5. Market Update
sources: HiddenLevers, Forbes, Zerohedge, Guardian, Atlantic, Wikipedia
1
Zimbabwe
China Colony
2
3
Obamacare
worries
mount
Finance
Industry
in
Limelight
6. Market Update: Fed Mea Culpa
4
sources: HiddenLevers, WSJ, Marketwatch
March rate
hike off the
table
2015 Fed
Stress Tests
dead wrong
on oil
Foreign QE
ECB + China
too early
or
too late?
Still no 2016
Fed Stress
Tests
7. Market Update: January Correction in Context
sources: Yardeni Research
Year S+P Return %
Recession
?
1948/49 -59 Y
1957 -21 Y
1962 -26 N
1966 -22 N
1968/70 -36 Y
1973/74 -48 Y
1976/78 -19 N
1980/82 -27 Y
1987 -34 N
1990 -20 Y
1998 -19 N
2000/02 -49 Y
2007/09 -56 Y
2011 -19 N
Aside from 1987 crash,
all 30%+ corrections
were part of a recession.
Even if current 12% drop
doubled, recession not
guaranteed.
5
9. Oil Redux: Phases of the Crash
sources: CBC
Phase 1
•US Dollar rise
•No risk premium
Phase 2
•Saudis pumping
•Everyone pumping
•China Slowing
Phase 3
•Iranian oil back
•US demand flat
•Tech advances
10. Oil Redux: Max Draw Down Comparisons
sources: HiddenLevers
Current Oil correction is in line with 1980 and 2008 crashes.
-76%
-71%
-70%
-55% -55%
11. Oil Redux: Supply / Demand Balance
sources: HiddenLevers, OilPrice.com
Demand Factors:
• Global growth slowdown
• US demand stagnant / dwindling
• Electric Vehicles
• US Demographic Shift
Supply Factors:
• US producers hedged into 2017
• Iran production ramp-up
• Saudi / OPEC still not cutting?
13. Oil Redux: Energy Sector Impact
source: HiddenLevers
Upstream:
Need for cash = pumping all-out
Many firms will pump into the teens
(eg FCX @ $16/barrel cash cost)
Many firms’ shares down 90%
Downstream:
Refiners’ profits up on cheap oil
Retailers’ profits up on cheap gas
Refiner ETF has ½ downside of S&P
Midstream:
MLPs hit by lack of future growth
Many MLPs are overleveraged
MLP ETFs down 50%
-90%
-50%
+5%
14. Oil Redux: US Economic Impact
source: HiddenLevers, Resource Reports, WSJ
Cheaper oil
=
HIGHER GDP
Cheaper oil
=
DEFLATION Cheaper oil
=
NO IMPACT
ON CORE
INFLATION
Cheaper oil
=
MORE
PEOPLE
EMPLOYED
Cheaper oil
=
PAYROLLS
INCREASE
Cheaper oil
=
MORE
SPENDING
15. Oil Redux: Global Economic Impact
source: HiddenLevers, Resource Reports, Bloomberg
GDP pop from cheap Oil:
• India + China
• Japan + S. Korea
• Eastern Europe
• SE Asia ex Malaysia
Sovereign Default Risk:
• Russia
Resource Countries Benefit too:
• Canada
• Brazil
• Chile
16. Oil Redux: Investment Posture
Opportunities Hedges
Airlines
Shipping + Transport
Lodging
Refiners
Non-energy in Resource Countries
Solar
Non-energy High Yield
sources: HiddenLevers
Utilities
Energy Importing Countries (Japan, India)
Refiners
Don’t believe the hype!
20. BAD: Shanghai Crash
foreign
money no
come back
China markets struggle but S+P in tact
source: HiddenLevers, WikInvest, Forbes, CNBC, WSJ
negative
wealth
effect
RE + credit
bubbles
don’t pop
69 P/E,
above 2007
peak
Still
holding!
margin calls
actually
happen
-4
-32
July 2015
WAR ROOM
21. UGLY: China Recession
triple
bubble pop
source: HiddenLevers, Economist, ZeroHedge,
seismic
economic
changes
China posts negative GDP as a consumer nation
govt actions
far exceed US
in 2008
China is
world’s #2
consumer
government
caught lying
drags down
commodities
producers
July 2015
WAR ROOM
22. BAD: Tech Reality Check
some
unicorns
die
Nasdaq stops outpacing S+P
source: HiddenLevers
SF property
market
correction
normalizing
P/E ratios
1y return
SPX +12
Nasdaq +23
May 2015
WAR ROOM
23. UGLY: Dot Com Déjà Vu
more muted
than 2000
crash
source: HiddenLevers
valuations
questioned
across tech
Fed may
restart QE
Unicorns crashing spooks Nasdaq
SPX less
damaged,
a la 2000
AAPL GOOG
take a hit
May 2015
WAR ROOM
24. Crude Awakening: Three Big Risks
Progress
58%
S&P
-10%
Progress
43%
S&P
-12%
Progress
39%
Energy sector bankruptcies
will rise as oil hedges roll
off. Low commodities prices
are tied to weak global
growth, but US likely avoids
recession.
Unicorn are being revalued
50-75% lower now, and tech
IPOs are mostly on hold.
Further downside possible if
tech growth story weakens
(AAPL, other FANGS)
China appears more likely to
slip into first recession in 30
years, with a devastating
impact on its suppliers. US
impact muted, but could
result in mild bear market
Commodities
Perfect
Storm
Dot Com
Deja Vu
China
Recession
S&P
-16%
25. Crude Awakening – Take Aways
Russia is primary
default risk on Cheap Oil
China more downside impact on
US than cheap oil
Cheap Oil = net benefit
(to most countries)
OPEC action needed to
lift Oil Prices