Presentation

By

A. Gary Shilling, Ph.D.

To

Texas Municipal Retirement System

May 19, 2017

A. Gary Shilling & Co., Inc. 500 Morris Avenue

Springfield, NJ 07081 (973) 467-0070 / Fax (973) 467-1943

Email: gary@agaryshilling.com / www.agaryshilling.com

2007 2008 2010 2011 2013 2014 2016600

800

1000

1200

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1600

1800

2000

2200

2400

600

800

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1200

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1800

2000

2200

2400

S&P 500 Index

Source: Thomson Reuters

Last Point 05/08/17: 2,399.38

Chart 1

Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Apr-17$2.2

$2.3

$2.4

$2.5

$2.6

$2.7

$2.8

$2.2

$2.3

$2.4

$2.5

$2.6

$2.7

$2.8

Copper PriceUSD/pound; nearest futures contract

Source: Bloomberg

Last Point 05/08/17: $2.49

Chart 2

Nov-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-1718.0

18.5

19.0

19.5

20.0

20.5

21.0

21.5

22.0

97

98

99

100

101

102

103

104

Pesos/USD - left axisU.S. Dollar Index - right axis

Mexican Pesos Per U.S. Dollar and U.S. Dollar Index

Source: Thomson Reuters

Last Points 05/08/17: Pesos/USD, 19.21; USD Index, 99.06

Stro

nger

U.S

. Dol

lar

Stro

nger

U.S

. Dol

lar

Chart 3

Nov-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17820

840

860

880

900

920

940

960

980

1000

151152153154155156157158159160161162

MSCI Emerging Market Stocks Index - left axisBloomberg Emerging Market Bond Index - right axis

Emerging Markets Stocks and Bond Indices

Source: Bloomberg, MSCI

Last Point: 05/08/17: Stocks: 978.27; Bonds: 160.72

Chart 4

Nov-16 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Mar-17 Apr-171.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

10 Year Treasury Yield30 Year Treasury Yield

10 and 30 Year Treasury Yields

Source: Federal Reserve

Last Points 05/08/17: 10-Yr: 2.39%; 30-Yr: 3.02%

Chart 5

1970 1975 1980 1985 1990 1995 2000 2005 2010 20150.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

0.2

0.3

0.4

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0.6

0.7

0.8

0.9

1.0

1.1

Cumulative Number of Federal Restrictionsin millions

Source: The Wall Street Journal; Mercatus Center

Chart 6

1991 1995 1999 2003 2007 2011 2015-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

GermanyJapan

United KingdomUnited States

Real Annual Wagesyear/year percent change

Source: Bloomberg; OECD

Last Points 2016: Ger., 2.9%; Jap., 1.4%; U.K., 1.6%; U.S., 1.0%

Chart 7

1991 1995 1999 2003 2007 2011 2015-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

CanadaFrance

Italy

Real Annual Wagesyear/year percent change

Source: Bloomberg; OECD

Last Points 2016: Can., 1.4%; Fra., 0.9%; Ita., 0.6%

Chart 8

1980 1990 2000 2010 2016-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

-1600

-1400

-1200

-1000

-800

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-400

-200

0

200

400

Federal Budget Balancebillion USD

Source: Congressional Budget Office

Last Point 2016: -$587

Chart 9

Real GDP Growth During Expansionsannualized rates of expansion from NBER trough-to-peak

*Through 1Q 2017Source: BEA; NBER

7.6%

4.0%

5.6%4.9% 5.1%

4.3% 4.4% 4.3%3.6%

2.8%2.1%*

1950 1954 1958 1961 1971 1975 1980 1983 1991 2002 20090%

1%

2%

3%

4%

5%

6%

7%

8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Recession Start Date

Chart 10

1990 1995 2000 2005 2010 201510%

15%

20%

25%

30%

35%

40%

10%

15%

20%

25%

30%

35%

40%

China Exports of Goods and Servicesas % share of GDP

Source: The World Bank

Last Point 2015: 22.1%

Chart 11

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20144%

6%

8%

10%

12%

14%

16%

4%

6%

8%

10%

12%

14%

16%

Chinese Real Gross Domestic Productyear/year percent change

Last Point 1Q 2017: 6.9%

Source: Bloomberg; Chinese National Bureau of Statistics

Chart 12

1947 1955 1963 1972 1980 1988 1997 2005 201311

12

13

14

15

16

17

18

19

20

5%

10%

15%

20%

25%

30%

35%

Level (millions of employees) - left axisShare of Total Nonfarm Payrolls - right axis

Manufacturing Payroll Employmentlevel and share of total

Source: Bureau of Labor Statistics

Last Points April 2017 - Level: 12.40, Share: 8.49%

Chart 13

Fertility and Life Expectancy Rates Fertility Rates Life Expectancy Rates 2014 estimate Total Pop. Women Men

Japan 1.4 84.46 87.99 81.13 Australia 1.77 80.17 83.24 77.25

Italy 1.42 82.03 84.82 79.4 Canada 1.59 81.67 84.42 79.07 France 2.08 81.66 84.91 78.55 Spain 1.48 81.47 84.67 78.47

Netherlands 1.78 81.12 83.34 79.02 Germany 1.43 80.44 82.86 78.15

U.K. 1.9 80.42 82.69 78.26 Eurozone 1.55 81.5 84.1 78.7

South Korea 1.25 79.8 83.13 76.67 U.S. 2.01 79.56 81.94 77.11

China 1.55 75.15 77.43 73.09 Brazil 1.79 73.28 77 69.73 Russia 1.61 70.16 76.3 64.37 India 2.51 67.8 69.06 66.68

Source: CIA and eurostat

Chart 14

Working Age Population

15-64 year olds as a share of the total population

Canada France Germany Italy Japan UK USA China

1960 59.0% 62.0% 67.2% 65.5% 64.1% 64.9% 60.0% 56.4%

1990 68.0% 65.9% 69.1% 68.6% 69.7% 65.3% 65.8% 66.0%

2010 69.5% 64.8% 66.1% 65.6% 64.0% 66.0% 66.9% 72.4%

2030 60.7% 59.4% 58.2% 60.3% 57.3% 61.3% 61.0% 68.9%

2040 59.7% 57.7% 55.2% 55.0% 53.4% 59.7% 60.3% 63.1%

Source: United Nations

Chart 15

G-7 and BRIC Population and Projections; Millions

2017 2025 2050 Japan 126.0 122.8 107.4

United Kingdom 65.5 68.5 75.4 France 64.9 66.9 71.1

Germany 80.6 80.0 74.5 Italy 59.8 59.5 56.5

Canada 36.6 39.1 44.1 United States 326.5 345.1 388.9

China 1,388.2 1,414.9 1,348.1 India 1,342.5 1,461.6 1,705.3

Russian Federation 143.4 141.2 128.6

Brazil 211.2 223.0 238.3 Source: United Nations

Chart 16

1955 1963 1971 1979 1987 1995 2003 2011 2019-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Japanese Populationyear/year percent change

Source: Japanese Statistics Bureau

Projected

Chart 17

G7 Labor Force Participation Rates

Female Male Total

Canada 61% 71% 66%

U.S. 56% 69% 62%

U.K. 56% 69% 62%

Germany 54% 66% 60%

France 51% 61% 56%

Japan 49% 70% 59%

Italy 40% 60% 49%

Source: The World Bank

Chart 18

1980 1990 2000 2010 2020 2050120

140

160

180

200

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240

260

120

140

160

180

200

220

240

260

Chinese Population Aged 15-24millions

*Projections start after 2015Source: United Nations

Projected

Chart 19

Productivity in the U.S. Nonfarm Business Sector avg. annual growth rate by decade

NBER BLS 1901-1910 2.34% na 1911-1920 2.64% na 1921-1930 2.07% na 1931-1940 2.39% na 1941-1950 2.46% na 1951-1960 2.28% 2.14% 1961-1970 2.49% 2.71% 1971-1980 na 1.45% 1981-1990 na 1.61% 1991-2000 na 2.18% 2001-2010 na 2.36% 2011-2016 na 0.53%

Chart 20

1948 1956 1964 1973 1981 1989 1998 2006 201455%

60%

65%

70%

75%

80%

85%

90%

30%

35%

40%

45%

50%

55%

60%

65%

Male - left axisTotal - left axisFemale - right axis

Labor Force Participation Rateseasonally-adjusted

Source: Bureau of Labor Statistics

Last Points April 2017 - Male, 69.2%; Total, 62.9%; Female, 57.0%

Chart 21

1948 1955 1963 1970 1978 1985 1993 2000 2008 201550%

55%

60%

65%

70%

75%

80%

85%

90%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

16 - 24 - left axis25 - 54 - left axis

55 - 64 - left axis65+ - right axis

Labor Force Participation Rateby age group; seasonally-adjusted

Source: Bureau of Labor Statistics

Last Points April 2017: 16-24, 55.9%; 25-54, 81.7%; 55-64, 64.5%; 65+, 19.7%

Chart 22

1997 1999 2002 2004 2007 2009 2012 201411%

12%

13%

14%

15%

16%

17%

11%

12%

13%

14%

15%

16%

17%

United States Manufacturing Value Addedas % share of GDP

Source: Bureau of Economic Analysis; The World Bank

Last Point 4Q 2016: 11.6%

Chart 23

Jan-07 Sep-08 May-10 Jan-12 Sep-13 May-15 Jan-17-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Chinese Exports year/year percent change

Source: China General Administration of Customs

Last Point April 2017: 8.0%

Chart 24

2004 2006 2008 2010 2012 2014 2016150%160%170%180%190%200%210%220%230%240%250%260%

150%160%170%180%190%200%210%220%230%240%250%260%

Chinese Total Debt as a Share of GDPincludes corporate, household, government and bank debt

Source: Bloomberg

Last Point 2016: 257.6%

Chart 25

G7 and BRIC Gross Domestic Product Per Capita: 2015thousand USD

Source: The World Bank

56.12

43.88 43.25 41.3136.21

32.4829.96

9.09 8.54 8.03

1.60

U.S. U.K.

Canada

GermanyFrance

Japan ItalyRussia

BrazilChina

India0

10

20

30

40

50

60

0

10

20

30

40

50

60

Chart 26

G7 and BRIC Personal Consumption to GDP Ratio: 2015

68.1%

65.1%

63.4%

61.0%

59.6%

58.6%

57.5%

55.1%

53.9%

51.9%

37.0%

30% 35% 40% 45% 50% 55% 60% 65% 70% 75%

U.S.

U.K.

Brazil

Italy

India

Japan

Canada

France

Germany

Russia

China

Source: The World Bank

Chart 27

PCE Deflator seasonally-adjusted

Source: Bureau of Economic Analysis

Last Points March 2017 - M/M: -0.2%; Yr/Yr: 1.8%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

Month/Month % Change - left axisYear/Year % Change - right axis

Fed Target: 2.0%

Chart 28

Historic Inflation and Deflation

Period Military Engagement No. of Years Annualized Wholesale Price Change

1749-1755 Peacetime 6 -0.50% 1756-1763 French-Indian War 8 2.27% 1764-1774 Peacetime 11 -0.35% 1775-1783 American Revolution 9 12.31% 1784-1811 Peacetime 28 -1.91% 1812-1815 War of 1812 4 7.78% 1816-1845 Peacetime 30 -2.36% 1846-1848 Mexican-American War 3 -0.40% 1849-1860 Peacetime 12 1.05% 1861-1865 Civil War 5 14.75% 1866-1916 Peacetime 51 -0.74% 1917-1918 World War I 2 23.92% 1919-1940 Peacetime 22 -2.31% 1941-1945 World War II 5 6.12% 1946-1992 Cold War 47 4.20% 1992-2000 Peacetime 8 1.43% 2001-2014 War on Terror 13 2.81%

2015 - Q4 2016 Peacetime 2 1.48%

No. of Years Avg. Price Change Wartime: 96 8.20% Peacetime: 170 -0.47% Total: 266 3.86%

Chart 29

1994 1997 2000 2004 2007 2011 2014100

150

200

250

300

350

400

450

500

100

150

200

250

300

350

400

450

500

Reuters/Jefferies CRB Index

Source:Thomson Reuters

Last Point 05/08/17: 179.69

Chart 30

1774 1814 1854 1894 1934 1974 20140

200

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1200

1400

0

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1200

1400

Real U.S. Commodity PricesCRB Index Deflated by CPI

Source: Bianco Research, Bureau of Labor Statistics, Historical Statistics of the United States

Last Point March 2017: 75.96

Chart 31

2007 2008 2010 2012 2013 2015 2017-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Consumer Price Index Services Index

Durable Goods Index

Consumer Price Indexes year/year percent change

Source: Bureau of Labor Statistics

Last Points March 2017: CPI 2.4%, Services 2.9%; Durable Goods -2.0%

Chart 32

Dec-13 May-14 Oct-14 Mar-15 Jul-15 Dec-15 May-16 Sep-16 Feb-1720

30

40

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100

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Brent Crude OilWTI Crude Oil

Brent and WTI Crude Oil Pricesdollars per barrel; nearest futures contracts

Source: Thomson Reuters

Last Points 05/08/17- Brent: $49.34; WTI: $46.29

Chart 33

2000 2004 2008 2012 20162%

3%

4%

5%

6%

7%

8%

9%

10%

11%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Nonstore Retailers Department Stores

Department and Nonstore Retail Salesas percent share of total retail sales

Source: U.S. Cenusus Bureau

Last Points March 2017: Nonstore, 10.6%; Department Stores, 2.7%

Chart 34

1999 2003 2007 2011 20152%

3%

4%

5%

6%

7%

8%

2%

3%

4%

5%

6%

7%

8%

CPI : Tuition, School Fees, Childcareyear/year percent change

Source: Bureau of Labor Statistics

Last Point March 2017: 2.4%

Chart 35

The Vanguard Groupassets under management; trillion USD

Source: AdvisoryHQ

Last Point 2016: $3.6

1975 1979 1983 1987 1991 1995 1999 2003 2007 20110.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Chart 36

2007 2008 2010 2012 2013 2015 2017-4%

-2%

0%

2%

4%

6%

8%

-4%

-2%

0%

2%

4%

6%

8%

HomeAway From Home Source: Bureau of Labor Statistics

Last Points March 2017: Home -0.86%; Away 2.12%

CPI: Food at Home and Food Away From Homeyear/year percent change

Chart 37

1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 20140%

2%

4%

6%

8%

10%

12%

14%

16%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

20 Year Treasury Yield - left axisConsumer Price Index (Yr/Yr % Change) - right axis

20-Year Treasury Yield and Consumer Price Index

Last Points March 2017: CPI, 2.4%; Yield, 2.62%

Source: Federal Reserve Board; Bureau of Labor Statistics

Chart 38

2007 2008 2010 2012 2014 20160%

1%

2%

3%

4%

5%

6%

0%

1%

2%

3%

4%

5%

6%

FED Funds Target Rate

Source: The Federal Reserve

Last Point 05/08/17: 0.87%

Chart 39

Nov-81 Nov-86 Nov-91 Nov-96 Nov-01 Nov-06 Nov-11 Nov-160

5000

10000

15000

20000

25000

30000

35000

0

5000

10000

15000

20000

25000

30000

35000

25 Year Zero Coupon Bond (Oct-81=100) 27,165 or 17.1% Annual ReturnS&P 500 Total Return (July-82=100) 5,338 or 12.1% Annual Return

Comparative Stock and Bond Performances

Last Points April 2017: Bonds, 27,165.0; Stocks, 5,338.2

Source: Bianco Research; Haver Analytics

Chart 40