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War Room 27 Mar 2013 The Great Rally – Is the Ride Over?

War Room 27 Mar 2013 The Great Rally – Is the Ride Over?. War Room. Monthly macro discussion Using tools in context Update on HiddenLevers Features Your feedback welcome. The Great Rally. Historical Comparisons 2009-2013 R ally in Context Sector Analysis III. Scenarios + Macro Themes.

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War Room 27 Mar 2013 The Great Rally – Is the Ride Over?

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  1. War Room 27 Mar 2013 The Great Rally – Is the Ride Over?

  2. War Room • Monthly macro discussion • Using tools in context • Update on HiddenLevers Features • Your feedback welcome

  3. The Great Rally • Historical Comparisons • 2009-2013 Rally in Context • Sector Analysis • III. Scenarios + Macro Themes

  4. HiddenLevers 1968-1980 1929-1949 Historical Comparisons

  5. Market Rallies: Bull Markets Compared • Typical bull market lasts 3-4 years • Truly great rallies last a decade • Current rally right in the middle of the pack I’m still going strong source: financialgraphart.com

  6. Markets: Secular Bulls + Bears since 1871 • Secular trends can span many market cycles • Four bull and four bear markets since 1871 • Current (4th) bear not yet clearly over source: Doug Short, dshort.com

  7. Markets: Defining the paradigm shift When will Bear Market end? Only when the year 2000 highs are forever left in the rearview mirror. S&P Real Total Return all-time high: date: 1637 24/Mar 2000

  8. Market Metrics at Recent Peaks • Metric 3/2000 10/2007 3/2013 • P/E Ratio 28.5 20.7 18.01 • Dividend Yield 1.16% 1.77% 2.12% • Q-Ratio 1.78 0.95 0.98 • S&P / GDP Ratio 154.5 111.8 98.3 S&P 500 not as overvalued as it was in 2000 + 2007 (YET) source: HiddenLevers analysis, Multpl.com, dshot.com

  9. Bullish Historians – Market/GDP Ratio • Market not overvalued relative to other recent peaks • Economy has grown so S&P is just catching up • Buffets favorite indicator Peaking? source: Bloomberg

  10. Bearish Historians – Q Ratio • Q Ratio • total market value / total replacement value of all companies • Market peaks around 1 on Q scale • 2000 a clear outlier Peaking? source: Doug Short, dshort.com

  11. HiddenLevers 2009-2013 Rally in Context

  12. Rally in Context: Inflation + USD • Analysis • QE made inflation jump, but inflation has trended downward since mid-2011. • Usually USD trades inverse to markets, but US dollar has rallied in 2013, even with QE increasing. This shows an intact decoupling story. CPI touched 4% source: HiddenLevers S&P USD

  13. Rally in Context: Unemployment + GDP • Analysis • We are still near 8% unemployment, a far cry from under 5% when the 2007 S&P peak. This exposes QE shortcomings • US GDP has not kept up with the market rally. Again, QE can lift asset prices, but real growth is more difficult to achieve. 2007 BIG GAP source: HiddenLevers Shabby growth

  14. Rally in Context: Housing + Confidence • Analysis • Home sales + consumer confidence slowly rising since bouncing upward in 2011 • Home prices initially lagged, now marching up with S&P 500 Housing = confidence = rally source: HiddenLevers Housing rebound

  15. Rally in Context: QE + Markets QE 1 Mortgages Asset Backed Securities Any toxic Asset QE2 US Treasuries QE3 Agency backed mortgages Continued buying (equities) Yeah baby!

  16. QE Scenarios: How did we do? slide from Sept 2012 War Room – QE3 # success S&P unemployment 10y # TBD # fail US GDP USD index Still the case

  17. HiddenLevers Sector Analysis

  18. Sector Analysis: Strongest Residential construction has outperformed with the turn in housing Consumer Discretionary contains all of residential construction and related industries 52 week change on S&P Defensive sectors doing best Usually, defensive sectors don’t lead rallies. 11% Telecom = 21% Healthcare = 20% Discretionary = 17%

  19. Sector Analysis: Weakest Inflation has been in check GDP growth sluggish Materials + Energy have no reason to lift off 52 week change on S&P Tech… Apple effect? Google at 52 week highs Apple at 52 weeks lows Tech = -2.6% 11% Materials = 5% Energy = 8%

  20. HiddenLevers Scenarios + Macro Themes

  21. Scenarios: Rally Killers Europe’s crash test dummy How will QE end? 1 2

  22. Scenarios: End of Quantitative Easing • Good • Economy • back on track • Bad • Stagflation • Ugly • Deflation strikes back US Dollar gains in all outcomes

  23. Scenarios: Euro Zone Debt Crisis • Good • Debt Crisis Averted • Bad • Cyprus Contained Meltdown • Ugly • Collapse + Currency Run EU leadership biggest mistake Pulling Euros out of depositor accounts

  24. HiddenLevers – Product Update • Risk Profile – improved user interface • Risk Profile – custom benchmarks • Recent Activity Stream • Integrations – MoneyGuidePro, Morningstar • Coming soon: • Upmarket + Downmarket Analysis • More polish on site – Icons + Images

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