2 0 0 9 h e a l t h c a r e f o r e c a s t c o n f e r e n c e, u n i v e r s i t y o f c a l i f o...
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Jan 07 Apr 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 090
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3-month dollar-based Libor
3-month overnight indexed swap rate (OIS)
When fear rules …
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Jim Glassman, [email protected], 212-270-0778
Reality check … it’s bad, but don’t get crazyMisery Index = GDP gap + inflation (percentage points)
Sources: US Department of Commerce; NBER Macroeconomic Database
-10
-5
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1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009-10
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Three storms …
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Jim Glassman, [email protected], 212-270-0778
First things first, find the common thread …Real GDP in selected regions (percent change from four quarters earlier)
Source: JPMorgan Chase & Co.
-8-7-6-5-4-3-2-10123456789
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-8-7-6-5-4-3-2-1012345678910
US (blue-gray)EU-11 (black)Japan (red)
Emerging economies in Asia, Eastern Europe and Latin America (orange)
Global (blue-shaded region)
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(1) Petroleum convulsion …
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Jim Glassman, [email protected], 212-270-0778
The future’s energy hungry … the future, not the nowGlobal oil demand (millions of barrels daily) Petroleum, WTI (dollars per barrel)
Source: American Petroleum Institute
30343842465054586266707478828690
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 20070
20
40
60
80
100
120
140Global petroleum demand (left)Petroleum price (right)
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Jim Glassman, [email protected], 212-270-0778
Energy … once a headwind, now a tailwind … for manyContribution to real GDP growth (contribution to percent change from four quarters earlier)
Sources: US Department of Commerce; JPMorgan Chase &Co.
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Oil price assumption
2008 Q4 = $50 per barrel2009 Q4 = $55 per barrel2010 Q4 = $60 per barrel
2008 Q4
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(2) The housing debacle
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Ground Zero … inflated valuations are historyNominal income per household and house prices (ratio to 1970 Q1 level)
Sources: Standard & Poor’s; US Department of Commerce
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70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 140
1
2
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7
8
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10Existing house prices (Case-Shiller national index)FHFA (previously Ofheo) purchase only indexGross nominal income per household
2001 Q2
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Jim Glassman, [email protected], 212-270-0778
Here too, a headwind is slowly dying downContribution of new home building to real GDP growth (percentage points over the past four quarters)
Source: US Department of Commerce
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
ActualForecast
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(3) Fear … easy to inflame, hard to tame
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All the things that did this …Market value of all publicly traded stocks (Wilshire 5000 index)
Source: Dow Jones
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2,000
4,000
6,000
8,000
10,000
12,000
14,000
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18,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 090
2,000
4,000
6,000
8,000
10,000
12,000
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16,000
18,000
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Jim Glassman, [email protected], 212-270-0778
… turned the lights out last fallUS real GDP (percent change from four quarters earlier)
Source: NBER recession bars; US Department of Commerce; various academic sources
2.2
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3.73.1
2.7 2.4
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3.5
-0.2
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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Quarter-to-quarter realGDP growth
Annualgrowth ofreal GDP(Q4 to Q4)
Change inreal GDPfrom fourquartersearlier
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In defense of policy activism …
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Three principles …
1. A stitch in time saves nine
2. The cost of an underemployed economy—the “opportunity cost”—mounts rapidly …
currently running $1 trillion annually and counting
3. Lost global opportunities amplify the costs
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Three historical examples …
1. The 1930s
2. The Japanese response in the 1990s
3. The US response in the 2000s
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The absolute budget numbers … yes, horrificUS fiscal budget (balance over the most recent 12 months, billions of dollars)
Sources: NBER; US Department of Commerce; Congressional Budget Office
-1,400
-1,200
-1,000
-800
-600
-400
-200
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1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009-1,400
-1,200
-1,000
-800
-600
-400
-200
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Relative budget numbers … big but less scaryUS fiscal budget (balance over the most recent 12 months, % of GDP)
Sources: NBER; Congressional Budget Office; JPMorgan Chase & Co.
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
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0.05
1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
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Bold is justified, when you can say “inflation, R.I.P.” …
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Articles of surrender conclude a long Fed battle …10-year inflation expectations (percent)
Sources: Bloomberg; Federal Reserve Board
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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010-2
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The FOMC's forecast for core PCE
chain price inflation
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… and price competition will be stiff for a whileUnemployment rate (percent of the labor force)
Sources: NBER recession bars; US Department of Labor
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Investors get it10-year inflation expectations (percent)
Sources: Bloomberg; Federal Reserve Board
0.00
0.25
0.50
0.75
1.00
1.25
1.50
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2.00
2.25
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2.75
3.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.00
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2.25
2.50
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3.00
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… but fear begets opportunity
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The future exists … when we stumble, we always rebound …US GDP gap (actual less potential real GDP as a percent of potential real GDP)
Source: NBER; US Department of Commerce
-30
-25
-20
-15
-10
-5
0
5
1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009-30
-25
-20
-15
-10
-5
0
5
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Jim Glassman, [email protected], 212-270-0778
… it’s why level heads say be brave when others fearValue (ratio of Wilshire 5000 to after-tax GDP profits) Wilshire 5000, profits (ratio to 1952 Q1 level)
Sources: US Department of Commerce; Dow Jones
6
8
10
12
14
16
18
20
22
24
26
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100
10
20
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50
60
70
80
90
100
Price-earnings ratio (left scale)
Wilshire 5000 (right scale)After-tax GDP profits (right scale)
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