1. The US economy is gradually gaining momentum in 2014, with GDP growth expected to accelerate to 3.3%. 2. All economic indicators are positive - the stock market is at record highs, home prices and sales are rising, consumer sentiment and net worth are high while debt levels are low. 3. However, consumer spending has only been growing at a moderate 2% pace despite these favorable conditions, partly due to many new jobs being low-paying and part-time. 4. If higher quality job growth continues above 200,000 per month, consumer spending could quicken and further boost the economic recovery.

2. Gathering Momentum at Last
Stephen Slifer
NumberNomics
www.NumberNomics.com

3. The Highlights

4. The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.

5. The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup.

6. The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup.
3. Debt ceiling. Obamacare.

7. The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup.
3. Debt ceiling. Obamacare.
4. The Fed will begin to alter policy for first time in 7 yrs

8. The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup.
3. Debt ceiling. Obamacare
4. The Fed will begin to alter policy for first time in 7 yrs
5. No recession until 2018 at earliest.

9. GDP (Real)
6.0%
GDP (Real)
Year-over-year
4.0%
2.0%
0.0%
-2.0%
GDP growth is expected to accelerate to 3.3%
in 2014.
-4.0%
-6.0%
-8.0%
-10.0%
2006q1
2007q1
2008q1
2009q1
2010q1
2011q1
2012q1
2013q1
2014Q1

10. GDP Components
Investment
15%
Trade
10.0%
Government
15.0%
Consumption
60%

11. Consumer Sentiment
100.0
95.0
90.0
85.0
Recession
The consumer is feeling good and is
justified in feeling that way.
80.0
75.0
70.0
65.0
60.0
55.0
50.0
Jan 20072007 Oct 200720082008 Oct 200820092009 Oct 200920102010 Oct 201020112011 Oct 201120122012 Oct 201220132013 Oct 20132014
Apr Jul 2007 Jan Apr Jul 2008 Jan Apr Jul 2009 Jan Apr Jul 2010 Jan Apr Jul 2011 Jan Apr Jul 2012 Jan Apr Jul 2013 Jan

12. 1800
S&P 500
1600
1400
1200
1000
800
600
Stock prices are currently at a record high level
despite higher long-term interest rates.

13. 2.7%
Case Shiller Home Price Index
10.0%
Home prices have risen steadily for the past two years.
1.7%
In fact, in the past year home prices have risen 13.6%.
5.0%
0.0%
0.7%
-5.0%
-0.3%
-10.0%
-1.3%
-15.0%
Home Prices
Year-Over-Year (R)
-2.3%
-20.0%

14. $75.0
Consumer Net Worth (Trillions $)
$70.0
$65.0
$60.0
$55.0
$50.0
$45.0
$40.0
$35.0
Between the rising stock market and higher
home prices consumer net worth has risen to
a record high level.
These developments bolster confidence.

15. 19.0%
Financial Obligations Ratio
18.5%
18.0%
Consumers have paid down enormous
amounts of debt in the past several years.
Their debt in relation to income is at a
record low level.
17.5%
17.0%
16.5%
Trend
16.0%
15.5%
15.0%
Consumers clearly have the ability
to pick up their pace of spending
if they choose to do so.

16. Won’t higher mortgage rates
and higher home prices
slow the housing market?

17. Won’t higher mortgage rates
and higher home prices
slow the housing market?
Not much.

18. May-13
Sep-12
Jan-12
May-11
Sep-10
Jan-10
May-09
Sep-08
Jan-08
May-07
Sep-06
Jan-06
May-05
Sep-04
Jan-04
May-03
Sep-02
Jan-02
May-01
Sep-00
Jan-00
May-99
Sep-98
Jan-98
May-97
Sep-96
Jan-96
May-95
Sep-94
Jan-94
May-93
Sep-92
Jan-92
May-91
3.9
Sep-90
Jan-90
10.9
30-year Mortgage Rate
9.9
8.9
7.9
6.9
5.9
4.9
While 30-year mortgage rates have risen 1.0% since June
to 4.5% they are the lowest mortgage rates in 50 years.
2.9

19. 245.00
Case Shiller Home Price Index
235.00
225.00
While home prices have risen 13.6% in the past year
home prices remain 21% lower than they were
at the peak of the housing market back in 2006.
215.00
205.00
195.00
185.00
175.00
165.00
155.00
Jul 2013
Jan 2013
Jul 2012
Jan 2012
Jul 2011
Jan 2011
Jul 2010
Jan 2010
Jul 2009
Jan 2009
Jul 2008
Jan 2008
Jul 2007
Jan 2007
Jul 2006
Jan 2006
Jul 2005
Jan 2005
145.00

20. Housing Affordability Index
200
180
Housing is far less affordable today than
it was at the beginning of the year.
However, consumers still have 70%
more income than is necessary to buy
a median priced home.
160
140
120
100
2007
2008
2009
2010
2011
2012
2013-Jan.
2013-Nov.

21. Nov 2013
Sep 2013
Jul 2013
May 2013
Mar 2013
Jan 2013
Nov 2012
Sep 2012
Jul 2012
May 2012
Mar 2012
Jan 2012
Nov 2011
3,300
Sep 2011
Jul 2011
May 2011
Mar 2011
Jan 2011
Nov 2010
Sep 2010
Jul 2010
May 2010
Mar 2010
Jan 2010
Nov 2009
Sep 2009
Jul 2009
May 2009
Mar 2009
Jan 2009
Existing Home Sales
5,300
4,800
4,300
Sales surged in the summer as
borrowers raced to close before
mortgage rates rose.
3,800
Many of those sales were borrowed
from the fall.
The trend has not changed much.

22. Oct 2013
Jul 2013
Apr 2013
Jan 2013
Oct 2012
Jul 2012
Apr 2012
Jan 2012
Oct 2011
Jul 2011
Apr 2011
Jan 2011
Oct 2010
Jul 2010
Apr 2010
Jan 2010
Oct 2009
Jul 2009
Apr 2009
Jan 2009
Oct 2008
Jul 2008
5
Apr 2008
6
Jan 2008
Oct 2007
Jul 2007
Apr 2007
Jan 2007
13
Inventory of Unsold Existing Homes
12
11
10
9
8
7
As sales have quickened, a shortage
of available homes for sale has emerged
in many parts of the country which...
4

23. 2.7%
Case Shiller Home Price Index
10.0%
…is why home prices have risen 13.6% in the past year
and will continue to climb.
1.7%
5.0%
0.0%
0.7%
-5.0%
-0.3%
-10.0%
-1.3%
-15.0%
Home Prices
Year-Over-Year (R)
-2.3%
-20.0%

24. Housing Starts
1900
We need 1.3 million new homes or apartments each year
to keep pace with growth in the population.
1700
Builders are only providing about 1.0 million.
1500
1300
1100
Demand continues to far exceed supply.
Thus, home prices will continue to rise.
900
Housing Starts
Trend
700
500
Jan 2006Jul 2006Jan 2007Jul 2007Jan 2008Jul 2008Jan 2009Jul 2009Jan 2010Jul 2010Jan 2011Jul 2011Jan 2012Jul 2012Jan 2013Jul 2013

25. 1. Stock market climb boosts confidence.
2. Net worth is at a record high level.
3. Debt burden is quite comfortable.
4. Interest rates are near record low levels.
5. Housing is in short supply. Sales and prices rising.

26. Consumption Spending (%)
4.0%
2.0%
0.0%
Consumption spending
-2.0%
-4.0%
-6.0%
Year-over-Year
Despite all these positive factors
consumer spending has been growing
at a moderate 2.0% pace for some time.

27. -500
Typically in good times we expect
employment to rise 225
thousand per month.
-700
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
500
Private Employment
300
100
-100
Private Employ.
3-mo. average
-300
We are seeing almost 200 thousand
but...
-900

28. Part Time Workers (% Total)
20.0%
19.5%
19.0%
…many of those jobs are part time
positions and temps.
18.5%
Also, many of those jobs are in the
low paying food and beverage industry
and in retail.
18.0%
17.5%
17.0%
16.5%
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14

29. Oct 2013
Jul 2013
Apr 2013
Jan 2013
Oct 2012
Jul 2012
Apr 2012
Jan 2012
Oct 2011
Jul 2011
Apr 2011
Jan 2011
Oct 2010
-1.0%
Jul 2010
Apr 2010
Jan 2010
Oct 2009
Jul 2009
Apr 2009
Jan 2009
Oct 2008
Jul 2008
Apr 2008
Jan 2008
Oct 2007
Jul 2007
Apr 2007
Jan 2007
6.0%
Real Disposable Income
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Because many jobs are in low paying
industries or part-time positions
income is growing but only about 1.0%.
-2.0%
-3.0%

30. 11.0
Unemployment Rate
10.0
9.0
As the economy gathers momentum
and jobs become more plentiful the
unemployment rate will continue to fall.
8.0
7.0
6.0
Full Employment
5.0
4.0
3.0
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

31. Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
-100
Jan-06
-50
Oct-05
Jul-05
Apr-05
Jan-05
250
Labor Force
200
150
100
50
0
The unemployment rate is declining
rapidly because the labor force is
shrinking.
But why is the labor force declining?
-150
-200

32. Discouraged Workers
1200
1000
The labor force is not shrinking
because long-term unemployed workers
have given up looking for employment.
800
600
The labor force is shrinking because the
baby boomers are retiring.
They were born between 1946-1964.
They will retire between 2011-2039.
400
Thus, the drop in the unemployment
rate is legitimate.
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
200

33. 20.5
19.5
18.5
17.5
16.5
Unemployment Rate -- 16-24 years
As the labor market tightens firms will increasingly
turn to sectors where unemployment is high
to find workers.
The unemployment rate amongst our youth is 13.5%,
double the official rate of 6.7%.
15.5
14.5
By the end of this year it might fall to 11.5% which
is where it was at the beginning of the recession.
13.5
12.5
11.5
10.5
9.5
8.5
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

34. 16.5%
Sep-13
May-…
Jan-13
Sep-12
May-…
Jan-12
Sep-11
May-…
Jan-11
Sep-10
May-…
Jan-10
18.0%
Sep-09
May-…
Jan-09
Sep-08
May-…
Jan-08
Sep-07
May-…
Jan-07
Sep-06
May-…
Jan-06
Sep-05
May-…
Jan-05
Part Time Workers (% Total)
20.0%
19.5%
19.0%
18.5%
At the same time some of those
part time workers could be offered
full time positions.
17.5%
17.0%

35. Consumption Spending (%)
4.0%
2.0%
0.0%
Consumption spending
-2.0%
-4.0%
-6.0%
Year-over-Year
If jobs growth climbs above 200 thousand
per month and the quality of jobs improves,
consumer spending can easily quicken
from 2.0% to 2.6%.

36. GDP Components
Investment
15%
Trade
10.0%
Government
15.0%
Consumption
60%

37. U.S. CEO Confidence
64
61
58
55
Despite fiscal policy and health
insurance worries, CEO’s remain
relatively upbeat.
52
49
Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

38. 1800
S&P 500
1600
1400
1200
1000
Rising stock prices allow many firm
to raise capital by issuing more stock.
800
600

39. $2,200
$2,100
65.0%
Corporate Profits with IVA and CC
Corporate Profits
$2,000
$1,900
$1,800
$1,700
Corporations are not only
making record profits,
growth in profits continues
at a 5.7% pace.
Year-over-year
45.0%
25.0%
$1,600
$1,500
$1,400
5.0%
$1,300
$1,200
-15.0%
$1,100
$1,000
$900
-35.0%

40. 11.0
Corporate Bond Rates
10.0
9.0
Aaa
Baa
8.0
7.0
6.0
5.0
4.0
3.0
Even with the recent backup, corporate
borrowing rates are as low as they
have been anytime in the past 50 years.
Low rates allow firms to re-finance debt
which lowers costs and increases profit.

41. 25.0%
C & I Loans (%)
13.0%
C & I Loans (L)
15.0%
8.0%
Year-Over-Year (R)
3.0%
5.0%
-2.0%
-5.0%
-7.0%
Credit is fairly readily available.
-15.0%
Bank loans to businesses are
growing at a relatively robust
8.0% pace.
-25.0%
-12.0%
-17.0%
Jul 2013
Apr 2013
Jan 2013
Oct 2012
Jul 2012
Apr 2012
Jan 2012
Oct 2011
Jul 2011
Apr 2011
Jan 2011
Oct 2010
Jul 2010
Apr 2010
-22.0%
Jan 2010
-35.0%

42. 11.0%
Corporate Cash / Assets (%)
10.5%
Firms have plenty of cash available
for investment.
10.0%
9.5%
9.0%
8.5%
8.0%

43. 1. CEO’s feel relatively confident.
2. Profits are soaring.
3. Interest rates are near record low levels.
4. Credit is readily available.
5. Firms have accumulated a mountain of cash.

44. Nonresidential Investment
20.0%
Nonresidential Invest.
Year-over-year
10.0%
0.0%
-10.0%
Investment spending has been growing,
but at about a 2.0% pace.
-20.0%
-30.0%
Firms continue to be cautious.

45. Why are firms being so cautious?

46. Why are firms being so cautious?
1. Recession

47. Why are firms being so cautious?
1. Recession
2. Health Care

48. Why are firms being so cautious?
1. Recession
2. Health Care
3. Fiscal Gridlock

49. Nonresidential Investment
20.0%
Nonresidential Invest.
Year-over-year
10.0%
0.0%
-10.0%
-20.0%
-30.0%
Having said all that, we expect investment
spending to pick up from a 2.0% pace
currently to 7.0% in 2014.

50. GDP Components
Investment
15%
Trade
10.0%
Government
15.0%
Consumption
60%

51. Net Exports
-380.000
-390.000
-400.000
-410.000
-420.000
-430.000
-440.000
The trade deficit has been steadily shrinking.
-450.000
It is all oil related and has been caused by
improvements in technology –
-460.000
Hydraulic fracturing and horizontal drilling.
2014Q3
2014Q1
2013q3
2013q1
2012q3
2012q1
2011q3
2011q1
-470.000

52. Production of crude oil and gas is exploding.

53. By 2040 91.6% of our energy needs will be
produced domestically -- 76% today.
Far less reliant on OPEC sources to satisfy oil needs.
The U.S. will surpass Saudi Arabia and Russia to
become the world’s largest oil producer.

54. European Union Confidence
63
60
Global Index
57
European Union
54
51
48
Business confidence in Europe is now
more in line with other regions.
Europe at last appears to be emerging from recession.
The E.U. economy is bigger than the U.S.

55. Japanese Confidence
64.0
61.0
58.0
Japan’s economy has been in a slump for 20 years.
Prime Minister Obe’s decision to pursue a Fed-like
monetary policy has turned the economy around.
55.0
52.0
49.0
Japan is the world’s 3rd largest economy.
46.0

56. Nikkei 225
17000
15000
13000
11000
9000
7000
The Japanese stock market has risen
75% in the past 14 months.

57. Net Exports
-380.000
-390.000
-400.000
-410.000
-420.000
-430.000
-440.000
The trade deficit has been steadily shrinking
and should continue to do so in 2014.
-450.000
-460.000
2014Q3
2014Q1
2013q3
2013q1
2012q3
2012q1
2011q3
2011q1
-470.000

58. GDP Components
Investment
15%
Trade
10.0%
Government
15.0%
Consumption
60%

59. 13.0%
Federal Government
Federal Government
8.0%
Year-over-year
3.0%
-2.0%
-7.0%
Federal government spending -- defense
spending in particular -- has been falling
for the past two years because
-12.0%
The U.S. winds down of two wars.
The sequester has further reduced spending.
-17.0%

60. 4.0%
3.5%
GDP Growth vs. Private Sector
Government spending has
reduced GDP growth by about
0.4% in each of the past 2 years.
In 2014 we expect govt.
spending to be essentially
unchanged versus a drop
of 1.2% last year.
3.0%
2.5%
2.0%
1.5%
1.0%
2011q1
2011q2
2011q3
2011q4
2012q1
2012q2
2012q3
2012q4
2013q1
2013q2
2013q3

61. 2013-2014 Forecasts
2012 2013 2014
GDP
2.0% 2.7% 3.3%
Unemploy. Rate
7.8% 6.7% 6.0%
Inflation Rate
1.9% 1.8% 1.9%
Fed Funds Rate
0.1% 0.1% 0.1%
10-year Note
1.7% 2.9% 3.6%
30-year Mortgage 3.4% 4.4% 5.0%

62. Default on our Debt?

63. Default on our Debt?
Absolutely Not!

64. Our policy makers will not let that happen.

65. Our policy makers will not let that happen.
Debt ceiling increased 14 times since 2001.

66. Our policy makers will not let that happen.
Debt ceiling increased 14 times since 2001.
Never once has the Treasury defaulted.

67. Won’t Obamacare Ruin Everything?

68. Won’t Obamacare Ruin Everything?
No.

69. Lots of Countries Have Universal Health Care.
1.
2.
3.
4.
5.
Germany
France
Italy
U.K.
Canada

70. Lots of Countries Have Universal Health Care.
1. Their stock markets continue to climb.

71. Lots of Countries Have Universal Health Care.
1. Their stock markets continue to climb.
2. Their economies continue to grow.

72. Lots of Countries Have Universal Health Care.
1. Their stock markets continue to climb.
2. Their economies continue to grow.
3. Their standards of living continue to rise.

73. Obamacare is Causing Major Dislocations

74. Obamacare is Causing Major Dislocations
1. Firms want to have fewer than 50 workers.

75. Obamacare is Causing Major Dislocations
1. Firms want to have fewer than 50 workers.
2. Firms try to cut hours to less than 30 hours.

76. Obamacare is Causing Major Dislocations
1. Firms want to have fewer than 50 workers.
2. Firms try to cut hours to less than 30 hours.
3. Many policy holders are losing coverage.

77. Obamacare is Causing Major Dislocations
1.
2.
3.
4.
Firms want to have fewer than 50 workers.
Firms try to cut hours to less than 30 hours.
Many policy holders are losing coverage.
Annual premiums are rising.

78. Economy is Adjusting to the Law.

79. Obamacare is a Tradeoff

80. Obamacare is a Tradeoff
Good: Universal Health Care Coverage

81. Obamacare is a Tradeoff
Good: Universal Health Care Coverage
Bad: Much Bigger Government Sector

82. Government is Inherently Inefficient.

83. Countries with Universal Health End Up With

84. Countries with Universal Health End Up With
1.
2.
3.
4.
Slower growth in productivity
Slower GDP growth
Less employment
Slower growth in income.

85. Standards of Living
1.80
1.70
U.S.
That means slower growth in their
standards of living (GDP per capita).
1.60
Obamacare is moving the U.S.
in that direction.
1.50
1.40
1.30
France
Germany
Italy
U.S.
Canada
1.20
1.10
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1.00

86. GDP Components
Investment
15%
Trade
10.0%
Government
15.0%
Consumption
60%

87. 2013-2014 Forecasts
2012 2013 2014
GDP
2.0% 2.7% 3.3%
Unemploy. Rate
7.8% 6.7% 6.0%
Inflation Rate
1.9% 1.8% 1.9%
Fed Funds Rate
0.1% 0.1% 0.1%
10-year Note
1.7% 2.9% 3.6%
30-year Mortgage 3.4% 4.4% 5.0%

88. When Will the Fed Change Policy?

89. It Will Be a 2-step Process

90. It Will Be a 2-step Process
1. Reduced bond purchases. Long rates rise.
December 2013

91. It Will Be a 2-step Process
1. Reduced bond purchases. Long rates rise.
December 2013
2. Fed begins to raise short rates.
Mid-2015

92. 8
Fed Funds Rate
7
Pre-2008 the way to gauge Fed policy
was to look at the funds rate.
6
Once that rate dropped to 0% the Fed had
to do something else.
5
4
3
2
1
0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13

93. Oct-13
May-13
Dec-12
Jul-12
Feb-12
Sep-11
Apr-11
Nov-10
Jun-10
Jan-10
Aug-09
Mar-09
Oct-08
May-08
Dec-07
Jul-07
Feb-07
Sep-06
Apr-06
Nov-05
Jun-05
Jan-05
Aug-04
Mar-04
7.50
Oct-03
May-03
Dec-02
Jul-02
Feb-02
Sep-01
Apr-01
Nov-00
2.50
Jun-00
Jan-00
8.50
10-year Treasury and Mortgage Rates
10-year Treasury Note
30-year mortgages
6.50
5.50
4.50
3.50
It decided to push long term interest rates lower.
It has been relatively successful.
1.50

94. 2,500
Excess Reserves
The Fed buys a security and pays for it
by putting money in a bank’s checking account
at the Fed.
2,000
1,500
1,000
Excess reserves have climbed from $2 billion
In 2008 to $2.4 trillion currently.
500
Excess reserves represent the supply of funds
available to the banking system to lend.
Nov 2013
Sep 2013
Jul 2013
May 2013
Jan 2013
Mar 2013
Nov 2012
Sep 2012
Jul 2012
May 2012
Mar 2012
Jan 2012
Nov 2011
Sep 2011
Jul 2011
May 2011
Jan 2011
Mar 2011
Nov 2010
Sep 2010
Jul 2010
May 2010
Jan 2010
Mar 2010
Nov 2009
Sep 2009
Jul 2009
May 2009
Jan 2009
Mar 2009
Nov 2008
Sep 2008
Jul 2008
May 2008
Mar 2008
Jan 2008
0

95. 3,000
Excess Reserves -- Projected
2,500
The Fed is currently buying $75 billion of
bonds every single month.
2,000
The Fed continues to steadily ease monetary
policy.
1,500
1,000
If the Fed slows its pace of bond purchases
it is not “tightening”.
500
It is merely slowing its pace of easing.
Oct 2014
Jul 2014
Apr 2014
Jan 2014
Oct 2013
Jul 2013
Apr 2013
Jan 2013
Oct 2012
Jul 2012
Apr 2012
Jan 2012
Oct 2011
Jul 2011
Apr 2011
Jan 2011
Oct 2010
Jul 2010
Apr 2010
Jan 2010
Oct 2009
Jul 2009
Apr 2009
Jan 2009
Oct 2008
Jul 2008
Apr 2008
Jan 2008
0

96. 8.50
10-year Treasury and Mortgage Rates
7.50
10-year Treasury Note
30-year mortgages
6.50
5.50
4.50
3.50
As the Fed slows its pace of bond buying
long rates will rise.
2.50
Expect 10-year note to yield 3.6% by end of 2014 (versus 2.9%).
30-year mortgage rate of 5.0% (versus 4.5%).
Aug-14
Mar-14
Oct-13
May-13
Dec-12
Jul-12
Feb-12
Sep-11
Apr-11
Nov-10
Jun-10
Jan-10
Aug-09
Mar-09
Oct-08
May-08
Dec-07
Jul-07
Feb-07
Sep-06
Apr-06
Nov-05
Jun-05
Jan-05
Aug-04
Mar-04
Oct-03
May-03
Dec-02
Jul-02
Feb-02
Sep-01
Apr-01
Nov-00
Jun-00
Jan-00
1.50

97. 4.0
Spread -- 10-year vs. Fed Funds
3.0
2.0
1.0
0.0
-1.0
Long rates rarely exceed short rates by more than 3.5%.
By yearend 2014 10-year rate = 3.6%, funds = 0.1%. Difference = 3.5%.
-2.0

98. 0
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
6
Jan-…
7
Jan-…
Jan-…
Jan-…
8
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
9
Fed Funds Rate
The funds rate today is 0%.
It would be “neutral” when it is about 4.25%.
5
4
3
2
1

99. 11.0
Unemployment Rate
10.0
9.0
Fed has said it will not begin to raise the funds
rate until the unemployment rate has declined
“well beyond” 6.5%.
6.0%?? 5.5%??
8.0
Given a moderate pace of economic expansion
that should occur by mid-2015.
7.0
6.0
Full Employment
5.0
4.0
3.0
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

100. 9
Fed Funds Rate
8
If the Fed begins to alter is policy in mid-2015
it will take until mid-2017 for the funds rate
to return to “neutral”.
7
6
5
4
3
2
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
Jan-…
0
Jan-…
1

101. 20.0
15.0
Fed Funds Rate
The U.S. economy has never gone
into recession unless the funds rate
has been higher than “neutral”.
Earliest date for a recession? 2018?
10.0
5.0
0.0

102. In Conclusion

103. In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.

104. In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.

105. In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.
3. Profits will continue to climb.

106. In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.
3. Profits will continue to climb.
4. Stock market will rise.

107. In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.
3. Profits will continue to climb.
4. Stock market will rise.
5. Unemployment rate will continue to decline.

108. In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.
3. Profits will continue to climb.
4. Stock market will rise.
5. Unemployment rate will continue to decline.
6. No recession for at least another 4 years.

109. What’s Not To Like!
Stephen Slifer
NumberNomics
www.NumberNomics.com