march 19, 2014

March 19, 2014

Presented byJohn B. Jung Jr.Senior Managing Director, BB&T Capital Markets

CCIM – Cary, NC

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Important Disclosures

BB&T Capital Markets is a division of BB&T Securities, LLC. Member FINRA/SIPC. BB&T Securities, LLC, is a wholly-owned, nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended are not a deposit, not

FDIC insured, not bank guaranteed, not insured by any federal government agency and may lose value.

The information contained herein, while not guaranteed by BB&T Capital Markets, has been obtained from sources which we believe to be reliable and accurate. This material is not to be considered an offer

or solicitation regarding the sale of any security.

Discussions of past performance do not imply a guarantee of future results.

Comments regarding tax implications are informational only. BB&T Securities and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.

The opinions expressed are solely those of John B. Jung, Jr. and do not represent the opinions of BB&T Capital Markets or BB&T Securities. This material is presented for general information only and is not intended to provide specific advice or

recommendations for any individual.

Investment products offered through BB&T Investment Services, Inc. are:NOT A DEPOSIT NOT FDIC INSURED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

MAY GO DOWN IN VALUE NOT GUARANTEED BY THE BANK

Member FINRA, Member SIPC.

“If you can’t explain it simply, you don’t understand it well enough.”

- Albert Einstein

3

4

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1860 1880 1900 1920 1940 1960 1980 2000

US

Real

GD

P pe

r Cap

ita (2

009

Dol

lars

)

Spanish- AmericanWar WWI

Goal Number One: Long-Term Growth in the Standard of Living

Long-Term Real Growth in U.S. GDP Per Capita (1860-2012)

Source: Measuring Worth

Roaring 20sGreatDepression WWII

1906 19161936

1929Stock Crash

KoreanWar Vietnam War

1944

1968

PersianGulfWar

War in AfghanistanIraq WarFinancial Crisis

1973Arab Oil Embargo

1982

1987Stock Crash

InternetStock

Bubble

2000

2006

2007

2009

2013

FiscalCrisis

U.S. Competitive Advantages

• Government Stability – same system since 1789

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• Government Stability• Geography – no wars on U.S soil since 1865

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• Government Stability• Geography• Arable Land – we can feed ourselves and much of the world

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• Government Stability• Geography• Arable Land• Raw Materials – iron ore and lumber and limestone and …..

8


• Government Stability• Geography• Arable Land• Raw Materials• Energy Costs – shale play a game changer

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• Government Stability• Geography• Arable Land• Raw Materials• Energy Costs• Transportation Infrastructure – highways, airports, ports, rivers,

railroads

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• Government Stability• Geography• Arable Land• Raw Materials• Energy Costs• Transportation Infrastructure• Education – everybody wants to go to college in the U.S.

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• Government Stability• Geography• Arable Land• Raw Materials• Energy Costs• Transportation Infrastructure• Education• Work Ethic / Productivity – Puritan or not, we have it (and it is

quantifiable)

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13

U. S. Global Competitiveness• United States Labor Productivity is up almost 50% in the last twenty years – driven by

technology and process improvement

• The United States Worker is the most productive worker in the world

U.S. Labor Productivity

Source: U.S. Department of Labor; Bureau of Labor Statistics

$30

$35

$40

$45

$50

$55

$60

$65

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

1990 1995 2000 2005 2010

Real

GD

P pe

r Hou

r Wor

ked

GD

P Pe

r Cap

ita

Real GDP per Capita Real GDP per Hour Worked

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Competing in the Global Marketplace

• North American “Global Powerhouse”

– Energized by NAFTA– Trade / Immigration / Education– 25% of global GDP

• China (third largest global trading partner)

– Globally competitive– Massive infrastructure needs / Misplaced stimulus?

• Latin America (second largest global trading partner)

– Abundant arable land and raw materials– Held back by government instability?

• European Union (largest global trading partner)

– Historical center of commerce and trade– Sovereign financial difficulties / uneven work ethic

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Key Measures of the US Economy

S&P 500 and S&P Corporate Earnings (EPS)

• Earnings growth in the last decade has outpaced growth in the S&P 500 index; resulting in a lower price to earnings ratio.

• Much of the growth in earnings is tied to the growth in the global economy.

• Stock market performance is a big driver of consumer confidence.

Source: FactSet, data as of December 31, 2013

0

0.2

0.4

0.6

0.8

1

1.2

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

S&P 500 S&P 500 EPS

20

40

60

80

100

120

140

160

180

200

16

$7,000

$7,500

$8,000

$8,500

$9,000

$9,500

$10,000

$10,500

$11,000

$11,500

$12,000

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 2012 2013

Cons

umer

Spe

ndin

g ($

bill

ions

)

Inde

x (1

985=

100)

Consumer Confidence Consumer Spending ($ in billions)

• Consumer confidence has trended up since the all-time low in February 2009 and consumer spending continues to recover.


Source: Bureau of Economic Analysis

16

U.S. Consumer Confidence/Spending

17

80

85

90

95

100

105

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Inde

x Val

ue (2

007

= 10

0)

• Although the U.S. has lost nearly 8 million factory jobs (40% of total) since manufacturing employment peaked in mid-1979, the U.S. remains the No. 1 manufacturing country in the world, doubling output since 1979 and currently out-producing No. 2 China by 25%

• Since 2010 the United States has added 500,000+ manufacturing jobs


Source: US Federal Reserve - Industrial Production and Capacity Utilization Report

Industrial Production

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Industrial Production – measure of physical output in factories, mines and utilities

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Old (Pre-Great Recession) Economy (1946 – 2007)

Old (Pre-Great Recession) Economy (1946 – 2007)

Strong Growth Low Unemployment – Low Inflation Aggressive Consumer Spending

Pre- and Post- Great Recession Economies

New (Post-Great Recession) Economy (2008 - ?)

New (Post-Great Recession) Economy (2008 - ?)

Limited Growth High Unemployment – Deflation Slower Consumer Spending

2. Declining Risk Premium

3. Aggressive Investing

4. Increased Leverage

1. Rising Asset Prices

2. Increasing Risk Premium

3. Need for Liquidity

4. Reduced Leverage

1. Stabilizing Asset Prices

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15.4% 14.7%

6.9% 6.5%

2.1% 1.1%

(0.4%)(3.7%)

(17.1%)(20.0%)

(15.0%)

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%

The effects of the Great Recession

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Percentage Change in Economic Indicators Following Recession

Average, 3 Years After The Start of Recession (1) Current Cycle (6 years from the end of 2007)

What is normal? Is this the new normal?

27.0% 26.8% 25.0% 23.8%

21.7%

16.9%

13.0% 11.6% 11.4%

7.0%

0%

5%

10%

15%

20%

25%

30%

2009 - 2013 were the five largest deficits in modern history, totaling $6.1 trillion (8% of GDP on average); the above draws into question the value of stimulus spending.

(1) Covers eight recession cycles going back to 1950 (does not include the truncated 1980 recession)Source: Haver Analytics, Gluskin Sheff, U.S. Census, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, U.S. Treasury

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12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Outlays

Source: US Treasury, Congressional Budget Office

“New Economy” Characteristics – Large Public Deficits and Debt

Total U.S. Government Outlays as a % of GDP

OutlaysAverage Outlays,

1950-2013

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12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Revenues Outlays



Total U.S. Government Outlays and Revenues as a % of GDP


1950-2013

Revenues Average Revenues,1950-2013

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12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Revenues Outlays

• Since the 1950’s we have borrowed on average 2.3% of GDP

• In the first four years of the current administration we averaged 8.7% of GDP (about 6% in 2013)

• This is the only period post WWII when we have broken out of the range on both outlays and revenues



Average net borrowing as a % of GDP

1950 – 2013 Average Net Borrowing as a % of GDP: 2.3%


1950-2013

Revenues Average Revenues,1950-2013

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The Great Recession

The Great DepressionThe Great Depression

Source: U.S. Census, U.S. Federal Reserve Flow of Funds. Shading represents National Bureau of Economic Research Recessionary Periods

“New Economy” Characteristics – Consumer De-Leveraging

U.S. Household Debt as a Percent of GDP

0%

20%

40%

60%

80%

100%

1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Household debt / GDP

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“New Economy” Characteristics - Employment

• Workforce participation is at a 35 year low – 62.8%. 2014 workforce much different in makeup than in 1978

• 7 to 9 million jobs below anticipated employment – reflected in consumer confidence and governmental revenues

Source: U.S. Department of Labor; Bureau of Labor Statistics; FactSet, Associated Press

Total U.S. Employment – Since 1948

40

60

80

100

120

140

160

1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Tota

l US

Empl

oym

ent

(Mill

ions

)

Total U.S. Employment – Since 2000

125

130

135

140

145

150

2000 2002 2004 2006 2008 2010 2012

Tota

l US

Empl

oym

ent

(Mill

ions

)

25

0

50

100

150

200

250

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Case

-Sch

iller

Inde

x

$30,000

$40,000

$50,000

$60,000

$70,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Med

ian

Hous

ehol

d In

com

e

Source: U.S. Census Bureau, Bureau of Labor Statistics, National Association of Realtors, Standard & Poor’s, Financial Times, NY Times

• At the bottom of the housing market we saw $6 trillion worth of housing value destruction.

• Housing prices are recovering but remain nationwide about 20% below the 2006 peak

• Median Household income flat for 25 years – symptom or the cure?

Case-Shiller Home Price IndexReal U.S. Median Household Income

“New Economy” Characteristics – Median Household Income and Housing Prices

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“In any moment of decision, the best thing you can do is the right thing…The worst thing you can do is nothing.”

- Theodore Roosevelt

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• Housing - FHA / Fannie Mae / Freddie Mac

• Healthcare – Medicare / Medicaid / ACA

• Education – Student Loans

• Regulatory climate – Dodd-Frank / Sarbanes-Oxley / EPA / OSHA / NLRB

• Interest rates – ZIRP

• The companies and organizations and governments who reacted rationally to the “New Normal” are already the winners - if the financial system is sound and the capitalist system is allowed to work (compete!) we will continue to recover and grow.

How much of a role should the Federal Government play in the economy?

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“The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of

worry and depression.”

- Sir John Harvey-Jones

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1. Tax Code Reform

• Cost of complexity / Uncertainty over rates

• Highest marginal corporate tax rates

• Special interest provisions (housing /charities / municipal bonds)

2. Regulatory Overhaul / Exit of Private Enterprises

• The regulatory burden and cost to our economy is significant and growing

• Government involvement in private enterprises is anti-competitive

• If the future of our economy is competing globally, we have to compete globally.

3. Fiscal Responsibility

• Do we have the political will to address spending / which by definition includes entitlements and defense

• Are we positioned to continue to compete globally unless we continue to invest in education and technology and infrastructure – thereby spurring growth

Planning to Grow / Planning to Compete

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“We can’t solve problems by using the same kind of thinking we used when we created them”

- Albert Einstein

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• Innovation is essential - especially if it’s disciplined and focused on competitive growth

Compete and Grow

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• Innovation is essential

• Compromise is paramount – my way or the highway is not an option, compromise must lead to competitive growth

Compete and Grow

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• Compromise is paramount

• Establish clearly defined objectives - $20.7 trillion in the war on poverty / 15% poverty level for the last 50 years / have we created opportunity?

Compete and Grow

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• Establish clearly defined objectives

• Get it right the first time – as time goes by our opportunities to be wrong diminish, as do our chances to lead the competitive growth of the world economy

Compete and Grow

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• Establish clearly defined objectives

• Get it right the first time

• Focus on Growth and Competing – nothing else is relevant

Compete and Grow

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“Men (or Women) make history, and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skillful leaders seize the

opportunity to change things (for the better).”

- Harry S Truman

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Success starts here.

march 19, 2014

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