Boom, Bust, Bounce - FEI Canada · Boom, Bust, Bounce 2016 Currency Outlook Latin America 80% 60% 20% 40% North America European Union Central Asia ... 0 500 1000 1500 2015 1900 1950

Boom, Bust, Bounce 2016 Currency Outlook

Boom, Bust, Bounce 2016 Currency Outlook

Latin America

80%

60%

20%

40%

North America

European Union

Central Asia

Southeast AsiaMiddle East

Sub-Saharan Africa

Unprecedented Innovation Internet Users, % of Population 1993 - 2014 Source: World Bank, 2016

$1 / Day $10 / Day $100 / Day

1960

2014

Unprecedented Democratization

GDP Per Capita Constant 2005 PPP

Source: Gapminder, 2015

Unprecedented Trade International Seaborne Trade,

Container Ships Millions of Tons

Source: United Nations Conference on Trade and Development, 2016

2014 1,631

2000 598

1980 1990 2000 2014

32% 25% 25% 64%

Unprecedented Participation

Share of Gross Domestic Product Advanced + Developing

Source; International Monetary Fund, 2016

70t

10t

60t

50t

40t

30t

20t

0

2000

150010005000

2015

19001950

Unprecedented Growth Estimated Gross Domestic Product

1990 International Dollars Source: Bradford Delong, Angus Maddison, World Bank, 2016

70t

10t

60t

50t

40t

30t

20t

0

2000

150010005000

2015

19001950



81.5% 1951 - 2000

8.8% 0 CE - 1900

9.3% 1901 - 1950

70t

10t

60t

50t

40t

30t

20t

0

2000

150010005000

2015

19001950



81.5% 1951 - 2000

8.8% 0 CE - 1900

9.3% 1901 - 1950

78.2%

2001 - 2015

68%

32%

78%

22%Unprecedented Savings National Savings Rate, % of GDP

2005 Source: International Monetary Fund, 2015

68%

32%

79%

21%Unprecedented Savings National Savings Rate, % of GDP

2011 Source: International Monetary Fund, 2015

Unprecedented Wealth Debt, Equity, Deposits Current US Dollars Sources: World Bank, Bank for International Settlements, World Federation of Exchanges, 2016

2015 294t

1980

12t

1990

43t

2000

94t

2010 259t

16%

14%

12%

10%

8%

6%

4%

Unprecedented Yields Long-Term Interest Rates

Percentage, Quarterly 1980 January - December 2015

Source: OECD, 2016

1,3891,033864502322

2001 2004 2007 2010 2013

Unprecedented Flows Global Currency Turnover / Gross Domestic Product Trillions USD 2001 - 2013 Source: Bank for International Settlements, International Monetary Fund, 2015

A pack of lemmings looks like a group ofrugged individualists compared with WallStreet when it gets a concept in its teeth.

Warren Buffett

Boom

6t

4t

2t

Growth Explodes China Gross Domestic Product Trillions USD 2000 - 2011 Source: World Bank, 2015

1000%

800%

600%

400%

200%

China

Borrowing Wages M2 Money Supply, Rebased to 100 Monthly, Not Seasonally Adjusted 2000 January - December 2015 Source: Federal Reserve, 2016

USA

Japan

Euro

40%

10%

20%

30%

BRA GER RUS AUS IND ITA FRA USA CAN RSA KOR MEX UK CHFJPY CHI

137th Lowest

Borrowing Savings Tax On Savings Average Real Interest Rate 1980 - 2014 Source: World Bank, 2015

0.6

0.5

0.4

0.3

0.2

0.1

Borrowing Consumption Tax On Imports USDCNY 1980 - 2015 Source: State Administration of Foreign Exchange, 2015

85%

15%

64%

36%

95%

5%

88%

12%

94%

6%

Cement Nickel Steel Copper Oil

Demand Explodes Share of Global Consumption, % 2000 Source: International Monetary Fund, 2015

85%

15%

64%

36%

95%

5%

88%

12%

94%

6%


55%45%44%

56% 63%

37%

62%

38%

90%

10%


85%

15%

64%

36%

95%

5%

88%

12%

94%

6%


55%45%44%

56% 63%

37%

62%

38%

90%

10%

50% 50%42%

59%50% 51% 53% 47%

88%

12%


Speculation Explodes Assets Under Management Exchange Traded Products, Medium-Term Notes, Index Investments Billions USD 2001 - 2011 Source: Reserve Bank of Australia 2016

375

250

125

0

Food

Metal

80%500

60%

40%

-20%

400

300

200

200

Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = 100 2000 January - January 2011 Source: International Monetary Fund, 2016

Crude

20%

0%

Food

Metal

80%500

60%

40%

-20%

400

300

200

200

Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = 100 2000 January - January 2011 Source: International Monetary Fund, 2016

Crude

USD

20%

0%

CAD

For every complex problem there is ananswer that is clear, simple, and wrong.

H.L. Mencken

Bust

Made in China? Total Personal Consumption Expenditure Source: Federal Reserve, 2012

1.9%

$ 8.00 Assembly In China

$ 749 Retail (iPhone 5s)

Source: Federal Reserve, 2012, Financial Times, 2015

Europe

North America

South America

World

Africa

Asia

5%

10%

15%

25%

20%

30%

Deindustrialization? Manufacturing % of GDP

1972 - 2014 Source: World Bank 2015

Non-Durables

Durables

200

20

40

60

80

100

120

140

160

180

Excess Manufacturing Capacity Consumer Price Index, All Urban Consumers Index 1982 - 1984 = 100 1956 January - December 2015 Source: Bureau of Labor Statistics, 2016

2003

19931998

2008

2015

1988

100

80

60

40

20

Debt Dependency Productive Outlets Shrinking

Gross Domestic Product Private Sector Debt

Billions, Yuan Source: Bank for International Settlements China, 2016

400

320

240

160

80

Oil Investment Capital + Exploration

Billions, Constant 2010 USD 1970 - 2015

Source: International Monetary Fund, 2016

Nuclear

Gas

Petroleum

Coal

Hydro

Biomass

100

75

50

25

Production History Energy Production

Gigabarrels, Oil Equivalent

1850 - 2015 Source: Energy Information Administration, 2015

0.6

0.5

0.4

0.3

0.2

0.1

China

India

United States

European Union

Falling Energy Intensity TOE per $2010 GDP

Net 12-Month Change

1965 - 2015 Source: BP Energy Outlook, 2016

Exploding Non-Opec Supply US Energy Production

Mb/d Growth YoY Lower 48 + Gulf of Mexico

2007 January - January 2016 Source: International Energy Agency, 2016

1.5

1.0

-0.5

-1.0

0.5

Metal

Crude

Food

80%500

60%

40%

-20%

400

300

200

200

Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = 100 2000 January - April 2016 Source: International Monetary Fund, 2016

Metal

Crude

FoodCADUSD

80%500

60%

40%

-20%

400

300

200

200

Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = 100 2000 January - April 2016 Source: International Monetary Fund, 2016

What gets us in trouble isn’t what weknow. It’s what we know that just ain’t so.

Mark Twain

Bounce

x

6%

4%

2%

8%

-2%

Continued Stimulus? Central Bank Liquidity Injections % of Global Gross Domestic Product Net 12-Month Change

2005 - 2015 Source: Respective Central Banks, Cambridge Calculations, 2015

2.5

2.0

1.5

1.0

3.0

4.0

Average HourlyAverage Weekly

Tightening Ahead? Wages, Percent Change, 12-Month

2008 January - April 2016 Source: Bureau of Economic Statistics, 2016

3t

2t

1t

Credit Soaring China Total Social Financing Trillions, Yuan 2003 January - March 2016 Source: People’s Bank of China, 2016

M2

Loans

Conversion M2 Broad Money, Bank Loans

% Change, YoY 2000 January - March 2016

Source: People’s Bank of China 2016

35%

30%

25%

20%

10%

Automation Operational Multipurpose Robots Source:International Federation of Robotics, 2016

800,000

600,000

400,000

200,000

AsiaEuropeAmericas

2010 2010 20102012 2012 20122015 2015 2015

Fools Rush In? Money Manager Long, Short Positions

NYMEX WTI, ICE WTI, ICE Brent 2013 April - April 2016

Source:: Reuters, 2016

800

600

400

200

-200

-400

Down, But Really Out? Baker-Hughes Rig Count

United States 2000 January - April 2016

Source: Baker-Hughes, 2016

1,600

1400

1,200

1,000

800

600

400

120

100

80

60

40

20

Mean-Reversion? Constant 2014 US Dollars Per Barrel

1860 - 2015 Source: BP Statistical Review, 2016

175 Year Average: 33.18/bbl

140

120

100

80

60

40

20

1.04

0.96

0.88

0.80

0.72

0.64

PetroCurrency West Texas Intermediate + CADUSD

Monthly 1986 January - April 2016

Source: Federal Reserve, 2016

1,881.2 Gross Domestic Product

565.9 Merchandise Exports

115.5 Gross Energy

71.1 Net Energy

Petro State? Billions, CAD

2013 Source: Statistics Canada, 2014

Tide In Total Household Credit Trillions, Canadian Dollars 2000 - 2015 Source: Statistics Canada, 2016

2.0

1.5

1.0

0.5

5,000

0

-5,000

-10,000

-15,000

-20,000

Tide Out Current Account

Millions, Canadian Dollars 2003 Q1 - Q1 2016

Source: Statistics Canada, 2016

10%

30%

50%

70%

-10%

Energy

Construction

Agriculture

Finance

Manufacturing

Misallocation Restructuring Inevitable Change in Gross Domestic Product 2007 Chained Dollars, Rebased to 100 2000 January - January 2016 Source: Statistics Canada, 2016

HK

UK

USASPA

IREGER

AUS

NZ

FRA

ITA

Unstoppable? BIS Housing Price Indices Rebased 2000 = 100 2000 Q1 - Q4 2015 Source: Bank for International Settlements, Statistics Canada 2016

JAP

KOR

300

250

200

150

50

HK

UK

USASPA

IREGER

AUS

NZ

FRA

ITA

Unstoppable? BIS Housing Price Indices Rebased 2000 = 100 2000 Q1 - Q4 2015 Source: Bank for International Settlements, Statistics Canada 2016

JAP

KOR

300

250

200

150

50

CAN

70%

40%

50%

60%

30%

20%

10%

-20%

CNYNZD

AUD

USDJPYEUR

GBP

CAD

-10%

Volatility Ahead Exchange Rates, Percentage Change Rebased to 2000 2000 January - March 2016 Source: Federal Reserve, 2016

JPYUSD

70%

40%

50%

60%

30%

20%

10%

-20%

CNYNZD

AUD

USDJPYEUR

GBP

CAD

-10%


EUR

USD

70%

40%

50%

60%

30%

20%

10%

-20%

CNYNZD

AUD

USDJPYEUR

GBP

CAD

-10%


GBP

USD

70%

40%

50%

60%

30%

20%

10%

-20%

CNYNZD

AUD

USDJPYEUR

GBP

CAD

-10%


CNY

USD

70%

40%

50%

60%

30%

20%

10%

-20%

CNYNZD

AUD

USDJPYEUR

GBP

CAD

-10%


NZD

AUD

CAD

USD

The only function of economic forecastingis to make astrology look respectable.John Kenneth Galbraith

-5.3%

Derivatives use is associated with lower cashflowvolatility, lower standard deviation of stock returns,lower systematic risk and slightly higher marketvalues.

Use of Financial Derivatives by Canadian FirmsBank of Canada, 2014

10.9%

-5.3%

Hedging Pays TSX-Listed Companies

2005 - 2013 Source: Bank of Canada, 2015

20.0%

Debt Ratio

-5.3%



22.0%

10.9%

Cash Holdings

-5.3%



-5.3%

5.9%

Return On Assets

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q0

Layer Actively

100%

100%

100%

100%

100%

100%

100%

100%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q0

Layer Actively

25%

25%

25%

25%

50%

50%

50%

75%

75% 100%

25%

25%

25%

25%

50%

50%

50%

50%

75%

75%

75%

75%

100%

100%

100%

100%

-1.1 -1.6 -1.9

-4.5 -5.0 -5.5

-8.9 -9.5 -10.1

-14.2 -14.9

-15.5 -14.8

-12.5 -13.7

-15.8 -16.8

-17.7 -18.6

-19.4

-11.2

-9.7

-7.9

-5.6

Q1 Hedge Ratio:

80%

Q2 Hedge Ratio:

60%

Q4 Hedge Ratio:

20%

Q4 Hedge Ratio:

40%

Minimize Probability Parametric/Delta Normal Value at Risk, 1995 - 2015 Return Distribution, 99% Confidence Level Source: Cambridge Calculations, 2016

-14.8

-12.5 -13.7

-15.8 -16.8

-17.7 -18.6

-19.4

-11.2

-9.7

-7.9

-5.6

Minimize Probability Parametric/Delta Normal Value at Risk, 1995 - 2015 Return Distribution, 99% Confidence Level Source: Cambridge Calculations, 2016

-1.4 -2.0 -2.4

-3.4 -3.8 -4.1 -5.2

-7.1 -7.4 -7.8

-5.9 -5.5

Q1 Hedge Ratio:

75%

Q2 Hedge Ratio:

70%

Q4 Hedge Ratio:

60%

Q4 Hedge Ratio:

65%

40

30

20

10

Sell Volatility 3m Implied vs. 3m Realized CBOE VIX Options 2015 March - April 2016 Source: Reuters, 2016

VIX IndexRealized

2,324 Basis Points High-Low

USDCAD Spot Rate

Trade Tactically 12m Swap Point Change USDCAD Spot Rate 2015 January - December 2015 Source: Reuters, 2016

54 Basis Points High-Low USDCAD Forward Differential

Thank You. Karl Schamotta

Cambridge Global Payments [email protected]

When all is said and done, more is said than done.Ben Tregoe

Thank You. Karl Schamotta

Cambridge Global Payments [email protected]

Boom, Bust, Bounce - FEI Canada · Boom, Bust, Bounce 2016 Currency Outlook Latin America 80% 60% 20% 40% North America European Union Central Asia ... 0 500 1000 1500 2015 1900 1950

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