Economic OutlookEconomic Outlook forfor

2014 and BeyondMike PeQueen CFA CFP

2014 and BeyondMike PeQueen, CFA, CFP

HighTower Las Vegas2360 Corporate Circle, Suite 160

Henderson, NV 89074(702)567-5100

Global Macro ThemesChina Slower Growth & ReformUS Energy BoomUS Energy BoomUS Recovery ContinuesEurope Fragile RecoveryEurope Fragile RecoveryJapan Reflation ExperimentE i M k t U d PEmerging Markets Under PressureStronger Dollar

2

As the World Turns

3

Real GDP GrowthReal GDP Growth2013 A 2014 E 2015 E2013 A 2014 E 2015 E

ChinaUS

7.61 7

7.52 6

7.23 0US

BrazilCanada

1.72.51.7

2.62.52.3

3.02.92.5

UKGermanyJ

1.40.5

2.31.7

2.31.75

JapanEuro AreaSpain

1.9-0.41 3

1.551.0

0 45

1.21.41 1Spain

GreeceSource: Bloomberg

4

-1.3-4.0

0.45-0.35

1.11.4

2014 Y E d F t2014 Year End Forecasts

Current YE2014US 10 Year T-Note 2 7% 4 0%US 10 Year T NoteUS Unemployment

2.7%7.3%

4.0%7.0%

Euro – US DollarUS Dollar – Japanese Yen

1.3498

1.25108US Dollar Japanese Yen

British Pound – US DollarUS Dollar – Swiss Franc

981.610 92

1081.561.04

5

US Dollar Swiss FrancSource: BAML RIC Report

0.92 1.04

China

Slower GrowthSlower GrowthMarket – Oriented Reforms

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US E BUS Energy Boom

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King DollarKing Dollar

Abe’s Weak Yen PolicyWh t It T k P li E+ Whatever-It-Takes Policy Europe

+ EM Slower Growth Era+ US Energy Boom+ 2014 Fed Tapering+ 2014 Fed Tapering

Stronger US Dollar8

US Macro ThemesUS Macro Themes

Energy BoomFed Tapering p gImproving EmploymentHousing Recoveryg yConsumer Deleveraging Almost CompleteState / Local Government SpendingLow InflationMid-Term ElectionsI i B d t D fi it

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Improving Budget DeficitCorporate Financial Actions

US E BUS Energy Boom

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US Natural Gas Production

11

12

Employment Improvement

13

H i RHousing Recovery

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Deleveraging Over?Deleveraging Over?Household debt as a % of total assets

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Source: US Federal Reserve

H h ld d bt i tHousehold debt service costs

16

Source: US Federal Reserve

US Household Net Worth

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Source: US Federal Reserve

US Household balance sheet

Assets $83.7 trillion Liabilities $13.4 trillion

Real Estate $20.7 trillionFinancial $57.7 trillionDurable goods $4.9 trillion

Mortgage debt $9.4 trillionConsumer credit $2.8 trillionOther $1.2 trilliong

Other $.04 trillion

Net worth $70.3 trillion

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Source: US Federal Reserve Q1-2013

Municipal Revenue

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Source: Lord Abbett

Low Inflation

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Health Care Costs

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China’s Impact on US InflationChina’s Slower Growth =

Lower Commodity Prices =Lower Commodity Prices =Lower US Inflation =

Stronger US Purchasing Power =Stronger US Economy =g y

22

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US B d t D fi itUS Budget Deficit

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Corporate Financial ActionsHigh Cash Level

+ Low Growth+ Low Growth+ Shareholder Activism

M&ABuybacksyDividend Increases

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R d fi i Ri kRedefining RiskCDS 5-Year Spreads

Exxon 10 Germany 23UK 28

Merck 10

Disney 13

UK 28US 31Switzerland 34Disney 13

Johnson & Johnson 17Japan 54France 58S i 182Google 22

Wal-Mart 22

Spain 182Italy 205Greece 736

Source: Bloomberg

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Greece 736

Great Rotation 2nd InningMutual Fund Flows June – Sept 2013 ($B)p ($ )

Domestic International Bond Money MarketEquity

y(1.6) 36.9 (117.3) 75.0

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Our ViewUS DollarUS StocksUS StocksGoldCommoditiesBondsEmerging Markets Equities

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How Are Family Offices Allocated?Allocated?

Equities 25%Equities 25%Fixed Income 17%Less Liquid / Alternatives 19%C h 39%Cash 39%

100%

Average Expected Return 8%More likely 4.4%

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Source: Citi Private Bank

The Dollar Rises

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“If we are in a bubble, it’s the weirdest bubble I have ever seen, where

everybody hates everything.”everybody hates everything.

- Mark Andreesen

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Asset Allocation Inflection PointInflection Point

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Thank YouMik P Q CFA CFPMike PeQueen, CFA, CFP

Managing Director, Partner2360 Corporate Circle, Suite 160

Henderson, NV 89074(702)567-5100

www.hightowerlasvegas.comMPeQueen@HighTowerAdvisors.com