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Strategy Update Summer 2014

Slow but Steady Growth

2014 has started of in a reasonably tempered manner, with the Dow
Jones Industrial Average, representing large capitaliation stoc!s,
returning 1"#$ and the %ussell 2000, representing small capitaliation
stoc!s, generating a 2"#$ return during the &rst hal' o' the year" (i)ed
income has delivered nominally positive returns, and international
mar!ets have been mi)ed with slightly positive returns as well" All in
all, the mar!ets have been digesting and consolidating the strong
gains o' 201*, and ad+usting to some o' the geopolitical and economic
ris!s that have sur'aced so 'ar this year ,-!raine, the economic
slowdown in .hina, continued /iddle 0ast volatility1"
2he (ederal %eserve3s economic stimulus program has been efective,
as evidenced by the -"4" unemployment rate 'alling to 5"1$ in June, a
&ve year low, +ob growth has been running at over 200,000 newly
created monthly +obs since last summer, in6ation has been stable at
around 1$, and ma+or stoc! indices have been hitting new highs"
7ighlighting the economy3s growth tra+ectory, the (ederal %eserve has
noted it will end its bond purchasing program as scheduled in 8ctober,
and has issued an open ended, cautiously optimistic assessment o' the
state o' the -"4" economy"
2he long9awaited (ederal %eserve December tapering announcement
arguably represents a turning point 'or many global capital mar!ets" A
level o' uncertainty has been removed 'rom -"4" monetary policy" 2he
taper o' the bond buying program is a signal o' a macroeconomic
consensus that -"4" economic growth is li!ely to be sustainable"

I' global earnings growth continues to improve as we move 'orward in
2014, investors may be in a position to build on recent gains"
4peci&cally, -4 earnings growth should continue to 'ollow the mid to
high single9digit path o' recent years" :hile 0uropean earnings have
remained wea!, they should improve as the 0uropean recovery

Developed economies are slowly progressing toward modest but
synchronied growth, where consumers gain con&dence and
companies shi't toward more hiring and investment" 2he 'avorable
outloo! 'or lower energy prices should allow 'or a more sustainable
period o' global growth, unli!e the recent past when rising energy
prices curtailed potential growth rates"
2hat said, ris!s to this generally 'avorable outloo! remain; we could
e)perience some short9term volatility due to a +ump in bond yields"
4peci&cally, as the (ed winds down its bond buying program, it could
drive a reduction o' leverage in &nancial mar!ets and lead to increased
volatility in asset prices" :e could also see 'urther geopolitical ris!,
including volatility surrounding -!raine and the 0astern 0uropean
countries, and an escalation o' violence in the /iddle 0ast ,Ira<, 4yria,
Israel, =alestine1" :ith ongoing structural issues, 0urope also remains a

2he -"4" mar!et has hit new highs and has completely recovered 'rom
its lows in /arch 200>" :hile not a period o' uninterrupted economic
and political calm, the bull mar!et has been surprisingly robust and
consistent since the summer o' 2011" 2he mar!et currently has limited
volatility" %elative valuations are within normal ranges in many cases"
4entiment is a positive indicator; the rally is hated and distrusted, a
good sign o' continuation while many retail investors are in cash"
%ecently, mergers and ac<uisitions activity has been robust" ?ields are
li!ely to be low and stable 'or some time"
:hile there are areas o' concern, economic prospects loo! very
'avorable overall" 4tronger growth should generate stronger
corporate pro&ts, a li't in con&dence and a more resilient economic
environment" 2hough many countries are engaged in a signi&cant
transition o' one !ind or another, -4 growth appears to be sustainable
and the -4 could serve as ballast 'or the global economy over the ne)t
'ew years" 2he ma+ority o' the world appears to have entered the latter
hal' o' the credit cycle, meaning that rising interest rates, moderating
li<uidity and increasing corporate leverage could lie ahead" 4toc!s
should continue to outper'orm bonds through the end o' this cycle, and
depending on how companies manage their capital structures going
'orward, corporate bonds could be poised to outper'orm -4 2reasuries
'or a 'ew more years" 8verall, we may be in 'or a generally good,
improving economic and investment climate"
I am happy to share thoughts with you in greater detail, and welcome
any comments you may have" 2han! you 'or your support"
Amin @ha!iani
July 1#, 2014