thornberg 2010 oc forecast
TRANSCRIPT
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The A li c e The A li c e
EconomyEconomy
ChristopherThornbergChristopherThornberg
Principal,BeaconEconomicsPrincipal,BeaconEconomics
Will the real economy stand up?Will the real economy stand up?Thegreatdownturnof08Thegreatdownturnof080909 Thecauses:thebigthreeimbalances:housing,finance,andthe
consumer
Wherearewenow?Wherearewenow? Thegoodnews:Therecessionisover
Thebadnews:wehaventactuallyfixedtheproblems,insteadthe
economyisbeingdrivenbygovernmentpolicy
Theworsenews:governmentpolicyiscausingitsownsetofproblems:
publicdebtandthepotentialforinflation
Whatnext?Whatnext?
Fundamentalssayweakrecoveryandadoubledipin2011
Policychoicesandfinancialmarketscanalterthissubstantially
Thebestadvice:enjoythestability,butbecautiousaboutthefuture
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08-II 09-II Ch Cont.GDP 13415 12901 -3.8%
Personal consumption 9351 9189 -1.7% -1.2%
Worst 4 QuarterContractions
urable goo s 1175 1071 -8.8 -0.8
Nondurable goods 2081 2025 -2.7% -0.4%
Services 6092 6078 -0.2% -0.1%
Gross investment 2026 1456 -28.1% -4.2%Structures 493 400 -18.9% -0.7%
Equipment software 1097 876 -20.2% -1.6%
Residential 462 344 -25.6% -0.9%
Net exports -476 -330 1.1%Exports 1670 1419 -15.0% -1.9%
2009II 3.8%
1958I 3.0%
1982III 2.7%
1954II 2.5%
1975I 2.3%
1980III 1.6%Imports 2146 1749 -18.5% -3.0%
Government 2506 2568 2.5% 0.5%
National defense 645 695 7.7% 0.4% Nondefense 315 328 3.9% 0.1%
State and local 1546 1548 0.1% 0.0%
Total Inventories 1835.5 1750.2 -4.6%
1961I 1.0%
1991
I
1.0%1970IV 0.2%
RealConsumerSpending(YoY
%toAug) CALIFORNIA -22.9%LOS ANGELES -22.6%
Taxable Sales Q2 from Peak
2%
4%
6%
- .
SAN DIEGO -20.2%
RIVERSIDE -30.6%
SAN BERNARDINO -28.2%
ALAMEDA -26.3%
CONTRA COSTA -21.9%
SAN FRANCISCO -21.1%
SAN MATEO -24.5%
MARIN -21.9%
SANTA CLARA -27.0%
2%
1960
Jan
1963
Jan
1966
Jan
1969
Jan
1972
Jan
1975
Jan
1978
Jan
1981
Jan
1984
Jan
1987
Jan
1990
Jan
1993
Jan
1996
Jan
1999
Jan
2002
Jan
2005
Jan
2008
Jan
SAN BENITO -29.0%
SONOMA -26.9%
SACRAMENTO -26.8%
EL DORADO -22.5%
PLACER -27.9%
YOLO -20.0%
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8.0%
RealIncome
Growth
(PerCapita,YoY)00
PayrollJob
Losses
0.0%
2.0%
4.0%
6.0%
1000
800
600
400
200
6000
5000
4000
3000
2000
4.0%
2.0%
1960
I
1964
I
1968
I
1972
I
1976
I
1980
I
1984
I
1988
I
1992
I
1996
I
2000
I
2004
I
2008
I
12008000
7000
Jul07
Nov
07
Mar08
Jul08
Nov
08
Mar09
Jul09
US CA
Jan-08 Sep-09
Riverside-San Bernardino-Ontario MSA 1,256,600 1,139,700 -9.3% -116,900
Santa Rosa-Petaluma MSA 190 300 176 400 -7 3% -13 900 , , . ,
Oxnard-Thousand Oaks-Ventura MSA 294,700 274,500 -6.9% -20,200
Santa Ana-Anaheim-Irvine Metro Div 1,513,000 1,417,500 -6.3% -95,500
Oakland-Fremont-Hayward Metro Div 1,046,400 981,500 -6.2% -64,900
San Francisco-San Mateo-Redwood City Metro Div 998,300 945,100 -5.3% -53,200
San Jose-Sunnyvale-Santa Clara MSA 919,900 870,900 -5.3% -49,000
Los Angeles-Long Beach-Glendale Metro Div 4,095,800 3,879,600 -5.3% -216,200
Stockton MSA 208,500 197,700 -5.2% -10,800
San Diego-Carlsbad-San Marcos MSA 1,308,400 1,240,900 -5.2% -67,500
Modesto MSA 159,000 150,800 -5.2% -8,200
Salinas MSA 128,800 123,000 -4.5% -5,800
Santa Barbara-Santa Maria-Goleta MSA 174,100 168,400 -3.3% -5,700
Bakersfield MSA 238,000 231,300 -2.8% -6,700
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HousingHousing
170
CATaxable
Sales
Index
decrease
Subprimecentral
ExportsExports
Goods/tourism/ 110120
130
140
150
BusinessSpendingBusinessSpending
TheITindustry80
90
Q1
98
Q2
99
Q3
00
Q4
01
Q1
03
Q2
04
Q3
05
Q4
06
Q1
08
Q2
09
6
GDPGrowth2009III Avg
Grossdomesticproduct 2.80 2.75
4
2
0
2
4 . .
Durablegoods 1.34 0.44
Nondurablegoods 0.26 0.38
Services 0.47 1.23
Grossprivatedomesticinvestment 0.91 0.33
Structures 0.55 0.01
Equipmentandsoftware 0.15 0.38
Residential 0.45 0.01
Changeinprivateinventories 0.87 0.05
86
e expor so goo san serv ces . .
Exports 1.71 0.55
Imports 2.53 0.60
Governmentconsumption 0.63 0.42
Nationaldefense 0.48 0.07
Nondefense 0.17 0.06
Stateandlocal 0.02 0.29
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95
CapacityUtilization
to
Oct
600
ManufacturingOrders
and
InventoriestoOctober
75
80
85
90
400
450
500
550
65
70
Jan
67
Jan
71
Jan
75
Jan
79
Jan
83
Jan
87
Jan
91
Jan
95
Jan
99
Jan
03
Jan
07
300
350
Jan
05
Jul05
Jan
06
Jul06
Jan
07
Jul07
Jan
08
Jul08
Jan
09
Jul09
Orders Inventories
17
AutoSalesSAARtoNov
315
RetailSalesxAutotoOct
10
11
12
13
14
15
280
285
290
295
300
305
8
9
Jan
07
May
07
Sep
07
Jan
08
May
08
Sep
08
Jan
09
May
09
Sep
09
270
275
Jan
07
May
07
Sep
07
Jan
08
May
08
Sep
08
Jan
09
May
09
Sep
09
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700
InitialClaims
and
Recession
EndingPoints 11
Unemploymentto
Nov
300
350
400
450
500
550
600
650
5
6
7
8
9
200
250
1/6/1979
1/6/1983
1/6/1987
1/6/1991
1/6/1995
1/6/1999
1/6/2003
1/6/2007
4
Jan
04
Aug
04
Mar
05
Oct
05
May
06
Dec
06
Jul
07
Feb
08
Sep
08
Apr
09
Nov
09
US SumStates
400
MonthlyChange
Oct to Nov Prev Year Diff
Administrative and waste services 87.0 -49.7 136.7
By Sector
400
200
0
200 Manufacturing -41.0 -126.2 85.2Construction -27 .0 -89 .9 62.9
Retail trade -14 .5 -47 .9 33.4
Financial Activities -10 .0 -32 .9 22.9
Professional and technical services 1.2 -21.5 22.7
Transportation and Utilities -7.7 -23.6 15.9
Wholesale trade -11 .7 -22 .4 10.7
Other Services -3.0 -12.9 9.9
Government - Local government 1.0 -8.7 9.7
Educational services 11.1 2.8 8.3
- -
800
600
Jan
07
May
07
Sep
07
Jan
08
May
08
Sep
08
Jan
09
May
09
Sep
09
. . .
Government - State government 5.0 -0.8 5.8
Management of companies -1.9 -6.4 4.5
Arts; entertainment; and recreation -1.6 -4.1 2.5
Health care and social assistance 28.1 31.1 -3.0
Information -17.0 -12.9 -4.1
Government - Federal 1.0 5.8 -4.8
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1320
Payrolls11
Unemployment
1260
1270
1280
1290
1300
6
7
8
9
10
1230
1240
1250
Jan
05
Jul05
Jan
06
Jul06
Jan
07
Jul07
Jan
08
Jul08
Jan
09
Jul09
3
4
Jan
05
Jul05
Jan
06
Jul06
Jan
07
Jul07
Jan
08
Jul08
Jan
09
Jul09
220
CaseShiller20CityIndex
$600,000
SanDiegoMedianPrices
140
160
180
200
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
100
120
Jan
01
Dec
01
Nov
02
Oct03
Sep
04
Aug
05
Jul06
Jun
07
May
08
Apr09 $150,000
$200,000
$250,000
Q1
98
Q2
99
Q3
00
Q4
01
Q1
03
Q2
04
Q3
05
Q4
06
Q1
08
Q2
09
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A ?
160003000
USEquityMarkets
600
30DayA2/P2 DailyAA(BPs)
6000
8000
10000
12000
14000
1000
1500
2000
2500
100
200
300
400
500
4000500
3Jan06
3Jun06
3Nov06
3Apr07
3Sep07
3Feb08
3Jul08
3Dec08
3May09
3Oct09
Nasdaq S&P500 DJIA
0
2005
01
03
2005
04
20
2005
08
05
2005
11
22
2006
03
09
2006
06
26
2006
10
11
2007
01
26
2007
05
15
2007
08
30
2007
12
17
2008
04
02
2008
07
18
2008
11
04
2009
02
19
2009
06
09
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Log Changes, Source: Dataquick / Bureau LaborStatistics / Beacon Economics
1997 to PeakPeak toTroughCurrent Rally Sum
California 95.6% -89.4% 6.4% 12.6%
Contra Costa 95.6% -105.7% 10.6% 0.4%
San Bernardino 114.5% -107.0% 2.0% 9.5%
Riverside 112.9% -93.3% 2.7% 22.4%
Sac (MSA) 93.9% -75.9% 5.9% 23.9%
Sonoma 89.1% -69.2% 8.3% 28.2%
Alameda 92.6% -76.3% 13.3% 29.6%
San Jose 80.2% -60.2% 15.8% 35.8%
Los Angeles 102.7% -69.3% 5.2% 38.6%
San Mateo 78.5% -42.6% 8.0% 43.9%
Marin 72.5% -37.5% 9.2% 44.2%
San Diego 98.5% -61.5% 7.8% 44.8%
Orange County 97.5% -51.1% 9.7% 56.2%
San Fran. (County) 89.2% -32.6% 5.6% 62.2%
9
InterestRates
n eres a esn eres a es
TheFHATheFHA
HopeforHopeforHomeownersHomeowners
4
5
6
7
8
2
Jan
97
Jan
98
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Mortgage USTreasury
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50.0%
60.0%%purchaseloansFHAinsuredbycounty
20.0%
30.0%
40.0%Riverside
Sacramento
ContraCosta
LosAngeles
SanDiego
0.0%
10.0%
Jan
06
Apr06
Jul06
Oct06
Jan
07
Apr07
Jul07
Oct07
Jan
08
Apr08
Jul08
Oct08
Jan
09
Apr09
Jul09
12
14
30
60+byType
4
6
8
10
OngoingForeclosure
NewForeclosure
60to90Days
5
10
15
20
25
0
2
Q1
79
Q3
81
Q1
84
Q3
86
Q1
89
Q3
91
Q1
94
Q3
96
Q1
99
Q3
01
Q1
04
Q3
06
Q1
09
0
Q1
98
Q1
99
Q1
00
Q1
01
Q1
02
Q1
03
Q1
04
Q1
05
Q1
06
Q1
07
Q1
08
Q1
09
Prime FHAVA Subprime
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16
MBAfor
California
10000
SanDiego
Defaults
and
Foreclosures
2
4
6
8
10
12
3000
4000
5000
6000
7000
8000
9000
0
Q1
79
Q2
81
Q3
83
Q4
85
Q1
88
Q2
90
Q3
92
Q4
94
Q1
97
Q2
99
Q3
01
Q4
03
Q1
06
Q2
08
60+Delinquent NewForeclosure
ExistingForeclosure
0
1000
2000
Q1
02
Q4
02
Q3
03
Q2
04
Q1
05
Q4
05
Q3
06
Q2
07
Q1
08
Q4
08
Q3
09
NOD TD
2500
HousingStartstoOct
1000
SFPermits:SanDiego
County
1000
1500
2000
200
300
400
500
600
700
800
900
0
Jan
03
Oct03
Jul04
Apr05
Jan
06
Oct06
Jul07
Apr08
Jan
09
Oct09
0
100
Jan
02
Dec
02
Nov
03
Oct04
Sep
05
Aug
06
Jul07
Jun
08
May
09
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22%Office
Vacancies
12
13
Price/Asking
Rent
(PSF)
Office
12%
14%
16%
18%
7
8
9
10
11
10%
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
LasVegas Orange
5
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
LasVegas Ora nge
Apartment Office
Rents Vacancy Rents Vacancy
Q3 07 to Q3 09
Orange County 1,621.4 1,472.0 -9.2% 3.9% 7.9% 29.6 24.1 -18.6% 14.3% 21.2%
San Diego 1,494.7 1,429.4 -4.4% 3.6% 6.2% 30.1 26.4 -12.4% 12.8% 19.9%
San Francisco 1,879.5 1,812.9 -3.5% 4.4% 5.9% 35.0 30.0 -14.2% 14.1% 19.8%
San Jose 1,667.2 1,504.6 -9.8% 5.0% 7.7% 31.3 29.8 -4.8% 14.4% 23.0%
Hotels Retail
Rents Vacancy Rents Vacancy
Orange County 214.1 173.1 -19.1% 72.4% 64.0% 25.0 21.9 -12.4% 3.5% 10.9%
San Diego 224.0 175.7 -21.6% 72.4% 63.6% 24.7 22.5 -9.1% 2.9% 10.1%
San Francisco 143.2 125.1 -12.6% 74.3% 71.1% 28.1 26.8 -4.8% 4.6% 10.8%
San Jose 126.7 96.4 -23.9% 68.8% 57.0% 23.7 22.3 -5.5% 10.9% 18.4%
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7
8
BankHealth
2650
ConsumerCredit
1
2
3
4
5
6
2300
2350
2400
2450
2500
2550
0
1985Q1
1986Q4
1988Q3
1990Q2
1992Q1
1993Q4
1995Q3
1997Q2
1999Q1
2000Q4
2002Q3
2004Q2
2006Q1
2007Q4
2009Q3
Delinquencyrateonallloans
Chargeoffrateonallloans
2200
2250
Jan
05
Sep
05
May
06
Jan
07
Sep
07
May
08
Jan
09
Sep
09
1.4
DebtasShareofGDPNationalPERatio
(Assets/GDP)
0.4
0.6
0.8
1
1.2
4
4.5
5
5.5
0
0.2
1952Q1
1956Q3
1961Q1
1965Q3
1970Q1
1974Q3
1979Q1
1983Q3
1988Q1
1992Q3
1997Q1
2001Q3
2006Q1
Financial Other
3
3.5
1952Q1
1957Q1
1962Q1
1967Q1
1972Q1
1977Q1
1982Q1
1987Q1
1992Q1
1997Q1
2002Q1
2007Q1
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TheproblemTheproblem
isnotfattails,badmath,blackswansorevenwhite
isoneofincentives:bigbonusesforshortrunscores
ThesolutionThesolution
isnotmarketbasedsincethisreliesonefficientmarkets
isnotthecurrent acka e utforwardb the resident
iswhattheFedisproposing
Butwhat
about
financial
innovation?But
what
about
financial
innovation?
LikeLTCM,S&Lderegulation,dotbombs,junkbondsandassetbackedsecurities?
2.1
MonetaryBaseandExcess
Reserves
14.0%
16.0%
2YrGrowthtoNov
0.9
1.1
1.3
1.5
1.7
1.9
4.0%
6.0%
8.0%
10.0%
12.0%
.
Jan
06
Jun
06
Nov
06
Apr07
Sep
07
Feb
08
Jul08
Dec
08
May
09
Oct09
MonetaryBase
MonetaryBase ExcessReserves
0.0%
.
Jan
62
May
67
Sep
72
Jan
78
May
83
Sep
88
Jan
94
May
99
Sep
04
M2 Prices
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0%71%
ShareofGDP
Consumers
9%
Savingsas
Share
DPI
5%
4%
3%
2%
1%
66%
67%
68%
69%
70%
3%
4%
5%
6%
7%
7%
6%
64%
65%
1989
I
1991
I
1993
I
1995
I
1997
I
1999
I
2001
I
2003
I
2005
I
2007
I
e ra e
0%
1%
2%
1986
I
1988
I
1990
I
1992
I
1994
I
1996
I
1998
I
2000
I
2002
I
2004
I
2006
I
$75014%
PrivateSavingsandRealHousehold
GrossWorth1.3
DebttoIncomeRatio
$400
$450
$500
$550
$600
$650
$700
4%
6%
8%
10%
12%
0.6
0.7
0.8
0.9
1
1.1
.
$300$350
0%
1970Q1
1973Q2
1976Q3
1979Q4
1983Q1
1986Q2
1989Q3
1992Q4
1996Q1
1999Q2
2002Q3
2005Q4
2009Q1
Savings HouseholdWealth
0.4
0.5
1960Q1
1964Q1
1968Q1
1972Q1
1976Q1
1980Q1
1984Q1
1988Q1
1992Q1
1996Q1
2000Q1
2004Q1
2008Q1
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9500
RealSpending
1993II 2008I 2009III
9000
9100
9200
9300
9400 RealIncome 7069 11246 10912
Savings 386 117 333
5.5% 1.0% 3.0%
Consumption 5671 9350 9265
80% 83% 85%
8800
8900
2006
Jan
2006
May
2006
Sep
2007
Jan
2007
May
2007
Sep
2008
Jan
2008
May
2008
Sep
2009
Jan
2009
May
2009
Sep
Taxes 816.9 1418.7 979.3
11.6% 12.6% 9.0%
Consumption
PercentIncometoOct16.0%
TaxesandSavings
PercentIncome,toOct
78.0%
80.0%
82.0%
84.0%
.
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
72.0%
74.0%
.
Jan
80
Jan
83
Jan
86
Jan
89
Jan
92
Jan
95
Jan
98
Jan
01
Jan
04
Jan
07
0.0%2.0%
Jan
80
May
83
Sep
86
Jan
90
May
93
Sep
96
Jan
00
May
03
Sep
06
Taxes Savings
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16%
Drivers(%Income)
4.0%
GDPGrowth
2%
4%
6%
8%
10%
12%
14%
4.0%
2.0%
0.0%
2.0%
0%
1995Q
1
1996Q
4
1998Q
3
2000Q
2
2002Q
1
2003Q
4
2005Q
3
2007Q
2
2009Q
1
2010Q
4
2012Q
3
2014Q
2
Savings Taxes
8.0%
6.0%
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
PositivePotentialChangesPositivePotentialChanges Strongexportgrowth RealValue$USOITP
rongrecovery n us nessspending
PotentialPolicyChangesPotentialPolicyChanges Extendtaxcuts/morestimulus
ANewBubble?ANewBubble? Savingsratesstallatlowerlevel Realdoubledip? 100
105
110
115
120
125
FedpolicyFedpolicy
WillweaklabormarketsforcetheFedtomaintainexcessivelyloosepolicy?
90
Jan
91
Feb
93
Mar95
Apr97
May
99
Jun
01
Jul03
Aug
05
Sep
07
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12/16/20
LongrunLongrun
StatehasgrownfasterthantheUSsince1994intermsofGSP,Income,Emp oymentan Popu ation
EverysectorhasgrownfasterexceptAdminSupport,Mgmt,andLogistics
OnthebackendofthedownturnOnthebackendofthedownturnAweaker$US:goodforexportheavyCA
eaper omes
But
dont
expect
a
fast
recoveryBut
dont
expect
a
fast
recovery
It doesnt get muchmore business-
unfriendly than this!
-
8/9/2019 Thornberg 2010 OC Forecast
19/19
12/16/20
SummarySummaryThe
Recession
is
Dead
Long
Live
the
Recession!The
Recession
is
Dead
Long
Live
the
Recession!
Consumerweaknesswilllikelycontinue
Businessesareawi car
Housingclosetobottom,butnobounce
Banksnotoutofthewoodsyet
Commercialtroubletocontinue
Significantchanceofadoubledip
HigherRatescomingdownthepike
ItsnotpermanentItsnotpermanent
Itsjust
going
to
take
some
timePATIENCE!!
Californiawillbestrongeratthebackend
ButisthisanothertransitionfortheUSLaborforce?
Anal sis. Answers.
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