outlook us

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2015: Part 3

Stock Market

OutlookIndependent Research & Market AnalysisPublished uarterly by the Investment Policy Committee

F ISHER INVESTMENTS


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Past performance is no guarantee of future results. 1A risk of loss is involved with investing in stock markets. Phone: 800-568-5082 2015 Fisher Investments. All rights reserved. Email:[email protected]. For personal use only. Q3 2015 Website:www.fisherinvestments.com

2015STOCK MARKET OUTLOOKPART III

Executive Summary

Global stocks rallied through most of Q2 until a Greece-induced selloff in late June left theMSCI World Index up slightly for the quarter and 2.6% year to date.

1Days before quarter end,

global stocks were up nearly 4% for the quarter and over 6% for the yearwell on their way tothe double-digit full-year returns we expect.

2A bit of volatility doesnt change our forecast

back-end loaded years are common, and 2015 still has the makings of a great year.

A bear marketa longer-lasting, fundamentally driven decline exceeding -20%seems unlikelyto us in 2015. However, that doesnt mean stocks will zoom straight up. Pullbacks andcorrectionsshort, sharp, sentiment-driven drops of roughly -10% to -20%are alwayspossible. Corrections can strike any time, for any or no reason, but they are normal. Riding themout is the price forbull markets great long-term returns. When one occurs, stay cool and think

longer term.

But volatility isnt uni-directional. Upside volatilitythe good kindcan move markets just asswiftly as late-Junes downturn. Few fathom this today, but since 1969global stocksmedianquarterly move (up or down) is 5%a magnitude not seen in six quarters.

3Volatility is normal

and can change full-year returns quicklyeither higher or lower. In bull markets, upsidevolatility swamps downside over time. With fundamentals strong, sentiment tame and nosurprising wallops in sight, this bull market should keep running, bringing many happy returns.

Many 2015 trends are developing as we expected, like the Energy sectorsunderperformance.Foreign stocks outperformed, highlighting global investingsbenefits. UK markets surged after

Mays election, finishing among Q2s best. The 86.4% Miraclethe high frequency of positiveUS returns following midterm electionsstayed on track, with US stocks up again in Q2. Withthree positive post-midterm quarters complete, it now becomes the 87.0% Miracle. The strongdollarwidely feareddidnt dent US Q1 earnings, which trounced negative expectations torise 0.9% y/y (8.7% y/y excluding Energy).

410-year US Treasury yields fluctuated but finished

flattish on the year at 2.35%.5The eurozones economic recovery accelerated and broadened, andLeading Economic Indexes (LEI) suggest growth continues. UK LEI is trending higher, and USLEI is high and risingglobal growth is healthy.

Yet sentiment remains amazingly skeptical. Bull markets usually climb a wall of worry asdepicted by Sir John Templeton: Bull markets are born on pessimism, grow on skepticism,

mature on optimism and die on euphoria. Six-plus years into this bull, optimism is sprouting,but skepticism remains. For example, few fear weak economic datadeep pessimism is gonebut many see bad news as good, believing it will delay an interest rate hike. Though the USeconomy has been in expansion since 2011 (when real GDP surpassed its pre-recession peak),many still call it a recovery. Virtually no one calls it a boom. Few see stocks strongfundamental support, instead mistakenly believing the Fed alone is powering markets. Thisskepticism extends the wall of worry and should help prolong this bull market. We believe
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2 Past performance is no guarantee of future results.Phone: 800-568-5082 A risk of loss is involved with investing in stock markets.Email:[email protected] 2015 Fisher Investments. All rights reserved.Website:www.fisherinvestments.com Confidential. For personal use only. Q3 2015

seeing through widespread skepticism and positioning appropriately for the maturing bull marketis a must for investors today.

We also watch for wallopshuge, surprising negatives that could derail the bull before reaching

its typically euphoric top. But in a $77 trillion-and-growing world economy, it would take a fewtrillion dollars worth of negatives to render recession and end a bull. No risks we can identifytoday come close. Instead, we have the opposite: Small, feckless, misperceived fears dominateheadlines, like Greece and a Fed rate hike. When big false fears exist, the most bullish outcomeis for them to happen fastproving them immaterial, like pebbles thrown in a big lake, causing afew ripples then disappearing. Dispelling false fears converts skeptics to optimists, pushingstocks further up the wall.

Greece and a rate hike are tiny pebbles. With annual GDP near $200 billion, Greece is about asbig as Detroitstocks did great in 2013, while Detroit went bankrupt. If Greece vanishedovernight, global GDP would lose about 0.3%China alone is projected to add three times that

to world output this year. Its problems are also contained. Bond yields and default insurancecosts show almost no contagion risk. As for rate hikes, no initial hike has ever ended a bull. IfGreece and the Fed just get on with it, markets could finally move past them.


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Table of Contents

Appendix I: Sentiment, Economics and Politics Support the Bull 4

Volatile Volatility 4

Markets Don't Need Rescuing 6The Globe Is Growing 7Politics Point Positively 7Interest Rate Outlook 8

Appendix II: A Strong Economic Foundation 10

US Earnings Stronger Than the Dollar 10Eurozone Earnings' Overlooked Strength 11US Economy Chugging Higher 11Eurozone: Underappreciated Growth 13UK Economy Still Rockin' 13

Appendix III: Greece and Rate HikesLet's Get On With It! 14

Greece Is the New Detroit 14Rate Hikes: It Isn't Different This Time 15

Appendix IV: Assessing 2016 17

2016 and the Perverse Inverse 18An Early Look at the Senate Races 18Hillary Remains the Democrats' Front-Runner 19The Republican Fracas 19Polling's Limitations 20

Appendix V: China Ascends and Crashes? 21

Dethroning the Dollar 21China Isn't Open 22

China's Bubble Bursting? 23


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Appendix I: Sentiment, Economics and Politics Support the Bull

While Q2s final trading sessions muted an overall solid quarter for global stocks, a few daysshouldnt alteryour outlook. A week before quarter end, global markets were up 6.2% for the

year.6

US stocks were up 4.2%.7

Another round of Greek brinksmanship wrought volatilityreducing global returns to 2.6% and US returns to 1.2%but such moves can reverse fast.8

Exhibit 1: Cumulative Returns Through June 30

FactSet, as of 7/8/2015. MSCI World Index with net dividends, 12/31/20146/30/2015. June 23 iscircled.

Fundamental support for double-digit global returns in 2015 abounds. Skeptical sentimentpersists. Economic fundamentals point to growth. Most major competitive nations havegridlocked governments. The backdrop for stocks is bullish.

Volatile Volatility

Before its final days, Q2 was another relatively calm period for stocks. Returns finished thequarter up less than 1%, far lower than global stocks median quarterly move(up or down) ofjust over 5%. (Exhibit 2)

-4

-2

0

2

4

6

8

12/31/2014 2/28/2015 4/30/2015 6/30/2015

CumulativeReturn

(Percent)

MSCI World

S&P 500


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Exhibit 2: MSCI World Quarterly Return Magnitude (Absolute Value)

FactSet, as of 7/8/2015. Absolute value of MSCI World Index quarterly returns with net dividends,12/31/19696/30/2015.

Global stocks last topped the median move in Q3 and Q4 2013, rising 8.2% and 8.0%sequentially. While many think volatility means down, it is actually a dual-edged sword: A 2%up move is as volatile as a 2% down move. In bull markets, upside volatility is more commonthan downside. Since 1969, 61 of 72 bull market quarters exceeding the median quarterly move

were up.9Bull market years are also frequently back-end loaded, with roughly 40% of yearssince 1970 posting double-digit gains.10World stocks can easily attain the double-digit returnswe forecast.

With US stocks trading in a narrow high-to-low range throughout Q2, many US-focusedinvestors expect little from stocks. Foreign markets, however, have moved more. (Exhibit 3)Though volatility isnt predictive, thinking globally can improve your perspective. Foreignstocks also continued outperforming the US, underscoring global diversifications benefits.

0

5

10

15

20

25

30

1Q1970

1Q1974

1Q1978

1Q1982

1Q1986

1Q1990

1Q1994

1Q1998

1Q2002

1Q2006

1Q2010

1Q2014

Re

turnMagnitude(AbsoluteValue,P

ercent)

MSCI World Quarterly Return Magnitude

Median Quarterly Return Magnitude


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Exhibit 3: Cumulative Return Year-to-Date, US Vs. Foreign

FactSet, as of 7/8/2015. MSCI USA returns with gross dividends and MSCI World Ex. USA with netdividends, 12/31/20156/30/2015.

Markets Dont Need Rescuing

Six-plus years into the bull market, skepticisms persistence is astounding. Even now, with manyindexes globally well beyond 2007 peaks and US GDP well into record territory, the press oftenpresumes the US recovery still needs support via low interest rates or stimulus. The recovery

technically ended in 2011, when US GDP passed its pre-recession peak.11

We are in expansion.

Fear of a crash when central banks and governmentsthe rescuerspull support is a centraltheme of this bull. First, it was the end of 2009s $787 billion fiscal stimulusprogram. Then itwas quantitative easings (QEs) end, 2012s fiscal cliff, sequestration, another bout of QE-cessation fears and, lately, rate hikes. Many worry a recession now would find the rescuers outof ammunition, given rising debt, a huge Fed balance sheet and near-zero overnight rates. Whocould rescue us?

These beliefs miss a key factoid: Thisbull market isnt unusualit is climbing the wall of worrylike all before it. It is rare for such fears to exist so long into bull market, but societys cult-like

obsession with central bankers might explain it. Pundits analyze every data point for itsimplications for Fed moves. Bad news on jobs reports is good news because it means the Fedwont hike yet. Surging consumer spending is bad for the opposite reason.

No initial rate hike has ended a bull market. Usually, the first rate hike comes during times ofprosperity, when low interest rates arent necessary to support economic activity. The Fed isntperfect, but trouble usually comes after they overshoot, which usually takes several hikes.

-10

-5

0

5

10

15

Dec 2014 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015

Cumulative

Return(Percent)

ForeignUS


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Whenever the Fed begins tightening, we expect stocks to prove resilientas they have whenreality dispelled other fears of departing rescuers. While only one factor, a non-catastrophic ratehike could help skepticism warm further into optimism.

The Globe Is Growing

Many overlook the global economys health. US Q1 GDP was revised up from a -0.2%contraction to 0.6% growth as the US Bureau of Economic Analysis addressed shortcomings inits seasonal adjustment calculations.12Though the revised figure still represented a slowdown,this stemmed largely from West Coast ports work stoppage and cutbacks at oil producers. Withdockworkers back on the job in Q2, growth reaccelerated to 2.3%.

13The UK economy continues

growing nicely, with growth also accelerating in Q2, and the eurozones resurgence continues,with all four major economiesGermany, France, Spain and Italycontributing. Q1 S&P 500earnings grew, defying strong dollar fears and surprising analysts. The Conference BoardsLeading Economic Indexes (LEI) for the US, UK, Spain, France, Germany and the eurozone are

in lengthy uptrends.

Weak spots persist, particularly in commodity-heavy economies (Russia, Brazil, Canada,Australia), but this is unsurprisingand offset by nations benefiting from lower commodity andenergy costs. Many nations longer-term interest rates rose in Q2, steepening yield curves. USlending and money supply are growing at a healthy clip. Eurozone lending has resumed growing.Data can be chaotic month-to-month and even quarter-to-quarter, but global growth seemspoised to continue.

Politics Point Positively

Politics remain a tailwind for stocks for the remainder of 2015 at least. 2015 is the third year ofPresident Obamas second term and, since 1926, 91% of third years and 82% of fourth yearshave been positivefar exceeding years one and two.

14

Exhibit 4: Frequency of Positivity and Average Return by Presidential Term Year

Source: Global Financial Data, Inc., as of 1/7/2015. S&P 500 Total Return Index, 19262014. SeeApp endix IV for a more detai led versio n of this table.

As discussed more in Appendix IV, this reflects presidential powers front-end loaded nature.Presidents political capital is usually highest right after winning election. Therefore, theygenerally stuff contentious legislation into the first two years. By year three, most focus on thenext election or their legacy via diplomacy and foreign policy. Divisive legislation tends tohamper campaigns, which mostly target Americas middle. With over 20 candidates in the fray,political focus is shifting.

Year of Term 1 2 3 4

Frequency of Positive Returns 54.5% 65.2% 90.9% 81.8%

Average Return 9.2% 9.1% 18.5% 11.1%


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Outside America, competitive economies remain gridlocked. The Conservatives won a razor-thinmajority in the UKs May elections, probably too slim a margin to ram through extreme laws.Most eurozone Parliaments have tightened, too. Core nations like Germany and France remaintoo divided to pass much. Political fracturing in Spain and Portugal, which hold elections later

this year, should prevent the next governments from unwinding recent reforms, another benefit.

Interest Rate Outlook

After falling for most of Q1, 10-year US Treasury rates rose in Q2 and finished the quarter up19 basis points (bps) at 2.35%. At 2015s outset, we expected 10-year Treasury yields to finishthe year flattish, but wiggle along the way. 2015s first half exemplifies this. We dont see acompelling reason to change our forecast today.

Many drew premature conclusions from developed-world ratesquick Q2 rise. Some suggest itsignalsbond yieldsoverall decline since the early 1980s is over, with a prolonged bond bear

market looming. Others suggest volatility is rising. However, we wouldnt readmuch intothese moves. Extrapolating recent trends forward is a behavioral error, and recent rategyrations arent unusual.The year-to-date spread between high and low 10-year Treasury ratesis 84 bpsnearly matching the median peak-to-trough change through six months, 85 bps.(Exhibit 5)

Exhibit 5: Peak-to-Trough 10-Year Treasury Rate Changes Through June 30

Source: FactSet, as of 7/7/2015. Maximum yield minus minimum yield over the period January 1June 30 of each year from 19562015.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

Median

PercentagePoints
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Despite Q2s uptick, major developed nations sovereign bond rates remain historically lowabyproduct of Japanese and eurozone quantitative easing (QE) programs restricting supply ofhigh-quality sovereign debt globally. Most fail to appreciate just how connected globalsovereign bond markets are. While the ECB and BoJ arent buying US Treasurys, institutional

investors requiring high-grade sovereign debt, including pension funds, insurers and banks,are. US rates still exceed Japan, most major eurozone nations and UK Gilts. All else equal,buyers seeking high-grade sovereigns likely choose higher-yielding bondstoday, Treasurys.

In recent quarters, low inflation expectations depressed yields. Looking forward, inflationmeasures may be noisy as energy costs remain volatile. This will particularly impact year-over-year calculations, which compare todays level with last years. Energys large drop inautumn 2014 creates a low bar for todays levels. If inflation measures gyrate with commodityprices, changing inflation expectations will likely stoke further rate wiggles.

Markets remain infatuated with the timing of this market cyclesfirst Fed rate hike. However,

Fed actions arent predictable. They are based on the 10-member Federal Open MarketCommittees (often biased) interpretations of volatile economic data. Nor do Fed rate hikesautomatically translate to higher long-term interest rates. From June 2004 through June 2006,the Fed hiked 17 timesfrom 1% to 5.25%yet 10-year rates rose only 52 bps from the daybefore the first hike through the last one, and most of the gain came in the last three months.15


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Appendix II: A Strong Economic Foundation

Spring thaw and a strong business backdrop propelled the US economy past its winter softpatch in Q2, and most evidence suggests growth should continue. Ditto for Europe, where

earnings growth is little noticed and economic growth is broadening.

US Earnings Stronger Than the Dollar

Entering Q1searnings season, analysts expected aggregate S&P 500 earnings to fall -4.6%y/y, as the strong dollar hit export revenues. Yet earnings grew 0.9% y/y. Excluding theEnergy sectors widely expected -56.6% earnings declineprofits rose 8.7% y/y.16

Revenues largely met pre-season expectations for around -2.9% y/y (+2.4% excludingEnergy)evidence analysts underestimated earnings because they underestimated the dollarsimpact in reducing costs. Most know a strong dollar reduces overseas revenues through

currency conversions or lower sales. However, it also lowers overseas costs, and the impact isoften zero-sum or close to it.

Bullishly, few have caught on. Though the dollar wasnt a huge headwind in Q1forcinganalysts to boost estimates as data rolled inmost still expect pain as Q2 results arrive. As ofJuly 2, analysts expected a -4.5% y/y Q2 earnings dip, nearly matching their Q1 preseasonprojection.

17Strong-dollar false fears remain, potentially teeing up more positive surprise.

Exhibit 6: The Dollar, Earnings and Earnings Expectations

FactSet, as of 7/22/2015. Estimated growth in S&P 500 earnings for Q1 and Q2 2015.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15

Year-Over-YearGrowthRate

Q1 2015 Earnings Growth Estimates

Q2 2015 Earnings Growth Estimates

Everything to the right of the dots includes ablend of estimates and actual results.


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Eurozone Earnings Overlooked Strength

Foreign firms earnings and revenues have exceeded expectations , too. With 239 of 240companies reporting, the MSCI European Economic and Monetary Union Indexs Q1 earnings

grew 12.8% y/ywhopping growth and better than the initial estimate of 9.3% y/y.

18

Thisincludesbig (and unsurprising) declines in Energy (-18.3% y/y) and Materials (-25.8% y/y).Revenues tell a similar story. Though total revenues fell -3.1% y/y, Energy (-28.7% y/y) wasthe primary detractorweakness isnt broad-based. Excluding Energys big negativecontribution, revenues grewnicely, illustrating Energys large skew.

These exemplify the underappreciated positive fundamentals supporting eurozone stocksstrong year-to-date returns. While many credit the ECBs quantitative easing(QE) bondbuying, QE launched in March. It likely had nothing to do with eurozone corporationsexcellent earnings results. The credit given to the ECB for rescuing the eurozone with QEshows investors overlook the positives. The gap between sentiment and reality is wide indeed.

US Economy Chugging Higher

US Q1 GDP growth, previously reported at -0.2%, was revised up to 0.6% on July 30, after theBureau of Economic Analysis (BEA) changed its seasonal adjustment computations. Thoughslower than previous quarters, there are some mitigating factors.

19Most notably, US West

Coast ports winter work stoppageheavily impacted trade. When work resumed in earnest inMarch, imports spiked. Since GDP math subtracts imports (even though they actually signalhealthy demand), imports 7.1% riseheavily detracted.20Growth resurged in Q2, speeding to2.3% as consumer spending accelerated and exports resumed growingmore evidence strongdollar fears are misplaced.21GDP has little to no implications for forward-looking stocks as itis released at a significant lag, but it does reaffirm economic trends, and in this case i t confirmsAmericas expansion is alive and well.

How trends square with expectations is crucial for stocks, and economically, the US is onbetter footing than many believe. Consumer spending rose in four of the past five months,capped by Mays0.9% m/m (3.6% y/y) gain.

22Folks often fixate on retail sales and ignore

consumer spending. This is backwards, as consumer spending includes retail sales and servicesspending. Consumer spending is the broader, less volatile, more telling statistic of the two, andit has broadly trended higher since 2014.

Throughout Q2, the Institute for Supply Managements (ISM) manufacturing and non-manufacturing (predominantly services) Purchasing Managers Indexes (PMIs) remainedabove 50indicating more firms grew than contractedas they have for most of thisexpansion. Both surveysNew Orders Indexestodays demand, tomorrows productionshow growth. (Exhibit 7)


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Exhibit 7: ISM Manufacturing and Non-Manufacturing PMIs and New Orders

Source: FactSet, as of 7/24/2015. ISM Manufacturing and Non-Manufacturing PMI and Neworders, December 2008June 2015.

Looking ahead, growth likely continues. The Conference Boards US Leading Economic Index(LEI) has risen in 16 of 17 months (up 0.6% m/m in June). In LEIs 55-year history, no USrecession has started while the index was high and rising.

Exhibit 8: US LEI

Source: FactSet, as of 7/24/2015. The Conference Boards US Leading Economic Index, January1959June 2015.

30

35

40

45

50

55

60

65

70

Dec-08Dec-09Dec-10Dec-11Dec-12Dec-13Dec-14

Manufacturing PMI

Non-Manufacturing PMI

20

30

40

50

60

70

80

Dec-08Dec-09Dec-10Dec-11Dec-12Dec-13Dec-14

Manufacturing New OrdersNon-Manufacturing New Orders

0

20

40

60

80

100

120

140

Jan-59 Sep-65 May-72 Jan-79 Sep-85 May-92 Jan-99 Sep-05 May-12

US Recessions

LEI


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Eurozone: Underappreciated Growth

After Q1s 0.4% q/q (1.5% annualized) growth, the eurozone has grown eight straight quarters.And big economies like Spain (0.9% q/q) and France (0.6% q/q) werent alone. Out of the 17

reporting countries as of 7/27/2015, only four (Estonia, Finland, Greece and Lithuania)contractedgrowth is increasingly widespread.23

Juneseurozone PMIs also illustrate growths breadth. The blocs composite PMI (servicesplus manufacturing) stayed in expansion all quarter, as did German, French, Spanish andItalian composite PMIs. Eurozone LEI rose an eighth straight month in June (0.4% m/m),suggesting growth should continue.

24

UK Economy Still Rockin

Despite nagging criticism of allegedly unbalancedgrowth, the UK economy remains among

the developed worlds strongest. GDP rose 0.4% q/q (1.5% annualized) in Q1 and 0.7% q/q(2.8% annualized) in Q2, led once again by servicesthe bulk of UK economic activity. Whilesoft patches remain, the backbone is strong.

Business investment continued rebounding from its brief autumn dip in Q1, growing 2.0% q/q.Though many believe UK growth isnt stable until components like business investment andexports pick up, consider: Quarterly business investment has risen 37.1% since 2009 ended,and hit an annual all-time high in 2014.25While trade remains choppy, it also hasntpreventedgrowth. Plus, the UK is a services- and consumption-oriented economy. ThoughManufacturing PMI slowed in June, Services PMI accelerated to 58.5 from Mays 56.5,capping a strong Q2. Retail sales are in a long uptrend. Those areas are driving growth, andthere is nothing inherently unstable about it.


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Appendix III: Greece and Rate HikesLets Get OnWith It!

Folks have long fretted Greece leaving the euro and the Fed hiking rates. Neither has walloppowerGreece is too small, and a rate hike too inconsequential to the economy and capital

markets. When big fears exist and your analysis finds them feckless, you should want them tohappen soon. Then everyone can see they werentso bada tiny pebble thrown into a big lake,causing just a few small ripples, then disappearing. Society can get over it and continue climbingthe wall of worry with one less fear weighing them down. We cant forecast if Greece leaves theeuro or when the Fed will hike, but wed be delighted if theyd just get on with it.

Greece Is the New Detroit

At press time, Greece and the eurozone have agreed in principle on a new bailout, which couldgrant Greece up to 86 billion in loans over the next three years if Greece implements severalcontentious reforms. Additionally, the EU extended Greece a 7.16 billion bridge loan, allowing

it to clear its arrears with the IMF and repay 4.2 billion due the ECB July 20. Markets cheeredthe agreement, but the terms are as onerous as prior bailout conditions, which Greece failed tomeet. Given Greeces history of not implementing reforms even before its current anti-austeritygovernment took power, we see little reason to believe this is the last of Grexit brinksmanship.Should Greece ultimately leave the euro, we expect the global fallout to be minimal, relievinginvestors of a long-held false fear.

Wallops take trillions. Greeces GDP is roughly $200 billion0.3% of the world.26Compare itsGDP to corporate revenues (both rough snapshots of annual output), and Greece roughly matchesGeneral Motors in 2007, the year before its implosion began. GMs bankruptcy didnt sinkstocks. GM announced impending default in April 2009, weeks after the bull began, and filed

Chapter 11 that June. Stocks soared in 2009. Greece today is similar to Chevrons and SamsungElectronics 2014 revenues and smallerthan Toyota and Volkswagen. It is unlikely any of thesewould cause a global recession by going bankrupt.

Greeces GDP is roughly the size of Detroits in 2013, the year it went bankrupta great yearfor stocks.27Greece is a bit bigger than San Diego and San Jose, smaller than Phoenix. (Exhibit9) It is comparable to Frankfurt, Madrid and Buenos Aires, smaller than Toronto and Melbourne.A regional bankruptcy in any of these is unlikely to cause global calamity.


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Exhibit 9: If Greece Were a US City

Source: US Bureau of Economic Analysis and FactSet, as of 6/3/2015. US Metropolitan Areanominal GDP in 2013, Greek nominal GDP in 2014.

Greece may stoke volatility, but true contagion is unlikely. As bailout talks faltered and Grexitrisk soared in early Q3, markets outside Greece were relatively calm. Greek bond yields andCredit Default Swaps (CDS)the cost of insurance against defaultsoared. But yieldselsewhere rose only slightly. Portuguese CDS, which rose as Greeces early 2012 defaultapproached, remained near rock-bottom. Greek stocks fell a huge -25.7% on the year beforelocal markets closed for five weeks on June 29, but eurozone and global stocks were resilient.28

Exhibit 10: CDS Costs, 2012 Versus Today

Source: FactSet, as of 7/7/2015. One-year CDS spreads for Greece, Spain, Italy, Portugal andIreland, 12/31/201012/31/2012 and 12/31/20147/6/2015. Shading indicates Greece in default. Y-axis is truncated at 6,000 basis points to better display the other four nations.

Rate Hikes: It Isnt Different This Time

Throughout this bull market, folks have near constantly fretted the end of fiscal or monetarygovernment support. Today folks fear hiking rates after nearly seven years of near-zero rateswill kill the bull. It is a near-repeat of 2013s quantitative easing(QE) taper terrorstocks didgreat then. False fears are bullish. Stocks are usually positive after the Fed hikes.

Rank RankTop US Metro Areas

and Greece

Billions of

Dollars

1 New York City 1,471 11 Seattle 285

2 Los Angeles 827 12 Miami 2813 Chicago 590 13 Minneapolis 228

4 Houston 517 14 Detroit 225

5 Washington, DC 464 15 Phoenix 210

6 Dallas 448 16 Greece 200

7 San Francisco 388 17 San Diego 198

8 Philadelphia 383 18 San Jose 197

9 Boston 371 19 Denver 179

10 Atlanta 307 20 Baltimore 169

Top US Metro Areas

and Greece

Billions of

Dollars

0

1000

2000

3000

4000

5000

6000

Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

CDSSpreads(BasisPoints)

Greece Spain Italy Portugal Ireland

0

1000

2000

3000

4000

5000

6000

Dec-14 Feb-15 Apr-15 Jun-15

CDSSpreads(Basis

Points)

Greece Spain Italy Portugal Ireland


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Six-plus years have passed since the bull beganthe longest ever without a rate hike. Peoplefocus on this, assuming near-zero interest rates fueled stocks, but this is like driving forwardwhile looking backward. Few mention the length of time between the first hike and abulls end.(Exhibit 11) The six bull markets since 1970 have all lasted over a year after the Feds first

move. The average length after an initial hike is 3.3 years, with returns through the peak rangingfrom 21% to 225%. Initial rate hikes dontkill bull markets.

Exhibit 11: Bulls Keep Running After Initial Rate Hikes

Source: Federal Reserve and FactSet, as of 7/27/2015. S&P 500 price returns, 5/26/197010/9/2007.

The Fed usually hikes several times before bull markets end. In 20042006, they hiked at 17straight meetingsthe bull ran until 2007 (and its end was unrelated to rates). Alan Greenspanhiked seven times in 1994/1995.

Historically, the first few hikes arent problematic.Trouble comes when the Fed overshoots,inverting or flattening the yield curve and choking lending. With a 223-basis point gap between

overnight and 10-year interest rates, todays yield curve can take a hike. Also, rate hikes arentirreversible. An initial hike (or even several hikes) doesnt mean tighteningmust continue. Boththe 19821987 bull and the 1990s bull saw a series of rate hikes turn to cutsand cuts back tohikesall while stocks rose. We dontencourage confidence in Fed officialsabilities, butassuming one hike means steadily rising rates is wrong.

The sooner the Fed hikes, the sooner markets climb over the fear and up the wall of worry.Markets have priced in the fearit has been discussed to death for nearly two years, and marketshave efficiently discounted central bank moves during this bull market. Most thought QEtapering would raise long-term rates. They fell. Rates instead rose in 2013, before tapering beganin January 2014. Most thought eurozone QE would drag down interest rates, but eurozone bond

yields fell before QE began in March, then rose after it started.

Fear is baked in, setting markets up for a big rally once the Fed hikes and investors see it isfeckless. Dont fear the hike when it happenscheer it.

Bull Market

Beginning

First Rate

Hike

Bull Market

End

Years From 1st

Hike to Market Peak

Return From 1st

Hike Through Peak

5/26/1970 7/16/1971 1/11/1973 1.5 21.3%

10/3/1974 8/16/1977 11/28/1980 3.3 43.8%

8/12/1982 3/27/1984 8/25/1987 3.4 114.1%

12/4/1987 3/29/1988 7/16/1990 2.3 41.9%

10/11/1990 2/4/1994 3/24/2000 6.1 225.1%

10/9/2002 6/30/2004 10/9/2007 3.3 37.2%Average -- -- 3.3 80.6%
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Appendix IV: Assessing 2016

As always, our political commentary aims to assess potential market impact. We favor neither

party and believe political ideology is dangerous in investing.

For the next 1218 months, politics should support stocks. 2015 is the third year of PresidentObamas second termhistorically the most frequently positive, building off the 87% Miraclewe discussed in Appendix I. Exhibit 12 shows US stocks returns by presidential term year since1926. Note the significant reduction in negatives in third and fourth years. By year three,Congress has likely already acted on the Presidents legislative priorities (to the extent they will),and politicians are eyeing the next election.

Major, contentious legislation takes significant political capital, and presidents are usuallystrongest early. 2010s Dodd-Frank and Affordable Care Acts, 2001s Patriot Act, the 1981 taxreforms, and the avalanche of New Deal legislation in 1933 and 1934 all occurred in the

presidents first and second years. Once election season begins, campaigning politicians typicallyavoid radical change. Milquetoast gets the middle, and milquetoast politicians are bullish.

Exhibit 12: The Presidential Term Anomaly

Source: Global Financial Data, Inc. and FactSet, as of 1/7/2015. S&P 500 Total Returns, 19262014.

Party President

R Coolidge 1925 N/A 1926 11.1% 1927 37.1% 1928 43.3%

R Hoover 1929 -8.9% 1930 -25.3% 1931 -43.9% 1932 -8.9%

D FDR -- 1st 1933 52.9% 1934 -2.3% 1935 47.2% 1936 32.8%

D FDR -- 2nd 1937 -35.3% 1938 33.2% 1939 -0.9% 1940 -10.1%

D FDR -- 3rd 1941 -11.8% 1942 21.1% 1943 25.8% 1944 19.7%

D FDR / Truman 1945 36.5% 1946 -8.2% 1947 5.2% 1948 5.1%

D Truman 1949 18.1% 1950 30.6% 1951 24.6% 1952 18.5%

R Ike -- 1st 1953 -1.1% 1954 52.4% 1955 31.4% 1956 6.6%R Ike -- 2nd 1957 -10.9% 1958 43.3% 1959 11.9% 1960 0.5%

D Kennedy / Johnson 1961 26.8% 1962 -8.8% 1963 22.7% 1964 16.4%

D Johnson 1965 12.4% 1966 -10.1% 1967 23.9% 1968 11.0%

R Nixon 1969 -8.5% 1970 4.0% 1971 14.3% 1972 18.9%

R Nixon / Ford 1973 -14.8% 1974 -26.5% 1975 37.3% 1976 23.7%

D Carter 1977 -7.4% 1978 6.4% 1979 18.4% 1980 32.3%

R Reagan -- 1st 1981 -5.1% 1982 21.5% 1983 22.5% 1984 6.2%

R Reagan -- 2nd 1985 31.6% 1986 18.6% 1987 5.2% 1988 16.6%

R Bush 1989 31.7% 1990 -3.1% 1991 30.5% 1992 7.6%

D Clinton -- 1st 1993 10.1% 1994 1.3% 1995 37.6% 1996 23.0%

D Clinton -- 2nd 1997 33.4% 1998 28.6% 1999 21.0% 2000 -9.1%

R Bush, G.W.-- 1st 2001 -11.9% 2002 -22.1% 2003 28.7% 2004 10.9%

R Bush, G.W.-- 2nd 2005 4.9% 2006 15.8% 2007 5.5% 2008 -37.0%

D Obama -- 1st 2009 26.5% 2010 15.1% 2011 2.1% 2012 16.0%

D Obama -- 2nd 2013 32.4% 2014 13.7% 2015 ? 2016 ?

First Year Second Year Third Year Fourth Year

Republicans Average

Democrats Average

All (Average)

8.0%

14.1%

11.1%

16.4%

20.7%

18.5%

8.2%

10.0%

9.1%

0.7%

16.2%

9.2%


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The US presidential election season is ramping up, with more and more candidates entering thefray. At last count, enough candidates had announced to field a baseball game with two reliefpitchers, which may not be a bad way to narrow the field.

Many will be tempted to assess candidates strengths and weaknesses, digest their plans andhandicap their chances, but such analysis is premature where portfolios are concerned. Now is atime to assess broad trends more than specifics, which will morph massively before 2016s vote.

2016 and the Perverse Inverse

The principal risk we see in 2016s elections is a Republican sweep eliminating gridlock, teeingup what we call, The Perverse Inversemarkets tendency to rally in election years whenRepublicans seize the presidency from Democrats, but falter the next.

Exhibit 13: The Perverse Inverse

Source: Global Financial Data and FactSet, as of 1/7/2015. S&P 500 Total Return, 19262014.

In our experience, the investing public leans Republican. Campaigning Republicans typicallytout market-friendly promises, lifting election-year investor sentimentand returnswhen theywin. But after inauguration, reality disappoints when the new president proves to be a politician,eyes re-election and moderates. By contrast, Democrats often stir fears of redistribution and anti-market change while campaigning, dampening election-year returns. But after inauguration they,too, prove to be politicians and moderatea positive for stocks post-inauguration. Should a

Republican take the White House, the Perverse Inverse implies a big 2016, but weak 2017. If aDemocrat wins, it favors below-average returns in 2016, but big returns in 2017. (This is onlyone factor of many, but still a noteworthy historical tendency.)

Below-average returns arent necessarily negative or a bear market. But if the Republicans holdthe House and Senate, a Republican presidential victory would end the bullish gridlock stockshave enjoyed since 2011.

An Early Look at the Senate Races

Most pundits say 2016sSenate races structurally favor the Democratstrue, but barely. With

the Republicans holding a 54-46 Senate majority (the two independents caucus with Democrats),Democrats must win a net five Republican seats. Republicans must defend seven seats in statesthat voted Democratic in recent Presidential elections, while the Democrats arent defending anyin Republican territoryhence their structural edge. However, the seven seats include ChuckGrassley (IA) and Rob Portman (OH)difficult to unseat. Meanwhile, Democrats must defendHarry Reids open Nevada seat, which will likely be hotly contested. While further retirements,

Election Year First YearRepublican Elected 15.5% 0.7%

Democrat Elected 7.4% 16.2%


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appointments and other factors could change the backdrop, Democrats face a difficult road to amajority.

With Republicans holding the House by a wide margin, incumbency favors a continued edge

there, further raising the likelihood a new Republican President would have a RepublicanCongress in 2017, eliminating gridlock.

Gridlock prevents major, contentious new laws from spooking markets. It requires compromiseon big bills, likely defanging potentially problematic tweaks to property rights. While somemight relish a government with less squabbling, competitive economies dont need activegovernments. Sweeping legislation often has unintended consequences bringing more harm thanbenefits. 2002s dastardly Sarbanes-Oxley Act is a relatively recent, powerful example. Thepossibility of extreme legislation in 2017, while most investors remain giddy over a Republicanvictory, is a noteworthy risk to the bull.

Hillary Remains the Democrats Front-Runner

Hillary Clinton doesntfit the mold of a typical Democrat nominee. Ordinarily, Democrats favorunderdogs that surge from the back of the pack; little-known fresh faces providing blankcanvases party leadership can paint any which way to generate enthusiasm.

At this juncture, few signs suggest an underdog is emerging, but that isnt unusual. In a June 26,2007, CBS News poll of likely Democratic voters, Clinton led Barack Obama 48% to 24%.29Real Clear Politics had a smaller margin (37.0% vs. 22.8%) with Clinton in the lead. Virtually nopolls showed Obama leading until early 2008.

However, it isnt clear the current candidate pool contains the charismatic, fresh-faced underdogDemocrats typically rally around. Bernie Sanders is a 73-year-old career politician on CapitolHill since 1991. His rise in polls draws comparisons with Eugene McCarthys surge in 1968,which spoiled Lyndon Johnsons chances, but McCarthy didnt get the nod. Rhode IslandGovernor Lincoln Chafee has long been on the political scene, having served in the Senate (as aRepublican) from 19992007. Former Baltimore Mayor and Maryland Governor MartinOMalley, less of a national figure, is arguably the most typical Democratic candidate in the racethus far. The longer it takes for a blank-slate candidate to emerge, the more likely Hillary getsthe nod. However, history strongly suggests she faces headwinds in a general election.Democratic candidates have fared far better when they are little knownlike Mrs. Clintonshusband in 1992.

The Republican Fracas

It is impossible to discern who comes out of that (currently) 16-person GOP fracas. It will likelytake the early primaries to narrow the still-growing field.

Ultimately, campaigns are won by good campaigners. Of the 16 in the race officially now(including just-announced John Kasich), only Rick Perry, Rick Santorum and Mike Huckabee


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have run this track before. Each had snafus. Of the rest, it is impossible to identify the goodcampaigners today. People get too carried away over money, name recognition, resumes andwho they like. Most of these candidates are totally untested on the big stage.

Pollings Limitations

Early polls, based mostly on name recognition, are rarely accurate. At this point in 2007, formerNew York Mayor Rudy Giuliani and former Tennessee Senator/Law & Orderstar FredThompson led the eventual candidate, Arizona Senator John McCain.30

Even polls close to elections havent been tellinglately. As Cliff Zukin (Rutgers Professor andpast president of the American Association for Public Opinion Research) wrote in a recentNewYork Times op-ed, Election polling is in near crisis, and we pollsters know. Two trends aredriving the increasing unreliability of election and other polling in the United States: the growthof cellphones and the decline in people willing to answer surveys. Some estimates suggest

nearly 40% of American households donthave a landline now, so fewer phones can be auto-dialed, due to 1991sTelephone Consumer Protection Act. Response rates have cratered, makingsampling even less representative. Finally, as renowned pollster Nate Silver wrote atFive ThirtyEight, pollster herding is an additional issue.

31Polling firms will occasionally discard resultsthat seem like outliers.

Polls didnt foretell the margin of 2014s Republican midterm surge. In Israel, polls badlyunderstated Benjamin Netanyahus strength ahead of Marchs elections.


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Appendix V: China Ascends and Crashes?

China hogged headlines in Q2, as investors fretted a stock bubble and the yuans drive for globalreserve currency status. We see little threat to the US or global financial system on either front.

Dethroning the Dollar?

In November, the IMF will vote on whether to include Chinasyuan (also known as renminbi) inits Special Drawing Rights (SDR) currency basket, elevating it as a global reserve currency. TheSDR is mostly symbolic, with little real-world use outside IMF bailouts. Yet were often asked ifthis could displace the dollar as primary reserve currency, causing demand for US Treasurys toimplode, interest rates to soar or the dollar to collapse. While the yuan could take market shareover time, we dont believe this is a risk for US or global markets.

If the yuan joins the SDR, it wont replace the dollarit would join the dollar, euro, pound and

yen. Currencies SDR weightings dont mirror their share of global foreign exchange reserves.The dollar is about 47% of the SDR but roughly 63% of allocated reserves.

Exhibit 14: Major Currencies Share of the SDR and Forex Reserves

Source: IMF, as of 6/24/2015.

The yuansrise will likely be long and gradual, likely with hiccups along the waymuch likethe euros gradual ascendance. The euro, Australian and Canadian dollars, pound and othercurrencies have taken market share since 1999with no ill effect for America. Even as thedollars share of reserves fell from 71.2% in 1999 to 62.9% in 2014, total dollar holdings rosefrom about $882 billion to more than $3.8 trillionthe dollar has a smaller share of a much

bigger pie. (Exhibit 15)

46.9%

12.4%6.9%

33.7%

SDR Basket

62.9%

3.8%

4.0%

22.2%

7.1%

Forex Reserves

Dollar

Pound

Yen

Euro

Other


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Exhibit 15: Currency Composition of Allocated Forex Reserves

Source: IMF, as of 6/24/2015.

IMF blessing alone wont catapultthe yuan to the top. Being a major reserve currency requires adeep, stable, liquid pool of assets to draw from. The US Treasury market is unmatched, withabout $13.1 trillion in bonds circulating.

32Japan comes second with $5.1 trillion, followed by

Britain at $2.4 trillion.33The four biggest eurozone economiesGermany, France, Spain andItalyadd up to $6.4 trillion. China has just $1.4 trillion in gross central government debt (not aperfect gauge, as this includes intergovernmental holdings), and capital controls impedeforeigners access.34At last count, foreign investors owned just $15 billion in Chinese centralgovernment bonds. Unless supply soars and China allows free-flowing foreign investment, it willbe difficult for other nations to accumulate large yuan stockpiles.

Either way, the US gains little from being the primary reserve currency. The Treasury doesntreceive a fee or international influence. Nor does reserve currency status determine interest rates.If it did, youd expect US rates to be the worlds lowest. Yet of the four SDR currencies, USrates havent ever been the lowest in the last 15 years. Counterintuitively, US rates fell as thedollar lost forex market share. Theyve also fallen since 2008, while the percentage of net USdebt held in reserves declined from 58.7% then to just 29.3% now. 35America doesnt rely on the

worlds other central banks for debt financing. Domestic investors, banks, the Fed, and foreignfirms and people are a bigger source of demand. Total supply and demand drives interest rates.

China Isnt Open

China has moved toward a market-oriented economy, but it has a long way to go beforeachieving full opennessultimately necessary for China to be a major reserve currency. The

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reforms required to get there would be long-term positives for China, and more mature Chinesecapital markets would be great for the world, but this will likely be a long, slow-moving process.China tends to take a three steps forward, two steps backward approach to market-orientedreforms and has actually stepped back lately as officials intervene in volatile domestic markets.

The IMFs primary SDR criteria is full convertibilitythe ability for countries to convert theircurrency to yuan without using other currencies as stopovers. The yuan is fully convertible forinternational trade purposes (the current account), but not for investment (the capital account).Chinese officials have stated intent to achieve full capital account convertibility by year-end, butthey also intend to retain foreign investment quotas, as they are concerned volatile cross-borderinvestment flows could undermine economic stability. Peoples Bank of China (PBOC)Governor Zhou Xiaochuan recently said China is striving for managed convertibility.

36

Perhaps this suffices for the IMF, but capital controls are a real-world roadblock. Note, also, theyuan remains essentially pegged to the dollar.

Open markets would benefit China and the worldfreer trade and investment are always a netpositivebut officials have incentives to move gradually. Pegged currency and capital controlsenable them to manage the economic slowdown. Chinese political stability requires economicstability. Removing capital controls and floating the yuan overnight could introduce volatilityofficials arent prepared to deal with. Removing controls graduallyreduces the risk of suddenswings as the market system finds its footing.

Chinas Bubble Bursting?

Mainland stocks zoomed from May 2014 through mid-June 2015, sparking bubble fears.Frenzied buying from margined-up, uneducated mainland investors with little market knowledgedrew comparisons with US markets on the eve of 1929s crash. As if on cue, the Shanghai andShenzhen Composite Indexes began tumbling on June 15. By July 8, each was down over 30%.37Mainland market activity suggested sentiment was detached from fundamentals. Near-termmovement is impossible to predictmarkets could rebound fast, or more downside could come.However, this is not a global risk.

Chinese stocks have two main classes: A-shares and H-shares. H-sharesmainland stocks tradedon Hong Kong exchangescomprise most of the universe accessible outside China. A-sharesare mainland stocks accessible mostly to Chinese investors. The sharp rise and fall is mostlylimited to A-shares, not H-shares, making Chinas mania a local event, not a global one.A-shares have a wild historyand very little correlation with global markets. Exhibit 16 shows theShanghai and Shenzhen Composites alongside the MSCI World Index, using a logarithmic scale(displaying Chinas huge percentage movements better than a linear scale would). A-shares wildswings since 1992 are far detached from global stocks. Chinas strict capital controls are a hugestock market firewall. A-shares isolation is also apparent when you compare them with H-shares. (Exhibit 17) From 4/30/2014 through their peak on 6/12/2015, A-shares rose 163.2%. H-shares gained a far tamer 52%.38


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Exhibit 16: Mainland Chinese and Global Stocks

Source: FactSet, as of 7/9/2015. Shanghai Composite, Shenzhen Composite and MSCI World Indexprice returns, 5/8/19927/8/2015. Price returns used instead of total due to data availability.

Exhibit 17: A-Shares Vs. H-SharesTotal Return

Source: FactSet, as of 7/9/2015. MSCI China A and MSCI China H returns with net dividends,11/30/20047/8/2015.

20

200

May-92 May-95 May-98 May-01 May-04 May-07 May-10 May-13

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Mainland sentiment has less impact on H-sharesforeign investors have far more influence andare skeptical about thebooms staying power. State-run media encouraged Chinese citizens tobuy stocks as an alternative to real estate as property prices fell, and editorials rationalized themarkets surge at every turn. Foreign investors saw the increasingly irrational reasoning offered

by Communist Party mouthpieces for local investors to stay in stocks. They saw the flood ofIPOs rising by the daily limit for weeks on end. And unlike local investors subject to Chinasstrict media controls, foreigners saw the many, many articles warning of A-shares bubble andenumerating the detachment from sentiment and fundamentals. H-shares are much more able todiscount the full picture.

The H-share marketsbalance between sentiment and fundamentals is more favorable. Long-running false fears of a local government debt crisis and economic hard landing persist. Neitheris any more likely today than in 2011 and 2012, when fears first perked. Officials have launchedseveral programs to help local governments refinance maturing debt. The PBOC also launched aprogram to let banks swap local government bonds for three-year loans and has over $3.8 trillion

in forex reserves. They can easily recapitalize banks if needed. The risk of a wallop in H-sharesor global marketsfrom Chinese debt appears low.

If Chinese growth hits the governments official target of around 7% this year, it wouldincrease global GDP by nearly 1%an increase most investors dont yet fathom.39An A-shareslump shouldntprevent China from nearing the target. While cyclical shifts in more open stockmarkets are leading indicators of economic cycle shifts, A-shares show no such tendency. This isA-shares thirdbear since 2009, yet Chinas economy has grown throughouteven acceleratingduring 20092010s. Chances of the crash causing a recession this time seem slim. Somespeculate about a wealth effect, where falling stock prices could dent consumption becausefolks feel less rich, but the wealth effect is as overstated in China as it is elsewhere, and onlyabout 6% of Chinas population invests in stocks.40Disposable income is the primary driver ofconsumption, and officials continue doing whats needed to ensure growthboosts incomes. Plus,consumer spending is roughly one-third of Chinas economyquite small.

Chinas economic policies are shifting its growth engines from manufacturing, fixed investmentand exports to consumption and services. While this slows growth, the model is more sustainablelong-term as Chinas workforce shrinks due to the one-child rule and labor costs rise, eroding itsmanufacturing edge. A modest slowdown isnt a hard landing.

We hope youve found this information helpful. Please contact Fisher Investments at800-568-5082 for more information on our outlook and services. To follow our dailycommentary on market and economic events, please visitwww.MarketMinder.com.Alternatively, you cansign up herefor MarketMinders weekly newsletter.

The Investment Policy Committee

Aaron Anderson, Ken Fisher, Bill Glaser and Jeff Silk
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Commentary in this summary constitutes the general views of Fisher Investments and should not

be regarded as personal investment advice. No assurances are made we will continue to hold

these views, which may change at any time based on new information, analysis orreconsideration. In addition, no assurances are made regarding the accuracy of any forecast

made herein. The MSCI World Index measures the performance of selected stocks in 23developed countries and is presented net of dividend withholding taxes and uses a Luxembourg

tax basis. The S&P 500 Composite Index is a capitalization-weighted, unmanaged index thatmeasures 500 widely held US common stocks of leading companies in leading industries,

representative of the broad US equity market. Past performance is no guarantee of future

results. A risk of loss is involved with investments in stock markets. You should considerheadlines and developing stories in the broader context of overall market conditions and events.

A single geopolitical event or corporate announcement is unlikely to move broad markets

materially. You should carefully consider investment actions in light of your goals, objectives,cash flow needs, time horizon and other lasting factors.

1FactSet, as of 7/1/2015. MSCI World Index returns with net dividends, 12/31/20146/30/2015.2FactSet, as of 7/2/2015. MSCI World Index returns with net dividends, 12/31/20146/23/2015.3FactSet, as of 7/2/2015. Absolute value of MSCI World Index quarterly returns with net dividends, 12/31/19696/30/2015.4FactSet Earnings Insight, as of 6/29/2015.5FactSet, 10-year US Treasury yields as of 6/30/2015. 12/31/20146/30/2015.6FactSet, as of 7/8/2015. MSCI World Index returns with net dividends, 12/31/20146/23/2015.7Ibid. S&P 500 total returns, 12/31/20146/23/2015.8Ibid. MSCI World Index returns with net dividends and S&P 500 total returns, 12/31/20146/30/2015.9FactSet, as of 7/8/2015. MSCI World Index returns with net dividends, 12/31/19696/30/2015.10FactSet, as of 7/24/2015. MSCI World Index returns with net dividends, 19702014. Frequency of second-halfgains exceeding 10%.11FactSet, as of 7/20/2015. US Real GDP, 12/31/2000 - 6/30/2015.12US Bureau of Economic Analysis, as of 7/30/2015. Real GDP Growth, seasonally adjusted annual rate, Q1 2015.13US Bureau of Economic Analysis, as of 7/30/2015. Real GDP Growth, seasonally adjusted annual rate, Q2 2015.14Global Financial Data, as of 1/7/2015. S&P 500 Total Return Index annual positive return frequency, 19262014.15FactSet, as of 7/17/2015. 10-year US Treasury yields (constant maturity), 6/29/20036/29/2006.16FactSet, as of 7/24/2015.17FactSet Earnings Insight dated 7/2/2015.18FactSet, as of 7/22/2015. Earnings estimate as of 12/31/2014.19US Bureau of Economic Analysis, as of 7/30/2015. Real GDP Growth, seasonally adjusted annual rate, Q1 2015.20US Bureau of Economic Analysis, as of 7/27/2015. Q1 2015 import growth, seasonally adjusted annual rate.21US Bureau of Economic Analysis, as of 7/30/2015. Real GDP Growth, seasonally adjusted annual rate, Q2 2015.22FactSet, US Real Personal Consumption Expenditures, May 2015.23Eurostat, as of 7/27/2015.24The Conference Board, as of 7/27/2015.25Bloomberg, UK Office for National Statistics, as of 7/20/2015. Real Business Investment, 3/31/2004 - 3/31/2015.26FactSet, as of 7/27/2015. Greece annual GDP, 2014.27Source: US Bureau of Economic Analysis, City and Metro Area GDP, 2013.28FactSet, as of 7/27/2015. MSCI Greece return with net dividends, 12/31/20146/30/2015.


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29CBS Newspoll database, Democratic Primary Horserace 2008.http://www.cbsnews.com/news/cbs-news-poll-database/.Poll date June 26, 2007.30CBSNewspoll database, Republican Primary Horserace 2008.http://www.cbsnews.com/news/cbs-news-poll-database/.Poll date June 26, 2007.31

The Polls Were Bad in Greece. The Conventional Wisdom Was Worse, Nate Silver,FiveThirtyEight, July 7,2015.32US Treasury, as of 6/23/2015. US debt held by the public.33Japan Ministry of Finance and UK Debt Management Office, as of 2/20/2015. Marketable debt held by the public.34World Bank, as of 6/9/2015. Chinas gross central government debt on 6/30/2013, the latest available figure.35IMF and Federal Reserve Bank of St. Louis, as of 6/8/2015. Forex claims in USD as a percentage of US net publicdebt on 12/31/2014.36China Reiterates Gradual Stance on Loosening Yuan Controls, Grace Zhu, The Wall Street Journal, June 17,2015.http://www.wsj.com/articles/china-reiterates-gradual-stance-on-loosening-yuan-controls-143452647137FactSet, as of 7/9/2015. Shanghai and Shenzhen Composite Price Indexes, 6/12/20157/8/2015.38FactSet, as of 6/24/2015. MSCI China A and MSCI China H returns with net dividends, 4/30/20146/12/2015.39IMF, as of 6/24/2015. Calculation based on estimates of world and Chinese nominal GDP on 12/31/2014.40Chinese Investors Most Aggressive in the World, Dai Tian, China Daily, 4/28/2015.

http://europe.chinadaily.com.cn/business/2015-04/28/content_20564983.htm
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