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8/9/2019 Broyhill Mid Year Outlook (Jun-10)
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Mid YearInvestment Strategy
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CONFIDENTIALINFORM
ATION
Mid Year Outlook Conference Call
Conference Dial-In Number: (218) 339-3600
Participant Access Code: 722682#
Conference Playback Number: (218) 339-3699
Access Code: 722682#
Wednesday, June 30th, 2010
The call will begin promptly at 11:00AM EDT
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EconomicOutlook
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CONFIDENTIALINFORM
ATION
Consensus Already Pricing V-Shaped Recovery
Source: Hussman Funds
Economic Outlook | 4
Rose coloredglasses?
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ATION
Expectations Are Irrationally Exuberant
Economic Outlook | 5
The economy -- supported by stimulative monetary policy and the concerted
efforts of policymakers to stabilize the financial system -- appears to be ontrack to continue to expand through this year and next.
The latest economic projections of Federal Reserve Governors and Reserve
Bank presidents anticipate that real gross domestic product (GDP) will grow
in the neighborhood of 3-1/2 percent over the course of 2010 as a whole andat a somewhat faster pace next year.
-Federal Reserve Chairman Ben Bernankes Testimony,Before the U.S. House of Representatives Budget Committee, June 9 2010
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CONFIDENTIALINFORMATION
Where Have We Heard This Before?
Economic Outlook | 6
The impact on the broader economy and financial markets of the problems
in the subprime market seems likely to be contained.
-Federal Reserve Chairman Ben Bernanke
Testimony to Joint Economic Committee, March 2007
The U.S. economy appears likely to expand at a moderate pace over the
second half of 2007, with growth then strengthening a bit in 2008 to a rateclose to the economys underlying trend.
-Federal Reserve Chairman Ben BernankeSemi-Annual Testimony to Congress, July 2007
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The Hostess Twinkie Recovery
Economic Outlook | 7
Source: Saint Louis Federal Reserve
Unsustainable
deficit spending
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Leading Indicators are Rolling . . .
Economic Outlook | 8
Source: Gluskin Sheff
Back in recessionterritory
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Rolling . . .
Economic Outlook | 9
Source: Pragmatic Capitalism
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Rolling.
Economic Outlook | 10
Source: Pragmatic Capitalism
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Amidst A Number of Disturbing Developments:
Economic Outlook | 11
Second wave of mortgage resets and domestic credit strains
Eurozone contagion and sovereign debt concerns
Global credit conditions rapidly deteriorating
Consequences of Deepwater Horizon spill
Tensions between North and South Korea
German ban on short selling Australias 40% mining tax
Australia housing bubble
Chinese property bubble
European bank failures
US financial regulation
Rising correlations
Thailand riots
Flash crash?
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CONFIDENTIALINFORMATION
The Second Wave
Economic Outlook | 12
Source: Credit Suisse
Mountain ofadjustable resets
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Problem Children
Economic Outlook | 13
Source: Der Spiegel
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Global Markets Are Interconnected
Economic Outlook | 14
Source: BIS Quarterly Review, June 2010
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CONFIDENTIALINFORMATION
Economic Outlook | 15
Too Big to Bail
Source: JPMorgan
180%
83%
237%
84%101% 103%
155%
92%
594%
337%
56%
0%
100%
200%
300%
400%
500%
600%
700% Top 25 Global Banks: Total Assets to Home Country GDP
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Eurozone Liquidity
Economic Outlook | 16
Source: Hedgeye Risk Management
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MATION
Economic Outlook | 17
Double Trouble
Chinese Property Value/DisposableIncome Per Urban Household
Long Term Real House Prices
Source: GMO, Steve Keens Debtwatch
Is this abubble?
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InvestmentImplications
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MATION
Our Investment Process
Macro
Global Macro is critical to understanding capital markets.
Valuation
Fundamental Valuedrives long term returns.
Sentiment
Market Actioncomplements long term value.
PortfolioConstruction
Disciplined Portfolio Constructionis vital to consistent alpha.
Investment Implications | 19
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MATION
Its A Whole Different World Out There!
Investment Implications | 20
2009
Cash is Trash
Reflation
Rebound in LEI
Beta Outperformance
Declining Volatility
Rising Interest Rates
Steepening Yield Curve
2010
Cash is King
Deflation
Declining LEI
Quality Outperformance
Increasing Volatility
Declining Interest Rates
Flattening Yield Curve
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MATION
Investors Should Own Quality
Source: GMO 7-Year Asset Class Return Forecasts
Investment Implications | 21
1.9%
-0.6%
7.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
U.S. Equities (Large Cap) U.S. Equities (Small Cap) U.S. High Quality
AnnualRealReturnOver7years
Projected Annual Real Return Over 7 years
6.5% Long-TermHistorical U.S. Equity
Above averagereturns from low
risk equities.
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MATION
34.5%
15.8%
1.2%
-14.3%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Early Expansion Late Expansion Early Contraction Late Contraction
Annualized Equity Returns During Market-Cylce Phase (L)
EquityValuation
FirmValuation
Profitability
Beta
After a Peak in Leading Indicators . . .
Source: ISI Portfolio Strategy
Investment Implications | 22
You arehere!!
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MATION
While The Cycle Looks Grim.
Source: Hussman Funds
Investment Implications | 23
We are entering the worst twoquarters of the cycle, where
returns have been dramaticallyworse than indicated here
when starting from stretched
valuations, as we see today.
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MATION
Inflation Is Public Enemy Number One . . .
Source: Saint Louis Federal Reserve
Investment Implications | 24
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But Deflation Is The Greater Evil Today!
Source: ShadowStats.com
Investment Implications | 25
The inflationistas are focusing solely on the increasein the monetary base, which tells us nothing if
money is not moving through the system!!
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MATION
Core CPI Remains at Lowest Level Since 1966 . . .
Source: Bespoke Group
Investment Implications | 26
Dnde estinflation?
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MATION
Bond Yields Follow Inflation Lower . . .
Source: Hoisington Investment Management
Investment Implications | 27
Long term treasuryrates fell to 1.9% in 1941
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MATION
So Should Commodities . . .
Source: Gluskin Sheff
Investment Implications | 28
China is the second worstperforming equity market on
the planet year-to-date(between Greece and Spain).
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MATION
And Commodity Currencies.
Source: Decision Point
Investment Implications | 29
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Dont Discount The AlmightyBuck!!
Investment Implications | 30
Fiat currencies are engaged in adangerous game of competitivedevaluation. History warns that
this will not end well, but theGreenback is still the tallest
midget in the room . . . for now.
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MATION
Gold Is Not a Bubble . . . Yet!
Source: Clusterstock
389%
463%
467%
529%
665%
882%
954%
1241%
1317%
1324%
0% 200% 400% 600% 800% 1000% 1200% 1400%
Gold
Nikkei
Japan Land Prices*
Dow Transports
Hang Seng
WTI
Homebuilding Index
Bond Prices
S&P 500
Nasdaq
Prior Secular Bull Markets(Trough-to-Peak Percent Change)
Investment Implications | 31
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MATION
Broyhills Bottom Line
Investment Implications | 32
Buckle your seatbelts kids. We are headed for a bumpy ride ahead. We arepositioned accordingly, as the Great Recovery appears to be a big fat
D.U.D.D.
Double Dip in the economy and in domestic home prices as we pass thepeak effects of monetary policy and fiscal stimulus at the same time the
inventory bounce begins to fade ahead of major tax increases next year.
Unemployment is structural in nature and rises on average for five yearsfollowing systemic banking crises. The boost from census hiring is nowin the rear view mirror.
Debt levels across the private and public sectors have reached a choking
point, in which greater levels of debt act as larger and larger speed bumpsfor economic growth.
Deflation in asset prices (particularly from todays overvalued levels) isthe result of private sector deleveraging, which leads to distressed selling,a loss of confidence and a further contraction in the velocity of money.
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MATION
Contact Information
Broyhill Asset Management
800 Golfview ParkPost Office Box 500Lenoir, NC 28645
Phone: 828 758 6100Fax: 828 758 8919
For more information please contact:
Mr. Christopher R. Pavese, [email protected]
Contact Information | 33
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MATION
Disclosures
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
This material has been prepared solely for the purposes of illustration and discussion. Broyhill Asset Management is the marketing namefor the investment management business conducted by Broyhill Asset Management, LLC. and its affiliates. Broyhill Asset Management, LLCis an SEC Registered Investment Advisor. Private investment vehicles are offered through Broyhill Wakin General Partners LLC, SuretyCapital Management LLC, and Broyhill Strategic Partners LLC, and are only offered by delivery of confidential offering memorandum andsubscription materials to eligible investors who meet certain statutory and/or regulatory criteria. Each General Partner is a separate legalentity and is affiliated with Broyhill Asset Management, LLC through common ownership and control.
Under no circumstances should the information contained herein be used or considered as an offer to sell, or solicitation of an offer to buyany security. Any security offering is subject to certain investor eligibility criteria as detailed in the applicable offering documents. The
information contained herein is confidential and may not be reproduced or circulated in whole or in part. The information is in summaryform for convenience of presentation, it is not complete and should not be relied upon as such.
Any information, data, statement, opinions, or projections made herein may contain certain forward looking statements, projections, andinformation that are based on the beliefs of Broyhill Asset Management as well as assumptions made by, and information currently availableto, Broyhill Asset Management. Such statements reflect the view of Broyhill Asset Management with respect to future events and are subjectto certain risks, uncertainties and assumptions (including, but not limited to, changes in general economic and business conditions, interestrate and securities market fluctuations, competition from within and without the investment industry, new products and services in theinvestment industry, changes in customer profiles, and changes in laws and regulations applicable to Broyhill Asset Management). Shouldone or more of these other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may varymaterially from those described herein.
All information, including performance information, has been prepared in good faith; there are no representations or warranty expresses orimplied, as to the accuracy or completeness, of the information, and nothing herein shall be relied upon as a promise or representation as tothe past or future performance. This material may include information that is based, in part or in full, on hypothetical assumptions, models,and/or other analysis (which may not necessarily be described herein), no representations or warranty is made as to the reasonableness ofany such assumptions, models, or analysis. The information set forth herein was gathered from various sources which are believed, but notguaranteed, to be reliable. Unless stated otherwise, any opinions expressed herein are current as of the date hereof and are subject to changeat any time. Accordingly, neither Broyhill Asset Management not its principals or affiliates make any representations as to the timeliness ofany information in this presentation.
Disclosures| 34