Upload
others
View
4
Download
0
Embed Size (px)
Citation preview
How do we define “cash on the sidelines?”
Source: Bloomberg, Credit Suisse
M2-M1 basically equates to savings accounts, money market accounts, retail money market mutual funds, and COD’s
Global M2 minus M1 Money Supply ($ Millions)
0
5000
10000
15000
20000
25000
30000
US Money Supply
European Money Supply
Chinese Money Supply
U.S. corporate cash has risen Percent of current assets
Source: Bloomberg, Milken Institute
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Q4 2012: 42%
Q2 2008: 32%
Percent
Too many depositors, not enough lenders
Source: Federal Reserve
U.S. Commercial Bank Deposits and Loans ($ in Trillions)
$3
$4
$5
$6
$7
$8
$9
$10Deposits
Loans
Note: 3-month interest rates; China, Canada, France, Germany, Italy, Japan, United Kingdom, United States; Weighted by 2012 GDP.
Source: DataStream, International Monetary Fund, Milken Institute.
Monetary policy has driven real interest rates below 0%
-2
-1
0
1
2
3
4
5
1996 1998 2000 2002 2004 2006 2008 2010 2012
Global real interest rate (%)
Source: ICI, Credit Suisse
Is there evidence that the “Great Rotation” has begun?
Source: Bloomberg, Credit Suisse
Personal savings rates back to pre-crisis levels
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Personal Savings Rate
Percent (%)
Panel Goals
Define and quantify the amount of “Cash” that is truly on the sidelines
Understand the pressures to invest (or not to) and the implications of both
Consider ways to spur re-investment (eg products, policy, and/or strategy)
1
2
3
Mustafa Sagun slides
Unleashing Cash On The Sidelines
• Equities will likely provide the highest absolute returns, but will be volatile
– Effective volatility management will be key
Source: Ned Davis Research.
Win By Not Losing…
• Lower volatility, quality growth delivers more reliable cumulative returns
Source: Principal Global Investors.
Fundamental Nature of Volatility Volatility is Related to Changing Growth Expectations
Recent success fuels investor enthusiasm Extrapolation leads to excessive optimism for most
Low Volatility High Low Volatility High
Valuations bid up based on high expectations Resulting in low and volatile outcomes for most
Low Volatility High Low Volatility High
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
5thPercentile
25thPercentile
Median 75thPercentile
95thPercentile
Trailing 3 year Sales Growth
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
5thPercentile
25thPercentile
Median 75thPercentile
95thPercentile
Trailing 3yr EPS Growth vs
Forward 1yr EPS Growth
Trailing
Forward
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
5thPercentile
25thPercentile
Median 75thPercentile
95thPercentile
Forward Earnings/ Price
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
5thPercentile
25thPercentile
Median 75thPercentile
95thPercentile
Realized ROE & ROE Variability
ROE
STD
As of December 31, 2012 Source: Principal Global Equities 5 = lowest volatility stocks, 100 highest volatility stocks Universe is MSCI AC World Index Data represents Jan 1990 – Dec 2011
“Active” Volatility Management is Key
• Price of volatility changes over time, impacting returns
Reference Slides
Source: Bloomberg.
Expansion of balance sheets of major central banks
0
5
10
15
20
25
30
35
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012
BoJ
ECB
BoE
Fed
Central bank total assets (% of GDP)
Public sector significantly “out-borrowing” the private sector
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Total Private and Public Borrowing, $bn
Private Sector
Public Sector
Total
Sources: Federal Reserve, Credit Suisse
Source: The Quantitative Impact Study Group of the Basel Committee on Banking Supervision, June 2012; Credit Suisse
* As calculated by the Basel Committee for the ~200 banks included in their study. CS estimates that this study accounts for 40-60% of global banking system
CET 12.0%
CET 14.5%
Hybrid T1 2.0%
HT1 1.5%
Tier 24.0%
Tier 22.0%
CET 12.5%
CET 12.5%
CET 12.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Basel I & II Basel III
Recalibrating to Basel III Current Shortfalls* Under B3
8%
15.5%
Surcharge for
Global SiFI
Counter-
cyclical Buffer
Capital
Conserv. Buffer
B3
Minimum
$225bn
$2.4tn
CET1
Balance Sheet (RWA)
Funding (“NSFR”)
Challenges facing banks under Basel III
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
400
600
800
1000
1200
1400
1600
1800
2000
What is safe?
Source: Bloomberg, Credit Suisse
Gold JPY-USD (Inverse Convention) AAPL
0.007
0.008
0.009
0.010
0.011
0.012
0.013
0.014
What are the implications of shifting demographics?
Source: Credit Suisse Economic Research
Source: Bloomberg
Note: * 2012 GDP data used
Increase in corporate cash balances Selected major countries
0
5
10
15
20
25
30
35
40
45 2005 Q1 2013*
Cash and near cash items, percent of GDP
Source: Bloomberg
Note: * Q1 2013 data. ** 2004 data for Google, as it did not IPO until then
Increase in cash balances among the top U.S. corporations
0
20
40
60
80
100
120
140
2000 2012US$ billions
+48B
+47B +43B
+29B +29B
+7B+19B +13B
+133B
+8B
Financial sponsors still have “cash on the sidelines” but less
than at the peak of the crisis
Source: Prequin
185 177
258
380
446
493 495
429 391
365
$0
$100
$200
$300
$400
$500
$600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Private Equity Dry Powder, $ billions
Primary dealer holdings of short-term securities have declined
Source: Bloomberg, Milken Institute, March 2013
30
40
50
60
70
80
90
Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13
Primary dealer positions of coupon treasuries, 3 years or less, US$ billions
The effects of Quantitative Easing or flight to safety?
Decline in the government bond yields in major advanced countries
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011 2012 2013
Germany UK US
Japan
10-year government bond yield (%)
Source: Bloomberg.
Source: Credit Suisse High Yield and LUCI Indices
Yields and Spreads for High Yield and Investment Grade
Corporates at or near all-time lows
High Yield & Investment Grade Yields High Yield vs Investment Grade Spreads
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
1/6/2000 1/6/2003 1/6/2006 1/6/2009 1/6/2012
HY IG
0 bp
200 bp
400 bp
600 bp
800 bp
1000 bp
1200 bp
1400 bp
1600 bp
1800 bp
2000 bp
1/6/2000 1/6/2003 1/6/2006 1/6/2009 1/6/2012
HY IG
Source: Credit Suisse
The growth of “alternative” strategies when cash is
not an option
38.0%
57.5% 60.1% 52.2%
49.8%
34.2% 28.7%
26.7%
7.3%
4.9% 5.9% 9.6% 19.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1984-1994 1995-2000 2001-2007 2008-2011
U.S. public pension funds
Equity Fixed income Cash Alternatives
51.5%
63.5% 59.9%
43.6%
33.3%
27.2% 28.0%
37.1%
6.9%
8.3% 7.2% 10.4% 17.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1984-1994 1995-2000 2001-2007 2008-2011
U.S. corporate pension funds
Equity Fixed income Cash Alternatives
Monthly share buybacks since 2009
S&P 500
Source: Bloomberg, Milken Institute, March 2013.
0
10
20
30
40
50
60
70
80
2009 2010 2011 2012 2013
($ bln)
Source: SIFMA.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US$ trillions
Investment
grade
High yield
U.S. corporate bond issuance
Source: Bloomberg, January 2013.
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Net debt-to-EBITDA
Leverage has fallen (S&P 500 Companies)
S&P 500 volatility at pre-crisis levels
Source: Bloomberg
0
10
20
30
40
50
60
70
80
90
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Pre-crisis average, 2004 to June 2007: 13.6
Chicago Board Options SPX Exchange Volatiilty Index (VIX)
US Liquid Assets