The bull and the bear:
Growth and metals demand perspectives in
North America and Europe
Jason Schenker, President, Prestige Economics
Introduction
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Source: Bloomberg News
The Bull and The Bear: Short Term
The Bull and The Bear: Current
Economic
Situation
United States
Eurozone
IMF 2012 GDP
Level
USD 15.7 Trillion
USD 12.2 Trillion
Prestige 2013
GDP Forecasts
1.6%
-0.3 %
Current
Unemployment
Rates
7.3%
12.0%
Manufacturing
PMIs
56.2
51.1
Source: Prestige Economics, IMF, BEA, Eurostat
The United States certainly looks like the bull.
The Bull and The Bear: Current
Economic Situation
Mexico
Canada
U.K.
IMF 2013 GDP
Forecasts
3.4%
1.7%
0.9%
Current
Unemployment
Rates
5.17%
7.1%
7.7%
Manufacturing
PMIs
50.0
54.2
56.7
Source: Prestige Economics, IMF, HSBC, CIPS/Markit
U.S. and European Growth in a Global Context
Modest Global Growth Likely to
Continue
Global Expectations and Forecasts
IMF Growth Forecasts (July 2013)
Annual Forecasts
Real GDP, Year-over-Year % Change
Global
Eurozone
U.S.
Japan
U.K.
Canada
Brazil
Russia
India
China
2010
5.1
2.0
2.4
4.5
1.8
3.2
7.5
4.3
10.1
10.4
Source: IMF, Prestige Economics, LLC
2011
3.9
1.5
1.8
-0.6
1.0
2.5
2.7
4.3
6.3
9.3
2012
3.1
-0.6
2.2
1.9
0.3
1.7
0.9
3.4
3.2
7.8
2013
3.1
-0.3
1.9
2.0
0.9
1.7
2.5
2.5
5.6
7.8
2014
3.8
0.9
2.7
1.2
1.5
2.2
3.2
3.3
6.3
7.7
Prestige Economics
September 2013 Growth
Forecasts
Real GDP, % Change
Year-over-Year
Global
Eurozone
U.S.
China
2013
2.9
-0.3
1.6
7.7
2014
3.3
0.7
2.0
7.8
The United States and Europe are downstream in the
global supply chain.
Growth Indicators Point to Improving
Prospects
Source: Prestige Economics, IMF, CPIS/Markit
PMIs are good indicators of growth, and the are improving.
Chinese Risks Could Bolster North
America
With the Eurozone
out of recession,
China should
Strengthen
What is the natural
rate of exchange
between the Dollar
and the Yuan?
Source: BLS, Prestige Economics, LLC
ECB Policy and European Growth Divisions
The ECB in 2014
A new impressive
skyscraper on the
river in Frankfurt.
http://www.ecb.int/ecb/premises/construction/html/index.en.html
The ECB Now
Now: Also currently
home to a nightclub.
Coming in 2013: The ECB no longer has a disco.
http://www.livingxxl.eu/
Europe: Core Expectations Regarding
European Debt Issues
Core Expectations
 The Euro is the Eurozone’s ugly baby.
 The Euro will survive.
 Distressed Eurozone members are very likely to bite the bullet and accept
austerity.
 Non-distressed Eurozone members are very likely to support those that are
having issues.
 The road forward may be difficult, but there is no way back.
 Currency volatility will remain high until a more concrete solution has been
reached.
Key Takeaway from Cyprus:
Countries will do virtually anything to stay in the Eurozone.
Source: Prestige Economics, LLC
Eurozone and Other European GDP 2012 Growth Rates
-6% to -4%
-4% to -2%
-2% to 0%
0% to 2%
2% to 4%
Source: Prestige Economics, IMF
Eurozone and Other European GDP 2013 IMF Growth Forecasts
-6% to -4%
-4% to -2%
-2% to 0%
0% to 2%
2% to 4%
N/A
Source: Prestige Economics, IMF
Fed Policy and U.S. Growth Bifurcation
Current Fed Policy: Unchanged in
September
Five Critical Parts
1. Reiteration of $40 Billion per month in new MBS purchases.
2. Reiteration of $45 Billion per month in new Treasury purchases.
3. Reiteration of an "exceptionally low range for the federal funds rate... at
least as long as the unemployment rate remains above 6-1/2 percent,
inflation between one and two years ahead is projected to be no more
than a half percentage point above the Committee’s 2 percent longer-run
goal, and longer-term inflation expectations continue to be well
anchored.“
4. Reiteration of rolling over maturing Treasuries at auction and reinvesting
principal payments from agency debt and agency MBS.
5. Reiteration of the warning that the FOMC could still implement additional
accommodative policies, if the labor market does not improve
substantially.
Tapering announcement was expected in September , but the
“economic dependent” stance of the Fed resulted in no tapering.
We do not expect a change in policy in October.
Source: Prestige Economics, LLC
Prestige Economics U.S. Economic
Outlook: Modest Improvements Ahead
Real GDP (Year-over-Year)
Real GDP (Quarter-over-Quarter)
Unemployment Rate
Consumer Price Index
Core Consumer Price Index
Fed Funds Rate*
12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4
3.3
2.8
3.1
2.0
1.3 1.6
1.5
2.0 2.1 1.9
2.0
2.0
3.7
1.2
2.8
0.1
1.1 2.5
2.1
2.3 1.5 1.8
2.3
2.5
8.3
8.2
8.1
7.8
7.7 7.6
7.4
7.3 7.1 6.9
6.7
6.5
2009
-2.8
2010
2.5
2011
1.8
2012
2.8
2013
1.6
2014
2.0
2015
2.2
9.4
9.6
9.0
8.1
7.5
6.8
6.3
2.8
2.2
0.25
-0.4
1.7
0.25
1.6
1.0
0.25
3.2
1.7
0.25
2.1
2.1
0.25
1.6
1.8
0.25
1.8
2.2
0.25
2.1
2.4
0.75
1.9
2.3
0.25
1.7
2.0
0.25
1.9
1.9
0.25
1.7
1.9
0.25
1.4
1.7
0.25
1.6
1.7
0.25
1.9
1.9
0.25
1.8
2.0
0.25
1.7
2.1
0.25
1.8
2.4
0.25
2.1
2.4
0.25
From the September 2013 Monthly Outlook and Forecast Report.
 Growth is rising modestly on trend.
 The unemployment rate is falling modestly on trend.
Source: Prestige Economics, LLC , BEA, BLS, Federal Reserve
Unemployment Rates Remain High
Nationally
U.S. Employment Data
12%
Monthly Change in NonFarm Payrolls - Right Axis
600
Unemployment Rate - Left Axis
11%
400
10%
200
9%
0
8%
-200
7%
-400
6%
-600
5%
4%
-800
3%
-1,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: BLS, Prestige Economics, LLC
Job gains remain modest, and the unemployment rate has
been falling slowly.
State Unemployment Rates Have Shown Broad-Based Improvements: August 2013
Washington
Montana
Maine
North Dakota
Minnesota
Oregon
Idaho
Wisconsin
South Dakota
Nebraska
Nevada
Utah
Pennsylvania
Iowa
Illinois Indiana
Colorado
California
Kansas
Ohio
Missouri
Kentucky
Arizona
New York
Michigan
Wyoming
Oklahoma
New Mexico
Tennessee
Arkansas
West Virginia
Virginia
New Hampshire
Vermont
Massachusetts
Rhode Island
Connecticut
New Jersey
Delaware
Maryland
North Carolina
South Carolina
Alabama Georgia
Mississippi
Texas
<5
Louisiana
Florida
Hawaii
5-5.9
6-6.9
Alaska
7-7.9
8-8.9
9-9.9
Source: Prestige Economics, LLC and BLS
Last September State Unemployment Rates Were Significantly Higher
Washington
Montana
Maine
North Dakota
Minnesota
Oregon
Idaho
Wisconsin
South Dakota
Nebraska
Nevada
Utah
Pennsylvania
Iowa
Illinois Indiana
Colorado
California
Kansas
Ohio
Missouri
Kentucky
Arizona
New York
Michigan
Wyoming
Oklahoma
New Mexico
Tennessee
Arkansas
West Virginia
Virginia
New Hampshire
Vermont
Massachusetts
Rhode Island
Connecticut
New Jersey
Delaware
Maryland
North Carolina
South Carolina
Alabama Georgia
Mississippi
Texas
Louisiana
Florida
Hawaii
Alaska
Source: Prestige Economics, LLC and BLS
<4.9
8-8.9
5-5.9
9-9.9
6-6.9
10-10.9
7-7.9
>10.9
Home Sales Rose with the
Implementation of QE3
If it looks like a mini-bubble, chances are it’s a mini-bubble.
Source: NAR, Census, Prestige Economics, LLC
Home Prices Rose Sharply -- and Fell on
Higher Rates
At the current pace of home sales and prices, the Fed is buying almost 4
years’ worth of single-family news homes in mortgage values this year.
Source: NAR, Census, Prestige Economics, LLC
FOMC, but Fell After the September
FOMC
The Yield Curve
Date
1 Mo
3 Mo
6 Mo
1 Yr
2 Yr
1/2/2013
0.07
0.08
0.12
0.15
6/3/2013
0.03
0.05
0.08
0.14
7/1/2013
0.01
0.04
0.09
0.15
8/6/2013
0.05
0.04
0.08
0.12
9/3/2013
0.03
0.02
0.05
9/16/2013
0.01
0.02
9/17/2013
0.01
0.01
9/18/2013
0.01
9/19/2013
3 Yr
0.27
5 Yr
7 Yr
10 Yr
20 Yr
30 Yr
0.37
0.76
1.25
1.86
2.63
3.04
0.3
0.5
1.03
1.53
2.13
2.92
3.27
0.34
0.65
1.39
1.93
2.5
3.19
3.48
0.32
0.62
1.39
2.04
2.67
3.42
3.73
0.14
0.43
0.83
1.68
2.31
2.86
3.54
3.79
0.04
0.13
0.41
0.8
1.65
2.27
2.88
3.61
3.87
0.04
0.12
0.39
0.78
1.62
2.26
2.86
3.57
3.84
0.01
0.04
0.11
0.34
0.67
1.43
2.05
2.69
3.46
3.75
0.00
0.01
0.03
0.1
0.34
0.69
1.49
2.13
2.76
3.52
3.8
9/20/2013
0.01
0.01
0.05
0.11
0.34
0.69
1.5
2.13
2.75
3.5
3.77
9/23/2013
0.01
0.02
0.05
0.1
0.35
0.68
1.48
2.1
2.72
3.46
3.73
9/30/2013
0.03
0.02
0.04
0.1
0.33
0.63
1.39
2.02
2.64
3.41
3.69
Higher rates have already been putting pressure on housing.
Source: Prestige Economics, LLC, Federal Reserve
Vehicle Purchases are Poised to
Remain Strong
We expect 15.5 to
16 million light
vehicle sales in
2013.
Falling unemployment rates, increases in real per capita GDP, and low interest
rates remain positive for vehicle sales
Source: BEA, Prestige Economics
U.S. State S&P Credit Ratings are High – For Now
Washington
Montana
Maine
North Dakota
Minnesota
Oregon
Idaho
Wisconsin
South Dakota
Michigan
Wyoming
Nebraska
Nevada
Utah
Pennsylvania
Iowa
Illinois Indiana
Colorado
California
Kansas
Ohio
Missouri
Kentucky
Arizona
Oklahoma
New Mexico
New York
Tennessee
West Virginia
Virginia
New Hampshire
Vermont
Massachusetts
Rhode Island
Connecticut
New Jersey
Delaware
Maryland
North Carolina
Arkansas
South Carolina
Alabama
Mississippi
Georgia
Texas
Louisiana
Florida
AAA
Hawaii
Alaska
AA
A
Source: Prestige Economics, S&P
Muni risks have been highlighted by Detroit,
although we did not expect contagion.
Metals Expectations
Prestige Economics Metals Price
Forecasts
Gold
Silver
Platinum
Palladium
Copper - COMEX
Copper - LME
Aluminum - LME
Nickel - LME
Tin - LME
$/OZ
$/OZ
$/OZ
$/OZ
$/LB
$/MT
$/LB
$/MT
$/LB
$/MT
$/LB
$/MT
$/LB
12 Q1
$1,694
$32.73
$1,615
$685
$3.79
$8,327
$3.78
$2,181
$0.99
$19,639
$8.91
$22,943
$10.41
12 Q2
$1,613
$29.42
$1,501
$629
$3.54
$7,872
$3.57
$1,980
$0.90
$17,145
$7.78
$20,542
$9.32
12 Q3
$1,656
$29.92
$1,501
$613
$3.51
$7,716
$3.50
$1,924
$0.87
$16,345
$7.41
$19,286
$8.75
12 Q4
$1,719
$32.63
$1,601
$654
$3.61
$7,913
$3.59
$1,999
$0.91
$16,965
$7.70
$21,544
$9.77
13 Q1 13 Q2
$1,631 $1,417
$30.08 $23.17
$1,634 $1,468
$741 $714
$3.61 $3.26
$7,927 $7,159
$3.60 $3.25
$2,002 $1,836
$0.91 $0.83
$17,311 $14,963
$7.85 $6.79
$24,056 $20,889
$10.91 $9.48
13 Q3
$1,328
$21.38
$1,455
$725
$3.23
$7,075
$3.21
$1,782
$0.81
$13,946
$6.33
$21,257
$9.64
13 Q4 14 Q1 14 Q2
$1,385 $1,420 $1,450
$22.50 $23.50 $25.00
$1,480 $1,520 $1,560
$745 $765 $785
$3.45 $3.50 $3.55
$7,584 $7,694 $7,804
$3.44 $3.49 $3.54
$1,825 $1,875 $1,925
$0.83 $0.85 $0.87
$14,100 $14,350 $14,600
$6.40 $6.51 $6.62
$23,750 $24,500 $25,000
$10.77 $11.11 $11.34
11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3
Steel HRC - NYMEX
$/T $810 $784 $687 $663 $711 $649 $627
Iron Ore TIO - NYMEX
$/MT $176 $171 $174 $141 $141 $140 $113
Ferrous Scrap #1 Busheling BUS - NYMEX $/LT
12 Q4
$629
$118
$398
13 Q1
$623
$149
$386
14 Q3
$1,480
$26.00
$1,600
$810
$3.60
$7,915
$3.59
$1,975
$0.90
$15,000
$6.80
$25,500
$11.57
13 Q2
$596
$126
$363
14 Q4
$1,515
$27.00
$1,650
$825
$3.65
$8,025
$3.64
$2,050
$0.93
$15,400
$6.99
$26,000
$11.79
13 Q3
$640
$131
$386
13 Q4
$640
$135
$390
2008
$873
$15.02
$1,582
$354
$3.13
$6,950
$3.15
$2,576
$1.17
$21,050
$9.55
$18,453
$8.37
2009
$975
$14.71
$1,216
$267
$2.37
$5,177
$2.35
$1,671
$0.76
$14,709
$6.67
$13,616
$6.18
2010
$1,228
$20.23
$1,616
$530
$3.44
$7,543
$3.42
$2,173
$0.99
$21,809
$9.89
$20,421
$9.26
14 Q1
$650
$140
$400
14 Q2
$660
$144
$405
14 Q3
$670
$146
$410
2011
$1,573
$35.26
$1,722
$734
$4.01
$8,813
$4.00
$2,398
$1.09
$22,843
$10.36
$25,959
$11.77
2012
$1,670
$31.18
$1,554
$645
$3.61
$7,958
$3.61
$2,022
$0.92
$17,530
$7.95
$21,087
$9.56
2013
$1,440
$24.28
$1,509
$731
$3.39
$7,446
$3.38
$1,861
$0.84
$15,080
$6.84
$22,488
$10.20
2014 2015
$1,466 $1,600
$25.38 $29.50
$1,583 $1,700
$796 $850
$3.58 $3.70
$7,859 $8,135
$3.57 $3.69
$1,956 $2,075
$0.89 $0.94
$14,838 $16,000
$6.73 $7.26
$25,250 $26,500
$11.45 $12.02
14 Q4 2011 2012 2013 2014
$680 $737 $655 $625 $665
$148 $165 $128 $135 $145
$415
$381 $408
2015
$685
$155
$420
From the September 2013 Monthly Outlook and Forecast Report.
Source: Prestige Economics, LLC
The Bull and The Bear: Long Term
The Bull and The Bear: Current
Economic
Situation Eurozone
United States
Quantitative
Easing in 2013
USD 850 Billion and
still ongoing
None
Central Bank
Balance Sheet
USD ~3.8 Trillion
USD ~2.4 Trillion
National
Entitlements
Debts
USD ~17 Trillion
USD ~12 Trillion
Entitlements
USD 100 Trillion+
USD 50-75 Trillion+
Source: Prestige Economics, IMF, Various Sources
In the longer term, the United States looks like the bear.
Hindsight Market Expectations Five
Years in the Future
When we look back, we are likely to realize…
 The dollar was strong.
 Commodity prices were cheap.
 Rates were low.
 U.S. taxes were low.
 Emerging market growth and wealth were low.
 We should have fixed entitlements when we had the chance.
Source: Prestige Economics
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Contact Information
Prestige Economics, LLC
7101 Fig Vine Cove
Austin, Texas 78750
www.prestigeeconomics.com
Jason Schenker
Cell: +1 512 592 8905
Office: +1 512 425 0670
jasonschenker@prestigeeconomics.com
Thank you
• Questions