greenleaf trust introduction
TRANSCRIPT
GREENLEAF TRUST INTRODUCTION
Chris Burns, CFA®, CPA, CFP®
Investment StrategistNicholas A. Juhle, CFA®
Chief Investment Officer
2021 YEAR IN REVIEW & 2022 OUTLOOK
GREENLEAF TRUST
4
Founded in 1998Privately-held, trust-only bank; $17bn in assets under advisementOffices in Kalamazoo, Grand Rapids, Birmingham, Traverse City, Petoskey, Midland, and DelawareMission remains: financial security from generation to generation
AGENDA
5
Economic Update• Inflation• Labor Market• Monetary Policy• Fiscal Policy• Business CycleMarket Update• Inflation• Labor Market• Monetary Policy• Fiscal Policy• Business Cycle• Risks• Long-Term Outlook• ConclusionQuestions & Answers
ECONOMIC UPDATE
ECONOMIC UPDATE
7
2021 2022 Expectations
#1 – Inflation • 7.0% CPI Inflation • 3-5.5% CPI Inflation
#2 – Labor Market • 3.9% Unemployment• 4.3% Wage Growth
• 3-4% Unemployment• 4-5% Wage Growth
#3 – Monetary Policy • Tapering Begins• Fed Funds at 0%
• Tapering Concludes• 3-4 .25% Rate Hikes
#4 – Fiscal Policy • $2.8 Trillion Deficit (12.4% of GDP)
• $1.5 Trillion Deficit (5-7% of GDP)
#5 – Business Cycle • Expansion Began May, 2020
• Expansion Very Likely Continues
ECONOMIC UPDATE
8
-10%
-5%
0%
5%
10%
15%
20%
-10%
-5%
0%
5%
10%
15%
20%Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4
Q1
Q2
Q3
Q4
2015 2016 2017 2018 2019 2020 2021 2022
US GDP GrowthFastest Nominal Growth in 35 Years
Nominal GDP Real GDP
16
17
18
19
20
21
22
23
24
25
26
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2015 2016 2017 2018 2019 2020 2021 2022
Trill
ions
($)
US GDPNominal GDP Above Pre-Pandemic Trend
Real GDP Still Recovering
Nominal GDPReal GDP
INFLATION
9
90
95
100
105
110
115
120
Cha
nge
in %
of P
CE
Goo
ds v
s Se
rvic
es (1
2/18
= 1
00)
Demand for Goods SurgesSpending on Services Dampened by COVID
GoodsServices
17.9
3.7
-10
-5
0
5
10
15
20
12/6
712
/69
12/7
112
/73
12/7
512
/77
12/7
912
/81
12/8
312
/85
12/8
712
/89
12/9
112
/93
12/9
512
/97
12/9
912
/01
12/0
312
/05
12/0
712
/09
12/1
112
/13
12/1
512
/17
12/1
912
/21
Year
-Ove
r-Yea
r In
flatio
n (%
)
High Inflation in 2021CPI up 7%
Flexible Categories Hit Record High
RecessionsFlexible CPISticky CPI
INFLATION
10
5.1
4.3012345678910
0123456789
10
12/9
710
/98
08/9
906
/00
04/0
102
/02
12/0
210
/03
08/0
406
/05
04/0
602
/07
12/0
710
/08
08/0
906
/10
04/1
102
/12
12/1
210
/13
08/1
406
/15
04/1
602
/17
12/1
710
/18
08/1
906
/20
04/2
1
YOY
Wag
e G
ain
(%)
Wages Rise in Lowest QuartileOverall Wage Gains are Moderate
1st 2nd 3rd 4th Median
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
2%
4%
6%
8%
10%
12%
10/1
501
/16
04/1
607
/16
10/1
601
/17
04/1
707
/17
10/1
701
/18
04/1
807
/18
10/1
801
/19
04/1
907
/19
10/1
901
/20
04/2
007
/20
10/2
001
/21
04/2
107
/21
10/2
101
/22
04/2
2
CPI
OER
(%)
Zillo
w R
ent I
ndex
(%)
Rent Increases LagCPI to Reflect Higher Rents in 1H 2022
YOY Zillow Rent Index All Homes (6m Lag)YOY CPI Owners Equivalent Rent of Primary Residence
7
9
11
13
15
17
19
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecLigh
t Veh
icle
Sal
es S
AAR
(M
illion
s of
Uni
ts)
Shortages Hit Auto SalesChip Shortages Impact Production & Inventories
2021 2020 2019 2018 2017 2016
0
20
40
60
80
100
120
Con
tain
er S
hip
Back
log
Container Ship Backup BuildsPort of LA/Long Beach
LABOR MARKET
11
55+ (lh 1)
78
79
80
81
82
83
84
46
48
50
52
54
56
58
12/1
702
/18
04/1
806
/18
08/1
810
/18
12/1
802
/19
04/1
906
/19
08/1
910
/19
12/1
902
/20
04/2
006
/20
08/2
010
/20
12/2
002
/21
04/2
106
/21
08/2
110
/21
Labor Force ParticipationSlower to Recover, Especially Among 55+
16-24 (lh 2) 25-54 (rh)
37
38
39
40
41
14.7
3.9
3
5
7
9
11
13
15
17
3
5
7
9
11
13
15
17-2
9-2
4-1
9-1
4 -9 -4 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101
106
111
116
121
Une
mpl
oym
ent R
ate
(%)
Months (Unemployment Peak = Month 0)
Dramatic Jobs RecoveryUnemployment Drops Over 10% in 20 Months
Financial Crisis CycleCovid Cycle
MONETARY POLICY
12
0
1
2
3
4
5
6
7
12/9
9
12/0
1
12/0
3
12/0
5
12/0
7
12/0
9
12/1
1
12/1
3
12/1
5
12/1
7
12/1
9
12/2
1
12/2
3
12/2
5
Upp
er L
imit
Fede
ral F
unds
Rat
e (%
)
Fed Signals Sooner Hikes3-to-4 Hikes Expected for 2022
Federal Funds RateYE 2021 Fed DotsYE 2020 Fed Dots
2021
20202019
2018
2017
2015
2013 2011
2009
202220232024
0
1
2
3
4
0 1 2 3 4 5 6 7 8 9 10
Infla
tion
Rat
e (C
ore
PCE
YOY
%)
Unemployment Rate (%)
Federal Reserve TargetsEconomy Hits Full Employment While
Inflation Remains Above Target
MONETARY POLICY
13
0
1
2
3
4
5
6
Trilli
ons
($)
Banking System is StableQE Programs Inject Reserves
Currency in CirculationBanking Reserves
0
1
2
3
4
5
6
7
8
9
Trilli
ons
($)
Federal Reserve AssetsQE4 to Conclude in Q1 2022
GLT Outlook
Mortgage-backedSecurities
Treasury Notes &Bonds
FISCAL POLICY
14
$2.4TMar & Apr
2020
$0.9TDec 2020
$0.8T2009
$1.9TMar 2021
$5.4T Total
$1.0T Total
0%
5%
10%
15%
20%
25%
30%
COVID Financial Crisis
% o
f Pre
-Rec
essi
on G
DP
Greater Stimulus than 2008
0%
2%
4%
6%
8%
10%
12%
14%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
% o
f Pre
-Rec
essi
on G
DP
Rapid Deployment
2008 Financial Crisis
Covid Response
FISCAL POLICY
15
45 50 49 45 51 59 53 55 46 49 47 50 36
10
6
15
55 50 51 55 49 41 47 45 54 51 53 50 30
99-0
1
01-0
3
03-0
5
05-0
7
07-0
9
09-1
1
11-1
3
13-1
5
15-1
7
17-1
9
19-2
1
21-2
3
23-2
5
Partisan Makeup of Senate
05
14
6 8
6
2
9
2
2
3
2.5
211 213 205 201 233 257 193 201 188 194 235 222 178
223 220 229 233 202 178 242 234 247 241 199 212 257
99-0
1
01-0
3
03-0
5
05-0
7
07-0
9
09-1
1
11-1
3
13-1
5
15-1
7
17-1
9
19-2
1
21-2
3
23-2
5
Partisan Makeup of House
4 2
8 4
32 24
64
8
13
641
1344
BUSINESS CYCLE
16
-10%
0%
10%
20%
30%
40%
50%
60%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48
Cum
ulat
ive R
eal G
DP
Gro
wth
(%)
Quarters from Peak
Real GDP ReboundingFaster Growth than Post-Financial Crisis
194819531958196019691973198019811990200120092020
20
Post-WWII Average Cycle:64 Months
0 10 20 30 40 50 60 70 80 90 100 110 120 130
0 10 20 30 40 50 60 70 80 90 100 110 120 130
Mar 1919 - Jan 1920Jan 1912 - Jan 1913
Jul 1980 - Jul 1981Dec 1867 - Jun 1869Jun 1894 - Dec 1895Jun 1908 - Jan 1910
May 1891 - Jan 1893Dec 1900 - Sep 1902Nov 1927 - Aug 1929Dec 1858 - Oct 1860
May 1885 - Mar 1887Jul 1921 - May 1923Jun 1897 - Jun 1899Apr 1958 - Apr 1960Apr 1888 - Jul 1890Jul 1924 - Oct 1926
Dec 1854 - Jun 1857Aug 1904 - May 1907Dec 1870 - Oct 1873Mar 1879 - Mar 1882Nov 1970 - Nov 1973Oct 1945 - Nov 1948
May 1954 - Aug 1957Dec 1914 - Aug 1918
Oct 1949 - Jul 1953Jun 1861 - Apr 1865
Mar 1933 - May 1937Mar 1975 - Jan 1980Nov 2001 - Dec 2007Jun 1938 - Feb 1945Nov 1982 - Jul 1990
Feb 1961 - Dec 1969Mar 1991 - Mar 2001Jun 2009 - Feb 2020
May 2020 - Today
The Beginning of a New CycleFollowing a Record-Long Expansion
MARKET UPDATE
MARKET UPDATE
18
2021 2022 Expectations
#1 – Inflation • Sales Growth & Margins Improve
• Moderating Inflation, but Risks Remain
#2 – Labor Market • Substantial Consumer Spending Growth
• Wage Gains Fuel Additional Growth
#3 – Monetary Policy • Hawkish Surprises Dampen Fixed Income
• Short-end Rates Increase
#4 – Fiscal Policy • Large Deficits and High Uncertainty
• Deficits Moderate with No Tax Code Changes
#5 – Business Cycle • Early Cycle, Reopening Sectors Outperform
• Expansion Continues, Shorter Cycle Possible
MARKET UPDATE
19
18.4%
13.6%11.2%
7.8%
18.3%
7.6%5.6%
3.8%6.2%
-3.4%
2.7%
13.6%10.3%
16.4%
28.7%
24.7%26.7%
11.3%
-2.5%-1.6% -1.3%
0.5%
5.4%
30.8%
-3.2%
3.5%6.5%
12.4%
(10%)
(5%)
0%
5%
10%
15%
20%
25%
30%
35%
40%
US
Larg
e C
ap
US
Mid
Cap
US
Smal
l Cap
Dev
elop
edIn
tern
atio
nal
Emer
ging
Mar
kets
US
Broa
d M
arke
t
US
Inte
rmed
iate
Inte
rmed
iate
Mun
i
Hig
h Yi
eld
Com
mod
ities
Mer
ger
Arbi
trage
Man
aged
Futu
res
Hed
ge F
unds
6040
Equities Fixed Income Alternatives
Asset Class Performance(2020-Dark; 2021-Light)
INFLATION
20
59.1%
26.1%
18.9%17.5%
16.1%
15.8%
13.7% 13.5% 12.5%
8.6% 7.9%6.2%
0%
10%
20%
30%
40%
50%
60%En
ergy
Mat
eria
ls
Com
m. S
rvcs
.
Con
s. D
isc.
Info
. Tec
h.
S&P
500
Indu
stria
ls
Hea
lth C
are
Rea
l Est
ate
Util
ities
Fina
ncia
l
Con
s. S
tapl
es
Sales Growth SizzlesS&P 500 Sales Grow 16%
Inflation Benefits Energy & Materials
∞
97.8%85.4%
69.4%59.7%
45.1%
36.8%28.0% 25.6% 18.5%
9.2% 1.6%0%
20%40%60%80%
100%120%140%160%
Ener
gy
Indu
stria
ls
Mat
eria
ls
Con
s. D
isc.
Fina
ncia
l
S&P
500
Com
m. S
rvcs
.
Info
. Tec
h.
Hea
lth C
are
Rea
l Est
ate
Con
s. S
tapl
es
Util
ities
Record High EarningsS&P 500 Earnings Per Share Grew 45%
2%
4%
6%
8%
10%
12%
14%
12/16 06/17 12/17 06/18 12/18 06/19 12/19 06/20 12/20 06/21 12/21
Profit Margins ExpandNear-Record High Margins in US, DM, & EM
S&P 500Developed MarketsEmerging Markets
INFLATION
21
40
45
50
55
60
65
70
75
80
12/9
9
12/0
0
12/0
1
12/0
2
12/0
3
12/0
4
12/0
5
12/0
6
12/0
7
12/0
8
12/0
9
12/1
0
12/1
1
12/1
2
12/1
3
12/1
4
12/1
5
12/1
6
12/1
7
12/1
8
12/1
9
12/2
0
12/2
1
ISM
Sup
plie
r Del
ivery
Inde
x
Supplier DeliveriesDisrupted but Improving
Fast
erSl
ower
10
30
50
70
90
110
12/9
9
12/0
0
12/0
1
12/0
2
12/0
3
12/0
4
12/0
5
12/0
6
12/0
7
12/0
8
12/0
9
12/1
0
12/1
1
12/1
2
12/1
3
12/1
4
12/1
5
12/1
6
12/1
7
12/1
8
12/1
9
12/2
0
12/2
1
ISM
Pric
es In
dex
Prices PaidIncreasing at a Slower Pace
Dec
reas
ing
Incr
easi
ng
-2
-1
0
1
2
3
4
5
09/9
7
09/9
8
09/9
9
09/0
0
09/0
1
09/0
2
09/0
3
09/0
4
09/0
5
09/0
6
09/0
7
09/0
8
09/0
9
09/1
0
09/1
1
09/1
2
09/1
3
09/1
4
09/1
5
09/1
6
09/1
7
09/1
8
09/1
9
09/2
0
09/2
1
Stan
dard
Dev
iatio
ns fr
om A
vera
ge Supply Chain PressuresShipping Costs, Air Freight, Delivery Times, Backlogs
0
2,000
4,000
6,000
8,000
10,000
12,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016 2017 2018 2019 2020 2021
Topi
cal R
emar
ks in
Ear
ning
s C
all
Tran
scrip
ts (S
&P 1
500
Com
pani
es) Supply Chains in Focus
Earnings Call Transcripts Highlight Disruptions
Supply ChainSupply Chain Disruptions
INFLATION
22
Country New Covid Cases(7 day average) Policy Response
USA 714,435 Focus on vaccination; quarantine if positive
China 173 Zero-Covid policy; strict lockdowns
Japan 3,351 Limit dining & gatherings; testing; vaccination
Germany 47,964 Vaccination; limit on gatherings; daily testing for some
United Kingdom 176,191 Vaccination; masks; telework; testing; travel limits
France 228,367 Vaccination; masks; some limits on gatherings
India 91,267 Vaccination; some facility closures; limits on gatherings
Italy 144,908 Vaccination; limits on gatherings
Brazil 4,662 Vaccination; travel restrictions
Canada 42,194 Vaccination; some lockdowns; some facility closures
LABOR MARKET
23
268
122
12
494
43
52
24
141
243
310
456
656
191
537
199
30
-45
-69
-115
-116
-123
-148
-150
-176
-253
-638
-935
-1,334
-1,500 -1,000 -500 0 500 1,000
Transportation & Utilities
Financial Activities
Mining & Logging
Professional & Business Services
Construction
Educational Services
Information
Wholesale Trade
Other Services
Retail Trade
Manufacturing
Health Care & Social Assistance
Government
Leisure & Hospitality
Thousands
Change in Employment & Job OpeningsFeb '20 - Nov '21
Thousands of People Feb 2020 Dec 2021 ChangeLabor Force 164,448 162,294 -2,154
Employed 158,732 155,975 -2,757Unemployed 5,717 6,319 602
Not in Labor Force 95,393 99,842 4,44916-54 38,103 39,630 1,52755+ 57,290 60.810 3,520
Total 16+ Civilian Population 259,841 262,136 2,295
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016 2017 2018 2019 2020 2021
Topi
cal R
emar
ks in
Ear
ning
s C
all T
rans
crip
ts
(S&P
150
0 C
ompa
nies
)
Labor Costs & ShortagesEarnings Call Transcripts Highlight Labor Issues
Labor Costs Labor Shortage Automation
LABOR MARKET
24
“Strike Gives Deere Workers a New Deal
That’s Better Than Most”
“Kellogg Cereal Workers Approve Agreement,
Ending Standoff”
$5
$7
$9
$11
$13
$15
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Stat
e M
inim
um W
age
($/h
r) 26 States Raising Minimum Wage7.2% Average Increase in 2022
California Massachusetts New York New Jersey ArizonaMaine Colorado Vermont Maryland Rhode IslandIllinois New Mexico Missouri Virginia DelawareMinnesota Florida South Dakota Michigan Ohio
0
500
1,000
1,500
2,000
2,500
3,000
Wor
kers
Invo
lved
in a
Wor
k St
oppa
ge (T
hous
ands
)
Strikes are Rare in the US
-10
0
10
20
30
40
50
06/8
409
/85
12/8
603
/88
06/8
909
/90
12/9
103
/93
06/9
409
/95
12/9
603
/98
06/9
909
/00
12/0
103
/03
06/0
409
/05
12/0
603
/08
06/0
909
/10
12/1
103
/13
06/1
409
/15
12/1
603
/18
06/1
909
/20
12/2
1
Shar
e of
Res
pond
ents
Plans for Hiring & RaisesIncreasing CompensationHiring
MONETARY POLICY
25
1.51%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0 5 10 15 20 25 30
Yiel
d to
Mat
urity
Years to Maturity
Yields Rise in 2021Faster Rate Hikes Impact Front-End Rates
Rates Remain Relatively Low
12/31/202112/31/202010 Year Range
-0.6% 0.0%
6.0%
-2.0%-0.7%
6.0%
-2.8%-1.1%
4.7%
-3.1%-1.7%
3.5%
-6%-4%-2%0%2%4%6%8%
Trea
sury
Cor
p
Hig
h Yi
eld
Trea
sury
Cor
p
Hig
h Yi
eld
Trea
sury
Cor
p
Hig
h Yi
eld
Trea
sury
Cor
p
Hig
h Yi
eld
1-3 3-5 5-7 7-10
Tota
l Ret
urns
Maturity Range
Rising Yields Hit ReturnsCredit-Oriented Bonds Outperform
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
1 2 3 4 5 6 7 8 9 10
Brea
keve
n In
flatio
n R
ate
Years to Maturity
TIPS Breakevens RiseExpected Inflation Falls to 2.5% by 2024
12/31/202012/31/2021
FISCAL POLICY
26
0%
10%
20%
30%
40%
50%
60%
70%
80%
Divided Government LikelyBetting Markets Set 88% Odds of Power Split '23-24
R House, R SenateR House, D SenateD House, D SenateD House, R Senate
0%
10%
20%
30%
40%
50%
60%
70%
1909
1913
1917
1921
1925
1929
1933
1937
1941
1945
1949
1953
1957
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
2017
2021
Corporate Tax RatesUnlikely to Rise; Biden Favored 28% Rate
Highest Marginal CorporateIncome Tax RateBiden Proposal
50100150200250300350400450500550600650
Gro
wth
of $
100
(12/
31/1
8 Ba
se) Solar Stocks Falter
Expectations for BBB Climate Spending Erode
World Solar Energy IndexS&P 500
BUSINESS CYCLE
27
-4
-3
-2
-1
0
1
2
3
4
5
01/6
201
/64
01/6
601
/68
01/7
001
/72
01/7
401
/76
01/7
801
/80
01/8
201
/84
01/8
601
/88
01/9
001
/92
01/9
401
/96
01/9
801
/00
01/0
201
/04
01/0
601
/08
01/1
001
/12
01/1
401
/16
01/1
801
/20
01/2
2
Spread (%)
Yield Curve Spread10 Year - 3 Month
Recessions 10Y 3M Spread Average Spread
Inversion Date
NBER Peak
Difference Between Inversion Month and
NBER Peak9/8/1966 No recession False Positive12/30/1968 Dec 1969 11 Months6/1/1973 Nov 1973 6 Months11/1/1978 Jan 1980 15 Months4/6/1981 Jul 1981 4 Months3/27/1989 Jul 1990 16 Months9/10/1998 No recession False Positive4/7/2000 Mar 2001 12 Months1/17/2006 Dec 2007 24 Months3/22/2019 Feb 2020 11 Months
• The yield curve inverted 4-24 months prior to each of the last seven recessions. There were also two false positives(inversions without a recession).
• In March, 2019 the yield curve inverted, triggering this indicator for the first time since the financial crisis.• The last cycle peaked in February, 2020, 11 months after the first inversion.
BUSINESS CYCLE
28
• The unemployment rate historically bottomed an average of 9 months before a recession.• The challenge with this indicator is identifying the trough in real time.• In this cycle, this indicator provided no useful signal. In February, 2020, the unemployment rate troughed at 3.5%,
coinciding with the economic peak.
Unemployment Trough Date
Unemployment Trough Rate
NBER Peak Date
Unemployment Rate at Peak
Difference Between Trough
Month and NBER Peak
Jan-48 3.40% Nov-48 3.80% 10 MonthsJun-53 2.50% Jul-53 2.60% 1 MonthMar-57 3.70% Aug-57 4.10% 5 MonthsJun-59 5.00% Apr-60 5.20% 10 MonthsSep-68 3.40% Dec-69 3.50% 15 MonthsOct-73 4.60% Nov-73 4.80% 1 MonthMay-79 5.60% Jan-80 6.30% 8 MonthsDec-80 7.20% Jul-81 7.20% 7 MonthsMar-89 5.00% Jul-90 5.50% 16 MonthsApr-00 3.80% Mar-01 4.30% 11 MonthsOct-06 4.40% Dec-07 5.00% 14 MonthsFeb-20 3.50% Feb-20 3.50% 0 Months
2
4
6
8
10
12
14
01/4
801
/51
01/5
401
/57
01/6
001
/63
01/6
601
/69
01/7
201
/75
01/7
801
/81
01/8
401
/87
01/9
001
/93
01/9
601
/99
01/0
201
/05
01/0
801
/11
01/1
401
/17
01/2
0
Unem
ployment R
ate (%)
Unemployment Rate Troughs
Recessions Unemployment Rate
BUSINESS CYCLE
29
Negative Real Retail Sales Growth Date
Growth Rate
NBER Peak Date
Difference Between Negative Growth
Month and NBER PeakMay 1948 -0.9% Nov 1948 6 MonthsApr 1951 -0.8% No Recession False PositiveAug 1952 -1.0% Jul 1953 11 MonthsOct 1956 -1.2% Aug 1957 10 MonthsDec 1959 -1.4% Apr 1960 4 MonthsDec 1966 -0.8% No Recession False PositiveJul 1969 -0.4% Dec 1969 5 MonthsDec 1973 -4.0% Nov 1973 -1 Month, Missed StartJun 1979 -1.3% Jan 1980 7 MonthsJul 1981 -1.1% Jul 1981 0 Months, ConcurrentJan 1987 -0.7% No Recession False PositiveSep 1988 -2.3% No Recession False PositiveDec 1989 -0.1% No Recession False PositiveMay 1990 -0.5% Jul 1990 2 MonthsDec 2000 -0.1% Mar 2001 3 MonthsJun 2006 -0.1% Dec 2007 18 MonthsMar 2020 -7.0% Feb 2020 -1 Month, Missed Start
• This indicator is more volatile and has generated several false positives.• In this cycle, this indicator did not provide a useful signal. In February, growth was positive 2%.• After declining 7% in March and 20% in April, retail sales were setting record highs by June, 2020.
-20-18-16-14-12-10-8-6-4-20246810121416182022
01/4
8
01/5
1
01/5
4
01/5
7
01/6
0
01/6
3
01/6
6
01/6
9
01/7
2
01/7
5
01/7
8
01/8
1
01/8
4
01/8
7
01/9
0
01/9
3
01/9
6
01/9
9
01/0
2
01/0
5
01/0
8
01/1
1
01/1
4
01/1
7
01/2
0
Real Retail Sales GrowthYOY (%)
Recessions Real Retail Sales Growth
RISKS IN 2022
30
Covid Inflation Geopolitics Asset Prices &Speculation
Worsening public health or more dangerous new variants could: • Constrain supply and
worsen inflation pressures
• Induce government policies that dampen economic activity
• Delay a rebalancing of goods & services spending
• Create bouts of ‘risk-off’ behavior in investment markets
Continued inflation surprises could: • Induce tighter
monetary policy impacting rates and financial conditions
• Cause margin deterioration and slow corporate earnings growth
• Create conditions for a wage-price spiral leading to greater inflation
We will be focused on several events in 2022:• Political polarization in
the US around the 2022 midterms
• US-China competition in light of coming events:
• Feb. Beijing Olympics
• Q4 Communist Party Congress
• International elections• Apr. French
Presidential• Oct. Brazilian
• Russia/Ukraine tension
Entering 2022 we are monitoring: • Lower-than-average
bond yields & higher-than-average valuations for many stocks and real estate assets
• Speculative behavior in meme stocks
• Growing values of cryptocurrencies and digital assets
REASONS TO SELL
31
BP Oil Spill
European SovereignDebt Crisis
S&P DowngradesU.S. Debt
Bernanke Warns of"Fiscal Cliff"
Federal GovernmentShutdown
Ebola VirusOutbreak
Oil PricesCollapse 50%
Brexit Vote
2016 PresidentialElection
Costliest Year of Natural Disasters
on Record(Harvey, Irma, Maria)
Trade War
Longest GovernmentShutdown on Record
Yield CurveInverts
Iranian Bombing
US DHHS DeclaresSARS-CoV-2 a
Public Health Emergency
WHO Declaresa Pandemic
2020 PresidentialElection
U.S. CapitolStormed
Delta Variant
Evergrande
Omicron Variant
50
100
150
200
250
300
350
400
450
500
550
12/0
9
03/1
0
06/1
0
09/1
0
12/1
0
03/1
1
06/1
1
09/1
1
12/1
1
03/1
2
06/1
2
09/1
2
12/1
2
03/1
3
06/1
3
09/1
3
12/1
3
03/1
4
06/1
4
09/1
4
12/1
4
03/1
5
06/1
5
09/1
5
12/1
5
03/1
6
06/1
6
09/1
6
12/1
6
03/1
7
06/1
7
09/1
7
12/1
7
03/1
8
06/1
8
09/1
8
12/1
8
03/1
9
06/1
9
09/1
9
12/1
9
03/2
0
06/2
0
09/2
0
12/2
0
03/2
1
06/2
1
09/2
1
12/2
1
Reasons to Sell
MARKET OUTLOOK
32
Greenleaf Trust Investment Committee US Large Cap 10 year total return expectations: 4.75% annualized
0
5
10
15
20
25
30
35
40
45
50-10
-5
0
5
10
15
20
27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Cyc
lical
ly-Ad
just
ed P
rice-
to-E
arni
ngs
Rat
io (I
nver
ted)
Tota
l Ret
urns
(%)
Valuations Impact Future Returns
Forward 10 Year S&P 500 Total Returns (lhs)Shiller CAPE Ratio (rhs, inverted)
MARKET OUTLOOK
33
• The starting yield of the index has shown a high correlation to forward 10 year returns.
• As of December 2021, the yield on the index was 1.7%, suggesting that returns over the next decade will be lower than they have been historically.
Greenleaf Trust Investment Committee Core Bond 10 year total return expectations: 2.2% annualized
0
2
4
6
8
10
12
0
2
4
6
8
10
12To
tal R
etur
n an
d Yi
elds
(%)
US Investment Grade BondsStarting Yield Levels Impact Future Returns
Starting YieldsForward 10 Year Total Returns
MARKET OUTLOOK
34
US Large Cap
US Small Cap
International Developed Equities
Emerging Market Equities
Cash Core Fixed Income
Non-Core Fixed Income
Diversified Alternatives
60/40 Benchmark4.2%, 10.0%
US Mid Cap
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0% 5% 10% 15% 20% 25%10 Y
ear E
xpec
ted
Retu
rn (N
omin
al)
Expected Risk (Standard Deviation)
Risk/Return Expectations
Historical Return 10 Year 10 YearAsset Class (Dec 1993-
Dec 2021)Expected Return Expected Risk
(Dec 2021) (Standard Deviation)US Large Cap 10.8% 4.8% 14.0%US Mid Cap 12.0% 7.0% 16.0%US Small Cap 11.1% 7.3% 19.0%Developed International Equities 6.0% 6.5% 17.0%Emerging International Equities 5.4% 8.0% 22.0%Core Fixed Income 4.6% 2.2% 4.5%Non-Core Fixed Income 7.7% 4.0% 10.0%Diversified Alternatives 5.0% 3.5% 7.5%Cash 2.3% 1.6% 0.5%
CONCLUSION
35
We expect continued recovery throughout 2022, but…• The ongoing pandemic, heightened inflation, and monetary and fiscal policy
changes pose risks, and the short-term market experience can be unpredictable.
We build portfolios for the long term • The investment solutions we build for clients are constructed with business
cycles, recessions, and even black swan events in mind.
Discipline is key • Maintaining discipline during periods of uncertainty is not always easy, but it has
proven to be the most reliable course for growing and preserving wealth.
QUESTIONS & ANSWERS
36
Chris Burns, CFA®, CPA, CFP®
Investment StrategistNicholas A. Juhle, CFA®
Chief Investment Officer
Important Information
The information herein is being provided on a confidential basis and is intended only for the anticipated recipient(s) or their authorized agents. Any opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed. Nothing in this document should be construed as legal or tax advice and the information is not intended to replace the advice of a qualified attorney or tax advisor. This document is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security. All investments involve risk, and any decisions based on this information are made at your own risk.
In the representation of existing portfolio strategies, past performance is no guarantee of future results. Investment strategies may not achieve the desired results due to timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. All performance is represented as net of management fees except where the analysis is depicted as gross of fees; in this case, applicable components will be properly footnoted as gross of fees.
DATA SOURCES
38
Recession date source: National Bureau of Economic Research, Inc.Slide 7 – “Economic Update”; Table 1.
Retrieved from Bloomberg; Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Congressional Budget Office, dated December, 2021Slide 8 – “Economic Update”; Charts 1 & 2 – “US GDP”.
Retrieved from Bloomberg; Source: Bureau of Economic Analysis, dated September, 2021. Consensus forecasts from Bloomberg. Slide 9 – “Inflation”; Chart 1 – “High Inflation in 2021”.
Source: Philadelphia Federal Reserve, dated December, 2021. Slide 9 – “Inflation”; Chart 2 – “Demand for Goods Surges”.
Retrieved from Bloomberg; Source: Bureau of Economic Analysis, dated November, 2021, author’s calculationsSlide 10 – “Inflation”; Chart 1 – “Container Ship Backup Builds” Source: Marine Exchange of Southern California, dated December, 2021
Container ships at anchor or loitering plus ships loitering or slow speed streaming outside the SAQA.Slide 10 – “Inflation”; Chart 2 – “Shortages hit Auto Sales” Source: Bureau of Economic Analysis, dated December, 2021
Retrieved from BloombergSlide 10 – “Inflation”; Chart 3 – “Rent Increases Lag” Source: Bureau of Economic Analysis & Zillow, dated November, 2021
Retrieved from Bloomberg, projections based on author’s calculations.Slide 10 – “Inflation”; Chart 4 – “Wages Rise in Lowest Quartile” Source: Philadelphia Federal Reserve Wage Tracker, dated November, 2021
Slide 11 – “Labor Market”; Chart 1 – “Dramatic Jobs Recovery” Source: Bureau of Labor Statistics, dated December, 2021Retrieved from Bloomberg, author’s calculations
Slide 11 – “Labor Market”; Chart 2 – “Labor Force Participation” Source: Bureau of Labor Statistics , dated December, 2021Retrieved from Bloomberg
Slide 12 – “Monetary Policy”; Chart 1 – “Federal Reserve Targets” Source: BLS, BEA, Federal Reserve dated December, 2021Retrieved from Bloomberg
Slide 12 – “Monetary Policy”; Chart 2 – “Fed Signals Sonner Hikes” Source: Federal Reserve dated December, 2021Retrieved from Bloomberg
Slide 13 – “Monetary Policy”; Chart 1 – “Federal Reserve Assets” Source: Federal Reserve dated December, 2021Retrieved from Bloomberg, author’s projections
Slide 13 – “Monetary Policy”; Chart 2 – “Banking System is Stable” Source: Federal Reserve dated December, 2021Retrieved from Bloomberg, Banking Reserves = us Reserve Balances with Federal Reserve Banks
Slide 14 – “Fiscal Policy”; Chart 1 – “Greater Stimulus Than 2008” Source: Congressional Budget Office, BEA, CRFB, dated December, 2021Author’s estimates based on deficit impact of Federal legislationhttps://www.crfb.org/blogs/fiscal-response-covid-19-will-be-larger-great-recession-response
Slide 14 – “Fiscal Policy”; Chart 1 – “Rapid Deployment” Source: Congressional Budget Office, CRFB, dated December, 2021Author’s estimates based on CBO data.
Slide 15 – “Fiscal Policy”; Chart 1 – “Partisan Makeup of Senate” Source: Senate.gov, Cook Political Report, PredicIt dated December, 2021
Slide 15 – “Fiscal Policy”; Chart 2 – “Partisan Makeup of House” Source: House.gov, Ballotopedia, dated December, 2021Author’s estimate based on 2020 Congressional Election Margins
Slide 16 – “Business Cycle”; Chart 1 – “The Beginning of a New Cycle” Source: NBER, dated December, 2021Author’s calculations
Slide 16 – “Business Cycle”; Chart 2 – “Real GDP Rebounding” Source: Bureau of Economic Analysis, dated September, 2021Author’s calculations
DATA SOURCES
39
Recession date source: National Bureau of Economic Research, Inc.Slide 19 – “Asset Class Performance”; Chart 1, retrieved from Bloomberg, dated 12/31/2021.
US Large Cap = S&P500 Index, US Mid Cap = S&P400 Midcap Index, US Small Cap = S&P600 Smallcap Index, Developed International = MSCI EAFE Index, Emerging Markets = MSCI Emerging Markets Index, US Broad Market = ICE BofA US Broad Market Index, US Intermediate = ICE BofA 1-10 Year US Broad Market Index, Intermediate Muni = ICE BofA 1-10 Year Municipal Bond Index, High Yield = ICE BofA US High Yield Index, Commodities = Bloomberg Commodities Index (BCOM), Merger Arbitrage = IQ Merger Arbitrage, Managed Futures = SG Trend Index, Hedge Funds = HFRI Fund of Funds Index
Slide 20 – “Inflation”; Chart 1 – “Sales Growth Sizzles”, Source: Factset, dated 12/17/2021.Retrieved from https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_121721A.pdf
Slide 20 – “Inflation”; Chart 2 – “Record High Earnings”, Source: Factset, dated 12/17/2021.Retrieved from https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_121721A.pdf
Slide 20 – “Inflation”; Chart 3 – “Profit Margins Expand”, Source: Bloomberg, dated 12/31/2021.Retrieved from Bloomberg, S&P 500 = S&P 500 Index, Developed Markets = MSCI EAFE Index, Emerging Markets = MSCI Emerging Markets Index
Slide 21 – “Inflation”; Chart 1 – “Supply Chains in Focus”, Source: Bloomberg, dated 12/31/2021.Retrieved from Bloomberg, Transcript Analysis
Slide 21 – “Inflation”; Chart 2 – “Supply Chain Pressures”, Source: New York Federal Reserve, dated 12/31/2021.Retrieved from https://libertystreeteconomics.newyorkfed.org/2022/01/a-new-barometer-of-global-supply-chain-pressures/
Slide 21 – “Inflation”; Chart 3 – “Supplier Deliveries”, Source: Institute for Supply Management, dated 12/31/2021Retrieved from Bloomberg.
Slide 21 – “Inflation”; Chart 3 – “Prices Paid”, Source: Institute for Supply Management, dated 12/31/2021Retrieved from Bloomberg.
Slide 22 – “Inflation”; Table 1, Source: Google, New York Times, Our World in Data, Wikipedia dated 1/8/2022Retrieved from Google
Slide 23 – “Labor Market”; Chart 1, “Changes in Employment and Job Openings:”, Source: Bureau of Labor Statistics, dated 11/30/2021Retrieved from Bloomberg
Slide 23 – “Labor Market”; Table 1, Source: Bureau of Labor Statistics, dated 11/30/2021Retrieved from Bloomberg
Slide 23 – “Labor Market”; Chart 2, “Labor Costs & Shortages”, Source: Bloomberg, dated 11/30/2021Retrieved from Bloomberg, Transcript Analysis
Slide 24 – “Labor Market”; Chart 1, “Plans for Hiring & Raises”, Source: National Federation of Independent Businesses, dated 12/31/2021Retrieved from Bloomberg, Increasing Compensation = NFIB Small Business Compensation Index, Hiring = NFIB Small Business Hiring Plans Index
Slide 24 – “Labor Market”; Chart 2, “26 States Raising Minimum Wage”, Source: Labor Law Center, dated 12/31/2021Retrieved from https://www.laborlawcenter.com/state-minimum-wage-rates, author’s calculations
Slide 24 – “Labor Market”; Chart 3, “Strikes are Rare in the US”, Source: Bureau of Labor Statistics, dated 12/31/2021Retrieved from https://www.bls.gov/wsp/
Slide 25 – “Monetary Policy”; Chart 1, “Yields Rise in 2021”, Source: Bloomberg, dated 12/31/2021Yields = US Treasury Actives Curves
Slide 25 – “Monetary Policy”; Chart 2, “Rising Yields Hit Returns”, Source: Bloomberg, dated 12/31/2021Retrieved from Bloomberg, Ice BofA Indices
Slide 25 – “Monetary Policy”; Chart 3, “TIPS Breakevens Rise”, Source: Bloomberg, dated 12/31/2021Retrieved from Bloomberg, US Generic Breakeven Indices
DATA SOURCES
40
Recession date source: National Bureau of Economic Research, Inc.Slide 26 – “Fiscal Policy”; Chart 1, “Divided Government Likely”, Source: PredictIt, dated 1/8/2022.
Retrieved from https://www.predictit.org/markets/detail/7172/What-will-be-the-balance-of-power-in-Congress-after-the-2022-election, author’s calculationsSlide 26 – “Fiscal Policy”; Chart 2, “Corporate Tax Rates”, Source: Tax Foundation, dated 12/31/2021.
Retrieved from https://taxfoundation.org/historical-corporate-tax-rates-brackets/Slide 26 – “Fiscal Policy”; Chart 3, “Solar Stocks Falter”, Source: Bloomberg, dated 12/31/2021.
Retrieved from Bloomberg; World Solar Energy Index = SG via Dow Jones datafeed at Chicago Board of TradeSlide 27 – “Business Cycle”; Chart 1, Source: Bloomberg, dated 12/31/2021.
Retrieved from Bloomberg. Author’s calculations.Slide 28 – “Business Cycle”; Chart 1, Source: Bureau of Labor Statistics, dated 12/31/2021.
Retrieved from Bloomberg. Author’s calculations.Slide 29 – “Business Cycle”; Chart 1, Source: Bureau of Economic Analysis, dated 12/31/2021.
Retrieved from Bloomberg. Author’s calculations.Slide 31 – “Reasons to Sell”; Chart 1, Source: Bloomberg, dated 12/31/2021.
Retrieved from Bloomberg. Author’s calculations.Retrieved from https://theirrelevantinvestor.com/2021/10/28/let-the-market-worry-for-you/
Slide 32 – “Market Outlook”; Chart 1, Source: Bloomberg, dated 12/31/2021.Forward 10 Year S&P 500 Total Return: Source: Bloomberg Finance, L.P., S&P 500 IndexCAPE Ratio Source: Source: Dr. Robert Shiller online data, http://www.econ.yale.edu/~shiller/data.htm, author’s calculations
Slide 33 – “Market Outlook”; Chart 1, Source: Bloomberg, dated 12/31/2021.Starting Yield = Yield to Worst on ICE BofA US Broad Market Index10 Year Forward Total Returns = annualized total returns on ICE BofA US Broad Market Index, Source: Bloomberg Finance, L.P.
