*For Institutional Use Only* Demographic and Economic Trends: Growth, Debt and Promises 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 FINA/SIPC RCM Robinson Capital Management, and Foothill Securities are unaffiliated. Composition of Federal Spending 1966 1986 212 Defense Net interest Social Security All other spending Medicare & Medicaid Source: Office of Management and Budget and the Department of the Treasury. Note: Numbers may not add to 1 percent due to rounding. 415-771-9421 1
What Spending Problem? 4% Historic and Projected Spending 35% Historic and Projected Revenue Percent of GDP 3% 25% 2% 15% Deficit 1% 26 211 216 221 226 231 236 241 Data Source: budget.house.gov U.S. Statutory Debt Limit 194-Present 16 14 12 Trillions 1 8 6 4 2 194 1948 1956 1964 1972 198 1988 1996 24 212 Source: Bloomberg, GDP US Nominal Dollars 415-771-9421 2
Trillions 16 14 12 1 8 6 4 2 U.S. Statutory Debt Limit and GDP 1946 1954 1946-Present 1962 197 1978 1986 GDP 1994 22 21 Source: Bloomberg, GDP US Nominal Dollars Japan Debt 198-Present 12 1 Trillions Yen 8 6 4 2 198 1988 1996 24 212 Source: Bloomberg 415-771-9421 3
Trillions Yen 12 1 8 6 4 2 Japan Debt and GDP 198-Present GDP Debt 236% of GDP 198 1988 1996 24 212 Source: Bloomberg, Japan GDP Chained Real GDP Mexico Debt and GDP 1996-Present Billions Peso 1 9 8 7 6 5 4 3 2 1 GDP 1996 1998 2 22 24 26 28 21 212 Source: Bloomberg, Mexico GDP Chained Real GDP 415-771-9421 4
China Debt and GDP 1992-Present Billions Renminbi 51 41 31 21 11 GDP 1 1992 1995 1998 21 24 27 21 213 Source: Bloomberg, China GDP Current Price Foreign Countries Represent Almost 7% of World GDP and Growing GDP constant U.S.$ percentage of world GDP Italy 5% UK 6% Germany 8% 211 235E France 6% Japan 1% Other Dev 2% Russia 3% Brazil 3% India 3% Canada 3% China 1% U.S. 32% Other EM 9% Source: World Bank, OECD, Goldman Sachs Global ECS Research, 12/31/11. 415-771-9421 5
Key Consumer Expenditures/Investments Spending Apartments Shopping Centers Offices Colleges 18 21 2 25.5 Starter Homes 33 Trade-Up Homes Peak in Spending 47 44 Consumer Life Cycle Age Vacation Homes Resorts 52 Retirement Homes 24 28 32 36 4 44 48 52 56 6 64 68 Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Annual Surveys and Research Memorandum-H.S. Dent 65 The Immigration Adjusted Birth Index 5,5, 5,, ration Adjusted Births Immigr 4,5, 4,, 3,5, 3,, 2,5, 199 1919 1929 1939 1949 1959 1969 1979 1989 1999 29 415-771-9421 6
The Spending Wave Births Lagged for Peak in Family Spending 5,2, 17, 4,7, 15, 13, 4,2, 11, 3,7, 3,2, 2,7, Dow Adjusted for Inflation Immigrationadjusted Births Lagged for Peak Spending 9, 7, 5, 3, 2,2, 1, 1956 1966 1976 1986 1996 26 216 226 236 246 256 Source: H.S. Dent Foundation Motorcycles vs. Age 5 4 Expenditures 3 2 1 2 25 3 35 4 45 5 55 6 Age of Head-of-Household Source: U.S. Bureau of Labor Statistics Consumer Expenditure Annual Surveys; New Motorcycles (UCC 4522) 65 7 25 Douglas C. Robinson 415-771-9421 7
Expenditure 4 35 3 25 2 15 1 5 RV's vs. Age 33 37 41 45 49 53 57 61 65 69 73 77 Age Source: U.S. Bureau of Labor Statistics Consumer Expenditure New Cars vs. Age 14 12 1 Expenditures 8 6 4 2 2 25 3 35 4 45 5 55 6 65 7 75 8 Source: U.S. Bureau of Labor Statistics Consumer Expenditure Annual Surveys, H. S. Dent 415-771-9421 8
Auto Expenses 3 25 Vehicle Registration Expenditures 2 15 1 5 Oil Changes Motor Tune-Up 2 25 3 35 4 45 5 55 6 65 7 75 8 Source: U.S. Bureau of Labor Statistics Consumer Expenditure Annual Surveys, H. S. Dent Men's Shirts 1 8 Expenditures 6 4 2 2 3 4 5 6 7 8 Age Source: U.S. Bureau of Labor Statistics Consumer Expenditure 415-771-9421 9
Spending on Drugs Expenditures 18 16 14 12 1 8 6 4 2 2 25 3 35 4 45 5 55 6 65 7 75 8 Age Source: Consumer Expenditure Survey College Enrollment 18-Year Lag on Immigration-Adjusted Births 4,7, Immigr ration-adjusted Births 4,5, 4,3, 4,1, 3,9, 3,7, 199 1995 2 25 21 215 22 Source: H.S. Dent Foundation 415-771-9421 1
68 US Labor Force Participation Rate Total Percent 66 64 62 6 58 56 1948 1951 1954 1957 196 1963 1966 1969 1972 1975 1978 1981 1984 1987 199 1993 1996 1999 22 25 28 211 Source: Bureau of Labor Statistics, Bloomberg, 213 Percent 8 78 76 74 72 7 68 66 64 62 6 58 US Labor Force Participation Rate Age 2 to 24 1949 1952 1955 1958 1961 1964 1967 197 1973 1976 1979 1982 1985 1988 1991 1994 1997 2 23 26 29 212 Source: Bureau of Labor Statistics, Bloomberg, 213 415-771-9421 11
Percent 3 28 26 24 22 2 18 16 14 12 1 8 US Labor Force Participation Rate Age 65 & Over 1949 1952 1955 1958 1961 1964 1967 197 1973 1976 1979 1982 1985 1988 1991 1994 1997 2 23 26 29 212 Source: Bureau of Labor Statistics, Bloomberg, 213 US Labor Force Weekly Hours 4 38 Hours 36 34 32 1964 1967 197 1973 1976 1979 1982 1985 1988 1991 1994 1997 2 23 26 29 212 Source: Bureau of Labor Statistics, Bloomberg, 213 415-771-9421 12
Unemployment Rate Adjusted for Workforce Decline, 24-213 12% 11% BLS Unemployment Rate Adjusted Unemployment 1.9% 1% 9% 8% 7% 3.2% Gap 7.7% 6% 5% 4% 24 25 26 27 28 29 21 211 212 213 Data Source: St. Louis Federal Reserve, HS Dent, 213 Household Debt Service 14 13 Percent 12 11 1 Jan-8 Jan-82 Jan-84 Jan-86 Jan-88 Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Jan-12 Source: Federal Reserve US Financial Obligations Household Debt Service Ratio, Bloomberg, 213 415-771-9421 13
8 Existing Home Sales 2-213 7 Millions 6 5 4 3 1999 21 23 25 27 29 211 213 Source: National Assoc. of Realtors, Bloomberg, 213 24 Housing Starts 2-213 2 Thousands 16 12 8 4 1998 2 22 24 26 28 21 212 Source: Bureau of Labor Statistics, Bloomberg, 213 415-771-9421 14
Shadow Inventory, Housing 2-212 6 5 Shadow Inventory, Bloomberg 4 Millions 3 2 1 2 21 22 23 24 25 26 27 28 29 21 211 212 213 Data Source: Bloomberg, 213 U.S. Home Ownership Rates vs. Loan to Value Ratio, 1965-212 Percen ntage Home Ownership U.S. Home Ownership Rates (left) Loan to Value Ratio (right) 7% 6 69% 55 68% 5 67% 45 66% 4 65% 35 64% 3 63% 1965 197 1975 198 1985 199 1995 2 25 21 25 Source: Bloomberg, 213 415-771-9421 15
US Net Housing Demand Peak Buyers (42) minus Di-ers (78) Real Home Prices 42-78 year old 12 11 1 3,5, 2,5, 9 8 7 6 5 1988 1991 1994 Data Source: Dallas Federal Reserve, United Nations Population Division, H.S. Dent, 213 1997 2 23 26 29 212 215 218 221 224 227 23 233 236 239 1,5, 5, -5, -1,5, The Velocity of Money GDP divided by M2 Money Supply 2.1 2. 1.9 1.8 1.7 1.6 1.5 1999 21 23 25 27 29 211 213 Source: Bloomberg, St. Louis Fed, US BEA, HS Dent 415-771-9421 16
Bank Deposits vs. Loans 28-212 $9,5 $9, U.S. Loans U.S. Deposits Billions $8,5 $8, $7,5 $7, $6,5 $ 2.2 Trillion Gap $6, 28 29 21 211 212 213 Data Source: St. Louis Federal Reserve, 213 Global and Euro PMI 27-213 Eurozone U.S. China 65 6 55 5 45 4 35 3 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Data Source: Bloomberg, 213 415-771-9421 17
Composition of PIIGS Net Foreign Liabilities (Portugal, Italy, Ireland, Greece and Spain) Sources: International Monetary Fund, national central banks, European Financial Stability Facility, Eurostat. Note: Other inflows are computed as a difference between total and official flows (including TARGET balances) and are thought to mostly include private capital flows. Total flows are stocks from net international investment position. SF Federal Reserve Bank. U.S. vs. Spain, House Price Index, 1995-212 35 U.S. Spain 3 ndex 1= 1995 I 25 2 15 1 1995 1997 1999 21 23 25 27 29 211 213 Source: Investment Focus: The Pain in Spain, Carmel Asset Management, HS Dent, Bloomberg, S&P/Case-Shiller Composite-2 Home Price Index, Spain House Price Index 415-771-9421 18
55% 5% 45% 4% 35% 3% 25% 2% 15% Spain, Under 25 Unemployment Rate 27 28 29 21 211 212 Data Source: Bloomberg, 212 Spain, Bad Loan Ratio 12% Bad Loan Ratio 1% 8% 6% 4% 2% % 1962 1966 197 1975 1979 1983 1988 1992 1996 21 25 29 Data Source: Bloomberg, as of 12/31/12 16 billion euros of non-performing loans 415-771-9421 19
Bank Deposits in Spain are Rolling Over 1,1, Total Retail and Corporate Deposits 1,, llions of Euros Mi 9, 8, 7, 6, 5, 22 23 24 25 26 27 28 29 21 211 212 Data Source: Bloomberg, 213 5 Year Treasury Channel 198-Present Yield 17 16 14 15 13 12 11 1 9 8 7 6 5 4 3 2 1 Jan-8 Jan-82 Jan-84 Jan-86 Jan-88 Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Jan-12 Source: Bloomberg 415-771-9421 2
5 Year Treasury End of the 6-8bps range? Source: Bloomberg, 213 16 S&P 5 1994-Present Triple Top? 14 12 Yield 1 8 6 4 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Source: Bloomberg, 213 415-771-9421 21
The Next Boom 48-Year Lag on Immigration-Adjusted Births 4,7, Immigr ration-adjusted Births 4,5, 4,3, 4,1, 3,9, 3,7, 219 224 229 234 239 244 249 Source: H.S. Dent 1 S&P Index Wide Channel 1916-245 1 1 16942 2323 1 1 1 1916 1927 1938 1949 1959 197 1981 1992 23 214 225 236 Source: Bloomberg, 213, Projection assumes continuation of 4.52 slope rate. Regression rate is 4.91 415-771-9421 22
Douglas C. Robinson Independent Registered Investment Advisor is the principle of RCM Robinson Capital Management, an SEC registered investment advisory and management firm specializing in institutional fixed income securities 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. www.robinsoncapital.com/fi_main.htm 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. RCM Robinson Capital Management LLC 3997 Washington Street San Francisco, CA 94118 Toll Free: 8-334-814 Phone: 415-771-9421 Fax: 415-762-198