The Balance Of Probabilities - Garry Evans Chief Global Asset Allocation Strategist
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Shape Your ConvictionTM The Balance Of Probabilities Garry Evans Chief Global Asset Allocation Strategist garry@bcaresearch.com
Shape Your ConvictionTM
Playing The Optionality
y After the rebound, markets are pricing in a very optimistic scenario
y But the pandemic is not over, and there are likely to be second-round effects
y Cut equities to Neutral. Prefer minimum volatility tilt: to US, Tech, Healthcare
y Government bonds aren’t a good hedge. Stay in cash and gold
y Buy what central banks are buying: investment grade debt etc.
y Starting to think about the longer-term consequences
2Shape Your ConvictionTM
Why Have Equities Rallied?
# Of. # Of. # Of. # Of.
Peop. Peop. Peop. DAILY CHANGE IN COVID-19 CASES*: Peop.
WORLD EX. CHINA: 35000 US 35000
DAILY CHANGE IN COVID-19*: CHINA
CASES (LS) ITALY
30000 30000
80000 DEATHS (RS) 8000 KOREA
25000 25000
60000 6000
20000 20000
40000 4000 15000 15000
10000 10000
20000 2000
5000 5000
JAN 2020 FEB 2020 MAR 2020 APR 2020 1 4 9 14 19 24 29 34 39 44 49 54 59 64 69 74
* SOURCE: CENTRE FOR SYSTEM SCIENCE AND ENGINEERING (CCSE) AT JOHNS * SOURCE: CENTRE FOR SYSTEM SCIENCE AND ENGINEERING (CCSE) AT JOHNS
HOPKINS UNIVERSITY. HOPKINS UNIVERSITY. SERIES SHOWN AS A 3 DAY MOVING AVERAGE.
3Shape Your ConvictionTM
Massive Fiscal And Monetary Stimulus
BPs BPs
COMMERCIAL PAPER FUNDING FACILITY COMMERCIAL PAPER FUNDING FACILITY
50 50
MONEY MARKET FUND LIQUIDITY FACILITY MONEY MARKET FUND LIQUIDITY FACILITY TREASURY BACKSTOP
25 25 TREASURY BACKSTOP
FED PROGRAM LIMIT
FED PROGRAM LIMIT
0 MAIN STREET
0LENDING PROGRAM MAIN STREET LENDING PROGRAM
-25 -25LIQUIDITY FACILITY
MUNICIPAL MUNICIPAL LIQUIDITY FACILITY
-50 3-MONTH -50 CREDIT FACILITY
PRIMARY MARKET CORPORATE PRIMARY MARKET
CORPORATE CREDIT FACILITY
CROSS-CURRENCY
-75 BASIS SWAP RATE: -75
PPP LIQUIDITY FACILITY PPP LIQUIDITY FACILITY
EURO AREA
-100 UK -100 SECONDARY MARKET CORPORATE
CANADA SECONDARY MARKET CORPORATE CREDIT FACILITY CREDIT FACILITY
-125 JAPAN -125
TERM ASSET-BACKED SECURITIES
TERM ASSET-BACKED SECURITIES LOAN FACILITY LOAN FACILITY
JAN FEB MAR APR 200 400 600 800 1000 Bn
0 200 400 600 800 1000 USD1200
4Shape Your ConvictionTM
But Markets Now Pricing In Very Optimistic Scenario
DEATHS DEATHS
UK:
WEEKLY COMBINED INFLUENZA AND
1200 PNEUMONIA MORTALITY*
3000 3000
100
WEEKLY ICU CASES
2500 2500
800
2000 2000
600
1500 1500
400
1000 1000
200
500 500
MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV
2020 2020 2020 2020 2021 2021 2021 2021 2021 2021
SOURCE: IMPACT OF NON-PHARMACEUTICAL INTERVENTIONS (NPIS) TO REDUCE
COVID19 MORTALITY AND HEALTHCARE DEMAND, IMPERIAL COLLEGE COVID-19 JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
RESPONSE TEAM, MARCH 16, 2020.
NOTE: AUTHORS EXAMINE THE IMPACT OF AN ADAPTIVE POLICY IN WHICH 1918 1919
SOCIAL DISTANCING MEASURES ARE INITIATED AFTER WEEKLY CONFIRMED CASE * SOURCE: 1920 REPORT ON THE PANDEMIC OF INFLUENZA 1918-19,
INCIDENCE IN ICU PATIENTS EXCEED A CERTAIN THRESHOLD AND RELAXED AS UK MINISTRY OF HEALTH, P38.
THEY FALL BELOW A CERTAIN THRESHOLD.
5Shape Your ConvictionTM
How Quickly Will Things Get Back To Normal?
140% 1600
SHANGHAI TRAFFIC BOX OFFICE CHINA*
120% 1400
CONGESTION LEVEL 2019
2020 / 2019 *
2020
1200
100%
1000
80%
800
60%
600
40%
400
20% 200
0% 0
CHINESE
+2
+4
+6
+8
+40
+42
+44
+46
Chinese New Year's Eve
+30
+32
+34
+36
+38
-6
-4
-2
+10
+12
+14
+16
+18
+20
+22
+24
+26
+28
FEB-26
MAR-06
APR-02
APR-08
MAY-02
FEB-11
MAR-12
MAR-18
APR-17
FEB-14
APR-29
FEB-23
MAR-03
MAR-15
APR-05
FEB-17
MAR-30
FEB-29
MAR-09
MAR-21
APR-20
MAR-24
APR-26
APR-11
FEB-20
MAR-27
APR-14
APR-23
NEW
YEAR'S
EVE
DAYS PRECEDING DAYS FOLLOWING
NOTE: SHADED AREA REPRESENTS WEEKENDS. CHINESE CHINESE
NEW YEAR'S EVE NEW YEAR'S EVE
*SOURCE: TOMTOM DATA. MEASURED IN PERCENTAGE OF TIME THAT A TRIP WOULD TAKE
BEYOND UNCONGESTED CONDITIONS. DAILY AVERAGE OF TWO PEAK HOURS IS USED (8:00
* SOURCE: MAOYAN.
AM AND 5:00 PM).
6Shape Your ConvictionTM
And What About Second Round Effects?
% Of. % Of. % %
GDP NONFINANCIAL CORPORATE DEBT AS GDP LEVERAGE:
EURO AREA BANKS*
200 A PERCENT OF GDP*: 200 20 20
US FRANCE US BANKS**
JAPAN ITALY
CHINA SPAIN
GERMANY
150 150
15 15
100 100
10 10
50 50
1990 1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020
* SOURCE: BIS. * SOURCE: EUROPEAN CENTRAL BANK.
** SOURCE: FEDERAL DEPOSIT INSURANCE CORPORATION.
7Shape Your ConvictionTM
Emerging Markets Are Of Particular Concern
% % % %
ADVANCED ECONOMIES:
TOTAL DEBT AS
280 A PERCENT OF GDP* 280 180 EMERGING ECONOMIES: 180
TOTAL DEBT AS
A PERCENT OF GDP*
260 260 160 160
240 240 140 140
220 220 120 120
2000 2004 2008 2012 2016 2020 2000 2004 2008 2012 2016 2020
* SOURCE: BIS. * SOURCE: BIS.
8Shape Your ConvictionTM
Stronger Dollar And Higher Spreads Are A Big Problem
% %
EMERGING MARKETS: OAS: 80 EMERGING MARKETS EX. CHINA: 80
USD-SOVEREIGN DEBT* CURRENCY INDEX
8 USD-CORPORATE DEBT* 8
LOCAL CURRENCY
SOVEREIGN DEBT** 70 70
6 6
60 60
4 4
50 50
2 2
2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
* SOURCE: BLOOMBERG BARCLAYS INDICES.
** SOURCE: J.P. MORGAN CHASE & CO.
SPREAD OVER US 7-YEAR GOVERNMENT BOND.
9Shape Your ConvictionTM
The Most Vulnerable Emerging Markets
5.50
FOREIGN CURRENCY RESERVES***- TO- FOREIGN FUNDING
5.00
RUSSIA***** THAILAND*****
4.50
lin ing
D ec
REQUIREMENTS**** RATIO
4.00
ility
rab KOREA
3.50
Vu lne
ing
3.00 Ris
2.50 PHILIPPINES
MALAYSIA INDIA
2.00
PERU
BRAZIL SOUTH AFRICA
1.50
MEXICO
TURKEY
1.00 INDONESIA
COLOMBIA CHILE
0.50
2020
0.00
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6
EXPORTS OF GOODS & SERVICES*-TO-FOREIGN DEBT OBLIGATONS** RATIO
* ANNUALIZED EXPORTS OF GOODS AND SERVICES ARE USED (4-QUARTER MOVING TOTAL). SOURCE: IMF
** FOREIGN DEBT OBLIGATIONS CALCULATED AS THE SUM OF SHORT-TERM DEBT, INTEREST AND AMORTIZATION PAYMENTS OVER THE NEXT 12 MONTHS. FDO DATA IS
AVAILABLE AS OF Q3 2019. SOURCE: BIS & WORLD BANK
*** CENTRAL BANK’S FX RESERVES INCLUDING GOLD. SOURCE: IMF
**** FOREIGN FUNDING REQUIREMENT CALCULATED AS FOREIGN DEBT OBLIGATION MINUS CURRENT ACCOUNT BALANCE; DATA UPDATED AS OF Q3 2019. SOURCE: BIS &
WORLD BANK
***** RUSSIA & THAILAND TRUNCATED 10Shape Your ConvictionTM
Equities Could Fall Back Again
START OF END OF STOCK MARKET # OF MONTHS
RECESSION RECESSION BOTTOM BEFORE RECESSION END
1500 1500
Rallies AUG-29 MAR-33 1-JUN-32 -9.6
MAY-37 JUN-38 31-MAR-38 -2.5
FEB-45 OCT-45 26-MAR-45 -6.8
1250 1250 NOV-48 OCT-49 13-JUN-49 -4.2
JUL-53 MAY-54 14-SEP-53 -8.1
US S&P 500 AUG-57 APR-58 22-OCT-57 -5.8
APR-60 FEB-61 25-OCT-60 -3.7
1000 1000 DEC-69 NOV-70 26-MAY-70 -5.8
NOV-73 MAR-75 3-OCT-74 -5.5
JAN-80 JUL-80 27-MAR-80 -3.7
JUL-81 NOV-82 12-AUG-82 -3.2
750 750
JUL-90 MAR-91 11-OCT-90 -5.2
MAR-01 NOV-01 21-SEP-01 -1.8
2007 2008 DEC-07 JUN-09 9-MAR-09 -3.3
AVERAGE -4.9
50-YEAR
-4.0
AVERAGE
11Shape Your ConvictionTM
Earnings And Valuations Not Yet That Supportive
% Ann%
GLOBAL EQUITIES:
Chg
NET EARNINGS REVISIONS* (LS) PRICE-TO-BOOK*:
50 TOTAL RETURN INDEX** (RS) 75 GLOBAL
25 50 5 US 5
0 25 GLOBAL EXCLUDING US
0 EURO AREA
-25
4 EMERGING MARKETS 4
-50 -25 JAPAN
-75 -50
S&P 500 12-MONTH FORWARD 3 3
180 3000
160 EARNINGS*** (LS)
S&P 500 (RS) 2600
140
2200 2 2
120
1800
100
80 1400
1000 1 1
60
2004 2008 2012 2016 2020 1990 1995 2000 2005 2010 2015 2020
* NET POSITIVE REVISIONS AS A SHARE OF TOTAL REVISIONS. * SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION).
SOURCE: REFINITIV / IBES.
** IN USD TERMS; SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION).
NOTE: BOTH SERIES SHOWN SMOOTHED EXCEPT FOR LATEST DATA POINT.
*** SOURCE: REFINITIV / IBES.
12Shape Your ConvictionTM
GAA Recommended Allocation
Global Asset Allocation – + Global Fixed Income** – +
Government
Equities – +
Investment Grade
Fixed Income High-Yield
EM Debt
Cash
Duration
Portfolio Volatility – + TIPS
GAA Relative To Benchmark Global Sectors – +
Financials
Global Equities* – + Info Tech
US Healthcare
Communications Serv.
Euro Area
Industrials
Japan Consumer Disc.
Consumer Staples
EM
Energy
Canada Materials
Real Estate
Australia
Utilities
UK Current Previous
* RELATIVE TO MSCI ACWI (UNHEDGED).
** RELATIVE TO BLOOMBERG BARCLAYS GLOBAL AGGREGATE.
13Shape Your ConvictionTM
Overweight US
FINANCIAL CONDITIONS INDEX*:
GLOBAL SECTORS RELATIVE RETURN*: 102 US 102
140 140
INFO. TECH EURO AREA
HEALTH CARE
INDUSTRIALS
FINANCIALS 101 101
120 120
100 100
100 100
99 99
80 80
2018 2019 2020 2010 2012 2014 2016 2018 2020
* SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). * SOURCE: GOLDMAN SACHS (VIA BLOOMBERG L.P.).
RELATIVE TO BROAD MARKET.
NOTE: SERIES REBASED TO JAN. 2018 = 100.
14Shape Your ConvictionTM
Cautious On Europe
Bps % %
ITALY MINUS GERMANY:
GLOBAL: 10-YEAR GOVERNMENT BOND YIELD
FINANCIAL STOCK PRICES / 6 6
120 BROAD MAKRET* (LS) 300
YIELD CURVE** (RS)
110
4 4
200
100
100 2 2
90
0
80
0 0
2010 2012 2014 2016 2018 2020 2006 2008 2010 2012 2014 2016 2018 2020
* SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION).
** G7 10-YEAR GOVERNMENT BOND YIELD
MINUS 3-MONTH EURO RATE.
15Shape Your ConvictionTM
Some Value In EM
PRICE-TO-BOOK*: EMERGING MARKETS:
GLOBAL CYCLICALLY-ADJUSTED P/E RATIO*
5 5 40 MEAN 40
US
GLOBAL EXCLUDING US +/- 1/2 STD
EURO AREA 35 35
4 EMERGING MARKETS 4
JAPAN 30 30
3 3 25 25
20 20
2 2
15 15
10 10
1 1
1990 1995 2000 2005 2010 2015 2020 1985 1990 1995 2000 2005 2010 2015 2020
* SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). * BCA CALCULATION; CALCULATED USING EM STOCK PRICES AND
THE 6-MONTH MOVING AVERAGE OF EPS IN US DOLLAR TERMS,
AND THEN DEFLATED BY US CONSUMER PRICE INFLATION.
SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION)
16Shape Your ConvictionTM
And China’s Stimulus Should Help
% Of % Of % Of % Of
GDP GDP GDP GDP
CHINA:
CHINA: ANNUAL CHANGE OF ADJUSTED TOTAL
2 2 45 45
GENERAL GOVERNMENT FISCAL SOCIAL FINANCING* AS % OF GDP
BALANCE AS A % OF GDP
40 40
0 0
35 35
-2 -2
30 30
-4 -4
25 25
-6 -6
20 20
2008 2010 2012 2014 2016 2018 2020 2008 2010 2012 2014 2016 2018 2020
* BCA CALCULATIONS; TOTAL SOCIAL FINANCING EXCLUDING
EQUITY / INCLUDING LOCAL GOVERNMENT BONDS.
17Shape Your ConvictionTM
Commodities Should Also Eventually Benefit
Ann% Ann% Ann% GOLDMAN SACHS COMMODITY INDEX: % Of
Chg CHINA: Chg Chg
TRADITIONAL INFRASTRUCTURE INDUSTRIAL METALS SPOT PRICES (LS) GDP
50 50 CHINA: ANNUAL CHANGE OF ADJUSTED
INVESTMENT*
TOTAL SOCIAL FINANCING* 45
100 AS % OF GDP (RS, ADV)
40 40
40
30 30 50 35
20 20 30
0
10 6-8% 10 25
X
-50 20
0 0
2006 2008 2010 2012 2014 2016 2018 2020 2008 2010 2012 2014 2016 2018 2020
* INCLUDES TRANSPORT, STORAGE & POST, WATER CONSERVANCY, * BCA CALCULATIONS; TOTAL SOCIAL FINANCING EXCLUDING
ENVIRONMENT & UTILITY MANAGEMENT, AND ELECTRICITY, EQUITY / INCLUDING LOCAL GOVERNMENT BONDS.
GAS & WATER PRODUCTION AND SUPPLY SHOWN ADVANCED 6-MONTHS.
18Shape Your ConvictionTM
Government Bonds Don’t Provide A Good Hedge
% %
1-YEAR TOTAL RETURN OF 10-YEAR GOVERNMENT BONDS AT DIFFERENT TARGET
10-YEAR GOVERNMENT BOND YIELD: RATES
4 US 4
TARGET RATE US GERMANY FRANCE SWITZERLAND JAPAN UK
GERMANY
JAPAN 2.0% -12.2% -26.4% -21.5% -24.2% -20.2% -16.3%
SWITZERLAND
1.5% -7.4% -21.3% -16.5% -19.2% -15.2% -11.4%
2 2 1.0% -2.6% -16.2% -11.5% -14.1% -10.2% -6.5%
0.5% 2.2% -11.0% -6.4% -9.0% -5.2% -1.6%
0.0% 7.1% -5.9% -1.4% -3.9% -0.3% 3.3%
-0.5% 11.9% -0.8% 3.6% 1.2% 4.7% 8.2%
0 0
-1.0% 16.7% 4.3% 8.6% 6.2% 9.7% 13.1%
-1.5% 21.6% 9.5% 13.6% 11.3% 14.7% 18.1%
-2.0% 26.4% 14.6% 18.6% 16.4% 19.7% 23.0%
2015 2016 2017 2018 2019 NOTE: CIRCLES DENOTE LIKELY RETURN IN SEVERE RECESSIONS.
19Shape Your ConvictionTM
Gold Is Better - But Not Perfect
QUARTERLY RETURNS OF GLOBAL EQUITIES (LOSSES) $/
45% Oz GOLD PRICE (LS)
GOLD
GOLD FUTURES
FEATURES GOLD COMPOSITE INDICATOR* (RS)
>10% RETURN -5% TO 0% RETURN 2
30%
30% 5% TO 10% RETURN -5% TO -10% RETURN 1600
SAFE HAVEN QUARTERLY RETURN
0% TO 5% RETURN < -10% RETURN
1
15%
15%
1400
0%
0% 0
1200
-15%
-15% -1
2020 2020
-30%
SOURCE: MSCI INC. (PLEASE SEE COPYRIGHT DECLARATION), 2014 2015 2016 2017 2018 2019 2020
BLOOMBERG/BARCLAYS INDECES, GOLDMAN SACHS VIA DATASTREAM,
* BASED ON MOMENTUM, NET SPECULATIVE POSITIONS, AND SENTIMENT.
NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST,
KOTHARI, S.P. AND SHANKEN, JAY A., “ASSET ALLOCATION WITH
INFLATION-PROTECTED BONDS,” FINANCIAL ANALYSTS JOURNAL,
VOL. 60, NO. 1, PP. 54-70, JANUARY/FEBRUARY 2004. BCA CALCULATIONS.
20Shape Your ConvictionTM
Inflation-Linked Bonds Look Interesting
$/ % % Ann%
BRENT OIL PRICE (LS) MAJOR COUNTRIES*:
Bl Chg
150 US 10-YEAR BREAKEVEN INFLATION (RS) 10-YR BREAKEVEN INFLATION RATE (LS)
2.5 HEADLINE CPI (RS)
3
2.5
2.0
2.0
100 2
1.5
1.5
1
1.0
50
1.0
.5
0
0
2004 2008 2012 2016 2020 2010 2012 2014 2016 2018 2020
NOTE: DASHED HORIZONTAL LINES INDICATE 2.4% AND 2.5% LEVELS * GDP-WEIGHTED AVERAGE OF US, UK, EURO AREA, AND JAPAN.
CONSISTENT WITH THE FED'S 2% CORE PCE TARGET.
21Shape Your ConvictionTM
US Dollar - Neutral For Now
US TRADE-WEIGHTED DOLLAR INDEX* US:
160 160 NOMINAL BROAD
TRADE-WEIGHTED DOLLAR*
140 140 120 MODEL** 120
120 120
100 100
110 110
80 80
BPs 2-YEAR REAL YIELD** DIFFERENTIAL BPs
500 (US MINUS DEVELOPED COUNTRIES) 500
100 100
250 250
0 0
90 90
-250 -250
2020 2020
1980 1985 1990 1995 2000 2005 2010 2015 2020 2000 2004 2008 2012 2016 2020
* SOURCE: BANK OF ENGLAND AND BIS. * SOURCE: FEDERAL RESERVE.
** 2-YEAR NOMINAL YIELD DEFLATED BY CONSUMER PRICE INDEX. ** BCA CALCULATIONS.
NOTE: SHADED AREAS DENOTE PERIODS OF MAJOR DOLLAR APPRECIATION. BASED ON US, EURO AREA, JAPAN AND CHINA M2 MONEY SUPPLY.
22Shape Your ConvictionTM
Buy What Central Banks Are Buying
2500
BPS % %
ECB HOLDINGS OF CORPORATE BONDS*
OPTION-ADJUSTED SPREAD*
25 AS A % OF DOMESTIC ISSUER CORPORATE 25
FROM 1990 TO CURRENT
20 BONDS EX. BANKS** 20
CURRENT OAS
2000
15 15
EURO AREA INVESTMENT GRADE
EURO AREA HIGH-YIELD
10 10
US INVESTMENT GRADE
UK INVESTMENT GRADE
EMERGING MARKET CORPORATE
1500 5 5
CANADA INVESTMENT GRADE
US HIGH-YIELD
UK HIGH-YIELD (EXCLUDING
JAPAN INVESTMENT GRADE
BPs BPs
INVESTMENT GRADE CORPORATES
400 400
FINANCIALS)
1000 OPTION-ADJUSTED SPREAD**:
GERMANY
300 FRANCE 300
SPAIN
500 200 ITALY 200
100 100
0
* SOURCE: BLOOMBERG BARCLAYS INDICES. 2016 2018 2020
* SOURCE: EUROPEAN CENTRAL BANK.
** SOURCE: BLOOMBERG BARCLAYS INDICES.
NOTE: VERTICAL LINE DENOTES START OF THE ECB CORPORATE
SECTOR PURCHASE PROGRAM (CSPP). THE MARKET VALUE OF THE
BLOOMBERG BARCLAYS EURO AREA DOMESTIC ISSUER CORPORATE BOND
INDEX, EXCLUDING BANKS, IS USED AS A PROXY FOR THE AMOUNT OF
CORPORATE BONDS ELIGIBLE FOR ECB PURCHASE. 23Shape Your ConvictionTM
But Not Junk Bonds
% % 60
US:
B-RATED CORPORATE BONDS
12-MONTH TRAILING DEFAULT RATE* 50
50
20 MOODY'S BASELINE FORECAST 20
15 X IMPLIED BY JUNK SPREAD** 15
40
40
30
30
10 10
* (%) (%)
20
RETURNS*
5 X 5
EXCESS RETURNS
10
10
BPs BPs MILD
MILD
HIGH-YIELD 00
EXCESS
800 800
DEFAULT-ADJUSTED -10
600 SPREAD*** 600 -10
MODERATE
MODERATE
400 400 -20
-20
200 200 -30 SEVERE
SEVERE
-30
0 0
-40
-40
-200 -200
-50
1995 2000 2005 2010 2015 2020 -400
-400 -200
-200 0
0 200
200 400
400 600
600 800
800 1000
1000
* SOURCE: MOODY'S INVESTORS SERVICE DEFAULT-ADJUSTED
DEFAULT-ADJUSTEDSPREAD** (BPS)
SPREAD** (BPS)
** ASSUMING INVESTORS EARN AN EXCESS SPREAD EQUAL TO * RELATIVE TO A DURATION-MATCHED POSITION IN TREASURIES.
HISTORICAL AVERAGE AND RECOVERY RATE FALLS IN LINE WITH BCA
SOURCE: BLOOMBERG BARCLAYS INDICES.
FORECAST
*** OPTION-ADJUSTED SPREAD LESS ESTIMATED DEFAULT LOSSES. ** OPTION-ADJUSTED SPREAD LESS REALIZED SPECULATIVE GRADE DEFAULT
SOURCE: BLOOMBERG BARCLAYS INDICES. LOSSES.
DASHED HORIZONTAL LINES DENOTE HISTORICAL MEAN +/- ONE SOURCE: BLOOMBERG BARCLAYS INDICES AND MOODY'S INVESTORS SERVICE. 24
STANDARD DEVIATION.Shape Your ConvictionTM
The Long-Term Consequences Of COVID-19
% % % %
US: HEALTH EXPENDITURE AS % OF GDP*:
SAVINGS RATE US
10 10 GERMANY
ITALY
15 15
CHINA
SOUTH AFRICA
8 8 BRAZIL
10 10
6 6
4 4
5 5
1990 1994 1998 2002 2006 2010 2014 2018 1970 1980 1990 2000 2010 2020
* SOURCE: OECD.
25Shape Your ConvictionTM
Corporate Behavior Will Change Too
US BUSINESS: TRADE GLOBALIZATION*
1.7 INVENTORY / SALES 1.7 .25 .25
1.6 1.6
.20 .20
1.5 1.5
.15 .15
1.4 1.4
.10 .10
1.3 1.3
1960 1980 2000 2020 1860 1900 1940 1980 2020
NOTE: SERIES SHOWN AS A 6 MONTH MOVING AVERAGE. * TRADE GLOBALIZATION IS MEASURED BY IMPORTS AS PERCENTAGE OF GDP
NOTE: SHADING DENOTES NBER-DESIGNATED RECESSIONS. FOR 148 COUNTRIES WEIGHTED BY POPULATION.
SOURCE: BCA CALCULATIONS AND CHASE-DUNN C., KAWANO Y., AND
BREWER B., "TRADE GLOBALIZATION SINCE 1795: WAVES OF INTEGRATION IN
THE WORLD SYSTEM," AMERICAN SOCIOLOGICAL REVIEW 65 1, 2000.
26Shape Your ConvictionTM
How Much Of A Worry Is All This Debt?
% Of. % Of. Ann% Ann%
GDP GDP Chg US: Chg
US: CORE* CPI
GOVERNMENT DEBT AS A 4 NEW YORK FED UNDERLYING 4
100 PERCENT OF GDP* 100 INFLATION GAUGE** (ADV 18 MONTHS)
3 3
75 75
2 2
50 50
1 1
25 25 0 0
-1 -1
1920 1940 1960 1980 2000 2020 2002 2006 2010 2014 2018 2022
* SOURCE: FLOW OF FUNDS. * EXCLUDING FOOD AND ENERGY.
** TREND INFLATION MEASURE BASED ON BROAD PRICE VARIABLES,
MACROECONOMIC VARIABLES, AND FINANCIAL VARIABLES.
SOURCE: FEDERAL RESERVE BANK OF NEW YORK.
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