Destination Wealth Management - AAII Silicon Valley …siliconvalleyaaii.org/images/Economic_Update.pdf97 May-97 Dec-10 Jul-98 Feb 99 Sep Apr-00 Nov 00 Jun 01 06 Jan-02 02 Aug-Mar

Destination Wealth Management 2014 Global Investing Outlook

Presented to AAII, April 12, 2014

1

Presented by: Dr. Michael Yoshikami, Ph.D., CFP®

Website: www.destinationwm.com Email: [email protected]

Phone: 925.935.2900

http://www.destinationwm.com/

mailto:[email protected]

US Economy

2

Economic Data Gross Domestic Product (GDP) Growth

-7

-5

-3

-1

1

3

5

7

9

1997-I 1997-III 1998-I 1998-III 1999-I 1999-III 2000-I 2000-III 2001-I 2001-III 2002-I 2002-III 2003-I 2003-III 2004-I 2004-III 2005-I 2005-III 2006-I 2006-III 2007-I 2007-III 2008-I 2008-III 2009-I 2009-III 2010-I 2010-III 2011-I 2011-III 2012-I 2012-III 2013-I 2013-III 2014-I(E) 2014-III(E) Q

/Q %

cha

nge(

annu

alize

d)

Actual and Forecast

Sources: Bureau of Economic Analysis, actual data through September 2013; Wall Street Journal survey taken December 6-10, 2013.

Please assess your individual circumstances before making any investment. Strategies discussed may not be appropriate for all investors. For more information about Destination Wealth Management, please see the company’s website at www.destinationwm.com. A copy of the firm’s ADV is available on request. Contact Destination at [email protected] or toll free number at (855) DWM PLAN. Past Performance is no guarantee for future success. Capital Loss or gain may result from the purchase of any asset.

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Economic Data U.S. Index of Leading Economic Indicators (monthly)

Source: ©The Conference Board. Data through November 2013, released December 19, 2013.


4

Inflation Inflation is low and trending down

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics. Data through November 2013.

Shaded bands represent recessions.

CPI

+1.2%

PCE +0.9%

-2

-1

0

1

2

3

4

5

6

Jan-95

Aug-95

Mar-96

Oct-96

May-97

Dec-97

Jul-98

Feb-99

Sep-99

Apr-00

Nov-00

Jun-01

Jan-02

Aug-02

Mar-03

Oct-03

May-04

Dec-04

Jul-05

Feb-06

Sep-06

Apr-07

Nov-07

Jun-08

Jan-09

Aug-09

Mar-10

Oct-10

May-11

Dec-11

Jul-12

Feb-13

Sep-13

Pric

e In

dex

12-m

onth

per

cent

cha

nge

(%)


5

Economic Data - jobs Weekly unemployment claims

Source: U.S. Department of Labor, data through the week of January 4, 2014.

Clear bands indicate recession.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Jan-97

Dec-97

Nov-98

Oct-99

Sep-00

Aug-01

Jul-02

Jun-03

May-04

Apr-05

Mar-06

Feb-07

Jan-08

Dec-08

Nov-09

Oct-10

Sep-11

Aug-12

Jul-13 W

eekl

y U

nem

ploy

men

t Cla

ims

4-w

eek

mov

ing

aver

age

SA


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Economic Data – consumer spending Financial obligations ratio – record low

Source: Federal Reserve, data through June 2013; released October 29, 2013.

15.3%

14%

15%

16%

17%

18%

19%

1980

…

1981

…

1982

…

1983

…

1984

…

1985

…

1986

…

1987

…

1988

…

1989

…

1990

…

1991

…

1992

…

1993

…

1994

…

1995

…

1996

…

1997

…

1998

…

1999

…

2000

…

2001

…

2002

…

2003

…

2004

…

2005

…

2006

…

2007

…

2008

…

2009

…

2010

…

2011

…

2012

…

2013

… Fi

nanc

ial O

blig

atio

ns a

s a P

erce

nt o

f DPI

(%)

Household deleveraging is done.


8

Global Markets

9

Economic Data rest-of-world Europe’s leading economic indicators – turning higher

Source: ©The Conference Board. Data through November 2013, released December 24th.


10

Economic Data rest-of-world China’s leading economic indicators

Source: ©The Conference Board. Data through November 2013, released December 18th.


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US Deficit

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Deficit spending Government debt-to-GDP ratios - comparative

Source: IMF, World Economic Outlook Database, October 2012. For the United States, the IMF is using estimates for all three years. For most other countries the IMF’s data is actual for 2011; and estimated for 2012 and 2013.

0

20

40

60

80

100

120

140

160

180

200

Greece Japan Portugal Italy Ireland United States France United Kingdom Spain Germany Canada Australia

Debt

/ GD

P (%

)


13

Deficit spending Federal debt % of GDP

Source: Congressional Budget Office (CBO), The 2013 Long-Term Budget Outlook, September 17, 2013.

Revolutionary War Louisiana Purchase Civil War WWI

Great Depression

WWII

Rising Deficits 1980s

0

50

100

150

200

250

1790 1796 1802 1808 1814 1820 1826 1832 1838 1844 1850 1856 1862 1868 1874 1880 1886 1892 1898 1904 1910 1916 1922 1928 1934 1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012 2018 2024 2030 2036 2042 2048

Perc

ent o

f GDP

(%)


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Deficit spending Federal revenues and outlays – it’s a spending problem

Source: Congressional Budget Office (CBO), The 2013 Long-Term Budget Outlook, September 17, 2013. 1 CBO's baseline revenue and spending projections reflect the provisions of current law.


15

Outlays

Revenues

14.5

16.5

18.5

20.5

22.5

24.5

19…

19…

19…

19…

19…

19…

19…

19…

19…

19…

19…

19…

19…

19…

20…

20…

20…

20…

20…

20…

20…

20…

20…

20…

20…

20…

Perc

ent o

f GDP

(%)

Actual Forecast

Economy Projected GDP growth – the case for a downshift

Source: Bureau of Economic Analysis. Annual data through 2012.

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032

GDP

year

/yea

r % c

hang

e (%

)

Actual Forecast

GDP growth (% change year/year)


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Market Commentary

17

Investment Strategy World P/E Ratios

Source: Yardeni Research, Inc., with permission. Global Index Briefing, January 8, 2014. 1 The Leuthold Group—January 2014, with permission. 2 Europe, Australia, Far East. (EAFE).


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Stock Market Bubble? 2013—S&P 500 climbed the Wall of Worry to new highs

Source: Standard and Poor’s. Data through December 31, 2013.

3/1/13 sequester

10/1/13 government shutdown

12/18/13 Fed announces

QE taper

1/2/13 fiscal cliff averted

6/19/13 Bernanke proposes

end of QE by mid-2014

1400

1450

1500

1550

1600

1650

1700

1750

1800

1850

S&P

500

Inde

x


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Stock Market Bubble? … while Main Street sentiment is stuck in the dumps.

Source: The University of Michigan Survey Research Center, data through December 2013.

40

50

60

70

80

90

100

110

120

Feb-60 O

ct-61 Jun-63 Feb-65 O










ct-11 Jun-13

U M

ich

Cons

umer

Sen

timen

t Ind

ex

(Q1

1966

=100

) “normal” sentiment

1980 recession, crude > doubled

14% inflation, silver bubble/burst stocks flat for > 10 years

2007-8/2011 global financial crisis, recession,

U.S. debt downgrade, stocks flat for > 10 years

stock market bubble


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The End of QE – higher bond yields bad for stocks? Rising bond yields have been good for stocks

Sources: Standard and Poor’s; Federal Reserve Bank of St. Louis. Data through January 3, 2013. 1 The usual reasons cited are a) higher bond yields provide competition to dividend yields, making stocks less attractive; b) higher bond yields drive down the market’s P/E ratio; and, c) higher bond yields will choke off the economic recovery, taking stocks down.

10-Year Treasury Yield

(left axis)

S&P 500 (right axis)

200

400

600

800

1000

1200

1400

1600

1800

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

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

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

S&P

500

Inde

x

10-Y

ear T

reas

ury

Yiel

d (%

)


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Economic Overview

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Economic Overview

• Economists see continued economic expansion. • Slow but steady progress on new job formation. • Consumers’ savings and liquidity have risen substantially. • Household net worth has recovered – deleveraging is done. • Inflation is subdued and will probably remain so until there are signs of wage

inflation – which may be a ways off. • The CBO projects massive budget deficits if current revenue and spending

policies continue. • Slow GDP Growth


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Contact Information

Website: www.destinationwm.com Email: [email protected]

Phone: 925.935.2900

24

http://www.destinationwm.com/

mailto:[email protected]

Questions

25

Documents

Destination Wealth Management - AAII Silicon Valley …siliconvalleyaaii.org/images/Economic_Update.pdf97 May-97 Dec-10 Jul-98 Feb 99 Sep Apr-00 Nov 00 Jun 01 06 Jan-02 02 Aug-Mar