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Pension PartnersMarkets Webinar

September 2017

1 | September 2017 Markets Webinar

Disclaimer

September 2017 Markets Webinar2 |

This webinar is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this webinar should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this webinar.

PENSION PARTNERS, LLCAbout Us

Investment manager of a mutual fund and separate accounts

Absolute Return strategies

Systematic investment process focused on positioning defensively ahead of potentially higher stock market volatility periods

Open, transparent communication through various writings, media appearances, and social media

For more information, contact us at solutions@pensionpartners.com

Foundation

Overarching Theme

Managing volatility is the key to long-term outperformance

Strategies Building Upon Award-Winning Research Papers

An Intermarket Approach to Beta RotationThe Strategy, Signal, and Power Utilities

2014 Charles H. Dow Award Winner

Leverage for the Long RunA Systematic Approach to Managing Risk and Magnifying Returns in Stocks

2016 Charles H. Dow Award Winner

Lumber: Worth Its Weight in GoldOffense and Defense in Active Portfolio Management

2015 NAAIM Wagner Award Winner

An Intermarket Approach to Tactical Risk RotationUse the Signaling Power of Treasuries to Generate Alpha

2014 NAAIM Wagner Award, 3rd Place

MYTHS, MARKETS, AND EASY MONEY

“Easy Money”

“Finally, while my observations are uncertain and should be taken

with a grain of salt, what I am sure of is that valuations and markets

are elevated, and the easy money in this cycle has been made.”

– Howard Marks, Oaktree Capital Memo (July 2017)

“The easy money has been made.”

If that saying sounds familiar, it’s because

you’ve been hearing it over and over again

since 2009…

“Easy Money”

Easy Money?More than quadrupled, 163 all-time highs…

Source: Pension Partners, Stockcharts.com

What could be hard about that?...

2009Worst bear market/economic contraction since the Depression

“Earnings Drive Stock Prices”2009: Worst earnings in history…

Source: Pension Partners, S&P

Trading Earnings Through the Rearview Mirror

Stock prices lead earnings, not the other way around…

Source: Pension Partners, Robert Shiller

2010: The “Flash Crash”May 6, 2010: worst day since April 2009…

Pension Partners and Sec.gov

Are large down days a reason to sell?No

Pension Partners and Stockcharts.com

Lesson: instead of fearing panic, learn to embrace it…

2011: “Hear We Go Again”21% decline in the S&P 500…

September 2017 Markets Webinar14 |Pension Partners and Stockcharts.com

2011: “Recession”Are all bear markets indicative of a recession?

2011: Are all bear markets indicative of a recession?

No. The stock market is not the economy.

2012: All-Time Highs“Top”

2012: All-Time HighsWhat tends to follow new all-time highs? More all-time highs.

2013: “Rising Rates”Should Equity Investors Fear “Rising Rates”?

2013: Should Equity Investors Fear “Rising Rates”?No. 0 correlation between S&P and 10-Year Yields

2014: “King Dollar”Should Equity Investors Fear a Rising Dollar?

2014: Should Equity Investors Fear a Rising Dollar?No. Correlation b/t S&P 500 and Dollar is 0.

S&P 500 would finish 2014 up 13.7%...

2015: “Oil Crash”Does the S&P need higher Oil?

2015: Does the S&P really need higher Oil?No. Correlation b/t S&P 500 and Oil is 0.

2015: “Fed Rate Hike”Are Rate Hikes Necessarily Bearish?

Are rate hikes necessarily bearish?

Should you sell 52-week lows? Not exactly…

2016: 52-Week Lows in January/February

Should you mix politics and your portfolio?

Pension Partners and Barron’s.com

2016: Politicians “killing the market”?

No. Election years actually slightly outperform non-election years.

2016: Should you mix politics and your portfolio?

S&P 500 finished 2016 up 12%.

Brexit: high volume sell-off, low volume advance…

2016: Volume and the Big Lie

Not exactly. They are the norm.

2016: Are high volume sell-offs and low volume advances bearish?

Does it mean stocks can’t go higher? No.

2017: Extreme Low Volatility in January…

Does it mean stocks can’t go higher? No.

2017: Extreme Overbought Conditions in February…

2017: Is Overbought necessarily bearish?

21 Corrections since March 2009. Easy Money?

2009 – 2017 Gains

1) Noise: Can You Ignore It?

Takeaways

The only way to have a chance of holding your position?• Ignoring the noise

• Extreme Forecasts• Predictions• Calls• Prophesies • Targets• Myths

• Why is Ignoring the Noise so important?• Because the big money in markets is not made from thinking but from

sitting.• Sitting through big market advances and letting your investments compound

is hard enough, becomes infinitely harder when being compelled to take action based on falsehoods.

• True whether you are active or passive investor.

2) Ego: Can You Surrender It?

Takeaways

• Need to get over your fear of saying 3 important words: I don’t know.• Why is knowing something (or thinking you know something) so harmful in

investing?• Because knowing -> Overconfidence -> Overtrading ->

Underperformance

• Knowing why the S&P 500 suffered those 21 corrections was more harmful than helpful b/c it justified action based on emotion instead of evidence.

• Is there ever a reason to sell or change a portfolio?• Absolutely. But it should be based on the evidence and ideally executed in an

emotionless, systematic fashion.• And it should be done with humility, with the understanding that it

could be wrong.

3) It’s never easy

Takeaways

• Will markets become hard in the years to come? Probably.

• Does that mean it was easy up to this point? No.

• There’s no such thing as easy in investing.

MARKET ENVIRONMENT“THE BEST OF TIMES”

EquitiesIs the S&P 500 the new Money Market?

EquitiesSecond longest period without a 3% Correction…

Equities: Most Peaceful Market in HistoryLowest average intraday range over past few weeks…

Source: Pension Partners

Equities: Most Peaceful Market in HistoryLeast Volatile September…

Equities: Lowest Vol year since 1964

Equities: A Global AdvanceAverage YTD Total Return of 21.4% (As of September 25, in US$)

Credit: Risk OnLowest Credit Spreads in Emerging Markets since October 2007

Credit: Risk OnYields in European Junk Bonds at Lowest Level in History

Fed: Still Extraordinarily EasyYes, Even After 4 Hikes…

Source: Pension Partners, FRED

Fed: Dovish ExpectationsMarket expecting next hike in December of this year, and only one additional hike over next 3 years…

Meeting Odds of a Hke (Today)

Nov-17 2.0%

Dec-17 77.9%

Jan-18 78.9%

Mar-18 87.6%

FOMC - Rate Hike Odds (Source: CME Group)

@CharlieBilello

Watching: Will Europe Start Hiking? With inflation picking up, negative rates still justified?

Watching: Yield CurveNo steepening/uptick in growth…

SummaryEnjoy!

– Everything

– Is

– Still

– Awesome

QUESTIONS

pensionpartners.com solutions@pensionpartners.com

54September 2017 Markets Webinar

Pension Partners...PENSION PARTNERS, LLC About Us Investment manager of a mutual fund and separate...

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