War Room - October 2014

1. New Season for Jobs?
29 October 2014
War Room

2. HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates

3. Market Update
2015 Fed Stress Tests
USA Jobs Pulse Check
New Season for Jobs?
Adios QE

4. HiddenLevers
MARKET UPDATE

5. Market Update
QE ends in year 6 Volatility Hoax
Bullard saves Market
sources: HiddenLevers
Oil touched $79

6. Market Update – Ebola Pandemic
sources: HiddenLevers, University of Hong Kong , USA Today
15%
SARS 2003
Airlines crippled from tourist fear
Ebola 2014
Airlines doing fine, Delta saying
bookings unaffected
Macro Snapshot

7. Macro Snapshot
Oil and mortgage rates crash as the S&P 500 holds its own. Meanwhile, consumer
confidence has reached 2005 levels and jobless claims are lowest in a decade.

8. 2015 FED STRESS TESTS
HiddenLevers

9. Why does the Fed create Stress Tests?
“These scenarios are not a
forecast. Rather, they are
hypothetical scenarios
designed to assess the
strength of banking
organizations and their
resilience to an unfavorable
economic environment.”
-Federal Reserve Bank

10. Review: 2014 Fed Stress Tests (Dec 2014)
MISS
10y Treasuries
closer to 2 than 3
MISS
CPI + Commodities
overvalued
HIT
15% S&P rise
projected.. could
happen
source: HiddenLevers, Federal Reserve

11. GOOD: Fed Baseline Scenario
source: HiddenLevers, Federal Reserve
sustained moderate expansion
gradual
normalization of
treasury yields
real GDP
under 3%
unemployment
declines to 5%
asset prices
rising steadily
inflation at 2%
low equity
market volatility
average of
outside
economic
forecasters

12. BAD: Fed Adverse Scenario
rapid increase in
short-term rates
to 2.5%
bank costs soar
due to rate rise
unemployment
over 7%
global weakening + US inflation squeeze
mild US
recession into
mid-2015
inflation over
4%
source: HiddenLevers, Federal Reserve
yield curve
higher + flatter
decline in home
prices,
felt more in high
gainer areas

13. UGLY: Fed Severely Adverse Scenario
equity market
distress exceeds
2008-09
brent crude oil
prices rise to
110usd
CPI over 4% on
oil shock
Rates -->2017
Short term at 0
long term at 1%
global weakening + intense US recession + oil shock
Unemployment
over 10%
GDP growth
takes serious hit
-- 4%
source: HiddenLevers, Federal Reserve
divergence
corporate bonds
yields higher
rapid exits
EM
private equity
securitizations
Economies
dependent on
imported oil
suffer more
UMMM?

14. #FAIL: Fed Severely Adverse Scenario
source: HiddenLevers, Federal Reserve
why no scenario for global deflation risk?

15. Scenario: 2015 Fed Stress Tests
Good
Baseline
Bad
Adverse
Ugly
Severely
Adverse
The Baseline
includes steady
equities growth,
fast real estate
appreciation, and
moderate inflation +
GDP growth.
The Adverse
scenario is a stag-
flation scenario,
with high inflation
and poor growth.
The Severely
Adverse scenario
includes an equities
decline of 50%, a
deep recession, and
static interest rates.

16. HiddenLevers
USA JOBS PULSE CHECK
$

17. Jobs Recovery: Pulse Check
sources: Heritage, St. Louis Fed
Participation Down
Job Openings Up

18. Jobs Recovery : Comparison to Previous
source: BLS, Heritage
Bad news
77 months did much
more for past recoveries
Good news
77 months to get back to
pre-recession employment.

19. sources: Forbes, SUNY Oswego
Compared to other global financial
crises, post-2007 US jobs recovery
has been strong
GDP Per Capita has risen
modestly in US since 2007,
and fallen in every European
country save Germany
Jobs Recovery: Global Perspective

20. Jobs Recovery: Quantity vs Quality
sources: National Employment Law Project, HiddenLevers
Wages decreasing for all but 1%.
Jobs recovered are low wage.
Employment Cost Index shows
slowing of wage gains.

21. HiddenLevers
NEW SEASON FOR JOBS?

22. New Season: Tech Automation = Job Killer
Unemployment
dropping
but
Who is rejoining
work force?
Productivity
growing
but
Employment
not so much
sources: US Bureau of Labor Statistics
Lowes Robot Shopper

23. New Season: Startups Myth
sources: US Bureau of Labor Statistics

24. New Season: Jobs Cycle + Market Cycle
When non-farm payrolls drop below 0
and stick there, trouble lies ahead.
When non-farm payrolls stay above
0, market tends to rally steadily.
sources: HiddenLevers

25. New Season for Jobs?: Recap
US leading first world in job growth Fed clueless on inflation?
no markets crash during
jobs recoveries
US Jobs have surpassed peak

26. Product Update
Improved
reports
navigation
New site
design
Morningstar
import + sync
improved
risk measures
improved
security info
choices