Guggenheim Partners Preparing for the Next Credit Cycle · Preparing for the Next Credit Cycle....

Preparing for the Next Credit CycleGuggenheim Partners

January 2020

Brian QuinnPortfolio Specialist & Product Manager

For financial professional use only. Do not distribute to the public.

10 Macro Themes for 2020

• Household Net Worth Gains Will Support Consumption

• Low Rates Will Underpin Housing Despite Valuation Concerns

• The Pace of Fed Balance Sheet Expansion Will Slow

• A Tight Labor Market Will Further Depress Corporate Profit Margins

• Corporate Defaults Will Rise as Debt Burdens Weigh on Credit

• Credit Rating Downgrades Will Add Headwinds to Business Investment

• The Fed’s Soft Landing Theory Will be Tested

• Consumer Confidence Will Hinge on the Health of the Labor Market

• Historic Inequality Will Fuel Support for Unorthodox Policy Proposals

• The 2020 Election Will Influence the Economy in an Unprecedented Way

2For financial professional use only. Do not distribute to the public.

Extending the Business Cycle

Has the Fed Pulled Off a “Mid-Cycle Adjustment”?

Source: Guggenheim Investments, Haver Analytics. Data as of 10/31/2019. Shaded areas represent periods of recession.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Historical evidence is mixed: Green=Yes

Red=No

Fed Funds Target Rate

For financial professional use only. Do not distribute to the public. 4

Liquidity Driven Rally Has Fueled High Returns With High Valuations

Note: S&P 500 refers to S&P 500 TR USD Index; High Yield Corps refers to the Bloomberg Barclays US Corporate High Yield Index; IG Corps refers to the Bloomberg Barclays US Corporate Investment Grade Index.Source: Bloomberg. 1/1/1996 to 12/31/2019.

Equity and Corporate Credit Valuations vs. Total Returns


YE 2018 YE 2019 Total Return

Metric Pct Rk. Metric Pct Rk. 2019 Pct Rk.

S&P 500

Price to Sales 1.9x 76.1% 2.4x 99.9%

31.5% 93%Price to EBITDA 10.0x 75.4% 12.1x 99.9%

Price to Earnings 16.6x 21.9% 21.5x 75.2%

Corporate Credit Spreads

High Yield Corps 5.3% 35.7% 3.3% 79.2% 14.3% 84%IG Corps 1.5% 33.8% 0.9% 79.6% 13.4% 91%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Buying Conditions Due to Rates Buying Conditions Due to Prices

1. Low Rates Will Underpin Housing Despite Valuation Concerns

Source: Guggenheim Investments, Bloomberg, University of Michigan. Data as of 12.31.2019. Note: three-month moving average.

6

University of Michigan Consumer Sentiment Survey: Buying Conditions for Houses By Reason, Net % Balance

Good Time to Buy

Bad Time to Buy


2. Household Net Worth Gains Will Support Consumption

Source: Guggenheim Investments, Haver Analytics. Data as of 9.30.2019, estimates shown for Q4 2019.

7

U.S. Household Assets and Liabilities, % of Disposable Personal Income

70%

80%

90%

100%

110%

120%

130%

140%

550%

600%

650%

700%

750%

800%

850%

1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

Assets to Personal Income (LHS) Liabilities to Personal Income (RHS)


$3,200

$3,400

$3,600

$3,800

$4,000

$4,200

$4,400

$4,600

2016 2017 2018 2019 2020

Coupon Securities Other Assets Repurchase Agreements (Repos) T-Bills

3. The Pace of Fed Balance Sheet Expansion Will Slow

Source: Guggenheim Investments, Haver Analytics, Federal Reserve Board. Data as of 12.31.2019. Coupon securities include Treasury notes and bonds, Agency debentures, and Agency mortgage-backed securities.

8

Federal Reserve Assets, in USD Billions

Guggenheim Forecast


1.3x

1.4x

1.5x

1.6x

1.7x

1.8x

1.9x

2.0x

2.1x

2.2x

2.3x

40%

45%

50%

55%

60%

65%

70%

75%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

M2 M

oney VelocityM

2 M

oney

Sup

ply

/ Nom

inal

GD

PAnd Added Money Supply May Deliver Slower Money Velocity

Source: FRED as of 12/31/2019.

M2 Money Supply / Nominal GDP vs. M2 Money Velocity


-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Commerical & Industrial Loans Residential Mortgages

But Monetary Stimulus is Having a Mixed Effect on Credit Demand

Source: Guggenheim Investments, Bloomberg. Data as of 11/04/2019. Shaded areas represent periods of recession. C+I loan demand is average for large firms and small/medium firms.

Senior Loan Officer Survey: Net % of Banks Reporting Stronger Demand for Loans

Recessionary Corporate Demand, but Mortgage

Demand Surging


3%

4%

5%

6%

7%

8%

9%

10%

11%

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

A Tight Labor Market Leaves Little Room for Further Expansion

Source: Guggenheim Investments, BLS, Haver Analytics, Congressional Budget Office. Data as of 10/31/2019. Shaded areas represent periods of recession.

U.S. Unemployment Rate, with Months to Start of Next Recession After Full Employment Was Reached

Full employment reached

35 Mo.

56 Mo. 31 Mo.

32 Mo.

25 Mo.

22 Mo.


Despite a Tight Labor Market, A Cyclical Upturn in Inflation Is Unlikely

Source: Guggenheim Investments, Haver Analytics. Data as of 09/30/2019; Q4 2019 GDP data are estimated. Shaded areas represent periods of recession.

Real GDP Growth vs Core CPI Inflation (6-Quarter Lag)

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Real GDP, YoY% (LHS)

Core CPI, YoY%, 6 Quarter Lag (RHS)


4. A Tight Labor Market Will Further Depress Corporate Profit Margins

Source: Guggenheim Investments, Haver Analytics. Data as of 9.30.2019. *Note: Profits with inventory valuation and capital consumption adjustments expressed as a percent of GDP. Four quarter moving average.

13

U.S. Corporate Pre-Tax Profits* and Unit Labor Costs

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Corporate Profit Margins vs Trailing 10-Year Average, in Percentage Points (LHS) Unit Labor Costs vs. Trailing 10-Year Average (RHS)


Businesses Are Responding by Cutting Job Openings

Source: Guggenheim Investments, Haver Analytics, BLS. Payroll data as of 11/30/2019; job openings data as of 10/31/2019. Shaded areas represent periods of recession.

Job Openings Have Ticked Down Job Openings Relative to Trailing 5-Year Peak (3m Avg)

-55%

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

1986 1990 1994 1998 2002 2006 2010 2014 2018


5. The Fed’s Soft Landing Theory Will be Tested

Source: Guggenheim Investments, Haver Analytics, Federal Reserve. Actual data as of 12.31.2019. FOMC projections as of 12.11.2019.

15

Two-Year Change in the U.S. Unemployment Rate, in Percentage Points

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Median FOMC Projection


6. Consumer Confidence Will Hinge on the Health of the Labor Market

Source: Guggenheim Investments, Haver Analytics, Conference Board. Data as of 12.31.2019. Shaded areas represent periods of recession.

16

Conference Board Consumer Confidence Index, Y/Y Change

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

70

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Consumer Confidence (Present Situation), Y/Y Change (LHS)

Consumer Perception of Jobs Plentiful Minus Jobs Hard to Get, Y/Y (RHS)

Confidence is below last year’s

level despite a 28% stock market rally


-125

-100

-75

-50

-25

0

25

50

75

100

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1/1/

1980

11/1

/198

09/

1/19

817/

1/19

825/

1/19

833/

1/19

841/

1/19

8511

/1/1

985

9/1/

1986

7/1/

1987

5/1/

1988

3/1/

1989

1/1/

1990

11/1

/199

09/

1/19

917/

1/19

925/

1/19

933/

1/19

941/

1/19

9511

/1/1

995

9/1/

1996

7/1/

1997

5/1/

1998

3/1/

1999

1/1/

2000

11/1

/200

09/

1/20

017/

1/20

025/

1/20

033/

1/20

041/

1/20

0511

/1/2

005

9/1/

2006

7/1/

2007

5/1/

2008

3/1/

2009

1/1/

2010

11/1

/201

09/

1/20

117/

1/20

125/

1/20

133/

1/20

141/

1/20

1511

/1/2

015

9/1/

2016

7/1/

2017

5/1/

2018

3/1/

2019

3m10y Treasury Curve (LHS) Consumer Expectations - Present Situation (RHS)

17

Survey Data Reveal Dimmer Views of Future, Affirming Yield Curve Message

Source: Guggenheim Investments, Bloomberg. Data as of 12/31/2019. Shaded areas represent periods of recession.

3m10y Treasury Yield Curve and Conference Board Consumer Expectations Minus Present Situation

Consumer and Business Survey Data Confirm Late-Cycle Signal


0

2E-52

4E-52

6E-52

8E-52

1E-51

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Next 6 Months Next 12 Months Next 24 Months

Our Probability Model Points to Elevated Recession Risks

Source: Guggenheim Investments, Haver Analytics, Bloomberg. Data as of 09/30/2019. *Hypothetical Illustration. The Recession Probability Model is a new model with no prior history of forecasting recessions. Actual results may vary significantly from the results shown. Shaded areas represent periods of recession.

Guggenheim Model Based Recession Probability*


Credit Positioning for Risk and Opportunity

Avoiding the Next Financial Downturn

20

• History has been marked by periods of booms and busts, as periods of excess are followed by periods of decline

What is an Asset Bubble?

An upward price movement over a period of time, unexplainable based on fundamentals, and which eventually implodes.

Dot-Com Bubble 2001 Recession

Housing Bubble 2008 Financial Crisis

Guggenheim believes the excesses from the Corporate Debt Market may be at the epicenter of the next financial downturn and recession

Corporate Debt Bubble 2020 Recession?


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

BbgB

arc

US

Agg

IG C

orp

Bond

Mar

ket (

$trln

)

BbgBarc US Agg IG Corp Bond Mkt

Investment Grade Corporate Bond Market Has Grown Significantly

Source: Barclays as of 9/30/2019. Annual figures represent year-end.

21

Size of IG Corporate Bond Market ($trln)

• Easy monetary policy has promoted a proliferation of corporate debt

1996$664bn

2006$1.7trln

Q3 2019$5.8trln


Especially as a Percentage of the Total Economy

Ratio of U.S. Nonfinancial Corporate Debt to GDP and Average Investment-Grade Corporate Bond Yields

Source: Guggenheim Investments, Haver Analytics. Data as of 06/30/2019 for nonfinancial corporate debt and 09/30/2019 for yields. Corporate bond yields are based on Bloomberg Barclays Investment-Grade Corporate Bond Index, and are smoothed based on a 3-month average of monthly data before December 1989, and a 3-month average of daily data from December 1989 through current. Shaded areas represent periods of recession.

0%

4%

8%

12%

16%

20%

25%

30%

35%

40%

45%

50%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Total Debt + Loans / GDP (LHS) Investment-Grade Corporate Bond Yields (3m Avg) (RHS)


1.83x

2.36x

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

1.2x

1.4x

1.6x

1.8x

2.0x

2.2x

2.4x

2.6x

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Recession Net Debt / EBITDA Total Debt / EBITDA

While IG Corporate Leverage Continues to Grind Higher

Source: Guggenheim Investments, Morgan Stanley Research. Data as of 09/30/2018.

Leverage is likely to increase further when earnings fall during

the next recession

Morgan Stanley Investment-Grade Corporate Tracked Universe


Increasing the Presence of BBBs within the IG Universe

24

Breakdown of IG Corporate Bond Market (%)

73% 65%50%

27% 35%50%

1996 2006 CurrentIG ex. BBB BBB

Source: Barclays as of 9/30/2019.


7. Credit Rating Downgrades Will Add Headwinds to Business Investment

Source: Guggenheim Investments, Bloomberg, Moody’s. Data as of 12.31.2019.

25

Moody’s Upgrades and Downgrades for U.S. Investment-Grade and High-Yield Credits, Count

-200

-150

-100

-50

0

50

100

150

200

2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4

Corporate Upgrades Corporate Downgrades Net Count


…And the Loan Market Struggles With Its Own Downgrades

Source: Guggenheim Investments, LCDComp/S&P Global. Data as of 10/31/2019. Shaded areas represent periods of recession.

7.75

8.00

8.25

8.50

8.75

9.001997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

LSTA Leveraged Loan Index: Weighted Average RatingDowngrade-to-Upgrade Ratio in Leveraged Loans

B+

BB-/B+

BB-

BB: 37%B: 46%

BB: 26%B: 56%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

0x

1x

2x

3x

4x

5x

6x

7x

8x

9x

2003 2005 2007 2009 2011 2013 2015 2017 2019

3M Down/Upgrade Ratio (LHS) LTM Downgrade Rate (RHS)


8. Corporate Defaults Will Rise as Debt Burdens Weigh on Credit

Source: Guggenheim Investments, Haver Analytics, Moody’s. Data as of 9.30.2019. The three-year cumulative corporate credit loss rate is calculated using monthly credit loss rates, which are estimated by Guggenheim using a combination of monthly and annual default and recovery data.

27

U.S. Nonfinancial Corporate Business Leverage and Three-Year Cumulative Corporate Credit Loss Rates

1%

2%

3%

4%

5%

6%

7%

8%

9%

5x

6x

7x

8x

9x

10x

11x

12x

13x

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Corporate Debt + Loans / Profits before Tax (LHS) Three-Year Cumulative Corporate Credit Loss Rate (LHS)


A Looming Fallen Angel Wave Argues for Further Caution

Source: Guggenheim Investments, ICE BofA Merrill Lynch. Data as of 07/31/2019. Shaded areas represent periods of recession.

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

5.5x

6.0x

6.5x

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Ratio of BBB-Rated to BB-Rated Corporate Bonds Outstanding

Our analysis indicates that 1/4 of IG corporate issuers already have HY

fundamentals


Downgrade Volume of BBBs Could be Higher versus History

1 Source: ICE BofA Merrill Lynch, Guggenheim. Data as of 3/30/2019. Volume represents amount of outstanding debt that has been downgraded from investment grade to below investment grade over the past twelve months.Forward estimates assume no growth in the par value of BBB corporate bonds or high-yield corporate bonds, and are based on fallen angel rates one year before the 2001 and 2008 recessions began.

Historical Fallen Angel Volume1

Impact from 2001 Recession

Impact from 2008 Recession

2020 Recession?

29

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

$0 Bn

$50 Bn

$100 Bn

$150 Bn

$200 Bn

$250 Bn

$300 Bn

$350 Bn

$400 Bn

$450 Bn

$500 Bn

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Fallen Angel Volume (12-Month Trailing Total) Fallen Angels as % of BBB Corporate Bond Market (rhs)

A recession could see at least $450 bn of BBBs downgraded to HY, forcing index funds to sell


Asymmetrical Returns Around Recessionary Periods

30

2008 Financial Crisis

Source: Morningstar. 1-yr Pre Recession: 1/1/2007 – 12/31/2007. Recession Start to Trough: Fallen Angel (1/1/2008 to 11/24/2008), HY Bond (1/1/2008 to 12/12/2008), IG Corps (1/1/2008 to 11/2/2008), 1-3Mon T-Bill (reflects same dates HY Bond). 1yr-Post trough reflects 365 days post trough. Bloomberg Barclays U.S. Corporate Index “IG Corps” represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. corporate investment-grade fixed income bond market. Bloomberg Barclays U.S. Treasury Bills: 1-3 Month Index “1-3Mon T-Bill” includes all publicly issued zero-coupon U.S. treasury bills that have a remaining maturity of 1-3 months. Bloomberg Barclays U.S. Corporate High Yield Index “HY Bond” measures the market USD-denominated non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Bal/BB+/BB+ or below. The index excludes emerging market debt. The referenced indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees or expenses. ICE BofAML US Fallen Angel High Yield Index “Fallen Angel” is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market, and that were rated investment grade at time of issuance.

Investors NOT compensated for credit risk

Investors compensated for credit risk

• Credit typically struggles to outperform short-term Treasury bills one-year prior and into recessions. However, following a drawdown, credit can recover quickly and significantly

Total Returns (%) 1yr-Pre Recession Recession Start to Trough 1yr-Post Trough

Fallen Angel 0.2% -37.8% 90.2%

HY Bond 1.9% -33.5% 72.7%

IG Corps 4.6% -14.5% 30.9%

1-3Mon T-Bill 4.8% 1.8% 0.2%


Combating the Next Recession

The Fed Has Less Room to Cut Rates Than in Past Recessions…

Source: Guggenheim Investments, BCA, Janet Yellen, “The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future”. *For recessions prior to 1990, the total amount of easing is the difference between the maximum and the minimum monthly average of the effective federal funds rate in a period extending from six months prior to the start of the recession to six months after it ends. For the last three recessions, the periods of continuous reductions in the intended federal funds rate are June 1990 to September 1992, December 2000 to January 2002, and August 2007 to December 2008.

Change in Fed Funds Rate During Past Recessions, in Percentage Points*

Recession Total Rate Cuts

August 1957 - April 1958 -2.9

April 1960 - February 1961 -2.8

December 1969 - November 1970 -5.5

November 1973 - March 1975 -7.7

January 1980 - July 1980 -4.8

July 1981 - November 1982 -10.4

July 1990 - March 1991 -5.3

March 2001 - November 2001 -4.8

December 2007 - June 2009 -5.1

Average -5.5


-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Unemployment Rate (LHS) Fiscal Balance, % GDP (Inverted, RHS)

…And Fiscal Policy Will Also Be More Constrained

Source: Guggenheim Investments, Haver Analytics, CBO. Data as of 12/31/2018. Shaded areas represent periods of recession.

Unemployment Rate and Fiscal Balance as a Percent of GDP

The Budget Deficit Has Less Room to Expand When the Downturn Hits


Fiscal Stimulus Is Set to Fade in 2020

Source: Guggenheim Investments, Hutchins Center. Actual data as of 09/30/2019.

Contribution of Fiscal Policy to Real GDP Growth

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

2015 2016 2017 2018 2019 2020 2021

Federal Spending State & Local Spending Taxes and Benefits Fiscal Impact

Forecast


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

General Election Govt & Elections

9. The 2020 Election Will Influence the Economy in an Unprecedented Way

Source: Guggenheim Investments, Bloomberg, University of Michigan. Data as of 12.31.2019.

35

University of Michigan Consumer Sentiment Survey: Reasons for Opinions on Business Conditions % of Respondents (12-Month Moving Average)

Donald Trump Elected President


Government Policy Has Become the Largest Driver of Economic Views

Source: Guggenheim Investments, Bloomberg. Data as of 10/31/2019. Shaded areas represent periods of recession.

0

2E-56

4E-56

6E-56

8E-56

1E-55

0%

10%

20%

30%

40%

50%

60%

70%

1980 1985 1990 1995 2000 2005 2010 2015

Govt & Elections Prices Consumer Demand Stock MarketTrade Deficit Credit Availability Employment

UMich. Survey: News Heard of Business Conditions: % of Respondents (12M Mov. Avg.)


10

20

30

40

50

60

70

80

90

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Kennedy

Political Polarization Will Lead to Rising Policy Uncertainty Ahead of 2020 Election

Source: Guggenheim Investments, Gallup. Data as of 12/15/2019. *Note: recession expectations are from Gallup Polling conducted from September 3-15, 2019.

Presidential Approval: Spread Between President's Party and Opposition Party Voters, in Percentage Points

Truman Carter Clinton ObamaEisenhowerNixon

Ford Reagan Bush Bush Trump

Most polarized political climate in

the modern era

Johnson

Odds of Recession Within the Next Year*Republicans: 21%Independents: 50%

Democrats: 74%


10. Historic Inequality Will Fuel Support for Unorthodox Policy Proposals

Source: Guggenheim Investments, Haver Analytics. Data as of 6.30.2019. Shaded areas represent periods of recession.

38

Share of National Net Worth by Percentile Groups

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

42%

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Top 1% Bottom 90%


How to Invest in this Environment and Conclusion

Looking Past the Liquidity-Driven Rally

Risk and Reward of Successful ‘Mid-Cycle’ Rate Cuts

"We will take investing risks when we believe we are being adequately compensated for them, but now is not

one of those times"

“Credit spreads could get tighter in this liquidity-driven rally, but history has shown that the potential for widening

from here is much greater”


Disclosures and Legal Notice

Disclosures and Legal Notice

Guggenheim Investments represents the following affiliated investment management businesses: GuggenheimPartners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC,Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim PartnersEurope Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.

The information presented herein has been prepared for informational purposes only and is not an offer to buy orsell, or a solicitation of an offer to buy or sell, any security or fund interest or any financial instrument.

No representation or warranty is made by Guggenheim Investments or any of their related entities or affiliates as tothe sufficiency, relevance, importance, appropriateness, completeness, or comprehensiveness of the market data,information or summaries contained herein for any specific purpose. The views expressed in this presentation aresubject to change based on market and other conditions. The opinions expressed may differ from those of otherentities affiliated with Guggenheim Investments that use different investment philosophies. All material has beenobtained from sources believed to be reliable, but its accuracy is not guaranteed. Forward looking statements,estimates, and certain information contained herein are based upon proprietary and non-proprietary research andother sources.

Past performance is not indicative of comparable future results. Given the inherent volatility of the securitiesmarkets, it should not be assumed that investors will experience returns comparable to those shown here. Marketand economic conditions may change in the future producing materially different results than those shown here. Allinvestments have inherent risks.

The views and strategies described herein may not be suitable for all investors. This material is provided with theunderstanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisorconcerning such matters.

The comparisons herein of the performance of the market indicators, benchmarks or indices may not be meaningfulsince the constitution and risks associated with each market indicator, benchmark or index may be significantlydifferent. Accordingly, no representation or warranty is made to the sufficiency, relevance, importance,appropriateness, completeness, or comprehensiveness of the market data, information or summaries containedherein for any specific purpose.

Forward-Looking Statements. This discussion material may contain forward-looking statements. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Any or all forward-looking statements in this material may turn out to be incorrect. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Although the assumptions underlying the forward-looking statements contained herein are believed to be reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurances that the forward-looking statements included in this discussion material will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that the objectives and plans discussed herein will be achieved. Further, no person undertakes any obligation to revise such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

© 2020 Guggenheim Partners, LLC. All Rights Reserved. No part of this document may be reproduced, stored, ortransmitted by any means without the express written consent of Guggenheim Partners, LLC. The informationcontained herein is confidential and may not be reproduced in whole or in part.

GPIM #41691


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