top 10 global economic surprises 2010

8/9/2019 Top 10 Global Economic Surprises 2010

1/53

The Surprises of 2010

Byron R. Wien

Senior Managing DirectorTel: 212.583.5055Email: [email protected]

Byron's monthly essays are broadly recognized for their insight and perspective. If you would like to

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'

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2/53

The Ten Surprises of 2009

-. .U.S. economy, the market improves from a base of investor despondency and hedge fundand mutual fund withdrawals. The mantra changes from fortunes have been lost tofortunes can still be made. Higher quality corporate bonds, leveraged loans andmortgages lead the way

2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwidedisenchantment with paper currencies drive the price of precious metals higher. In a timeof uncertainty, investors want something they can count on as real

3. The price of oil returns to $80 per barrel. Production disappointments and rising Asiandemand create an unfavorable supply / demand balance. Other commodities also rise,some doubling from their 2008 lows. Natural gas goes to $9 per mcf

4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollarinto a serious downward slide. Overseas investors become concerned that the currencyprinting presses will never stop. The yen goes to 75 and the euro to 1.65

5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy showssigns of recovery, economists and investors shift their mood from concern about deflationto worries about inflation. A weak dollar, rapid growth in money supply and record-settingdeficits (over $1 trillion) are behind the change

1


3/53


. .authoritarian government for its thoughtful stimulus policies and effective execution duringa challenging period. The Chinese consumer begins to spend more and save less and thisshift is behind the unexpected strength in the economy

7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcyand other states and municipalities follow. The Federal government is forced to step in andprovide substantial assistance. The New York Post screams When will the bailouts stop?

. ,

dropping 15% from year-end 2008 levels. The Obama stimulus program proves effectiveand a slow growth recovery begins before year-end. Third and fourth quarter real grossdomestic product numbers are positive

9. The savings rate in the United States fails to improve beyond 3%, as most economistsexpect. The concept of thrift seems to have vanished from American culture. Peak jobinsecurity and negative growth drive increased savings early in the year, but spendingresumes as the economic growth turns positive in the second half, making Christmas 2009

10. Citing concerns about Iraqs fragile democratically elected government and the danger of aTaliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in theformer and meaningfully increases U.S. military presence in the latter. In a hawkish speech

2

he states that the threat of terrorism forces the United States to maintain a strong militaryforce in this strategic area


4/53


.and the unemployment level drops below 9%. Exports, inventory building and technologyspending lead the way. Standard and Poors 500 operating earnings come in above $80

2. The Federal Reserve decides the economy is strong enough for them to move away fromzero interest rate policy. In a series of successive hikes beginning in the second quarterthe Federal funds rate reaches 2% by year-end

3. Heavy borrowing by the U.S. Treasury and some reluctance by foreign central banks to

eep uy ng no es an on s r ves e y e on e -year reasury a ove . . an sloan more to corporations and individuals and pull away from the carry trade, therebyreducing demand for Treasuries. Obama says, The suits are finally listening

.runs out of steam and declines to 1000, ending where it started at 1115.10. Even thoughthe economy is strong and earnings exceed expectations, rising interest rates and fullvaluations present a problem. Concern about longer term growth and obligations to

reduce leverage at both the public and private level unsettle investors

5. Because it is significantly undervalued on a purchasing power parity basis, the dollarrallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below$1.30 as the long slide of the greenback is interrupted. Longer term prospects remain

3

uncertain


5/53

The Ten Surprises of 20106. Ja an stands out as the best erformin ma or industrialized market in the world as its

currency weakens and its exports improve. Investors focus on the attractive valuations of

dozens of medium sized companies in a market selling at one quarter of its 1989 high. TheNikkei 225 rises above 12,000

7. Believing he must be a leader in climate control initiatives, President Obama endorses

legislation favorable for nuclear power development. Arguing that going nuclear isessential for the environment, will create jobs and reduce costs, Congress passes billsproviding loans and subsides for new plants, the first since 1979. Coal accounts for about50% of electrical power generation, and Obama wants to reduce that to 25% by 2020

8. The improvement in the U.S. economy energizes the Obama administration. The WhiteHouse undergoes some reorganization and regains its momentum. In the NovemberCongressional election the Democrats only lose 20 seats, much less than expected

9. When it finally passes, financial service legislation, like the health care bill, proves to beso er on e n us ry an or g na y eare . ere s grea er consumer pro ec on, moretransparency, tighter restriction of leverage and increased scrutiny of derivatives, but theregulatory changes for investment bankers and hedge funds are not onerous. Tradingvolume and merger activity increases; financial service stocks become exceptional

erformers in the U.S. market

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khamenei pushes out MahmoudAhmadinejad in favor of a more public relations adept leader. Economic improvementbecomes the key issue and anti-Israel rhetoric subsides. Talks with the U.S. and Europebe in but the countr remains a nuclear threat. Pakistan becomes the hots ot in the

4

region because of the weak government there, anti-American sentiment, active terroristgroups and concerns about the security of the countrys nuclear arsenal


6/53

Surprises Not on the 2010 List

! Gold

! Oil

! China

!

! Tax policy

5


7/53

Crowd Sentiment PollDaily Data 1/03/2000 - 12/29/2009

(updated weekly on Wednesday mornings)S&P 500 Composite Index

Extremes Generated when Sentiment Reading:

Rises above 61.5% = Extreme Optimism

Declines below 55.5% = Extreme Pessimism

Sentiment must reverse by 10

percentage points to signal an

extreme in addition to the above

extreme levels being reached.

Arrows represent extremes in optimism and

pessimism. They do not represent buy and

sell signals and can only be known for

certain (and added to the chart) in hindsight.

1260

1320

1380

14401500

1560

1260

1320

1380

14401500

1560

S&P500 Gain/Annum When:

12/01/1995 - 12/29/2009

NDR Crowd Gain/ %

Sentiment Poll is: Annum of Time

:

840

900

960

1020

1080

1140

1200

840

900

960

1020

1080

1140

1200

* Above 61.5 -1. 2 35. 8

B et we en 5 5. 5 a nd 6 1. 5 6 . 3 2 1. 8

55.5 and Below 8.6 42. 4

verage aue f In ica or :

Optimistic Extremes (down arrows)= 67.8

Pessimistic Extremes (up arrows)= 45.9

Average Spread Between Extremes = 21.9660

720

780

660

720

780

75.7

73.571.9 72.271.9 72.2

12/29/2009 = 65.2Extreme Optimism (Bearish)

72

75

72

75

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S D

2007M J S D

2008M J S D

2009M J S D

69.2

51.5

66.8

62.0

67.166.1

63.1

66.6

55.4

69.6.

69.5

66.4

54.5

67.2

61.9

51.9

68.167.1

62.2

53.5

59.4

54.8

.

58.1

66.7

51

54

57

60

63

66

69

51

54

57

60

63

66

69

.

46.0

48.7

45.7

40.4

37.6

46.5

33.9

47.3

43.8

46.6

49.7

42.5

49.9

47.6

30.9

46.8

42.5

33.9 33.9

49.7

38.037.1

32.5Extreme Pessimism (Bullish)33

36

39

42

45

48

33

36

39

42

45

48

6

Source: Ned Davis Research.

(S574) NDR Crowd Sentiment PollCopyright 2009 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.

.www.ndr.com/vendorinfo/. For data vendor disclaimers refer towww.ndr.com/copyright.htmlSee NDR Disclaimer at!"


8/53

MSCI World Index (in USD)

MSCI World Index(in US$)

980

1,090

1,200

760

870 Minor divergence has developedthe average stock has just begun tolag the cap-weighted averages. Not

yet a reason to sell, though

650Dec 08 Feb 09 Mar 09 May 09 Jul 09 Sep 09 Oct 09 Dec 09

MSCI World Index Dail Advance / Decline Line

858

904

950

720

766

812

7

Source: The Leuthold Group.Source: The Leuthold Group.

Dec 08 Feb 09 Mar 09 May 09 Jul 09 Sep 09 Oct 09 Dec 09


9/53

Standard & Poors 500 Stock Index

1,070

1,270 Price Move of:-0.4% to Overvalued (+1 SD) = S&P 500 Level of 1,091.06-25.7% to Median Fair Value = S&P 500 Level of 813.84

-51.0% to Undervalued (-1 SD) = S&P 500 Level of 536.61

(Monthly Data 12/31/1968 11/30/2009 (Log Scale))

270

470

670

70

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

11/30/2009 = 1,095.63

S&P 500 Median Price / Earnings Ratio (NDR Calculation) with Historical Median(Davis100)

22

26

30

34

+2 SD

+1 SD

Very Overvalued

Overvalued

10

14

18 41-Year Median = 16.5

11/30/2009 = 22.2

-1 SD

Bargains

8


1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008


10/53

World Market Cap as of 12/31/2003

World Market Ca as of 12/31/2003 World Market Ca as of 12/31/2008

8.5%

11.5%

Secular Bulls

Other

14.2%Secular Bulls

12.0%

73.8%

er

.ecu ar

Bears

Bears

Market Cap as a % Market Cap as a %

Countries in Secular Bull Markets Countries in Secular Bear MarketsMarket Cap as a % Market Cap as a %

Cap in 2003 Cap in 2008 Change

China 0.36% 1.72% 1.36Canada 2.54% 3.50% 0.96

Brazil 0.42% 1.22% 0.81Taiwan 0.55% 1.03% 0.48

South Korea 0.83% 1.29% 0.46

Cap in 2003 Cap in 2008 Change

U.S. 52.47% 45.03% (7.44)

U.K. 10.45% 8.35% (2.10)

Italy 1.56% 1.54% (0.02)

France 3.99% 4.58% 0.59

Germany 2.91% 3.67% 0.76Australia 2.05% 2.50% 0.45India 0.26% 0.62% 0.36Russia 0.22% 0.54% 0.32Mexico 0.29% 0.49% 0.20Hong Kong 0.65% 0.84% 0.19Singapore 0.33% 0.45% 0.12

Total 8.49% 14.21% 5.72

Japan 8.64% 10.60% 1.96

Total 80.02% 73.77% (6.25)

9

For data vendor disclaimers refer to www.ndr.com/vendorinfo. Further distribution prohibited without prior permission.Copyright 2009 (c) Ned Davis Research, Inc. All rights reserved.


11/53

World Nominal GDP as of 12/31/2003

World Nominal GDP as of 12/31/2003 World Nominal GDP as of 12/31/2008

18.0%

Secular Bulls

24.2%

Secular Bulls

18.2%

63.8%Secular

Bears

Other

22.5%

53.3%Secular

Bears

Other

GDP as a % of GDP as a % of Point

Countries in Secular Bull Markets Countries in Secular Bear MarketsGDP as a % of GDP as a % of Point

China 4.57% 7.63% 3.06Russia 1.21% 2.86% 1.65Brazil 1.55% 2.76% 1.22India 1.51% 1.96% 0.45Australia 1.47% 1.74% 0.27

Canada 2.41% 2.61% 0.20

U.S. 30.88% 24.94% (5.94)

Japan 11.75% 8.49% (3.26)

U.K. 5.17% 4.63% (0.53)

Germany 6.80% 6.33% (0.47)

Italy 4.19% 3.99% (0.20)

France 5.01% 4.95% (0.06)Singapore 0.26% 0.31% 0.06

Hong Kong 0.44% 0.37% (0.07)South Korea 1.78% 1.64% (0.15)

Taiwan 0.86% 0.70% (0.17)Mexico 1.95% 1.59% (0.36)

Total 18.00% 24.16% 6.16

Total 63.80% 53.33% (10.46)

10

For data vendor disclaimers refer to www.ndr.com/vendorinfo. Further distribution prohibited without prior permission.Copyright 2009 (c) Ned Davis Research, Inc. All rights reserved.


12/53

Diminishing Returns from Debt-Financing by Decade

-

($ in billions)

Diminishing Returns from Debt-Financing by Decade12/31/1949-6/30/2009

Debt Range

DecadeChange in

Debt(billions $)

DecadeChange in

GDP(billions $) Debt/GDP GDP/Debt

12/31/1949-12/31/1959 337.6 248.0 1.36 0.73

12/31/1959-12/31/1969 752.1 491.3 1.53 0.65

12/31/1969-12/31/1979 2,785.2 1,654.9 1.69 0.59

12/31/1979-12/31/1989 8,562.8 2,922.3 2.93 0.34

12/31/1989-12/31/1999 12,550.0 4,026.0 3.12 0.32

12/31/1999-06/30/2009* 27,403.6 4,543.5 6.03 0.17

11

Source: Ned Davis Research.(*) Most recent data available.


13/53

The Economy (The Index of Coincident Economic Indicators)

$100

$400

(12-Month Total $ in billions)

Budget Surplus Federal Government Budget

($1,100)

($800)

($500)

($1,400)1965 1970 1975 1980 1985 1990 1995 2000 2005

8

2009

= , .

(1)

2

5

Budget Surplus 11/30/2009 = -10.0%Federal Budget Deficit / Surplus

as a % of Nominal GDP 2.7

(10)

(7)

(4)

(5.7)

Budget Deficit

(5.4)

(4.0)

12


National Bureau of Economic Recessions.


14/53

Government Debt (Federal, State, and Local) as % of GDP

100%

106%

Government Debt = $14,834.2 billion = 104.0%Gross Domestic Product = $14,266.3 billion

Quarterly Data 3/31/1952 9/30/2009

82%

88%

94%

83.6% 85.6%

70%

76%

55-Year Mean = 66.9%

71.0%

52%

58%53.2%

49.6%45.1%

46%

1950 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009

47.2%

13

Data Subject to Revisions byThe Federal Reserve Board



15/53

Foreign Central Banks

8% 120%U.S. Nominal Trade-weighted Dollar(1)

4%

6%

80%

100%

2%%o

fGD

60%

Foreign Official Flows(2) to the U.S.

0% 40%

-2%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1980

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

2009

20%

14

Note: Shaded regions reflect periods of heavy foreign official inflows.(1) Source: J.P. Morgan Chase & Co, BCA Research.(2) Central Banks and Monetary Authorities.


16/53

Dollar Watch Two Foreign Holders of U.S. Treasury Securities

$900Treasury Holdings as of 9/30/2009

($ in billions)

$600

$700$798.9

$300

$400

$500

$185.3

$100

$200

$0

2001 2001 2002 2003 2004 2005 2006 2007 2007 2008 2009

China OPEC

15



17/53

The United States Economy


18/53

Good News

Real GDP

Peak-to-

7

8

9

RecessionTroughDecline

First yearRecovery

1957 -3.7% +6.9%uring

ry(%)

1953

19571960

1982 2008

3

4

51973 -3.1% +6.1%

1981 -2.9% +8.5%Deep

seinRealGD

P

YearofRecove

1974

19701990

0

1

22009 -3.9% +8.6%e

Shallow 2001 -0.3% +1.9%

Incre

Firs Regression

Y = 2.2 + 1.7*XR2 = 64%

2001

-5-4-3-2-10

Decline in Real GDP During Recession (%)

17

Source: ISI Group.


19/53

Good News

, .

2010:4Q Real GDP

4Q / 4Q Cont. to GDP

Consumer Spending +1.0% 0.7%

CapEx Eqp +10.0% 1.0%

Housing +10.0% 0.2%

Inventories +$196.0 1.5%

Trade +$140.0 1.0%

Federal Government +6.0% 0.4%

a e overnmen - . - .

CapEx Structures -10.0% -0.5%

18

.

Source: ISI Group.


20/53

Bad News

Real GDP Q/Q % A.R.1 and 2 Quarter of Recovery

1st 2nd

+ +. .

1983 +5.1% +9.3%

1991 +2.7% +1.7%

2002 +3.5% +2.1%

2009 +2.8% r +3.0%e

19

Source: ISI Group.

r = expected revision


21/53


22/53

Good News

Funds Distribution Reported By Week(Total Stimulus Amount $787 Billion)

($ in billions)

$250

Sep 30, 2010$255 e

$150

$200Paid Out

Nov 6 $132.5 b

$50

$100

$0

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

21

Source: ISI Group.


23/53


24/53

CapEx Help for Industrial Machinery SharesU.S. Nominal CapEx Eqp Ex Tech

30

Q/Q % Ch A.R.

2009:3Q: - 10.0%

10

-10

-30

-

-50

-

23

-

1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009

Source: ISI Group.


25/53

U.S. Employment

2008Actual-5.0%

1953

1957

-4.5%

-4.0%

-3.5%ecline

t

1974

1982

Fitted-3.0%

-2.5%to-troughD

Employme

2001

1960

1990Regression

*

-2.0%

-1.5%Peak-In

1970 - . .R

2= 73%

- .

-0.5%

0.0%

24

Source: ISI Group.

-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%

Peak-to-trough Decline in Real GDP


26/53

U.S. Employment

U.S. Temp EmploymentM/M Ch 3 Mo. Avg.

Nov 38

20

40

-20

0

-60

-40

-100

-80

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

25

Source: ISI Group.


27/53

U.S. Employment

35.0

Total Work WeekNov 33.2

34.5

34.0

33.5

33.0

1988 1989 1991 1993 1994 1996 1998 1999 2001 2003 2004 2006 2008 2009

26

Source: ISI Group.


28/53

U.S. Profits

U.S. Productivity2 Qtr. % Ch. A.R. 2009:3Q 8.2%

6

8

Biggest Gain in almostFive Decades

2

4

-2

0

-6

-4

1Q 1980 1Q 1982 1Q 1984 1Q 1986 1Q 1988 1Q 1990 1Q 1992 1Q 1994 1Q 1996 1Q 1998 1Q 2000 1Q 2002 1Q 2004 1Q 2006 1Q 2008

27

Source: ISI Group.


29/53


30/53

U.S. Consumer

U.S. Consumer Installment Debt8 Mo. % Ch. A.R. Sep -6.3%

20%

10%

15%

0%

5%

-10%

-5%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

29

Source: ISI Group.


31/53

Housing

-

U.S. New Houses for SaleOct 0.239

0.55

0.60

0.30

0.35

0.40

0.45

0.50

U.S. Existin Houses For Sale

0.200.25

1988 1990 1993 1996 1998 2001 2004 2007

Oct 2.97

3.0

3.5

4.0

1.5

2.0

2.5

30

Source: ISI Group.

1988 1990 1993 1996 1998 2001 2004 2007


32/53

Housing

U.S. House Price Index (Case-Shiller)SA M/M % Sep 0.3%

1.0%

1.5%

.

0.0%

0.5%

-1.5%

-1.0%

- .

-2.5%

-2.0%

2005 2006 2007 2008 2009

31

Source: ISI Group.


33/53

U.S. Manufacturing

U.S. Mfg PMI Export Orders3 Mo. Avg. Nov: 55.5%

65%

Latest Click 56.0%

45%

50%

55%

60%

35%

40%

2000 2001 2002 2004 2005 2006 2008 2009

. .3 Mo. Avg. 3 Mo. % A.R. Sep: 25.0%

10%

30%

-50%

-30%

-10%

32

Source: ISI Group.

2000 2001 2002 2004 2005 2006 2008 2009


34/53

U.S. Manufacturing

.

U.S. Industrial Production5 Mo. % A.R. Nov 8.8% e

10

15

20

0

5

-

-10

-5

-25

-20

-

33

Source: ISI Group.


35/53

Small Business Not Hiring

U.S. Small Business Trends (NFIB). . .

30%

35%

Latest Click 8.0%

20%

25%

15%

5%

1988 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

34

Source: ISI Group.


36/53

Good News

.

U.S. Monetary BaseNov 4 $ 1,999.8

$2,000

$2,200

$1,600

,

$1,000

$1,200

,

$800

Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul 09 Dec 09

35

Source: ISI Group.


37/53

Good News

Junk Bond Yields (Merrill Lynch).

20%

22%

24%

16%

18%

10%

12%

6%

8%

2006 2007 2008 2009

36

Source: ISI Group.


38/53

U.S. Profits

-

ISI Global Economic Diffusion Index13 Wk. Avg. Dec 7 11.7

15

-15

-5

5

-25

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SA by ISI 13 Wk. Avg. Nov 27 62.5%

60

20

30

40

37

Source: ISI Group.

1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009


39/53

U.S. Inflation

U.S. Average Hourly Earnings Y/Y % Oct 2.4%

U.S. CPI Core Y/Y % Sep 1.5%

5% 3.0%

2%

3%

4%

1.5%

2.0%

2.5%

U.S. CPI Total Rent

0%

1998 1999 2001 2003 2005 2007 2009

1.0%

1998 1999 2001 2003 2005 2007 2009

Rent plus Owners Equivalent Rent Y/Y % Sep 1.4%

4%

5%

2%

3%

38

Source: ISI Group.

1998 1999 2001 2003 2005 2007 2009


40/53

The Rest of the World


41/53

Conditions Have Diverged

100

105

100

105

100

105

U.S.A. Europe Japan

75

80

85

90

75

80

85

90

75

80

85

90

60

65

70

00 02 04 06 08 10

60

65

70

00 02 04 06 08 10

60

65

70

00 02 04 06 08 10

90

95

100

105

90

100

110

90

100

110

120

na merg ng ar e s ex- na

65

70

75

80

85

60

70

80

40

50

60

70

80

40

Source: Bridgewater.

60

00 02 04 06 08 10

50

00 02 04 06 08 10

30

00 02 04 06 08 10


42/53

Japan Real Exports

95

100Q/Q % A.R.

RealGDP

PriceDeflator

NominalGDP

Japan Real Exports

2009 3Q: 69.4

70

75

80

85

2009 1Q -12.2% +2.4% -10.1%

2Q +2.7% -4.2% -1.6%

60

65

1/0/00 1/4/00 1/8/00 1/12/00 1/16/00

3Q +4.8% -4.8% -0.3%+13.2%

2006 2007 2008 2009

41

Source: ISI Group.


43/53

Japan

. .

150%

200%

250%

200%

250%

300%

0%

50%

100%

0%

50%

100%

JAPAN GOVT DEBT % GDP

2009:2Q: 204.4%

U.S. GOVT DEBT % GDP

2009:2Q: 67.0%

JAPAN NONFIN CORPORATE DEBT % GDP

Debt Securities and Loans

2009:2Q: 178.3%

U.S. NONFIN DEBT % GDP

2009:2Q: 77.3%

75%

85%

95%

200%

300%

400%

45%

55%

1980 1985 1990 1994 1999 2004 2009

0%

100%

1980 1985 1990 1994 1999 2004 2009

42

Source: ISI Group.

JAPAN CONSUMER DEBT % GDP

2009:2Q: 78.6%

U.S. CONSUMER DEBT % GDP

2009:2Q: 96.5%

JAPAN NONFIN TOTAL DEBT % GDP

2009:2Q: 461.3%

U.S. TOTAL DEBT % GDP

2009:2Q: 242.5%


44/53

Severe Underperformance From Japanese Equities

3.2

Japan MSCI Index Relative To World MSCI Index

2.8

3.0

2.2

2.4

.

1.6

1.8

2.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

43

Source: BCA Research 2009.


45/53

The 20th Century was a Growth Anomaly For China% of World GDP

30%

35%

25%

15%

5%

10%

0%1

1000

1500

1600

1700

1820

1870

1900

1913

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2003

44

Source: Historical Statistics for the World Economy Angus Maddison, J.P. Morgan Securities, Inc.


46/53

China

850

900

750

800

China ExportsS.A. by ISI, Oct 725.8

China ImportsS.A. by ISI, Oct 622.6

700

750

800

550

600

650

700

550

600

650

2007 2008 2009

400

450

500

2007 2008 2009

+34.9%Annual Rate

+36.2%Annual Rate

45

Source: ISI Group.


47/53

India

10

12India Real GDP Y/Y%

Forecast

4

6

8

2009:2Q 6.2%

2010:3Q 8.3%

0

2

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

46

Source: ISI Group.


48/53

Brazil

8Brazil Real GDP Y/Y%

6.9%

Forecast2010:1Q

2

4

-2

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-1.4%2009:1Q

47

Source: ISI Group.


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Some Thoughts About thePrice of Oil


50/53

Long-Term Demand Drivers Are Still in Place

27282930

31

27282930

31

Yearly Data 12/31/1960 - 12/31/2007

In Barrels per Person per Year

202122

232425

202122

232425

13141516

1718

19

13141516

1718

19

CountryConsumption

Per Capita Year

78

9101112

78

9101112

.Japan 14.3 2007Russia 7.5 2007Brazil 4.5 2007China 2.1 2007India 0.9 2007

012345

012345

49

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

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

Sources: Energy Information Administration and U.S. Census Bureau. Ned Davis Research.


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Oil Supply / Demand Prospects

or r mary nergy eman

Peak Oil:2015

6,000

Peak Oil:2010

,

4,000

Oil

3,000

2,000

Mto

Coal

GasBiomass

Nuclear

Other Renewables

1,000

World energy demand expands by 45% between now and 2030 an average rate of

0

1980 1990 2000 2010 2020 2030

50

Source: IEA World Energy Outlook 2008. Bank of America Merrill Lynch.

increase of 1.6% per year with coal accounting for more than a third of the overall rise


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top 10 global economic surprises 2010

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