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.
• As of June, the current expansion is 84 months.
Source: National Bureau of Economic Research
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
All Employees: Total Nonfarm Payrolls
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
Job Openings in America
Looking for Workers
Total Job Openings
5,757,000
Construction
210,000
Manufacturing
356,000
Trade, Transportation, Utilities
946,000
Professional & Business Services
1,225,000
Education & Health Care
1,037,000
Leisure & Hospitality
780,000
Government
506,000
Source: Bureau of Labor Statistics
BLS release on May 10, 2016
Average Hourly Earnings of All
Employees: Total Private
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
Jan-16
Apr-15
Jul-14
Oct-13
Source: National Federation of Independent Business
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 Bond Spread Widening
Moody's Seasoned Baa Corporate yield Relative to Yield on 10-Year Treasury Constant
Maturity
7
6
Percent
5
4
3
2
1
0
1965
1970
1975
1980
1985
1990
1995
2000
Source: Federal Reserve Bank of St. Louis - FRED
2005
2010
2015
Car and Truck Sales
Appear to Have Peaked
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 Profits Declining
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
Corporate Hiring Plans
for Next 6 Months
Are Deteriorating
Q1-16 Q4-15 Q3-15 Q2-15
More Jobs 29%
35%
33%
34%
Less Jobs
34%
32%
26%
38%
Source: Business Roundtable
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 Index of Leading Indicators
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
Austin Business-Cycle Index
Dallas Business-Cycle Index
Fort Worth Business-Cycle Index
El Paso Business-Cycle Index
Houston Business-Cycle Index
San Antonio Business-Cycle Index
5
4
3
Months
Inventory of Unsold Homes
Austin
8
7
`
6
2
1
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan. 1997 to present
Source: Real Estate Center
4
3
2
Months
Inventory of Unsold Homes
Dallas-Fort Worth-Arlington
8
7
6
5
1
0
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan. 1997 to Present
Source: Real Estate Center
Inventory of Unsold Homes
El Paso
Months
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Jan-16
Jan-15
Jan-14
Jan-13
Source: Real Estate Center
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan. 2003 to present
Months
Inventory of Unsold Homes
Houston
9
8
7
6
5
4
3
2
1
0
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan. 1997 to Present
Source: Real Estate Center
10
9
8
7
6
5
4
3
2
1
0
Months
Inventory of Unsold Homes
San Antonio, TX
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Source: Real Estate Center
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan. 1997 to present
HOUSE PRICE APPRECIATION
PRICE CHANGE FROM YEAR EARLIER
San Antonio
12
14
Houston
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
San Antonio
Houston (%)
Dallas/Plano/Irving
14
16
12
14
10
12
Austin
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
DFW (%)
Austin (%)
Source: FHFA
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
-.57
-.44
German 10-year
Swedish 10-year
Dutch 10-year
Swiss 10-year
.09%
.61%
.31%
-.43%
Japanese 10-year -.15%
US 10-year
1.75%
Margin Debt
Debit Balances at Broker/Dealers
Debit Balances in Margin Accounts at Broker/Dealers
600,000
500,000
300,000
Mar 2000 Dow 11,234
Mar 2001 Dow 9,106
Mar 2002 Dow 7,415
200,000
100,000
Source: New York Stock Exchange
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
0
Jan-98
Millions
400,000
Jul 2007 Dow 14,021
Jul 2008 Dow 10,827
Jul 2009 Dow 8,087
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 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
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. Production Rebound Ahead?
Pioneer Natural Resources plans to increase
production in the Midland Basin by 42% to 17 rigs
later in 2016.
- Oil and Gas 360 6/16/16
Devon Energy planning to increase drilling
expenditures by $200 million in the second half of
2016.
- Oil and Gas 360 6/16/16
Rig counts have increased in recent weeks
Energy Wars
U.S. Private Equity Waiting in the Wings
Possibly $100 billion in private equity capital
waiting to buy distressed energy assets.