report Thunder Road
Slowdown
July 2013
Strategy
How are they going to turn this around?
-40%-30%-20%-10%0%10%20%30%40%50%60%
2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3
Developed world imports & BRICS exports (% y-o-y)
Developed world importsBRICS exports
Slowdown
Page
The correction came...and went
3
Central banks and dysfunction in nancial markets
5
The central bank manufactured recovery is fading
9BRICS: broad-based slowdownUS: not as good as reportedInvestment implications...Europe: stabilising but depressedJapan: bright spot (for now)
Inationary Deation: end-game update
46Shadow banking and collateralGold market
Slide away (slides from recent corporate presentations)
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Research: Paul Mylchreest+44 7190 7242pmylchreest@monumentsecurities.com
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July 2013
The correction came...and went
The equity market correction we predicted in the last Thunder Road came surprisingly quickly...as did therebound to new highs for the S&P, which we didn’t. The divergences which concerned us last time remainas wide as ever in most cases.Many commentators have highlighted the S&P 500 versus “Doctor Copper” or the oil price. Arguably morethought provoking is the divergence versus lumber, with housing being a notable bright spot in the USeconomy of late.With policy makers using extreme measures to REFLATE economies and asset prices post-Lehman, it was
perhaps not surprising that the S&P was closely tracking breakeven ination from March 2009 until March2013. Since then, the S&P 500 has powered higher while the reationary forces have been on the wane.The reationary experiment is losing momentum, but not many people seem too concerned yet.
The widely used model for the equity market based on the historic correlation between the ISM manufac-turing survey and year-on-year percentage change in the S&P 500, continues to suggest a material over-
025507510012515017520022525027530032535037540042560070080090010001100120013001400150016001700
M a r 0 9 A p r - 0 9 M a y - 0 9 J u n - 0 9 J u l - 0 9 A u g - 0 9 O c t - 0 9 N o v - 0 9 D e c - 0 9 J a n - 1 0 F e b - 1 0 M a r - 1 0 A p r - 1 0 J u n 1 0 J u l - 1 0 A u g - 1 0 S e p - 1 0 O c t - 1 0 N o v - 1 0 D e c - 1 0 F e b - 1 1 M a r - 1 1 A p r - 1 1 M a y - 1 1 J u n - 1 1 J u l - 1 1 S e p - 1 1 O c t - 1 1 N o v - 1 1 D e c - 1 1 J a n - 1 2 F e b - 1 2 M a r - 1 2 M a y - 1 2 J u n - 1 2 J u l - 1 2 A u g - 1 2 S e p - 1 2 O c t - 1 2 N o v - 1 2 J a n - 1 3 F e b - 1 3 M a r - 1 3 A p r - 1 3 M a y - 1 3 J u n - 1 3
S&P 500 v. Lumber
S&P 500Lumber (US$)
0.100.500.901.301.702.102.502.9060070080090010001100120013001400150016001700
F e b - 0 9 M a r 0 9 A p r - 0 9 M a y - 0 9 J u n - 0 9 J u l - 0 9 S e p - 0 9 O c t - 0 9 N o v - 0 9 D e c - 0 9 J a n - 1 0 F e b - 1 0 A p r - 1 0 M a y - 1 0 J u n 1 0 J u l - 1 0 A u g - 1 0 S e p - 1 0 O c t - 1 0 D e c - 1 0 J a n - 1 1 F e b - 1 1 M a r - 1 1 A p r - 1 1 M a y - 1 1 J u l - 1 1 A u g - 1 1 S e p - 1 1 O c t - 1 1 N o v - 1 1 D e c - 1 1 J a n - 1 2 M a r - 1 2 A p r - 1 2 M a y - 1 2 J u n - 1 2 J u l - 1 2 A u g - 1 2 S e p - 1 2 N o v - 1 2 D e c - 1 2 J a n - 1 3 F e b - 1 3 M a r - 1 3 A p r - 1 3 M a y - 1 3 J u l - 1 3
S&P 500 v. 5-year breakeven inflation
S&P 5005-yr breakeven inflation
S o ur c e : M on um e n t S e c ur i t i e s S o ur c e : M on um e n t S e c ur i t i e s
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