Guggenheim Partners Preparing for the Next Credit Cycle
Brian Quinn Portfolio Specialist & Product Manager
January 2020
For financial professional use only. Do not distribute to the public. 10 Macro Themes for 2020
• Household Net Worth Gains Will Support Consumption
• Low Rates Will Underpin Housing Despite Valuation Concerns
• The Pace of Fed Balance Sheet Expansion Will Slow
• A Tight Labor Market Will Further Depress Corporate Profit Margins
• Corporate Defaults Will Rise as Debt Burdens Weigh on Credit
• Credit Rating Downgrades Will Add Headwinds to Business Investment
• The Fed’s Soft Landing Theory Will be Tested
• Consumer Confidence Will Hinge on the Health of the Labor Market
• Historic Inequality Will Fuel Support for Unorthodox Policy Proposals
• The 2020 Election Will Influence the Economy in an Unprecedented Way
For financial professional use only. Do not distribute to the public. 2 Extending the Business Cycle Has the Fed Pulled Off a “Mid-Cycle Adjustment”?
Fed Funds Target Rate
10%
9%
8% Historical evidence is mixed: Green=Yes Red=No 7%
6%
5%
4%
3%
2%
1%
0% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Guggenheim Investments, Haver Analytics. Data as of 10/31/2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 4 Liquidity Driven Rally Has Fueled High Returns With High Valuations
Equity and Corporate Credit Valuations vs. Total Returns
YE 2018 YE 2019 Total Return
Metric Pct Rk. Metric Pct Rk. 2019 Pct Rk.
S&P 500 Price to Sales 1.9x 76.1% 2.4x 99.9% Price to EBITDA 10.0x 75.4% 12.1x 99.9% 31.5% 93% Price to Earnings 16.6x 21.9% 21.5x 75.2%
Corporate Credit Spreads High Yield Corps 5.3% 35.7% 3.3% 79.2% 14.3% 84% IG Corps 1.5% 33.8% 0.9% 79.6% 13.4% 91%
Note: S&P 500 refers to S&P 500 TR USD Index; High Yield Corps refers to the Bloomberg Barclays US Corporate High Yield Index; IG Corps refers to the Bloomberg Barclays US Corporate Investment Grade Index. Source: Bloomberg. 1/1/1996 to 12/31/2019.
For financial professional use only. Do not distribute to the public. 5 1. Low Rates Will Underpin Housing Despite Valuation Concerns
University of Michigan Consumer Sentiment Survey: Buying Conditions for Houses By Reason, Net % Balance
Buying Conditions Due to Rates Buying Conditions Due to Prices 80% Good Time to Buy 70%
60%
50%
40%
30%
20%
10%
0%
-10% Bad Time to Buy -20% 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Guggenheim Investments, Bloomberg, University of Michigan. Data as of 12.31.2019. Note: three-month moving average.
For financial professional use only. Do not distribute to the public. 6 2. Household Net Worth Gains Will Support Consumption
U.S. Household Assets and Liabilities, % of Disposable Personal Income
Assets to Personal Income (LHS) Liabilities to Personal Income (RHS) 850% 140%
130% 800%
120% 750%
110%
700%
100%
650% 90%
600% 80%
550% 70% 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Source: Guggenheim Investments, Haver Analytics. Data as of 9.30.2019, estimates shown for Q4 2019.
For financial professional use only. Do not distribute to the public. 7 3. The Pace of Fed Balance Sheet Expansion Will Slow
Federal Reserve Assets, in USD Billions
Coupon Securities Other Assets Repurchase Agreements (Repos) T-Bills
$4,600 Guggenheim Forecast $4,400
$4,200
$4,000
$3,800
$3,600
$3,400
$3,200 2016 2017 2018 2019 2020
Source: Guggenheim Investments, Haver Analytics, Federal Reserve Board. Data as of 12.31.2019. Coupon securities include Treasury notes and bonds, Agency debentures, and Agency mortgage- backed securities.
For financial professional use only. Do not distribute to the public. 8 And Added Money Supply May Deliver Slower Money Velocity
M2 Money Supply / Nominal GDP vs. M2 Money Velocity
75% 2.3x
2.2x 70% 2.1x
65% 2.0x M2 Money Velocity MoneyM2 1.9x 60%
1.8x
55% 1.7x
50% 1.6x M2 Money M2 Money Supply / NominalGDP
1.5x 45% 1.4x
40% 1.3x 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: FRED as of 12/31/2019.
For financial professional use only. Do not distribute to the public. 9 But Monetary Stimulus is Having a Mixed Effect on Credit Demand
Senior Loan Officer Survey: Net % of Banks Reporting Stronger Demand for Loans
Commerical & Industrial Loans Residential Mortgages
80%
60%
40%
20%
0%
-20%
-40%
-60% Recessionary Corporate Demand, but Mortgage Demand Surging -80% 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Source: Guggenheim Investments, Bloomberg. Data as of 11/04/2019. Shaded areas represent periods of recession. C+I loan demand is average for large firms and small/medium firms.
For financial professional use only. Do not distribute to the public. 10 A Tight Labor Market Leaves Little Room for Further Expansion
U.S. Unemployment Rate, with Months to Start of Next Recession After Full Employment Was Reached 11%
10%
9%
8%
7%
22 Mo. 35 Mo. 6% 25 Mo.
56 Mo. 31 Mo. 5% 32 Mo.
4% Full employment reached
3% 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
Source: Guggenheim Investments, BLS, Haver Analytics, Congressional Budget Office. Data as of 10/31/2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 11 Despite a Tight Labor Market, A Cyclical Upturn in Inflation Is Unlikely
Real GDP Growth vs Core CPI Inflation (6-Quarter Lag)
6% 3.00% Real GDP, YoY% (LHS) 5% 2.75% Core CPI, YoY%, 6 Quarter Lag (RHS) 4% 2.50%
3% 2.25%
2% 2.00%
1% 1.75%
0% 1.50%
-1% 1.25%
-2% 1.00%
-3% 0.75%
-4% 0.50% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Guggenheim Investments, Haver Analytics. Data as of 09/30/2019; Q4 2019 GDP data are estimated. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 12 4. A Tight Labor Market Will Further Depress Corporate Profit Margins
U.S. Corporate Pre-Tax Profits* and Unit Labor Costs
Corporate Profit Margins vs Trailing 10-Year Average, in Percentage Points (LHS) Unit Labor Costs vs. Trailing 10-Year Average (RHS) 3.0% 10%
2.5% 9%
2.0% 8%
1.5% 7%
1.0% 6%
0.5% 5%
0.0% 4%
-0.5% 3%
-1.0% 2%
-1.5% 1% 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Guggenheim Investments, Haver Analytics. Data as of 9.30.2019. *Note: Profits with inventory valuation and capital consumption adjustments expressed as a percent of GDP. Four quarter moving average.
For financial professional use only. Do not distribute to the public. 13 Businesses Are Responding by Cutting Job Openings
Job Openings Have Ticked Down Job Openings Relative to Trailing 5-Year Peak (3m Avg)
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
-50%
-55% 1986 1990 1994 1998 2002 2006 2010 2014 2018
Source: Guggenheim Investments, Haver Analytics, BLS. Payroll data as of 11/30/2019; job openings data as of 10/31/2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 14 5. The Fed’s Soft Landing Theory Will be Tested
Two-Year Change in the U.S. Unemployment Rate, in Percentage Points
6%
5%
4%
3%
2%
Median FOMC 1% Projection
0%
-1%
-2%
-3%
-4% 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Guggenheim Investments, Haver Analytics, Federal Reserve. Actual data as of 12.31.2019. FOMC projections as of 12.11.2019.
For financial professional use only. Do not distribute to the public. 15 6. Consumer Confidence Will Hinge on the Health of the Labor Market
Conference Board Consumer Confidence Index, Y/Y Change
Consumer Confidence (Present Situation), Y/Y Change (LHS) Consumer Perception of Jobs Plentiful Minus Jobs Hard to Get, Y/Y (RHS)
70 35
60 30
50 25
40 20
30 15
20 10
10 5
0 0
-10 -5
-20 -10
-30 Confidence is -15 below last year’s -40 level despite a 28% -20 stock market rally -50 -25
-60 -30
-70 -35
-80 -40
-90 -45 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Guggenheim Investments, Haver Analytics, Conference Board. Data as of 12.31.2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 16 Survey Data Reveal Dimmer Views of Future, Affirming Yield Curve Message
3m10y Treasury Yield Curve and Conference Board Consumer Expectations Minus Present Situation
3m10y Treasury Curve (LHS) Consumer Expectations - Present Situation (RHS) 5.0% 100
75 4.0%
50 3.0%
25 2.0%
0
1.0%
-25
0.0% -50
-1.0% -75
-2.0% Consumer and Business Survey -100 Data Confirm Late-Cycle Signal
-3.0% -125 1/1/1980 9/1/1981 7/1/1982 5/1/1983 3/1/1984 1/1/1985 9/1/1986 7/1/1987 5/1/1988 3/1/1989 1/1/1990 9/1/1991 7/1/1992 5/1/1993 3/1/1994 1/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 9/1/2011 7/1/2012 5/1/2013 3/1/2014 1/1/2015 9/1/2016 7/1/2017 5/1/2018 3/1/2019 11/1/1980 11/1/1985 11/1/1990 11/1/1995 11/1/2000 11/1/2005 11/1/2010 11/1/2015
Source: Guggenheim Investments, Bloomberg. Data as of 12/31/2019. Shaded areas represent periods of recession. For financial professional use only. Do not distribute to the public. 17 Our Probability Model Points to Elevated Recession Risks
Guggenheim Model Based Recession Probability*
Next 6 Months Next 12 Months Next 24 Months
100% 1E-51
90%
80% 8E-52
70%
60% 6E-52
50%
40% 4E-52
30%
20% 2E-52
10%
0% 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Guggenheim Investments, Haver Analytics, Bloomberg. Data as of 09/30/2019. *Hypothetical Illustration. The Recession Probability Model is a new model with no prior history of forecasting recessions. Actual results may vary significantly from the results shown. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 18 Credit Positioning for Risk and Opportunity Avoiding the Next Financial Downturn
What is an Asset Bubble?
An upward price movement over a period of time, unexplainable based on fundamentals, and which eventually implodes.
• History has been marked by periods of booms and busts, as periods of excess are followed by periods of decline
Dot-Com Bubble 2001 Recession
Housing Bubble 2008 Financial Crisis
Corporate Debt Bubble 2020 Recession?
Guggenheim believes the excesses from the Corporate Debt Market may be at the epicenter of the next financial downturn and recession
For financial professional use only. Do not distribute to the public. 20 Investment Grade Corporate Bond Market Has Grown Significantly
• Easy monetary policy has promoted a proliferation of corporate debt
Size of IG Corporate Bond Market ($trln)
7.0 Q3 2019 $5.8trln 6.0
5.0
4.0
3.0 2006 $1.7trln 2.0 1996 $664bn BbgBarc US BbgBarcUS IGAgg Corp Market Bond ($trln) 1.0
0.0
BbgBarc US Agg IG Corp Bond Mkt
Source: Barclays as of 9/30/2019. Annual figures represent year-end.
For financial professional use only. Do not distribute to the public. 21 Especially as a Percentage of the Total Economy
Ratio of U.S. Nonfinancial Corporate Debt to GDP and Average Investment-Grade Corporate Bond Yields
Total Debt + Loans / GDP (LHS) Investment-Grade Corporate Bond Yields (3m Avg) (RHS) 50% 20%
45% 16%
40% 12%
35% 8%
30% 4%
25% 0% 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Guggenheim Investments, Haver Analytics. Data as of 06/30/2019 for nonfinancial corporate debt and 09/30/2019 for yields. Corporate bond yields are based on Bloomberg Barclays Investment-Grade Corporate Bond Index, and are smoothed based on a 3-month average of monthly data before December 1989, and a 3-month average of daily data from December 1989 through current. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 22 While IG Corporate Leverage Continues to Grind Higher
Morgan Stanley Investment-Grade Corporate Tracked Universe
Recession Net Debt / EBITDA Total Debt / EBITDA
2.6x 0.10
Leverage is likely to increase 2.36x0.09 2.4x further when earnings fall during the next recession
0.08
2.2x 0.07
0.06 2.0x
1.83x0.05
1.8x
0.04
0.03 1.6x
0.02
1.4x
0.01
1.2x 0.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Guggenheim Investments, Morgan Stanley Research. Data as of 09/30/2018.
For financial professional use only. Do not distribute to the public. 23 Increasing the Presence of BBBs within the IG Universe
Breakdown of IG Corporate Bond Market (%)
27% 35% 50%
73% 65% 50%
1996 2006 Current IG ex. BBB BBB
Source: Barclays as of 9/30/2019.
For financial professional use only. Do not distribute to the public. 24 7. Credit Rating Downgrades Will Add Headwinds to Business Investment
Moody’s Upgrades and Downgrades for U.S. Investment-Grade and High-Yield Credits, Count
Corporate Upgrades Corporate Downgrades Net Count
200
150
100
50
0
-50
-100
-150
-200 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4
Source: Guggenheim Investments, Bloomberg, Moody’s. Data as of 12.31.2019.
For financial professional use only. Do not distribute to the public. 25 …And the Loan Market Struggles With Its Own Downgrades
Downgrade-to-Upgrade Ratio in Leveraged Loans LSTA Leveraged Loan Index: Weighted Average Rating
3M Down/Upgrade Ratio (LHS) LTM Downgrade Rate (RHS) 7.75 9x 55%
8x 50% BB8.00-
7x 45%
6x 40% 8.25
5x 35% BB: 37% B: 46%
4x 30% BB8.50-/B+
3x 25%
2x 20% 8.75
1x 15% BB: 26% B: 56%
0x 10% 9.00B+ 2003 2005 2007 2009 2011 2013 2015 2017 2019 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Source: Guggenheim Investments, LCDComp/S&P Global. Data as of 10/31/2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 26 8. Corporate Defaults Will Rise as Debt Burdens Weigh on Credit
U.S. Nonfinancial Corporate Business Leverage and Three-Year Cumulative Corporate Credit Loss Rates
Corporate Debt + Loans / Profits before Tax (LHS) Three-Year Cumulative Corporate Credit Loss Rate (LHS) 13x 9%
12x 8%
11x 7%
10x 6%
9x 5%
8x 4%
7x 3%
6x 2%
5x 1% 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Guggenheim Investments, Haver Analytics, Moody’s. Data as of 9.30.2019. The three-year cumulative corporate credit loss rate is calculated using monthly credit loss rates, which are estimated by Guggenheim using a combination of monthly and annual default and recovery data.
For financial professional use only. Do not distribute to the public. 27 A Looming Fallen Angel Wave Argues for Further Caution
Ratio of BBB-Rated to BB-Rated Corporate Bonds Outstanding
6.5x
Our analysis indicates that 1/4 of IG 6.0x corporate issuers already have HY fundamentals 5.5x
5.0x
4.5x
4.0x
3.5x
3.0x
2.5x
2.0x 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Source: Guggenheim Investments, ICE BofA Merrill Lynch. Data as of 07/31/2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 28 Downgrade Volume of BBBs Could be Higher versus History
Historical Fallen Angel Volume1
Fallen Angel Volume (12-Month Trailing Total) Fallen Angels as % of BBB Corporate Bond Market (rhs) $500 Bn 20% A recession could see at least $450 Bn $450 bn of BBBs downgraded to 18% HY, forcing index funds to sell $400 Bn 16%
$350 Bn 14%
$300 Bn 12%
$250 Bn 10%
$200 Bn 8%
$150 Bn 6%
$100 Bn 4%
$50 Bn 2%
$0 Bn 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Impact from Impact from 2020 2001 Recession 2008 Recession Recession? 1 Source: ICE BofA Merrill Lynch, Guggenheim. Data as of 3/30/2019. Volume represents amount of outstanding debt that has been downgraded from investment grade to below investment grade over the past twelve months. Forward estimates assume no growth in the par value of BBB corporate bonds or high-yield corporate bonds, and are based on fallen angel rates one year before the 2001 and 2008 recessions began.
For financial professional use only. Do not distribute to the public. 29 Asymmetrical Returns Around Recessionary Periods
• Credit typically struggles to outperform short-term Treasury bills one-year prior and into recessions. However, following a drawdown, credit can recover quickly and significantly
2008 Financial Crisis
Recession Start to Total Returns (%) 1yr-Pre Recession 1yr-Post Trough Trough
Fallen Angel 0.2% -37.8% 90.2% HY Bond 1.9% -33.5% 72.7% IG Corps 4.6% -14.5% 30.9% 1-3Mon T-Bill 4.8% 1.8% 0.2%
Investors NOT compensated Investors compensated for credit risk for credit risk
Source: Morningstar. 1-yr Pre Recession: 1/1/2007 – 12/31/2007. Recession Start to Trough: Fallen Angel (1/1/2008 to 11/24/2008), HY Bond (1/1/2008 to 12/12/2008), IG Corps (1/1/2008 to 11/2/2008), 1-3Mon T-Bill (reflects same dates HY Bond). 1yr-Post trough reflects 365 days post trough. Bloomberg Barclays U.S. Corporate Index “IG Corps” represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. corporate investment-grade fixed income bond market. Bloomberg Barclays U.S. Treasury Bills: 1-3 Month Index “1-3Mon T-Bill” includes all publicly issued zero-coupon U.S. treasury bills that have a remaining maturity of 1-3 months. Bloomberg Barclays U.S. Corporate High Yield Index “HY Bond” measures the market USD-denominated non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Bal/BB+/BB+ or below. The index excludes emerging market debt. The referenced indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees or expenses. ICE BofAML US Fallen Angel High Yield Index “Fallen Angel” is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market, and that were rated investment grade at time of issuance.
For financial professional use only. Do not distribute to the public. 30 Combating the Next Recession The Fed Has Less Room to Cut Rates Than in Past Recessions…
Change in Fed Funds Rate During Past Recessions, in Percentage Points*
Recession Total Rate Cuts
August 1957 - April 1958 -2.9
April 1960 - February 1961 -2.8
December 1969 - November 1970 -5.5
November 1973 - March 1975 -7.7
January 1980 - July 1980 -4.8
July 1981 - November 1982 -10.4
July 1990 - March 1991 -5.3
March 2001 - November 2001 -4.8
December 2007 - June 2009 -5.1
Average -5.5
Source: Guggenheim Investments, BCA, Janet Yellen, “The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future”. *For recessions prior to 1990, the total amount of easing is the difference between the maximum and the minimum monthly average of the effective federal funds rate in a period extending from six months prior to the start of the recession to six months after it ends. For the last three recessions, the periods of continuous reductions in the intended federal funds rate are June 1990 to September 1992, December 2000 to January 2002, and August 2007 to December 2008.
For financial professional use only. Do not distribute to the public. 32 …And Fiscal Policy Will Also Be More Constrained
Unemployment Rate and Fiscal Balance as a Percent of GDP
Unemployment Rate (LHS) Fiscal Balance, % GDP (Inverted, RHS) 11% -12% The Budget Deficit Has Less Room to Expand When the Downturn Hits 10% -10%
9% -8%
8% -6%
7% -4% 6%
-2% 5%
0% 4%
3% 2%
2% 4% 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Source: Guggenheim Investments, Haver Analytics, CBO. Data as of 12/31/2018. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 33 Fiscal Stimulus Is Set to Fade in 2020
Contribution of Fiscal Policy to Real GDP Growth
Federal Spending State & Local Spending Taxes and Benefits Fiscal Impact 1.0% Forecast
0.8%
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
-0.6% 2015 2016 2017 2018 2019 2020 2021
Source: Guggenheim Investments, Hutchins Center. Actual data as of 09/30/2019.
For financial professional use only. Do not distribute to the public. 34 9. The 2020 Election Will Influence the Economy in an Unprecedented Way
University of Michigan Consumer Sentiment Survey: Reasons for Opinions on Business Conditions % of Respondents (12-Month Moving Average)
General Election Govt & Elections
50%
45%
40%
35%
30%
25%
20%
15%
10% Donald Trump Elected President 5%
0% 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Source: Guggenheim Investments, Bloomberg, University of Michigan. Data as of 12.31.2019.
For financial professional use only. Do not distribute to the public. 35 Government Policy Has Become the Largest Driver of Economic Views
UMich. Survey: News Heard of Business Conditions: % of Respondents (12M Mov. Avg.)
Govt & Elections Prices Consumer Demand Stock Market Trade Deficit Credit Availability Employment
70% 1E-55
60%
8E-56
50%
6E-56 40%
30% 4E-56
20%
2E-56
10%
0% 0 1980 1985 1990 1995 2000 2005 2010 2015
Source: Guggenheim Investments, Bloomberg. Data as of 10/31/2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 36 Political Polarization Will Lead to Rising Policy Uncertainty Ahead of 2020 Election
Presidential Approval: Spread Between President's Party and Opposition Party Voters, in Percentage Points
90
Odds of Recession Within the Next Year* 80 Republicans: 21% Independents: 50% Democrats: 74% 70
60
50
Most polarized political climate in 40 the modern era
30
20
Truman Eisenhower Johnson Ford Carter Reagan Bush Clinton Bush Obama Trump Nixon Kennedy 10 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Guggenheim Investments, Gallup. Data as of 12/15/2019. *Note: recession expectations are from Gallup Polling conducted from September 3-15, 2019.
For financial professional use only. Do not distribute to the public. 37 10. Historic Inequality Will Fuel Support for Unorthodox Policy Proposals
Share of National Net Worth by Percentile Groups
Top 1% Bottom 90% 42%
40%
38%
36%
34%
32%
30%
28%
26%
24%
22% 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Guggenheim Investments, Haver Analytics. Data as of 6.30.2019. Shaded areas represent periods of recession.
For financial professional use only. Do not distribute to the public. 38 How to Invest in this Environment and Conclusion Looking Past the Liquidity-Driven Rally
Risk and Reward of Successful ‘Mid-Cycle’ Rate Cuts
“Credit spreads could get tighter in this liquidity-driven rally, but history has shown that the potential for widening from here is much greater”
"We will take investing risks when we believe we are being adequately compensated for them, but now is not one of those times"
For financial professional use only. Do not distribute to the public. 40 Disclosures and Legal Notice Disclosures and Legal Notice
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Forward-Looking Statements. This discussion material may contain forward-looking statements. Forward-looking Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners research and other sources. Any or all forward-looking statements in this material may turn out to be incorrect. They Europe Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Although the assumptions underlying the forward-looking statements contained herein are believed to be reasonable, any of the The information presented herein has been prepared for informational purposes only and is not an offer to buy or assumptions could be inaccurate and, therefore, there can be no assurances that the forward-looking statements sell, or a solicitation of an offer to buy or sell, any security or fund interest or any financial instrument. included in this discussion material will prove to be accurate. In light of the significant uncertainties inherent in the No representation or warranty is made by Guggenheim Investments or any of their related entities or affiliates as to forward-looking statements included herein, the inclusion of such information should not be regarded as a the sufficiency, relevance, importance, appropriateness, completeness, or comprehensiveness of the market data, representation that the objectives and plans discussed herein will be achieved. Further, no person undertakes any information or summaries contained herein for any specific purpose. The views expressed in this presentation are obligation to revise such forward-looking statements to reflect events or circumstances after the date hereof or to subject to change based on market and other conditions. The opinions expressed may differ from those of other reflect the occurrence of unanticipated events. entities affiliated with Guggenheim Investments that use different investment philosophies. All material has been © 2020 Guggenheim Partners, LLC. All Rights Reserved. No part of this document may be reproduced, stored, or obtained from sources believed to be reliable, but its accuracy is not guaranteed. Forward looking statements, transmitted by any means without the express written consent of Guggenheim Partners, LLC. The information estimates, and certain information contained herein are based upon proprietary and non-proprietary research and contained herein is confidential and may not be reproduced in whole or in part. other sources. Past performance is not indicative of comparable future results. Given the inherent volatility of the securities markets, it should not be assumed that investors will experience returns comparable to those shown here. Market GPIM #41691 and economic conditions may change in the future producing materially different results than those shown here. All investments have inherent risks. The views and strategies described herein may not be suitable for all investors. This material is provided with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. The comparisons herein of the performance of the market indicators, benchmarks or indices may not be meaningful since the constitution and risks associated with each market indicator, benchmark or index may be significantly different. Accordingly, no representation or warranty is made to the sufficiency, relevance, importance, appropriateness, completeness, or comprehensiveness of the market data, information or summaries contained herein for any specific purpose.
For financial professional use only. Do not distribute to the public. 42