cssl august 5, 2011
TRANSCRIPT
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Marvin R. ClarkManaging Principal
Chief Economist and Investment Strategist
Exploring Supply's Future: Megatrends, Volatility and the EconomyA.T. Kearney Center for Strategic Supply Leadership at ISM
August 5, 2011, Chicago, Illinois
Monsoon Wealth Management, LLC
Macro Economic Trends: Future Business Environments
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Our World Today Investment bubbles and depressed markets Foreign wars, deficit spending, and a double-dip recession Political unrest over power, wealth, and natural resources Growing surplus of human labor and migration issues Overleveraged western nations Global affluence migrating from west to east Climate change and unpredictable business interruptions Physical and cyber-terrorism threats rising Seven billion individual economies all wanting Twitter
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MacArthur ParkBy Jimmy Webb
CHORUSMacArthur's Park is melting in the darkAll the sweet, green icing flowing down...Someone left the cake out in the rainI don't think that I can take it'cause it took so long to bake itAnd I'll never have that recipe againOh, no!
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World Economic Forum - January 2011An initiative of the Risk Response Network
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Historical Economic Perspective
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Contemporary Economics
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U.S. Post WWII Economic PoliciesKeynesian (John Maynard )
1933 - 1980
Higher Taxes Government Spending Social Safety Nets Union Wages Universal Health Care Raise workers standard of
living
Supply-Side
1981 – Current
Lower Taxes Smaller Government Free Markets No minimum wage law Few regulations Buyer beware
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MAJOR CAUSES Of Post WW II Inflation
Vietnam War 1959-1975 Great Society Programs 1964-1968 Baby Boomers entering the workforce 1967-1982 Richard Nixon’s wage and price controls 1971 Leaving the gold standard 1971 The 1st oil embargo 1973 Excessive money supply growth 1974-1979 The 2nd oil embargo 1979 Antiquated manufacturing facilities
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MAJOR CAUSES of Post WWII Deflation
The information and digital age 1981 Personal computers 1981 Declining oil prices 1981-2000 Declining interest rates 1981-2008 Deregulation 1981 - current Non-union domestic and foreign labor 1986-2007 Globalization 1989 North America Free Trade Agreement (NAFTA) 1994 Fiber-Optics and the Internet 1994 Cheap Capital 2002 -2008
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Current Macroeconomic Analysis
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Current Transfer Receipts and Government Current Receipts
Personal current transfer receipts (3–22) consists of income payments to persons for which no current services are performed and of net insurance settlements.
It is shown as the sum of government social benefits and current transfer receipts from business (net) (see 2–6). Government social benefits (3–23) includes benefits from government social insurance funds and social
assistance benefits from certain other programs
Government current receipts (4–27) is the sum of current tax receipts, contributions for government social insurance, income receipts on assets, current transfer receipts, and current surplus of government enterprises.
Current tax receipts (4–14) consists of personal current taxes (see 3–1), taxes on production and imports (see 1–6), taxes on corporate income (see 2–13), and taxes from the rest of the world (4–18), which are mostly income taxes received by the Federal Government from foreigners.
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The Oughts' Decade “Punch Bowl”
Cowboy capitalism Excessive banking leverage Exotic derivatives investment products Lax regulatory supervision Federal deficit spending Lowered underwriting standards Securitization Unfunded wars Massive tax-cuts
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The Oughts' Decade Five Bubbles
Dot.com stocks Residential and commercial real estate Personal and corporate debt Blue chip stocks Commodity speculation
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2008: The Year Capitalism Died: Leading Causes
Bear Stearns Indy Mac Fannie Mae Freddie Mac Lehman Bros. Breaking the Buck TARP 6% GDP contraction
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The New Normal
An endless U.S. L-shaped recovery Multi-year U.S. consumer credit contraction Fewer U.S. public services Austerity and a reduced standard of living Global deflation and inflation, together Developed nations going Neofeudalism BRIC(hina), Emerging, and Frontier Markets
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Monetary Policy Analysis
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Individual Wealth Analysis
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Housing Analysis
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Employment Analysis
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Commodity Price Analysis
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Digitas' Proprietary Study Abstract "Affluence in America: The New
Consumer Landscape
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Digitas' Proprietary Study "Affluence in America: The New Consumer Landscape
53% of the Once-dominant "Mass Affluent" ($100-199K income) Now Consider Themselves Middle Class;
Rise of the "Class Affluent" ($200K + income) and the "Emerging Affluent" (35 years old or younger)
The study reveals that the future of affluence is not like the past, and that "mass affluence" has given way to the spending power of the truly and the up-and-coming affluent -- the "Class Affluent" and the "Emerging Affluent.“
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Digitas' Proprietary Study "Affluence in America: The New Consumer Landscape"
The Mass Affluent ($100-$199K household income level) has disappeared. They don't have the leveraged spending power they once had and now have to live on income alone. Not surprisingly, an overwhelming majority (53%) classify themselves as middle class. They have been replaced by:
The Class Affluent -- earn $200K HHI or more yearly and 54% classify themselves as upper-middle class. The Emerging Affluent -- earn $100-$199K; same as the Mass Affluent YET are under 35 years old.
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Digitas' Proprietary Study "Affluence in America: The New Consumer Landscape"
The Rise of the Class Affluent (in a "class" by themselves):
Earns between $200K HHI (the minimum threshold for true affluence in America according to our findings) and $1 million+ HHI annually. Represents the minority -- only 8.5 million in a country of 307 million people. Three tiers of Class Affluence.
The Affluent -- $200K–$499K HHI -- The Creative Class: The Affluent are the creative class. They are likely to work in creative fields or industries, like software design, publishing, architecture, advertising, or journalism.
The Wealthy -- $499K–$999K HHI -- The Money Class: Likely to work in Finance and Consulting.
The Rich -- $1 million+ HHI -- The Leadership Class: They are individuals who run companies and influence industry. They command the highest incomes and make decisions that affect many. They can be found in high-income careers, like financial or legal services, or break-out industries like Internet properties/services or real estate.
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Digitas' Proprietary Study "Affluence in America: The New Consumer Landscape"
Emerging Affluent: 5.5 million people who are currently in the work force and on their way to affluence.
They have the same HHI as the Mass Affluent ($100K–$199K) but are younger, under 35.
The Emerging Affluent work in careers that will eventually deliver affluence -- financial services, legal services, and engineering -- but they are still in the low to middle management tiers.
This group has all the attitudes of the truly affluent. They consider themselves opinion leaders, follow trends, love to travel, and are passionate about food and dining. They pursue both stylish youth-oriented brands like Scion, Diesel, and Samsung and true luxury brands like H. Stern, Tiffany, St. Ives, and D&G.
What sets this group apart from all others is their intensely digital media behavior. Universally digital, members of this class use mobile devices for communicating, consuming content, enjoying music, and gaming. They use social networks and blog, and they prefer apps to 411 to research restaurants, recommend products, or get deals from marketers.
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Possible Economic Outcomes
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America’s Outlook: 2011-2014
Subpar GDP growth, probable double-dip recession Quantitative Easing III (QE III) Persistent high unemployment levels Decline in the middle class standard of living Rise in the affluent standard of living Loss of America’s AAA credit rating Extreme political and social unrest Unanticipated business disruptions Capital flight by business and the affluent
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Global Outlook: 2011-2014
Hard Chinese economic landing Collapse in Brazil’s economy Greater regional political instability Realization of a “broken Japan” Greece defaults on their debt Implosion of the Economic Union and the Euro The next financial crisis
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Trending Issues
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Near-term Issues Local production and distribution of goods and services
Cloud computing and new areas of layoffs
Cyber-terrorism as a permanent way of life
China’s operational satellite system in 2012
Political elections and business scandals
Public health
Wikipedia
The continuing unwinding of the 20th century
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Horizon Issues 3-D printing and fabrication technology
Declining Western economic clout
Declining usage of nuclear power
Peak oil
Climate change
Food security
Further 21st century geo/political realignment
International payment and settlement changes
Bitcoin – an internet currency. Does it have a future?
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Conclusions
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Pro-active Corporate Measures
Create small working group, studying the USSR’s demise
Create a F.D.I.C. insured financial institution
Re-evaluate the value of your markets and products
Scan for business innovation coming from other’s necessity
Prepare a rolodex of opposition leaders in politically unstable
countries for business continuity
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Defensive Corporate Measures
Anticipate volatile price swings in raw materials
Anticipate disruptions in sensitive geo/political areas
Be prepared to abandon markets and products
Discount the overly optimistic Emerging Market thesis
Discount 20th century data sets and behavior patterns
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