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MORNING EDITION | June 16, 2014 Was this newsletter forwarded to you? SUBSCRIBE NOW

Cross-Asset Foreign Exchange Fixed Income Equities Commodities

USD/PLN USD/PLN German Eur-BUXL China SHCOMP Copper

Saudi Arabia TRY/CHF UST 2-Year Saudi Arabia Brent Crude Oil

*Highlights the largest positive and negative risk-adjusted returns overnight.

Down Day Pre-FOMC Associated with Tougher Language…Crude Oil Down $2-3 at Some Point

China – Longs Continue to Build Iraq – Relying on Iran to Vanquish Evil Our View – Remain Cautious to Slightly Short the Equity Index Model Portfolio Updates: Long Copper (add), XLF/XLU update, Long USD/CAD (new) Model Portfolio Performance: -0.04% WTD, +0.21% MTD, +1.88% YTD

Overnight Firstly, China International Capital Corp (CICC) said that USD 600 million of capital flowed into the equity markets in Shanghai and Hong Kong during the week of June 11th, the fastest inflow since October 2013. The Citigroup Economic Surprise Index for China (symbol: CESICNY) also closed positive last Friday for the 22nd day in row and after clawing back over +100 points in June alone is close to trading in positive territory at the index level. At least for the first few hours of Monday, these themes have carried over into this week. The Shanghai Stock Exchange Composite Index (symbol: SHCOMP) is showing the largest positive risk-adjusted return in Equities. It was well flagged that China's targeted reserve ratio requirement (RRR) cuts went into effect today. However, Minsheng Bank, Industrial Bank of China and China Merchants Bank, three banks known for having a strategy that focuses on loans for small or micro sized enterprises, have been allowed by the People's

Overnight Risk-Adjusted Return Monitor

Overnight Summary & Views

Bank of China (PBoc) to also cut their RRR’s by 50 basis points. While still considered “selective”, this move highlights that the easing measures have become a nationwide event. The RRR cuts announced so far included 80% of rural or 65% of urban banks (i.e. city commercial lenders), and that was not expected in the near term. Altogether, China’s fine-tuning adjustments are now speculated by the local press to have added a substantial CNY 550 billion into the banking system. An old school measure of China’s health, power consumption, was also released and it too was supportive to the largest driver of growth – Fixed Asset Investment (FAI). The National Energy Administration said power consumption rose 5.3% YoY to 449.2 billion kwh in May, up from +4.6% y/y in April. Power consumption in the first five months rose 5.2% YoY, unchanged from the previous four months. What is left to be done now is a preemptive response and one that explicitly aims to cancel the purchasing restrictions on real estate in second-tier and third-tier cities during the second half of 2014. As a reminder, on May 30th, prior to the "deliberate" currency reversal and the announcement of the RRR cut, Premier Li Keqiang summoned governors from eight provinces to Beijing to attend the standing committee meeting of the State Council. The sentiment is that these Governors were selected for a particular reason; to review the weak growth profile from their provinces. Additionally, the timing of this event is giving investors pause as it is shortly before the upcoming mid-year economic review by the Politburo, due either sometime by the end of this month or the first week of July. The key point here is that if monetary policy easing measures remain selective, then that means there will be additional pressure on the regional governments to generate growth in the second half of the year, including actions aimed at helping out the troubled real estate sector. We were pleased to see that the spot price of the China Large-Cap ETF (symbol: FXI) last week closed every day above our long call option strike price (i.e. Sept 37.5 calls) in the model portfolio. Since the inception of the FXI stock position on March 19th for $33.21 the price is higher by almost 15%. The option position was initiated on May 21st and if the FXI mirrors the local price action today, the premium will have more than doubled already. Our initial target remains ~$40.00 as that will close the gap back to Q4 2013. Secondly, Iraq as a new market theme is gaining wider acceptance, at least in terms of sentiment. But it is still far from causing the same degree of investor concern that the Ukrainian-Russian conflict created. The Saudi Arabian Tadawul All Share Index (symbol: SASEIDX) is showing the largest negative risk-adjusted return across regions and assets. The Turkish Lira (TRY/CHF) and Russian Ruble (RUB/CHF) relative to the Swiss Franc are showing the largest negative risk-adjusted returns across regions and assets. It has been widely reported that the Quds Force, a special unit of Iran's Revolutionary Guards and responsible for its extraterritorial operations, has been helping the Iraqis. What has not been widely reported is the number of troops (i.e. ~2000) and the fact that they sent one of their top Quds commanders in as well. It may be they just acknowledged his role, but the point is Iran is getting more involved in this conflict. Following Saturday’s order by the Commander in Chief, the George H Bush aircraft carrier, a guided-missile cruiser and a guided-missile destroyer have likely completed the movement to the Gulf from the Arabian Sea. To be fair, President Obama last Friday did not give the impression that the US would engage in this battle. Instead the order to move Navy ships into the region was more a show of force than anything else. Additionally, nothing on the Sunday talk shows changed that impression; the narrative from the White House was more on immigration reform and the media is helping to maintain that message instead of leading with Iraq.

Where does this leave us? Investors last week were doing their best to avoid trading geopolitics and did a decent job. That will be more difficult this week unless Iran is able to bring the price of Crude Oil down by $2-3. The Federal Reserve meeting this Wednesday is a clear focus. After Mark Carney said last Friday the Bank of England could hike interest rates earlier than investors expect we are sure the FOMC noticed what real verbal guidance actually looks like. The key point here is that many short-sterling futures traded more contracts than their open interest and across the entire “rainbow” volume was a record, including higher than during the GFC.

Source: Bloomberg

We expect that the data in Europe released in the next few days will be overlooked due to the policy adjustments earlier in the month by the ECB. China continues to see growth upgrades from the paid forecasting community (i.e. latest Barclays) and will likely maintain a positive profile. That leaves the Middle East. The fact that the Iranian Quds may fight the ISIS is a positive in one respect as it may stiffen the resolve of the regime, and that may lead to a bit of reprieve in Oil prices or a greater defense of the crucial Basra oil fields. The US airlifted most Americans out of Iraq last week, and the reality is we are going to try and stay out of the region as far as possible. The irony is US investors are now betting on Iran to vanquish evil, and do their fighting for them, and that will keep risk assets on the back foot to start the week.

Our View Last week we learned that as a result of the front-end of the European sovereign interest rate curve now having a lower yield than that of Japan's, the process of moving the funding leg of the "carry trade" from the Japanese Yen (JPY) into the Euro (EUR) has accelerated. This was most visible through the weakness in the global barometer for risk - the Euro-Yen (EUR/JPY). This week has already started with similar trends to those seen last week. The Japanese Yen is stronger relative to all ten of the G10 and all 24 of the Emerging Markets currency crosses. The question now is whether US Dollar strength will accelerate following the Federal Reserve meeting. If the answer is yes, than that will only embolden the transition of the carry trade further as the Euro will buckle under the weight of both the rising Japanese Yen and US Dollar. The key point here is that, if it is not already so, then EM will become the consensus ECB carry trade. In this vein, we feel it was only prudent to build on our long US Dollar view. Last Friday, the model portfolio bought Dollar-Canada (USD/CAD). We have detailed below why we chose this currency cross. We realize that a lot of our view is based on Dollar strength, but the following observations from last week are worth noting. The asymmetry highlighted above in the UK Sterling futures contracts is difficult to ignore. While no one is calling for a move like that seen in US Eurodollar futures following the FOMC, and the probability is less than 25%, we cannot get the idea out of heads that a surprise is in store. Since this will symbolically mark a cross-over of a 50% reduction in the taper we are specifically concerned about an announcement that accelerates the reduction in Fed bond buying (i.e. 15 bln a month up from 10 bln). The other observation is about positioning. It is not wise to believe that just because the Bank of England has now turned hawkish, that the Fed will take the next step towards lifting interest rates. Additionally, the desire by the Fed to be disruptive, as it was last June, is low right now. The problem with this view is that the employment profile and many growth indicators, excluding the GDP data, provide some degree of support for a minor step-change in forward guidance. We are not sure how to interpret this tweet or whether it was a mea culpa. But after 3-year US Treasuries closed at a new high yield on the weekly chart and the fact that PIMCO announced that they increased their bond holdings to 50% from 40% in May we are led to believe it is closer to the latter. Tweet: PIMCO (@PIMCO) 6/13/14, 10:10 AM Crescenzi: FOMC preview: Unemployment drop & faster inflation sustain rate hike timeline, but neutral policy rate view to move lower soon. As a reminder, Tony Crescenzi is an executive vice president, market strategist, portfolio manager, and a member of the Investment Committee at PIMCO. The fact that he is backing off rate hikes starting later than the Fed forecast and leaning more on long-term Fed Funds now suggests they are concerned about their long position in the front-end of the interest rates curve. We would be too if we were in their shoes.

Collectively this would be our biggest concern for risk assets: A transition from Japanese Yen and US Dollar to Euro as the funding leg for the Emerging Market carry trade and a surprise by the FOMC that brings forward rate hike expectations and acceleration in the tapering pace. If someone was looking for volatility to rebound in the short-term these are good catalysts for that to happen. At the very least, expectation of a down day associated with tougher language is not unreasonable before the FOMC meeting. Add in the concerns over Iraq and Crude Oil, and our bias is to hold (and possibly add) to our NASDAQ index short, especially if Iran provides Crude Oil $2-3 dollars of relief lower at some point this week and it is rejected by risk assets. Model Portfolio Firstly, during the Thursday night session (Trade Date Friday), the model portfolio bought 100 July Copper (HGN4) for 301.00. This was the limit order placed on June 6th per Sight Beyond Sight to add to the existing position. We are now long 200 futures contracts of copper for an average price of 302.10. The update was sent via Twitter early Friday morning.

Secondly, it is prudent to provide an update/explanation on the long US Financials (XLF) versus short Utilities (XLU) relative value strategy. As a reminder, we added this position on Friday, June 6th. Despite the XLF outperforming the XLU last week by more than 2.7% at one point we were not able to capture any positive PnL and in fact lost money. This resulted from the portfolio construction of being long $20mm XLF vs. short $10mm XLU. The 2:1 ratio does not work when both sectors end up negative on the week. If you were sufficiently smarter than us to add this as a 1:1 ratio, we are pleased to see you get a head start on us. Otherwise, we will look for a medium term divergence, where the Financial sector goes up and Utilities go down, and we want the “convexity” to be to the upside and higher interest rates. Finally, on Friday, the model portfolio bought $10 million Dollar-Canada (USD/CAD) for 1.0866. A loose stop on a close below 108.20 will be used for now. The update was sent in real time via Twitter. The short Canadian Dollar theme developed in the fourth quarter of last year continues to be based on the following macro framework:

1. The Bank of Canada and the Federal Reserve are getting further apart in their policies.

2. The Bank of Canada is historically proactive; Stephen Poloz is a disciple of his predecessor, Governor Mark Carney.

3. The Harper Government supports a lower currency in order to strengthen Canada’s balance sheet.

4. The Canadian economy is heavily dependent on energy prices; rising US production puts its terms of trade at great risk over the medium term as does constitutional reform in Mexico for foreign oil revenue sharing.

Last Friday, following the surprise election result in Ontario, where the Liberals won a majority, it quickly became apparent that Kathleen Wynne had made her case for a renewed Liberal mandate by promising a “fiscally responsible but progressive government”. (Article) Since then investors have started to worry that the Ontario elections will eventually lead to a credit rating downgrade for the province.

Aubrey Basdeo, head of Canadian fixed-income in Toronto at BlackRock Inc., the world’s biggest money manager, said: “We’re on high alert that S&P will downgrade Ontario; she’s front-loading the deficit or the total debt in anticipation future years will benefit from stronger growth. They’re just looking at the raw numbers and they’re seeing a deteriorating financial balance sheet.” (Article) As a reminder, located in central Canada, Ontario is the largest province in the country, accounting for roughly ~40% of the nation’s real GDP and population in 2012. Ontario has the largest manufacturing base of all Canada's provinces and is the most highly integrated into the U.S. economy, which consumes about ~80% of its exports. For those looking to brush up on the subject further, this report by the Fraser Institute is a good starting point while we await decisions from S&P, Moody’s and DBRS. An update from the DBRS ratings agency will be very interesting as it is located in Ontario and remains the outlier. DBRS had announced it was keeping the province at AA and retaining a “stable” outlook thanks to the government’s pledge to curb spending increases. That will likely change now. Taken together, the macro framework, the Ontario elections and debt profile, and Friday’s technical entry point in USD/CAD, provided a combination of catalysts to add long USD exposure ahead of the FOMC meeting this week.

Central Bank Equity Holdings: Official Monetary and Financial Institutions Forum reports world's Central banks have increased investments into equities:

1. Finds $29.1T in investments (including gold) by 400 public sector institutions in 162 countries;

2. Public sector investment in equities has increased over $1T in recent years;

3. China State Administration of Foreign Exchange (SAFE) now largest public sector holder of equities;

4. In addition, PBoC is now directly investing in European stocks. India: Ahima Goyal, member of the RBI’s technical advisor committee (TAC), said interest rates have peaked; don't see USD/INR much beyond 60.00 handle; RBI is well on its way to achieve 8% CPI by Jan 2015. Pensions: Employees Retirement System of Texas Investment Policy May 20, 2014 Volume Dispelled: Volume not as low as people think – Notional “Dollar” & share volume up YTD through May The average daily dollar value traded YTD (through May) was $265.5b, which is an increase of 19.3% from $222.6b for the same period in 2013. Average daily consolidated notional volume was higher YoY for the months of January through April but fell 0.84% YoY in May. Average daily consolidated share volume rose 4.1% YoY through May but fell 9.5% YoY in May. Share volume dropped much more in May than dollar notional volume, which was essentially flat. Dollar volume is deemed a better representation of the true "size" of a market than share volume, which is a sum of shares without regard to price or value. (Source: BAML Monthly Chart Portfolio of Global Markets June 10, 2014)

Top Overnight Observations

Best Melt-Up Summer Trades: The macro trade is Japan...cyclical and rises when Treasury yields go up. The liquidity trades are Italy and India...they are momentum/liquidity chasing carry-trades (among top 10 YTD assets) and both have the "reform" theme. The contrarian trade is China & EM materials. (BAML – Thundering World – June 12, 2014) US Equities: Assessing The Odds Of A Summer Melt Up In U.S. Equities; Hosted By François Trahan And Michael Kantrowitz Tuesday, June 17th @ 10:30am ET. (Source: Cornerstone Macro) US Credit: We reduce further our credit OW to small on the fast growth of the asset class, tight spreads, stronger M&A activity, and concerns about liquidity during the eventual exit. We move this risk into global and EM equities and commodity roll. (JP Morgan – Loeys) China Growth Upgrade Continues: We maintain our view that sequential growth bottomed in Q1 and raise our forecast of Q2 GDP growth to 7.4%. We noted upside risks to our growth forecast on 1 June after the NBS PMI rose to a five-month high of 50.8 in May. Our revised Q2 GDP growth forecast implies a stronger pickup in sequential growth, to 7.4% q/q saar from 5.8% in Q1. We see small upside risks to our forecast of 7.2% growth in 2014. Developments in the three indicators used to compile the “Keqiang index” – new loans, electricity production and railway cargo – all point to growth bottoming in March on a 3m/3m basis. Property sales and starts also rebounded from April’s levels. (Barclays – Emerging Market Research -Jian Chang and Serena Zhou – June 13, 2014) Japan: We think stock market now in rally phase, look for Nikkei Average to top last year's high in Jul–Sep. In light of the aforementioned investment environment, we think the Nikkei Average will also continue to rally beyond the 14,000–15,000 range to date and settle in a position in the 15,000–16,000 range. Furthermore, we expect the 200-day moving average line (14,687.57 as of 6 June), which has recently come up against resistance, to function as the bottom of the price range going forward. Considering that the rally phase has arrived slightly earlier than we had anticipated, and given our expectations for further gains through the summer months, we now look for the market to rise above the end-December 2013 high (16,320.22) sometime in Jul–Sep (Figure 3). That said, we maintain our scenario for the Nikkei Average to reach a near-term target of 18,000 at end-December 2014. (Source: Nomura – Japan Strategy – June 13, 2014) Second-Half Outlook - Prepare for Change: A panel of experts who gathered in Pittsburgh on June 5th for Fidelity Inside/Out said the following: (Full write-up)

1. State Street, Michael Arone, Chief Investment Strategist

a. U.S. economy is a lot stronger than people have been giving it credit for

b. Given valuations, earnings expectations, and momentum, I think it’s a good time to be overweight risk assets. So I am overweight equities, specifically developed-market equities in the U.S., Europe, and Asia Pacific. At the same time, I am underweight emerging-market equities in Europe and Asia Pacific. From a market-cap perspective, we have reduced our small-cap holdings from overweight to underweight, and are overweight large-cap growth and value.

c. I have been anywhere between sizably underweight and neutral in all parts of the fixed income market, with the exception of long-term credit, and that’s more of a diversification tool than anything else.

2. Blackrock, Michael Frederic, Head of US Retail Asset Allocation for Portfolio Strategies

a. My team at BlackRock has been concerned about the degree of froth and risk-taking in the fixed-income landscape.

b. As I have pared back on fixed income, I have moved more into equities, particularly dividend-growth stocks and European dividend payers. We hold about 35% in equities, currently. We want to hold stocks that offer strong, growing dividends that can help our portfolio’s income keep up with inflation.

c. To offset the increased risk coming from our higher allocation to stock, I have emphasized higher-quality, longer-duration fixed income. After years of keeping duration short, over the last couple of months I started to build up a position in longer-dated investment-grade bonds.

d. I have also added preferred stocks, which carry a longer duration.

e. My fund invests in an emerging-markets high-dividend ETF. It’s only a small portion of the portfolio right now, but I am keeping a close eye on it. The yields are compelling and the dividend-growth rates are exceptional. Valuations are pretty attractive, and at some stage there will be a terrific entry point.

f. REITs have certainly done well, but by virtually every measure they look very expensive, and the yields are low compared to other segments of the income market. I think it is a great diversifier in the long run, but from a short-term tactical perspective, I don’t own them.

3. Fidelity, Matt Fruhan, Portfolio Manager (+13 bln AUM)

a. I’m finding increasing relative value among the largest market cap stocks in the equity market.

Valuations on mega-cap stocks are not expensive: The S&P 100 index of mega-cap stocks is trading at about 15 times forward earnings, a level almost 50% lower than its peak in the late 1990s. The further down in market cap you go, the more expensive prices are, despite what I would argue are worse balance sheets and lower profit margins.

b. In addition to looking at the mega caps through the sector groupings, I like to bucket these stocks into four groups based on fundamentals characteristics. The first bucket is the fast secular growth, high P/E part of the market: Amazon, Facebook, etc. Another grouping is the defensive, growth-challenged, high-payout-ratio part of the market, which includes many utilities, telecoms and certain pharma stocks. I think both these buckets, in general, are expensive on an absolute basis right now.

c. I think the most attractively valued part of the market is the third bucket, which consists of stable- or slow-growth companies with rising payout ratios. Many stocks in this category offer 2% to 3% dividend yields and 8% to 10%+ earnings growth with valuations anywhere from 13 to 16 times forward earnings. Five years into a bull market, I think a combination of earnings growth plus yield of at least 10%, at reasonable valuations, is an attractive area to invest.

d. The fourth bucket of the market is cyclicals, which includes both globally driven, infrastructure-led cyclicals and U.S. domestic cyclicals. I’ve generally avoided the infrastructure-led cyclicals for

a while now, but I do like the second, particularly financials. The financials sector is probably as healthy as it’s been in many generations. The liquidity in the banks is off the charts.

4. PIMCO, Joe Deane, ECP Head of Municipal Bond Portfolio Management

a. I think munis are inexpensive versus almost any taxable counterpart. The exception is the front

end of the muni yield curve through about five years, which is as expensive compared to Treasuries as I’ve seen in many years. The six- to 15-year part of the curve offers much more value.

b. The problems with Puerto Rico are a big deal. The island’s $71 billion of outstanding debt makes it the third-largest issuer in the United States, behind only California and New York. There were apparently 272 hedge funds that invested in Puerto Rico general obligation bonds earlier this year. Eventually somebody’s going to want to get out, and I don’t think there’s going to be much of a bid from the traditional municipal buyer base. That’s one reason we don’t own a single bond from the island.

5. Fidelity, Robin Foley, PM in Fixed Income

a. I am focused more on caution than opportunity right now. Spreads are so tight that I really want

the fund’s shareholders to be compensated for taking on incremental credit risk. Likewise, with the interest-rate outlook today, I want the shareholders to be appropriately compensated if we are extending maturities further out on the yield curve. When I buy a three- or a five-year corporate bond for a short-term bond portfolio, I want to make sure it’s one of our best ideas.

b. M&A can change a company’s debt profile, and we have seen a lot of M&A activity in some industrial sectors such as telecommunications. I would rather invest in banks, which have more capital and more levels of regulation and oversight than they had six years ago.

c. I’m also cautious on longer duration agency pass-through securities. That market’s average duration extended from three years to about five years in the early part of last year.

d. I like some niches of the commercial mortgage-backed securities market, such as multifamily-directed classes of bonds.

e. I also like the REIT sector a lot. Some of these companies were quite disciplined about their balance sheets through the crisis. And, coming out of the crisis, they have continued to work at enhancing their balance sheets and their asset portfolios. These are high-quality securities for a short-duration portfolio, and they provide diversification. Short-duration REIT bonds can be difficult to find, though, because many companies don’t issue many short-duration bonds.

Updates

Asset Class Date Strategy T/S Start/Close PX Capital at Risk (USD)

Equities 11-Jun-14 Short Nasdaq (NQM4) S 3,788.25$ -$

Commodities 13-Jun-14 Long Copper (HGN4) - Add T 301.00$ 7,525,000$

Equities 13-Jun-14 Short Nasdaq (NQU4) - Roll 1 T 3,765.30$ (9,940,392)$

Foreign Exchange 13-Jun-14 Long USD/CAD S 1.0866$ 10,000,000$

*Source: Bloomberg, Rareview Macro. Capital at Risk (USD) Start Price.

Current Positions

Asset Class Entry Date Strategy T/S Start PX Capital at Risk (USD)

Foreign Exchange 25-Feb-14 Short EUR/NOK S 8.2775$ (21,481,887)$

Foreign Exchange 24-Mar-14 Long USD/CHF S 0.8834$ 15,262,847$

Foreign Exchange 24-Mar-14 Short NZD/USD S 0.8540$ (10,079,019)$

Foreign Exchange 24-Mar-14 Long AUD/CHF S 0.8122$ 15,529,849$

Foreign Exchange 24-Mar-14 Long AUD/NZD S 1.0728$ 15,156,339$

Foreign Exchange 13-Jun-14 Long USD/CAD S 1.0866$ 9,989,118$

Equities 19-Mar-14 Long iShares China Large-Cap ETF (FXI) T 33.21$ 7,684,288$

Equities 21-May-14 Long FXI September 37.5 Calls T 0.72$ 726,750$

Equities 24-Mar-14 Long US Boring Basket (9 Stocks) S N/A 12,523,773$

Equities 24-Mar-14 Short SPY (Boring Basket Hedge) S 184.10$ (12,582,340)$

Equities 06-Jun-14 Long US Financials (XLF) S 22.80$ 19,828,984$

Equities 06-Jun-14 Short US Utilities (XLU) S 43.10$ (9,873,512)$

Equities 11-Jun-14 Short Nasdaq (NQU4) - Roll 1 T 3,765.30$ (9,950,391)$

Commodities 22-Apr-14 Long GLD 12/20/14 P120 S 4.85$ 352,083$

Commodities 22-Apr-14 Short GLD 12/20/14 P100 S 0.90$ (37,240)$

Commodities 22-Apr-14 Short GLD 12/20/14 C130 S 3.85$ (215,242)$

Commodities 03-Jun-14 Short Gold (GCQ4) - Roll 1 S 1,293.50$ (6,370,589)$

Commodities 06-Jun-14 Long Copper (HGN4) T 302.10$ 15,146,976$

*Source: Bloomberg, Rareview Macro. Capital at Risk (USD) COB June 13, 2014.

Risk Exposure

Asset Class Risk Level Gross Exposure Net Exposure % of Portfolio

Equities Medium 80,868,600$ 16,056,115$ 70.15%

Foreign Exchange (USD) Medium 77,325,757$ 14,388,129$ 67.07%

Fixed Income (DV01) Low -$ -$ 0.00%

Commodities Medium 31,357,565$ 1,096,387$ 27.20%

*Source: Bloomberg, Rareview Macro. Risk Exposure (USD) COB June 13, 2014.

Watch List

Asset Class Entry Date Strategy

Equities 14-Mar-14 Long Japan TOPIX (Buy Zone: 1120-1100)

Foreign Exchange 14-Mar-14 Long USD/JPY (Buy Zone: 100.50-99.50)

Foreign Exchange 26-Jan-14 Short Swiss Franc (CHF) vs. Long Euro (EUR), Sterling (GBP), US Dollar (USD)

Tail Risk 16-Mar-14 Long Korea CDS, Short Hong Kong Property (HSP), Short SEK/JPY, Short Italy Eur-BTP

*Source: Bloomberg, Rareview Macro.

RVM Model Portfolio – Macro Strategy

Portfolio Background Click here to see the portfolio in greater detail, including risk management, PnL and execution guidelines.

Disclaimer The portfolio illustrations referenced within this material are hypothetical. No actual investments have been implemented

and any references to transactions, positions, gains, or loses with respect to the portfolio are hypothetical.

Barclays Weekly Bank Briefing – Asset Growth - Per the Fed's H.8 (week ended 6/4), loans increased (+$7.5bn), as balances rose for the 8th time in 10 weeks. - R/E led (+$9.6bn) as mortgage (+$8.9bn) and CRE (+$1.5bn, up 13 of past 15 weeks) advanced. - H/E (-$0.8bn; down 40 of past 41 weeks) continued to run-off. Consumer also gained (+$0.8bn), as other consumer rose (+$1.1bn) for the 15th time in 16 weeks. - Credit card declined (-$0.2bn) for only the 3rd time in the past 11 weeks. - Average loans are up 0.6% QTD. C&I (+3.4%) followed consumer (+0.3%) higher, while R/E is lower (-0.3%). - Last week, Biz2Credit Small Business Lending Index showed small business loan approval rates increased for the 4th consecutive month at small banks in March, reaching an all-time high of 50.8%. This marked an improvement from 50.3% in Feb 2013. - Approval rates at big banks decreased slightly to 15.7%, down from 15.9% in Feb. - Securities fell (-$8.4bn) for the 1st time in 4 weeks (+2.2% QTD). - Unrealized AFS gains declined for the 1st time in 6 weeks, falling from $16.5bn, its highest level since May 2013, to $10.7bn. Australia - RBA Asst Gov Kent: - AUD high by historic standards given commodity price fall. - Labor markets showing some signs of improving. - There is still fair degree of spare capacity in labor market. - Unemployment to remain elevated over next 2 years, decline later in 2015. - Employment growth has been relatively strong this year. - High AUD can encourage firms to boost productivity. - Should not be surprised if AUD falls from high levels. - RBA thinks AUD is high compared to commodity prices.

Performance Update

Portfolio RVM Macro Start NAV End NAV

2014 Year to Date Return 1.88% 113,160,023$ 115,287,104$

2014 Month to Date Return 0.21%

2014 Week to Date Return -0.04%

2013 Year to Date Return 13.16% 100,000,000$ 113,160,023$

2013 Sharpe Ratio 2.73

Source: Bloomberg, Rareview Macro. Performance COB June 13, 2014.

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