UBS morning call

1

Investing in a Post Crash Economy

Slides for the Wealth Management/Investment Bank Conference call

CONFIDENTIAL

Barry Ritholtz, CEO Fusion IQ

February 9, 2011

10 Steps to a Financial Crisis

Source: Bailout Nation

Source: Ritholtz.com, Calculated Risk

Time Until Full Employment Recovery Post-Recession

Economists are looking at the wrong data set: Instead of “ALL CYCLICAL

RECESSIONS, try substituting CREDIT CRISIS RECESSIONS.

Hence, why they seem to be perplexed by weak job creation and soft GDP.

Source: Ritholtz.com, TheChartstore.com

“100-Year Floods” seems to come along far more often than their name implies

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

Source: Ritholtz.com, Crestmont Research

100YearDowIndustrialChart

Source: Ritholtz.com, Bloomberg

1966-82 Cyclical Markets

Source: Ritholtz.com, Bloomberg

S&P500: 2009-10 Compared to 1973-74

Source: Ritholtz.com, TheChartstore.com

Composite 19 Secular Bear Markets

Source: Ritholtz.com, Morgan Stanley Europe

Duration and Intensity of Bear Market Rallies

Rally averages over 12 and 24 months, going back to 1929

After 12 months, returns range from 21.4% (1987) to 121.4% (1932), followed by 81.4% (1935). Remove the post-depression outliers, and 1982 becomes the next most intense move at 58.3%.

That is, until the 2009 rally. After 12 months, it stood at 68.6%. The average of these rallies at the 1 year mark was 47.3%.

From one to two years, the rallies strengthened to 56.1%. Note that the two post-depression rallies eventually give up all their gains. (See S&P 90, lower right)

2009 is now the outlier. After just 23 months, this market is up nearly 100%. 1974 is the runner up at 65.7%.

How intense is this rally? The current run is 50% greater than the next closest one, and nearly 2X the 2 year average.

~~~

How much of this is attributable to the Fed? We can only guess, but if only half of the excess gains over prior rally averages are attributable to the Fed, it means that the US Central Bank has artificially created several trillion dollars in market capitalization.

Source: Ritholtz.com, Investech Research

S&P 90 Roundtrips:

1932 Bottom June 4th 1932 $4.21 Peak September 10 1923 $9.49 Low March 4, 1933 $5.47

Peak July 22 1933 $12.44

1935 Bottom March 23 1935 $8.02 Peak March 13 1937 $18.84 Low April 2 1938 $8.36

War & Peace + Inflation + Secular Bull = 500% Gains

Source: Ritholtz.com, Stock Trader’s Almanac

Recession Bear Market vs. Armageddon

Source: Ritholtz.com, Bloomberg

Looking Backwards: Downsizing America

Source: Ritholtz.com, February 2009

Barry L. Ritholtz

CEO, Director of Equity Research Fusion IQ

535 Fifth Avenue New York, NY 10017

212-661-2022 516-669-0369

[email protected] The Big Picture

http://www.ritholtz.com/blog

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