1. Profiting as the Hangover Begins
Nandu Narayanan, Chief Investment Officer
Trident Investment Management

2. Presentation roadmap Macro reality is not benign
Asset markets are divorced from reality
Catalysts that could end the global liquidity party and bring on the hangover
Opportunities for profit

3. Global reality is not pleasant
Global economy is weak despite years of stimulus
Debt levels are high globally and continue to rise
Inflation is low and real debt burdens are increasing
Political tensions are rising because most voters have lost out in the recovery of the last few years

4. Global economy is weak
Economic growth rates are low despite years of stimulus
GDP Growth Rates (%)
Year
Developed Countries
Emerging Countries
World
2010
2.5
7.3
3.8
2011
1.3
6.1
3.0
2012
1.4
4.6
2013
2.4
2014*
1.7
4.1
Source: JP Morgan, Global Data Watch
* Estimate
Source: Bloomberg

5. Global economy is weak
Unemployment is higher today than in previous recessions
Source: Organization for Economic Co-operation and Development

6. Debt levels are high and rising
Source: This Time is Different, Carmen Reinhart, Kenneth Rogoff

7. Inflation is very low
High and rising debt levels and low inflation pave the road to default
Source: Bloomberg

8. Political tensions are rising
The Middle East is in flames (Syria, Gaza, Iraq, Egypt, Libya) and there is no resolution in sight.
The Ukraine conflict has caused a total breakdown in cooperative efforts among the major competing global powers to solve problems.
Western sanctions are increasing tensions on the world’s U.S. dollar-based trading system with a potential breakdown increasingly likely.

9. Key risks
Source: Deutsche Bank

10. Asset markets are divorced from reality
The technology bubble is back
Snapchat valued at $3.6 billion on paper with zero revenues
More Facebook advertising agencies than regular ones in the U.S.
Fab.com, with a broken business model, has raised $336 million
Subprime lending is back
Subprime share of new auto loans is 34%, almost a record
Amount financed per vehicle and loan terms both at all-time highs
Junk bond yields at lowest levels ever
Spreads at 400 basis points, matching 2007 levels
10-year funding available at 6.5% as opposed to 9% in 2007 due to lower Treasury yields
Barely any S&P top-line growth for the last two years
The euphoria in the markets is almost entirely because of excessively easy global monetary policy

11. Catalysts for change
U.S. Federal Reserve will soon be ending its quantitative easing
The political situation in Europe is likely to become more unstable (Scotland vote, Catalan independence referendum in November 2014)
Chinese growth is likely to slow markedly  stimulus appears unlikely
More printing by Japan and/or Europe might mean currency wars
The instability in Ukraine and the Middle East could worsen and disrupt oil supplies and global trade

12. Opportunities for profit
Buy fixed income
Rates are very high in Norway, Sweden, South Korea, Australia, but not supported by fundamentals
Canada, the U.K. and the U.S. project significant rate increases – however, this will not materialize
Buy Japanese equities with the yen hedged out
More Bank of Japan printing is imminent, and asset prices will reflate in Japan
Short select developed country currencies against other developed and emerging currencies
The yen and euro seem vulnerable given policy shifts – go long Norwegian krone, Canadian dollar, Swedish krone, Indian rupee
Short developed country junk bonds and be prepared to buy developing country bonds

13. Thank you FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO CLIENTS
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