Genesis Investment Advisors LLC December 2008

Document Sample
Genesis Investment Advisors LLC December 2008 Powered By Docstoc
					OUTLOOK 2009
Genesis Investment Advisors LLC
December 2008
    Outlook 2009
2

     We are pleased to present our Outlook for 2009, but due to the extremely
     adverse and atypical nature of 2008, we will start the presentation with a
     brief review of the past year.
     More than in past years, the 2009 forecast is extremely challenging due to
     the uncertainty in the economic outlook. Therefore, we will present our
     perspectives for the short term, and will review the presentation at the end
     of Q1 2009.
     We continue to see capital preservation as a key strategy, and therefore
     have an overall conservative bias. We see value in Fixed Income, especially
     credit products. We have a neutral bias regarding equity markets. We still
     see Gold and FX positions as diversification plays.




                          Past performance does not guarantee future results. Please see disclosure page.
    Looking back at 2008-A perfect storm?
3

      Continued drop in residential and commercial real estate prices.
      Bank and Financial Institutions failed.
      Extensive Bank write-downs.
      Unprecedented market illiquidity. Capital Markets came to a complete
      stop.
      Government Bail Outs.
      Financial Deleverage.
      Recession- economic conditions have deteriorated and thus confirm negative
      outlooks.
      Sharp swing from inflation to deflation fears.



                              Past performance does not guarantee future results. Please see disclosure page.
    2008-Tough year for most asset classes….
4




                  Past performance does not guarantee future results. Please see disclosure page.
             S&P Index Performance 1825-2008
5




    Past performance does not guarantee future results. S & P 500 – Refers to Standard and Poor’s capitalization – weighted index of 500 common stocks . The index is designed to measure performance
    of the broad domestic economy through the changes in iaggregate market value of 500 stocks representing all major industries. Please see disclosure page.
    Genesis 2009 – Macro Views
6



    Interest Rates – The FED has cut 250 bps so far in 2008, but we do not think
    it is done. Zero Interest Rate Policy (“ZIRP”) is coming in 2009. Inflationary
    fears have been replaced by deflation and policy makers globally have
    indicated that they will aggressively fight any deflationary expectation.
    Equity Markets – The Recession will probably be felt most in the first
    quarter of 2009. The era of cheap finance and leverage is over.
    Corporate restructuring and downsizing to our new economic reality will
    affect the earnings outlook. We remain neutral in equity markets for the first
    part of the year as the full scope of the recession is still not clear.
    FX – Where to hide? The downturn in the economic cycle is affecting all
    developed countries. Even though we believe the US Dollar will come under
    pressure in the mid-term, especially as the US Government’s balance sheet
    increases dramatically. Further, we believe that in the near-term we expect
    currencies to remain range bound. Carry trades will become attractive once
    again.

                        Past performance does not guarantee future results. Please see disclosure page.
    Genesis 2009 – Macro Views
7

     Commodities- Prices remain subject to further downside pressure as a combination of
     bad economic news and position reduction by managers combine to push prices lower.
     Oil prices are expected to be an average of 60 Dollars in 2009, but with clear
     downside risk if the recession is longer than expected. The demand forecast for soft
     commodities and base metals also are being revised lower, therefore, analysts are
     lowering projections of most prices. We remain positive in Gold, as a diversification
     strategy both for a weaker US Dollar and flight to quality alternative.
     Alternative Investments – Hedge funds are at the center of this “perfect storm”, with
     the industry going through its hardest moments. Assets under management are
     expected to be reduced dramatically due to a combination of bad performance and
     redemptions. A large part of the industry likely will be concerned in managing run-
     off of portfolios next year. With high water marks, it is expected that managers will
     decide to close funds. Consolidation will be one of the main themes as the asset class
     will adapt itself to the lower leverage, tougher credit conditions and illiquid markets.



                            Past performance does not guarantee future results. Please see disclosure page.
    Genesis 2009- Interest Rates Going to Zero?
8



    ZIRP for most of 2009- A series of economists are forecasting the FED will
    lower FED Funds to 0% in the first quarter of 2009. With sharp drops in
    Price Indexes, the main focus is to fight deflationary expectations. The
    curve will maintain a flattening pattern, with some of the lowest nominal
    rates on record. Not on the same level of the US, but rates likely will
    continue to be cut in the Euro Zone and Emerging Markets . Spread products
    are expected to remain cheap as financial deleveraging , bank write
    downs, unprecedented market illiquidity and deflationary fear all add up
    to keep investors on the sidelines.
    Public balance sheets will expand dramatically, as it is the only real
    counterparty to the intense deleveraging the private sector is going
    through. Policy makers around the globe have made it clear that they will
    fight very strongly to eliminate any deflation expectations .




                         Past performance does not guarantee future results. Please see disclosure page.
    ZIRP……..
9




      Source: Wall Street Journal




                                    Past performance does not guarantee future results. Please see disclosure page.
     Outlook 2009 – Global GDP
10

      Global growth is slowing quickly.
      The International Monetary Fund
      (“IMF”) expects a 2.2% expansion in
      2009.
      The IMF expects that Advanced
      Economies will contract for the full
      year of 2009, the first time since
      post-war (World War II) period.
      Emerging Economies are expected
      to expand 5% in 2009, an
      important slow down from previous
      projections. Commodity exporters
      likely will be the most affected in
      the face of sharp drops in prices .

                             Past performance does not guarantee future results. Please see disclosure page.
     USA- How deep will the recession be?
11

       There is no doubt anymore if we are in a
       recession or not, the question is when will it end?
       Consumer Confidence has dropped dramatically,
       and with unemployment expected to reach the
       7% level, limited access to credit and negative
       sentiment, it is expected that we will not see any
       improvement before the second half of 2009.
       Key is the stabilization of housing markets . The
       increase in foreclosures and the spiral lower of
       home prices are the most important tasks at the
       moment. Finally the federal government has
       realized the same and is starting to take action.
       Obama and the new Administration- His
       inauguration is January 20th, but with a reputable
       economic team already in place and working on
       a large stimulus plan, we might see a rebound in
       sentiment earlier than some analysts expect.




                                      Past performance does not guarantee future results. Please see disclosure page.
     Outlook 2009- Developed Economies- Not a nice picture.
12




                                                                                Source: Northern Trust




                     Past performance does not guarantee future results. Please see disclosure page.
     Outlook 2009 – Latin America
13

       A reality shock for the region, as the bonanza of
       commodity prices surging and cheap credit are
       over. The region will slow down significantly.
       There is a clear separation in terms of outlook for
       the region:
       -Brazil, Peru , Colombia and Uruguay will feel the
       global slow down, but prudent fiscal and
       monetary policies, including anti-cyclical measures
       taken by policy makers will help weather the
       storm.
       -Argentina, Venezuela and Ecuador each have
       their own political agenda and issues, but
       prospects are negative. Argentina is trying to
       gain some time (regarding the nationalization of
       pension system), while Ecuador seems to have
       taken the political decision to isolate itself.
       Regarding Venezuela, we will have to see Mr.
       Chavez’s pragmatism in the face of lower Oil
       prices.
                                                                                                          Source : Banco Santander


                                     Past performance does not guarantee future results. Please see disclosure page   .
     Outlook 2009 - Emerging Markets
14




                    Past performance does not guarantee future results. Please see disclosure page.
     Outlook 2009 – Foreign Exchange Forecast
15




           Source : Bloomberg.

                                 Past performance does not guarantee future results. Please see disclosure page   .
     Outlook 2009 - Volatility
16




                  Source: Bloomberg.



      Volatility was one of the trademarks of 2008. The current levels are
      detrimental to all market participants and reflect the extreme stress markets
      have been operating in, especially during the second half 2008.
      For 2009, we expect volatility to subdue -- even if it remains high by
      historical standards -- and we believe it shall lower once markets find some
      stabilization.

                                       Past performance does not guarantee future results. Please see disclosure page   .
     Outlook 2009- Hedge Funds Credit Suisse/Tremont Returns
17

                                                                                                                              Hedge Funds remain one of the areas of
                                                                                                                              concern. Even though analysts expect that
                                                                                                                              they have raised sufficient cash to face
                                                                                                                              redemptions, the industry will go through a
                                                                                                                              consolidation in 2009.
                                                                                                                              A series of managers have placed “gates”
                                                                                                                              in order to control redemptions and allow
                                                                                                                              an orderly run off of portfolios. Not a
                                                                                                                              stigma any longer.
                                                                                                                              It is expected that due to high water marks
                                                                                                                              we will see managers consolidating or
                                                                                                                              deciding to close down funds going
                                                                                                                              forward.
                                                                                                                              Markets will offer interesting opportunities
                                                                                                                              going forward and we believe well
                                                                                                                              capitalized established funds shall benefit .
     *Index data begins January 1994. **Monthly standard deviation annualized. ***Calculated using the rolling 90 day T-bill rate
     Source: Credit Suisse/ Tremont.


                                                                    Past performance does not guarantee future results. Please see disclosure page.
     Genesis – Model Portfolios
18




        Past performance does not guarantee future results. Please see disclosure page. Above percentages are illustrative and may vary.
     The information provided in this report is obtained from various secondary
     sources that are believed to be reliable, but we do not guarantee its
     accuracy or that of the underlying data or the computations based thereon.
     Further, such information may be incomplete or condensed. The information
     contained herein is illustrative only and is not intended to predict actual
     results. It is based on certain assumptions with respect to significant factors
     that may not prove to be as assumed. This report is not intended as
     investment advice, nor is it intended as an offer or solicitation with respect to
     the purchase or sale of any security. The performance of any securities listed
     is not a criteria in submitting this information to you. This memorandum is
     confidential and is intended for the use of the person to whom it is
     delivered. Neither this report nor any part hereof may be reproduced or
     distributed without prior written authorization of Genesis. Any reproduction
     or distribution of its contents may constitute a violation of Federal and State
     securities laws. Yields shown are approximations and may change. All
     yields and prices are based on market conditions at the time this report was
     prepared. Availability of issues can not be guaranteed. Past performance is
     not indicative of future returns.


19                          Past performance does not guarantee future results. Please see disclosure page.