C G G R A H A M C A P I T A L M A N A G E M E N T G L O B A - - PowerPoint PPT Presentation

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G R A H A M C A P I T A L M A N A G E M E N T

G L O B A L A L T E R N A T I V E I N V E S T M E N T S T R A T E G I E S

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Discussion of NY Fed Staff Outlook

Discussion by Julia Coronado Chief Economist, Graham Capital Management, L.P. Meeting of NY Fed Advisory Panel, May 15, 2015

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The views expressed herein are exclusively those of the author and do not necessarily represent the views of any other Graham Capital Management (“GCM”) personnel. This presentation includes statements that may constitute forward-looking statements. These statements may be identified by words such as "expects," "looks forward to," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will," "project" or words of similar meaning. In addition, our representatives may from time to time make oral forward-looking statements. Such statements are based on the current expectations and certain assumptions of GCM’s management, and are, therefore, subject to certain risks and

• uncertainties. A variety of factors, many of which are beyond GCM’s control, affect the operations, performance, business strategy

and results of the accounts that it manages and could cause the actual results, performance or achievements of such accounts to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements or anticipated on the basis of historical trends. Accounts managed by GCM may perform in ways that would be unexpected based on the views expressed above, even in cases where future events occur in the manner forecast. Further information about risks and uncertainties affecting accounts managed by GCM is included in the applicable private offering memorandum or disclosure document of such accounts. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the accounts may vary materially from those described in the relevant forward-looking statement as being expected, anticipated, intended, planned, believed, sought, estimated or projected. GCM neither intends, nor assumes any

• bligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated.

Disclosure

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The US and Global Economy are Still in (Rough) Uncharted Waters

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 There are downside risks to the NY Fed Staff Outlook for continued, moderate but above trend growth Fading of headwinds, underlying growth momentum have been

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Fiscal multipliers are smaller Consumer caution continues New Headwinds emerging Boost to exports/manufacturing (retail?) from Asia fading End of global savings glut/QE means tighter financial conditions

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Even Our Imperfect Theory Says this Cycle’s Fiscal Multipliers Should be Small

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 US fiscal multipliers smaller than in the past: “targeted, timely and temporary” means less stimulus on the way in, less drag on the way out.

Real Gross Domestic Product

% Change - Year to Year SAAR, Bil.Chn.2009$

Federal Deficit as % of GDP

Change - Year to Year 15 14 13 12 11 10 09 08 07 06 Source: Haver Analytics 6 4 2

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6 4 2

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r =-0.94

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Consumers Are Still Cautious

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 Despite improved wealth and income expectations, consumers are still finding a new equilibrium for their relationship with debt: boomers are in saving and drawdown mode, millennials are this centuries cautious generation

Household Financial Obligation Ratio

SA, %

Household Debt as % of Disposable Income

10 05 00 95 90 85 Source: Haver Analytics 18.75 18.00 17.25 16.50 15.75 15.00 140 120 100 80 60

Household Borrowing as % of Disposable Personal Income % Expecting Income to Increase minus % Expecting Income to Decrease

Conference Board 15 10 05 00 95 90 85 80 Source: Haver Analytics 18 12 6

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45 30 15

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There is no decoupling from the global economy

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U.S.: Export Volume

3-month %Change-ann SA, 2005=100

Asia: Import Volume

3-month %Change-ann SA, 2005=100 15 14 13 12 11 10 09 08 07 06 Source: Netherlands Bureau for Economic Policy Analysis /Haver Analytics 80 40

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80 40

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Retail Sales & Food Serv Excl Auto, Gas Stations & Building Materials

SA, Mil.$

Tourist Arrivals to the US from Overseas

SA 6m Avg 14 13 12 11 10 09 08 07 06 Sources: CENSUS/H, OTTI /Haver 00000 80000 60000 40000 20000 3000000 2750000 2500000 2250000 2000000 1750000

 US exports and manufacturing were boosted and are now feeling the drag

• f weaker Asian demand compounded by a stronger dollar

 How much has record tourism contributed to surging retail sales and hiring in the retail and leisure and hospitality sector in recent years?

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Global liquidity has been an important boost

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 Greenspan and Bernanke identified Chinese liquidity as a key driver of the conundrum that kept bond yields low, Chinese deleveraging can mean less recycling of FX reserves. Can BOJ and ECB QE Fully offset this support to financial conditions?

China: Intl Liquidity: Total Reserves Minus Gold

Change - Year to Year NSA, EOP, Mil.US$ 14 13 12 11 10 09 08 07 06 05 04 03 02 01 00 Source: International Monetary Fund /Haver Analytics 50000 00000 50000 50000 750000 500000 250000

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Central Bank Balance Sheets as % of GDP UK USA Japan Eurozone

15 10 05 00 95 90 Source: Haver Analytics 70 60 50 40 30 20 10 70 60 50 40 30 20 10

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Consumer Price Inflation is a Global Phenomenon

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CPI ex Food and Energy (% y/y) USA Germany Chile (right scale) South Korea (right scale)

15 10 05 00 95 90 85 80 75 Sources: BLS, Bbk, INE, NSO/H /Haver 16 12 8 4

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40 30 20 10

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 Global competition in product markets has led to convergence

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The Phillips Curve is Only Partially Operative in the US Labor Market

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Average Hourly Earnings (3m moving average, %y/y) vs. Unemployment Rate

Texas Massachusetts Ohio Pennsylvania 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

AHE (%y/y) UR

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

AHE (%y/y) UR

0.0 2.0 4.0 6.0 8.0 10.0 12.0

• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

AHE (%y/y) UR

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

AHE (%y/y) UR