Onshore Energy Conference — Dubai Onshore Energy Conference — Dubai 02 | Page 45

THE P H REPORT
Chart 5 confirms they have spared no
effort to achieve their purpose. This looks
at the impact in terms of S&P 500 gains
and the rise in New York Stock Exchange
(NYSE) margin debt (money borrowed to
buy stocks), by comparison with the post-
1982 and post-2002 US stock market rallies
(based on inflation-adjusted data for both
from Prof Robert Shiller):
This comparison highlights the
2. US auto and housing markets
appear close to a downturn
Auto sales and housing starts are the
backbone of the US economy. As chart 6
shows, they are also very closely linked in
terms of their cycles, with housing starts
typically bottoming around a year after
auto sales. Not all peaks turn immediately
into downturns, of course, but downturns
are typically very sharp when they occur:
 Mid-1970s. Auto sales fell 23%
and housing starts fell 58%
from peak to trough
 Early 1980s. Autos fell 32%
and housing fell 45%
 Early 1990s. Autos fell 23%
and housing fell 46%
 Mid-2000s. Autos fell 39%
and housing fell 73%
▼ Chart 5
The increase in
margin has been
critical to S&P
500 performance
since 2009
S&P 500 GAIN IN POINTS
v MARGIN INCREASE ($2016bn)
1982–2000 ; 2003–2008; 2009–TO DATE
2000
1800
400
S&P GROWTH IN POINTS
MARGIN GROWTH $BN
Source: The pH Report,
NYSE, Prof Robert Shiller
350
1600
300
250
1200
200
1000
150
800
100
600
AR
1400
They are both also critical to the wider
economy. Chart 7 highlights how the auto
industry in particular has been critical to
the recovery in sales and GDP since 2009:
 R
 etail sales have risen from being 24.8%
of GDP in 2009 to 27.7% in 2016
Auto sales have risen from 3.4% to 5.2%

of GDP over the same period
50
400
0
200
-50
0
▼ Chart 6
US housing and
auto sales are
closely linked
The increase in auto sales contributed
nearly two-thirds of the increase in
retail’s share of GDP. And in a consumer-
led economy such as the US, where
US LIGHT VEHICLES SALES & HOUSING STARTS
1973 – 2016
20
2.5
18
2.0
14
AUTO SALES
12
1.5
10
8
1.0
HOUSING STARTS
6
4
0.5
2
Source: The pH Report, US Census Bureau, Federal Reserve of St Louis (FRED)
0.0
0
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extraordinary nature of the current rally. It
has risen by nearly as much in 7 years, as
in the 18 years between 1982 – 2000. It has
also been supported by almost the same
increase in margin debt.
This data confirms the Fed’s success
in meeting its policy objective of a major
stock market rally. But is also suggests
that it would be unrealistic to expect a
further Reagan-era type rally to occur
without at least a pause in the pace of gains.
It is easily forgotten, after all, that the
S&P actually fell by around 25% between
Reagan’s Inauguration in January 1980 and
the start of the August 1982 rally. Trump,
as an experienced CEO, is also likely to
prefer to clear the decks with a downturn
early in his Presidency. He can then hope
that a new rally to be underway by 2020 as
he prepares for the re-election battle.
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