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THE FINANCIAL PLAGUE…NO COUNTERPARTY RISK! MARKET PARTICIPANTS DONT WANT TO KNOW WHO IS BEHIND THE MASK DEPRESSION SCENARIO IS UNFOLDING PANIC = OVERSOLD…We raise from UW to Neutral by buying GEMS…. International Equities Checkmate: STRATEGIC ASSET ALLOC. OCT 2008. - PowerPoint PPT Presentation
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International Equities Checkmate:International Equities Checkmate:
STRATEGIC ASSET ALLOC. OCT 2008 STRATEGIC ASSET ALLOC. OCT 2008
Eric Conrads: 0052-55-9177 1028
THE FINANCIAL PLAGUE…NO COUNTERPARTY RISK!
MARKET PARTICIPANTS DONT WANT TO KNOW WHO IS BEHIND THE MASK
DEPRESSION SCENARIO IS UNFOLDING
PANIC = OVERSOLD…We raise from UW to Neutral by buying GEMS…
2
Banking crisis...not new but plague has come!
There has been a while we did not have such a banking crisis but the size of this one might make up for it!
3
SMALL CAPS LEAD, THE BRICS BLEED!
35351189.7-47.09-26.38-4.741211.8RUSSIA3422869.3-43.750.00-6.549070.3CHINA333319-42.72-21.86-5.73253.7MSCI BRICS32322382.4-41.57-20.54-5.95475.1CE331262942.5-41.35-16.80-6.59301.3ASIA 30302543.6-40.99-19.57-6.09103.4GOLDEN DRAGONS29252739.7-40.70-16.79-6.28368.6ASIA PAC X JP28242441.0-39.35-16.62-6.06344.3ASIA far east X JP27281746.4-36.82-17.71-5.34786.9GEMS26916-36.61-11.70-5.2312860.4INDIA252848.2-35.220.00-4.5418016.2HK24274-34.41-17.65-2.76300.5EMEA23293556.8-34.30-17.84-12.83656.2AUSTRALIA222234-33.57-15.54-8.73366.5MSCI EURO $212033-32.17-15.03-8.281080.7UK in $20341581.6-31.42-23.13-5.122652.1BRAZIL197540.1-30.95-9.73-3.243038.2DJ EURO5018192038.1-30.73-14.93-5.772918.0SINGAPORE17183236.0-30.17-14.68-7.931569.7MSCI EX USA16311268.4-27.59-19.65-4.793186.4LATAM151426-27.48-12.85-6.201559.3MSCI GDP weighted14131436.8-26.94-12.73-5.04294.6MSCI WORLD AC132322-26.38-16.34-5.901850.6WATER INDEX1111832.1-25.341.49-5.4811428.1NIKKEI10173033.2-24.44-14.40-6.65177.6MSCI SMALL CAP9810-24.35-9.94-4.666255.7WORLD VALUE815942.9-24.07-13.03-4.554902.5UK721650.5-24.00-15.38-3.871584.6NASDAQ 10061031-23.58-11.90-7.772318.9MSCI JAPAN $51621-23.43-13.69-5.882418.4WORLD GROWTH46348.5-20.68-9.21-1.981164.7SP 50034242.3-18.20-6.00-0.0310850.7DOW JONES2121#N/A N.A.-16.03-12.180.46417.9DJ ARAB TITANS15742.4-8.72-6.89-3.95360.7SMALL CAP12111336.5-25.63-12.13-5.011181.7MSCI WORLD
RANKING YTDRANKING MTDRANKING 5dVolatility_30dChg Pct YtdChg Pct MtdChg Pct 5dPx Last9/30/2008 19:17
35351189.7-47.09-26.38-4.741211.8RUSSIA3422869.3-43.750.00-6.549070.3CHINA333319-42.72-21.86-5.73253.7MSCI BRICS32322382.4-41.57-20.54-5.95475.1CE331262942.5-41.35-16.80-6.59301.3ASIA 30302543.6-40.99-19.57-6.09103.4GOLDEN DRAGONS29252739.7-40.70-16.79-6.28368.6ASIA PAC X JP28242441.0-39.35-16.62-6.06344.3ASIA far east X JP27281746.4-36.82-17.71-5.34786.9GEMS26916-36.61-11.70-5.2312860.4INDIA252848.2-35.220.00-4.5418016.2HK24274-34.41-17.65-2.76300.5EMEA23293556.8-34.30-17.84-12.83656.2AUSTRALIA222234-33.57-15.54-8.73366.5MSCI EURO $212033-32.17-15.03-8.281080.7UK in $20341581.6-31.42-23.13-5.122652.1BRAZIL197540.1-30.95-9.73-3.243038.2DJ EURO5018192038.1-30.73-14.93-5.772918.0SINGAPORE17183236.0-30.17-14.68-7.931569.7MSCI EX USA16311268.4-27.59-19.65-4.793186.4LATAM151426-27.48-12.85-6.201559.3MSCI GDP weighted14131436.8-26.94-12.73-5.04294.6MSCI WORLD AC132322-26.38-16.34-5.901850.6WATER INDEX1111832.1-25.341.49-5.4811428.1NIKKEI10173033.2-24.44-14.40-6.65177.6MSCI SMALL CAP9810-24.35-9.94-4.666255.7WORLD VALUE815942.9-24.07-13.03-4.554902.5UK721650.5-24.00-15.38-3.871584.6NASDAQ 10061031-23.58-11.90-7.772318.9MSCI JAPAN $51621-23.43-13.69-5.882418.4WORLD GROWTH46348.5-20.68-9.21-1.981164.7SP 50034242.3-18.20-6.00-0.0310850.7DOW JONES2121#N/A N.A.-16.03-12.180.46417.9DJ ARAB TITANS15742.4-8.72-6.89-3.95360.7SMALL CAP12111336.5-25.63-12.13-5.011181.7MSCI WORLD
RANKING YTDRANKING MTDRANKING 5dVolatility_30dChg Pct YtdChg Pct MtdChg Pct 5dPx Last9/30/2008 19:17
4
YTD: from compression to dispersion...
Since July, the apparent beta glue has melt due to the weakness of commodities that has left CRB sensitive regions in the dust…
-50%-48%-46%-44%-42%-40%-38%-36%-34%-32%-30%-28%-26%-24%-22%-20%-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%
31/D
ec
14/J
an
28/J
an
11/F
eb
25/F
eb
10/M
ar
24/M
ar
7/A
pr
21/A
pr
5/M
ay
19/M
ay
2/J
un
16/J
un
30/J
un
14/J
ul
28/J
ul
11/A
ug
25/A
ug
8/S
ep
YTD PERFO in WORLD
UK
USA
EURO
JAPAN
ASIA PACIFIC
GE
WORLD
BRIC
5
GET ME OUT!
Over the past 3 and 12 months, markets have declined in the magnitude of 20%.
GEMS have suffered the most over the past 3 months…as it was still a macro paria during crisis!
Amazingly, SMALL CAPS is the only segment not in the low left box.
UK
EUROGEMS
JAPAN
APAC
SMALLCAP
USA
-38.0
-36.0
-34.0
-32.0
-30.0
-28.0
-26.0
-24.0
-22.0
-20.0
-18.0
-16.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
-26.0 -25.0 -24.0 -23.0 -22.0 -21.0 -20.0 -19.0 -18.0 -17.0 -16.0 -15.0 -14.0 -13.0 -12.0 -11.0 -10.0 -9.0 -8.0 -7.0 -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0
LEADERS
DOGSRISING STARS
FALLING ANGELS
6
VOLATILITY PLAGUE STRIKES...
S&P 500 in September: nearly half of it with moves superior at +/- 3%!
2/3 of the year with at least 8 days of movements superior at 1% in both directions.
-10.00%
-9.00%
-8.00%
-7.00%
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
9/2/2008
9/3/2008
9/4/2008
9/5/2008
9/6/2008
9/7/2008
9/8/2008
9/9/2008
9/10/2008
9/11/2008
9/12/2008
9/13/2008
9/14/2008
9/15/2008
9/16/2008
9/17/2008
9/18/2008
9/19/2008
9/20/2008
9/21/2008
9/22/2008
9/23/2008
9/24/2008
9/25/2008
9/26/2008
9/27/2008
9/28/2008
9/29/2008
9/30/2008
0
2
4
6
8
10
12
14
16
jan feb mar apr may jun jul ago sep oct nov dec
Number of SESSIONS per month of DAILY MOVE >1% in the SP500
7
US at mercy?
Foreigners are not anymore buying more US treasuries than the size of the deficit...FINANCING ISSUE?
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
12 Months moving $
net foreign purchases of US assets
US DEFICIT
8
Growth dissipating...China acts!
Chineese authorities are relaxing reserve requirements and have the amunitions to counter a global slowdown... (fiscal boost, reserves...)
10 years after having saved Asia by not devaluating and as a consequence gain political clout, China is in the position to play the same geopolital cards but this time by boosting growth to smooth the global crisis and shine...
China needs growth and felt at the worst of 98 crisis to 7.8% GDP growth
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
1/5
/1996
7/5
/1996
1/5
/19
97
7/5
/1997
1/5
/1998
7/5
/1998
1/5
/1999
7/5
/1999
1/5
/2000
7/5
/2000
1/5
/2001
7/5
/2001
1/5
/20
02
7/5
/2002
1/5
/2003
7/5
/2003
1/5
/2004
7/5
/2004
1/5
/2005
7/5
/2005
1/5
/2006
7/5
/2006
1/5
/2007
7/5
/200
7
1/5
/2008
7/5
/2008
CHINA RESERVE REQUIREMENTS
9
ALLOCATION REVIEW ALLOCATION REVIEW
GENERALITIESGENERALITIES
Portfolio STRATEGYPortfolio STRATEGY
TOTAL SCORE:
NEUTRAL with beta tilt (GEMS)
PICKER & ALPHA MARKET
10
KEY STRATEGIC FLAGS and our take…
Economic growth will decelerate and expect SUB-PAR growth for next 3 years…US GDP FALSE IMAGE: WE BELIEVE Q3 AND Q4 are going to be UGLY!CASH IS KING…till Central Banks act!Dramatic events unfold in the space of one monthLiquidity is contracting and BANK LENDING WILL COLLAPSE.CREDIT CRUNCH? THE TAXPAYERS PAY THE BILL via BAIL-OUTS.PLAY CREDIT SPREAD BEFORE EQUITIES?Companies are full of CASH…Households are full of DEBTCHINA POSITIVE: SPEECH FROM INFLATION TO GROWTH CONCERNSELECTIONS IN THE US: RISK OF PROTECTIONISMSTAY ON THE SIDELINES…UPGRADE GEMS TO OW
In a bear market, spreadsheets matter the most / in a bull market, themes rule the roost
11
A DRAMATIC MONTH FULL OF EVENTS!
US BIGGEST BANKRUPTCY EVER (Lehman)
US BIGGEST BANK FAILURE-SEIZURE EVER (Washington Mutual)
US BIGGEST NATIONALIZATION EVER (Freddie & Fannie) – (AIG)
US BIGGEST BAIL-OUT PLAN SINCE THE 30´s (TARP)
US forced merger-wedding (ML-BOFA)
FED accepts equities as collateral for first time ever
2nd time in history that money market funds break the 1$ PAR value
RUN on deposits at banks and money markets at mutual funds Co.
People queuing to get gold coins (no counterparty risk)
SAFE 3 months US paper reached 0.15%...the lowest since 1941!
European governments are bailing-out their banks
Short-selling banned all over the world
CHINA cut reserve requirements and allow short-selling
12
MAIN ISSUES / STRATEGIC CALLS
FRONT END OF THE CURVE – MONEY MARKET
PANIC AND DISLOCATION
DEVELOPED ECONOMIES IN RECESSION
GEMS TOO CHEAP TO IGNORE
WE REPEAT…ALPHA YEAR AFTER 5 YEARS OF BETA RUN!
13
STRATEGY VIEWS
OUR CALL: NEUTRAL WITH GEMS TILT
Challenges & Opportunities for 2008:
RISK of PROTECTIONISM as GLOBAL TRADE has been the main growth engine for the past 10 years.
RISK of EXCESS REGULATIONS
RISK OF CENTRAL BANKS MISMANAGEMENT!
EPS COLLAPSE
FISCAL HOLES…
SMILE as EQUITIES are cheap for long-term investors.
SMILE AS CHINA HAS A PRO-GROWTH POLICY
SMILE as FISCAL BOOSTERS will be used
14
MARKETS & THE ECONOMY: MARKETS & THE ECONOMY: impact on style, size and allocationimpact on style, size and allocation
GLOBAL ECO MARKETSGLOBAL ECO MARKETS
MACRO SCORE: -1 for DVM and 0 / -1 for GEMS.
SIZE SCORE: +1 BIG CAP -1 SMALL CAP
STYLE SCORE: 0 GROWTH 0 VALUE
TOTAL SCORE: -1
DVM: DEVELOPED MARKETS
15
Any good news around!?
GLOBAL MACRO SURPRISE index has spent the whole year in the doldrums so far.
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
70
801
/1/2
00
3
4/1
/20
03
7/1
/20
03
10
/1/2
00
3
1/1
/20
04
4/1
/20
04
7/1
/20
04
10
/1/2
00
4
1/1
/20
05
4/1
/20
05
7/1
/20
05
10
/1/2
00
5
1/1
/20
06
4/1
/20
06
7/1
/20
06
10
/1/2
00
6
1/1
/20
07
4/1
/20
07
7/1
/20
07
10
/1/2
00
7
1/1
/20
08
4/1
/20
08
7/1
/20
08
GLOBAL MACRO SURPRISE INDEX
16
CDS spread have not stabilized…
This issue is latent and has not yet been resolved as spreads are rising again…POST $500BN WRITE-OFFS.
CREDIT RISK is still all over the place.
1 5 01 6 01 7 01 8 01 9 02 0 02 1 02 2 02 3 02 4 02 5 02 6 02 7 02 8 02 9 03 0 03 1 03 2 03 3 03 4 03 5 03 6 03 7 03 8 03 9 04 0 04 1 04 2 04 3 04 4 04 5 04 6 04 7 04 8 04 9 05 0 05 1 05 2 05 3 05 4 05 5 05 6 05 7 05 8 05 9 06 0 06 1 06 2 06 3 0
3/2
0/0
7
4/2
0/0
7
5/2
0/0
7
6/2
0/0
7
7/2
0/0
7
8/2
0/0
7
9/2
0/0
7
10
/20
/07
11
/20
/07
12
/20
/07
1/2
0/0
8
2/2
0/0
8
3/2
0/0
8
4/2
0/0
8
5/2
0/0
8
6/2
0/0
8
7/2
0/0
8
8/2
0/0
8
C D S S P R E A D
17
FX SWAP market gripped too...
To get USD, investors are ready to forfeit interest rate income from other currencies!
-140
-120
-100
-80
-60
-40
-20
0
20
12
/17
/19
98
4/1
7/1
99
9
8/1
7/1
99
9
12
/17
/19
99
4/1
7/2
00
0
8/1
7/2
00
0
12
/17
/20
00
4/1
7/2
00
1
8/1
7/2
00
1
12
/17
/20
01
4/1
7/2
00
2
8/1
7/2
00
2
12
/17
/20
02
4/1
7/2
00
3
8/1
7/2
00
3
12
/17
/20
03
4/1
7/2
00
4
8/1
7/2
00
4
12
/17
/20
04
4/1
7/2
00
5
8/1
7/2
00
5
12
/17
/20
05
4/1
7/2
00
6
8/1
7/2
00
6
12
/17
/20
06
4/1
7/2
00
7
8/1
7/2
00
7
12
/17
/20
07
4/1
7/2
00
8
8/1
7/2
00
8
1 YEAR CROSS SWAP EURO-USD
18
TED SPREAD...ignoring the rscue plans!
This is the GAP between lending to the government for short-term paper and lending to banks…
We are at a record differential…banks dont know who has the plague or not and are hoarding cash.
0.000.100.200.300.400.500.600.700.800.901.001.101.201.301.401.501.601.701.801.902.002.102.202.302.402.502.602.702.802.903.003.103.203.303.403.50
Jan/9
4
Jul/9
4
Jan/9
5
Jul/9
5
Jan/9
6
Jul/9
6
Jan/9
7
Jul/9
7
Jan/9
8
Jul/9
8
Jan/9
9
Jul/9
9
Jan/0
0
Jul/0
0
Jan/0
1
Jul/0
1
Jan/0
2
Jul/0
2
Jan/0
3
Jul/0
3
Jan/0
4
Jul/0
4
Jan/0
5
Jul/0
5
Jan/0
6
Jul/0
6
Jan/0
7
Jul/0
7
Jan/0
8
Jul/0
8
TED SPREAD
19
SHORT-TERM STRUCTURE RISKY!
The capitalism arteries are totally clogged...the problem is global and not local.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.81
2/7
/20
01
3/7
/20
02
6/7
/20
02
9/7
/20
02
12
/7/2
00
2
3/7
/20
03
6/7
/20
03
9/7
/20
03
12
/7/2
00
3
3/7
/20
04
6/7
/20
04
9/7
/20
04
12
/7/2
00
4
3/7
/20
05
6/7
/20
05
9/7
/20
05
12
/7/2
00
5
3/7
/20
06
6/7
/20
06
9/7
/20
06
12
/7/2
00
6
3/7
/20
07
6/7
/20
07
9/7
/20
07
12
/7/2
00
7
3/7
/20
08
6/7
/20
08
9/7
/20
08
INTEREST RATE DERIVATIVES: PREMIUM CHARGED FOR LENDING ST CASH
20
BAIL-OUTS and SEIZURES...
FDIC will need additional capital from the government if the situation lasts longer...
-170000
-160000
-150000
-140000
-130000
-120000
-110000
-100000
-90000
-80000
-70000
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
1/6
/19
93
7/6
/19
93
1/6
/19
94
7/6
/19
94
1/6
/19
95
7/6
/19
95
1/6
/19
96
7/6
/19
96
1/6
/19
97
7/6
/19
97
1/6
/19
98
7/6
/19
98
1/6
/19
99
7/6
/19
99
1/6
/20
00
7/6
/20
00
1/6
/20
01
7/6
/20
01
1/6
/20
02
7/6
/20
02
1/6
/20
03
7/6
/20
03
1/6
/20
04
7/6
/20
04
1/6
/20
05
7/6
/20
05
1/6
/20
06
7/6
/20
06
1/6
/20
07
7/6
/20
07
1/6
/20
08
7/6
/20
08
US DEPOSIT INSURANCE INSTITUTION RESERVES
21
BI-POLAR OUTCOME: DE&IN...FLATION!
Yield curve keeps steepening but mainly due to the 2 years bond…a consequence of the current counter-party plague.
TIPS had a violent move on both sides…the jury is still out on the binary outcome: debt-led deflation or medium-term inflation due to fiscal cost.
Since June we called for deflation. Short-term still valid but medium-term there are too many variables (politics, demography, debt consequences, fiscal deficits…) to measure the true outcome.
GOLD should be a winner
1.5
1.6
1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
Jan/0
5
Feb/0
5
Mar/0
5
Apr/0
5
Jun/0
5
Jul/05
Aug/0
5
Sep/0
5
Nov/0
5
Dec/0
5
Jan/0
6
Feb/0
6
Apr/0
6
May/0
6
Jun/0
6
Jul/06
Sep/0
6
Oct/06
Nov/0
6
Dec/0
6
Feb/0
7
Mar/0
7
Apr/0
7
May/0
7
Jul/07
Aug/0
7
Sep/0
7
Oct/07
Dec/0
7
Jan/0
8
Feb/0
8
Mar/0
8
May/0
8
Jun/0
8
Jul/08
Aug/0
8
Sep/0
8 -0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2
2.1
2.2
US TIPS
US YC (2-10)
22
HOUSING: Another plague?
This is not only US that suffer from the housing correction…UK mortgages approvals and prices are declining sharply.
European countries are following the trend.
-15
-10
-5
0
5
10
15
20
25
30
-110.0%
-100.0%
-90.0%
-80.0%
-70.0%
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
UK
UK HOUSE PRICES y-
1993
23
US HOUSING: VOLUME more than PRICE!
You need more a supply adjustment than a price adjustment which is normal for an illiquid market…
SO IT TAKES TIME YES! Price decline has not et impacted the excess supply still at twice the normal level.
We probably at 50% or 2/3 of the correction…more pain = more problems for banks.
-12.0%
-11.0%
-10.0%
-9.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
Dec-91
Jun-92
Dec-92
Jun-93
Dec-93
Jun-94
Dec-94
Jun-95
Dec-95
Jun-96
Dec-96
Jun-97
Dec-97
Jun-98
Dec-98
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
US MEDIAN HOUSE PRICE yoy% change
3.03.33.53.84.04.34.54.85.05.35.55.86.06.36.56.87.07.37.57.88.08.38.58.89.09.39.59.8
10.010.310.510.811.011.311.5
US HOUSES MONTHS OF SUPPLY (AVG of NEW & EXISTING homes)
24
Commodities are deflationg too...
Fear of a demand collapse combined with investigations on speculative prctices have taken the shine out of commodities
Oil correction seems to have run its course...we see 85$ as a max bottom that would be good for monetary easing and sufficient for not hurting too much emerging markets books.
-30%-28%-25%-23%-20%-18%-15%-13%-10%-8%-5%-3%0%3%5%8%
10%13%15%18%20%23%25%28%30%33%35%
7/2
4/2
003
9/2
4/2
003
11/2
4/2
003
1/2
4/2
004
3/2
4/2
004
5/2
4/2
004
7/2
4/2
004
9/2
4/2
004
11/2
4/2
004
1/2
4/2
005
3/2
4/2
005
5/2
4/2
005
7/2
4/2
005
9/2
4/2
005
11/2
4/2
005
1/2
4/2
006
3/2
4/2
006
5/2
4/2
006
7/2
4/2
006
9/2
4/2
006
11/2
4/2
006
1/2
4/2
007
3/2
4/2
007
5/2
4/2
007
7/2
4/2
007
9/2
4/2
007
11/2
4/2
007
1/2
4/2
008
3/2
4/2
008
5/2
4/2
008
7/2
4/2
008
9/2
4/2
008
oil px deviation from 6m AVERAGE %
25
LABOUR MARKET...the trend matters!
• US Unemployment trend is at a recession level with already 150bps added to the indicator!
• We are now at the levels of 1980, 1991 and 2001…the proof is in the pudding right!
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
De
c-7
1
De
c-7
3
De
c-7
5
De
c-7
7
De
c-7
9
De
c-8
1
De
c-8
3
De
c-8
5
De
c-8
7
De
c-8
9
De
c-9
1
De
c-9
3
De
c-9
5
De
c-9
7
De
c-9
9
De
c-0
1
De
c-0
3
De
c-0
5
De
c-0
7
UNEMPLOYMENT vs 12 months ago
26
Unemployed cruising at recession levels
The absolute increase of people unemployed over 12 months confirms the previous graph (+3M people!)
This is the trend that matters and not the absolute point you starting from.
-3500
-3250-3000
-2750-2500
-2250
-2000-1750
-1500
-1250-1000
-750-500
-250
0250
500750
1000
12501500
17502000
2250
25002750
3000
32503500
37504000
4250
De
c-6
1
De
c-6
3
De
c-6
5
De
c-6
7
De
c-6
9
De
c-7
1
De
c-7
3
De
c-7
5
De
c-7
7
De
c-7
9
De
c-8
1
De
c-8
3
De
c-8
5
De
c-8
7
De
c-8
9
De
c-9
1
De
c-9
3
De
c-9
5
De
c-9
7
De
c-9
9
De
c-0
1
De
c-0
3
De
c-0
5
De
c-0
7
US Unemployed, 16 years and over (change in thousands y-o-y)
27
WAGES: inflation and consumption at bay!
Clearly not inflationary…good for monetary easing Combined with falling property markets and stock markets, it is difficult to envision a boom in consumption.
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
US REAL WAGES
28
GLOOMY INDICATOR…
OECD LEI is still in a free-fall…but is Japan fulfilling its leading indicator of leading indicator role?
False start or dawn of hope?
-15-14-13-12-11-10-9-8-7-6-5-4-3-2-10123456789
1011121314151617
US LI
EURO LI
JAPAN LI
3 MAIN BLOCKS CYCLE…6m % OECD LI by region
29
OECD LI has implications on asset allocation
Equities are a leverage play relative to bonds on economic growth.
BONDS rally is totally justified and conform to expectations
And equities have a second derivative:
Emerging Markets!
GEMS are now finally back on earth and syncronized with the global reality…
Source: Bloomberg
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Jan/8
6
Sep/8
May/8
Jan/8
8
Sep/8
May/8
Jan/9
0
Sep/9
May/9
Jan/9
2
Sep/9
May/9
Jan/9
4
Sep/9
May/9
Jan/9
6
Sep/9
May/9
Jan/9
8
Sep/9
May/9
Jan/0
0
Sep/0
May/0
Jan/0
2
Sep/0
May/0
Jan/0
4
Sep/0
May/0
Jan/0
6
Sep/0
May/0
Jan/0
8
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
OECD LI 6M% (LHS)
RELATIVE PERF Equity to bond (RHS)
-5.0%-4.5%-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%
-60%-55%-50%-45%-40%-35%-30%-25%-20%-15%-10%-5%0%5%10%15%20%25%30%35%40%45%50%55%60%65%
OECD LI y-o-y% (LHS)
MSCI GEMS / WORLD y-o-y perfo (RHS)
30
OECD LEI is falling off a cliff!
The OECD LEI is already at RECESSION levels…look for it to bottom-out…
-11%
-10%
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
OECD LI% y-o-y
AVG
STD +1
STD -1
31
OECD LEI...look out for bottom...
OECD LEI is declining but from a high level…we barely back to historical trend and we expect it go below trend.
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
105
110
115
120
Dec
-60
Dec
-62
Dec
-64
Dec
-66
Dec
-68
Dec
-70
Dec
-72
Dec
-74
Dec
-76
Dec
-78
Dec
-80
Dec
-82
Dec
-84
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
OECD LI versus trend
32
DEVELOPED MARKETS: AVERAGE DATA
On average, DEVELOPED ECONOMIES are now decelerating fast if not plunging already to the tune of 2001…
Inflation has peaked and tht should trigger more monetary easing.
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Dec
-89
Dec
-90
Dec
-91
Dec
-92
Dec
-93
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
AVERAGE REAL GDP growth DEV. Countries
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Dec-8
9
Dec-9
1
Dec-9
3
Dec-9
5
Dec-9
7
Dec-9
9
Dec-0
1
Dec-0
3
Dec-0
5
Dec-0
7
AVG INFLATION IN DEV. COUNTRIES
33
GEMS: will it last?
Decelerating GDP GOWTH but at a decent level
Inflation is peaking…
Exports growth is still amazingly strong
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jun-
95
Dec
-95
Jun-
96
Dec
-96
Jun-
97
Dec
-97
Jun-
98
Dec
-98
Jun-
99
Dec
-99
Jun-
00
Dec
-00
Jun-
01
Dec
-01
Jun-
02
Dec
-02
Jun-
03
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
GEMS AVERAGE REAL GDP GROWTH
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
27.5
30.0
32.5
35.0
37.5
40.0
42.5AVERAGE INFLATION IN GEMS
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Feb
-96
Feb
-97
Feb
-98
Feb
-99
Feb
-00
Feb
-01
Feb
-02
Feb
-03
Feb
-04
Feb
-05
Feb
-06
Feb
-07
Feb
-08
EXPORT GROWTH GEMS yoy 3ma
AVERAGE
34
DEV: LOWER GROWTH HIGHER INFLATION
0%11%
02.71.83.23.74.5MEDIAN1-1.83.22.81.4MEDIAN
02.3-0.211.32.1JAPAN0-1.11.81.60.7JAPAN
03.01.66.35.74.6HK0-2.06.26.94.2HK
03.52.96.57.56.4SINGAPOR
E0-7.09.15.42.1SINGAPOR
E
02.91.82.53.34.7UK0-1.83.22.81.4UK
01.81.71.82.23.5CANADA0-2.12.782.760.67CANADA
02.11.73.33.73.8EURO0-1.22.62.11.4EURO
02.42.134.24.5AUSTRALI
A0-1.54.24.22.7AUSTRALI
A
02.023.23.44NEW
ZEALAND0-2.33.33.71NEW
ZEALAND
03.4244.25.4USA10.31.82.32.1USA
YEAR VAR
Px Close 1yr
Px Close 6m
Px Close 3m
Px Last
DEV. INFLATION
YEAR VAR
Px Close 1yr
Px Close 6m
Px Last
DEV. REAL GDP
0%11%
02.71.83.23.74.5MEDIAN1-1.83.22.81.4MEDIAN
02.3-0.211.32.1JAPAN0-1.11.81.60.7JAPAN
03.01.66.35.74.6HK0-2.06.26.94.2HK
03.52.96.57.56.4SINGAPOR
E0-7.09.15.42.1SINGAPOR
E
02.91.82.53.34.7UK0-1.83.22.81.4UK
01.81.71.82.23.5CANADA0-2.12.782.760.67CANADA
02.11.73.33.73.8EURO0-1.22.62.11.4EURO
02.42.134.24.5AUSTRALI
A0-1.54.24.22.7AUSTRALI
A
02.023.23.44NEW
ZEALAND0-2.33.33.71NEW
ZEALAND
03.4244.25.4USA10.31.82.32.1USA
YEAR VAR
Px Close 1yr
Px Close 6m
Px Close 3m
Px Last
DEV. INFLATION
YEAR VAR
Px Close 1yr
Px Close 6m
Px Last
DEV. REAL GDP
35
GEMS: Lower growth and peaking inflation!
28%
12%5-0.95.956.45.05MEDIAN
22.34.196.197.36.5MEDIAN10.75.426.216.13BRAZIL
03.31.54.24.44.8POLAND10.22.64.22.8MEXICO
1-1.66.58.77.74.9CHINA0-0.76.56.45.8POLAND
03.21.613.863.724.78TAIWAN10.81.20.82HUNGARY
03.62.0393.5754.8765.614KOREA0-0.65.14.54.5SA
1-1.88.36.976.5HUNGARY11.04.35.75.3THAILAND
04.12.47.56.86.5CZECH00.06.416.256.39INDONESIA
04.84.278.49CHILE10.65.77.36.3MALAYSIA
01.54.033.724.955.57MEXICO0-1.96.244.3CHILE
07.06.79.811.713.7SA0-0.14.95.74.8KOREA
02.04.184.615.586.17BRAZIL0-3.78.36.44.6PHIL
05.31.15.47.66.4THAILAND0-0.95.246.54.32TAIWAN
00.17.745.484.847.81INDIA0-2.16.66.64.5CZECH
010.12.45.49.512.5PHIL0-3.34.786.81.5TURKEY
04.47.399.110.7411.77TURKEY0-0.68.19.57.5RUSSIA
06.48.612.715.115RUSSIA0-1.39.28.87.9INDIA
00.38.78.49.19ARGENTIN
A0-1.18.69.17.5ARGENTIN
A
#VALUE!
#N/A N.A.
#N/A N.A.
#N/A N.A.11.85
INDONESIA0-2.512.611.210.1CHINA
YEAR VAR
Px Close 1yr
Px Close 6m
Px Close 3m
Px Last
GEMS INFLATION
YEAR VAR
Px Close 1yr
Px Close 6m
Px Last
GEMS REAL GDP
28%
12%5-0.95.956.45.05MEDIAN
22.34.196.197.36.5MEDIAN10.75.426.216.13BRAZIL
03.31.54.24.44.8POLAND10.22.64.22.8MEXICO
1-1.66.58.77.74.9CHINA0-0.76.56.45.8POLAND
03.21.613.863.724.78TAIWAN10.81.20.82HUNGARY
03.62.0393.5754.8765.614KOREA0-0.65.14.54.5SA
1-1.88.36.976.5HUNGARY11.04.35.75.3THAILAND
04.12.47.56.86.5CZECH00.06.416.256.39INDONESIA
04.84.278.49CHILE10.65.77.36.3MALAYSIA
01.54.033.724.955.57MEXICO0-1.96.244.3CHILE
07.06.79.811.713.7SA0-0.14.95.74.8KOREA
02.04.184.615.586.17BRAZIL0-3.78.36.44.6PHIL
05.31.15.47.66.4THAILAND0-0.95.246.54.32TAIWAN
00.17.745.484.847.81INDIA0-2.16.66.64.5CZECH
010.12.45.49.512.5PHIL0-3.34.786.81.5TURKEY
04.47.399.110.7411.77TURKEY0-0.68.19.57.5RUSSIA
06.48.612.715.115RUSSIA0-1.39.28.87.9INDIA
00.38.78.49.19ARGENTIN
A0-1.18.69.17.5ARGENTIN
A
#VALUE!
#N/A N.A.
#N/A N.A.
#N/A N.A.11.85
INDONESIA0-2.512.611.210.1CHINA
YEAR VAR
Px Close 1yr
Px Close 6m
Px Close 3m
Px Last
GEMS INFLATION
YEAR VAR
Px Close 1yr
Px Close 6m
Px Last
GEMS REAL GDP
36
CENTRAL BANKS MOVES…BI POLAR too!
CENTRAL BANKS ARE ACTING FAST…
In fact over the past 12 months, a simple average tell us that the rate of change is going down for developed and rising for GEMS.
GEMS CB will soon start eqsing process as well
-8.00-7.50-7.00-6.50-6.00-5.50-5.00-4.50-4.00-3.50-3.00-2.50-2.00-1.50-1.00-0.500.000.501.001.502.002.503.003.504.004.505.00
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
12 MONTHS RATE of CHANGE of CENTRAL BANKS
-14.0
-13.0
-12.0
-11.0
-10.0
-9.0
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.012M RATE of CHANGE GEMS CB
37
GLOBAL RATES TREND : CONVERGENCE!
GLOBALLY CENTRAL BANKS ARE IN FACT STILL TIGHTENING…
100.0%100.0%
31.0%DOWN13.8%DOWN
10.3%SAME55.2%SAME
58.6%UP31.0%UP
1791 YEAR1 MONTH10
000.00.000.750.750.750.75JAPAN000.00.002.752.752.752.75SWISS111.00.253.754.254.54.75SWEDEN100.80.0055.255.755.75NORWAY110.70.444.2154.2624.4264.866EURO00-1.50.004.53.533CANADA00-2.80.004.752.2522USA00-0.80.005.755.2555UK100.5-0.256.577.257AUS00-0.8-0.508.258.2587.5NEW ZEAL
YEAR VARMONTH VARPx Close 1yrPx Close 6mPx Close 1mPx LastCB RATE
19
00-0.1-0.277.297.477.57.2CHINA100.3-0.133.253.3753.63.5TAIWAN000.00.003.53.53.53.5MALAYSIA01-0.60.812.631.381.22SING100.30.00555.35.25KOREA110.50.253.253.253.53.75THAILAND111.30.507.757.758.59INDIA00-2.80.006.253.753.53.5HK101.0-0.017.287.498.38.27MEXICO010.00.25655.86PHIL111.00.258.2589.09.25INDONESIA112.50.505.756.257.88.25CHILE112.50.7511.2511.2513.013.75BRAZIL102.00.00101112.012SA100.30.003.253.753.53.5CZECH101.30.004.755.56.06POLAND101.00.007.57.58.58.5HUNGARY101.00.001010.2511.011RUSSIA00-0.50.0017.2515.2516.816.75TURKEY
YEAR VARMONTH VARPx Close 1yrPx Close 6mPx Close 1mPx LastCB RATE
100.0%100.0%
31.0%DOWN13.8%DOWN
10.3%SAME55.2%SAME
58.6%UP31.0%UP
1791 YEAR1 MONTH10
000.00.000.750.750.750.75JAPAN000.00.002.752.752.752.75SWISS111.00.253.754.254.54.75SWEDEN100.80.0055.255.755.75NORWAY110.70.444.2154.2624.4264.866EURO00-1.50.004.53.533CANADA00-2.80.004.752.2522USA00-0.80.005.755.2555UK100.5-0.256.577.257AUS00-0.8-0.508.258.2587.5NEW ZEAL
YEAR VARMONTH VARPx Close 1yrPx Close 6mPx Close 1mPx LastCB RATE
19
00-0.1-0.277.297.477.57.2CHINA100.3-0.133.253.3753.63.5TAIWAN000.00.003.53.53.53.5MALAYSIA01-0.60.812.631.381.22SING100.30.00555.35.25KOREA110.50.253.253.253.53.75THAILAND111.30.507.757.758.59INDIA00-2.80.006.253.753.53.5HK101.0-0.017.287.498.38.27MEXICO010.00.25655.86PHIL111.00.258.2589.09.25INDONESIA112.50.505.756.257.88.25CHILE112.50.7511.2511.2513.013.75BRAZIL102.00.00101112.012SA100.30.003.253.753.53.5CZECH101.30.004.755.56.06POLAND101.00.007.57.58.58.5HUNGARY101.00.001010.2511.011RUSSIA00-0.50.0017.2515.2516.816.75TURKEY
YEAR VARMONTH VARPx Close 1yrPx Close 6mPx Close 1mPx LastCB RATE
38
SENTIMENT INDICATORSSENTIMENT INDICATORSTECHNICALSTECHNICALSMOMENTUM & FLOWSMOMENTUM & FLOWS
STM SIGNALSTM SIGNAL
SENTIMENT INDICATOR: +1 / +2
TECHNICALS: +1 / +2
MOMENTUM: +1
FLOWS: NEGATIVE
SCORE TOTAL: +1 / +2
39
SENTIMENT MODEL: AGGREGATE SCORE BUY
Getting into good buy zone but still not capitulation
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Jan/9
8
May/9
8
Sep/9
8
Jan/9
9
May/9
9
Sep/9
9
Jan/0
0
May/0
0
Sep/0
0
Jan/0
1
May/0
1
Sep/0
1
Jan/0
2
May/0
2
Sep/0
2
Jan/0
3
May/0
3
Sep/0
3
Jan/0
4
May/0
4
Sep/0
4
Jan/0
5
May/0
5
Sep/0
5
Jan/0
6
May/0
6
Sep/0
6
Jan/0
7
May/0
7
Sep/0
7
Jan/0
8
May/0
8
Sep/0
8
sentiment model 4w MA
ACCUMULATE ZONE
REDUCE ZONE
STRONG BUY
SCREAMING SELL
NO ACTION
40
FX RISK INDICATOR: extreme risk aversion
As well a good entry point
FX RISK INDICATOR
2.40
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
17/1
1/0
4
17/1
/05
17/3
/05
17/5
/05
17/7
/05
17/9
/05
17/1
1/0
5
17/1
/06
17/3
/06
17/5
/06
17/7
/06
17/9
/06
17/1
1/0
6
17/1
/07
17/3
/07
17/5
/07
17/7
/07
17/9
/07
17/1
1/0
7
17/1
/08
17/3
/08
17/5
/08
17/7
/08
17/9
/08
COMP IDX PROM +1 D +2D -1D - 2D
High Risk Aversion
Low Risk Aversion
41
THAT ONE TOO IN THE EXPECTATION…
6%
-20%
0%
20%
40%
60%
80%
100%
Oct
/99
Feb/
00
Jun/
00
Oct
/00
Feb/
01
Jun/
01
Oct
/01
Feb/
02
Jun/
02
Oct
/02
Feb/
03
Jun/
03
Oct
/03
Feb/
04
Jun/
04
Oct
/04
Feb/
05
Jun/
05
Oct
/05
Feb/
06
Jun/
06
Oct
/06
Feb/
07
Jun/
07
Oct
/07
Feb/
08
Jun/
08
% OF STOCKS ABOVE 50D M AVG GLOBAL EQUITIES BREADTH
-20%
0%
20%
40%
60%
80%
100%
120%
60 200
Stocks quite oversold and breadth at a historical low…
42
And macro risk at elevated level...
0
0.2
0.4
0.6
0.8
1
1.2
1/3
/19
97
7/3
/19
97
1/3
/19
98
7/3
/19
98
1/3
/19
99
7/3
/19
99
1/3
/20
00
7/3
/20
00
1/3
/20
01
7/3
/20
01
1/3
/20
02
7/3
/20
02
1/3
/20
03
7/3
/20
03
1/3
/20
04
7/3
/20
04
1/3
/20
05
7/3
/20
05
1/3
/20
06
7/3
/20
06
1/3
/20
07
7/3
/20
07
1/3
/20
08
7/3
/20
08
CITI MACRO RISK
43
Gems oversold relative to World
BUY SIGNAL!
-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%
10%12%14%16%18%20%
Dec
/03
Feb
/04
Apr
/04
Jun/
04
Aug
/04
Oct
/04
Dec
/04
Feb
/05
Apr
/05
Jun/
05
Aug
/05
Oct
/05
Dec
/05
Feb
/06
Apr
/06
Jun/
06
Aug
/06
Oct
/06
Dec
/06
Feb
/07
Apr
/07
Jun/
07
Aug
/07
Oct
/07
Dec
/07
Feb
/08
Apr
/08
Jun/
08
Aug
/08
GEMS
SELL
BUY
44
HISTORICALLY STILL AT EXTREME LEVELS versus 200d MA
-65.0%
-60.0%
-55.0%-50.0%
-45.0%
-40.0%
-35.0%
-30.0%-25.0%
-20.0%
-15.0%
-10.0%
-5.0%0.0%
5.0%
10.0%
15.0%
20.0%
25.0%30.0%
35.0%
40.0%
45.0%
50.0%55.0%
60.0%
65.0%
70.0%
75.0%80.0%
85.0%
90.0%
Dec
-88
Dec
-89
Dec
-90
Dec
-91
Dec
-92
Dec
-93
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
GEMS y-o-y PERFO
STD DEV +1
STD DEV -1
GEMS oversold...
-35.0%-30.0%-25.0%-20.0%-15.0%-10.0%
-5.0%0.0%5.0%
10.0%15.0%20.0%25.0%30.0%35.0% GEMS
Gems on a y-o-y basis at an oversold level
45
Momentum: oversold...
-20.0%
-17.5%
-15.0%
-12.5%
-10.0%
-7.5%
-5.0%
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
MSCI WORLD price momentum
-28.0%
-26.0%
-24.0%
-22.0%
-20.0%
-18.0%
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
GEMS price momentum
46
TECHNICALS: not that pretty...
Descending corridor with a dead cross in the offing.
1060 the ultimate test before the rebound?
47
VALUATIONS VALUATIONS
CHEAP with NO catalyst.CHEAP with NO catalyst.
VALUATION CORNERVALUATION CORNER
SCORE: 0
48
PROFITS: TURNING SOUR? No miracles!
High correlation between G7 yield evolution and EPS.
It indicates EPS deceleration…in line with the economic outlook BUT not a dramatic fall…so far.
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00A
pr/
94
Oct/94
Apr/
95
Oct/95
Apr/
96
Oct/96
Apr/
97
Oct/97
Apr/
98
Oct/98
Apr/
99
Oct/99
Apr/
00
Oct/00
Apr/
01
Oct/01
Apr/
02
Oct/02
Apr/
03
Oct/03
Apr/
04
Oct/04
Apr/
05
Oct/05
Apr/
06
Oct/06
Apr/
07
Oct/07
Apr/
08
12M change in G7 long bond yield (strong correlation with profit expectations)
49
BOND / EQUITY RELATIVE VALUE.
A shy BUY signal…
1.193
0.500
0.550
0.600
0.650
0.700
0.750
0.800
0.850
0.900
0.950
1.000
1.050
1.100
1.150
1.200
1.250
1.300
1.350
1.400
1.450
1.500
1.550
1.600
1.650
9/5
/20
02
12
/5/2
00
2
3/5
/20
03
6/5
/20
03
9/5
/20
03
12
/5/2
00
3
3/5
/20
04
6/5
/20
04
9/5
/20
04
12
/5/2
00
4
3/5
/20
05
6/5
/20
05
9/5
/20
05
12
/5/2
00
5
3/5
/20
06
6/5
/20
06
9/5
/20
06
12
/5/2
00
6
3/5
/20
07
6/5
/20
07
9/5
/20
07
12
/5/2
00
7
3/5
/20
08
6/5
/20
08
9/5
/20
08
EY/ BY RATIO BANDS
BUY EQUITIES
SELL EQUITIES
50
REVERSION TO THE MEAN?
-4
-2
0
2
4
6
8
10
Dec/5
9
Jun/6
1
Dec/6
2
Jun/6
4
Dec/6
5
Jun/6
7
Dec/6
8
Jun/7
0
Dec/7
1
Jun/7
3
Dec/7
4
Jun/7
6
Dec/7
7
Jun/7
9
Dec/8
0
Jun/8
2
Dec/8
3
Jun/8
5
Dec/8
6
Jun/8
8
Dec/8
9
Jun/9
1
Dec/9
2
Jun/9
4
Dec/9
5
Jun/9
7
Dec/9
8
Jun/0
0
Dec/0
1
Jun/0
3
Dec/0
4
Jun/0
6
Dec/0
7
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
US corporate profits as % GDPUS real GDP growth yoy
51
Credit...the coalmine canary of Equities
As long as spread do not stabilize, we beleive that it will be difficult for stocks to rally substantially.
We believe that to play a bounce GEMS is the asset class to own.
100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
260.0
280.0
300.0
320.0
340.0
360.0
380.0
400.0
Dec/9
3
Jun/9
4
Dec/9
4
Jun/9
5
Dec/9
5
Jun/9
6
Dec/9
6
Jun/9
7
Dec/9
7
Jun/9
8
Dec/9
8
Jun/9
9
Dec/9
9
Jun/0
0
Dec/0
0
Jun/0
1
Dec/0
1
Jun/0
2
Dec/0
2
Jun/0
3
Dec/0
3
Jun/0
4
Dec/0
4
Jun/0
5
Dec/0
5
Jun/0
6
Dec/0
6
Jun/0
7
Dec/0
7
Jun/0
8
Moody,s corp Baa spread
52
ATTRACTIVE ENTRY POINTS?
49%12.68.1LATIN FWD PE
29%13.410.4MEXICO FWD PE
35%1914CHILE FWD PE
40%10.87.7BRAZIL FWD PE
DISCOUNT14 years AVGCURRENT
0.811.091.05MSCI WORLD DEBT / EQ
14.68.112.7MSCI WORLD ROE
1.92.13MSCI WORLD PB
12.826.223.3MSCI WORLD PE
10.615.919MSCI WORLD FWD PE
0.570.840.38MSCI LATIN DEBT / EQ
18.99.99.5MSCI LATIN ROE
1.91.40.8MSCI LATIN PB
10.313.68.7MSCI LATIN PE
8.17.86.1MSCI LATIN FWD PE
0.540.660.66MSCI GEMS DEBT / EQ
12.79.57MSCI GEMS ROE
1.71.41MSCI GEMS PB
1013.914.4MSCI GEMS PE
8.48.29.6MSCI GEMS FWD PE
Sep-08Oct-02Sep-98
49%12.68.1LATIN FWD PE
29%13.410.4MEXICO FWD PE
35%1914CHILE FWD PE
40%10.87.7BRAZIL FWD PE
DISCOUNT14 years AVGCURRENT
0.811.091.05MSCI WORLD DEBT / EQ
14.68.112.7MSCI WORLD ROE
1.92.13MSCI WORLD PB
12.826.223.3MSCI WORLD PE
10.615.919MSCI WORLD FWD PE
0.570.840.38MSCI LATIN DEBT / EQ
18.99.99.5MSCI LATIN ROE
1.91.40.8MSCI LATIN PB
10.313.68.7MSCI LATIN PE
8.17.86.1MSCI LATIN FWD PE
0.540.660.66MSCI GEMS DEBT / EQ
12.79.57MSCI GEMS ROE
1.71.41MSCI GEMS PB
1013.914.4MSCI GEMS PE
8.48.29.6MSCI GEMS FWD PE
Sep-08Oct-02Sep-98
53
GEMS in a much better shape.
BOND TO EQUITY RATIOS IMPROVED SHARPLY
0.00
0.20
0.40
0.60
0.80
1.00
1.20EM As
ia
EMEA
LatA
m
BRIC DM
1998 2002 2007
54
BOND / EQUITY IN GEMS.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
EM Asia
EMEA
LatA
m
BRIC DM
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
55
CONCLUSION & SCORECONCLUSION & SCORE
GLOBAL MARKETSGLOBAL MARKETS
AGGREGATE SCORE: NEUTRAL
MACRO SCORE: ( -1 )
SENTIMENT SCORE: ( +1 / +2 )
VALUATIONS SCORE: ( 0 )
