2010: Growth in a Deleveraging World Presentation to: CFA Society - - PowerPoint PPT Presentation

2010 growth in a deleveraging world
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2010: Growth in a Deleveraging World Presentation to: CFA Society - - PowerPoint PPT Presentation

2010: Growth in a Deleveraging World Presentation to: CFA Society of Houston Houston, Texas February 3, 2010 Presented by: Komal S. Sri-Kumar, Ph.D. Managing Director Chief Global Strategist This presentation is for information purposes


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2010: Growth in a Deleveraging World

Presented by: Komal S. Sri-Kumar, Ph.D. Managing Director Chief Global Strategist

This presentation is for information purposes only. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate, and it should not be relied on as such or be the basis for an investment decision. While past performance may be analyzed in this material, past performance should not be considered indicative of future performance. Any opinions expressed are current only as of the time made and are subject to change without notice. TCW assumes no duty to update any such statements. The views expressed herein are solely those of the author and do not represent the views of TCW as a firm or of any fund manager or employee of

  • TCW. In addition, TCW manages a number of different investment funds, and managers of those funds may have differing views or analyses with respect to a particular security or

the economy than the views expressed herein. TCW‘s fund managers make investment decisions based on various sources of information and analyses and are not necessarily based on the economic information contained herein. This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. This presentation is not to be used or considered as an offer to sell, or a solicitation to an offer to buy, any security. Nothing contained herein should be considered a recommendation or advice to purchase or sell any security. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this presentation, which positions may change at any time, without notice.

Presentation to: CFA Society of Houston Houston, Texas February 3, 2010

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1

Global Economy: Private Sector Revival is Crucial

  • Debt Reduction to Continue Worldwide in 2010
  • U.S. Home Price Decline, Dubai, Greece are Symptoms
  • U.S., European, Chinese Growth Dependent on Fiscal Stimulus
  • U.S. Double Dip: Explaining the Risk
  • Problem: Still No Globally Coordinated Effort
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2

U.S. Economy: New Uncertainties Add to Headwinds

  • Bank Restrictions, Opposition to Bernanke Add to Investor Risk
  • Banks Still Tightening Credit
  • Housing at Renewed Risk as UST Yields Rise
  • Fiscal Stimulus Limited by Borrowing Constraints
  • No Rate Hike Before 2011
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3

S&P 500 Rallies More Than 50% Since March Lows

600 700 800 900 1000 1100 1200 3/9/09 3/23/09 4/6/09 4/20/09 5/4/09 5/18/09 6/1/09 6/15/09 6/29/09 7/13/09 7/27/09 8/10/09 8/24/09 9/7/09 9/21/09 10/5/09 10/19/09 11/2/09 11/16/09 11/30/09 12/14/09 12/28/09 Source: Bloomberg

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UST 10-year Yield - Further Rise Ahead

1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 J un-08 J ul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 J an-09 Feb-09 Mar-09 Apr-09 May-09 J un-09 J ul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

Source: Bloomberg

Yield (%)

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U.S. Economic Growth

Gross Domestic Product

Percent Change from Preceding Period - Based on Chained 2000 Dollars

(8.0) (6.0) (4.0) (2.0)

  • 2.0

4.0 6.0 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 %

Source: U.S. Bureau of Economic Analysis and TCW Global Strategy Forecast

Actual through Third Quarter 2009

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U.S. Unemployment Rate (%)

4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 Mar-07 Apr-07 May-07 J un-07 J ul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 J an-08 Feb-08 Mar-08 Apr-08 May-08 J un-08 J ul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 J an-09 Feb-09 Mar-09 Apr-09 May-09 J un-09 J ul-09 Aug-09 Sep-09 Oct-09 Nov-09

Source: Bloomberg

Data through November 2009

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U.S. Households Net Worth

U.S. H Househ ehold B Balance S e Sheet eets

10 20 30 40 50 60 70 80 90 1992 1994 1996 1998 2000 2002 2004 2006 2008 2Q09

USD Trillions

Assets Liabilities Net Worth

+$2.0T $53.4T $51.4T Net Worth

  • $0.2T

$14.1T $14.2T Liabilities +1.9T $67.5T $65.6T Assets Difference 9/30/09 12/31/08 Data Through Third Quarter 2009 Source: U.S. Federal Reserve

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Federal Reserve Bank Lending Survey

Percent of Bank Responses Regarding Changes in Lending Practices

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 J an-06 Apr-06 J ul-06 Oct-06 J an-07 Apr-07 J ul-07 Oct-07 J an-08 Apr-08 J ul-08 Oct-08 J an-09 Apr-09 J ul-09 Oct-09 J an-10

Some or Considerable Tightening Some or Considerable Easing Source: Bloomberg Source: Bloomberg

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9

Europe: An Imperfect Union

  • Monetary Union But No Fiscal Transfers
  • Diverse Economic Performance Across Eurozone
  • ECB Policy Supportive of Stronger Countries
  • More Greeces on the Way?
  • Strong Euro Holding Back Regional Recovery
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10

Europe: Members Fighting Different Problems

  • Germany: Fiscal Deficit, State of Banks are Concerns
  • France: Growth in Mid-2009, Sustainability Doubtful
  • Italy: High Debt/GDP Constrains Government
  • U.K.: Longest Recession in Recorded History
  • Spain: Sky-High Unemployment Threatens Social Fabric
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Still BRIC, Not Just BIC!

  • Positive Growth in Brazil, India, China
  • Still, No Decoupling from U.S., Europe
  • Strong Financial Sector in Contrast with Russia
  • Russia Opens Economy in Response to Crisis
  • BRIC Currencies to Appreciate Vs. Euro, Pound, Dollar
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Implications for Investors

  • Be Defensive Facing Double-Dip Risk
  • UST Vulnerable to Economic Recovery, Inflation
  • Inflation Hedges - - Commodities, Gold, Real Estate -- Attractive
  • Indebted Members are Risk to Eurozone
  • Emerging Markets: Too Much Too Fast?
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Komal S. Sri-Kumar, Ph.D. Managing Director – Trust Company of the West Chief Global Strategist Chairman – Comprehensive Asset Allocation Committee TCW

  • Dr. Sri-Kumar is Chairman of the Comprehensive Asset Allocation Portfolio and Chief Global Strategist of Trust

Company of the West (TCW). He has been associated with the allocation strategy since its inception in 1991 and has been Chairman since 1997. This strategy allocates assets across a broad array of global asset classes including U.S. and foreign equities and fixed income, private equity, energy and real estate. As Chief Global Strategist, Dr. Sri-Kumar has the responsibility for advising portfolio managers and has been key to raising assets for a number of TCW strategies from Sovereign Wealth Funds, international agencies, corporate and public pension funds and retail investors. Among other strategies, he was instrumental in raising funds for, and helping guide investments in, two Emerging Market Real Estate funds managed by Hines.

  • Dr. Sri-Kumar has addressed CEOs, pension fund managers and retail fund managers in conferences in the United

States, Europe and Asia. His articles and interviews have been published in the Wall Street Journal, the New York Times and the Financial Times. He frequently explains his views on the global outlook and their investment implications on CNBC, Bloomberg TV and the Fox Business Network. Prior to joining TCW in 1990, Dr. Sri-Kumar was Senior Vice President at Drexel Burnham Lambert and Executive Vice President of DBL Americas, responsible for country risk analysis. He holds an M.A. degree from the Delhi School of Economics, and M.Phil and Ph.D. degrees from Columbia University. His doctoral dissertation at Columbia was supervised by Professor Robert Mundell, Nobel Laureate in Economics (1999).

Biography