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The material contained in this presentation has been prepared solely for informational purposes by New England Asset Management, Inc. (“NEAM, Inc.”) and/or New England Asset Management Limited (“NEAM Limited”)(collectively, “NEAM”) for theexclusive use of your company. The material is based on sources believed to be reliable and/or from proprietary data developed by NEAM, but we do not represent as to its accuracy or its completeness. This is not an offer to buy or sell any security orfinancial instrument. Certain assumptions, including tax assumptions, may have been made which have resulted in any returns detailed herein. Changes to the assumptions, including valuations or cash flows of any instrument, may have a material impact onany results. Please consult with your tax experts before relying on this material. Past performance results are not necessarily indicative of future performance. The projected information contained herein is for illustrative purposes only and does not representactual results, but was achieved by the prospective application of certain assumptions. No representations or warranties are made as to the reasonableness of these assumptions. This document and its contents are proprietary to NEAM and are not to begiven or discussed with anyone other than employees, directors, trustees or auditors of your company without our prior written consent. NEAM Limited is a subsidiary of NEAM, Inc. NEAM Limited is regulated by the Central Bank of Ireland. NEAM Limited isauthorized by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Additional information, including details about the extent of our regulation by the Financial Conduct Authority are available from us on request.NEAM Limited is not registered with the SEC. Because this is intended to be an overview please note that some services described in this presentation may not be available to all clients in certain jurisdictions.

2019 Actuaries’ Club of Southwest Fall Meeting Economic and Capital Market Commentary

November 7, 2019


Agenda

2

1. Secular Context

2. US Economic Update

3. Recession Risks

4. Capital Markets Implications

Secular Context


GDP Growth

4

Source: BEA, NBER, Haver, NEAM

122

120

106

92

80

73

0 20 40 60 80 100 120 140

June 2009 - August 2019

March 1991 - March 2001

February 1961 - December 1969

November 1982 - July 1990

June 1938 - February 1945

November 2001 - December 2007

Months

Duration of Previous Expansions

Current expansion is now the longest

123


Q4-1949 --> Q2-1953

Q2-1954 --> Q3-1957Q2-1958 --> Q2-1960

Q1-1961 --> Q4-1969

Q4-1970 --> Q4-1973

Q1-1975 --> Q1-1980

Q3-1980 --> Q3-1981

Q4-1982 --> Q3-1990

Q1-1991 --> Q1-2001

Q4-2001 --> Q4-2007

Q2-2009 --> Q2-2019

-

10

20

30

40

50

60

0 5 10 15 20 25 30 35 40 45

Real

GDP

Cha

nge

Durin

g Ex

pans

ion

Length of Expansion (Qtrs)

Expansion Cycle vs. Real GDP Change

Current Expansion – Long but Slow

5

Source: BEA, NBER, Haver, NEAM

Q2-2009 -> Q3 2019


U.S. Domestic Debt to GDP

6

Source: FRB, Haver, NEAM * Domestic Debt = Household + Nonfin Corp + General Government

110

130

150

170

190

210

230M

ar-8

0M

ar-8

1M

ar-8

2M

ar-8

3M

ar-8

4M

ar-8

5M

ar-8

6M

ar-8

7M

ar-8

8M

ar-8

9M

ar-9

0M

ar-9

1M

ar-9

2M

ar-9

3M

ar-9

4M

ar-9

5M

ar-9

6M

ar-9

7M

ar-9

8M

ar-9

9M

ar-0

0M

ar-0

1M

ar-0

2M

ar-0

3M

ar-0

4M

ar-0

5M

ar-0

6M

ar-0

7M

ar-0

8M

ar-0

9M

ar-1

0M

ar-1

1M

ar-1

2M

ar-1

3M

ar-1

4M

ar-1

5M

ar-1

6M

ar-1

7M

ar-1

8

US Domestic Debt* to GDPU.S. Domestic Debt* to GDP


15

20

25

30

35

40

45

50

55

6019

5019

5419

5819

6219

6619

7019

7419

7819

8219

8619

9019

9419

9820

0220

0620

1020

1420

1820

2220

2620

3020

3420

3820

4220

4620

5020

5420

5820

6220

6620

7020

7420

7820

8220

8620

9020

94

Year

s

Median Age (Years)

US CHINA JAPAN

World Age Population Changes

7

Source: UN, Haver, NEAM

Median Age (Years)


30

40

50

60

70

80

90

100

110

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

2022

2025

2028

2031

2034

2037

2040

2043

2046

2049

2052

2055

2058

2061

2064

2067

2070

2073

2076

2079

2082

2085

2088

2091

2094

2097

Perc

ent

Japan US

Dependency Ratios (Dependents / Working Age Population 15-64)

8

Source: UN, Haver, NEAM

Dependency Ratios


Population Forecasts

9

Source: United Nations World Population Ageing Report

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2000 2015 2030 2050

Developed World Population Forecast

Persons Aged 60 and Older Percent of Total Persons Aged 80 and Older Percent of Total


30

50

70

90

110

130

150

Jan-

91Fe

b-92

Mar

-93

Apr-

94M

ay-9

5Ju

n-96

Jul-9

7Au

g-98

Sep-

99O

ct-0

0N

ov-0

1De

c-02

Jan-

04Fe

b-05

Mar

-06

Apr-

07M

ay-0

8Ju

n-09

Jul-1

0Au

g-11

Sep-

12O

ct-1

3N

ov-1

4De

c-15

Jan-

17Fe

b-18

Source: CPB, Haver, NEAM

Globalization Has Increased

10

World Trade Volume (SA, 2010=100)

U.S. Economy


Job Openings vs. Unemployed

12

0

2

4

6

8

10

12

14

16

18

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4Se

p-14

Jan-

15M

ay-1

5Se

p-15

Jan-

16M

ay-1

6Se

p-16

Jan-

17M

ay-1

7Se

p-17

Jan-

18M

ay-1

8Se

p-18

Jan-

19M

ay-1

9

Milli

ons

Unemployed Job Openings

Source: BLS, Haver


Unemployment Rate vs Natural Rate

13

Source: BLS, Haver, NEAM

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

Mar

-00

Sep-

00M

ar-0

1Se

p-01

Mar

-02

Sep-

02M

ar-0

3Se

p-03

Mar

-04

Sep-

04M

ar-0

5Se

p-05

Mar

-06

Sep-

06M

ar-0

7Se

p-07

Mar

-08

Sep-

08M

ar-0

9Se

p-09

Mar

-10

Sep-

10M

ar-1

1Se

p-11

Mar

-12

Sep-

12M

ar-1

3Se

p-13

Mar

-14

Sep-

14M

ar-1

5Se

p-15

Mar

-16

Sep-

16M

ar-1

7Se

p-17

Mar

-18

Sep-

18M

ar-1

9

Perc

ent

NAIRU Actual Most Recent


Wage Growth

14

Wages vs. Unemployment


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0

Atlan

ta Fed

Wag

e Trac

ker

US Unemployment Rate (Adv 9 months)


Labor Force

15

Labor Force Participation Rate


59.3 59.2

61.5

64.8

66.7 66.2

64.7 64.1

63.7 63.3

62.9 62.7 62.8 62.9 62.9 63.0

56.0

58.0

60.0

62.0

64.0

66.0

68.0

1950s 1960s 1970s 1980s 1990s 2000s 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019YTD

LFPR


Inflation

16

0.0

0.5

1.0

1.5

2.0

2.5

3.0

YrYr

%

CPI Inflation

Core


Consumer Confidence is High

17

Source: Conference Board, Haver, NEAM

0

20

40

60

80

100

120

140

160Ja

n-80

May

-81

Sep-

82Ja

n-84

May

-85

Sep-

86Ja

n-88

May

-89

Sep-

90Ja

n-92

May

-93

Sep-

94Ja

n-96

May

-97

Sep-

98Ja

n-00

May

-01

Sep-

02Ja

n-04

May

-05

Sep-

06Ja

n-08

May

-09

Sep-

10Ja

n-12

May

-13

Sep-

14Ja

n-16

May

-17

Sep-

18

(SA

1985

= 10

0)

Consumer Confidence

Recession Consumer Confidence Current (July 2019)


Household Debt to GDP

Source: FRB, Haver, NEAM

74

40

50

60

70

80

90

100

110M

ar-8

0M

ar-8

1M

ar-8

2M

ar-8

3M

ar-8

4M

ar-8

5M

ar-8

6M

ar-8

7M

ar-8

8M

ar-8

9M

ar-9

0M

ar-9

1M

ar-9

2M

ar-9

3M

ar-9

4M

ar-9

5M

ar-9

6M

ar-9

7M

ar-9

8M

ar-9

9M

ar-0

0M

ar-0

1M

ar-0

2M

ar-0

3M

ar-0

4M

ar-0

5M

ar-0

6M

ar-0

7M

ar-0

8M

ar-0

9M

ar-1

0M

ar-1

1M

ar-1

2M

ar-1

3M

ar-1

4M

ar-1

5M

ar-1

6M

ar-1

7M

ar-1

8M

ar-1

9

Perc

ent

18


Savings Rate

Source: Source: BEA, NBER, Haver, NEAM

8.5

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Savi

ngs

Rat

e %

19


Savings Rate – Extended Time Series

20

Source: Source: BEA, NBER, Haver, NEAM

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0Ja

n-59

Mar

-60

May

-61

Jul-6

2Se

p-63

Nov

-64

Jan-

66M

ar-6

7M

ay-6

8Ju

l-69

Sep-

70N

ov-7

1Ja

n-73

Mar

-74

May

-75

Jul-7

6Se

p-77

Nov

-78

Jan-

80M

ar-8

1M

ay-8

2Ju

l-83

Sep-

84N

ov-8

5Ja

n-87

Mar

-88

May

-89

Jul-9

0Se

p-91

Nov

-92

Jan-

94M

ar-9

5M

ay-9

6Ju

l-97

Sep-

98N

ov-9

9Ja

n-01

Mar

-02

May

-03

Jul-0

4Se

p-05

Nov

-06

Jan-

08M

ar-0

9M

ay-1

0Ju

l-11

Sep-

12N

ov-1

3Ja

n-15

Mar

-16

May

-17

Jul-1

8

Perc

ent


Oil Prices

21

Source: Bloomberg, NEAM

20

40

60

80

100

120

140

Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

Pric

e Pe

r Bar

rel (

USD

)

Brent


Corporate Profit Margins

22

Source: BEA, Haver, NEAM

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0M

ar-0

0Se

p-00

Mar

-01

Sep-

01M

ar-0

2Se

p-02

Mar

-03

Sep-

03M

ar-0

4Se

p-04

Mar

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07M

ar-0

8Se

p-08

Mar

-09

Sep-

09M

ar-1

0Se

p-10

Mar

-11

Sep-

11M

ar-1

2Se

p-12

Mar

-13

Sep-

13M

ar-1

4Se

p-14

Mar

-15

Sep-

15M

ar-1

6Se

p-16

Mar

-17

Sep-

17M

ar-1

8Se

p-18

Mar

-19

Perc

ent

Corp Profit Margins


Corporate Tax Rates (US vs other OECD Countries)

23

20

25

30

35

40

4519

90

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

Corp

orat

e Ta

x Ra

te

US OECD (ex US)

Source: OECD/ NEAM

21%


Global Central Bank Balance Sheets

24

Source: European Central Bank, Federal Reserve Board, Bank of Japan, NEAM

Forecasts*

0

50

100

150

200

250

300

350

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

USD

Bill

ions

Total Assets of 3 Major Central Banks (USD)[Stock of QE, LHS]


Source: Bloomberg, NBER, NEAM

Nonfinancial Corporate Debt to GDP

20

25

30

35

40

45

50M

ar-4

5De

c-46

Sep-

48Ju

n-50

Mar

-52

Dec-

53Se

p-55

Jun-

57M

ar-5

9De

c-60

Sep-

62Ju

n-64

Mar

-66

Dec-

67Se

p-69

Jun-

71M

ar-7

3De

c-74

Sep-

76Ju

n-78

Mar

-80

Dec-

81Se

p-83

Jun-

85M

ar-8

7De

c-88

Sep-

90Ju

n-92

Mar

-94

Dec-

95Se

p-97

Jun-

99M

ar-0

1De

c-02

Sep-

04Ju

n-06

Mar

-08

Dec-

09Se

p-11

Jun-

13M

ar-1

5De

c-16

Sep-

18

Perc

ent

25


Bank Tier 1 Capital Ratios

26

Source: FDIC, Haver, NEAM

9.8

13.4

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

Mar

-90

Dec

-90

Sep-

91Ju

n-92

Mar

-93

Dec

-93

Sep-

94Ju

n-95

Mar

-96

Dec

-96

Sep-

97Ju

n-98

Mar

-99

Dec

-99

Sep-

00Ju

n-01

Mar

-02

Dec

-02

Sep-

03Ju

n-04

Mar

-05

Dec

-05

Sep-

06Ju

n-07

Mar

-08

Dec

-08

Sep-

09Ju

n-10

Mar

-11

Dec

-11

Sep-

12Ju

n-13

Mar

-14

Dec

-14

Sep-

15Ju

n-16

Mar

-17

Dec

-17

Sep-

18Ju

n-19

Perc

ent

Bank Capital

Bank Tier 1 Capital Ratio


Trade Dispute with China

Source: China Briefing News, NEAM

34 34 16 16

200

60

325

540

120

US - Value of Imports Subjectto Tariffs/ Proposed Tariffs

(USD bn)

US - Value of 2018 Importsfrom China (USD bn)

China - Value of ImportsSubject to Tariffs/ Proposed

Tariffs (USD bn)

China - Value of 2018 Importsfrom US (USD bn)

Proposed Tariffs

Sept 2018 Tariffs (Increased % Tariff May/ June 2019)

Aug 2018 Tariffs

July 2018 Tariffs

27


-1.9%

-0.4% -0.4% -0.3%-0.2% -0.2% -0.2% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

China[Mainland] Mexico Japan Germany Vietnam Ireland Italy Malaysia India Korea Thailand Canada Taiwan France Switzerland

Source: Census Bureau, Haver, NEAM

Trade Deficits by Country

28

Trade Balance (Goods) as a % of GDP


Trade with China

Source: Census, BEA, Haver, NEAM

-2.1

-2.0

-1.9

-1.8

-1.7

-1.6

-1.5Ja

n-09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

Jan-

12

May

-12

Sep-

12

Jan-

13

May

-13

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Jan-

19

May

-19

Perc

ent o

f GD

PUS Trade Balance with China

29


Trade with China

Source: Census, BEA, Haver, NEAM

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

Jan-

90O

ct-9

0Ju

l-91

Apr-9

2Ja

n-93

Oct

-93

Jul-9

4Ap

r-95

Jan-

96O

ct-9

6Ju

l-97

Apr-9

8Ja

n-99

Oct

-99

Jul-0

0Ap

r-01

Jan-

02O

ct-0

2Ju

l-03

Apr-0

4Ja

n-05

Oct

-05

Jul-0

6Ap

r-07

Jan-

08O

ct-0

8Ju

l-09

Apr-1

0Ja

n-11

Oct

-11

Jul-1

2Ap

r-13

Jan-

14O

ct-1

4Ju

l-15

Apr-1

6Ja

n-17

Oct

-17

Jul-1

8Ap

r-19

Perc

ent o

f GD

P

US Trade Balance (Goods) with China

30


Policy Uncertainty at the Forefront

31


0

50

100

150

200

250

300

350

Jun-

97De

c-97

Jun-

98De

c-98

Jun-

99De

c-99

Jun-

00De

c-00

Jun-

01De

c-01

Jun-

02De

c-02

Jun-

03De

c-03

Jun-

04De

c-04

Jun-

05De

c-05

Jun-

06De

c-06

Jun-

07De

c-07

Jun-

08De

c-08

Jun-

09De

c-09

Jun-

10De

c-10

Jun-

11De

c-11

Jun-

12De

c-12

Jun-

13De

c-13

Jun-

14De

c-14

Jun-

15De

c-15

Jun-

16De

c-16

Jun-

17De

c-17

Jun-

18De

c-18

Jun-

19

Inde

x

Global Economic Policy Uncertainty Index

Global Economic Policy Uncertainty Index


Business Sentiment is Falling

32

Source: Business Roundtable, Haver, NEAM

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0M

ar-0

5

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Sep-

16

Mar

-17

Sep-

17

Mar

-18

Sep-

18

Mar

-19

Perc

ent

CEO Economic Outlook


Global PMIs

33


48

49

50

51

52

53

54

55

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Inde

x (5

0+ =

Exp

ansi

on)

Global PMI


US ISM Manufacturing

34

47.8

25

30

35

40

45

50

55

60

65

70

75

ISM

Mon

thly

Man

ufac

turin

g In

dex

U.S. ISM Manufacturing with Recessions

According to ISM, reading of 47.8 equates to +1.5% real GDP Growth.Readings below 42.9 indicate contraction.

Source: ISM, NBER, Bloomberg, NEAM

Recession Risks


Leading Economic Indicators

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Jan

-76

Jan

-77

Jan

-78

Jan

-79

Jan

-80

Jan

-81

Jan

-82

Jan

-83

Jan

-84

Jan

-85

Jan

-86

Jan

-87

Jan

-88

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Pe

rce

nt

Ch

ange

Leading Indicators

Recession 12 month Change in Leading Indicators

Source: Conference Board, NBER, Haver, NEAM

36


Yield Curve Inversion

Source: FRB, Haver, NEAM

37


Signal History of Yield Curve

38

Inversion Date Recession Date Lead Time

Aug-78 Jan-80 1 Yr, 5 Months

Sep-80 Jul-81 10 Months

Jan-89 Jul-90 1 Yr, 6 Months

Jun-98 Mar-01 2 Yrs, 9 Months

Dec-05 Dec-07 2 Years

Source: Cornerstone Macro, NEAM Analytics


Initial Jobless Claims

39

150

170

190

210

230

250

270

290

310

330

in T

hous

ands

Initial Jobless Claims 12 week moving average



Wage Gains vs. Unemployment

Source: BLS, NBER, Haver, NEAM

1.0

3.0

5.0

7.0

9.0

11.0

13.0

Jan-

80D

ec-8

0N

ov-8

1O

ct-8

2Se

p-83

Aug-

84Ju

l-85

Jun-

86M

ay-8

7Ap

r-88

Mar

-89

Feb-

90Ja

n-91

Dec

-91

Nov

-92

Oct

-93

Sep-

94Au

g-95

Jul-9

6Ju

n-97

May

-98

Apr-9

9M

ar-0

0Fe

b-01

Jan-

02D

ec-0

2N

ov-0

3O

ct-0

4Se

p-05

Aug-

06Ju

l-07

Jun-

08M

ay-0

9Ap

r-10

Mar

-11

Feb-

12Ja

n-13

Dec

-13

Nov

-14

Oct

-15

Sep-

16Au

g-17

Jul-1

8Ju

n-19

Perc

ent

Recession UER AHE

40


Projected U.S. Budget Deficits

Source: Haver, CBO, NEAM

41


New York Fed Recession Probability Index

42

Source: HAVER, FRBNY

0

5

10

15

20

25

30

35

40

45

50

Apr-

84M

ar-8

5Fe

b-86

Jan-

87De

c-87

Nov

-88

Oct

-89

Sep-

90Au

g-91

Jul-9

2Ju

n-93

May

-94

Apr-

95M

ar-9

6Fe

b-97

Jan-

98De

c-98

Nov

-99

Oct

-00

Sep-

01Au

g-02

Jul-0

3Ju

n-04

May

-05

Apr-

06M

ar-0

7Fe

b-08

Jan-

09De

c-09

Nov

-10

Oct

-11

Sep-

12Au

g-13

Jul-1

4Ju

n-15

May

-16

Apr-

17M

ar-1

8Fe

b-19

New York Fed Recession Probability Index


0%

10%

20%

30%

40%

50%

60%

70%

2014 2015 2016 2017 2018 2019

Percentage of ICE BofAML Euro Broad Market Index…

EUR Negative Yielding Bonds

Source: BofA Merrill, Bloomberg

43


Rationale for Buying Negative Yielding Bonds?

44

o Positive real yieldo Further Anticipated Appreciationo Safe Asseto Currencyo Index Fundso Bankso Insurance Companies & Pension Fundso ECB


Fiscal Financial Situation

45

Budget metrics, Germany, core countries versus US etc.

Source: IMF, Haver

Germany

Japan

US

Italy

China

0

50

100

150

200

250

-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00

Gov

ernm

ent D

ebt (

% o

f GD

P)

Fiscal Balance (% of GDP)

Capital Markets


1.67

2.11

3.243.43

1

1.5

2

2.5

3

3.5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

YIEL

D (%

)

YEARS TO MATURITY

9/30/2019 11/8/2018 (Peak in Rates)

10 YR TSY

30 YR TSY

U.S. Treasury Yield Curve

47

Source: Bloomberg


30 Year U.S. Treasury Yield


1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

Perc

ent All Time Low

48


8.5%

12.6%

7.4% 7.7%

5.6%

15.4%

20.6%

11.6%

0%1%2%3%4%5%6%7%8%9%

10%11%12%13%14%15%16%17%18%19%20%21%22%

BarclaysAggregate

CorporateInvestment

Grade

Muni (TE)MarketIndex

TreasuryMaster

MBS All PreferredStock

S&P 500(Total

Return)

MSCI WorldEx US (Total

Return)

Year-to-Date Total Return (as of 09/30/19)

Capital Market Performance as of September 2019

49

Source: Bloomberg, Barclays


10.3%

12.6%

5.4%

10.5%

7.8%

10.1%

4.3%

-1.2%-2%-1%0%1%2%3%4%5%6%7%8%9%

10%11%12%13%14%

BarclaysAggregate

CorporateInvestment

Grade

Muni (TE)MarketIndex

TreasuryMaster

MBS All PreferredStock

S&P 500(Total

Return)

MSCI WorldEx US (Total

Return)

Trailing 12 Months Total Return (as of 09/30/19)

Capital Market Performance Trailing 12 Months

50

Source: Bloomberg, Barclays


Corporate Spreads Remain Tight

51

0

100

200

300

400

500

600

700

800

Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19

Basi

s Po

ints

BBB Nonfinancial Corporate Spreads

BBB Nonfin Corp Spreads 10 Yr Average

Source: Bloomberg, ICE, NEAM


High Yield Spreads…Flashing Yellow

52

Source: Bloomberg, ICE, NEAM

200250300350400450500550600

Basi

s Po

ints

U.S. CorporatesHigh Yield Spreads

Source: Bloomberg Barclays HY Index, NEAM

300

400

500

600

700

800

900

Basi

s Po

ints

ICE BAML BB-CCC Corporate Spread


S&P 500 Market Cap Relative to GDP

53

1.3 1.1

0.2

0.4

0.6

0.8

1

1.2

1.4

Mar

-65

Sep-

66M

ar-6

8Se

p-69

Mar

-71

Sep-

72M

ar-7

4Se

p-75

Mar

-77

Sep-

78M

ar-8

0Se

p-81

Mar

-83

Sep-

84M

ar-8

6Se

p-87

Mar

-89

Sep-

90M

ar-9

2Se

p-93

Mar

-95

Sep-

96M

ar-9

8Se

p-99

Mar

-01

Sep-

02M

ar-0

4Se

p-05

Mar

-07

Sep-

08M

ar-1

0Se

p-11

Mar

-13

Sep-

14M

ar-1

6Se

p-17

Mar

-19

Rat

io

SPX Market Cap to GDP

Source: S&P, BEA, Haver, NEAM


Corporate Spreads vs. Fed Funds

54

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

0

100

200

300

400

500

600

700

800

900

Fed

Fund

s Rat

e %

Spre

ad in

bps

.

IG Corporate Spreads vs. Fed Funds

IG Corporate Spreads Fed Funds Rate (RHS)

During easing cycles, spreads widen

?



Observations and Conclusions

55

• Slowing, but solid US economic growth

• Persistent low yield and flat yield curve environment

• Keys to success in current environment:

Carry

Take advantage of volatility

Diversifying alternatives Dividend stocks Preferred stocks Specialty high yield

Questions?


Biography

57

Patrick W. Scully, CFA Patrick is a Senior Client Strategist at NEAM, Inc. and is responsible for delivering investment and capital management services to our clients. He joined the Firm in 2010 having been employed as a Consultant by WellsCanning (now Willis Towers Watson), where he was responsible for advising insurance clients on their investment portfolios. Prior to joining WellsCanning, he was the Assistant Treasurer for Tufts Health Plan, a regional health insurance company in Massachusetts. Patrick is a CFA Charterholder, a graduate of the University of Colorado with a Bachelor of Arts in History and holds an MBA from the Olin Graduate School at Babson College. He has been employed in the investment industry since 1993.

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