staying alive

66
1 E C O N O M I C O U T L O O K I S S U E S, W A S H I N G T O N A S S O C I A T I O N O F M O N E Y M A N A G E R S, S E P T E M B E R 1 7, 2 0 0 8 Less than $5,000 per capita GDP $5,000 - $10,000 per capita GDP Over $10,000 per capita GDP Turmoil amid … Jim Glassman Circa 1980

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Page 1: Staying Alive

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Less than $5,000 per capita GDP$5,000 - $10,000 per capita GDPOver $10,000 per capita GDP

Turmoil amid …

Jim Glassman

Circa 1980

Page 2: Staying Alive

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Less than $5,000 GDP per person$5,000 - $15,000 GDP per personOver $15,000 GDP per person

Circa 2005

… a Great Awakening

Page 3: Staying Alive

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Ten surprises …

Page 4: Staying Alive

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Real GDP growth% change over the four quarters of the year

2007 2008

United States 2.3 2.2

Europe (EU-11) 1.9 1.2

Japan 1.3 0.0

Newly industrializing 8.1 6.6

China 10.8 10.2

#1. The slowdown more global

Page 5: Staying Alive

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#2. The US economy steadier …US real GDP (percent change from four quarters earlier)

Source: US Department of Commerce

2.2

0.2

1.9

3.7

3.12.7

2.4 2.3

-2

-1

0

1

2

3

4

5

6

7

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-2

-1

0

1

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8Forecast ofquarter-to-quarter realGDP growth

Quarter-to-quarter realGDP growth

Annualgrowth ofreal GDP(Q4 to Q4)

Change inreal GDPfrom fourquartersearlier

Page 6: Staying Alive

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… steadier, even though oil “ate” the fiscal stimulusUS real GDP (chained 2000 dollars)

Source: Macroeconomic Advisers LLC

7,000

8,000

9,000

10,000

11,000

12,000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 087,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

12,000

Page 7: Staying Alive

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#3. The housing drag more containedSelected GDP measures (percent change from four quarters earlier)

Source: US Department of Commerce

0

1

2

3

4

5

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91 93 95 97 99 01 03 05 070

1

2

3

4

5

6

Real GDP excluding residential construction

Real GDP

Page 8: Staying Alive

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#4. The housing ATM not such a big dealHome equity extracted ($ billions) Real consumer spending (% ch vs four quarters earlier)

Sources: US Department of Commerce; Federal Reserve Board

0

200

400

600

800

1,000

1,200

1,400

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08-1

0

1

2

3

4

5

6

7

Real consumer spending

Net mortgage equity withdrawn

Page 9: Staying Alive

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#5. Employment weaker …Employment and real GDP (percent change from four quarters earlier)

Sources: US Department of Commerce; US Department of Labor

-2

-1

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-2

-1

0

1

2

3

4

5

6

7

Nonfarm payrollsHousehold employment

Blue shaded zone is real GDP growth (line is forecast)

Page 10: Staying Alive

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… and unemployment up more than usualUnemployment rate (percent of the labor force)

Sources: US Department of Commerce; US Department of Labor

-2

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0

1

2

3

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7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-2

-1

0

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7

Unemployment rate

Grey shaded zone is real GDP growth from four

quarters earlier

Page 11: Staying Alive

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#6. Education matters more than usualUnemployment rate by maximum educational level achieved (percent of the labor force)

Source: US Department of Labor

0

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4

5

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8

9

10

1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

1

2

3

4

5

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7

8

9

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Lines:High school dropouts

High school grad, no collegeSome college

Bachelors degree or higher

National unemployment rate (blue shaded area)

Page 12: Staying Alive

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#7. Productivity surprisingly robust for a slowdownLabor productivity (percent change from four quarters earlier)

Sources: US Department of Labor

-2

-1

0

1

2

3

4

5

6

7

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08-2

-1

0

1

2

3

4

5

6

7

Page 13: Staying Alive

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#8. Profit margins remain near recordsProfits (percent of Gross Domestic Income)

Sources: NBER recession bars; US Department of Commerce; Standard & Poor’s

0

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2

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4

5

6

7

8

9

10

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 20070

1

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9

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After-tax S&P 500 operating earnings

After-tax GDP profits from current production

Page 14: Staying Alive

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#9. Inexplicable oil surgeGlobal oil demand (millions of barrels daily) Oil prices (dollars per barrel)

Sources: US Department of Energy; 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 in $ billions (left)Petroleum price per barrel (right)

Page 15: Staying Alive

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#10. Despite rising inflation “readings” …Oil ($/barrel) Inflation (percent change from 12 months earlier)

Sources: NBER recession bars; US Department of Commerce

0

20

40

60

80

100

120

140

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100

1

2

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4

5

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7

8

9

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Petroleum, shaded area (left)

Lines:Chain PCE prices (right)Core chain PCE prices (right)

Page 16: Staying Alive

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… a more sanguine investor community10-year inflation expectations (percent)

Sources: Bloomberg; Federal Reserve Board

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

2000 2001 2002 2003 2004 2005 2006 2007 20081.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

Page 17: Staying Alive

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Key issues in the outlook …

Page 18: Staying Alive

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#1. The housing debacle …

Page 19: Staying Alive

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Inflated valuations are largely history …Nominal income per household and house prices (ratio to 1970 Q1 level)

Sources: Standard & Poor’s; US Department of Commerce

0

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4

5

6

7

8

9

10

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)Ofheo purchase only indexGross nominal income per household

2001 Q2

Page 20: Staying Alive

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… that’s why price declines are slowingSelected measures of existing house prices (percent change from 12 months/4 quarters earlier)

Sources: Standard & Poor’s; Ofheo; Census

-20

-15

-10

-5

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008-20

-15

-10

-5

0

5

10

15

20

25Freddie Mac

OFHEO (purchase only)

OFHEO (purchase only), quarterly

Census-HUD

NAR median

Nar median, single family

Radar Logic

Case-Shiller national index

Case-Shiller 20 metropolitan areas

Case-Shiller 10 metropolitan areas

Page 21: Staying Alive

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The GSE rescue broke the ice in credit markets30-year mortgage rate (percent)

Source: Bank Rate Monitor

5.0

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6

Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 085.0

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6

Page 22: Staying Alive

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Builders still have some wood to chop …Housing starts (thousands at an annual rate) Unsold new single family houses (thousands)

Source: Census Department

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 090

100

200

300

400

500

600

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Starts of new (single- and multifamily) houses (left)

Cancelled sales of new single family units (right)Unsold single family houses (right)

Forecast

Page 23: Staying Alive

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… maybe another year of “slow” ... Housing starts (thousands at an annual rate) Unsold new single family houses (months’ supply)

Source: Census Department

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800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 090

2

4

6

8

10

12

14

16

Starts of new (single- and multifamily) houses (left scale)

Canceled sales of newly built single-family units (right)Unsold new single family houses (right)

Forecast

Page 24: Staying Alive

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What building takes, exports giveContribution of selected sectors to growth (pct points contribution to year-over-year real GDP growth)

Source: US Department of Commerce

-1.50

-1.25

-1.00

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-1.50

-1.25

-1.00

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50Exports

Residential construction

Page 25: Staying Alive

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#2. The oil spasm …

Page 26: Staying Alive

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Population and oil demandOil demand

Population (mln bbl daily)

United States 300,000,000 20.0

India 1,400,000,000 6.5

China 1,300,000,000 2.5

There’s always a fundamental logic

Page 27: Staying Alive

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But market signals have the last word …Petroleum, WTI ($/gallon) Pump price of gasoline ($/gallon)

Source: Baker Hughes

0.00

0.25

0.500.75

1.00

1.25

1.501.75

2.00

2.25

2.50

2.753.00

3.25

3.50

1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.90

1.15

1.401.65

1.90

2.15

2.402.65

2.90

3.15

3.40

3.653.90

4.15

4.40

Pump price of regular gasoline (left scale)

Crude petroleum (right scale)

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… when demand and supply respondGasoline consumption (billions of 2000 dollars) Gasoline prices (chain price index)

Source: US Department of Commerce

50

70

90

110

130

150

170

190

210

45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 080

20

40

60

80

100

120

140

160

180

200

Real gasoline consumption (left)

Chain PCE index for gasoline (right)

Page 29: Staying Alive

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2

0 0

8

It’s about the future, not the now, and that’s what specs doGlobal 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 in $ billions (left)Petroleum price per barrel (right)

Page 30: Staying Alive

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Why oil matters in the short run … some scenariosContribution 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

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-1.5

-1.0

-0.5

0.0

0.5

1.0Oil prices fall back to $65 per barrelOil prices hold at $130 per barrel

Oil prices rise to $200 per barrel

Page 31: Staying Alive

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#3. The food debacle …

Page 32: Staying Alive

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This was “Made-in-Congress”, not ChinaCorn prices received by farmers (dollars per bushel)

Source: US Department of Agriculture

0

1

2

3

4

5

6

7

8

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 090

1

2

3

4

5

6

7

8

Energy Policy Act of 2005 (August 8, 2005)

Energy Independence and Security Act of 2007 (December 19, 2007)

Page 33: Staying Alive

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Retail food prices (percent change at an annual rate over the most recent two years)

Source: US Department of Commerce; US Department of Agriculture; JPMorgan Chase & Co.

0

1

2

3

4

5

6

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 20090

1

2

3

4

5

6

Corn's contribution to retail food inflation (if corn prices stabilize at $6 per bushel)Other food costs (assumed to rise 2.5% annually)

CPI for food

When Washington wants to fix the problem, run for the hills

Note: 9 billion gallons of ethanol (the 2008 mandate) requires 3.27 billion bushels of corn

which requires 20 million acres of farmland

Page 34: Staying Alive

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#4. Inflation, or not …

Page 35: Staying Alive

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When it’s about oil, not aggregate demand …Oil ($/barrel) Inflation (percent change from 12 months earlier)

Sources: NBER recession bars; US Department of Commerce

0

20

40

60

80

100

120

140

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100

1

2

3

4

5

6

7

8

9

10

Petroleum, shaded area (left)

Lines:Chain PCE prices (right)Core chain PCE prices (right)

Page 36: Staying Alive

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… it’s a relative price event, not inflationSelected CPI indexes (percent change from 12 months/four quarters earlier)

Source: US Department of Labor

0

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

1

2

3

4

5

6

CPI, all items

Ex. (direct) energy

Ex. all energy*

* Indirect energy in core CPI assumed to be 35% of direct energy contribution

Page 37: Staying Alive

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A clue: what is a COLA?Private sector workers who belong to a union (percent of the labor force)

Source: US Department of Labor

1970s Today

United States (Private Sector) 35.7 7.5France 21.7 8.3Republic of Korea 12.6 11.2Poland 53.1 14.7Spain 12.9 16.3Switzerland 28.9 17.8Japan 35.1 19.7Hungary 63.4 19.9New Zealand 55.2 22.1Netherlands 36.5 22.3Germany 32.0 22.6Australia 50.2 22.9European Union 37.8 26.3Czech Republic 78.8 27.0Canada 31.5 28.4United Kingdom 44.8 29.3Italy 37.0 33.7Ireland 53.2 35.3Austria 62.8 35.4Slovak Republic 78.7 36.1Norway 56.8 53.3Belgium 42.1 55.4Denmark 60.3 70.4Finland 51.3 74.1Sweden 67.7 78.0

Page 38: Staying Alive

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The more we pay for energy, the less for other thingsHourly wage gains (percent change from 12 months earlier)

Source: US Department of Labor

0

1

2

3

4

5

6

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 20080

1

2

3

4

5

6

Average hourly earnings (line)

ECI for private wages and salaries

Page 39: Staying Alive

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Wall Street knows all about this, even if its pundits don’t10-year inflation expectations (percent)

Sources: Bloomberg; Federal Reserve Board

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

2000 2001 2002 2003 2004 2005 2006 2007 20081.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

Page 40: Staying Alive

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#5. For US consumers, the end of an era …

Page 41: Staying Alive

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US consumers were blessed …Consumer spending (percent of GDP)

Source: US Department of Commerce

0.55

0.60

0.65

0.70

0.75

47 52 57 62 67 72 77 82 87 92 97 02 070.55

0.60

0.65

0.70

0.75

Page 42: Staying Alive

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… and saving fell because savings rose … that was thenHousehold saving (percent of income) Net worth (ratio to income)

Sources: US Department of Commerce; Federal Reserve Board

-4

0

4

8

12

16

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20103.8

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

6.4Ratio of net worth to income (right)

Saving rate, the line (left)

Page 43: Staying Alive

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They borrowed more because they could … that was thenMonthly financial obligations (percent of income) Household debt (ratio to income)

Source: Federal Reserve Board

0

5

10

15

20

25

1960 1965 1970 1975 1980 1985 1990 1995 2000 20050.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Debt service (homeowners' financial obligations) (left)

All household debt (right)

Page 44: Staying Alive

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Paying for health care this way costs us moreLabor compensation share (percentage of Gross Domestic Income)

Source: US Department of Commerce

0.40

0.44

0.48

0.52

0.56

0.60

0.64

69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 070.40

0.44

0.48

0.52

0.56

0.60

0.64

Compensation

Wages and salaries

Page 45: Staying Alive

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#6. Securitized under siege …

Page 46: Staying Alive

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A bad bet won’t jeopardize securitized financeAssets held at financial intermediaries (share of all assets held at financial intermediaries)

Source: Federal Reserve Board

0

10

20

30

40

50

60

70

80

90

100

50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07

Life Insurance Companies

Pension Funds

Brokers and Dealers, Finance,Mortgage, and Other InsuranceCompanies, and FundingCorporations

Money Market Mutual Funds

Mutual Funds, Closed-End Funds,Exchange-Traded Funds, and REITs

Government-Sponsored Enterprises,Federally Related Mortgage Pools,and Issuers of Asset-BackedSecurities

Banks, Savings Institutions, andCredit Unions

Page 47: Staying Alive

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#7. The Great Economic Awakening …

Page 48: Staying Alive

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The birth of economic miracles …US current account balance (percent of GDP)

Source: US Department of Commerce

-7

-6

-5

-4

-3

-2

-1

0

1

2

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010-7

-6

-5

-4

-3

-2

-1

0

1

2

Page 49: Staying Alive

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… lights turning on all around us …Global real GDP (percent change from four quarters earlier)

Source: JPMorgan Chase & Co.

-1

0

1

2

3

4

5

6

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010-1

0

1

2

3

4

5

6

Page 50: Staying Alive

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… in dark corners of the world …Real GDP in selected regions (percent change from four quarters earlier)

Source: JPMorgan Chase & Co.

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

US (black)EU-11 (blue)Japan (gold)

Emerging economies in Asia, Eastern Europe and Latin America

Page 51: Staying Alive

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… because the earth is not flatChina’s real per capita GDP (percent of the US level)

Source: JPMorgan Chase & Co.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Page 52: Staying Alive

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A N

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B E

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1 7,

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0 0

8

What it means for the future …Real GDP in selected regions (chained US dollars)

Source: JPMorgan Chase & Co.

0

100,000

200,000

300,000

400,000

500,000

600,000

2007 2017 2027 2037 2047

OtherIndiaChinaCurrent developed (North America, Japan, Western Europe)

Page 53: Staying Alive

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8

… activity will be more proportional to populationShare of global real GDP (percentage)

Source: JPMorgan Chase & Co.

0.00

0.20

0.40

0.60

0.80

1.00

2007 2017 2027 2037 2047

Other

India

China

Current developed (North America, Japan, Western Europe)

Page 54: Staying Alive

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Conclusion

Page 55: Staying Alive

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B E

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1 7,

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Central banks shifting to “accommodative” …Federal funds rate (percent) Unemployment rate (percent)

Sources: NBER recession bars; Federal Reserve Board; US Department of Labor

-2.75-2.50-2.25-2.00-1.75-1.50-1.25-1.00-0.75-0.50-0.250.000.250.500.751.00

-1 0 0.2 0.5 1 2 3 4 5 6 7 8 9 10-2.75-2.50-2.25-2.00-1.75-1.50-1.25-1.00-0.75-0.50-0.250.000.250.500.751.00

Europe

Japan

US

Normalized--versus 10-year rate--swap yield curves

Years to Maturity

Page 56: Staying Alive

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It’ll be that way unemployment turns back down …Federal funds rate (percent) Unemployment rate (percent)

Sources: NBER recession bars; Federal Reserve Board; US Department of Labor

0

1

2

3

4

5

6

7

8

9

10

11

12

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 100

1

2

3

4

5

6

7

8

9

10

11

12

Unemployment rate (orange shaded area)

Federal funds rate

targetUnemploy ment

rate forecast

Page 57: Staying Alive

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… and it doesn’t compromise inflationFederal funds rate and inflation (percent)

Sources: NBER recession bars; Federal Reserve Board; US Department of Labor

0

4

8

12

16

20

60 65 70 75 80 85 90 95 00 05 100

4

8

12

16

20

Core PCE chain price inflation ( % ch. from 12 months earlier)

Nominal federal funds rate

FOMC

forecast

Page 58: Staying Alive

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M

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B E

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1 7,

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0 0

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Alternatively, a steep curve for a whileFederal funds rate less 10-year rates (percentage points)

Sources: NBER recession bars; Federal Reserve Board

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1960 1970 1980 1990 2000 2010-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Versus TreasuriesVersus swaps

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U E

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G T

O N

A

S S

O C

I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

Lower natural level of interest ratesNominal and real 10-year Treasury yield (percent)

Sources: NBER recession bars; Federal Reserve Board; US Department of Commerce

0

2

4

6

8

10

12

14

16

50 55 60 65 70 75 80 85 90 95 00 050

2

4

6

8

10

12

14

16

Real 10-year Treasury yield (nominal less 1-year trailing core chain PCE inflation rate)

Nominal 10-year Treasury yield

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A

S S

O C

I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

After the “Runs of August” …Selected borrowing costs (percent)

Source:s Federal Reserve Board; Bloomberg; JPMorgan Chase & Co.

0

3

6

9

12

15

2002 2003 2004 2005 2006 2007 20080

3

6

9

12

15

10-year noninvestment grade debt

Jumbo mortgage rateBBB-rated corporate debt30-year conventional mortgage rate

10-year Treasury yield

Federal funds rate target

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U E

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O N

A

S S

O C

I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

… investors will demand more protectionHigh yield debt yield less 10-year Treasury yield (basis points)

Source: JPMorgan Chase & Co.

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008200

300

400

500

600

700

800

900

1,000

1,100

1,200

Ibbotson Associates JPMorgan Securities Inc.

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A

S S

O C

I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

If it’s global, the dollar will go upReal trade weighted dollar index (March 1973 = 100)

Source: Federal Reserve Board

75

85

95

105

115

125

135

1965 1970 1975 1980 1985 1990 1995 2000 200575

85

95

105

115

125

135

Nominal trade-weighted dollar

index versus G10 countries (1972-76

= 100)

Broad real trade-weighted dollar index

Page 63: Staying Alive

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I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

… because others are slowing tooPercent change since July 21, 2005 (China’s revaluation)

Source: Federal Reserve Board

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

2005 2006 2007 2008-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

Broad nominal trade weighted dollar index

Versus other important currencies

Versus industrial countries

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S S

O C

I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

Stocks, where we discount eternity … patience …Wilshire 5000 index of all publicly traded stocks (index)

Source: Bloomberg

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

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S S

O C

I A

T I O

N

O F

M

O N

E Y

M

A N

A G

E R

S,

S E

P T

E M

B E

R

1 7,

2

0 0

8

… to undo the “stagflation” tradeWilshire 5000 index of all publicly traded stocks (index)

Source: Bloomberg

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2007 2008 20090.40

0.60

0.80

1.00

1.20

1.40

1.60

Energy (Bloomberg IXE)

Wilshire 5000

Builders (Bloomberg HXG)Banks (Bloomberg BKX)

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1 7,

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0 0

8

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