How to Get Ahead of the Curve
Presented by:
Adrian Cronje, PhD CFA, a long-time Vistage member and sought-after speaker
The Consequences of Overstimulation?
Inflation: A Return to the 1970’s?
2 -Year Inflation Rate
(2%) 0% 2% 4% 6% 8% 10% 12% 14% 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022
??
Inflation Broadening
Contributions to Y/Y Headline Inflation
A Cleansing: Speculation Unraveling
Energy Stocks (+56%) Value Stocks-(12%) Growth Stocks -(30%) Bitcoin (-55%) Innovation & Disruptive Tech ( -61%) SPACS ( -66%)
Will today’s inflation inevitably lead to a recession in the next 12 -18 months?
What needs to happen to avoid such an outcome?
Tools for you to monitor how the outlook evolves in real time. Tactics to prepare your business now to become a predator, not a prey.
Resources
Balentine’s Investing Cardinals
First Generation Wealth
Additional Resources
Agenda
Resource: “Are Recession Red Lights Flashing?” at balentine.com/insights; Top New Vistage Speaker of 2019
Capital Markets Lead the Economy, Not the Other Way Around
Capital Markets Lead the Economy
Indicator
Stock Market
Key Message
Future corporate profitability
Bond Market
Future interest rates & Fed policy
Credit Market
Commodity Market
Optimism in corporate sector
International economy (esp. China)
Resource: “Are Recession Red Lights Flashing?” at balentine.com/insights
Indicator Q1 2000 Q2 2007 Q1 2019 Q1 2020 Q2 2020 Q1 2021 Q2 2022 Stock Market ? Bond Market ? Credit Market ? Commodity Market ? Weak Fair Strong
Resource: “Are Recession Red Lights Flashing?” at balentine.com/insights
Capital Markets Lead the Economy
CAPITAL MARKET UPDATE
Reasons to Sell the Stock Market
Past performance is not indicative of future results
Beneath the Surface of the Stock Market The Battle of Growth vs. Value
Russell
50% 100% 200% 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 U.S. Large Cap Growth vs. U.S. Large Cap Value
Growth outperforming Russell 1000 Value
Russell 1000
Growth performing in line with Russell
Value
Russell 1000
1000
1000 Value outperforming Russell 1000 Growth
2022: Productivity Growth A Return to the Roaring 1920’s?
(0.5%) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Labor Productivity Growth in Output per Hour
Bond Market: Slope of the Yield Curve
(100) (50) 0 50 100 150 200 250 300 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 Basis Points Recession 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
Slope of the Yield Curve Since 2020
(20) 0 20 40 60 80 100 120 140 160 180 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Basis Points Recession 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
2022: Interest Rate Expectations
FOMC Participants’ Assessments of Appropriate Monetary Policy: “Dot -Plot”
Blue dots indicate the median projection. Data is based on the economic projections published on March 15, 2022 Red dots indicate the effective rate implied by the year-end FedFundpicture price.
Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant's judgme nt of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant did no t submit longer-run projections for the federal funds rate.
Additional Resources: Real time FedWatch Tool available at CMEGroup.com
Labor Market Dynamics and Wage Growth
Beveridge Curve
Additional Resources: Read “Revisiting the Beveridge Curve: Why Has It Shifted So Dramatically?” at RichmondFed.org
Credit Market Spreads
0 5 10 15 20 25 2016 2017 2018 2019 2020 2021 Spread (Basis points) Hundreds Recession ICE BofAML US High Yield - OAS (TSY) ICE BofAML US High Yield Energy - OAS (TSY)
Commodity Market Index
75 100 125 150 175 200 225 2016 2017 2018 2019 2020 2021 Bloomberg Industrial Metals vs. Bloomberg Precious Metals Total Return, Indexed (7/31/2016 = 100) Recession Bloomberg Precious Metals Bloomberg Industrial Metals
Capital Markets Lead the Economy
Stock Market
Bond Market
Credit Market
Commodity Market
Resource: “Are Recession Red Lights Flashing?” at balentine.com/insights
Weak Fair Strong
Indicator Q1 2019 Q1 2020 Q4 2021 Q2 2022
In Summary
Chances of a recession as high as 50% over the next 12 -18 months
Outcome depends not just on the Federal Reserve:
Supply chain disruptions
China lockdown
War in Ukraine
Potential for productivity growth under -appreciated
Labor market dynamics are key
Developing Themes for 2022/2023
Length and duration of any slow down likely to be short and shallow:
Consumer flush from stimulus
Better capitalized, safer banks
Bumper corporate profitability
Consequences:
Watch the emerging world and the global economy
Mid -term elections – a return to populism?
Opportunities as capital markets adjust
Prepare to be predator, not prey
PREPARE TO BE PREDATOR, NOT PREY
Prepare to Be Predator, not Prey
COVID Forced Adaptability
Resiliency of Business Model
Agility of Decision Making and Creativity: Organizational Risk Posture
Supply Chain Management: “From Just in Time” to “Just in Case”
Inventories and cash flow management
“Tech -celeration ”: e -Commerce; Digitization; On -Demand Business Models; Automation; Artificial Intelligence ; Blockchain Protocol; Communication; Cryptocurrency and Non -Fungible Tokens; the Metaverse
Resource: Search “Cryptocurrency” at balentine.com/insights
Prepare to Be Predator, Not Prey
Customers: adapt to new buying behaviors
Marketing and Sales in a virtual world
Talent: workforce engagement (culture and flexible time)
Operations: reimagine the workplace with new technology
Financials: balance sheet strength and free cash flow
Pricing power and strategy with inflation as a tailwind
Resource: “Managing Your Business Through Crisis and Beyond” at balentine.com/insights
RESOURCES
Balentine’s Investing Cardinals
Philosophy Implementation
Strategy
First Generation Wealth: A Book for Entrepreneurs, by Entrepreneurs
firstgenerationwealth.com
A guide for wealth creators to learn enduring strategies for building a meaningful and lasting legacy.
Visit us online www.balentine.com Content Exclusively for Vistage Members www.balentine.com/Vistage Visit our Careers page www.balentine.com/careers Additional Resources
to Life
Pandemic The remarkable recovery from the lows back in March, when the market lost over one -third of its value in just give weeks, has been fueled by…
Adapting
Amid a
Additional Resources
Capital Markets Forecast
This annual research piece is the foundation of our investment process, and the projections herein form the basis of the strategies we design to help our clients achieve their goals.
Cardinal Rules of Investing
Our Investing Cardinals share our most fundamental thinking around investment philosophy, strategy, and implementation to preempt the inevitable question, “How should I invest my portfolio today?”
Wealth & Legacy Series
This series explores the more human side of wealth and legacy within families, providing practical tools to help you aim to increase resiliency, avoid getting lost in a desert of riches, and approach tough family conversations with a renewed spirit of hopefulness and intentionality.
YOUR ORGANIZATION TO TAKE ADVANTAGE OF THE COMPETITION IN A TIME OF STRESS.”
“RECESSIONS PROVIDE AN OPPORTUNITY FOR YOU TO PREPARE
YOUR QUESTIONS
The Peak Performer webinar series is designed to support your leadership climb. This series brings the most trusted experts to the Vistage community to help you navigate new challenges and possibilities.
For internal use only. © 2020 Vistage Worldwide, Inc. All rights reserved 33
Disclosures
Balentine is an independent investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registratio n d oes not imply a certain level of skill or training. More information about Balentine, including our investment strategies, fees, and objectives, is included in the Form ADV Part 2, which is availab le upon request.
General: This information has been prepared by Balentine LLC (“Balentine”) and is intended for informational purposes only. This infor mat ion should not be construed as investment, legal, and/or tax advice. Additionally, this content is not intended as an offer to sell, or a solicitation of any investment product or se rvice.
Outlook: Opinions expressed are solely the opinion of Balentine and should not be relied upon for investment decisions. Certain statem ent s contained herein may constitute projections, forecasts, and other forward -looking statements that do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. These statements are based on available information and Balentine’s view as of the time of these statements, are subject to change, and are not intended as a forecast or guarantee of future results. Actual results, performance, or events may differ materially from those expressed or implied in such statements.
Third -Party Data: The information presented in this publication has been obtained with the greatest of care from sources believed to be reliable. However, stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. Some material may contain information and data provided by independent, third party sources. While Balentine uses sources it considers to be reliable, no guarantee is made regarding the accuracy of infor mat ion or data provided by third -party sources. Balentine expressly disclaims any liability, including incidental or consequential damages, arising from errors or omissions in this publication.
Risk: Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potent ial for greater long -term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in cur rency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results. Th e appropriateness of an investment or strategy will depend on an investor’s circumstances and objectives. These opinions may not fit to your financial status, risk, and return preferences. Inve stment recommendations may change, and readers are urged to check with their investment advisors before making any investment decisions.
Index Definitions
The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The MSCI ACWI ex USA Index is a free float -adjusted market capitalization -weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of the 23 develop ed markets, including Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore , Spain, Sweden, Switzerland and the United Kingdom; and 23 emerging markets, including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Me xico, Peru, the Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. With over 1,800 constituents, the Index covers approximately 85% of the global equ ity opportunity set outside the United States.
