th,_2008-8.jpg
A MORE FORMAL STATEMENT
Purpose and impact of QE
Lower real interest ratesRaise inflation expectationsDepreciate the US dollarBoost asset (stock) prices
Various St. Louis Federal Reserve speeches. Including:http://research.stlouisfed.org/econ/bullard/pdf/Bowling_Green_Feb_24_2011_Final.pdf
WHAT DOES THEORY #1 HAVE CORRECT?
GDP = C + I + G + NE
Reducing government spending will reduceGDP in the short run
Stopping QE will allow rates to rise
Lower interest rates encourage borrowing
Inflation can allow one to pay debt back easierin the future with money that is worth less
THEORY #2
Continuing fiscal deficits are unsustainable – atsome point a government will default or receivea price shock
An overly expansive monetary policy will resultin hyper-inflation or create a currency war
The US and European economies are levitatedby government participation and interferenceand can not stand on their own
Rent seeking zombies dominate the non-consumer economy
WHAT DOES THEORY #2 HAVE CORRECT?
GDP = C + I + G + NE
Multiple states today and through history cannot and could not sustain fiscal imprudence
Rent seeking drains productivity from economy
Early impact of stimulus reduction hint showsmarket’s understanding that economy can notstand
Low rates impact capital and investmentallocations
WHAT DON’T WE KNOW?
How much debt is sustainable
Will stimulation create (hyper) - inflation
Are there dire consequences of inflation as astrategy to promote growth and reduce debtburden
How will the USD fare in a world of competitivedevaluations
• USA government ~ 90%
– Interest rates remain low
– Foreigners still loan us money
HOW MUCH DEBT ISSUSTAINABLE?
• USA total ~ 300%
• Japan total > 500%
• Britain total ~ 500%
• Germany / Canada total ~ 300%
HOW MUCH DEBT ISSUSTAINABLE?
• German government ~ 79%
• Spanish government ~ 79%
• Cyprus government ~ 84%
HOW MUCH DEBT ISSUSTAINABLE?
Our view
MARKET WISDOM
LIQUIDITY ONLY MATTERS WHEN IT’S THE ONLY THING THAT MATTERS
FRANK’S COROLLARY
BORROWING IS CHEAP UNTIL IT ISN’T
HOW MUCH DEBT ISSUSTAINABLE?
Zone ~ GDP Rate
•USA ~$15 trillion 1.0% ~$150 billion
•Euro Zone ~$15 trillion 0.0% ~$ 00 billion
•China ~$10 trillion 5.0% ~$500 billion
FOR GLOBAL GROWTH:ONLY THREE THINGSMATTER
Financial Times, June 4, 2013 7:29 pm, Southeastern shik: The new leaders of global economic growthBy Chris Giles and Kate Allen,h]p://www.k.com/intl/cms/s/0/b0bd38b0-‐ccfc-‐11e2-‐9efe-‐00144feab7de.html#axzz2VM1JvIPw
Financial Times, June 4, 2013 7:29 pm, Southeastern shik: The new leaders of global economic growthBy Chris Giles and Kate Allen,h]p://www.k.com/intl/cms/s/0/b0bd38b0-‐ccfc-‐11e2-‐9efe-‐00144feab7de.html#axzz2VM1JvIPw
Financial Times, June 4, 2013 7:29 pm, Southeastern shik: The new leaders of global economic growthBy Chris Giles and Kate Allen,h]p://www.k.com/intl/cms/s/0/b0bd38b0-‐ccfc-‐11e2-‐9efe-‐00144feab7de.html#axzz2VM1JvIPw
Financial Times, June 4, 2013 7:29 pm, Southeastern shik: The new leaders of global economic growthBy Chris Giles and Kate Allen,h]p://www.k.com/intl/cms/s/0/b0bd38b0-‐ccfc-‐11e2-‐9efe-‐00144feab7de.html#axzz2VM1JvIPw
GLOBAL GROWTH TRENDS
Presenta_on © EverBank 2013Presenta_on © EverBank 2013
Source: McKinsey Global Insctute37
©2013 EVERBANK, ALL RIGHTS RESERVED
CROSS BORDER FLOWS
Presenta_on © EverBank 2013Presenta_on © EverBank 2013
Source: McKinsey Global Insctute38
©2013 EVERBANK, ALL RIGHTS RESERVED
CROSS BORDER FLOWS
Presenta_on © EverBank 2013Presenta_on © EverBank 2013
Source: McKinsey Global Insctute39
©2013 EVERBANK, ALL RIGHTS RESERVED
CROSS BORDER FLOWS
Presenta_on © EverBank 2013Presenta_on © EverBank 2013
Source: McKinsey Global Insctute40
©2013 EVERBANK, ALL RIGHTS RESERVED
Earnings are up
Earnings are up
Source: Richard Bernstein Advisors LLC., Bloomberg, MSCI, Standard & Poor's, Russell, HFRI, BofA Merrill Lynch, Dalbar, FHFA ,FRB, FTSE.Total Returns in USD. Average Investor is represented by Dalbar's average asset allocacon investor return, which uclizes the net ofaggregate mutual fund sales, redempcons and exchanges each month as a measure of investor behavior. Tiburon CEO Conferencepresentacon April 2013.
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HOW ARE WE FEELING HERE AT HOME?
US consumer risk
US financial status
CONSUMER HOUSEHOLDS HAVE $34.8 TRILLION INVESTABLE ASSETS, $53.5 TRILLIONFINANCIAL ASSETS, $88.4 TRILLION TOTAL ASSETS, AND $74.8 TRILLION OF NET WORTH…
Consumer HouseholdsNet Worth($ Trillions)
$88.4
$34.8
$74.8
$13.5
$18.7
$23.8$8.4
InvestableAssets
Re_rementPlan Assets
PersonalAssets
Small BusinessValua_ons
TotalHouseholdAssets
TotalHouseholdLiabili_es
TotalHouseholdNet Worth
Source: Tiburon CEO Summit October 8th, 2013: 10/8/13 Financial Engines PresentaPon (Maggoincalda); 9/27/13 Wall Street Journal;6/30/13 Federal Reserve Flow of Funds Report; 3/31/13 Federal Reserve Flow of Funds Report; 12/31/12 Federal Reserve Flow ofFunds Report; 9/30/12 Federal Reserve Flow of Funds Report; 6/30/12 Federal Reserve Flow of Funds Report; 3/31/12 FederalReserve Flow of Funds Report; Tiburon Research & Analysis
Consumer HouseholdsFinancial Assets
($ Trillions)
CONSUMER HOUSEHOLDS HAVE $53.5 TRILLION FINANCIAL ASSETS, UP OVER 35%SINCE 2008
Source: Tiburon CEO Summit October 8th, 2013: 9/27/13 Wall Street Journal; 6/30/13 Federal Reserve Flow of Funds Report; 3/31/13Federal Reserve Flow of Funds Report; 12/31/12 Federal Reserve Flow of Funds Report; 10/14/12 Joyce Financial ManagementEmail (Joyce); 6/30/12 Federal Reserve Flow of Funds Report; 12/31/11 Federal Reserve Flow of Funds Report; 12/31/09 FederalReserve Flow of Funds Report; 3/12/09 Federal Reserve Flow of Funds Data; Tiburon Research & Analysis
$39.0$43.0
$46.8 $47.5$51.1
$53.0 $53.5
2008 2009 2010 2011 2012 1Q/13 2Q/13
JOBS
Source: Forbes
47©2013 EVERBANK
JOBS
Source: New York Timesh]p://www.nycmes.com/2012/08/19/business/new-‐wave-‐of-‐adept-‐robots-‐is-‐changing-‐global-‐industry.html
48©2013 EVERBANK
MONEY SUPPLY
"I personally don't think it's going to solve theproblem…“
"I don't think our tools are strong enough tooffset a major fiscal shock…“
Fed Chairman Ben Bernanke September 2012
NOMINAL PRICE LEVELS
Asset Jan-‐2000 March-‐2013 Change
DOW JONES(1) 11,497 14,090 1.2
M(2) (1) $ 4.6 T $ 10.4 T 2.3
REGULAR GAS(2) $ 1.29 $ 3.67 2.8
GDP(1) $ 9.6 T $ 15.9 T 1.6
FED TTL ASSETS(1) $ 0.6 T $ 3.1 T 5.2
10 YR T-NOTE(1) 6.59% 2.04% -4.55%
GOLD(1) $ 289 $1,576 5.4
AUSTRALIAN $(1) 0.6585 1.0203 1.5
YEN(1) 101.45 93.59 1.1
IMPACT OF POLICY
1) Bloomberg 2) Department of Energy
OUR VIEW OF THE US
Is game changing transition starting?
Uncertainty rules
Uneven housing recovery
Uneven employment prospects
More city / county / state bankruptcy
Possible social unrest
GDP growth entirely dependent on governmentaction / inaction
OUR VIEW OF THE US
Most likely - 60%
Annual GDP 1.0%
Ten Year Treasury near 3.00% at year end
Equities continue to drift upward
USD slow weakening if no shock
Gold range trading
OUR VIEW OF THE US
Possible sharp slowing - 30%
Annual GDP 0.0% for first half
Ten Year Treasury 3.50% at year end
Equities decline
USD falls 5-10%
Gold rises significantly
CURRENCY ASRELATIVE VALUE
Source: RideLust.com
CURRENCY AS RELATIVE VALUE
Source: Federal Reserve
2012 CURRENCIES TO WATCH
Returns for currency only. Since 2002 for period 1/1/2002 => 1/31/2013
2012 CURRENCIES TO WATCH
Country 2012 Since 2002
Norway +7.58% +64.23%
Canada +2.70% +59.68%
Australia +1.57% +104.53%
Singapore +6.16% +49.28%
China +1.13% +33.09%
Brazil -8.78% +16.02%
2013+ CURRENCIES TO WATCH
Country
Norway
Canada
Australia
Singapore
China
2013+ CURRENCIES TO WATCH
Returns for currency only. Since 2002 for period 1/1/2002 => 1/31/2013
58
A PFENNIG FOR YOUR THOUGHTS®
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