Strange New World I pass with relief from the tossing sea of Cause - - PowerPoint PPT Presentation
Strange New World I pass with relief from the tossing sea of Cause and Theory to the firm ground of Result and Fact. Winston Churchill (The Story of the Malakand Field Force, 1898 near the Swat Valley, Pakistan) January 14, 2010
– Winston Churchill (The Story of the Malakand Field Force, 1898 – near the Swat Valley, Pakistan) January 14, 2010 Lawrence Speidell Chief Investment Officer, CEO Frontier Market Asset Management larry@frontiermkt.com
Strange New World
Strange New World
Treasury Bill Rate (90 day)
1 2 3 4 5 6 7 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
90 day T-bill Fed Funds
“When the situation was manageable, it was neglected, and now that it is thoroughly out of hand, we apply too late the remedies that might have affected a cure” – Winston Churchill
400 800 1200 1600 2000 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Y2K (Year 2000) 11-Sep-01
Source: St. Louis Fed, January 2010
“The Fed’s job is to provide liquidity” - John Rutledge
The Recovery
Source: Raymond James, Jeffrey Saut, Nov 2009
Strange New World
Strange New World
http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html
Consumers – Job Cuts
http://www.calculatedriskblog.com/2009/11/unemployment-stress-tests-unemployed.html
Consumers Employment to Population Ratio
http://www.calculatedriskblog.com/2009/11/employment-population-ratio-record-part.html
Consumers – Job Cuts
100 200 300
1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Non-Farm Payroll Chg Mfg Payroll Chg
10 Payrolls
3% 4% 5% 6% 7% 8% 9% 10% 1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09
32 33 33 34 34 35 35
Unemployment Rate Avg Wkly Hours 9 Unemployment Rate & Wkly Hours
300 350 400 450 500 550 600 650 700
1997 1999 2001 2003 2005 2007 23-Jan-09 20-Mar-09 15-May- 10-Jul-09 04-Sep-09 30-Oct-09 25-Dec-09 08-Jan-10
2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000
11 Unemployment Claims
Continuing Claims INITIAL CLAIMS
Consumers Negative Net Worth in 8.3 million Homes
Consumers: Balance Sheet for Median Household
$56,700 $87,300 $86,000 Net worth 103,900 103,900 99,000 Total liabilities 2,400 2,400 2,400 Credit cards 12,800 12,800 11,800 Installment loans 88,700 88,700 84,800 Mortgage on primary residence Liabilities 160,600 191,200 185,000 Total assets 125,400 150,000 148,300 Primary residence 14,600 14,600 14,400 Vehicles 17,900 23,900 19,000 Retirement savings 2,700 2,700 3,300 Bank accounts Assets $47,300 $47,300 $47,500 Income 2009 2007 2004
http://baselinescenario.com/2009/02/15/household-assets-debt-savings-federal-reserve-survey/ http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf
Negative Net Worth in 10.7 million Homes
Wall Street Journal 11/24/09
Consumers: Car Costs
"You used to be able to find a decent car for $2,500, and you can't anymore, especially in the past two months," “Used-vehicle prices have risen above their book values, making it tougher for customers to secure financing”
http://readingeagle.com/article.aspx?id=162023
Consumers: College Costs
Savings Rate Will Rise
Personal saving as a percentage of disposable personal income
5 10 15 20 25 30 1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 Source: BEA, Outlook/Savings NIPATable Nov 2009
Strange New World Assets Debt Debt/Assets Debt Payments / Income
Source: Laffer Associates 2010
Vicious or Virtuous Circle? Consumer & Production…. or Production & Consumer
20 40 60 80 100 120 140 160
1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Consumer Confidence Consumer Sentiment (U Mich) 13 Consumer Confidence
0.5 1.5 1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09
Retail Sales Retail Sales ex Autos
14 Retail Sales % Chg
30 35 40 45 50 55 60 65
1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09
ISM Manufacturing Index ISM NonManufacturing Index
Contracting Expanding
5 ISM Manufacturing Index
1 3 1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09
Industrial Prodn % Chg Dur Gds xTransport
6 Production & Orders
Housing and Autos
15 Housing
300 700 1100 1500 1900
1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Housing Starts Bldg Permits New Home Sales
16 More Housing Data
3.5 5.5 7.5 9.5 11.5 13.5 1997 1999 2001 2003 2005 2007 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09
Existing Home Sales New Homes Month Supply Vehicle Sales
Housing 2.5% of GDP versus 6.3%
Residential Construction % GDP
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
Outlook/GDP NIPATable.xls
Inventory Cycle
Inventory Chg / GDP
1% 3% 5%
1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
Outlook/GDP NIPATable.xls
Corporate Cash is High
Government Stimulus is Underway
Government Risk
Government Risk
Source: Laffer Associates 2010
Government Risk
The Depression 1929-1939
The Depression – Tight Money
The Depression – Tight Money
The Depression - Taxes Up
The Depression – Unemployment 25%
One World…or Two
Emerging/Frontier Countries: Under $10,000 GDP/capita
Frontier Countries: Not in MSCI Emerging Markets Index
.
One World… or Two Population
http://www.worldmapper.org/display.php?selected=117
One World… or Two Electric Power Production
http://www.dailymail.co.uk/sciencetech/article-1217571/A-new-world-The-amazing-map-based-population-shows-Britain-big-player.html
The Poor World: Human Capital and Financial Opportunity
.
Population 2007 Frontier 18.1% United States 5.1% EAFE 10.0%
Emerging Markets 66.7%
Market Cap 2007 United States 31.3% EAFE 40.8% Emerging Markets 25.2% Frontier 2.8% World GDP 2007 United States 26.2% EAFE 43.8% Emerging Markets 25.0% Frontier 5.0%
One World… or Two
One World…
Convergence is Accelerating
GDP per Capita (2000 $)
10 100 1,000 10,000 100,000 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
China India Japan South Korea Singapore United States Brazil Philippines Thailand Vietnam Russian Cyprus Mauritius Turkey
Vietnam India China Philippines Japan USA Singapore S Korea Brazil Thailand Russia $100 $187 $1323 $538
ChinaGDPperCapita0607
Mauritius $4300 Cyprus $12400 Turkey 2004 $3200
Demographics Favor the Poor Countries
.
Population Demographics
2 4 6 8 10 12 14 16 18 20 10 20 30 40 50 60 Age < 15 Age > 64
Developed Markets Emerging Markets Frontier Markets Japan Italy Germany Greece Bulgaria Singapore Ireland Argentina Uganda Pakistan UAE Zambia Bahrain Peru Sri Lanka Nigeria Vietnam China Source: World Development Indicators, 2006
FrontierCountries0607
Poland Romania
Demographics
1,000 10,000 100,000 1,000,000 10,000,000
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
India China Europe Russia Japan
Australia New Zealand
Population
US
0.3%
0.4% 0.1% 0.4% Source: UN Population, ChinaPop Africa 1.2%
Bulgaria
2011 2025
Population Growth Rate
Bulgaria 7.7 7.1
Ukraine 46.7 43.2
Belarus 9.8 9.1
Moldova 3.6 3.4
Georgia 4.3 4.0
Lithuania 3.4 3.1
Russia 144.1 136.5
Malawi 16.2 23.3 2.6% Occupied Palestine 4.6 6.6 2.7% Somalia 9.6 14.0 2.7% Benin 9.5 13.8 2.7% Tanzania 46.6 67.7 2.7% Burkina Faso 16.8 24.9 2.8% Afghanistan 30.2 45.1 2.9% Uganda 35.0 53.6 3.1% Niger 16.5 27.4 3.7%
Demographics
China 2011
(80,000) (40,000)
80,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
1,385,864
Population Source: United Nations Population Prospects, 2009
2011
(80,000) (40,000)
80,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
India
1,240,387
Population (000)
2050
(80,000) (40,000)
80,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
India
1,663,998
Population
China 2050
(80,000) (40,000)
80,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
1,536,074
Population
Demographics
Source: United Nations Population Prospects, 2009
Demographics
2011
(10,000) (5,000)
10,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
Japan
137,002
Population
2050
(10,000) (5,000)
10,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
Japan
120,721
Population
Demographics
2011
(20,000) (10,000)
20,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
United States of America
335,705
Population
2050
(20,000) (10,000)
20,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
United States of America
444,168
Population
Demographics
2011
(20,000) (10,000)
20,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
Nigeria
162,394
Population
2050
(20,000) (10,000)
20,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
Nigeria
291,619
Population
Demographics
2011
(10,000) (5,000)
10,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
Russian Federation
144,561
Population
2050
(10,000) (5,000)
10,000 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 80-84 85-89 90-94 95-99 100+ Females Males
Russian Federation
124,943
Population
China…the Country
Today: The Middle-Class
3.0% 91% 87% 17% 6.5% 57% 45% 35% 0% 20% 40% 60% 80% 100% Infant Mortality Adult Literacy Women Literacy Income < $1/day India China
The Middle-Class
China vs India Urban Housebolds by Income
40 60 80 100 120 140 < $2000 $2000-7500 > $7500
Income Urban Households (million)
India China
Source: The Economist, 2008
Middle Class Urban Households
50 100 150 200 250 300 350 400 1985 1995 2005 2015 2025 million urban households
$25,000 $12,500 $5,000 Umder $3100 Source: The Economist, McKinsey, 8/5/06
$2,000 to $12,000 is the sweet spot for consumption (Penetration of durable goods relative to annual income)
$12,000 = 90,000 RMB $2,000 = 15,000 RMB
India Passenger Car Sales
Source: Citigroup India
Introduced Financing (Thousands)
200 300 400 500 600 700 800 900 1,000 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
As of 30-Nov-04
Middle Class = Autos
Rate drops below 20%
Comparison of Chinese and US Autos as Percent
Source: Morgan Stanley; FactSet As of 31-Dec-05
50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005E Passenger Autos & Trucks 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Penetration Rate of Passenger Autos & Trucks US Total # Passenger Cars and Trucks on July 1 Chinese Cars US Penetration Rate: Passenger Vehicles/Population Chinese Penetration Rate: Autos/Population
Middle Class = Autos
Comparison of the Pace of Chinese and US Passenger Vehicle Penetration
Source: Morgan Stanley; FactSet As of 31-Dec-05
2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 1900 1902 1903 1905 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1920 1921 1923 US Passenger Vehicles
2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E
Chinese Cars
Middle Class = Autos
Source: BP Statistical Review of World Energy, U.S. Census global population database, respective state statistics bureaus for GDP.
Resources
3 6 9 12 15 18 21 24 27 30 33 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Oil consumption per capita (barrels/year)
U.S.A.
Japan
Oil per capita rises rapidly in response to the GDP growth afforded by inexpensive labor, then levels off in a service economy at saturation.
India P.R. China
The two lower lines are EIA's High Growth case for China and India. 2006-07E estimates from EIA.
Hong Kong
Oil Consumption (000 barrels/day)
100 1,000 10,000 100,000 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 Source: BP 2008
US China India Japan Russia Germany
Resources
in 40 years….
growth rates)
Source: BP Statistical Review of World Energy, Frontier Market Asset Management, 2009
No Sub-prime Problems in Emerging/Frontier
Convergence is Accelerating
GDP per Capita (2000 $)
10 100 1,000 10,000 100,000 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Vietnam India China Japan USA, $46,096 Singapore S Korea Brazil Sri Lanka Russia $100 $192 $6,300
ChinaGDPperCapita0912
Bangladesh Turkey $234 India, $1,715 France Turkey France Assumptions: Growth to 2015 ~= 2000-2008, 2016-2025 lose 1/3 of premium over 2.5%, 2026-2050 lose another 1/3 Source: World Bank, Frontire Market Asset Management, 2010
Strange New World
GDP 2008 EAFE 56% China 5% India 2% Frontier 4% Emerging Markets 10% United States 23% Est 2025 GDP (Bil) EAFE 47% China 11% India 3% Frontier 5% Emerging Markets 13% United States 21% Est 2050 GDP (Bil) EAFE 40% China 18% India 4% United States 18% Emerging Markets 14% Frontier 6% Source: World Bank. UN Population Survey, Frontier Marekt Asset Management, ChinaGDPperCapita0912.xls
Convergence is Accelerating
Assumptions: Growth to 2015 ~= 2000-2008, 2016-2025 lose 1/3 of premium over 2.5%, 2026-2050 lose another 1/3
2008 GDP/Cap Est 2015 GDP/Cap Est 2025 GDP/Cap Est 2050 GDP/Cap
Korea, Rep.
$14,469 $22,356 $35,076 $98,399
Japan
$39,911 $41,673 $48,602 $78,251
United States
$37,757 $40,037 $47,239 $75,261
Latvia
$5,695 $9,706 $17,445 $59,442
Slovenia
$12,559 $17,472 $24,871 $56,139
Australia
$23,527 $27,652 $33,637 $55,739
Israel
$20,513 $24,529 $29,183 $46,617
France
$24,019 $24,974 $29,240 $45,891
Italy
$19,796 $19,192 $21,993 $33,994
New Zealand
$14,890 $16,381 $19,643 $32,331
Croatia
$6,287 $8,900 $13,163 $32,137
Slovak Republi
$5,197 $8,273 $12,441 $32,013
Argentina
$8,693 $12,066 $15,941 $31,392
Czech Republic
$7,087 $9,822 $13,940 $31,349
Kazakhstan
$2,166 $4,218 $7,953 $28,508
Portugal
$11,259 $12,271 $15,179 $27,266
Russian Federa
$2,637 $4,819 $8,407 $27,107
Brazil
$4,087 $6,222 $9,403 $23,902
Romania
$2,444 $4,395 $7,526 $23,799
Hungary
$6,097 $7,683 $10,606 $22,883
China
$1,612 $3,351 $6,203 $22,539
Chile
$5,882 $7,573 $9,974 $19,846
Turkey
$4,950 $6,636 $8,974 $18,562
Mauritius
$4,527 $6,182 $8,429 $17,966
Mexico
$6,404 $7,030 $8,305 $13,982
Sri Lanka
$1,074 $1,689 $2,583 $6,806
Vietnam
$576 $1,073 $1,904 $6,216
Mongolia
$626 $1,120 $1,795 $5,050
India
$637 $1,056 $1,688 $4,711
Valuations: Frontier Markets are Attractive
Price/Earnings Ratios
5 10 15 20 25 30 35 40 45 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Source: MSCI, S&P, Frontier PE PB ROE Charts, Dec 2009
EAFE US EM
US 28.6x, EAFE 28.6x, Emerging 20.6x, Frontier ex-GCC 11.6x
Frontier
Valuations: Frontier Markets are Attractive
Price/Book
0.0 1.0 2.0 3.0 4.0 5.0 6.0 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 U.S. EAFE MSCI EM
US 2.2x, EAFE 1.6x, Emerging 2.2x, Frontier ex-GCC 1.6x
Frontier
Source: MSCI, S&P, Frontier PE PB ROE Charts, Dec 2009
Valuations: Frontier Markets are Attractive
Return on Equity
0% 5% 10% 15% 20% 25%
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
EM EAFE U.S.
US 7.7%, EAFE 5.6%, EM 10.5%, Frontier ex-GCC 13.8%
Frontier U.S.
Source: MSCI, S&P, Frontier PE PB ROE Charts, Dec 2009
The Numbers…
Risk and Return 10 years (12/99-12/09)
0% 5% 10% 15% 0% 5% 10% 15% 20% 25% Annual Standard Deviation Annualized Return S&P EAFE MSCI Emerging Markets S&P Frontier Markets
Source: MSCI, S&P Dec 2009
S&P 500 EAFE MSCI Emerging Markets S&P Frontier BMI 10 year return to 12/09
17.2% 137.1% 277.3% Correlation to S&P 1.00 0.87 0.79 0.50 Standard Deviation 16.2% 18.0% 21.7% 18.1%
Real S&P is Below the Trend Line
StockTotalRtnGFD1800 2009.xls
Real S&P 500 & Cowles Index 1871 to 2009
0.0100 0.1000 1.0000 10.0000 100.0000 1,000.0000 01/31/1871 01/31/1881 01/31/1891 1/31/01 1/31/11 1/31/21 1/31/31 1/31/41 1/31/51 1/31/61 1/31/71 1/31/81 1/31/91 1/31/01 1/1/11
Source: S&P, Cowles Indes, Frontier Market Asset Management, December 2009
Buy when 10 year REAL return is negative
StockTotalRtnGFD1800 2009.xls
Real S&P 500 & Cowles Index Over Rolling 10 Year Periods 1871 to 2009
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 02/28/1871 02/28/1881 02/28/1891 2/28/01 2/28/11 2/28/21 2/28/31 2/28/41 2/28/51 2/28/61 2/28/71 2/28/81 2/28/91 2/28/01
Source: S&P, Cowles Indes, Frontier Market Asset Management, December 2009
StockTotalRtnGFD1800 2009.xls
What Next?
American Association of Individual Investors Survey
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Nov-87 Aug-88 May-89 Feb-90 Nov-90 Aug-91 May-92 Feb-93 Nov-93 Aug-94 May-95 Feb-96 Nov-96 Aug-97 May-98 Feb-99 Nov-99 Aug-00 May-01 Feb-02 Nov-02 Aug-03 May-04 Feb-05 Nov-05 Aug-06 May-07 Feb-08 Nov-08 Aug-09
Cash Bonds Stocks
Cash was 45% in March, now 18% (avg 25% 1997-2009)
Stocks Bonds Cash Mar-09 41% 14% 45% Dec-09 64% 18% 18% Average 60% 15% 25%
Source: http://www.aaii.com/membersurveys/AssetAllocation/AssetAllocationSurvey.cfm
Results for 2008 & 2009
Returns 2008 2009 2 yr return Bangladesh 5% 40% 47% COLOMBIA
84% 38% Namibia
30% 24% CHILE
87% 21% Lebanon
52% 17% ISRAEL
55% 10% PERU
72% 3% Panama
18% 2% BRAZIL
129% 0% INDONESIA
128% 0% SOUTH AFRICA
58%
TAIWAN
80%
MEXICO
57%
Botswana
30%
MOROCCO
MSCI Emerging
79%
PHILIPPINES
68%
CHINA
63%
S&P 500
26%
Mauritius
50%
KOREA
72%
EAFE
34%
TURKEY
98%
INDIA
103%
HUNGARY
78%
POLAND
43%
Kenya
5%
Kazakhstan
4%
S&P Frontier
20%
RUSSIA
105%
Ghana
Slovak Rep
Estonia
41%
Vietnam
50%
Romania
33%
Ukraine
31%
Risk Seeking: Loss Aversion & Utility Function
Myopic Loss Aversion and the Equity Premium Puzzle, Shlomo Benartzi and Richard Taylor, Quarterly Journal of Economics 1998
Risk Seeking: Loss Aversion & Utility Function
– Coin toss: win $200, lose $100 – Colleague’s response: “no” for one toss, “yes” for 100 x
25%*win both+50%*split+25%*lose both = .25*400 + .5*100 + .25*2.5*(-200) = +25
Myopic Loss Aversion and the Equity Premium Puzzle, Shlomo Benartzi and Richard Taylor, Quarterly Journal of Economics 1998
Risk Seeking –
Source: Meir Statman, Countries and Culture in Behavioral Finance, CFApubs.org, Sept 2008
Optimism – Pew Survey
.
Life Satisfaction versus Income
10 20 30 40 50 60 70 80 $100 $1,000 $10,000 $100,000 GDP/Capita USD
% Satisfaction 7-10
Series1 Developed Emerging Frontier
USA
Source: Pew Opinion Survey 2007, Ondine Frontier Countries0706
Optimism – Pew Survey
Optimism versus Income
10 20 30 40 50 60 70 80 90 100 $100 $1,000 $10,000 $100,000
GDP / Capita % Optimistic
Source: Pew Opinion Survey 2007
Mali Senegal Bangladesh USA Pakistan India South Africa
Kenya
Optimism – Pew Survey
.
"Next Generation Better Off" versus Income
10 20 30 40 50 60 70 80 90 100 $100 $1,000 $10,000 $100,000
GDP / Capita % Optimistic
Series1 Developed Emerging Frontier
Source: Pew Opinion Survey 2007 Japan Bangladesh China USA Italy
Optimism:
Source: Human Security Centre, UBC
Optimism:
Determination
Determination
Determination
Determination
Determination
Determination
Determination
Determination
Conclusion: Reasons for optimism