....The Laird Economics Report

Feb 08, 2014

Where we are now . . . . . . . . . . . . . . . . . . . . . . . . 1

Indicators for US Economy . . . . . . . . . . . . . . . . . . . 2

Global Financial Markets . . . . . . . . . . . . . . . . . . . . 4

US Interest & Inflation Rates . . . . . . . . . . . . . . . . . 9

QE Taper Tracker . . . . . . . . . . . . . . . . . . . . . . . . . 11

Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 12

US Banking Indicators . . . . . . . . . . . . . . . . . . . . . . 13

US Employment Indicators . . . . . . . . . . . . . . . . . . . 14

US Business Activity Indicators . . . . . . . . . . . . . . . . 15

US Consumption Indicators . . . . . . . . . . . . . . . . . . 16

US Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Global Business Indicators . . . . . . . . . . . . . . . . . . . 18

Canadian Indicators . . . . . . . . . . . . . . . . . . . . . . . 20

European Indicators . . . . . . . . . . . . . . . . . . . . . . . 21

Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 23

Global Climate Change . . . . . . . . . . . . . . . . . . . . . 24

Where we are now

Welcome to The Laird Economics Report. This report looks atwhere we are today based on a presentation of economic indicatorswith some historical context.

In the US, the economy took a bit of a pause over Christmas. Mostcommentators were blaming it on the poor weather - if you look at theweather charts, you’ll see that north-east US and Canada were muchcooler than usual - and with a fair bit more precipitation.

No long term trends were broken, though looking at the variousleading indicators, you can just see that the last month of data showsa slowdown (i.e. manufacturing hours, PMI, deliveries). Employmenthas been improving - though the most recent US numbers were belowexpectations. The good thing was the slight tick up in employmentratios.

Europe is still out in the cold - the unemployment figures in Spainand Greece are literally off the charts. However, it did warm up a bit -oddly enough, inflation is still low, bond yields are low - but the Ger-mans are still afraid of government intervention and no one wants to

use up that ammo on improving things.

Canada is doing okay - a slight slowdown, though our currency hasbeen hammered. Our country is having a 10% off sale right now - ar-guably that would be helpful for us, however our manufacturing baseis smaller than the past and most of our exports are already pricedin US dollars (yay resource economy!) - so the net effect is simply toimprove the profits of those companies. What effect does that have onus? Arguably, given the number of consumer goods we import, thatdrives up inflation - but not my area of expertise.

Formatting Notes The grey bars on the various charts are OECDrecession indicators for the respective countries. In many cases, the lastavailable value is listed, along with the median value (measured fromas much of the data series as is available).

Subscription Info For a FREE subscription to this monthly re-port, please email us at jimalaird@gmail.com

The Laird Report, Feb 08, 2014

Indicators for US Economy

Leading indicators are indicators that usually change before theeconomy as a whole changes. They are useful as short-term predictorsof the economy. Our leading indicators include the Leading Index whichsummarizes multiple indicators; initial jobless claims and hours worked(both decrease quickly when demand for employee services drops and

vice versa); purchasing manager indicies; new order and housing per-mit indicies; delivery timings (longer timings imply more demand inthe system) and consumer sentiment (how consumers are feeling abouttheir own financial situation and the economy in general).

Leading Index for the US

Inde

x: E

st. 6

mon

th g

row

th

−3

−1

12

3

median: 1.41Dec 2013: 1.65

Growth

Contraction

Initial Unemployment Claims

1000

's o

f Cla

ims

per

Wee

k

200

400

600

median: 353.88Feb 2014: 334.00

Manufacturing Ave. Weekly Hours Worked

Hou

rs

39.0

40.0

41.0

42.0

median: 40.60Jan 2014: 41.70

ISM Manufacturing: PMI Composite Index

Inde

x: S

tead

y S

tate

= 5

0

3040

5060

70 median: 53.20Jan 2014: 51.30

expanding economy

contracting economy

Manufacturers' New Orders: Durable GoodsB

illio

ns o

f Dol

lars

120

160

200

240

median: 181.31Dec 2013: 229.99

ISM Manufacturing: Supplier Deliveries

Inde

x

4050

6070

median: 51.50Jan 2014: 54.30Slower Deliveries

Faster Deliveries

Capex (ex. Defense & Planes)

Per

cent

cha

nge

(3 m

onth

s)

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−10

−5

05

median: 0.92Dec 2013: 0.98

Chicago Fed National Activity Index

Inde

x V

alue

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−4

−2

02

median: 0.075Dec 2013: 0.16

U. Michigan: Consumer Sentiment

Inde

x 19

66 Q

1 =

100

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

5070

9011

0

median: 88.40Jan 2014: 81.20

The Laird Report Feb 08, 2014 Page 2

Leading Indicators vs. Real GDP Growth

We can model the various leading indicators versus changes in realGDP as a way of inidicating their relationship. The plots below showthe correlations between the indicators and, using a simple linear model,the corresponding real GDP change in the next quarter consistant withthat level. The red dot shows the current predicted value. The red bar

at the bottom shows the 25%-75% confidence intervals for real GDPchange. The green lines show the regression line along with confidenceintervals. Given these are simple univariate models, these plots arebest used to estimate growth/no-growth scenarios, rather than partic-ular growth levels.

−2 −1 0 1 2 3 4

Leading Index vs Real GDP

% QoQ Change in GDP (+1Q)

Est

imat

ed G

DP

% G

row

th

−3

−2

−1

0

1

2

3 r2 : 0.56

−2 −1 0 1 2 3 4

Initial UI Claims vs Real GDP

% QoQ Change in GDP (+1Q)%

Cha

nge

in C

laim

s

−20

−10

0

10

20

30

40 r2 : 0.35

−2 −1 0 1 2 3 4

% Change in Hours Worked vs Real GDP

% QoQ Change in GDP (+1Q)

% C

hang

e in

Hou

rs

−1.0

−0.5

0.0

0.5

1.0 r2 : 0.31

−2 −1 0 1 2 3 4

PMI vs Real GDP

% QoQ Change in GDP (+1Q)

PM

I Ind

ex V

alue

30

40

50

60

70r2 : 0.26

−2 −1 0 1 2 3 4

Durable Goods Orders vs Real GDP

% QoQ Change in GDP (+1Q)

% C

hang

e in

Goo

ds O

rder

ed

−15

−10

−5

0

5r2 : 0.24

−2 −1 0 1 2 3 4

Suppliers Index vs Real GDP

% QoQ Change in GDP (+1Q)

Sup

plie

rs In

dex

−0.2

−0.1

0.0

0.1

0.2

0.3 r2 : 0.058

−2 −1 0 1 2 3 4

Capex vs Real GDP

% QoQ Change in GDP (+1Q)

% C

hang

e in

New

Ord

ers

−8

−6

−4

−2

0

2r2 : 0.19

−2 −1 0 1 2 3 4

National Activity Index vs Real GDP

% QoQ Change in GDP (+1Q)

Inde

x V

alue

−4

−3

−2

−1

0

1

2 r2 : 0.50

−2 −1 0 1 2 3 4

Consumer Sentiment vs Real GDP

% QoQ Change in GDP (+1Q)

Sen

timen

t60

70

80

90

100

110 r2 : 0.17

The Laird Report Feb 08, 2014 Page 3

Global Financial Markets

Global Stock Market Returns

Country Index Name Close Date CurrentValue

WeeklyChange

MonthlyChange

3 monthChange

YearlyChange

Corr toS&P500

Corr toTSX

North AmericaUSA S&P 500 Feb 07 1797.0 0.8% s -2.2% t 2.9% s 19.1% s 1.00 0.78USA NASDAQ Composite Feb 07 4125.9 0.5% s -0.7% t 7.0% s 30.4% s 0.94 0.71USA Wilshire 5000 Total Market Feb 07 19203.9 0.5% s -2.1% t 3.5% s 20.5% s 0.99 0.78Canada S&P TSX Feb 07 13786.5 0.7% s 1.4% s 3.7% s 8.1% s 0.78 1.00Europe and RussiaFrance CAC 40 Feb 07 4228.2 1.5% s -0.8% t -1.2% t 17.4% s 0.60 0.64Germany DAX Feb 07 9301.9 -0.0% t -2.1% t 2.4% s 22.5% s 0.60 0.63United Kingdom FTSE Feb 07 6571.7 0.9% s -2.7% t -1.9% t 5.5% s 0.53 0.61Russia Market Vectors Russia ETF Feb 07 26.0 2.8% s -5.6% t -7.3% t -12.0% t 0.74 0.63All Europe Euro Stoxx 50 Jan 31 3014.0 -0.5% t -3.1% t -1.8% t 11.5% s 0.62 0.60AsiaTaiwan TSEC weighted index Feb 07 8387.4 1.5% s -1.5% t 1.3% s 5.6% s -0.05 0.09China Shanghai Composite Index Jan 30 2033.1 -0.4% t -3.1% t -5.9% t -14.7% t -0.10 -0.06Japan NIKKEI 225 Feb 07 14462.4 -3.0% t -8.5% t 1.6% s 27.3% s 0.20 0.26Hong Kong Hang Seng Feb 07 21636.8 1.1% s -4.7% t -5.4% t -6.6% t 0.07 0.19Korea Kospi Feb 07 1922.5 0.1% s -1.9% t -4.1% t -0.5% t 0.21 0.29South Asia and AustrailiaIndia Bombay Stock Exchange Feb 07 20376.6 -0.7% t -1.5% t -2.1% t 4.1% s 0.19 0.24India S&P CNX NIFTY Feb 07 6063.2 -0.4% t -1.6% t -2.0% t 2.1% s 0.19 0.24Indonesia Jakarta Feb 07 4466.7 1.8% s 7.0% s -0.4% t -0.8% t 0.05 0.21Malaysia FTSE Bursa Malaysia KLCI Feb 07 1808.6 1.7% s -0.9% t 0.1% s 11.7% s 0.12 0.11Australia All Ordinaries Feb 07 5184.5 -0.4% t -2.5% t -4.3% t 4.6% s 0.06 0.17New Zealand NZX 50 Index Gross Feb 07 4840.8 -0.7% t -0.5% t -1.7% t 14.6% s 0.06 0.18South AmericaBrasil IBOVESPA Feb 07 48074.0 0.9% s -4.7% t -8.8% t -17.6% t 0.49 0.40Argentina MERVAL Buenos Aires Feb 07 5585.0 -7.2% t 4.3% s 5.3% s 69.1% s 0.22 0.29Mexico Bolsa index Feb 07 1797.0 0.8% s -2.2% t 2.9% s 19.1% s 1.00 0.78MENA and AfricaEgypt Market Vectors Egypt ETF Feb 07 62.3 0.7% s 14.5% s 18.6% s 23.9% s 0.15 0.27

Market Vectors Gulf States ETF Feb 07 29.1 1.4% s 4.4% s 16.1% s 38.0% s 0.35 0.33South Africa iShares MSCI South Africa Index Feb 07 58.3 1.0% s -6.1% t -6.5% t -11.3% t 0.74 0.63

Market Vectors Africa ETF Feb 07 30.3 1.2% s 0.2% s 0.4% s -0.5% t 0.68 0.68CommoditiesUSD Spot Oil West Texas Int. Feb 03 $96.4 0.6% s 3.0% s 2.0% s 0.2% s 0.36 0.26USD Gold LME Spot Feb 07 $1260.0 1.1% s 1.8% s -4.3% t -24.8% t -0.13 -0.16

Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days.

The Laird Report Feb 08, 2014 Page 4

S&P 500 Composite Index

The S&P 500 Composite Index is widely regarded as the best singlegauge of the large cap U.S. equities market. A key figure is the valua-tion level of the S&P500 as measured by the Price/Earnings ratio. Wepresent two versions: (1) a 12-month trailing earnings version which

reflects current earnings but is skewed by short term variances and (2)a cyclically adjusted version which looks at the inflation adjusted earn-ings over a 10 year period (i.e. at least one business cycle). Forecastedearnings numbers are estimates provided by S&P.

S&P 500 Stock Price Index (USD$ Inflation Adjusted to current prices − Log Scale)

63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 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

100

200350500750

100013001750

100

200350500750100013001750

S&P Quarterly Earnings (USD$ Inflation Adjusted to current prices)

63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 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

−5.00 0.00 5.0010.0015.0020.0025.0030.0035.00

−5.00 0.00 5.0010.0015.0020.0025.0030.0035.00

Tech Bubble

Japanese Asset Bubble

House BubbleAsian Financial Crisis

US Financial Crisis

Eurozone crisis

Oil Crisis I Oil Crisis II

Gulf War

Savings and Loans Crisis

High Inflation Period

Afganistan/Iraq WarVietnam War

Reported EarningsOperating Earnings

Trailing P/E Ratios for S&P500

63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 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

010

2030

4050

010

2030

4050

12−month P/E ( median = 17.3, Feb = 16.9)10−year CAPE ( median = 19.4, Feb = 23.1)

The Laird Report Feb 08, 2014 Page 5

S&P 500 Composite Distributions

This is a view of the price performance of the S&P 500 index com-panies. The area of each box is proportional to the company’s marketcap, while the colour is determined by the percentage change in price

over the past month. In addition, companies are sorted according totheir industry group.

AAPL−5.5%

GOOG5.8%

MSFT−1.6%

IBM−3.9%

ORCL−1.4%

FB18%

V QCOM

CSCO INTC

MA

EBAY

HPQ ACN

EMC

TXN

YHOO

CRM

ADP

ADBE

CTSH

MU

TEL

FIS

BRK−A−4.1%

WFC1.5%

JPM

BAC4.5%

C

AXP

GS USB

AIG MS

MET

BLK

SPG

PNC

COF

PRU

BEN

ACE

AMT

STT

AFL

TRV

PSA

CME AON

ALL

MHFI

LXL

JNJ−1.1%

PFE3.3%

MRK

GILD BMY

ABBV UNH BIIB

ABT

LLY MDT

BAX

ACT

ALXN

SYK

WLP

CI A

ZTS

AMZN

DIS

HD

MCD

FOXA

NKE

PCLN

F

TWX

SBUX

GM

LOW

TJX

TWC

DTV

CBS

VIAB

TGT

YUM

CCL

JCI

M

DG

LB

GE−8.4%

UTX

BA−7.1%

UPS

MMM

UNP

CAT

PCP

GD

ITW

ETN

DE

WM PH

IR

WMT−6.5%

PG

KO

PM−6.7%

PEP−2.3%

CVS

MO

MDLZ

WAG

CL

COST

KMB RAI

EL

K

SYY

LO

XOM−8.6%

CVX

SLB0.77%

COP

OXY

EOG

HAL

APC

KMI

APA

NOV

BHI

VLO

SE

HP

LYB

DD

MON

DOW

PX

FCX

ECL

PPG

IP

CF

AA

DUK D

SO

EXC PPL

ED FE

NI

T−6.3%

VZ−3.4%

CCI

Information Technology

Financials

Health Care

Consumer Discretionary

Industrials Consumer Staples

EnergyMaterials Utilities

TelecommunicationsServices

<−25.0% −20.0% −15.0% −10.0% −5.0% 0.0% 5.0% 10.0% 15.0% 20.0% >25.0%

% Change in Price from Jan 01, 2014 to Feb 07, 2014

Average Median Median MedianSector Change P/Sales P/Book P/EUtilities 4.1% s 1.3 1.5 19.0Health Care 2.6% s 3.2 3.6 23.1Information Technology 0.5% s 2.9 3.7 23.5Financials -1.9% t 2.8 1.4 18.1Materials -1.9% t 1.4 3.1 20.4

Average Median Median MedianSector Change P/Sales P/Book P/EIndustrials -2.1% t 1.5 3.1 20.1Consumer Discretionary -3.4% t 1.5 3.9 19.1Consumer Staples -3.7% t 1.7 4.5 19.6Energy -4.1% t 1.9 1.5 16.5Telecommunications Services -4.9% t 1.0 2.5 35.1

The Laird Report Feb 08, 2014 Page 6

US Equity Valuations

A key valuation metric is Tobin’s q: the ratio between the marketvalue of the entire US stock market versus US net assets at replacementcost (ie. what you pay versus what you get). Warren Buffet famouslyfollows stock market value as a percentage of GNP, which is highly(93%) correlated to Tobin’s q.

We can also take the reverse approach: assume the market hasvaluations correct, we can determine the required returns of future es-

timated earnings. These are quoted for both debt (using BAA ratedsecurities as a proxy) and equity premiums above the risk free rate (10year US Treasuries). These figures are alternate approaches to under-standing the current market sentiment - higher premiums indicate ademand for greater returns for the same price and show the level ofrisk-aversion in the market.

Tobin's q (Market Equity / Market Net Worth) and S&P500 Price/Sales

63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 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

0.25

0.50

0.75

1.00

1.25

1.50

0.25

0.50

0.75

1.00

1.25

1.50

Buying assets at a discount

Paying up for growth

Tobin Q (median = 0.75, Sep = 0.98)S&P 500 Price/Sales (median = 1.40, Sep = 1.51)

Equity and Debt Risk Premiums: Spread vs. Risk Free Rate (10−year US Treasury)

63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 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

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%Implied Equity Premium (median = 4.2%, Jan = 5.0%)Debt (BAA) Premium (median = 2.0%, Jan = 2.5%)

The Laird Report Feb 08, 2014 Page 7

US Mutual Fund Flows

Fund flows describe the net investments in equity and bond mutualfunds in the US market, as described in ICI’s “Trends in Mutual FundInvesting” report. Note however that this is only part of the story as

it does not include ETF fund flows - part of the changes are investorsentering or leaving the market, and part is investors shifting to ETF’sfrom mutual funds.

US Net New Investment Cash Flow to Mutual Funds

US

$ bi

llion

s (m

onth

ly)

2007 2008 2009 2010 2011 2012 2013 2014

−40

−20

020

40

Domestic EquityWorld EquityTaxable BondsMunicipal Bonds

US Net New Investment Cash Flow to Mutual Funds

US

$ bi

llion

s (M

onth

ly)

2007 2008 2009 2010 2011 2012 2013 2014

−60

−40

−20

020

4060

Flows to EquityFlows to BondsNet Market Flows

The Laird Report Feb 08, 2014 Page 8

US Interest & Inflation Rates

Yield Curve - US Treasuries

US Treasury Yield Curves

For

war

d O

vern

ight

Rat

es (

%)

13 14 15 16 17 18 19 20 21 22 23 24

0.0

0.5

1.0

1.5

2.0

2.5

3.0

06 Feb 14 ( Today )06 Jan 14 ( 1 mo ago )06 Nov 13 ( 3 mo ago )06 Feb 13 ( 1 yr ago )

3 Month & 10 Yr Treasury Yields

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

0%

1%

2%

3%

4%

5%

6%

7% 10 Yr Treasury3 Mo TreasurySpread

US Inflation measures

84 85 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

−1%

0%

1%

2%

3%

4%

5%

6%

−1%

0%

1%

2%

3%

4%

5%

6%

US Inflation Rate YoY% (Dec = 1.5%)US Inflation ex Food & Energy YoY% (Dec = 1.5%)Delta of Treasury vs. TIPS (Feb = 2.2%)

The Laird Report Feb 08, 2014 Page 9

AAA vs. BAA Corporate Bond Spreads

4%

5%

6%

7%

8%

9%

4%

5%

6%

7%

8%

9%

Per

cent

AAA BAA

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

median: 91.00Jan 2014: 65.00

0

100

200

300

0

100

200

300

Spr

ead

(bps

)

TED Spread (LIBOR vs. Fedfunds Rate)

0%

1%

2%

3%

4%

5%

6%

7%

0%

1%

2%

3%

4%

5%

6%

7%

Per

cent

3 mos t−bill LIBOR

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

median: 37.50Jan 2014: 21.66

0

100

200

300

0

100

200

300

Spr

ead

(bps

)

The Laird Report Feb 08, 2014 Page 10

QE Taper Tracker

The US has been using the program of Quantitative Easing to pro-vide monetary stimulous to its economy. The Fed has engaged in aseries of programs (QE1, QE2 & QE3) designed to drive down longterm rates and improve liquidity though purchases of treasuries, mor-gage backed securites and other debt from banks.

The higher demand for long maturity securities would drive up theirprice, but as these securities have a fixed coupon, their yield would bedecreased (yield ≈ coupon / price) thus driving down long term rates.

In 2011-2012, “Operation Twist” attempted to reduce rates without

increasing liquidity. They went back to QE in 2013.The Fed chairman suggested in June 2013 the economy was recover-

ing enough that they could start slowing down purchases (“tapering”).The Fed backed off after a brief market panic. The Fed announced inDec 2013 that it was starting the taper, a decision partly driven byseeing key targets of inflation around 2% and unemployment being lessthan 6.5%. These charts track that progress. Note - in the US Bankingcharts, repos have spiked recently - not sure what that means.

QE Asset Purchases to Date (Treasury & Mortgage Backed Securities)

Trill

ions

0.0

1.0

2.0

0.0

1.0

2.0QE1 QE2 Operation Twist QE3Treasuries

Mortgage Backed Securities

Total Monthly Asset Purchases (Treasury + Mortgage Backed Securities)

Bill

ions

−10

00

100

−10

00

100

Month to date Feb 05: $9.8

Inflation and Unemployment − Relative to Targets

Per

cent

02

46

8

02

46

8

Target Unemployment 6.5%Target Inflation 2%

U.S. 10 Year and 3 Month Treasury Constant Maturity Yields

Per

cent

02

4

02

4

2008 2009 2010 2011 2012 2013

Short Term Rates:Once at zero, Fed moved to QE

Long Term Rates:Moving up in anticipation of Taper?

The Laird Report Feb 08, 2014 Page 11

Exchange Rates

10 Week Moving Average CAD Exchange Rates

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

0.62

0.71

0.81

0.90

1.00

1.09

US

A /

CA

D

0.55

0.61

0.66

0.72

0.77

0.82

Eur

o / C

AD

59.

16 7

4.71

90.

2610

5.81

121.

3613

6.91

Japa

n / C

AD

0.38

0.44

0.49

0.55

0.61

0.67

U.K

. / C

AD

0.59

0.98

1.36

1.74

2.12

2.51

Bra

zil /

CA

D

CAD Appreciating

CAD Depreciating

1 Month Change in Rates versus Average

−3.0%

−1.5%

1.5%

3.0%

Euro−0.8%

UK−2.0%

Japan−1.7%

South Korea 0.6%

China−2.1%

India−1.2%

Brazil 1.7%

Mexico 0.3%

Canada 3.3%

USA 1.6%

% Change over 3 months vs. Canada

<−10.0% −8.0% −6.0% −4.0% −2.0% 0.0% 2.0% 4.0% 6.0% 8.0% >10.0%

CAD depreciatingCAD appreciating

ARG−20.1%

AUS −0.2%

BRA 1.0%

CHN 6.6%

IND 5.9%

RUS −1.1%

USA 6.0%

EUR6.4%

JPY2.9%

KRW4.3%

MXN5.1%

ZAR−2.2%

The Laird Report Feb 08, 2014 Page 12

US Banking Indicators

The banking and finance industry is a key indicator of the healthof the US economy. It provides crucial liquidity to the economy in theform of credit, and the breakdown of that system is one of the exac-erbating factors of the 2008 recession. Key figures to track are the

Net Interest Margins which determine profitability (ie. the differencebetween what a bank pays to depositors versus what the bank is paidby creditors), along with levels of non-performing loans (i.e. loan lossreserves and actual deliquency rates).

US Banks Net Interest Margin

Per

cent

3.5

4.0

4.5

median: 3.952013 Q3: 3.20

Repos Outstanding with Fed. Reserve

Bill

ions

of D

olla

rs

5015

025

0

median: 42.40Feb 2014: 196.11

Bank ROE − Assets between $300M−$1B

Per

cent

05

1015

median: 12.892013 Q3: 9.06

Consumer Credit Outstanding

% Y

early

Cha

nge

−5

05

1015

20

median: 7.08Dec 2013: 5.63

Total Business Loans%

Yea

rly C

hang

e

−20

010

20median: 7.81Dec 2013: 6.48

US Nonperforming Loans

Per

cent

12

34

5

median: 2.312013 Q3: 2.89

St. Louis Fed Financial Stress Index

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

02

46 median: −0.17

Jan 2014: −0.87

Commercial Paper Outstanding

Trill

ions

of D

olla

rs

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

1.0

1.4

1.8

2.2

median: 1.36Feb 2014: 0.99

Residential Morgage Delinquency Rate

Per

cent

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

24

68

10

median: 2.302013 Q3: 8.59

The Laird Report Feb 08, 2014 Page 13

US Employment Indicators

Unemployment Rate

Per

cent

45

67

89

10 median: 5.70Jan 2014: 6.60

Ave. Duration of Unemployment

Wee

ks

1520

2530

3540 median: 17.40

Jan 2014: 35.40

Index: Employment, Hours

Inde

x

−1.

5−

0.5

0.5

1.5

median: 0.00Dec 2013: 0.10above ave growth

below ave growth

Total Nonfarm Hires

Rat

e

3.0

3.5

4.0

median: 3.60Nov 2013: 3.30

Services: Temp Help

Tho

usan

ds o

f Per

sons

1500

2000

2500

median: 2220.90Jan 2014: 2779.80

Employment Ratio

Per

cent

6065

7075

8085

All civilianBachelor Degree 25+Aged 25−54Some college 25+

(U6) Unemployed + PT + Marginally Attached

Per

cent

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

810

1214

16

median: 9.60Jan 2014: 12.70

4−week moving average of Initial Claims

Jan

1995

= 1

00

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

5010

015

020

0

median: 108.80Feb 2014: 102.69

Small, Med, Lrg Nonfarm Emp (ADP)

Jan

2005

= 1

00

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

8090

100

110

Firm Size

1−4950−499500+

The Laird Report Feb 08, 2014 Page 14

US Business Activity Indicators

Business activity is split between manufacturing activity and non-manufacturing activity. We are focusing on forward looking business

indicators like new order and inventory levels to give a sense of thecurrent business environment.

Manufacturing Sector: Real Output

YoY

Per

cent

Cha

nge

−15

−5

515

median: 6.672013 Q4: 9.95

ISM Manufacturing: PMI Composite Index

Inde

x

3040

5060

70

Jan 2014: 51.30

manufac. expanding

manufac. contracting

ISM Manufacturing: New Orders Index

Inde

x

3040

5060

7080 Jan 2014: 51.20

Increase in new orders

Decrease in new orders

Non−Manufac. New Orders: Capital Goods

Bill

ions

of D

olla

rs

3545

5565

median: 56.91Dec 2013: 68.38

Average Weekly Hours: Manufacturing

Hou

rs

3940

4142

43

median: 41.10Jan 2014: 41.70

Industrial Production: Manufacturing

YoY

Per

cent

Cha

nge

−15

−5

05

10

median: 3.27Dec 2013: 2.77

Total Business: Inventories to Sales Ratio

Rat

io

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

1.1

1.2

1.3

1.4

1.5

1.6

median: 1.37Nov 2013: 1.29

Chicago Fed: Sales, Orders & Inventory

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−0.

50.

00.

5 Dec 2013: 0.06Above ave growth

Below ave growth

ISM Non−Manufacturing Bus. Activity Index

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

3545

5565

Jan 2014: 56.30

Growth

Contraction

The Laird Report Feb 08, 2014 Page 15

US Consumption Indicators

Variations in consumer activity are a leading indicator of thestrength of the economy. We track consumer sentiment (their expec-

tations about the future), consumer loan activity (indicator of newpurchase activity), and new orders and sales of consumer goods.

U. Michigan: Consumer Sentiment

Inde

x 19

66 Q

1 =

100

5060

7080

9011

0

median: 88.40Jan 2014: 81.20

Consumer Loans (All banks)

YoY

% C

hang

e

010

2030

median: 7.16Dec 2013: 2.37

AccountingChange

Deliquency Rate on Consumer Loans

Per

cent

2.5

3.0

3.5

4.0

4.5 median: 3.49

2013 Q3: 2.40

New Orders: Durable Consumer Goods

YoY

% C

hang

e

−30

−10

1030

median: 3.84Dec 2013: 5.85

New Orders: Non−durable Consumer Goods

YoY

% C

hang

e

−20

010

20

median: 3.96Dec 2013: 0.90

Personal Consumption & Housing Index

Inde

x

−0.

40.

00.

2

median: 0.02Dec 2013: −0.15above ave growth

below ave growth

Light Cars and Trucks Sales

Mill

ions

of U

nits

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

1012

1416

1820

22

median: 14.71Dec 2013: 15.30

Personal Saving Rate

Per

cent

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

24

68

10

median: 5.50Dec 2013: 3.90

Real Retail and Food Services Sales

YoY

% C

hang

e

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−10

−5

05

median: 2.52Dec 2013: 2.54

The Laird Report Feb 08, 2014 Page 16

US Housing

Housing construction is only about 5-8% of the US economy, how-ever a house is typically the largest asset owned by a household. Sincepersonal consumption is about 70% of the US economy and house val-ues directly impact household wealth, housing is an important indicatorin the health of the overall economy. In particular, housing investment

was an important driver of the economy getting out of the last fewrecessions (though not this one so far). Here we track housing pricesand especially indicators which show the current state of the housingmarket.

20 City Housing Prices: 1991 − present

Atlanta

Boston

Charlotte

Chicago Cleveland

Dallas

Denver

Detroit

Las Vegas

Los Angeles

Miami

Minneapolis

New York

Phoenix

Portland

San Diego

San Francisco

Seattle

Tampa

WASHINGTON

Lowest value (1991−)

Highest value (1991−)

Current Value (Nov 2013)

Bubble Peak (Jan 2007)

New Housing Units Permits Authorized

Mill

ions

of U

nits

0.5

1.0

1.5

2.0

2.5

median: 1.36Dec 2013: 0.99

New Home Median Sale Price

Sal

e P

rice

$000

's

100

150

200

250

Dec 2013: 270.20

15 20 25 30 35

150

200

250

300

Disposable Income Per Capita (000's)

New

Hom

e P

rice

(000

's)

(Real) Personal Income vs. Housing Prices

Dec 2013

r2 : 88.9%Range: Jan 1963 − Dec 2013

New Homes: Median Months on the Market

Mon

ths

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

46

810

1214 median: 5.00

Dec 2013: 3.20

US Monthly Supply of Homes

Mon

ths

Sup

ply

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

46

810

12 median: 6.00Dec 2013: 5.00

The Laird Report Feb 08, 2014 Page 17

Global Business Indicators

Global PMI Reports

The Purchasing Managers’ Index (PMI) is an indicator reflectingpurchasing managers’ acquisition of goods and services. An index read-ing of 50.0 means that business conditions are unchanged, a numberover 50.0 indicates an improvement while anything below 50.0 suggests

a decline. The further away from 50.0 the index is, the stronger thechange over the month. The chart at the bottom shows a moving av-erage of a number of PMI’s, along with standard deviation bands toshow a global average.

Global PMI − January 2014

<40.0 42.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0 >60.0

Steady ExpandingContracting

Eurozone54.0

Global PMI52.9

TWN55.5MEX

54.0

KOR50.9

JPN56.6

VNM52.1

IDN51.0

ZAF50.3

AUS46.7

BRA50.8

CAN51.7

CHN49.5

IND51.4

RUS48.0

SAU59.7

USA53.7

Global PMI Monthly Change

<−5.0 −4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0

PMI Change ImprovingDeteriorating

Eurozone1.3

Global PMI−0.4

TWN0.3MEX

1.4

KOR0.1

JPN1.4

VNM0.3

IDN0.1

ZAF−0.2

AUS−0.9

BRA 0.3

CAN−1.8

CHN−1.0

IND 0.7

RUS−0.8

SAU 1.0

USA−1.3

Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia

04 05 06 07 08 09 10 11 12 13 14

3040

5060

70

3040

5060

70

Business Conditions Contracting

Business Conditions Expanding

The Laird Report Feb 08, 2014 Page 18

Global Trade Indicators

The BDI is often described as a leading indicator of economic ac-tivity; it’s offered as evidence that global manufacturers are re-stockingon material inventories. However, the BDI is highly volatile, and de-pendent on the available shipping capacity as well as demand. If thereare 50 ships and only enough bulk cargoes to fill 49 of them, shippingrates can fall by 20%. If 51 cargoes are competing for the same ships,rates can rise 20%. So a 4% change in demand can cause a 40% change

in shipping costs.While the BDI measures bulk cargo transport - ore, crude oil, coal,

grain, etc. HARPEX measures container transport - electronics fromTaiwan, toys from China, textiles from Italy, etc. The HARPEX is agood indicator of global consumer activity and in a high value-addedconversion economy like the US, it is a critical indicator.

Global Shipping Indices

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

2000

6000

1000

0

Bal

tic S

hipp

ing

Inde

x

400

600

800

HA

RP

EX

Inde

x

Shipping Demand Exceeds SupplyShipping Supply Exceeds Demand

Germany − Exports

YoY

% C

hang

e

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−40

−20

020

40

median: 7.492013 Q3: −1.10

South Korea − Exports

YoY

% C

hang

e

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−40

−20

020

40

median: 16.772013 Q3: −0.34

Japan − Exports

YoY

% C

hang

e

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−40

−20

020

40

median: 5.962013 Q3: 14.54

The Laird Report Feb 08, 2014 Page 19

Canadian Indicators

Unemployment rate

Per

cent

67

89

1011 median: 7.40

Jan 2014: 7.00

Permits issued for Dwelling

YoY

Per

cent

Cha

nge

−50

050

100

Jan 2014: NA

Retail Sales

YoY

Per

cent

Cha

nge

−5

05

10

median: 4.30Nov 2013: 5.48

Inflation rate

YoY

Per

cent

Cha

nge

in C

PI

−1

01

23

45

median: 1.68Dec 2013: 1.15

Consumer Confidence

6070

8090

100

median: 94.60Jan 2014: 80.70

Housing Prices

YoY

Per

cent

Cha

nge

−5

05

1015 median: 1.87

Nov 2013: 1.19

Money Supply (M2)

YoY

Per

cent

Cha

nge

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

05

1015 median: 5.88

Dec 2013: 6.81

PMI: Manufacturing

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

4050

6070

median: 56.70Jan 2014: 51.70

Retail Sales Performance

YoY

Per

cent

Cha

nge

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−5

05

10

median: 4.30Nov 2013: 5.48

The Laird Report Feb 08, 2014 Page 20

European Indicators

Unemployment Rates

Per

cent

age

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

05

1015

20

Business Employment Expectations

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−40

−20

010

Volume of Retail Sales (ex−cars)

Inde

x (J

an 2

010

= 1

00)

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

6070

8090

110

130

Manufacturing Turnover

Inde

x (J

an 2

010

= 1

00)

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

6070

8090

110

130

Building Permits

Inde

x (J

an 2

010

= 1

00)

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

010

020

030

040

050

0

Industrial Orderbook Levels

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−60

−40

−20

020

Country EmploymentExpecta-

tions

Unempl.(%)

Bond Yields(%)

RetailTurnover

ManufacturingTurnover

BuildingPermits

IndustryOrderbook

PMI

Series Dates Jan 2014 Dec 2013 Jan 2014 Dec 2013 Dec 2013 Dec 2013 Jan 2014 Jan 2014� France -14.3 10.8 2.33 103.5 109.4 77.44 -20.6 49.3� Germany 1.5 5.1 1.8 99 111.9 131.21 -9.3 56.5� United Kingdom 12.1 7.2 2.5 103.99 102.39 NA 3.1 56.7� Italy -8.4 12.7 4.11 92.27 98.66 NA -26.9 53.1� Greece -7.3 27.8 8.66 73.77 98.72 17.9 -32 51.2� Spain -3.3 25.8 4.13 79.7 99.99 47.07 -16.4 52.2� Eurozone -2 10.7 3.02 97.68 109.11 NA -15.2 NA

The Laird Report Feb 08, 2014 Page 21

Government Bond YieldsLo

ng T

erm

Yie

lds

%

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

02

46

810

Economic Sentiment

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

6070

8090

110

130

Consumer Confidence

Inde

x

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−10

0−

60−

200

20Production of Total Industry: Nov 2013

<−10.0%−7.5%−5.0%−2.5% 0.0% 2.5% 5.0% 7.5%>10.0%

YoY % Difference increasingdecreasing

AUT−0.8%

DEU 4.8%

ESP 2.6%

FIN−1.4%

FRA 1.5%

GBR 2.5%

GRC−5.1%

HUN 6.0%

IRL12.8%

ITA 0.9%

NOR−1.9%

POL 4.4%

RUS−0.7%

SWE−6.5%

Inflation: Dec 2013

AUT 1.9%

DEU 1.4%

ESP 0.3%

FIN 1.6%

FRA 0.7%

GBR 2.0%

GRC−1.7%

HUN 0.4%

IRL 0.2%

ITA 0.7%

NOR 2.0%

POL 0.7%

SWE 0.1%

<−1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% >7.0%

YoY % Change in Prices

PMI: January 2014

<40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0>60.0

Steady ExpandingContracting

BRA50.8

CAN51.7

DEU56.5

ESP52.2

FRA49.3

GBR56.7

GRC51.2

IRL52.8

ITA53.1

MEX54.0

POL55.4

SAU59.7

TUR52.7

USA53.7

PMI Change: Dec − Jan

<−5.0−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0

PMI Change ImprovingDeteriorating

CAN−1.8

DEU 2.2

ESP 1.4

FRA 2.3

GBR−0.6

GRC 1.6

IRL−0.7

ITA−0.2

POL 2.2

TUR−0.8

USA−1.3

The Laird Report Feb 08, 2014 Page 22

Chinese Indicators

Tracking the Chinese economy is a tricky. As reported in the Finan-cial Times, Premier Li Keqiang, confided to US officials in 2007 thatgross domestic product was “man made” and “for reference only”. In-stead, he suggested that it was much more useful to focus on three alter-native indicators: electricity consumption, rail cargo volumes and bank

lending (still tracking down that last one). We also include the PMI- which is an official version put out by the Chinese government anddiffers slightly from an HSBC version. Finally we include the ShanghaiComposite Index as a measure of stock performance.

Manufacturing PMI

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

4045

5055

60

Jan 2014: 49.50

Shanghai Composite Index

Inde

x V

alue

(M

onth

ly H

igh/

Low

)

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

1000

2000

3000

4000

5000

6000

Jan 2014: 2033.08

Electricity Usage

100

Mill

ion

KW

H (

log

scal

e)

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

1000

2000

3000

5000

Dec 2013: 4780.00

Consumer Confidence Index

Inde

x

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

9810

010

210

410

610

8

median: 102.75Dec 2013: 102.30

Exports

YoY

Per

cent

Cha

nge

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

−20

020

4060

80

median: 20.30Dec 2013: 4.30

Retail Sales Change

YoY

Per

cent

Cha

nge

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

1015

20

median: 13.20Dec 2013: 13.60

The Laird Report Feb 08, 2014 Page 23

Global Climate Change

Temperature and precipitation data are taken from the US NationalClimatic Data Center and presented as the average monthly anomalyfor the previous 6 months from December 2013. Anomalies are defined

as the difference from the average value over the period from 1961-1990for precipitation and 1971-2000 for temperature.

Trailing 6 month Temperature Anomalies from December 2013

<−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 >4.0

Anomalies in Celcius WarmerCooler Anomalies in Celcius

−4 −2 0 2 4

Trailing 6 month Precipitation Anomalies from December 2013

<−40.0 −30.0 −20.0 −10.0 0.0 10.0 20.0 30.0 >40.0

Anomalies in millimeters WetterDrier Anomalies in millimeters

−40 −20 0 20 40

The Laird Report Feb 08, 2014 Page 24