Bulls, Bears & PIIGs

a/k/a Traders, Investors, and Europeans

Presentation by Barry Ritholtz
Agora Financial Investment Symposium July 26, 2011 Fairmont Hotel, Vancouver, CA

Todays Powerpoint Presentation:

How We Got Here . . . and Where We Are Going

1. Investor or Policy Wonk ? 2. Housing Boom & Bust (& Bust) 3. Stock Market History 4. U.S. Dollar, Treasuries & Gold 5. Five Things to Remember

Federal Funds Rate 2,000-06

Total Credit Market Debt/GDP Ratio

1922-2009

Source: Ritholtz.com, Federal Reserve

Total Credit Market Debt/GDP

(Quarterly Data 1946 - 2009)

Source: Ritholtz.com, NDR

Gross Federal Debt

(1924 - 2010)

Source: Ritholtz.com, The Chart Store

Debt as a Percentage of U.S. GDP

Biggest gain is financial sector

Source: FactSet prices, St. Louis Federal Reserve

Federal Reserve Doubled its Balance Sheet (left chart) % of GDP was Small in 2007 (right chart)

Source: Ritholtz.com, U.S. Fed

10 Steps to a Financial Crisis

The On Going Housing Over Hang

Source: Ritholtz.com, Calculated Risk

Source: Ritholtz.com, Calculated Risk

Residential Real Estate

Relative to Median Income, Rent

Source: Ritholtz.com, NDR

Source: Ritholtz.com, Credit Suisse

Excess Mortgage Debt

1990: $6 trillion of housing collateral could support $2.5 trillion of mortgages 2006: $23 trillion of housing collateral could support $10 trillion of mortgages 2010: $16 trillion of housing collateral could support $6 trillion of mortgages. Problem is, mortgage debt has remained at $10 trillion $4 trillion too high.

Source: Ritholtz.com, RAB Capital

Mortgage Debt to Housing Value Ratio is Too High

Source: Ritholtz.com, RAB Capital

US Homebuilders Construction Binge

2002 and 2006: 12 million new homes built New Households = 7 million. 5 Million excess homes are a massive oversupply relative to the number of households.

Source: Ritholtz.com, RAB Capital

US Homebuilders Construction Binge

4 Million excess homes = 2010 Household formation = 0.9 million / year Homes built = 0.6 million /year Current rate = 12 years to absorb excess

Source: Ritholtz.com, RAB Capital

Residential Real Estate Boom Was Global

Emailer: Why dont you think Fannie, Freddie, CRA was to blame?

Source: Ritholtz.com, BIS

Source: Ritholtz.com, Calculated Risk

Looking Backwards: Downsizing America

Source: Ritholtz.com

What Market History Reveals

1900-2000 Secular Bull Bear Cycles Valuations Matter

100 Year Dow Industrial Chart

Source: Ritholtz.com, Bloomberg

100 Years of Secular Markets, P/E Expansion & Contraction

Source: Ritholtz.com, Crestmont Research

100 Year Dow Industrial Chart (annual)

Source: Ritholtz.com, Bloomberg

1966-82 Cyclical Markets

Source: Ritholtz.com, Bloomberg

Crises & Crashes: Past Is Prologue

Its NOT different this time: Market reaction to dislocations throughout history are similar, regardless of cause. Why? Human nature which controls the way governments, central bankers and traders react. 2008-09 Market Crash down 55% over 17 months was faster than usual, but not atypical . . .

Recession Bear Market vs. Armageddon

Source: Ritholtz.com, Bloomberg

Composite 29 Secular Bear Markets

Source: Ritholtz.com, Morgan Stanley Europe

How Does the 09 Rally Stack Up Against 82 Bull Market?

What Can History Tell Us About Dollars, Bonds & Gold?

Dollar Reserve Currency Safety of US Treasury Bonds ? The Value of Gold !

2000-2010 Dollar Index (DX)

Source: Ritholtz.com, TheChartStore.com

US Bonds Are A Safe Haven During Crises

Source: Ritholtz.com

What Inflation ? (1960-2010)

Source: Ritholtz.com, Bloombrg

Stocks Relative to Commodities, 1870-2010

Source: Standard & Poors, BLS (PPI Commodities, CRB spot, CRB futures).

Gold Relative to S&P500 1928-2010

Source: Ritholtz.com, John Roque, WJB Capital Group,

Five Things to Remember:

1. Investors job: Preserve capital, manage risk, spot opportunities. 2. Gold is a tradable asset, not a religion. 3. News is Old 4. Marketing & Advertising = Spin & Misdirection 5. Your Wetware Sucks!

The Wall Street /Fin-TV Echo Chamber

Lose the News: Beware the Recency Effect

WSJ: October 15 2007 WSJ: May 17 2010

October 11, 2007 = all time high

Source: Ritholtz.com, WSJ

Lose the News: June 1, 2010 Reuters vs. Telegraph

Beijing in a sweat as China's economy overheats
China economy slows on tightening and seasonal factors

Source: Ritholtz.com

Gold is a tradable asset, not a religion.

EMC story of the chart

Source: Ritholtz.com, McKinsey

Do Markets Forecast the Economy? (No)

Source: Ritholtz.com, Bloomberg

2003: Political Investing

These are poorly designed tax cuts - Stay Out of Markets!

Source: Ritholtz.com BigCharts.com

2003: Politics and Asset Management Dont Mix

2003 Tax Cuts > $1 Trillion How did that political trade up over 90% over 4 years work out for you . . . ?

Source: Ritholtz.com, BigCharts.com

2009: Political Investing

Obama is a Socialist! Stay Out of Markets!

Source: Ritholtz.com, BigCharts.com

2009: Politics and Asset Management Dont Mix

FASB 157, ZIRP, QE +VERY Oversold Markets How did this political trade up over 78% over 11 months work out for you . . . ?

Source: Ritholtz.com, BigCharts.com

Want Real Change?

Government for Sale: 2009 Lobbying $3.49 Billion

Derivative trading banks spent $28 M Saved $5-7 billion collateral allocations Annual gain in profits = $3 billion (risk remains on the taxpayers) Auto Dealers spent less than $10M dollars ($6.3m lobbying, + $3.4m campaign contributions) Annual gain = $20 billion each year in undisclosed added interest, fee kickbacks, other over-priced loans.

Source: Ritholtz.com, Time

for more information, contact

Barry L. Ritholtz
CEO, Director of Equity Research Fusion IQ 535 FiSh Avenue New York, NY 10017 212-661-2022 516-669-0369 The Big Picture h\p://www.ritholtz.com/blog

Source: Gaping Void