Markets Gone Wild : Surviving Sub Prime, Black Swans and Market Turmoil John Cassady, CFA Senior Portfolio Manager Fifth Third Asset Management, Inc. (FTAM) - PowerPoint PPT Presentation

Slide1 l.jpg
1 / 29

  • Uploaded on
  • Presentation posted in: General

Markets Gone Wild : Surviving Sub Prime, Black Swans and Market Turmoil John Cassady, CFA Senior Portfolio Manager Fifth Third Asset Management, Inc. (FTAM). Homes Now Equal to 2000 Stock Levels. Source: Bianco Research. Sub Prime Contagion. Crisis I 2/27/07. BBB Current Loss Outlook

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

Download Presentation

Markets Gone Wild : Surviving Sub Prime, Black Swans and Market Turmoil John Cassady, CFA Senior Portfolio Manager Fifth Third Asset Management, Inc. (FTAM)

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

Slide1 l.jpg

Markets Gone Wild :

Surviving Sub Prime, Black Swans and Market Turmoil

John Cassady, CFA

Senior Portfolio Manager

Fifth Third Asset Management, Inc. (FTAM)

Slide2 l.jpg

Homes Now Equal to 2000 Stock Levels

Source: Bianco Research

Slide3 l.jpg

Sub Prime Contagion

Crisis I



Current Loss Outlook



Historical Worst Case

1999 = (5.25%)

Source: Bianco Research

Slide4 l.jpg

Contagion – Part 1

Source: Bianco Research Updated 8/31/07

Honey i nuked the hedge fund l.jpg














Honey, I NUKED the Hedge Fund

There are 10,000 Hedge Funds today.





Hedgie raises $1,000,000.

Wall Street Bankers lend Hedgie $5,000,000 more, @ 6% interest.



Hedgie invests $6,000,000 @ 8% interest.

Uh oh, here comes the black swan…


x 8%






x (.20)




Bond prices decline 20% 100 80.

Gross Return

Busted, margin call’s incinerate principal.

Interest Expense (Wall Street loves Hedgie)

18% return, Collect big fees


Slide6 l.jpg

Money Market Meltdown - Liquidity Seizure

Source: Bianco Research

Slide7 l.jpg

Real Estate Story – Looking for a Bottom…

Home Sales Price

Housing Affordability


Monthly Supply

Existing Home Sales

Source: FTAM Updated 7/31/07 Year-Over-Year

Will housing prices collapse l.jpg

Will Housing Prices Collapse?

Source: ISI Group

Slide9 l.jpg

Consumer Spending – How Much of a Decline?


Slide10 l.jpg

What will the Fed do?

Rate cuts normally Good for stocks.

1) S&P 500 up 31.6% in 1985.

2) S&P 500 up 31.3% in 1989.

3) S&P 500 up 37.4% in 1995.

4) S&P 500 down 11.8% in 2001.

Source = FactSet/Ned Davis Research

Slide11 l.jpg

Above Average Global Growth

Source: World Bank/IMF

Slide12 l.jpg

Unemployment Rate & Real GDP


Source: FTAM (Q2, Advance)

Slide13 l.jpg

Fed Focus – Core Inflation Measures

Source: Bianco Research

Slide14 l.jpg

Percent Change in Real GDP by State 2005-2006

Source: U.S. Bureau of Economic Analysis

Motor vehicle parts manufacturing employment 1999 2007 april l.jpg

Motor Vehicle & Parts Manufacturing Employment1999 – 2007 April


U.S.: -281,500 or –25%


Michigan: -127,300 or –40%




Source: BLS

Slide16 l.jpg

Detroit Drops; Asia Gains

U.S. Market Share of Major Automakers:







Source: Autodata, Updated 7/31//07

Slide17 l.jpg

MEW Declines – Bad News for Detroit



U.S. Mtg. Equity Withdrawal

House Price Index

Source: ISI Group

Slide18 l.jpg

Post-Employment Healthcare Costs

$ billion

$ billion

Book Value/Share


Book Value/Share


Source: Bank of America, Bloomberg, 10-Ks

Slide19 l.jpg

2007 – A Turning Point for the Big 3

  • Master Contract Negotiations – September 2007

    • Wage Rates – Need to come down

    • Productivity Enhancement – More flexible work rules

    • Healthcare Costs

      • Legacy and existing workers

      • Need to erase a $1,500 per vehicle cost disadvantage

      • Can a VEBA cure the healthcare crisis for the Big 3?

  • Chrysler – What can Cerberus do that Daimler couldn’t?

  • A seminal moment for the UAW and the domestic auto industry…

Slide20 l.jpg

Common Stock Total Returns

Source: FTAM

Slide21 l.jpg

Global ETF Returns


Source: Bloomberg Updated 8/31/07

Slide22 l.jpg

What stock traders are watching: Earnings

Source: FirstCall

Slide23 l.jpg

Stock market valuation is still about average…

Internet euphoria…

High inflation...

Source = FactSet

Slide24 l.jpg

More Profitable being Naughty not Nice

Source: Bianco Research

Slide25 l.jpg

Fixed Income Total Returns

Source: FTAM

Slide26 l.jpg

Fundamentally - Stocks Still Attractive Versus Bonds…

10-year Treasury Yield vs. SPX Earnings Yield

Bonds Attractive

Stocks Attractive

Source = FactSet

Slide27 l.jpg

Treasury Yields vs. After Tax Muni Yields

Long Munis are Cheap

AAA Muni

35% Tax Bracket

AAA Muni

25% Tax Bracket

U.S. Treasury

Source: Bloomberg, Municipal Market Data Updated August 31, 2007

Slide28 l.jpg

Investment Management Tactical Outcomes

Value add: +4.16% +0.14% +1.76% +1.17% +0.61%

Source = FactSet

Slide29 l.jpg

Items of Consideration for Investors

  • The national economy will weather the sub-prime storm, but it will be a drag on growthfor the next year. There is no reason to expect a quick turn around, so growth will be sub –3.0% into 2008.

  • The struggles of Ford and GM will overshadow the Midwest economy for at least the next 2 years. Economic fundamentals are much stronger today than they were in the past which will mitigate the economic impact on the Midwest economy, though we will still lag the national economy.

  • Remember the importance of diversification and re-balancingin your portfolios for long-term performance.

  • Volatility is to be expected in financial markets, what matters is earnings growth still supports stock valuations, keeping P/E multiples reasonable.

    • At current levels S&P 500 is selling for 15.7x the 2007 estimates and 14.8x the 2008 earnings estimates. 25 year average is 20.4x, 50 year average is 17.5x, and 81 year average is 15.9x.

    • This is not an expensive market.

  • International stocks represent near and long-term opportunity.

  • Current 2007 domestic biases include . . .

    • Stocks over bonds.

    • Large Cap stocks over Small Cap.

    • Higher quality over Lower quality (stocks & bonds).

  • Login