Muhlenkamp & Company Webcast August 30, 2018 Ron Muhlenkamp, Portfolio Manager Jeff Muhlenkamp, Portfolio Manager Tony Muhlenkamp, President Muhlenkamp & Company, Inc. Intelligent Investment Management 2018 All rights reserved.
Welcome All participants are in a listen-only mode. We will conduct a question-and-response session after the presentation. This webcast is being recorded. Muhlenkamp & Company, Inc. Intelligent Investment Management
Our Checklist: What we observe as the Current State: 1. Consumer Spending Good Good 2. Business Investment Good Good Future Outlook: 3. Credit Default/Bank Health Good except auto loans Good except auto loans 4. Velocity of Money Ticking up Unsure 5. Inflation Ticking up Unsure, but risk of higher inflation is rising 6. Federal Reserve and Treasury Raising short-term rates and reducing balance sheet 7. Trade Tariffs and counter-tariffs: China, NAFTA, EU Raising short-term rates and reducing balance sheet Unclear 8. Regulation Slow improvement Slow improvement 9. Europe & Japan Turkey experiencing real problems, Italian gov t yields moving up Turkey problems don t spread, Italy problems may worsen as ECB ends bond buying 10. China Potentially disruptive Potentially disruptive Source: Muhlenkamp & Company, Inc.
U.S. Real GDP (Annual YoY %) 1998-2019 6 5 4 Estimated 3 Percent 2 1 0-1 -2-3 -4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year Source: Bloomberg; Estimated data OECD
U.S. Unemployment Rate Seasonally Adjusted 1947-July 2018 18 16 14 U-6 Unemployed + Part Time + Margin % of (Labor Force + Margin) U-3 US Unemployment Rate Total in Labor Force 12 Percent 10 8 6 4 2 0 1947 1951 1955 1958 1962 1966 1970 1973 1977 1981 1984 1988 1992 1995 1999 2003 2007 2010 2014 2018 Source: Bureau of Labor Statistics Year
Consumer 165 145 U.S. Consumer Confidence 1995-July 2018 (Monthly) Recessions 125 105 85 65 45 25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Index Value Shaded regions = Economic Recessions Source: Conference Board; Data Normalized 1985=100 Year
Consumer 550,000 Monthly Retail Sales Retail Trade and Food Services: U.S. Total Seasonally Adjusted Sales 2007-July 2018 500,000 450,000 $ Million 400,000 350,000 300,000 250,000 Total Sales Total Sales Ex. Auto 200,000 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Jan-2018 Date Source: Bloomberg
Credit
Business 110 NFIB Small Business Optimism Index 2005-July2018 (Monthly) 105 100 Index Value 95 90 85 80 75 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Shaded regions = Economic Recessions Year Source: National Federation of Independent Business NFIB; Data Normalized 1986=100
Inflation 6 U.S. CPI Urban Consumers YoY % 1997-July2018 Non Seasonally Adjusted 5 4 3 Percent 2 1 0-1 -2 Fed Target -3 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Date Source: Bloomberg
Velocity Velocity of Money - M2 Money Supply 1959-June2018 (Quarterly) 2.3 2.2 2.1 Velocity of Money = Ratio of monetary aggregate M2 to Nominal GDP Turnover Rate 2 1.9 1.8 1.7 1.6 1.5 1.4 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Year Source: Bloomberg
7 6 Interest Rates 2007-August 21, 2018 30 Year Mortgage Rate (National Average) 30 Year U.S. Treasury Bond 10 Year U.S. Treasury Note U.S. Federal Funds Effective Rate 5 Percent 4 3 Inflation 2 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Year Source: Bloomberg
Fed Assets on the Federal Reserve's Balance Sheet 2007-August 22, 2018 5.0 4.5 4.0 QE2 begins QE1 begins QE3 begins Dollars (Trillion) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2020 Target Direct Holdings Emergency facilities 1/3/2007 10/3/2007 7/3/2008 4/3/2009 1/3/2010 10/3/2010 7/3/2011 4/3/2012 1/3/2013 10/3/2013 7/3/2014 4/3/2015 1/3/2016 10/3/2016 7/3/2017 4/3/2018 1/3/2019 10/3/2019 7/3/2020 Securities held outright Date Source: Board of Governors of The Federal Reserve System
400 350 300 Turkish Lira Brazilian Real South African Rand Chinese Renminbi Foreign Exchange (Per U.S. Dollar) Normalized at 100 on 1/3/2013 2013-August 22, 2018 US begins raising rates US begins QT Steel/Al tariffs 250 200 150 100 50 1/2013 4/2013 7/2013 11/2013 2/2014 5/2014 8/2014 12/2014 3/2015 6/2015 10/2015 1/2016 4/2016 7/2016 11/2016 2/2017 5/2017 9/2017 12/2017 3/2018 6/2018 Date Source: Bloomberg
Tariff Timeline US Action Jan 2018 announced tariffs on washing machines and solar panels March 2018 announced tariffs on steel and aluminum effective June March 2018 US announces tariffs on $50bn of Chinese imports effective July Aug US threatens tariffs on auto imports US threatens tariffs on additional $200bn Chinese imports International Reaction EU retaliatory tariffs on 180 products Mexican retaliatory tariffs Chinese retaliatory tariffs on 128 products Canada announces matching tariffs South Korea, Argentina, Australia and Brazil receive exemptions. China announces $50bn in tariffs effective July Aug. Juncker and Trump meet, agree to work towards a zero tariff deal. China promises non-specific retaliation. As of 8/ 20 US and China have scheduled a series of discussions on topic. US currently appears to be in substantive talks with Mexico and EU at least the rhetoric has cooled off.
10 Year Sovereign Interest Rate 2005-August 23, 2018 7 6 5 Italy Germany Percent 4 3 2 1 0-1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Date Source: Bloomberg
1,600 1,400 1,200 * Estimated -------- S&P 500 Index Sales and Earnings per Share* 2006-2019 (Yearly) 200 180 160 Dollars per Share 1,000 800 600 140 120 100 Dollars per Share 400 200 Sales per Share Earnings per Share (Left Axis) (Right )Axis 80 60 0 40 2006 2007 2008 2009 2010 2011 NOTE: The S&P 500 Index is a widely recognized, unmanaged index of common stock prices. You cannot invest directly in an index. Past performance of EPS growth is not an indicator of future earnings growth. * Source: Bloomberg: 2017-2019 forward estimates 2012 Year 2013 2014 2015 2016 2017 2018 2019
Price/Earnings Ratio P/E Ratio 35 30 25 20 15 10 5 0 * Estimated - - - - S&P 500 Index 1978-2019 (Yearly) Price/Sales Ratio Price/Earnings Ratio (Right Axis) (Left Axis) 2.50 2.00 1.50 1.00 0.50 0.00 Price/Sales Ratio Price/Sales Ratio 1978 1981 1984 1987 1990 1993 1996 1999 Year NOTE: The S&P 500 Index is a widely recognized, unmanaged index of common stock prices. You cannot invest directly in an index. Past performance of EPS growth is not an indicator of future earnings growth. 2002 2005 2008 2011 2014 2017 * Source: Bloomberg (2017-2019 forward estimates)
Our Checklist: What we observe as the Current State: 1. Consumer Spending Good Good 2. Business Investment Good Good Future Outlook: 3. Credit Default/Bank Health Good except auto loans Good except auto loans 4. Velocity of Money Ticking up Unsure 5. Inflation Ticking up Unsure, but risk of higher inflation is rising 6. Federal Reserve and Treasury Raising short-term rates and reducing balance sheet 7. Trade Tariffs and counter-tariffs: China, NAFTA, EU Raising short-term rates and reducing balance sheet Unclear 8. Regulation Slow improvement Slow improvement 9. Europe & Japan Turkey experiencing real problems, Italian gov t yields moving up Turkey problems don t spread, Italy problems may worsen as ECB ends bond buying 10. China Potentially disruptive Potentially disruptive Source: Muhlenkamp & Company, Inc.
Questions and Responses Click on the orange arrow in the upper right-hand corner of your screen to open the control panel where you may submit questions. For some devices, look for the question mark at the top or bottom of your screen. We will contact you if we did not have time to respond to your question during the event. Muhlenkamp & Company, Inc. Intelligent Investment Management The comments made during this webcast are opinions and are not intended to be investment advice or a forecast of future events.
Muhlenkamp & Company, Inc. Intelligent Investment Management