Demographics, Debt, Dollar and Deflation Is the next Great Reset coming? CMTA Advanced Investment Workshop January 28, 20145 Presented by Douglas C. Robinson RCM Robinson Capital Management LLC SEC Registered Investment Advisory Firm Advisory services offered through RCM Robinson Capital Management LLC Securities offered through Foothill Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC RCM Robinson Capital Management, and Foothill Securities are unaffiliated.
Immigration Adjusted Birth Index 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 Data Source: U.S. Census Bureau, National Center for Health Statistics, Dent Research
Consumer Life Cycle of Spending Trade-up Home; Potato Chips/Groceries Mortgage Interest 41 42 Spending 20 Workforce Entry 20 25 26 28 31 33 Childbirth- Infant Furniture Marriage First Car Childcare/ Babysitting First/Starter Home 25 30 35 45 Age Data Source: Bureau of Labor Statistics, Dent Research
Consumer Life Cycle of Spending Peak Spending 46 Furniture; Tires 48 Motorcycles; Vacation Homes 51 Autos College Tuition 53 54 Home Improvement 43 45 48 51 54 Age Data Source: Bureau of Labor Statistics, Dent Research
Consumer Spending Over 50 China/ Dinnerware Spending 55 58 Life Insurance; Doctor s Fees 60 Hospitals; Travel 65 Vacation and Retirement Homes Trusts, Cruise Ships, Prescription Drugs Garden/ Lawn Care 55 60 65 70 75 80 85 Age Data Source: Bureau of Labor Statistics, Dent Research 70 Medicare Co-Pay 74 77 81 84 Nursing Homes
Men's Shirts 100 80 Expenditures 60 40 20 0 20 30 40 50 60 70 80 Age Source: U.S. Bureau of Labor Statistics Consumer Expenditure, H.S. Dent
Spending on Drugs Expenditures 180 160 140 120 100 80 60 40 20 0 20 25 30 35 40 45 50 55 60 65 70 75 80 Age Source: U.S. Bureau of Labor Statistics Consumer Expenditure, H.S. Dent
Funeral, burial or cremation 300 250 Expenditures 200 150 100 50 0 20 30 40 50 60 70 80 Age of Head of Household Source: U.S. Bureau of Labor Statistics Consumer Expenditure, H.S. Dent
Healthcare Spending Wave 5000000 Births on a 80-Year Lag Immigration-Adjusted Births 4500000 4000000 3500000 3000000 2500000 2004 2014 2024 2034 2044 2054 Source: U.S. Bureau of Labor Statistics Consumer Expenditure, H.S. Dent
Total U.S. Debt Outstanding 1977- Q3 2014 Trillions $60 $50 $40 $30 $20 $10 $- Federal Govt Trust Funds Federal Govt State and Local Govt Financial Sector Foreign Corporate Consumer Credit Home Mortgage 1977 1982 1987 1992 1997 2002 2007 2012 Data Source: Federal Reserve Flow of Funds Report, Treasury Direct, 2014 Government $20.9Trn Financial $14.0Trn Foreign $2.9Trn Corporate $12.6Trn Consumer $12.6Trn Total: $62.2 Trn
Real Gross Domestic Product Data Source: Advisor Perspectives Doug Short, 2015
Total U.S. Debt Growth vs. GDP 1983-2014 $70 $60 GDP Total U.S. Debt Debt Growth= 839% Trillions $50 $40 $30 $20 $10 $- Debt Growth=2.68x GDP Growth GDP Growth= 313% Current Debt is 3.54x GDP 1983 1984 1986 1987 1989 1990 1992 1993 1995 1996 1998 1999 2001 2002 2004 2005 2007 2008 2010 2011 2013 2014 Data Source: Federal Reserve, 2015
China Debt Growth vs. GDP Q1 2000 - Q3 2014 $30 GDP China Total Debt Debt Growth= 2,635% Trillions $25 $20 $15 Debt Growth=3.43x GDP Growth Current Debt is 2.64x GDP GDP Growth= 768% $10 $5 $0 2000 2002 2005 2008 2011 2013 Data Source: Bloomberg, 2015
Iron Ore 2000-2014 $250 Iron Ore, $/ Metric Ton $200 $150 $100 $50 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Data Source: Bloomberg, 2015, Quarterly Prices Prior to 2008
$5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 Copper 2009-2015 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Data Source: Bloomberg, 2015
U.S. Total Debt as Percent of GDP by Sector, 1916-2014 390% During the last great economic reset, non-government debt fell dramatically to 50% of GDP. Today all debt exceeds 360% of GDP. GSE Financial 150% 50% Corporate Consumer Total Government Data Source: Deleveraging? What Deleveraging? Geneva Reports on the World Economy 16, Luigi Buttiglione, Philip R. Lane, Lucrezia Reichlin and Vincent Reinhart, St. Louis Fed, 2014
The Velocity of Money GDP divided by M2 Money Supply 2.15 2.05 1.95 1.85 1.75 1.65 1.55 1.45 2000 2002 2004 2006 2008 2010 2012 2014 Source: Bloomberg, 2015
Record NYSE Margin Debt Source: NYSE, Bloomberg, Advisor Perspectives Doug Short, 2015
The Buffett Indicator Market Value of Equities Outstanding to GDP over 2 standard deviations from mean Source: Federal Reserve Bank of St. Louis, Advisor Perspectives Doug Short, 2015
U.S. Dollar Index (DXY) 1978-2016 180 160 140-58% 120 +62% 100 80 60 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Data Source: Bloomberg, 2015 Future assumptions are the opinions of RCM Robinson Capital Management LLC and are not guaranteed.
US Labor Force Participation Rate 68 Total 66 64 62 60 58 56 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Source: Bureau of Labor Statistics, Bloomberg, 2015 Percent
US Labor Force Participation Rate Age 20 to 24 80 78 76 74 72 70 68 66 64 62 60 58 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Source: Bureau of Labor Statistics, Bloomberg, 2015 Percent
US Labor Force Participation Rate Age 65 & Over 30 28 26 24 22 20 18 16 14 12 10 8 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Source: Bureau of Labor Statistics, Bloomberg, 2015 Percent
Who s Working? Source: Advisor Perspectives Doug Short, 2015
The Great Shift in Labor Force Participation Change in Participation Rate From Peak Employment in November 2007 to Current 15% 10% 5% 60-64 65-69 70-74 75+ 0% -5% -10% 20-24 25-29 30-34 35-39 50-54 45-49 40-44 55-59 -15% -20% 16-19 -25% Percent Change by Age Group Data Source: Bureau of Labor Statistics, Dent Research, 2014
Median (Real) Household Income Declines from Peak Year Age Bracket of Head of Household Peak Year Peak Income 2013 Income Percent Change 15 to 24 2000 $37,669 $34,311-8.9% 25 to 34 2000 $60,079 $52,702-12.3% 35 to 44 2000 $72,724 $64,973-10.7% 45 to 54 1999 $79,550 $67,141-15.6% 55 to 64 2007 $64,472 $57,538-10.8% 65 and older 2013 $35,611 $35,611 0.0% Source: Bureau of Labor Statistics, Bloomberg, Chained in 2013 dollars Advisor Perspectives Doug Short, 2015
The Top 10% Income Share 1917-2012 55% 50% 45% 40% 35% 30% 1917 1921 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 Source: http://topincomes.g-mond.parisschoolofeconomics.eu/
US Household Debt Service Ratio Lowest in 35 years 13.5 13 12.5 12 11.5 11 10.5 10 9.5 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Percent Source: Federal Reserve, Bloomberg, 2015
Los Angeles, Fresno and Sacramento Counties 640 600 560 520 480 440 400 360 320 280 240 200 160 120 80 Median Home Prices LA +212% Sacramento +205% Fresno+199% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 4.6%, 5.3%, and 6.5% Average Annual Return 2013 2014 Source: California Association of Realtors, Bloomberg, 2015
100000 10000 1000 S&P Index Wide Channel 1916-2045 Dow 157,000 65,000 24,500 100 10 1 Source: Bloomberg, 2014, Projection channels assume continuation of 4.52 slope rate. Regression rate is 4.95. Future return assumptions are the opinions of RCM Robinson Capital Management LLC and are not guaranteed.
5 Year Treasury Channel 1980-Present 16 14 12 10 8 6 4 2 0 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Yield Source: Bloomberg, 2015
5 Year Treasury Technicals Ready for 1.00 or lower? Major Resistance Target Area Source: Bloomberg, 2015
Will the Markets follow 5,200,000 Demographics? Births Lagged for Peak Spending 4,700,000 16,000 4,200,000 3,700,000 3,200,000 2,700,000 Dow Adjusted for Inflation Immigrationadjusted Births Lagged for Peak Spending 2,200,000 1956 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 13,000 10,000 7,000 4,000 1,000 Data Source: Dent Research, U.S. Census Bureau, Bloomberg, 2015
Questions? These views represent the opinions of RCM Robinson Capital Management LLC and are not intended as investment advice or to predict or depict performance of any investment. These views are subject to change based on subsequent developments. Advisory services offered through RCM Robinson Capital Management LLC, SEC Registered Investment Advisor. Securities offered through Foothill Securities, Inc., Member FINRA/SIPC. Douglas C. Robinson, Registered Representative. Available at iuniverse, Amazon, Barnes & Noble, and Borders.com
Douglas C. Robinson Independent Registered Investment Advisor Doug Robinson is the principal of RCM Robinson Capital Management, an SEC registered investment advisory and management firm specializing in institutional fixed income management and OPEB trust asset allocation strategies. Doug is a frequent guest speaker and long-time member of the California Municipal Treasurers Association. With over thirty years in the investment industry, he is the editor of robinsoncapital.com, an educational web site providing investors with information on institutional fixed income, GASB 45 mitigation strategies and portfolio management. Doug is also a Branch Manager and Registered Principal with Foothill Securities. Doug received his Bachelors of Science degree in Economics from University of Missouri-Columbia and is co-author of Boom or Bust - Understanding and Profiting from a Changing Consumer Economy. Doug and his wife Mary of twenty-five years have one daughter, Christine, who is attending a music conservatory in Paris, France while working toward her degrees in piano theory and performance. www.robinsoncapital.com/fi_main.htm RCM Robinson Capital Management LLC Foothill Securities, Inc. 3030 Bridgeway, Suite 212 Sausalito, CA 94965 doug@robinsoncapital.com Phone: 415-771-9421 Fax: 415-762-1980 The information contained herein is based on sources and data believed reliable, but is not guaranteed. Advisory services offered through RCM Robinson Capital Management LLC, SEC Registered Investment Advisor. Securities offered through Foothill Securities, Inc., Member FINRA/SIPC. Douglas C. Robinson, Registered Representative.