Playing Ball in the Later Innings
Dr. Mark G. Dotzour
College Station, Texas
[email protected]
www.markdotzour.com
Since 1945,
there have been 11 economic cycles
• The average recession has been 11.1 months
• The average expansion has been 58.4
months
Source: National Bureau of Economic Research
Since 1945
there have been 11 economic cycles
• The average recession has been 11.1 months
• The average expansion has been 58.4 months.
• In September, the current expansion is 87 months.
Source: National Bureau of Economic Research
Average Annual GDP Growth Rate
During Previous Expansions
2009-16
2001-07
1991-01
1982-90
1980-81
1975-80
1970-73
1961-69
1958-60
1954-57
1949-53
0
2
4
6
Source: Commerce Department WSJ 7/31/2016
8
Nationally Still Bullish,
but the Signals are Mixed
U.S. Leading Index
of Economic Indicators
Lending Index for the U.S.
4
3
Percent
2
1
0
-1
-2
-3
1985
1990
1995
2000
2005
Source: Federal Reserve Bank of St. Louis - FRED
2010
2015
Monthly Increase in Nonfarm Workers
All Employees: Total Nonfarm Payrolls
600
500
Change, Thousands of Persons
400
300
200
100
0
-100
-200
-300
2010
2011
2012
2013
2014
Source: Federal Reserve Bank of St. Louis - FRED
2015
2016
Average Hourly Earnings
of All Employees
Average Hourly Earnings of All Employees: Total Private
4.0
Percent Change from Year Ago
3.5
3.0
2.5
2.0
1.5
2007
2008
2009
2010
2011
2012
2013
2014
Source: Federal Reserve Bank of St. Louis/US Bureau of Labor Statistics
2015
2016
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Consumer Confidence Index
150
140
130
120
110
100
90
80
70
60
50
40
30
Source: The Conference Board
Small Business Outlook
“Planning To Hire People In The Next Three
Months”
Planning to Hire People in the Next Three Months
25
20
10
5
0
-5
Source: National Federation of Independent Business
Jan-16
Apr-15
Jul-14
Oct-13
Jan-13
Apr-12
Jul-11
Oct-10
Jan-10
Apr-09
Jul-08
Oct-07
Jan-07
Apr-06
Jul-05
Oct-04
Jan-04
Apr-03
Jul-02
Oct-01
Jan-01
Apr-00
Jul-99
-10
Oct-98
Net % of Respondents
15
Corporate Profits
(With Inventory Valuation Adjustment &
Capital Consumption Adjustment)
Corporate Profits After Tax with Inventory Valuation
Adjustment (IVA) and Capital Consumption Adjustment
1,800
1,600
1,200
1,000
800
600
400
Jul-09
Oct-99
200
Jan-90
Billions of Dollars
1,400
Source: U.S.Dept. of Commerce: Bureau of Economic Analysis
Job Openings in America
Total Job Openings
5,500,000
Construction
188,000
Manufacturing
353,000
Trade, Transportation, Utilities
944,000
Professional & Business Services
1,021,000
Education & Health Care
1,080,000
Leisure & Hospitality
760,000
Government
542,000
Decline from last month
Source: Bureau of Labor Statistics
BLS release on July 12, 2016
Light Weight Vehicle Sales:
Autos & Light Trucks
Light Weight Vehicle Sales: Autos & Light Trucks
25
15
10
5
Sep-15
Source: U.S. Dept. of Commerce: Bureau of Economic Analysis/FRED
Jan-10
May-04
Sep-98
Jan-93
May-87
Sep-81
0
Jan-76
Millions of Units
20
Corporate Hiring Plans:
Next 6 Months
Q2-16 Q1-16 Q4-15 Q3-15
More Jobs
29% 29%
35%
33%
Less Jobs
35% 38%
34%
32%
Source: Business Roundtable
U.S. Freight Movement Slowing
All Freight Modes, All Types of Products
Source: Cass Information Systems
Job Growth in the 21rst Century
2000
TX
CA
FL
AZ
VA
NC
GA
WA
CO
2015
9,929,387 12,494,350
16,033,179 17,798,614
7,565,981 9,153,264
2,410,581 2,959,518
3,522,865 4,051,908
3,986,151 4,495,473
4,071,557 4,549,951
2,901,492 3,343,992
2,294,408 2,718,698
Change
2,564,963
1,765,435
1,587,283
549,937
529,043
509,322
478,394
442,500
424,290
Texas Economy More Diversified
Percentage Change in Employment
Total Texas Non-Farm Employment
12,500
10,500
9,500
8,500
7,500
Source: Federal Reserve Bank of Dallas
Jan-16
Jan-14
Jan-12
Jan-10
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
6,500
Jan-90
Thousands of Workers
11,500
Texas Index of Leading Indicators
Austin Business-Cycle Index
Dallas Business-Cycle Index
El Paso Business-Cycle Index
Fort Worth Business-Cycle Index
Houston Business-Cycle Index
San Antonio Business-Cycle Index
Mythical Chimera
• Something that exists only in the imagination
and is not possible in reality.
Mark Dotzour’s Chimera:
Winning the Masters with an 15 Handicap
Japan’s Chimera:
Quantitative Easing in a “New Dimension”
On Apr 4, 2013 BOJ will buy
50 trillion in JGB and 10 trillion
in Nikkei ETFs
Plan to double the monetary
base from 135 trillion yen
to 270 in two years.
Government Pension
Investment Fund will cut
holdings of government bonds
from 60% to 35% to increase
demand for stocks.
“This is taking monetary easing
into an entirely new dimension.”
H. Kuroda, Governor BOJ
Japan is Imploding (Now)
• The BOJ is now a top-ten stock holder in about
90% of the stocks on the Nikkei 225.
• The Nikkei is down 9% so far in 2016.
• Buying 3 trillion yen of stock every month.
• Goldman estimates by 2017, the BOJ will be the
largest stockholder in 40 of the Nikkei companies.
• BOJ currently owns about 55% of the ETF market.
• Won’t sell ETF holdings until 2026.
Chinese Chimera:
The Shanghai Stock Exchange
Plunged 30% in three
weeks in June 2015.
• You can buy, but you
can’t sell.
• Please borrow money
to buy stocks.
• Half of all shares are
suspended from
trading.
• Declared war on
“foreign puppet
masters” and vicious
short sellers.
European Chimera:
I can help countries
that are heavily in
debt by loaning
them even more
money.
“The Governing Council is willing and
able to act by using all the instruments
available within its mandate if
warranted in order to maintain an
appropriate degree of monetary
accommodation. “
Draghi, November 3, 2015
Low Interest Rates
Around the World
German 2-year
German 5-year
-.67
-.58
German 10-year
Swedish 10-year
Dutch 10-year
Swiss 10-year
-.09%
.18%
.08%
-.66%
Japanese 10-year -.29%
US 10-year
1.51%
Inflation Rate Remains Low
Consumer Price Index for All Urban Consumers: All Items
30
25
Percent Chg. From Year Ago
20
15
10
5
0
-5
-10
-15
-20
Jan-20
Jul-34
Jan-49
Jul-63
Jan-78
Source: U.S. Dept. of Labor: Bureau of Labor Statistics
Jul-92
Jan-07
University of Michigan Inflation
Expectation
University of Michigan Inflation Expectation©
12
10
Percent
8
6
4
2
0
Jan-78
May-83
Sep-88
Jan-94
May-99
Source: Thomson Reuters/University of Michigan
Sep-04
Jan-10
May-15
The End of the Credit Super Cycle?
Maybe Not
20.0
18.0
30 year mortgage rate
10 year treasury rate
16.0
14.0
10.0
8.0
6.0
4.0
2.0
Source: Board of Governors of the Federal Reserve System/FRED
Apr-09
Dec-02
Aug-96
Apr-90
Dec-83
Aug-77
0.0
Apr-71
Percent
12.0
The Energy War Escalates
Energy Wars
$65 is a “Fair Price”
OPEC president Mohammed bin Saleh al-Sada said a
minimum price of $65 a barrel is “badly needed at
the moment.” He cautioned that the security of
future supplies is as risk because of the price slump
that has squeezed oil producers since 2014.
Source: Associated Press 5/24/16
Energy Wars
Saudi Arabia Insolvency
Saudi Arabia has announced it will raise domestic petrol prices by
more than 50 per cent for some products.
Prices will increase for electricity, water, diesel and kerosene, after
the country posted a deficit of $135 billion in 2015.
The 2015 deficit is the highest in the history of Saudi Arabia, which
relies on oil for 90 per cent of public revenues. Contemplating
selling a portion of ARAMCO to raise money.
The IMF has warned Riyadh that failure to cut spending and
implement reforms will eat up the country's fiscal reserves in just
five years
Middle East Budget Strains
The Saudi Binladin Group is the largest
construction company in the Persian
Gulf region. They have an estimated
$30 billion in debt
They haven’t paid subcontractors and
suppliers for months. The Saudi
government is delaying payment for
completed projects.
WSJ 3/26/16
Energy Wars
Thousands of Indian workers in Saudi Araia
haven’t been paid for months, prompting India’s
government to hand out food to hungry
workers.
Assisting 10,000 Indian workers who New Delhi
says are without a job, pay and food. Some
workers for Saudi Oger report they haven’t been
paid in seven months.
Source: WSJ August 1, 2016
Middle East Budget Strains
Qatar’s ruler on Tuesday warned citizens that the small Gulf
state’s government can no longer “provide for everything” and
called on individuals to take personal initiatives to build a
strong nation, amid a year of tumbling oil prices likely to dent
national budgets in the region.
Source: Al Arabiya 11/3/15
February 3, 2016
Energy Wars
US Oil Fields Profitable Below $40
Continental Resources says that its 2016 capital
expenditures budget will be cash flow neutral at
an average WTI price of $37.00.
Their 2016 budget will be $920 million, compared
to $2.5 billion last year.
Energy Wars
U.S. Private Equity Waiting in the Wings
Possibly $100 billion in private equity capital
waiting to buy distressed energy assets.