Shape Your ConvictionTM

The Balance Of Probabilities

Garry Evans Chief Global Asset Allocation Strategist [email protected] Shape Your ConvictionTM Playing The Optionality y After the rebound, markets are pricing in a very optimistic scenario y But the pandemic is not over, and there are likely to be second-round effects y Cut equities to Neutral. Prefer minimum volatility tilt: to US, Tech, Healthcare y Government bonds aren’t a good hedge. Stay in cash and gold y Buy what central banks are buying: investment grade debt etc. y Starting to think about the longer-term consequences

2 Shape Your ConvictionTM Why Have Equities Rallied? # Of. # Of. # Of. # Of. Peop. Peop. Peop. DAILY CHANGE IN COVID-19 CASES*: Peop. WORLD EX. : 35000 US 35000 DAILY CHANGE IN COVID-19*: CHINA ITALY CASES (LS) 30000 30000 80000 DEATHS (RS) 8000 KOREA 25000 25000 60000 6000 20000 20000

40000 4000 15000 15000

10000 10000 20000 2000 5000 5000

JAN 2020 FEB 2020 MAR 2020 APR 2020 1 4 9 14 19 24 29 34 39 44 49 54 59 64 69 74 * SOURCE: CENTRE FOR SYSTEM SCIENCE AND ENGINEERING (CCSE) AT JOHNS * SOURCE: CENTRE FOR SYSTEM SCIENCE AND ENGINEERING (CCSE) AT JOHNS HOPKINS UNIVERSITY. HOPKINS UNIVERSITY. SERIES SHOWN AS A 3 DAY MOVING AVERAGE.

3 Shape Your ConvictionTM Massive Fiscal And Monetary Stimulus BPs BPs COMMERCIAL PAPER FUNDING FACILITY COMMERCIAL PAPER FUNDING FACILITY 50 50

TREASURY BACKSTOP MONEY MARKET FUND LIQUIDITY FACILITY MONEY MARKET FUND LIQUIDITY FACILITY 25 25 FED PROGRAMTREASURY BACKSTOP LIMIT FED PROGRAM LIMIT 0 MAIN STREET 0 LENDING PROGRAM MAIN STREET LENDING PROGRAM

-25 MUNICIPAL -25 LIQUIDITY FACILITY MUNICIPAL LIQUIDITY FACILITY

-50 3-MONTH PRIMARY MARKET CORPORATE-50 CREDIT FACILITY PRIMARY MARKET CROSS-CURRENCY CORPORATE CREDIT FACILITY -75 BASIS SWAP RATE: -75 EURO AREA PPP LIQUIDITY FACILITY PPP LIQUIDITY FACILITY UK -100 -100 SECONDARY MARKET CORPORATE CANADA SECONDARY MARKET CORPORATE CREDIT FACILITY CREDIT FACILITY -125 JAPAN -125 TERM ASSET-BACKED SECURITIES TERM ASSET-BACKED SECURITIES LOAN FACILITY LOAN FACILITY

JAN FEB MAR APR 200 400 600 800 1000 Bn 0 200 400 600 800 1000 USD1200

4 Shape Your ConvictionTM But Markets Now Pricing In Very Optimistic Scenario

DEATHS DEATHS UK: WEEKLY COMBINED INFLUENZA AND 1200 PNEUMONIA MORTALITY* 3000 3000

100 S

S E 2500 2500 A 800 ICU C

Y 2000 2000 600

WEEK L 1500 1500 400 1000 1000 200

500 500

MAY JUL SEP NOV JAN MAR MAY JUL SEP NOV 2020 2020 2020 2020 2021 2021 2021 2021 2021 2021 SOURCE: IMPACT OF NON-PHARMACEUTICAL INTERVENTIONS (NPIS) TO REDUCE COVID19 MORTALITY AND HEALTHCARE DEMAND, IMPERIAL COLLEGE COVID-19 JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN RESPONSE TEAM, MARCH 16, 2020. NOTE: AUTHORS EXAMINE THE IMPACT OF AN ADAPTIVE POLICY IN WHICH 1918 1919 SOCIAL DISTANCING MEASURES ARE INITIATED AFTER WEEKLY CONFIRMED CASE * SOURCE: 1920 REPORT ON THE PANDEMIC OF INFLUENZA 1918-19, INCIDENCE IN ICU PATIENTS EXCEED A CERTAIN THRESHOLD AND RELAXED AS UK MINISTRY OF HEALTH, P38. THEY FALL BELOW A CERTAIN THRESHOLD. 5 Shape Your ConvictionTM How Quickly Will Things Get Back To Normal?

140% 1600

SHANGHAI TRAFFIC BOX OFFICE CHINA* 120% 1400 CONGESTION LEVEL 2019 2020 / 2019 * 2020 1200 100%

1000 80% 800 60% 600

40% 400

20% 200

0% 0 CHINESE 11 11 15 17 12 21 -2 17 +2 14 -4 +4 14 18 +8 -6 +6 23 23 27 24 29 29 26 05 26 30 03 02 20 02 20 09 08 06 ------+12 NEW +14 +18 +16 +10 +32 +34 +22 +24 +42 +44 +38 +36 +28 +26 +30 +46 +20 YEAR'S +40

FEB EVE FEB FEB APR FEB FEB APR FEB APR FEB APR APR APR APR APR APR APR MAR - MAR - MAR - MAR - MAR - MAR - MAR - MAR - MAY MAR - MAR - DAYS PRECEDING DAYS FOLLOWING NOTE: SHADED AREA REPRESENTS WEEKENDS. CHINESE CHINESE NEW YEAR'S EVE NEW YEAR'S EVE *SOURCE: TOMTOM DATA. MEASURED IN PERCENTAGE OF TIME THAT A TRIP WOULD TAKE BEYOND UNCONGESTED CONDITIONS. DAILY AVERAGE OF TWO PEAK HOURS IS USED (8:00 * SOURCE: MAOYAN. AM AND 5:00 PM). 6 Chinese New Year's Eve New Year's Chinese Shape Your ConvictionTM And What About Second Round Effects? % Of. % Of. %% GDP NONFINANCIAL CORPORATE DEBT AS GDP LEVERAGE: EURO AREA BANKS* 200 A PERCENT OF GDP*: 200 20 20 US FRANCE US BANKS** JAPAN ITALY CHINA SPAIN GERMANY 150 150 15 15

100 100

10 10 50 50

1990 1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020 * SOURCE: BIS. * SOURCE: EUROPEAN . ** SOURCE: FEDERAL DEPOSIT CORPORATION.

7 Shape Your ConvictionTM Emerging Markets Are Of Particular Concern %%%%

ADVANCED ECONOMIES: TOTAL DEBT AS 280 A PERCENT OF GDP* 280 180 EMERGING ECONOMIES: 180 TOTAL DEBT AS A PERCENT OF GDP* 260 260 160 160

240 240 140 140

220 220 120 120

2000 2004 2008 2012 2016 2020 2000 2004 2008 2012 2016 2020 * SOURCE: BIS. * SOURCE: BIS.

8 Shape Your ConvictionTM Stronger Dollar And Higher Spreads Are A Big Problem

%%

EMERGING MARKETS: OAS: 80 EMERGING MARKETS EX. CHINA: 80 USD-SOVEREIGN DEBT* CURRENCY INDEX 8 USD-CORPORATE DEBT* 8 LOCAL CURRENCY SOVEREIGN DEBT** 70 70

6 6

60 60

4 4

50 50

2 2

2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020 * SOURCE: BLOOMBERG BARCLAYS INDICES. ** SOURCE: J.P. MORGAN CHASE & CO. SPREAD OVER US 7-YEAR GOVERNMENT BOND.

9 Shape Your ConvictionTM The Most Vulnerable Emerging Markets

5.50 G N I

D 5.00 N

U RUSSIA***** THAILAND***** F 4.50 G N I

E O Declining I

R 4.00 O A T F R - KOREA

O 3.50 T

**** Vulnerability - S

*** T

S 3.00 N

E Rising E

V

R M

E 2.50 PHILIPPINES

S IR E E INDIA U

R MALAYSIA

Q 2.00

Y

E PERU

C R N BRAZIL SOUTH AFRICA E 1.50

R MEXICO R TURKEY U 1.00 C INDONESIA

COLOMBIA CHILE

GN I 0.50

E

R 2020

O

F 0.00 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 EXPORTS OF GOODS & SERVICES*-TO-FOREIGN DEBT OBLIGATONS** RATIO * ANNUALIZED EXPORTS OF GOODS AND SERVICES ARE USED (4-QUARTER MOVING TOTAL). SOURCE: IMF ** FOREIGN DEBT OBLIGATIONS CALCULATED AS THE SUM OF SHORT-TERM DEBT, INTEREST AND AMORTIZATION PAYMENTS OVER THE NEXT 12 MONTHS. FDO DATA IS AVAILABLE AS OF Q3 2019. SOURCE: BIS & WORLD BANK *** CENTRAL BANK’S FX RESERVES INCLUDING GOLD. SOURCE: IMF **** FOREIGN FUNDING REQUIREMENT CALCULATED AS FOREIGN DEBT OBLIGATION MINUS CURRENT ACCOUNT BALANCE; DATA UPDATED AS OF Q3 2019. SOURCE: BIS & WORLD BANK ***** RUSSIA & THAILAND TRUNCATED 10 Shape Your ConvictionTM Equities Could Fall Back Again

START OF END OF MARKET # OF MONTHS RECESSION RECESSION BOTTOM BEFORE RECESSION END 1500 1500 Rallies AUG-29 MAR-33 1-JUN-32 -9.6 MAY-37 JUN-38 31-MAR-38 -2.5 FEB-45 OCT-45 26-MAR-45 -6.8 1250 1250 NOV-48 OCT-49 13-JUN-49 -4.2 JUL-53 MAY-54 14-SEP-53 -8.1 US S&P 500 AUG-57 APR-58 22-OCT-57 -5.8 APR-60 FEB-61 25-OCT-60 -3.7 1000 1000 DEC-69 NOV-70 26-MAY-70 -5.8 NOV-73 MAR-75 3-OCT-74 -5.5 JAN-80 JUL-80 27-MAR-80 -3.7 JUL-81 NOV-82 12-AUG-82 -3.2 750 750 JUL-90 MAR-91 11-OCT-90 -5.2 MAR-01 NOV-01 21-SEP-01 -1.8 2007 2008 DEC-07 JUN-09 9-MAR-09 -3.3 AVERAGE -4.9 50-YEAR -4.0 AVERAGE 11 Shape Your ConvictionTM Earnings And Valuations Not Yet That Supportive

% Ann% GLOBAL EQUITIES: Chg NET EARNINGS REVISIONS* (LS) PRICE-TO-BOOK*: 50 TOTAL RETURN INDEX** (RS) 75 GLOBAL 25 50 5 US 5 0 25 GLOBAL EXCLUDING US EURO AREA -25 0 4 EMERGING MARKETS 4 -50 -25 JAPAN -75 -50 S&P 500 12-MONTH FORWARD 3 3 180 3000 160 EARNINGS*** (LS) S&P 500 (RS) 2600 140 2200 2 2 120 1800 100 80 1400 1 1 60 1000

2004 2008 2012 2016 2020 1990 1995 2000 2005 2010 2015 2020 * NET POSITIVE REVISIONS AS A SHARE OF TOTAL REVISIONS. * SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). SOURCE: REFINITIV / IBES. ** IN USD TERMS; SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). NOTE: BOTH SERIES SHOWN SMOOTHED EXCEPT FOR LATEST DATA POINT. *** SOURCE: REFINITIV / IBES. 12 Shape Your ConvictionTM GAA Recommended Allocation

Global Asset Allocation – + Global Fixed Income** – + Government Equities – + Investment Grade Fixed Income High-Yield EM Debt Cash Duration Portfolio Volatility – + TIPS GAA Relative To Benchmark Global Sectors – + Financials Global Equities* – + Info Tech US Healthcare Communications Serv. Euro Area Industrials Japan Consumer Disc. Consumer Staples EM Energy Canada Materials Real Estate Australia Utilities UK Current Previous * RELATIVE TO MSCI ACWI (UNHEDGED). ** RELATIVE TO BLOOMBERG BARCLAYS GLOBAL AGGREGATE.

13 Shape Your ConvictionTM Overweight US

FINANCIAL CONDITIONS INDEX*: GLOBAL SECTORS RELATIVE RETURN*: 140 140 102 US 102 INFO. TECH EURO AREA HEALTH CARE INDUSTRIALS FINANCIALS 101 101 120 120

100 100 100 100

99 99

80 80

2018 2019 2020 2010 2012 2014 2016 2018 2020 * SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). * SOURCE: GOLDMAN SACHS (VIA BLOOMBERG L.P.). RELATIVE TO BROAD MARKET. NOTE: SERIES REBASED TO JAN. 2018 = 100.

14 Shape Your ConvictionTM Cautious On

Bps %% ITALY MINUS GERMANY: GLOBAL: 10-YEAR GOVERNMENT BOND YIELD FINANCIAL STOCK PRICES / 6 6 120 BROAD MAKRET* (LS) 300 YIELD CURVE** (RS)

110 4 4 200

100

100 2 2 90

0 80 0 0

2010 2012 2014 2016 2018 2020 2006 2008 2010 2012 2014 2016 2018 2020 * SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). ** G7 10-YEAR GOVERNMENT BOND YIELD MINUS 3-MONTH EURO RATE.

15 Shape Your ConvictionTM Some Value In EM

PRICE-TO-BOOK*: EMERGING MARKETS: CYCLICALLY-ADJUSTED P/E RATIO* GLOBAL 40 40 5 US 5 MEAN GLOBAL EXCLUDING US +/- 1/2 STD EURO AREA 35 35 4 EMERGING MARKETS 4 JAPAN 30 30

3 3 25 25

20 20 2 2 15 15

10 10 1 1

1990 1995 2000 2005 2010 2015 2020 1985 1990 1995 2000 2005 2010 2015 2020 * SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). * BCA CALCULATION; CALCULATED USING EM STOCK PRICES AND THE 6-MONTH MOVING AVERAGE OF EPS IN US DOLLAR TERMS, AND THEN DEFLATED BY US CONSUMER PRICE INFLATION. SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION)

16 Shape Your ConvictionTM And China’s Stimulus Should Help % Of % Of % Of % Of GDP GDP GDP GDP CHINA: CHINA: ANNUAL CHANGE OF ADJUSTED TOTAL 2 2 45 45 GENERAL GOVERNMENT FISCAL SOCIAL FINANCING* AS % OF GDP BALANCE AS A % OF GDP 40 40 0 0

35 35 -2 -2 30 30 -4 -4 25 25

-6 -6 20 20

2008 2010 2012 2014 2016 2018 2020 2008 2010 2012 2014 2016 2018 2020 * BCA CALCULATIONS; TOTAL SOCIAL FINANCING EXCLUDING EQUITY / INCLUDING LOCAL GOVERNMENT BONDS.

17 Shape Your ConvictionTM Should Also Eventually Benefit

Ann% Ann% Ann% GOLDMAN SACHS INDEX: % Of Chg CHINA: Chg Chg GDP TRADITIONAL INFRASTRUCTURE INDUSTRIAL METALS SPOT PRICES (LS) 50 50 INVESTMENT* CHINA: ANNUAL CHANGE OF ADJUSTED TOTAL SOCIAL FINANCING* 45 100 AS % OF GDP (RS, ADV) 40 40 40

30 30 50 35

20 20 30 0

10 6-8% 10 25 X -50 20 0 0

2006 2008 2010 2012 2014 2016 2018 2020 2008 2010 2012 2014 2016 2018 2020 * INCLUDES TRANSPORT, STORAGE & POST, WATER CONSERVANCY, * BCA CALCULATIONS; TOTAL SOCIAL FINANCING EXCLUDING ENVIRONMENT & UTILITY MANAGEMENT, AND ELECTRICITY, EQUITY / INCLUDING LOCAL GOVERNMENT BONDS. GAS & WATER PRODUCTION AND SUPPLY SHOWN ADVANCED 6-MONTHS.

18 Shape Your ConvictionTM Government Bonds Don’t Provide A Good Hedge

%% 1-YEAR TOTAL RETURN OF 10-YEAR GOVERNMENT BONDS AT DIFFERENT TARGET 10-YEAR GOVERNMENT BOND YIELD: RATES 4 4 US TARGET RATE US GERMANY FRANCE SWITZERLAND JAPAN UK GERMANY JAPAN 2.0% -12.2% -26.4% -21.5% -24.2% -20.2% -16.3% SWITZERLAND 1.5% -7.4% -21.3% -16.5% -19.2% -15.2% -11.4%

2 2 1.0% -2.6% -16.2% -11.5% -14.1% -10.2% -6.5%

0.5% 2.2% -11.0% -6.4% -9.0% -5.2% -1.6%

0.0% 7.1% -5.9% -1.4% -3.9% -0.3% 3.3%

0 0 -0.5% 11.9% -0.8% 3.6% 1.2% 4.7% 8.2% -1.0% 16.7% 4.3% 8.6% 6.2% 9.7% 13.1%

-1.5% 21.6% 9.5% 13.6% 11.3% 14.7% 18.1%

-2.0% 26.4% 14.6% 18.6% 16.4% 19.7% 23.0%

2015 2016 2017 2018 2019 NOTE: CIRCLES DENOTE LIKELY RETURN IN SEVERE RECESSIONS.

19 Shape Your ConvictionTM Gold Is Better - But Not Perfect

QUARTERLY RETURNS OF GLOBAL EQUITIES (LOSSES) $/ 45% Oz GOLD PRICE (LS) GOLDGOLD FEATURES FUTURES GOLD COMPOSITE INDICATOR* (RS)

>10% RETURN -5% TO 0% RETURN 2 30%30% 5% TO 10% RETURN -5% TO -10% RETURN 1600 0% TO 5% RETURN < -10% RETURN

1 15%15% 1400

0%0% 0

1200 -15%-15% -1 SAFE HAVEN QUARTERLY RETURN QUARTERLY HAVEN SAFE

2020 2020 -30% SOURCE: MSCI INC. (PLEASE SEE COPYRIGHT DECLARATION), 2014 2015 2016 2017 2018 2019 2020 BLOOMBERG/BARCLAYS INDECES, GOLDMAN SACHS VIA DATASTREAM, * BASED ON MOMENTUM, NET SPECULATIVE POSITIONS, AND SENTIMENT. NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST, KOTHARI, S.P. AND SHANKEN, JAY A., “ASSET ALLOCATION WITH INFLATION-PROTECTED BONDS,” FINANCIAL ANALYSTS JOURNAL, VOL. 60, NO. 1, PP. 54-70, JANUARY/FEBRUARY 2004. BCA CALCULATIONS. 20 Shape Your ConvictionTM Inflation-Linked Bonds Look Interesting

$ / % % Ann% BRENT OIL PRICE (LS) Bl MAJOR COUNTRIES*: Chg 150 US 10-YEAR BREAKEVEN INFLATION (RS) 10-YR BREAKEVEN INFLATION RATE (LS) 2.5 HEADLINE CPI (RS) 3 2.5

2.0 2.0 100 2

1.5 1.5 1 1.0 50 1.0 .5 0 0 2004 2008 2012 2016 2020 2010 2012 2014 2016 2018 2020 NOTE: DASHED HORIZONTAL LINES INDICATE 2.4% AND 2.5% LEVELS * GDP-WEIGHTED AVERAGE OF US, UK, EURO AREA, AND JAPAN. CONSISTENT WITH THE FED'S 2% CORE PCE TARGET.

21 Shape Your ConvictionTM US Dollar - Neutral For Now

US TRADE-WEIGHTED DOLLAR INDEX* US: 160 160 NOMINAL BROAD TRADE-WEIGHTED DOLLAR* 140 140 120 MODEL** 120 120 120 100 100 110 110 80 80 BPs 2-YEAR REAL YIELD** DIFFERENTIAL BPs 500 (US MINUS DEVELOPED COUNTRIES) 500 100 100 250 250

0 0 90 90 -250 -250

2020 2020 1980 1985 1990 1995 2000 2005 2010 2015 2020 2000 2004 2008 2012 2016 2020 * SOURCE: BANK OF ENGLAND AND BIS. * SOURCE: FEDERAL RESERVE. ** 2-YEAR NOMINAL YIELD DEFLATED BY CONSUMER PRICE INDEX. ** BCA CALCULATIONS. NOTE: SHADED AREAS DENOTE PERIODS OF MAJOR DOLLAR APPRECIATION. BASED ON US, EURO AREA, JAPAN AND CHINA M2 MONEY SUPPLY.

22 Shape Your ConvictionTM Buy What Central Banks Are Buying 2500 %% BPS ECB HOLDINGS OF CORPORATE BONDS* OPTION-ADJUSTED SPREAD* 25 25 FROM 1990 TO CURRENT AS A % OF DOMESTIC ISSUER CORPORATE BONDS EX. BANKS** CURRENT OAS 20 20 2000 15 15 10 10

1500 - YIELD 5 5

- YIELD BPs BPs INVESTMENT GRADE CORPORATES 400 400 1000 OPTION-ADJUSTED SPREAD**:

US HIGH GERMANY EURO AREA HIGH 300 300

YIELD(EXCLUDING FRANCE UK INVESTMENT GRADE - US INVESTMENT GRADE US INVESTMENT FINANCIALS) SPAIN EURO AREA INVESTMENT GRADE 500 200 ITALY 200 UK HIGH CANADA INVESTMENT GRADE INVESTMENT CANADA EMERGING MARKET CORPORATE MARKET EMERGING

JAPAN INVESTMENT JAPAN INVESTMENT GRADE 100 100 0 * SOURCE: BLOOMBERG BARCLAYS INDICES. 2016 2018 2020 * SOURCE: EUROPEAN CENTRAL BANK. ** SOURCE: BLOOMBERG BARCLAYS INDICES. NOTE: VERTICAL LINE DENOTES START OF THE ECB CORPORATE SECTOR PURCHASE PROGRAM (CSPP). THE MARKET VALUE OF THE BLOOMBERG BARCLAYS EURO AREA DOMESTIC ISSUER CORPORATE BOND INDEX, EXCLUDING BANKS, IS USED AS A PROXY FOR THE AMOUNT OF CORPORATE BONDS ELIGIBLE FOR ECB PURCHASE. 23 Shape Your ConvictionTM But Not Junk Bonds

%%60 US: B-RATED CORPORATE BONDS 12-MONTH TRAILING DEFAULT RATE* 5050 20 MOODY'S BASELINE FORECAST 20 40 15 X IMPLIED BY JUNK SPREAD** 15 40 30 10 10 30 20 5 X 5 1010 BPs BPs MILDMILD HIGH-YIELD 00 800 800 DEFAULT-ADJUSTED 600 600 EXCESS RETURNS (%) * -10-10

SPREAD*** RETURNS* (%) EXCESS MODERATE 400 400 -20-20 200 200 -30-30 SEVERE 0 0 -40-40 -200 -200

-50 1995 2000 2005 2010 2015 2020 --400400 -200-200 0 200200 400 600 800800 10001000 DEFAULT-ADJUSTED SPREAD** (BPS) * SOURCE: MOODY'S INVESTORS SERVICE DEFAULT-ADJUSTED SPREAD** (BPS) ** ASSUMING INVESTORS EARN AN EXCESS SPREAD EQUAL TO * RELATIVE TO A DURATION-MATCHED POSITION IN TREASURIES. HISTORICAL AVERAGE AND RECOVERY RATE FALLS IN LINE WITH BCA SOURCE: BLOOMBERG BARCLAYS INDICES. FORECAST *** OPTION-ADJUSTED SPREAD LESS ESTIMATED DEFAULT LOSSES. ** OPTION-ADJUSTED SPREAD LESS REALIZED SPECULATIVE GRADE DEFAULT SOURCE: BLOOMBERG BARCLAYS INDICES. LOSSES. DASHED HORIZONTAL LINES DENOTE HISTORICAL MEAN +/- ONE SOURCE: BLOOMBERG BARCLAYS INDICES AND MOODY'S INVESTORS SERVICE. 24 STANDARD DEVIATION. Shape Your ConvictionTM The Long-Term Consequences Of COVID-19

%%%%

US: HEALTH EXPENDITURE AS % OF GDP*: SAVINGS RATE US 10 10 GERMANY ITALY 15 15 CHINA SOUTH AFRICA 8 8 BRAZIL

10 10 6 6

4 4 5 5

1990 1994 1998 2002 2006 2010 2014 2018 1970 1980 1990 2000 2010 2020 * SOURCE: OECD.

25 Shape Your ConvictionTM Corporate Behavior Will Change Too

US BUSINESS: TRADE GLOBALIZATION* INVENTORY / SALES 1.7 1.7 .25 .25

1.6 1.6 .20 .20

1.5 1.5 .15 .15

1.4 1.4 .10 .10

1.3 1.3

1960 1980 2000 2020 1860 1900 1940 1980 2020 NOTE: SERIES SHOWN AS A 6 MONTH MOVING AVERAGE. * TRADE GLOBALIZATION IS MEASURED BY IMPORTS AS PERCENTAGE OF GDP NOTE: SHADING DENOTES NBER-DESIGNATED RECESSIONS. FOR 148 COUNTRIES WEIGHTED BY POPULATION. SOURCE: BCA CALCULATIONS AND CHASE-DUNN C., KAWANO Y., AND BREWER B., "TRADE GLOBALIZATION SINCE 1795: WAVES OF INTEGRATION IN THE WORLD SYSTEM," AMERICAN SOCIOLOGICAL REVIEW 65 1, 2000. 26 Shape Your ConvictionTM How Much Of A Worry Is All This Debt? % Of. % Of. Ann% Ann% GDP GDP Chg US: Chg US: CORE* CPI GOVERNMENT DEBT AS A 4 NEW YORK FED UNDERLYING 4 100 PERCENT OF GDP* 100 INFLATION GAUGE** (ADV 18 MONTHS)

3 3 75 75 2 2

50 50 1 1

25 25 0 0

-1 -1 1920 1940 1960 1980 2000 2020 2002 2006 2010 2014 2018 2022 * SOURCE: FLOW OF FUNDS. * EXCLUDING FOOD AND ENERGY. ** TREND INFLATION MEASURE BASED ON BROAD PRICE VARIABLES, MACROECONOMIC VARIABLES, AND FINANCIAL VARIABLES. SOURCE: FEDERAL RESERVE BANK OF NEW YORK.

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