van den berg value investor conference may 2014

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Value Investing DuringWorldwide Quantitative Easing

Presented to

11thAnnual Value Investor Conference

May 2, 2014

Presented by:

Arnold Van Den Berg,

Founder and CEO

Century Management

805 Las Cimas Parkway, Suite 430

Austin, Texas 78746

(512) 329-0050

[email protected]

www.centman.com


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W W W . C E N T M A N . C O M

Main Points

2

Most Important - Only three things matter when it comes to

stock valuations: interest rates, inflation, and the fundamentals

of a company.

Inflation can take hold and when it does, it can move rapidly.

In periods of inflation and deflation, multiples will come down

quickly, affecting valuations.

Risk of inflation/deflation requires more flexibility in investment

choices.

Once the U.S. goes through what will be a challenging period,

U.S. stocks, for the long run, will be a good investment.


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Worldwide Quantitative Easing

3

Up 257%

in 10 years, a

compounded rate of

13.56%


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U.S. Monetary Base

4


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U.S. Bank Cash Assets

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Possible Outcomes of U.S. Quantitative Easing

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?


7/40W W W . C E N T M A N . C O M

Reasons the Fed is Unlikely to Finesse It

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8/40W W W . C E N T M A N . C O M

Cultural BiasGermany vs. U.S.

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Japan Recession

Japan: Money Supply I


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Japan: GDP

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Japan: Stock Market

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Japan: Money Supply II


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Everyday Price Index (EPI)

February 2014

After decreasing

0.3% in January

2014, the EPI

increased 1.3% in

February 2014.


14/40W W W . C E N T M A N . C O M

1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1879After the American Civil War, the U.S. goes on a gold standard.

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Source: Brief History of the Gold Standard in the United States, Congressional Research Service, June 23, 2011


15/40W W W . C E N T M A N . C O M

1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1914To finance World War I, the gold standard

is temporarily held in limbo as exports are banned

and the minting of coins drastically reduced.

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Source: Central Bank Gold Reserves, An Historical Perspective Since 1845 by Timothy Green, World Gold Council,

November 1999


16/40W W W . C E N T M A N . C O M

1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1921The excess money created during WWI

causes a commodity boom and bust.

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Source: Federal Reserve


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W W W . C E N T M A N . C O M 17

1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1922The Genoa convention establishes a gold

exchange standard.

Source: National Bureau of Economic Research


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1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1965The legal definition of a dollar ischanged from 1/35 of an ounce of gold to a

Federal Reserve Note.

Source: Report to the Congress of the Commission on the Role of Gold in the Domestic and International Monetary

System - Volume II , March 1982


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1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1968Johnson reduces the gold backing of thedollar from 40% to 25%. This helps finance the

Vietnam War and fund the Great Society

programs.



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1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s

1968 to 1971Seeing the dollars decline,

foreigners start converting their dollars to gold.

Source: Cato Institute


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1971 Nixon suspends convertibility of the

dollar into gold, and it becomes a fiat currency.

1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s



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Experience in itself does not make peoplewise. Economists need to examine and

learn from historical experience in order to

avoid repetition of mistakes.

Robert L. Hetzel,

Economist, Richmond Federal Reserve

Source: Arthur Burns and Inflation, Federal Reserve Bank of Richmond Economic Quarterly Volume 84/1 Winter 1998http://www.richmondfed.org/publications/research/economic_quarterly/1998/winter/pdf/hetzel.pdf

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Lessons from the 1970s
http://www.richmondfed.org/publications/research/economic_quarterly/1998/winter/pdf/hetzel.pdfhttp://www.richmondfed.org/publications/research/economic_quarterly/1998/winter/pdf/hetzel.pdf


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CPI vs. S&P 500


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CPI (Inflation) vs. S&P 500

Inflation S&P 500 P/E

0-1% 15.37

1-2% 17.70

2-3% 20.37

3-4% 20.87

4-5% 14.33

Over 5% 9.98

Lowest P/E (5/9/1980)

13.28% 6.85

Source: Bloomberg, Bureau Labor Statistics


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S&P 500 P/E: 1973 through 1980

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Average P/E: 9.6

Average Inflation: 9.3%

Source: Bloomberg


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Value Line Median P/E

27

Average

PE = 7.6

during

this

period

AveragePeak PE

= 20.1

during

this

period

10.60

Latest:

5/02/14

18.8


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10 Year Treasury Rates 1971-1990


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Gold vs. S&P 500: 1971-1976


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Oil vs. S&P 500: 1971 through 1976


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CRB Commodity Index vs. S&P 500


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Gold vs. Oil


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What happened to your investments

in the 1972-1974 recession?

Source: Bloomberg


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Commodity Price Declines From Their Peaks

Time Frame: Starting date varies for individual commodities, ending date is January 31, 2014. Source: Bloomberg


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CRB (Commodities) vs. Dow (Human Ingenuity)

Dow Jones Industrial Average

Commodities


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BusinessWeek Publishes

The Death of Equities

August 1979

Dow Jones: 1980 to Present

Six months later

S&P Bottoms at 759

on 4/21/80

Dow Jones Industrial Average

Recession PeriodsUnited States


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Arnold Van Den Berg


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DisclosuresCentury Management is a registered Investment Advisor. This presentation is being provided to you at your request and is

not a solicitation to buy or sell any security.

Any securities discussed in this presentation do not represent all of the securities purchased, sold, or recommended to

Century Management (CM) clients, past or present, and it should not be assumed that an investment in these securitieshas been or will be profitable. Past performance of markets, strategies, composites, or individual securities is no guarantee

of future results.

Certain statements included herein contain forward-looking statements, comments, beliefs, assumptions, and opinions that

are based on CMs current expectations, estimates, projections, assumptions and beliefs. Words such as "expects,"

"anticipates," "believes," "estimates," and any variations of such words or other similar expressions are intended to identify

such forward-looking statements.

These statements, beliefs, comments, opinions and assumptions are not guarantees of future performance and involve

certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may

differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements.

You are cautioned not to place undue reliance on these forward-looking statements, which reflect CMs judgment only as

of the date hereof. CM disclaims any responsibility to update its views, as well as any of these forward-looking statements

to reflect new information, future events or otherwise.

Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind, including,

without limitation, no warranties regarding the accuracy or completeness of the material.

If you should have any questions regarding the contents of this presentation or wish to receive a copy of our Form ADV

Part 2, please contact Scott Van Den Berg at Century Management. The phone number for Century Managements

corporate office in Austin, Texas is 1-800-664-4888 or 512-329-0050. We are located at 805 Las Cimas Parkway, Suite 430,

Austin, Texas, 78746. We can also be reached on the web at www.centman.com.

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Value Line Median P/E, Inflation, & Interest Rates

High

Inflation

Average

Inflation

Low

Inflation

Current

Time Frame: 1969 through April 2014. Source: Value Line, Federal Reserve

van den berg value investor conference may 2014

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