Economic and political influences underlying
portfolio construction.

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Key Benefits
  • Indicates market consensus of future economic releases.
  • Disclosing fundamental influences on major asset classes.
  • Indicates risk reduction required by extreme expectations.
Economic Indicators
Regional Analysis (March 30th, 2016)

USA

At the December 2015 meeting the Federal Reserve increased interest rates to 0.375%. At the March 2016
meeting they expect them to be at 0.9% by the end of 2016. The members also further reduced growth,
unemployment and inflation expectations.

Eurozone

At the March meeting, the ECB further lowered deposit interest rates to -0.4%, with expectations for it to remain
at the present or lower levels for an extended period of time. Monthly asset purchases were expanded to
€80bn/month, permitted purchases from individual organisations and banks issues were expanded to 50%, and
non-bank corporations are now included. Further a new long term lending facility to banks commenced. The
growth expectations were reduced with risks to the downside.

Japan

Three main policies were decided at the January Bank of Japan Monetary Policy Meeting to achieve the price
stability target of 2%. The introduction of a minus 0.1%% interest rates for bank deposits. An annual increase in
the monetary base of 80 tr yen. Together with, annual purchases of: 80 tr yen of Japanese government bonds, 3 tr
of exchange traded funds, 90 bn yen of real estate investment trusts, 2.2 tr yen of commercial paper and 3.2 tr yen
of corporate bonds. Immigration controls need to be drastically relaxed to aid growth so taxes can reduce
Government borrowing.

China

The People's Bank of China sees economic downward pressure in the face of restructuring, they are attempting to
moderate the expansion of aggregate demand, while supply-side structural reforms accelerate.. They continue to
reduce loan and deposit rates and the reserve requirement ratio together with other policies, whilst foreign
exchange balances are reduced. They also aim to eventually allow the market to decide the exchange rate, whilst
also managing this transition.

UK

The Bank of England maintained the Bank Rate at 0.5% and the stock of reserve financed purchased assets at
£375bn. Drops in energy and food prices, global inflation and, domestic costs anchored domestic inflation below
the 2% target. Private domestic demand, the labour market and productivity are all supportive of UK growth. The
referendum on the UK membership of the EU was seen as an uncertainty for growth and financial stability.
Major causes of the financial crisis and areas of focus for necessary
correction.

1        Fed & Bank of England allowed asset bubbles to form (housing, stocks, commodities), the bubbles provided
collateral for liquidity that later funded rises in consumer prices.

2        Bush & Blair both ran government budget deficits during times of full natural employment, crowding out
market responding industry expansion that would add to productivity, as well as, providing in-sufficient reserves
for cost effective fiscal expansion when necessary.

3        Legislation in the US required the provision of mortgages to low rated candidates. Erosion of sensible
lending criteria (income multiples) by UK mortgagors.

4        Insufficient capital reserves at financial entities, now remedied by Bernanke's systemic risk assessment of
banks but require codification and constant effective monitoring.

5        Ineffective US Trust and UK & EU Competition criteria for permitted market share by financial entities.

Steven J Cohen, BSc (Econ) Hons CFA

Wednesday May 5th, 2010
Response to the current financial crisis

THE COHEN PLAN

In addition financial institutions are only getting used to the implications of short selling, mark to market and
capital ratios, all of which are reasonable and correct policies. Therefore a temporary suspension of these
policies, of approximately a year, would give banks and regulators the time to adopt correct working practices for
the use of financial products that are or have been developed.

The essential problem is that the velocity of money has shrunk to an unreasonable low level. Therefore to
compensate the amount of money in circulation needs to rise to maintain the present global output growth at
reasonable price growth. Addition problems are that: individual savings are at an unreasonably low level and job
creating entities cannot gain access to capital in the form of borrowings.

The monetary solution requires that all individuals savings and deposits at financial institutions needs to be
guaranteed by the respective central banks of that country and currency.

There needs to be a policy of immediately replacing all terminating borrowings of job creating entities, to reduce
the possibility of a recession or depression. Securitised borrowings, from institutions with the necessary credit
rating quality (rating), that have come up for redemption and that cannot be refinanced in the market at
reasonable rates, should be refinanced by national central banks, creating new money. Assistance to inter-bank
lending can continue to be given to through central bank lending windows (with the attached stigma).

Loan officers from financial institutions that have stopped refinancing non-financial job creating entities should
have secondment to local central bank offices, with their pay still furnished by their permanent employers. Any
loans not renewed by the loan officers present employers should be provided by central banks, again creating
new money. This requires access to the data bases and records of banks that are not lending, the internet and, a
new data base at central banks; with supervisory and approval officers at central banks.

Once problemed financial institutions and the regulators have established the correct working practices and are
in the position to start to lending to non-financial institutions, increasing the velocity of money, central banks can
then reduce the amount of money by selling their loan books back to the previous lenders or, in the case of
securities selling to the market.

The net effect will be a reduction in the size of employment in banking (fundamentally a structural issue) whilst
maintaining the amount of employment in the rest of the economy. The penalising of future generations by
increasing national debt would have been avoided, and any issues of moral hazard would have also been
prevented.

Steven J Cohen, BSc (Econ) Hons CFA

Thursday October 16th, 2008
Region
GDP Growth
Cons Price
Increase
Unemployment
Rate
Current
Account
Budget
Deficit
T-Bond
Yield
  2016
Forecast %
2015
Forecast %
Latest
%
Forecast 2015
% of GDP
Forecast
2015 % of
GDP
3m
%
10yr
%
USA
2.5
0.2
5.0
-2.5
-2.6
0.42
2.16
Euroarea
1.6
0.1
10.7
+3.0
-2.1
-0.12
0.48
Japan
1.2
0.7
3.1
+2.6
-6.8
0.07
0.30
China
6.4
1.5
4.1
+3.1
-2.7
3.04
2.91
UK
2.2
0.1
5.3
-4.5
-4.4
0.57
1.88
Source: The Economist, December 5th 2015.
Steven J CohenCFA

Results That Count - Bespoke Advantage
The Swiss God of Money

Last Thursday the Swiss National Bank (SNB) suspended it's support for a Euro floor against it's currency of 1.20,
the Euro promptly fell 45% against the Franc. i.e. Swiss investors lost 45% in value of their European assets.
Eventually the Euro recovered for a loss on the day of 17% to settle near levels of the August 2011 Franc crisis.
The Swiss stock market also fell 15% in two days, implying the only safe haven were Swiss Franc denominated
bonds and cash accounts. However the SNB also lowed the target deposit rate to negative 0.75% per annum,
whilst holders of 10 year Swiss government bonds have to pay 0.13% per annum (pa) for that pleasure.

Whilst the timing of the decision was a surprise the market reaction was supreme shock, only days before a
member of the SNB publicly supported the previous policy. The previous policy was also beneficial to growth and
price stability in the Swiss economy. After the announcement investors, traders and global companies scrambled
to hedge their exposure, supplemented by any future SNB commitment to foreign exchange stability already
losing credence. In sympathy with the SNB the Swiss economy at only the 20th largest economy in the world,
inhibits the risk tolerance for limiting external influence.

The Swiss Banking industry has a long history in lacking moral discrimination of deposit ownership. Swiss
regulators also condone misrepresentation by financial intermediaries (when referring suspect money drug
traffickers or terrorists to them). All-in Swiss financial system participants are the most rational in the world.
Some may therefore not be surprised in a conflict between Swiss words and deeds.

Investors with Swiss liabilities, long investment horizons and generating non-investment income in Swiss Francs:
should continue to seek growth in the equities of high growth areas and value companies (the US stock-market
has outperformed the Swiss currency by 5% pa over the last 30 years); maintaining fixed income in the major
trading block currencies with potential for recovery back to fundamental levels before increasing allocation to
Swiss fixed income. Those with short investment horizons and not generating non-investment income in Swiss
Francs, continue to be inhibited by negative domestic interest rates and domestic equities that are presently
penalised by an uncompetitive exchange rate.

Steven J Cohen CFA, BSc (Econ) Hons Lond. 19th January 2015.
“Now this is not the end. It is not even the beginning of the end. But it is,
perhaps, the end of the beginning.”

We've just had the first 10% correction in the US stock market in over 3 years, immediately preceded by a
halving of equity valuations in the Chinese stock market, together with most other country stockmarkets moving
into bear or correction territory.

This has been driven by two factors; a slowdown in Chinese economic growth and the probability of a
September interest rate rises in the USA.

However we believe that the probability of a US September interest rate rise (from near zero) has now been
removed and the probability of Chinese interest cuts (from 4.85%) have increased.

This should benefit economic growth and allow many country stockmarkets to recover recent losses.

Put in the context of the USA's seven year bull market, there may not be many more years left in the bull market,
but now is not the end, it is not even the beginning of the end, but it is, perhaps, the end of the middle.

Steven J Cohen CFA August 25th, 2015 09.41 GMT
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