1 / 29

Markets Gone Wild : Surviving Sub Prime, Black Swans and Market Turmoil John Cassady, CFA Senior Portfolio Manager Fifth

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

gent
Télécharger la présentation

Markets Gone Wild : Surviving Sub Prime, Black Swans and Market Turmoil John Cassady, CFA Senior Portfolio Manager Fifth

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. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

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

  2. Homes Now Equal to 2000 Stock Levels Source: Bianco Research

  3. Sub Prime Contagion Crisis I 2/27/07 BBB Current Loss Outlook (62.5%) BBB Historical Worst Case 1999 = (5.25%) Source: Bianco Research

  4. Contagion – Part 1 Source: Bianco Research Updated 8/31/07

  5. $ $ $ $ $ $ $ $ $ $ $ $ $ Honey, I NUKED the Hedge Fund There are 10,000 Hedge Funds today. 1) 2) c c Hedgie raises $1,000,000. Wall Street Bankers lend Hedgie $5,000,000 more, @ 6% interest. 3) 4) Hedgie invests $6,000,000 @ 8% interest. Uh oh, here comes the black swan… $6,000,000 x 8% $480,000 (300,000) $180,000 $1,000,000 $6,000,000 x (.20) ($1,200,000) $1,000,000 Return 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 X X X X X X

  6. Money Market Meltdown - Liquidity Seizure Source: Bianco Research

  7. Real Estate Story – Looking for a Bottom… Home Sales Price Housing Affordability -0.6% Monthly Supply Existing Home Sales Source: FTAM Updated 7/31/07 Year-Over-Year

  8. Will Housing Prices Collapse? Source: ISI Group

  9. Consumer Spending – How Much of a Decline? ?

  10. 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

  11. Above Average Global Growth Source: World Bank/IMF

  12. Unemployment Rate & Real GDP 3.1% Source: FTAM (Q2, Advance)

  13. Fed Focus – Core Inflation Measures Source: Bianco Research

  14. Percent Change in Real GDP by State 2005-2006 Source: U.S. Bureau of Economic Analysis

  15. Motor Vehicle & Parts Manufacturing Employment1999 – 2007 April 1,128,400 U.S.: -281,500 or –25% 846,900 Michigan: -127,300 or –40% 316,300 189,000 April Source: BLS

  16. Detroit Drops; Asia Gains U.S. Market Share of Major Automakers: GM FORD TOYOTA CHRYSLER HONDA NISSAN Source: Autodata, Updated 7/31//07

  17. MEW Declines – Bad News for Detroit (000) millions U.S. Mtg. Equity Withdrawal House Price Index Source: ISI Group

  18. Post-Employment Healthcare Costs $ billion $ billion Book Value/Share -9.62 Book Value/Share -2.58 Source: Bank of America, Bloomberg, 10-Ks

  19. 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…

  20. Common Stock Total Returns Source: FTAM

  21. Global ETF Returns US$ Source: Bloomberg Updated 8/31/07

  22. What stock traders are watching: Earnings Source: FirstCall

  23. Stock market valuation is still about average… Internet euphoria… High inflation... Source = FactSet

  24. More Profitable being Naughty not Nice Source: Bianco Research

  25. Fixed Income Total Returns Source: FTAM

  26. Fundamentally - Stocks Still Attractive Versus Bonds… 10-year Treasury Yield vs. SPX Earnings Yield Bonds Attractive Stocks Attractive Source = FactSet

  27. 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

  28. Investment Management Tactical Outcomes Value add: +4.16% +0.14% +1.76% +1.17% +0.61% Source = FactSet

  29. 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).

More Related