Presentation By A. Gary Shilling, Ph.D. To Texas Municipal - PowerPoint PPT Presentation

Presentation By A. Gary Shilling, Ph.D. To Texas Municipal Retirement System May 19, 2017 A. Gary Shilling & Co., Inc. 500 Morris Avenue Springfield, NJ 07081 (973) 467-0070 / Fax (973) 467-1943 Email: gary@agaryshilling.com / www.agaryshilling.com

Chart 1 S&P 500 Index Last Point 05/08/17: 2,399.38 2400 2400 2200 2200 2000 2000 1800 1800 1600 1600 1400 1400 1200 1200 1000 1000 800 800 600 600 2007 2008 2010 2011 2013 2014 2016 Source: Thomson Reuters

Chart 2 Copper Price USD/pound; nearest futures contract Last Point 05/08/17: $2.49 $2.8 $2.8 $2.7 $2.7 $2.6 $2.6 $2.5 $2.5 $2.4 $2.4 $2.3 $2.3 $2.2 $2.2 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Apr-17 Source: Bloomberg

Chart 3 Mexican Pesos Per U.S. Dollar and U.S. Dollar Index Last Points 05/08/17: Pesos/USD, 19.21; USD Index, 99.06 22.0 104 21.5 103 Stronger U.S. Dollar Stronger U.S. Dollar 21.0 102 20.5 101 20.0 100 19.5 99 19.0 98 18.5 18.0 97 Nov-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Pesos/USD - left axis U.S. Dollar Index - right axis Source: Thomson Reuters

Chart 4 Emerging Markets Stocks and Bond Indices Last Point: 05/08/17: Stocks: 978.27; Bonds: 160.72 1000 162 161 980 160 960 159 940 158 920 157 156 900 155 880 154 860 153 840 152 820 151 Nov-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 MSCI Emerging Market Stocks Index - left axis Bloomberg Emerging Market Bond Index - right axis Source: Bloomberg, MSCI

Chart 5 10 and 30 Year Treasury Yields Last Points 05/08/17: 10-Yr: 2.39%; 30-Yr: 3.02% 3.2% 3.2% 3.0% 3.0% 2.8% 2.8% 2.6% 2.6% 2.4% 2.4% 2.2% 2.2% 2.0% 2.0% 1.8% 1.8% 1.6% 1.6% Nov-16 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Mar-17 Apr-17 10 Year Treasury Yield 30 Year Treasury Yield Source: Federal Reserve

Chart 6 Cumulative Number of Federal Restrictions in millions 1.1 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.2 0.2 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: The Wall Street Journal; Mercatus Center

Chart 7 Real Annual Wages year/year percent change Last Points 2016: Ger., 2.9%; Jap., 1.4%; U.K., 1.6%; U.S., 1.0% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% -2% -2% -3% -3% 1991 1995 1999 2003 2007 2011 2015 Germany United Kingdom Japan United States Source: Bloomberg; OECD

Chart 8 Real Annual Wages year/year percent change Last Points 2016: Can., 1.4%; Fra., 0.9%; Ita., 0.6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% -2% -2% -3% -3% -4% -4% 1991 1995 1999 2003 2007 2011 2015 Canada Italy France Source: Bloomberg; OECD

Chart 9 Federal Budget Balance billion USD Last Point 2016: -$587 400 400 200 200 0 0 -200 -200 -400 -400 -600 -600 -800 -800 -1000 -1000 -1200 -1200 -1400 -1400 -1600 -1600 1980 1990 2000 2010 2016 Source: Congressional Budget Office

Chart 10 Real GDP Growth During Expansions annualized rates of expansion from NBER trough-to-peak 8% 8% 7.6% 7% 7% 6% 6% 5.6% 5.1% 4.9% 5% 5% 4.4% 4.3% 4.3% 4.0% 4% 4% 3.6% 3% 3% 2.8% 2.1%* 2% 2% 1% 1% 0% 0% 1950 1954 1958 1961 1971 1975 1980 1983 1991 2002 2009 Recession Start Date *Through 1Q 2017 Source: BEA; NBER

Chart 11 China Exports of Goods and Services as % share of GDP Last Point 2015: 22.1% 40% 40% 35% 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 1990 1995 2000 2005 2010 2015 Source: The World Bank

Chart 12 Chinese Real Gross Domestic Product year/year percent change Last Point 1Q 2017: 6.9% 16% 16% 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Bloomberg; Chinese National Bureau of Statistics

Chart 13 Manufacturing Payroll Employment level and share of total Last Points April 2017 - Level: 12.40, Share: 8.49% 20 35% 19 30% 18 17 25% 16 20% 15 14 15% 13 10% 12 11 5% 1947 1955 1963 1972 1980 1988 1997 2005 2013 Level (millions of employees) - left axis Share of Total Nonfarm Payrolls - right axis Source: Bureau of Labor Statistics

Chart 14 Fertility and Life Expectancy Rates Fertility Rates Life Expectancy Rates 2014 estimate Total Pop. Women Men 1.4 84.46 87.99 81.13 Japan 1.77 80.17 83.24 77.25 Australia 1.42 82.03 84.82 79.4 Italy 1.59 81.67 84.42 79.07 Canada 2.08 81.66 84.91 78.55 France 1.48 81.47 84.67 78.47 Spain 1.78 81.12 83.34 79.02 Netherlands 1.43 80.44 82.86 78.15 Germany 1.9 80.42 82.69 78.26 U.K. 1.55 81.5 84.1 78.7 Eurozone 1.25 79.8 83.13 76.67 South Korea 2.01 79.56 81.94 77.11 U.S. 1.55 75.15 77.43 73.09 China 1.79 73.28 77 69.73 Brazil 1.61 70.16 76.3 64.37 Russia 2.51 67.8 69.06 66.68 India Source: CIA and eurostat

Chart 15 Working Age Population 15-64 year olds as a share of the total population Canada France Germany Italy Japan UK USA China 59.0% 62.0% 67.2% 65.5% 64.1% 64.9% 60.0% 56.4% 1960 1990 68.0% 65.9% 69.1% 68.6% 69.7% 65.3% 65.8% 66.0% 69.5% 64.8% 66.1% 65.6% 64.0% 66.0% 66.9% 72.4% 2010 2030 60.7% 59.4% 58.2% 60.3% 57.3% 61.3% 61.0% 68.9% 59.7% 57.7% 55.2% 55.0% 53.4% 59.7% 60.3% 63.1% 2040 Source: United Nations

Chart 16 G-7 and BRIC Population and Projections; Millions 2017 2025 2050 126.0 122.8 107.4 Japan 65.5 68.5 75.4 United Kingdom 64.9 66.9 71.1 France 80.6 80.0 74.5 Germany 59.8 59.5 56.5 Italy 36.6 39.1 44.1 Canada 326.5 345.1 388.9 United States 1,388.2 1,414.9 1,348.1 China 1,342.5 1,461.6 1,705.3 India Russian 143.4 141.2 128.6 Federation 211.2 223.0 238.3 Brazil Source: United Nations

Chart 17 Japanese Population year/year percent change 2.5% 2.5% Projected 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% -0.5% -0.5% -1.0% -1.0% 1955 1963 1971 1979 1987 1995 2003 2011 2019 Source: Japanese Statistics Bureau

Chart 18 G7 Labor Force Participation Rates Female Male Total 61% 71% Canada 66% 56% 69% 62% U.S. 56% 69% U.K. 62% 54% 66% 60% Germany 51% 61% France 56% 49% 70% 59% Japan 40% 60% Italy 49% Source: The World Bank

Chart 19 Chinese Population Aged 15-24 millions 260 260 Projected 240 240 220 220 200 200 180 180 160 160 140 140 120 120 1980 1990 2000 2010 2020 2050 *Projections start after 2015 Source: United Nations

Chart 20 Productivity in the U.S. Nonfarm Business Sector avg. annual growth rate by decade NBER BLS 2.34% na 1901-1910 2.64% na 1911-1920 2.07% na 1921-1930 1931-1940 2.39% na 2.46% na 1941-1950 2.28% 2.14% 1951-1960 2.49% 2.71% 1961-1970 na 1.45% 1971-1980 na 1.61% 1981-1990 na 2.18% 1991-2000 na 2.36% 2001-2010 2011-2016 na 0.53%

Chart 21 Labor Force Participation Rate seasonally-adjusted Last Points April 2017 - Male, 69.2%; Total, 62.9%; Female, 57.0% 65% 90% 60% 85% 55% 80% 50% 75% 45% 70% 40% 65% 35% 60% 55% 30% 1948 1956 1964 1973 1981 1989 1998 2006 2014 Male - left axis Total - left axis Source: Bureau of Labor Statistics Female - right axis

Chart 22 Labor Force Participation Rate by age group; seasonally-adjusted Last Points April 2017: 16-24, 55.9%; 25-54, 81.7%; 55-64, 64.5%; 65+, 19.7% 30% 90% 28% 85% 26% 80% 24% 22% 75% 20% 70% 18% 65% 16% 60% 14% 55% 12% 50% 10% 1948 1955 1963 1970 1978 1985 1993 2000 2008 2015 16 - 24 - left axis 55 - 64 - left axis 25 - 54 - left axis 65+ - right axis Source: Bureau of Labor Statistics

Chart 23 United States Manufacturing Value Added as % share of GDP Last Point 4Q 2016: 11.6% 17% 17% 16% 16% 15% 15% 14% 14% 13% 13% 12% 12% 11% 11% 1997 1999 2002 2004 2007 2009 2012 2014 Source: Bureau of Economic Analysis; The World Bank

Chart 24 Chinese Exports year/year percent change Last Point April 2017: 8.0% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% -20% -30% -30% Jan-07 Sep-08 May-10 Jan-12 Sep-13 May-15 Jan-17 Source: China General Administration of Customs

Chart 25 Chinese Total Debt as a Share of GDP includes corporate, household, government and bank debt Last Point 2016: 257.6% 260% 260% 250% 250% 240% 240% 230% 230% 220% 220% 210% 210% 200% 200% 190% 190% 180% 180% 170% 170% 160% 160% 150% 150% 2004 2006 2008 2010 2012 2014 2016 Source: Bloomberg

Chart 26 G7 and BRIC Gross Domestic Product Per Capita: 2015 thousand USD 60 60 56.12 50 50 43.88 43.25 41.31 40 40 36.21 32.48 29.96 30 30 20 20 9.09 10 8.54 10 8.03 1.60 0 0 U.S. U.K. Germany France Italy China Canada Japan Russia Brazil India Source: The World Bank

Chart 27 G7 and BRIC Personal Consumption to GDP Ratio: 2015 U.S. 68.1% U.K. 65.1% Brazil 63.4% Italy 61.0% India 59.6% Japan 58.6% Canada 57.5% France 55.1% Germany 53.9% Russia 51.9% China 37.0% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% Source: The World Bank