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HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates
Market Update
Europe 2015 = Problematic
China GDP Miss + Market Crash
sources: HiddenLevers, NPR, Marketwatch 1 2, ZeroHedge, BBC, Economist, Forbes
- German rates at 0- Swiss rates negative- Swiss ditch Euro peg- Euro below 2012 low- Greece deteriorating fast- EU QE looming
USA Decoupling
Market Update: Goodbye Fed, Hello ECB
sources: HiddenLevers, Financial Times, Businessweek
- 85b usd monthly bond buying
- began at market bottom, led to rally
- treasury yields rose, driving money into market
- stimulus impact on inflation debatable.
- 60b usd monthly bond buying
- begins at market top, likely no equity pop
- hopes to drive up yields on German Bonds, and people to take risks – hiring, spending
- BIG QUESTION: Enough to fight deflation?
Fed ECB
Market Update – Ebola Pandemic
sources: HiddenLevers, Barrons ,
USD chart tells many stories1m: Euro in serious trouble
1y: USD strong post QE
5y: Japan QE gave USD legs
10y: USD at top of range
Macro Snapshot – USDiesel
USD +16%
past surprise: US shale revolution- decreased trade deficit- increases oil supply
future surprises: - Fed hikes rates- ECB begins QE
USD even - China de-peg
Oil –52%
USD +16%
EUR –16%
JPY –16%
Macro Snapshot
Oil-gold ratio spiked to fifth highest level ever
Typically corrects quickly:- Does oil spike from here?- Or does gold crash from here?
5th highest level ever
Swiss Central Bank shocked the world (and bankrupted FX traders) by ending peg to Euro
Gold and silver seem to be acting as safe havens for now
GOOD: ECB Successful QE
source: HiddenLevers, Financial Times,
ECB action avoids deflation in Europe
ECB program 30% smaller than Fed QE
Fed hands tied on rate hike
Crude Oil stabilizes at 50ish
EUROstabilizesat 1.20ish
noticeable unemployment
decreases in Europe
BAD: US Avoids EU/Japan Crisis
already baked inUS inflation below 1%
more upside surprises on US budget deficits
decoupling continues but EU/Japan hinder growth
markets flat to mildly down
source: HiddenLevers, Census.gov,
Japan + Germany #4 + #5
US trade partners
GDP washless trade but
stronger internals
EU more trade than
CAN/CHINA/MEX
UGLY: US Succumbs
retail sales already trending
down
Fed out of bullets – can’t return to QE
US unable to avoid first world problems
Oil punches through 30usd
source: HiddenLevers,
Not as severe a crash as 2009
expect all time lows on US Treasuries
USD + sentiment touching long
term resistance
Oil: Global Picture
sources: Economist 1 2
EU + Russia + Japan:Growth Near 0
China + India growth heading
sub-7%, can’t carry world
Africa rising, but from tiny base
USA! A rare rich country with growth
Oil: Addiction Getting Cold
source: Our Finite World , Oil & Gas Journal, EIA
Total US miles driven down 3% from 2007 peak while GDP up 9%
Less driving + better mpg oil demand down 11% from peak
US economy energy efficiency picking up
US fuel economy rising sharply since 2010
BTU/$GDP down 7% since 2010
Oil: Production Getting Hot
sources: EIA, DOT
Oil production approaching 1970 peak
OPEC determined to bankrupt US shale industry
Supply is up… But we are well below shale breakeven price:$50-80usd
Oil: Geo-Political Risk Premium = 0
sources: HiddenLevers
Russia/Ukraine didn’t bid up oilIraq/Syria – won’t matter unless oil-fields in flamesCurrently, ISIS and Russian sabre-rattling lack economic backing
WTI
$47.5BRENT
$49
Oil: Dance with Equities
sources: HiddenLevers
YearOil
Loss %
S+P Return
%
1985/86 -59 +22
1987/88 -35 -10
1990 -27 +5
1990/91 -45 +23
1997/98 -55 +54
2000/01 -53 -21
2003 -31 +11
2004 -34 +5
2006/07 -35 +12
2008 -76 -29
2010 -21 -9
2011 -32 -15
2012 -29 -2
2014/15 -57 +4
14 OIL corrections Six S&P 500 declines• Recessions knock down both oil + equities• Mid-cycle oil crashes have little impact
Scenario: Oil Crash
GoodBounce
Back
BadIsolated
Crash
UglyPerfect Storm
$32 -33%
$48PRICED
IN
$74 +50%
key lever
OPEC relents or Shale producers fold.
Almost 60% decline in oil since summer 2014, S&P has been flat.
Oil prices pierce financial crisis lows. Unlike 2008-09, no V-Shaped recovery for Oil.
Deflation + Commodities
Oil crashes are not predictive of equity market crashes
Fed unlikely to raise rates, considering other
central bank moves
ECB QE unlikely to work at market topIsolated oil crash priced in. Further crash = deflation
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