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#BRICShittingbricks 26 Sept 2013 War Room
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HiddenLevers War Room Open Q + A Macro Coaching Archived webinars CE Credit Idea Generation Presentation deck Product Updates Scenario Updates
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I.Market Update - Debt Cliff - Negative Externalities II.BRICS – Summer Hijinks III.BRICS Winners + Losers IV.Scenarios War Room
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HiddenLevers MARKET UPDATE
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Debt Cliff – The Skinny September 23 rd – 27 th House Recess September 30 th Gov’t Shutdown October 17 th Debt Ceiling Hit Shutdown looms: What is Congress working on? House in recess, many members absent Sample Bill 1: extending an exemption on fire-retardant materials in ships Sample Bill 2: require review of new rules on sleep disorders in truck drivers
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Debt Cliff – Scenario Review Good Shutdown Avoided Bad Shutdown Occurs Ugly US Default If a shutdown and default are avoided, the market rally may continue as a key risk is eliminated. A government shut- down (no default) may undermine confidence, but is a minor threat compared to default. Even a short default on US obligations would shock the market, likely leading to a market correction.
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End of QE Remember the good old days Bob? Debt Cliff – Negative Externalities uncertainty means business and households stop spending debt ceiling is creating high level of uncertainty even good outcome can have negative economic effect Obamacare Fed – high bar for haircut Teen idols – low bar for haircut Online marketplaces and health insurance subsidies unhindered ACA can be implemented amid govt shutdown decently well Medicaid expansion funds are mandatory, not annual budget source: Fed, Atlantic, WSJAtlanticWSJsource: Politico, Washington PostPoliticoWashington Post no QE taper until fiscal debates resolved GOP against shutdown, but now debt ceiling breach as stick
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debt ceiling 2013 = no QE taper govt shutdown won’t kill ACA debt ceiling breach 2013= -25% + Market Update – Recap debt downgrade 2011 = -16% gotcha!
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BRICS – SUMMER HIJINKS HiddenLevers
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BRICS: Overview Top 10 emerging markets according to Global Intelligence Alliance survey BRICS =Brazil Russia India China South Africa
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BRICS: Global Growth Leader BRICS account for over 50% of global growth – and growth has been slowing Total BRICS GDP over $14T, may pass USA over next few years
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BRICS: Cool in the 2000s, Now Kind of Lame 2000s - cool 2013 - lame source: Forbes IndiaForbes India
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BRICS: Currencies Crashing (except China) Indian Rupee, Brazilian Real, and South African Rand all down 15% YTD - USD Index is flat for the year China’s tightly controlled Yuan up 3% YTD and appears to be pegged by China since late August
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BRICS: Impact of QE Taper QE Taper fears help drive BRICS currencies down, followed by QE non-taper bounce US-based India investments show dramatic impact of currency swings – Sensex up 5% over 1yr, US funds at -10%
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HiddenLevers BRICS WINNERS + LOSERS
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20% of household income going to paying debt Losers - Brazil working class boycotting world cup central bank considering opening foreign reserves GDP growth slowed sharply since 2011 credit markets pricing in a downgrade BRL at 2008 financial crisis lows source: Reuters, Financial TimesReutersFinancial Times
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7% GDP growth the new normal, says S+P Losers – China (now rebounding) Past 24 months, growth artificial due to stimulus tighter labor market + wage growth = slower GDP growth Manufacturing exports down 1/3 of provincial capitals debt is bigger than GDP pros think economic gains are temporary source: Economic Times, NPR; WSJEconomic TimesNPRWSJ
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Rising wages take away outsourcing advantages Losers - India Growth rate past 10 years was 7.7, now 4.4% Rates hiked only in Sept 2013 CPI nearing 11% Consumption weak, even in rural areas INR hit all time low end of August 2013 source: Economist, NY TimesEconomistNY Times Manufacturing less than 15% of economy
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Precious metals in disfavor – SA produces 1/3 of world’s gold Losers – South Africa 6 percent inflation, double central bank target Rand at 4 year lows Unemployment at 25.6% Strikes at gold + platinum mines hurting GDP consumer confidence at 10 year low source: Bloomberg, International Business TimesBloombergInternational Business Times
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Losers – Russia 2013 growth forecasts revised downward twice GDP growth now less than world average Prior to 2008 commodities drop, 7% growth World Bank estimates less than 2% growth Weak global demand for oil + gas source: Marketwatch, Moscow NewsMarketwatchMoscow News
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Winners – Stable Currency Countries source: Marketwatch, Moscow NewsMarketwatchMoscow News e.g. SINGAPORE + KOREA Stable currencies More developed More stability More infrastructure Less corruption source: HiddenLevers
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Winners – Frontier EM Reversion to mean Lower wage alternatives Making technology leaps Low correlation to other markets source: HiddenLevers
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Using Screener to find Winners/Losers Losers have strong inverse correlation to USD = crushed if EM currencies fall Winners if BRICS rebound: correlate well with natural resources, and good S&P up market correlation source: HiddenLevers
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Double Loser – BRICS Fixed Income Strong EM bond fund outflows starting May 2013 (as with US bond funds) Double whammy – rising interest rates AND falling currencies hit US investors in EM bonds source: Business Insider
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BRICS OUTLOOK: SCENARIOS HiddenLevers
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BRICS Outlook: Return of growth Oil up on economics not politics uptick in industrial metals BRICS internal consumption up infrastructure improvements Money flows out of USD
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BRICS Outlook: US Decoupling (BRICS exodus) US dollar keeps rising with US equities consumption of natural gas over oil US auto sales continue to rise Illegal immigration ticking up manufacturing coming back to USA and/or North America US GDP back above 3% BRICS GDP keeps on slippin’ slippin’
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BRICS Outlook: Falling BRICS sink US Strong USD kills commodities BRICS 50% of global growth US growth flat lines (no recession) US exports will decline EUR rises, may be a safe haven
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BRICS Outlook: Risk Parity Good Return of Growth Good + Bad US Decoupling (BRICS exodus) Bad Falling BRICS Sink US
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Asset Allocation: multiple categories on funds Disclosure – auto-load in settings Scenario Library – modification dates Integrations – Albridge, Tamarac Coming soon: 1. Support for SMA + managed products 2. Tamarac single sign on Product Update
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