Events/Stowe/Stowe VT 2016 07 18 Chris Gaffney
NAVIGATING RISK IN AN UNCERTAIN WORLD
CHRIS GAFFNEY, CFA PRESIDENT, EVERBANK WORLD MARKETS (A DIVISION OF EVERBANK)
© EverBank 2016. All rights reserved.
LEGAL NOTICES All statements, comments, and opinions expressed are solely those of the speaker(s) and are not the statements, comments, or opinions of EverBank or any affiliates, and are subject to change without notice. Due to the rapidly changing nature of financial markets, any statement, comment, or opinion may quickly become outdated. Additional information is available upon request. EverBank, its officers and employees do not provide investment or other types of advice. All factual information in this presentation has been obtained from sources the speaker(s) believed to be reliable, but the accuracy, completeness and interpretation of the factual information are not guaranteed and has not been independently verified.
The statements, comments, opinions, and information presented do not constitute a solicitation for the purchase or sale of any securities or options on securities, or for the purchase or sale of a currency or any precious metal, or for any products or services of EverBank, and they do not constitute a recommendation to you or to any specific person of any particular action. Not all products are right for everyone. You should conduct your own research and/or consult your investment or other advisor before making any investment. The speaker(s) or EverBank may hold positions from time to time in assets discussed during this presentation. Charts in this presentation are provided for illustration purposes only. The elements of charts or slides may not reflect any management fees, transaction costs, or expenses. The benchmark indices are unmanaged and may not be available for direct investment. Prices of securities and other potential investments change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets in general, economic conditions, interest rates and market liquidity. Fixed income investments have interest rate risk, which refers to the risk that bond prices generally fall as interest rates rise and rise when interest rates fall. Foreign securities have additional risk, including exchange rate changes, political, economic and social factors, all of which may be magnified in emerging markets. Investments in narrow sectors such as real estate or commodities may be subject to more volatility than more diversified investments. Asset allocation/diversification does not guarantee a profit or eliminate the risks of loss. The verbal commentary is a critical part of this presentation. Any distribution of this presentation is incomplete without the associated verbal commentary provided. Do not rely exclusively on the elements included here in your analysis. Past performance is not representative of future performance. ©2016 EVERBANK, ALL RIGHTS RESERVED
2
DISCLOSURES CONCERNING FORWARD LOOKING STATEMENTS
From time to time, the speaker(s) may make forward-looking statements that reflect his or her views with respect to, among other things, future events and financial performance. Words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections , the speaker’s beliefs and certain assumptions made by the speaker(s), many of which, by their nature, are inherently uncertain and beyond the speaker’s control. Accordingly, you are cautioned that any such forwardlooking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although the speaker believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, EverBank, and the speaker(s) disclaim any obligation to update the expression of any view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this presentation.
©2016 EVERBANK, ALL RIGHTS RESERVED
3
OUR TIME TOGETHER ü Crisis has become the norm ü Central Banks – rescuer or contributor? ü The dangers of NIRP & ZIRP ü How to protect your portfolio
© EverBank 2016. All rights reserved.
A CONSTANT STATE OF CRISIS
CURRENCY WARS
QE II
Quantitative Easing
ARAB SPRING Puerto Rican Debt Default
Oil
GREEK DEBT CRISIS Foreclosures Debt Limits
Default
Iran
Italian Banks
CYPRUS Deflation
China
Credit Default Swaps Spain NEGATIVE INTEREST RATES US Elections
Ireland
GLOBAL EQUITY CORRECTION TARP
©2013 EVERBANK. ALL RIGHTS RESERVED
Fiscal Cliff QE III
Afghanistan
BREXIT
Safe Havens
EUROPEAN AUSTERITY
RUSSIA GRABS CRIMEA Commodities Slide
Bank of Japan
India
Mortgage
Syria
THE WORLD – AS WE KNOW IT
Global GDP
$74.0 Trillion
USA
$18.6T
25%
European Union
$16.5T
22%
China
$11.4T
Japan United Kingdom India
$ 4.4T
Brazil
$ 1.5T
2%
Canada
$ 1.5T
2%
15%
18%
6% $2.8T 4% $ 2.3T 3%
All Other Source: International Monetary Fund World Economic Outlook (April, 2016) ©2016 EVERBANK. ALL RIGHTS RESERVED
$13.7T
27%
MONETARY MADNESS, OR THE PERFECT SOLUTION? WHY??? FEAR OF DEFLATION Purpose and impact of QE ü ü ü ü
Lower real interest rates Raise inflation expectations Depreciate the currency Boost asset (stock) prices
Various St. Louis Federal Reserve speeches. Including: http://research.stlouisfed.org/econ/bullard/pdf/Bowling_Green_Feb_24_2011_Fi nal.pdf © EverBank 2015. All rights reserved.
POSTER CHILD “If we could manage 4 or 5 percent inflation over that stretch, so that prices were 25 percent higher …the real value of mortgage debt would be substantially lower than it looks on current prospect …and the economy would therefore be substantially farther along the road to sustained recovery.”
Paul Krugman, End This Depression Now! Quoted in New York Times Review of Books
© EverBank 2015. All rights reserved.
Image: http://en.wikipedia.org/wiki/File:Paul_Krugmanpress_conference_Dec_07th,_2008-8.jpg
PRICE OF MONEY ACROSS THE GLOBE
10- Year Sovereign Debt Yields (%) U.S. Australia Canada France Germany Greece India Italy Japan Portugal Spain U.K. Source: Bloomberg
©2015 EVERBANK. ALL RIGHTS RESERVED
7/8/2016
12/31/2014
12/31/2013
12/31/2012
1.4 1.9 0.97 0.12 -0.17 7.7 7.4 1.2 -0.28 3.1 1.1 0.76
2.2 2.8 1.8 0.8 0.5 9.1
3.0 4.2 2.8 2.6 1.9 8.3
1.8 3.3 1.8 2.0 1.3 11.9
1.9 0.3 2.6 1.6 2.5
4.1 0.7 6.0 4.1 3.0
4.5 0.8 7.0 5.3 1.8
Ten-year US Treasury Note remains lowest in 55 years
Source: Federal Reserve Bank of Saint Louis
GDP IS HEADED HIGHER HERE IN THE US
©2015 EVERBANK. ALL RIGHTS RESERVED
HOUSEHOLD NET WORTH IS BACK!
$65.6
$66.1
$66.1
$61.2 $53.6
$52.0
$59.7
$60.6
2010
2011
$55.7
$46.0 $39.2
2002
2003
2004
2005
2006
2007
(Source: Tiburon Strategic Advisors - $ Trillions)
Source:
2008
2009
12/31/12 Federal Reserve Flow of Funds Report; 6/30/12 Federal Reserve Flow of Funds Report; 3/31/12 Federal Reserve Flow of Funds Report; 12/31/11 Federal Reserve Flow of Funds Report; 4/8/11 Fidelity Investments Email (Graham); 4/7/11 TD Ameritrade Email (Schweiss); 12/31/10 Federal Reserve Flow of Funds Report; 6/30/10 Federal Reserve Flow of Funds Report; 3/15/10 Barron’s (Federal Reserve); Tiburon Research & Analysis
©2015 EVERBANK. ALL RIGHTS RESERVED
2012
“But if there is a problem with inflation, it isn’t the one expected by the Fed’s critics, who repeatedly predicted that the Fed’s policies would lead to high inflation (if not hyperinflation), a collapsing dollar and surging commodity prices. None of that has happened.”
HOW ARE WE FEELING HERE AT HOME?
US Dollar at multi year highs Growth returning Asset Values are back up Interest Rates moving higher? US consumer risk – JOBS? INCOME? US financial status – Risk to reserve status © EverBank 2015. All rights reserved.
CONSUMER CREDIT HAS JUMPED 32% IN THE PAST FIVE YEARS
U.S. HAS MORE DEBT THAN EVER BEFORE
CENTRAL BANK BALANCE SHEETS ARE GROWING
GLOBAL DEBT ACCUMULATION
©2015 EVERBANK. ALL RIGHTS RESERVED
US borrowing
Source: Acropolis Investment Management
CENTRAL BANK CONFIDENCE (?) “…we’ve lowered interest rates I don’t know how many times, four or five times, six times maybe. And each time someone was saying this is going to be terribly expansionary, there will be inflation. …somehow runaway inflation hasn’t come yet. What I’m saying is that the jury’s still out. But there must be a statute of limitations. Also, for the people who say there will be inflation, yes, when, please.” ECB President Mario Draghi at January 2015 press conference announcing the onset of euro zone QE.
© EverBank 2015. All rights reserved.
Image: http://upload.wikimedia.org/wikipedia/commons/1/1d/Mario_Draghi_World_Econo mic_Forum_2013_crop.jpg
WHAT DO CRITICS FEAR? Continuing fiscal deficits are unsustainable – at some point a government will default or receive a price shock An overly expansive monetary policy will result in hyper-inflation and/or continued deflation The US, European, Japanese and Chinese economies are levitated by government participation and interference and can not stand on their own Global ‘fiat’ currencies are likely to suffer from continued expansion of monetary base CURRENCY WARS
The world will be unable to fight the next global financial crash as central banks have used up all of their ammunition trying to tackle the last crisis Central banks have backed themselves in a corner after repeatedly cutting interest rates to shore up their economies The result is too much debt, too little growth and too low interest rates “In short, low rates beget lower rates.”
BANK OF INTERNATIONAL SETTLEMENTS 2015 ANNUAL REPORT http://www.telegraph.co.uk/finance/economics/11704051/The-world-isdefenseless-against-the-next-financial-crisis-warns-BIS.html
Copper
Source: Federal Reserve Bank of Saint Louis
Copper
Source: Federal Reserve Bank of Saint Louis
Precious Metals
Source: BofAML Global Investment Strategy, EPFR Global
MORE CONSUMERS = MORE DEMAND
©2015 EVERBANK. ALL RIGHTS RESERVED
Europe
~ - 33%
Source: St. Louis Federal Reserve Bank, FRED Database
Modern Portfolio Theory
©2014 EVERBANK. ALL RIGHTS RESERVED
ASSET CLASS RETURNS Highest
Lowest
- EM Debt = JP Morgan GBI EM Global Diversified Unhdged TR - REITS - FTSE/NAREIT All Equity REITs - Equity Hedge = HFRI Equity Hedge - Market Neutral = HFN Market Neutral Equity Index
Source: Conway Investment Research, Morningstar, MSCI, HFRI
- High Yield = Barclays Capital US Corporate High Yield - DJ UBS Cmdty = Dow Jones-UBS Commodity TR - MSCI EAFE = MSCI EAFE GD - MSCI EME = MSCI EM Equity GD
Economic Fundamentals
GDP –
Those countries that have shown solid growth and are expected to continue to grow will likely have currencies that reflect these positive expectations. India, Australia, China
Current-Account balance (% of GDP) – Countries with a high current-account balance as a % of GDP create demand for their currencies through trade flows. Norway, Singapore, Switzerland, Russia Budget balance (% of GDP) – Reflects a country’s long term stability. Norway, Singapore Debt (% of GDP) – Again measures the long term stability of a country. Norway, Australia, Russia Real Interest Rates – This is a country’s interest rate less their inflation rate. Higher real interest rates will attract investors, creating demand for the currency. India, Brazil, Russia
©2013 EVERBANK. ALL RIGHTS RESERVED
9.90 8.90 7.90 6.90 5.90 4.90 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
NORWEGIAN KRONE Fundamental Snapshot
Technical Snapshot
Spot Price 8.4336
3-YR STDev 10.58%
Est. Downside Risk -23.87 %
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 27.94%
CA to GDP 7.75%
Budget Surplus to GDP 6.94%
Real GDP Growth 0.70%
Cash Target .50%
Inflation Rate 3.43%
Highlights
•Rock solid fundamentals •Commodity driven economy – oil revenues •NOT a part of the euro zone
Norwegian Krone Spot 10 Yr
1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
AUSTRALIAN DOLLAR Fundamental Snapshot
Technical Snapshot
Spot Price .7630
3-YR STDev 10.52%
Est. Downside Risk -16.15%
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 36.83%
CA to GDP -5.10%
Budget Deficit to GDP -1.89%
Real GDP Growth 3.10%
Cash Target 1.75%
Inflation Rate 1.30%
Highlights
•Strong GDP for a developed country •Exposure to commodities and China •Very low debt to GDP.
Australia Dollar Spot 10 Yr
SINGAPORE DOLLAR Fundamental Snapshot
Technical Snapshot
Debt to GDP
98.24%
CA to GDP
18.88%
Budget Surplus to GDP
1.33%
Real GDP Growth
1.80%
Cash Target
.40%
Inflation Rate
-.80%
Spot Price
1.3479
Highlights
3-YR STDev
5.43%
•Strong debt fundamentals with budget and current account surplus. •Uses currency to control inflation •Relatively stable currency
Est. Downside Risk
-11.31%
1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00
7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
Singapore Dollar Spot 10 Yr
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
INDIAN RUPEE Fundamental Snapshot
Technical Snapshot
Debt to GDP
67.20%
CA to GDP
-1.06%
Budget Deficit to GDP
-7.43%
Real GDP Growth
7.90%
Cash Target
6.00%
Inflation Rate
5.65%
Highlights
Spot Price
67.1837
3-YR STDev
7.77%
Est. Downside Risk
-9.85%
•Good prospects for long term growth •Oil Importer – Lower oil prices are a tailwind for the economy •Attractive interest rate and strong central bank
73.00 68.00 63.00 58.00 53.00 48.00 43.00 38.00
7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
Indian Rupee Spot 10 Yr.
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
4.50 4.00 3.50 3.00 2.50 2.00 1.50 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
BRAZILIAN REAL Fundamental Snapshot
Technical Snapshot
Spot Price 3.2796
3-YR STDev 18.34%
Est. Downside Risk -34.20%
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 73.70%
CA to GDP -2.49%
Budget Deficit to GDP -8.24%
Real GDP Growth -5.42%
Cash Target 14.25%
Inflation Rate 9.15%
Highlights
•Very attractive interest rate •But very unattractive fundamentals •Lots of potential with right leadership
Brazilian Real Spot 10 Yr
90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
RUSSIAN RUBLE Fundamental Snapshot
Technical Snapshot
Spot Price 63.7528
3-YR STDev 23.13%
Est. Downside Risk -19.21%
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 17.71%
CA to GDP 4.12%
Budget Deficit to GDP -2.85%
Real GDP Growth -1.20%
Cash Target 10.50%
Inflation Rate 7.37%
Highlights
•High Volatility likely to subside •Commodity sensitive •Economic weakness priced in?
Russian Ruble Spot 10 Yr.
2016 CURRENCIES TO WATCH
Country
2014
Norwegian Krone
-18.59%
-15.73%
+ 6.10%
+ 7.67%
Australian Dollar
- 8.00%
-10.87%
+ 2.73%
+46.85%
Singapore Dollar
- 4.72%
- 6.56%
+ 5.44%
+37.33%
Indian Rupee
- 1.81%
- 4.70%
- 1.74%
-28.30%
Brazilian Real
-11.12%
-32.94%
+ 22.6%
-28.55%
Silver
-19.06%
-11.86%
+40.71%
+322.56%
Gold
-1.79%
+25.86%
+379.26%
2015
-10.41%
2016 YTD
Returns for currency only. 2016 YTD through 7/1/2016. Since 2002 for period 1/1/2002 => 7/1/2016 Source: Bloomberg ©2016 EVERBANK. ALL RIGHTS RESERVED
Since 2002
A PFENNIG FOR YOUR THOUGHTS®
© EverBank 2015. All rights reserved.
41
THE CLIFF HOUSE 6:00 pm – 8:00 pm We look forward to everyone joining us at the top of the Stowe Mountain Lodge Gondola for a reception this evening
© EverBank 2015. All rights reserved.
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CHRIS GAFFNEY, CFA PRESIDENT, EVERBANK WORLD MARKETS (A DIVISION OF EVERBANK)
© EverBank 2016. All rights reserved.
LEGAL NOTICES All statements, comments, and opinions expressed are solely those of the speaker(s) and are not the statements, comments, or opinions of EverBank or any affiliates, and are subject to change without notice. Due to the rapidly changing nature of financial markets, any statement, comment, or opinion may quickly become outdated. Additional information is available upon request. EverBank, its officers and employees do not provide investment or other types of advice. All factual information in this presentation has been obtained from sources the speaker(s) believed to be reliable, but the accuracy, completeness and interpretation of the factual information are not guaranteed and has not been independently verified.
The statements, comments, opinions, and information presented do not constitute a solicitation for the purchase or sale of any securities or options on securities, or for the purchase or sale of a currency or any precious metal, or for any products or services of EverBank, and they do not constitute a recommendation to you or to any specific person of any particular action. Not all products are right for everyone. You should conduct your own research and/or consult your investment or other advisor before making any investment. The speaker(s) or EverBank may hold positions from time to time in assets discussed during this presentation. Charts in this presentation are provided for illustration purposes only. The elements of charts or slides may not reflect any management fees, transaction costs, or expenses. The benchmark indices are unmanaged and may not be available for direct investment. Prices of securities and other potential investments change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets in general, economic conditions, interest rates and market liquidity. Fixed income investments have interest rate risk, which refers to the risk that bond prices generally fall as interest rates rise and rise when interest rates fall. Foreign securities have additional risk, including exchange rate changes, political, economic and social factors, all of which may be magnified in emerging markets. Investments in narrow sectors such as real estate or commodities may be subject to more volatility than more diversified investments. Asset allocation/diversification does not guarantee a profit or eliminate the risks of loss. The verbal commentary is a critical part of this presentation. Any distribution of this presentation is incomplete without the associated verbal commentary provided. Do not rely exclusively on the elements included here in your analysis. Past performance is not representative of future performance. ©2016 EVERBANK, ALL RIGHTS RESERVED
2
DISCLOSURES CONCERNING FORWARD LOOKING STATEMENTS
From time to time, the speaker(s) may make forward-looking statements that reflect his or her views with respect to, among other things, future events and financial performance. Words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections , the speaker’s beliefs and certain assumptions made by the speaker(s), many of which, by their nature, are inherently uncertain and beyond the speaker’s control. Accordingly, you are cautioned that any such forwardlooking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although the speaker believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, EverBank, and the speaker(s) disclaim any obligation to update the expression of any view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this presentation.
©2016 EVERBANK, ALL RIGHTS RESERVED
3
OUR TIME TOGETHER ü Crisis has become the norm ü Central Banks – rescuer or contributor? ü The dangers of NIRP & ZIRP ü How to protect your portfolio
© EverBank 2016. All rights reserved.
A CONSTANT STATE OF CRISIS
CURRENCY WARS
QE II
Quantitative Easing
ARAB SPRING Puerto Rican Debt Default
Oil
GREEK DEBT CRISIS Foreclosures Debt Limits
Default
Iran
Italian Banks
CYPRUS Deflation
China
Credit Default Swaps Spain NEGATIVE INTEREST RATES US Elections
Ireland
GLOBAL EQUITY CORRECTION TARP
©2013 EVERBANK. ALL RIGHTS RESERVED
Fiscal Cliff QE III
Afghanistan
BREXIT
Safe Havens
EUROPEAN AUSTERITY
RUSSIA GRABS CRIMEA Commodities Slide
Bank of Japan
India
Mortgage
Syria
THE WORLD – AS WE KNOW IT
Global GDP
$74.0 Trillion
USA
$18.6T
25%
European Union
$16.5T
22%
China
$11.4T
Japan United Kingdom India
$ 4.4T
Brazil
$ 1.5T
2%
Canada
$ 1.5T
2%
15%
18%
6% $2.8T 4% $ 2.3T 3%
All Other Source: International Monetary Fund World Economic Outlook (April, 2016) ©2016 EVERBANK. ALL RIGHTS RESERVED
$13.7T
27%
MONETARY MADNESS, OR THE PERFECT SOLUTION? WHY??? FEAR OF DEFLATION Purpose and impact of QE ü ü ü ü
Lower real interest rates Raise inflation expectations Depreciate the currency Boost asset (stock) prices
Various St. Louis Federal Reserve speeches. Including: http://research.stlouisfed.org/econ/bullard/pdf/Bowling_Green_Feb_24_2011_Fi nal.pdf © EverBank 2015. All rights reserved.
POSTER CHILD “If we could manage 4 or 5 percent inflation over that stretch, so that prices were 25 percent higher …the real value of mortgage debt would be substantially lower than it looks on current prospect …and the economy would therefore be substantially farther along the road to sustained recovery.”
Paul Krugman, End This Depression Now! Quoted in New York Times Review of Books
© EverBank 2015. All rights reserved.
Image: http://en.wikipedia.org/wiki/File:Paul_Krugmanpress_conference_Dec_07th,_2008-8.jpg
PRICE OF MONEY ACROSS THE GLOBE
10- Year Sovereign Debt Yields (%) U.S. Australia Canada France Germany Greece India Italy Japan Portugal Spain U.K. Source: Bloomberg
©2015 EVERBANK. ALL RIGHTS RESERVED
7/8/2016
12/31/2014
12/31/2013
12/31/2012
1.4 1.9 0.97 0.12 -0.17 7.7 7.4 1.2 -0.28 3.1 1.1 0.76
2.2 2.8 1.8 0.8 0.5 9.1
3.0 4.2 2.8 2.6 1.9 8.3
1.8 3.3 1.8 2.0 1.3 11.9
1.9 0.3 2.6 1.6 2.5
4.1 0.7 6.0 4.1 3.0
4.5 0.8 7.0 5.3 1.8
Ten-year US Treasury Note remains lowest in 55 years
Source: Federal Reserve Bank of Saint Louis
GDP IS HEADED HIGHER HERE IN THE US
©2015 EVERBANK. ALL RIGHTS RESERVED
HOUSEHOLD NET WORTH IS BACK!
$65.6
$66.1
$66.1
$61.2 $53.6
$52.0
$59.7
$60.6
2010
2011
$55.7
$46.0 $39.2
2002
2003
2004
2005
2006
2007
(Source: Tiburon Strategic Advisors - $ Trillions)
Source:
2008
2009
12/31/12 Federal Reserve Flow of Funds Report; 6/30/12 Federal Reserve Flow of Funds Report; 3/31/12 Federal Reserve Flow of Funds Report; 12/31/11 Federal Reserve Flow of Funds Report; 4/8/11 Fidelity Investments Email (Graham); 4/7/11 TD Ameritrade Email (Schweiss); 12/31/10 Federal Reserve Flow of Funds Report; 6/30/10 Federal Reserve Flow of Funds Report; 3/15/10 Barron’s (Federal Reserve); Tiburon Research & Analysis
©2015 EVERBANK. ALL RIGHTS RESERVED
2012
“But if there is a problem with inflation, it isn’t the one expected by the Fed’s critics, who repeatedly predicted that the Fed’s policies would lead to high inflation (if not hyperinflation), a collapsing dollar and surging commodity prices. None of that has happened.”
HOW ARE WE FEELING HERE AT HOME?
US Dollar at multi year highs Growth returning Asset Values are back up Interest Rates moving higher? US consumer risk – JOBS? INCOME? US financial status – Risk to reserve status © EverBank 2015. All rights reserved.
CONSUMER CREDIT HAS JUMPED 32% IN THE PAST FIVE YEARS
U.S. HAS MORE DEBT THAN EVER BEFORE
CENTRAL BANK BALANCE SHEETS ARE GROWING
GLOBAL DEBT ACCUMULATION
©2015 EVERBANK. ALL RIGHTS RESERVED
US borrowing
Source: Acropolis Investment Management
CENTRAL BANK CONFIDENCE (?) “…we’ve lowered interest rates I don’t know how many times, four or five times, six times maybe. And each time someone was saying this is going to be terribly expansionary, there will be inflation. …somehow runaway inflation hasn’t come yet. What I’m saying is that the jury’s still out. But there must be a statute of limitations. Also, for the people who say there will be inflation, yes, when, please.” ECB President Mario Draghi at January 2015 press conference announcing the onset of euro zone QE.
© EverBank 2015. All rights reserved.
Image: http://upload.wikimedia.org/wikipedia/commons/1/1d/Mario_Draghi_World_Econo mic_Forum_2013_crop.jpg
WHAT DO CRITICS FEAR? Continuing fiscal deficits are unsustainable – at some point a government will default or receive a price shock An overly expansive monetary policy will result in hyper-inflation and/or continued deflation The US, European, Japanese and Chinese economies are levitated by government participation and interference and can not stand on their own Global ‘fiat’ currencies are likely to suffer from continued expansion of monetary base CURRENCY WARS
The world will be unable to fight the next global financial crash as central banks have used up all of their ammunition trying to tackle the last crisis Central banks have backed themselves in a corner after repeatedly cutting interest rates to shore up their economies The result is too much debt, too little growth and too low interest rates “In short, low rates beget lower rates.”
BANK OF INTERNATIONAL SETTLEMENTS 2015 ANNUAL REPORT http://www.telegraph.co.uk/finance/economics/11704051/The-world-isdefenseless-against-the-next-financial-crisis-warns-BIS.html
Copper
Source: Federal Reserve Bank of Saint Louis
Copper
Source: Federal Reserve Bank of Saint Louis
Precious Metals
Source: BofAML Global Investment Strategy, EPFR Global
MORE CONSUMERS = MORE DEMAND
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Europe
~ - 33%
Source: St. Louis Federal Reserve Bank, FRED Database
Modern Portfolio Theory
©2014 EVERBANK. ALL RIGHTS RESERVED
ASSET CLASS RETURNS Highest
Lowest
- EM Debt = JP Morgan GBI EM Global Diversified Unhdged TR - REITS - FTSE/NAREIT All Equity REITs - Equity Hedge = HFRI Equity Hedge - Market Neutral = HFN Market Neutral Equity Index
Source: Conway Investment Research, Morningstar, MSCI, HFRI
- High Yield = Barclays Capital US Corporate High Yield - DJ UBS Cmdty = Dow Jones-UBS Commodity TR - MSCI EAFE = MSCI EAFE GD - MSCI EME = MSCI EM Equity GD
Economic Fundamentals
GDP –
Those countries that have shown solid growth and are expected to continue to grow will likely have currencies that reflect these positive expectations. India, Australia, China
Current-Account balance (% of GDP) – Countries with a high current-account balance as a % of GDP create demand for their currencies through trade flows. Norway, Singapore, Switzerland, Russia Budget balance (% of GDP) – Reflects a country’s long term stability. Norway, Singapore Debt (% of GDP) – Again measures the long term stability of a country. Norway, Australia, Russia Real Interest Rates – This is a country’s interest rate less their inflation rate. Higher real interest rates will attract investors, creating demand for the currency. India, Brazil, Russia
©2013 EVERBANK. ALL RIGHTS RESERVED
9.90 8.90 7.90 6.90 5.90 4.90 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
NORWEGIAN KRONE Fundamental Snapshot
Technical Snapshot
Spot Price 8.4336
3-YR STDev 10.58%
Est. Downside Risk -23.87 %
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 27.94%
CA to GDP 7.75%
Budget Surplus to GDP 6.94%
Real GDP Growth 0.70%
Cash Target .50%
Inflation Rate 3.43%
Highlights
•Rock solid fundamentals •Commodity driven economy – oil revenues •NOT a part of the euro zone
Norwegian Krone Spot 10 Yr
1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
AUSTRALIAN DOLLAR Fundamental Snapshot
Technical Snapshot
Spot Price .7630
3-YR STDev 10.52%
Est. Downside Risk -16.15%
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 36.83%
CA to GDP -5.10%
Budget Deficit to GDP -1.89%
Real GDP Growth 3.10%
Cash Target 1.75%
Inflation Rate 1.30%
Highlights
•Strong GDP for a developed country •Exposure to commodities and China •Very low debt to GDP.
Australia Dollar Spot 10 Yr
SINGAPORE DOLLAR Fundamental Snapshot
Technical Snapshot
Debt to GDP
98.24%
CA to GDP
18.88%
Budget Surplus to GDP
1.33%
Real GDP Growth
1.80%
Cash Target
.40%
Inflation Rate
-.80%
Spot Price
1.3479
Highlights
3-YR STDev
5.43%
•Strong debt fundamentals with budget and current account surplus. •Uses currency to control inflation •Relatively stable currency
Est. Downside Risk
-11.31%
1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00
7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
Singapore Dollar Spot 10 Yr
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
INDIAN RUPEE Fundamental Snapshot
Technical Snapshot
Debt to GDP
67.20%
CA to GDP
-1.06%
Budget Deficit to GDP
-7.43%
Real GDP Growth
7.90%
Cash Target
6.00%
Inflation Rate
5.65%
Highlights
Spot Price
67.1837
3-YR STDev
7.77%
Est. Downside Risk
-9.85%
•Good prospects for long term growth •Oil Importer – Lower oil prices are a tailwind for the economy •Attractive interest rate and strong central bank
73.00 68.00 63.00 58.00 53.00 48.00 43.00 38.00
7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
Indian Rupee Spot 10 Yr.
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
4.50 4.00 3.50 3.00 2.50 2.00 1.50 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
BRAZILIAN REAL Fundamental Snapshot
Technical Snapshot
Spot Price 3.2796
3-YR STDev 18.34%
Est. Downside Risk -34.20%
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 73.70%
CA to GDP -2.49%
Budget Deficit to GDP -8.24%
Real GDP Growth -5.42%
Cash Target 14.25%
Inflation Rate 9.15%
Highlights
•Very attractive interest rate •But very unattractive fundamentals •Lots of potential with right leadership
Brazilian Real Spot 10 Yr
90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 7/21/2006 9/29/2006 12/8/2006 2/16/2007 4/27/2007 7/6/2007 9/14/2007 11/23/2007 2/1/2008 4/11/2008 6/20/2008 8/29/2008 11/7/2008 1/16/2009 3/27/2009 6/5/2009 8/14/2009 10/23/2009 1/1/2010 3/12/2010 5/21/2010 7/30/2010 10/8/2010 12/17/2010 2/25/2011 5/6/2011 7/15/2011 9/23/2011 12/2/2011 2/10/2012 4/20/2012 6/29/2012 9/7/2012 11/16/2012 1/25/2013 4/5/2013 6/14/2013 8/23/2013 11/1/2013 1/10/2014 3/21/2014 5/30/2014 8/8/2014 10/17/2014 12/26/2014 3/6/2015 5/15/2015 7/24/2015 10/2/2015 12/11/2015 2/19/2016 4/29/2016 7/8/2016
RUSSIAN RUBLE Fundamental Snapshot
Technical Snapshot
Spot Price 63.7528
3-YR STDev 23.13%
Est. Downside Risk -19.21%
©2013 EVERBANK. ALL RIGHTS RESERVED
SOURCE: BLOOMBERG
Debt to GDP 17.71%
CA to GDP 4.12%
Budget Deficit to GDP -2.85%
Real GDP Growth -1.20%
Cash Target 10.50%
Inflation Rate 7.37%
Highlights
•High Volatility likely to subside •Commodity sensitive •Economic weakness priced in?
Russian Ruble Spot 10 Yr.
2016 CURRENCIES TO WATCH
Country
2014
Norwegian Krone
-18.59%
-15.73%
+ 6.10%
+ 7.67%
Australian Dollar
- 8.00%
-10.87%
+ 2.73%
+46.85%
Singapore Dollar
- 4.72%
- 6.56%
+ 5.44%
+37.33%
Indian Rupee
- 1.81%
- 4.70%
- 1.74%
-28.30%
Brazilian Real
-11.12%
-32.94%
+ 22.6%
-28.55%
Silver
-19.06%
-11.86%
+40.71%
+322.56%
Gold
-1.79%
+25.86%
+379.26%
2015
-10.41%
2016 YTD
Returns for currency only. 2016 YTD through 7/1/2016. Since 2002 for period 1/1/2002 => 7/1/2016 Source: Bloomberg ©2016 EVERBANK. ALL RIGHTS RESERVED
Since 2002
A PFENNIG FOR YOUR THOUGHTS®
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