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

G C 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 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 40 HIGHLAND AVENUE | ROWAYTON, CT 06853 P: 203.899.3400 | F: 203.899.3577 | www.grahamcapital.com 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 1

G C Disclosure 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 obligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated. 2 2 2

G C The US and Global Economy are Still in (Rough) Uncharted Waters  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 overstated  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 3 3 3

G C Even Our Imperfect Theory Says this Cycle’s Fiscal Multipliers Should be Small  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 -6 6 r =-0.94 -4 4 -2 2 0 0 -2 2 -4 4 -6 6 06 07 08 09 10 11 12 13 14 15 Source: Haver Analytics 4 4 4

G C Consumers Are Still Cautious  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 Household Borrowing as % of Disposable Personal Income SA, % Household Debt as % of Disposable Income % Expecting Income to Increase minus % Expecting Income to Decrease Conference Board 18 45 18.75 140 18.00 12 30 120 17.25 6 15 100 16.50 0 0 80 15.75 -6 -15 15.00 60 80 85 90 95 00 05 10 15 85 90 95 00 05 10 Source: Haver Analytics Source: Haver Analytics 5 5 5

G C There is no decoupling from the global economy  US exports and manufacturing were boosted and are now feeling the drag of 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? U.S.: Export Volume Retail Sales & Food Serv Excl Auto, Gas Stations & Building Materials 3-month %Change-ann SA, 2005=100 SA, Mil.$ Tourist Arrivals to the US from Overseas Asia: Import Volume SA 6m Avg 3-month %Change-ann SA, 2005=100 80 80 00000 3000000 2750000 40 40 80000 2500000 0 0 60000 2250000 -40 -40 40000 2000000 -80 -80 20000 1750000 06 07 08 09 10 11 12 13 14 15 06 07 08 09 10 11 12 13 14 Source: Netherlands Bureau for Economic Policy Analysis /Haver Analytics Sources: CENSUS/H, OTTI /Haver 6 6 6

G C Global liquidity has been an important boost  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? Central Bank Balance Sheets as % of GDP UK China: Intl Liquidity: Total Reserves Minus Gold USA Japan Change - Year to Year NSA, EOP, Mil.US$ Eurozone 50000 750000 70 70 60 60 00000 500000 50 50 40 40 50000 250000 30 30 20 20 0 0 10 10 50000 -250000 0 0 90 95 00 05 10 15 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Source: International Monetary Fund /Haver Analytics Source: Haver Analytics 7 7 7

G C Consumer Price Inflation is a Global Phenomenon  Global competition in product markets has led to convergence CPI ex Food and Energy (% y/y) USA Germany Chile (right scale) South Korea (right scale) 16 40 12 30 8 20 4 10 0 0 -4 -10 75 80 85 90 95 00 05 10 15 Sources: BLS, Bbk, INE, NSO/H /Haver 8 8 8

G C Average Hourly Earnings (3m moving average, %y/y) vs. Unemployment Rate -2.0 -1.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 0.0 1.0 2.0 3.0 4.0 5.0 Jan-08 Jan-08 Texas Ohio May-08 May-08 Sep-08 Sep-08 Jan-09 Jan-09 May-09 May-09 The Phillips Curve is Only Partially Operative in the US Labor Market Sep-09 Sep-09 Jan-10 Jan-10 May-10 May-10 Sep-10 Sep-10 AHE (%y/y) AHE (%y/y) Jan-11 Jan-11 May-11 May-11 Sep-11 Sep-11 Jan-12 Jan-12 May-12 May-12 Sep-12 Sep-12 UR UR Jan-13 Jan-13 May-13 May-13 Sep-13 Sep-13 Jan-14 Jan-14 May-14 May-14 Sep-14 Sep-14 Jan-15 Jan-15 12.0 10.0 8.0 6.0 4.0 2.0 0.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Massachusetts Pennsylvania Jan-08 Jan-08 May-08 May-08 Sep-08 Sep-08 Jan-09 Jan-09 May-09 May-09 Sep-09 Sep-09 Jan-10 Jan-10 May-10 May-10 Sep-10 Sep-10 AHE (%y/y) AHE (%y/y) Jan-11 Jan-11 May-11 May-11 Sep-11 Sep-11 Jan-12 Jan-12 May-12 May-12 Sep-12 Sep-12 UR UR Jan-13 Jan-13 May-13 May-13 Sep-13 Sep-13 Jan-14 Jan-14 May-14 May-14 Sep-14 Sep-14 Jan-15 Jan-15 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 9 9 9