Stray Reflections

A Complimentary Special Report from Mauldin Economics

May 2015

Jawad S. Mian, CFA, CMT

Managing Editor
Stray Reflections

Copyright Mauldin Economics. Unauthorized disclosure prohibited. Use of content subject to terms of use stated on last page.

Jawad S. Mian

May 2015

No Shortcuts to the Top

On Saturday, April 25, just before midday, a powerful 7.8-magnitude earthquake struck
Nepal, wreaking havoc in the nation that is the birthplace of Buddha. There has been
immense human and cultural loss. The death toll from the earthquake has passed 6,000,
with about 14,000 injured and many thousands in remote areas still unaccounted for.
UNICEF estimates nearly one million children in Nepal have been severely affected
by the devastation. Meanwhile, scores of religious sites and internationally recognized
monuments that had been preserved for centuries have been irrevocably destroyed.

Source: US Geological Survey via National Geographic

Nepal is located in the Himalayas and home to eight of the worlds 10 tallest mountains.
The earthquake, whose epicenter was 135 miles west of Mount Everest, triggered
multiple avalanches. The treacherous plumes of ice and snow slammed into the Everest
base camp, where expeditions were stationed to prepare to ascend the worlds highest
peak. The 2015 climbing season was just beginning and it now looks to have been
shuttered. At least 21 people were killed, making it the deadliest day on the mountain
in history.
American mountaineer Mike Hamill, who was caught on the Everest base camp amid
the chaos, kept a running journal of his experiences on his smartphone. From the
National Geographic, here is what he wrote:

Stray Reflections

Jawad S. Mian

May 2015

1 p.m., April 25: An hour after earthquake and avalanche

The glacier beneath our feet shook violently, swaying, popping, and we heard
a torment of rock and ice barrel down the flanks of the largest mountains on
earth
This place is supposed to be safe. Most consider entering the Khumbu Icefall,
above Base Camp, as climbing into the danger zone. Although avalanches
running off surrounding peaks become white noise because of their frequency; in
the middle of the expansive U shaped Khumbu Valley, we feel safe, buffered by
lateral moraines and ice ridges a half a mile wide.
When I felt the ground sway and shake, the first thing I thought of was the safety
of our climbers at Camps 1 and 2 above. I narrowly missed being pummeled
by an ice avalanche there in 2005, and know the risks of the Western Cwm (the
narrow glacier valley above the Khumbu Icefall). Its hard to believe that our
preconceptions about safety and risk can be so completely false.

Aint No Mountain High Enough

Americas preeminent high-altitude mountaineer, Ed Viesturs, knows all about risk.
He is the only American (and 12th person overall) to have successfully climbed all
of the worlds 14 mountains over 8,000 meters, and only the sixth person to do so
without the aid of an oxygen tank (which he feels can be burdensome). Over a 23-year
span, Viesturs went on 29 Himalayan expeditions and summited mountain peaks of
over 8,000 meters on 21 occasions. He stood atop Everest seven times, with his first
successful ascent of the mountain in 1990 and his last in 2009.
Viesturs took an interest in the Himalayas in high school after reading French
climber Maurice Herzogs grisly account of the first climb of Annapurna (the 10thhighest mountain in the world situated in north-central Nepal). He then began his
mountaineering career on the slopes of Mount Rainier, which he has summited
more than 200 times. What makes his track record so remarkable is his generally
conservative nature with respect to risk in the mountains. He never lost a team
member on a climb, and no one was ever seriously injured, which is an astounding feat.
On all his expeditions, some combination of training, skills, instinct, and a dash of luck
worked in the right way.

Stray Reflections

Jawad S. Mian

May 2015

Viesturs describes the art of mountaineering:

I have, if not a deeply religious bent, at least a spiritual one. In this respect,
Ive learned an immense amount from Sherpa culture and its Buddhist faith.
The Sherpas have taught me to tread lightly and gently while climbing these
magnificent peaks. To climb with humility and respect. And that mountains
are not conquered: they simply do or do not allow us to climb them.
On my expeditions, Ive always noticed that as early as the first days at base
camp, the Sherpas can tell which Westerners are there for the right reasons.
Climbers who simply love being in beautiful places and relish the joy of climbing
for its own sake win their approbation; those who just want to get it over with
and go home boasting of reaching the top, dont.
The Sherpas inhabit the Khumbu Valley and the ones who really build the route up the
mountain, using miles of ropes, tents, and other supplies. Without them, nobody would
be able to climb Everest. They are experts in the local terrain and serve as experienced
guides for mountaineering expeditions.
In 1987, on his first Everest attempt, Viesturs backed off just 300 feet below the
summit because the conditions were not right. It was this steadfast commitment
to safety that allowed him to climb mountains with such great success. As he says,
Getting to the top is optional. Getting down is mandatory.
Viesturs believes most accidents and deaths on the high peaks are due to human
error, with ambition and desire overpowering common sense. What some people
call summit fever, he calls groupthink, which is when a majority of the group,
desperate to reach the top, disregards dangerous weather, route conditions, or other
important factors. The least experienced climber tags along thinking if everyone else is
going, then it should be just fine.
According to Viesturs, Its almost a lemming-type effect. People get swept up in it,
its that psychological feeling of safety. No one gives any thought to the acceptable
level of risk.

Stray Reflections

Jawad S. Mian

May 2015

Stayin Alive
From his best-selling memoir published in 2006, No Shortcuts to the Top, Viesturs gives
us this:
About safety, I have a real pet peeve. Countless timesas Im being introduced
to give a slide show, for instancesomeone will refer to me as a risk taker.
I always correct him or her: Im not a risk taker. Im a risk manager. Youre
constantly thinking, if this happens, then what do I do?
Our instincts have evolved over millions of years, instincts that kept our remote
ancestors alive. Humans with poor survival instincts got weeded out long ago,
through natural selection. The fight-or-flight instinct is a perfect example, passed
down to us in our very genes. Ive learned that I need to listen to my instincts.
The signals we receive from them are not imaginary.
Viesturs will tell you he learned this the hard way.
In a 1992 expedition to K2the second-highest mountain in the world located in
Pakistans fearsome Karakoram Rangehe committed a nearly fatal error when he
failed to acknowledge those signals and kept pushing on toward the summit. Yet, even
at the time, he knew he was making a mistake.
I quote from a 2010 interview in Slate magazine titled Into Thin Error in which
Viesturs recounted the episode, which is seared into his memory:
About halfway into the day, the clouds below us slowly engulfed us, and it
started to snow pretty heavily. I always contemplate going down even as Im
going up, and I was thinking, You know what? Six, seven, eight, nine hours
from now, when were going down, theres going to be a tremendous amount of
new snow, and the avalanche conditions could be huge.
I talked to my partners and they were like, What do you mean? This is fine. So
I was kind of alone in my quandary. I knew I was making a mistake; I knew I
should just simply go down I kept saying, Well, let me go on for another
15 minutes and then Ill decide. And then after 15 minutes Id say, Let me go
on another 15 minutes and then Ill decide. And I just couldnt make a decision,
and I put it off so long that I got to the top.

Stray Reflections

Jawad S. Mian

May 2015

Even though we succeeded, I dont ever want to do that again. We just got really,
really lucky. There were moments I was convinced we werent going to make
it down, when I said [to myself], Ed, youve made the last and most stupid
mistake of your life. When we got to camp, I was just so angry with myself.
It doesnt matter how long youve been there, how much money youve spent,
how much energy youve expended. If the situation isnt good, go down. The
mountains always going to be there. You can always go back.
What I learned from that episode has stayed with me for good. It can be summed
up in a few words: Your instincts are telling you something. Trust them and
listen to them....
If it feels wrong, it is wrong.
Today, he regards it as the biggest mistake of his climbing career. For Viesturs, a
mistake is a mistake, even if you get away with it.
This brings me, finally, to my favorite passage in his 2006 book:
When I am climbing, I listen to the mountain. All the information is there,
which helps me decide what to do. Arrogance and hubris need to be put aside,
and humility and thoughtfulness are essential. I truly believe that is how I
survived so many expeditions into a dangerous arena.
Over my investing career, if there is anything I have learned, it is this eternal truth.
There is nothing more valuable in life.

From Mountain Man to Macro Man

Just as there are risks in climbing, there are risks in investing, but there are also ways to
manage the risks. If you eliminate the errors in judgment and manage the mistakes, you
can make it relatively safe.
With Stray Reflections, I incorporate risk management into the investment process
using 1) macro analysis to avoid economic turbulence by managing the portfolios risk
exposure, 2) security-level analysis to maintain a value bias to the holdings within the
portfolio, and 3) technical analysis for price trend discipline and to stay open-minded
and flexible when challenged by the market.
If youre trading macro, the biggest risk you need to manage is your self.

Stray Reflections

Jawad S. Mian

May 2015

Each day, I listen to the market intently. All the information is right there, which helps
me decide what to do. I strive to reduce the influence of emotions and ego on my
trading. There is no resting. Just when you think you have it all figured out, you dont.
There is always another cock-up.
How many times have you put off a painful investment decision, even when you knew
you were making a mistake, only to see your capital lose a third of its value?
Yup. Been there.
It doesnt matter how long youve been thinking about a trade, how much time and
money youve spent, or how much research youve done. If the situation isnt looking
good, get out. The markets always going to be there. You can always get back in.
Dont be a hero.

Investment Observations
Ed Viesturs backed off Mount Everest, 300 feet below the summit. Should investors
today also heed caution and withdraw from the stock market, even as it scales new
celestial heights? Are investors preconceptions about safety and risk completely
false? Have we given sufficient thought to our acceptable level of risk? Or are we just
lemmings, swept up in the psychological feeling of safety? Are we making a mistake?
What are our instincts telling us?
I pay close attention to the embedded beliefs in financial markets and assess risks and
opportunities in this context.
It is the changing views and behaviors of market participants that alter asset pricing,
which is driven by both new information and shifting interpretations of existing
information.
Right now, it appears market participants have lost faith in the long-term global growth
outlook. Investors favor easy-to-understand narratives. Thus, one of the most popular
tales has been that unprecedented stimulus from central banks is levitating stock prices
globally without any real economic improvement. The belief is that this will all end
badly.
Bill Gross also chimed in with his latest investment outlook:

Stray Reflections

Jawad S. Mian

May 2015

A sense of an ending has been frequently mentioned in recent months when

applied to asset markets and the great Bull Run that began in 1981. Then, longterm Treasury rates were at 14.50% and the Dow at 900. A 20 bagger followed
for stocks as Peter Lynch once described such moves, as well as a similar
return for 30-year Treasuries after the extraordinary yields are factored into the
equation: financial wealth was created as never before. Fully invested investors
wound up with 20 times as much money as when they began. But as Julian
Barnes expressed it with individual lives, so too does his metaphor seem to
apply to financial markets: Accumulation, responsibility, unrest and then
great unrest.
Many prominent investment managers have been sounding similar alarms
successful, neither perma-bearish nor perma-bullish managers have spoken to
a sense of an ending as well. Stanley Druckenmiller, George Soros, Ray Dalio,
Jeremy Grantham, among others, warn investors that our 35-year investment
supercycle may be exhausted. They dont necessarily counsel heading for the
hills, or liquidating assets for cash, but they do speak to low future returns and
the increasingly fat tail possibilities of a bang at some future date.
Savor this Bull market moment, they seem to be saying in unison. It will not
come again for any of us; unrest lies ahead and low asset returns. Perhaps great
unrest, if there is a bubble popping.

Source: Hedgeye

Stray Reflections

Jawad S. Mian

May 2015

A Brave New World

Gross sees an Everest asset price peak that allows for little additional climbing.
Although Im sympathetic to his view, I find undue pessimism about the macro
outlook.
Structural elements such as aging demographics, extremely high debt ratios, and
technological displacement of labor are often cited to explain a stunted global growth
model for the future. Many economists insist that the world faces years, if not decades,
of secular stagnation. However, as Anatole Kaletsky points out, the new normal
for the world economy since 2008 hasnt been very different from the pre-crisis
period. According to the IMF, during 1988-2007 (the 20 years before the crisis), the
average annual growth of the world economy was 3.6%. The latest IMF forecast for 2015
is 3.5%, and 3.8% in 2016. According to Kaletsky, although this continuity seems hard
to square with the slowdown in economic activity in all major economies since 2008, the
reason that the world economy, as a whole, has not slowed is due to the shifting balance
of economic activity from slower-growth advanced economies to faster-growing
developing economies. In the advanced economies, the IMF expects 2.4% growth this
year, compared with a 2.8% average during the two decades before the crisis. In the
emerging economies, growth is projected at 4.3% this year, below the 4.9% average
of the pre-crisis decades. However, the emerging economies now account for 51% of
global economic activity, compared with 36% in 1994. So, even as they slow down, they
contribute more than ever to global growth. The bottom line: there is no evidence of
secular stagnation in global statistics.

Source: GaveKal Research

Stray Reflections

Jawad S. Mian

May 2015

Whats more, since 2008, the world has never looked as good as it does today.
Previously, the global economic recovery remained choppy and uneven, with different
countries adjusting to the post-2008 world at different speeds. US growth was sluggish
since 2009 with the household sector deleveraging; Europe was reeling from a sovereign
debt crisis in 2010-2011, falling in and out of multiple recessions; Japan was mired in a
deflationary spiral which brought Shinzo Abe to power in 2012; and China was always
perceived to be at risk for a hard landing with the commodity rout gathering pace in
2013-2014.
Now, the global macro stage is beautifully set.
The US household debt-to-income ratio is back to its 2002 level, and the decline in
interest rates has brought down the cost of servicing this debt to affordable levels.
Credit growth has revived, and business confidence has healed, which should now
bring about a resumption in capital spending.
With the unemployment rate at 5.4%, labor markets are strong enough to boost wage
inflation. According to the Employment Cost Index, initial unemployment claims fell to
262,000 last month, the lowest since April 2000, and salaries rose 2.7%, the highest since
2008. Job and income gains have encouraged housing demand to return.
The weak performance in the first quarter is not representative of the true state of the
US economy. Strong momentum in the labor market, ongoing recovery in the housing
market, and the sharp decline in energy prices should combine to generate robust
consumer-led growth. The US recovery should re-accelerate in the coming quarters,
aided by a marked reduction in fiscal drag. There is no risk of a recession, in my view.
According to Lombard Street Research, the US has restored the underlying health of
its economy, and Washington is close to stabilizing the public debt-to-GDP ratio.
Diana Choyleva, Lombards Chief Economist, writes:
Given the maturity profile of government debt, the effective interest rate is likely
to fall in the next two years, even if the Fed funds rate rises. The IMF forecasts it
to be 1.4% in 2014 and 1.6% in 2015. The effective interest rate was 3.6% in 2013.
The government is set to stabilize public debt to GDP at 106%, given nominal
GDP growth of 4%-5% in 2014. Nominal GDP growth will then do the job of
cutting the debt-to-GDP ratio fast.

Stray Reflections

10

Jawad S. Mian

May 2015

Europe crawled out of recession in 2014, and the regions economic turnaround is in its
early stages. The combination of a weaker euro, increased bank lending to the private
sector, less fiscal austerity, and lower oil prices should provide a positive growth
surprise over the next two years. Although core inflation remains close to zero, the
deflation scare appears to be over for now. Consumer prices ended a four-month streak
of declines in April.
The liquidity spigots are wide open, and lending costs have sharply fallen, which
resulted in 4.6% annualized growth in M3 money supply in the first quarter, the fastest
pace since 2009. Loan growth also turned positive for the first time since 2012. As
the banking sector represents more than 80% of the total credit intermediation in the
euro area, the importance of renewed acceleration in credit creation to lift Europe out
of its stagnation cannot be overstated. European banks have overseen a large-scale
recapitalization, taking their common equity capital ratio from 6% in 2011 to 11% at
present, which is extremely positive.
The European crisis is forcing tough fiscal adjustments and structural reforms,
benefitting the common currency in the long run. Markets are less worried about
public debt, and judging by the performance of European bank stocks, the risk of a
euro-area breakup has all but disappeared.
Although many pundits have dismissed Abenomics as a failure, I strongly believe Japan
has entered a virtuous cycle of positive change and rising asset prices. Abe has taken
aggressive and definitive action against the shrunken mindset that has plagued
Japan for decades. We are witnessing a secular shift in mood, which has revitalized
corporate animal spirits.
Corporate profits are at an all-time high, and bankruptcies are at a 24-year low. The
jobless rate of 3.4% is at its lowest level since 1996, while the job offers to applicants
ratio is at its highest level since 1992.
Over 80% of prospective graduates began the New Year with unofficial job offers in
hand. Such tightness in the labor market has been the reason wages are increasing at the
fastest pace in 15 years.
Looking at interest rates, currency values, and energy costs, Japan will continue to
receive a significant reflationary boost this year. The yen has now fallen to the most
competitive level in 40 years, and inflation expectations have risen, pushing real
rates into negative territory. Last November, Abe also postponed the planned 2015
consumption tax increase, which further bolsters the cyclical outlook.

Stray Reflections

11

Jawad S. Mian

May 2015

Abenomics is delivering tangible results. Financial markets observer Peter Tasker

makes the case that Japan has experienced a substantial improvement in its solvency,
with the total addition to Japans shareholders equity exceeding 100% of GDP since
the program of monetary reflation began in 2012.
Tasker explains his bold claim:
The strengthening of Japans national balance sheet has been dramatic, thanks
to the stock of net overseas financial assets, equivalent to some 60% of GDP,
which make it the worlds largest creditor. Add together the change in the yen
value of this treasure chest to the rise in stock market values, and the rise in real
estate values, and you have a massive stealth de-leveragingnot by reducing
debt, but by boosting national equity.
An improvement in relations and defusing of tensions between Japan and China
evidenced by the massive surge in Chinese visitors to Japan lured by the cheap yen and
Abes attempts at fixing past relations with Chinais also decidedly bullish.

Source: South China Morning Post

Stray Reflections

12

Jawad S. Mian

May 2015

I find it astonishing how many people still talk about Japan deflating or China
crashing. The market is telling you something completely different.
The roaring bull market in Chinese stocks on record volume and breadth implies that
the Chinese economy is not as bad as the pervasive gloom suggests and might indeed
surprise positively in the year ahead. A stock market rise of such scale is certain to
have powerful effects on the real economy. This will likely lend support to Asian and
emerging economies more generally as well.
Even commodities have firmed up in the last month, particularly industrial metals,
which may indicate that the Chinese economy is stabilizing, at the very least. Real
interest rates in China are among the highest in the world, so there is significant
scope to ease its monetary policy stance.
This year promises to be the first year since the 2008 crisis where the odds are
moving decisively in favor of a fortuitous synchronized global growth upcycle.
Economic prospects are slowly brightening and macro risks diminishing, rather
than intensifying. From a cyclical vantage point, I believe both new information and
a changing interpretation of existing information will be beneficial for stocks, to the
detriment of government bonds in general.
The global stock-to-bond ratio is going much higher.

The Bear Trap

Who would think that after six years into an equity bull market, being bullish would
still feel contrarian? Its because of this strange feeling that I expect this investment cycle
to last much longer than what historical episodes suggest.
After two terrifying bear markets in a span of 15 years, I can appreciate the abnormally
large wall of worry that still persists. Scarred investors feel that new risks are lurking
around the corner. The traumatic experience has been seared into their memory.
However, to quote investor Leon Cooperman, Bear markets do not materialize as a
result of immaculate conception.
Dont let memory get in the way of such a jolly market. Instead of waiting for a grand
comeuppance, investors should adapt to the new reality. We can be critical of the policy
choices that have been made over the years, but it is what it is. We must live with it. The
real risk for investors is to get stuck in this groupthink that sees everything as a giant
Ponzi scheme, which will ultimately collapse.

Stray Reflections

13

Jawad S. Mian

May 2015

The world will only end once.

Investors must put aside their ideological beliefs and become radically agnostic in
their analysis. There is no room for dogmatism in markets. In this game, money is how
you keep score. There are no points for deriding Yellen, Draghi, or Kuroda.
According to Dylan Grice, debiasing ourselves must involve an honest assessment of
what we want: do we want to be right about everything, or do we want to know whats
true?
For me, macro investing is about finding the hidden Truth. I want to know what I can
translate into an actionable trade idea.
That the current bull market is being driven purely by QE is an old wives tale.
While monetary stimulus has clearly played a leading role, I think the QE narrative is
inherently lazy and overstated, especially as it omits a discussion of some of the more
fundamental shifts that have taken place since the crisis.
As per Ken Griffin, speaking at the recent Milken Institute Conference, Corporate
America moves at lightning speed today in reaction to new information. Despite the
severity of the 2008 recession, US corporate profits rose back to record levels just
three years after the recession ended. There has been a considerable sea change in
corporate psychology.

Source: Yardeni Research

Stray Reflections

14

Jawad S. Mian

May 2015

Much ink has been spilled regarding the share buyback boom and how it has
diverted cash away from creating jobs and investment. The claim that QE has given
US companies more of an incentive to invest in their own shares than in plant and
equipment is not entirely true, in my view. Barclays estimates that the portion of cash
flow allocated to capital expenditures is 40%, down from more than 50% in 2002 but at
the same level as 2006 when the US economy was humming along nicely and QE had
not even been conceived.
Buybacks are hardly the reason capex spending has been so weak, although it is still
around 5%. A more credible explanation is the fact that this has been one of the weakest
economic recoveries on record.
However, if the recovery is sustained, as I expect, then looking at the slowing trends
in productivity, I imagine critics of share buybacks wont have to wait too long for a
capital spending revival. There are already initial signs of improvement.
There is no shortage of cash available to spend on capital projects for long-term
expansion. As per Bloomberg, five years of profit growth have left S&P 500 companies
with $3.6 trillion in cash and marketable securities, plus they have raised a record $1.3
trillion through bond sales last year. With far more money than they can allocate to
profitable investment opportunities, CEOs have been returning nearly 30% of their
cash to investors in the form of buybacks and dividends. I dont see why this elicits
so much scorn. This year, the total is expected to exceed $1 trillion for the first time
ever, with over half of that coming from buybacks. Share buybacks may have fueled the
rally in some stocks, but just like QE, its being given too much credit for boosting the
broader stock market.
In analyzing the macro landscape, I examine four major drivers: growth, valuation,
liquidity, and technicals. Although buybacks, QE, and overall central bank activity are
a key determinant of the liquidity environment, they offer an incomplete macro picture
unless special attention is given to the other factors as well.

American Phoenix
Make no mistakethe US secular bear market that began in 2000 is over.
The March 2009 low represents the beginning of a new secular bull market in US stocks.
The longer-term structure for the market will remain bullish even if the S&P 500 trades
down to 1,600 levels. Total returns are unlikely to match the stellar returns during the
past 30 years, however, and the path forward will be fraught with some major cyclical
swings.

Stray Reflections

15

Jawad S. Mian

May 2015

For now, the pain trade will be the S&P 500 moving higher by another 200 points.
Even as stocks have moved to all-time highs, investor caution is still reflected by the
underperformance of cyclical stocks versus defensive stocks since 2010. This behavior
stands in sharp contrast to previous equity bull markets when cyclicals outperformed.
From an Elliott Wave perspective, the rally in US stocks from their mid-2011 low is
impulsive and seen as wave 3 of a larger 5-wave bullish sequence, which is not yet
complete. A wave 4 corrective phase will occur from much higher levels, which I
anticipate to be more severe and longer lasting than what we have generally been
accustomed to lately.

Source: J.P. Morgan

From a more practical standpoint, I wouldnt be surprised to see stocks become even
more richly priced in the current cycle. Although valuations for the US stock market
have risen sharply in recent years, global equity valuations are not unduly high by
historical standards.
If Im right about the global growth upcycle, then valuations have room to climb
much further. I see no reason why US stocks cant trade at 20 times earnings over the
next several years.

Stray Reflections

16

Jawad S. Mian

May 2015

Frankly, given the slow and fragmented nature of this recovery, it is still too early in the
investment cycle to worry about valuations. Historically, valuation is a poor timing tool,
and valuation considerations only matter once the economic expansion looks exhausted,
which is certainly not the case right now.
Considering the current low-yield environment, the US equity risk premium remains
fairly generous. If we assume the fair value for the real 10-year yield to be 1% (it is
currently only 0.25%), then the S&P 500 earnings yield today would need to be 5% to
generate the same average equity risk premium of 4% that prevailed over the 1960 to
2007 period. As it happens, the current earnings yield for the S&P 500 is closer to 6%,
which suggests US stocks still have meaningful upside.
Although margin debt is at all-time highs, I dont view it as a sign of concern. It is
not the absolute level of margin debt but the 12-month rate of change that matters
for the stock market. In the past, the signal to sell stocks was when margin debt
was expanding rapidly on a 12-month rate of change basisit was rising at 72% in
February 2000 and 63% in May 2007. (See chart below.)
In our current experience, the measure peaked at close to 40% in 2013 and dipped just
below 0% early this year. It has reversed higher since, which has marked great stock
market buying opportunities previously in 1995, 1998, 2005, and 2012. Looking at the
current 5% reading, I would argue the speculative phase is some ways off.

Source: Dalma Capital, Bloomberg

Stray Reflections

17

Jawad S. Mian

May 2015

The equity bull market will only be endangered when markets start to price in interest
rates reaching restrictive levels. For that, the spread between the US 10-year bond yield
and corresponding level of economic activity should be watched closely. Normally,
an economic recession or an equity bear market has occurred when the bond yield
exceeded the level of nominal economic growth rate for an extended period of time.
With US nominal GDP growth expected to be above 4% in 2015 and the 10-year yield at
2.2%, this does not appear to be a concern at the moment.
The Fed has a powerful incentive to prevent rates from rising to levels that would
make the debt burden pernicious. While the Fed will begin hiking rates this year,
policy normalization will occur at a measured paceand only against a backdrop of
improving global growth and a strengthening US economy. This is a very bullish signal,
even if the noise leads to some market turbulence initially.

Source: BCA Research

The annual growth rate of the Feds balance sheet has fallen from nearly 40% in early
2014 to less than 5% last month and is expected to fall below zero in the second half
of this year. The investment environment is progressively shifting from an excessive
reliance on liquidity to growth. Anyhow, average stock market returns for the past nine
tightening cycles have been largely in line with those for the past nine easing cycles.

Stray Reflections

18

Jawad S. Mian

May 2015

A Conscious Recoupling
Global stock markets have decided to consciously recouple in 2015.
The rally in European stock markets from the October 2014 low has simply been breathtaking. The ongoing stealth bull markets in Japan and China have also now been
followed by significant breakouts in underperforming Asian markets, such as Hong
Kong, South Korea, and Taiwan. I do not recommend a defensive posture at this stage,
given major cyclical tailwinds and a global liquidity picture that is still expansionary.
Global equities will continue to advance, as global growth conditions firm and earnings
gradually strengthen. Based on valuations and relative monetary policy settings, I
expect non-US stocks to lead the way. US stocks are currently at 60-year price-relative
highs versus their European counterparts, while Asian stocks have underperformed US
stocks by over 400% since 1995. International stock markets are just beginning to catch
up to the US benchmark, which has an almost 100% outperformance lead from the
March 2009 low.
There is a global capital rotation underway, and Im most bullish on Europe and Japan.
The bullish case for Europe is straightforward: return on equity is well below its
historical mean and forward earnings are bottoming, leaving considerable room for
earnings upside as economic activity picks up.
In Japans case, investors remain fixated on the ghosts of its deflationary past and
are unable to embrace the possibility of a major secular change. In my view, the real
possibility of corporate structural reform in Japan is one of the most underappreciated
investment stories. Abenomics is leading companies to become much more concerned
about their excessive cash balances and overall shareholder returns.
According to Barrons, Japan Inc.s cash pile hit a record 217 trillion yen ($1.81 trillion)
at the end of last year: an amount that is equivalent to 40% of Japans GDP and nearly
the same percentage of the countrys total equity market cap of about 500 trillion yen.
Last year alone, Japanese companies increased dividends by 19% while share buybacks
rose by 55%. There has been a tripling of announced share buybacks over the last five
years to 4.5 trillion yen in 2014, up from 1.5 trillion yen in 2009. Abes moral suasion has
pushed management teams to finally act in the interest of shareholders with meaningful
corporate governance reforms.

Stray Reflections

19

Jawad S. Mian

May 2015

Profit margins are at record levels, and return on equity is on the rise, now at 8.3%, up
from 5.7% two years ago. With corporate profits at an all-time high, the surge in Japans
broad indices so far has been driven by increased earnings, rather than by multiple
expansions. Two years into the launch of Abenomics, valuations remain as attractive as
they did on day one.
The secular bull market in Japanese stock began in 2012. As deflationary pressures
abate and credit growth picks up, the rally is broadening and financials are beginning to
outperform. I dont believe Japans equity re-rating is complete.

Get Out of Bonds, Risk-Free

For exceptional returns in 2015, it is not enough to just be bullish on non-US stocks;
you must also short US bonds. Bond yields in much of the developed world have
fallen to unjustifiably depressed levels. There is a major revaluation risk to owning
government bonds at this stage of the investment cycle. With macro risks waning
and inflation expectations slowly rising, I suspect global bond returns have probably
crested. We have been short US Treasuries since January.
According to David Rosenberg, for the 10-year Treasury note to generate a 14% return,
it would have to fall to 50 basis points. Even with the US Economic Surprise Index
declining to its lowest point since the 2008 recession, however, bond yields were unable
to sustain a sharp move lower in the first quarter. That leads me to believe yields are
likely to move higher once the data improves.

Source: Bloomberg

Stray Reflections

20

Jawad S. Mian

May 2015

The inflation environment has been changing substantially. Not only is core inflation
stabilizing in the major economies, headline inflation is poised to rise in the months
ahead.
The US 10-year break-even rate (a market-based gauge of inflation expectations)
bottomed in January at 1.5%. By mid-March, it had reached 1.65% and is now trying to
push through 2%. In early January, the German 10-year break-even fell below 0.6% and
had doubled to 1.2% by mid-March. It has now settled at 1.3%. Japans 10-year breakeven rate was near 0.7% in mid-January, rose above 1% in March, and is now at 1.1%.
As the world emerges from the perceived threat of deflation, bond yields should rise
toward equilibrium levels. I urge investors to gravitate out of richly priced bonds and
into stocks. The bond bull market is over.
I expect that the US 10-year yield will rise to approximately 3.5% over the next 12 to
18 months as global growth accelerates (particularly in Europe and Japan), inflation
expectations will continue to recover worldwide, and the Fed will hike rates for the
first time in 11 years.
Curiously, according to Erik Swarts, yields are following the inverse pattern from the
secular (1979-1985) pivot of 10-year yields, which would place them on a glide path
higher over the coming months.

Source: Market Anthropology

Stray Reflections

21

Jawad S. Mian

May 2015

Just as the Sherpas taught Viesturs to tread lightly and gently while climbing
magnificent peaks, we too chase Everest-type returns with humility and respect. We
know that markets are not conquered: they simply do or do not allow us to make
money.

The Seeker
Siddhartha is an allegorical novel by Hermann Hesse written in 1922. It deals with the
story of a restless Indian boy named Siddhartha, who leaves the comfort of his home
and embarks upon a spiritual journey in search of peace and wisdom.
On his quest, he first spends time with the Samanas, who encourage him to live a life
of deprivation. He practices fasting, meditation, and self-denial, but all his efforts are
in vain. He feels no closer to enlightenment. He tells his friend Govinda, who also
accompanies him on the journey, of his doubts.
I find only a short numbing of the senses in my exercises and meditations and
that I am just as far removed from wisdom, from salvation, as a child in the
mothers womb.
His unrelenting search for a universal understanding of life takes him to Gautama, the
Buddha himself. He has heard that Gautama was a man of bliss, and that Brahmans and
princes bow down before him and become his students. He decides to walk over to the
town of Savathi to meet the exalted one.
He looked at Gautamas head, his shoulders, his feet, his quietly dangling hand,
and it seemed to him as if every joint of every finger of this hand was of these
teachings, spoke of, breathed of, exhaled the fragrant of, glistened of truth. This
man, this Buddha was truthful down to the gesture of his last finger. This man
was holy.
Never before, Siddhartha had venerated a person so much, never before he had
loved a person as much as this one.
But Siddhartha feels little curiosity for the Buddhas teachings; he does not believe
that they will teach him anything new. He feels strongly that true wisdom can only
come from within. So, while Govinda chooses to stay and seek refuge with the monks,
Siddhartha moves on.

Stray Reflections

22

Jawad S. Mian

May 2015

He ventures into the city where he meets Kamala, a courtesan, who sends him in the
direction of material pursuits. Even as a rich man, however, Siddhartha realizes that the
luxurious lifestyle he has chosen is merely an illusion, empty of spiritual fulfillment.
He had been captured by the world, by lust, covetousness, sloth, and finally
also by that vice which he had used to despise and mock the most as the most
foolish one of all vices: greed. Property, possessions, and riches also had finally
captured him; they had become a shackle and a burden.
With a gloomy mind, Siddhartha leaves everything behind and decides to live the rest
of his life by the presence of a river where he earlier met Vasudeva, an enlightened
ferryman.
He becomes an observer of nature, and the river teaches him many lessons with
Vasudeva as his guide. He learns from it continually. Above all, he learns how to
listen. The quieter he becomes, the more he is able to hear. Siddhartha also realizes
that he has learned something new from everyone he has met on his path. There is
Truth all around. From that moment, Siddhartha ceases to fight against his destiny and
thinks only of the Oneness of all life.
There shone in his face the serenity of knowledge, of one who is no longer
confronted with conflict of desires, who has found salvation, who is in harmony
with the stream of events, with the stream of life, full of sympathy and
compassion, surrendering himself to the stream, belonging to the unity of all
things.
He is an inspired man.
Years later, Govinda, still restless in his heart, comes to the river after hearing talk of
an old ferryman who is regarded as wise. He asks Siddhartha to ferry him over, not
recognizing him at first as the friend of his youth. As the two old friends begin their trip
across the river, Govinda asks Siddhartha to share some of the things he learned on his
journey.
What could I say to you that would be of value, except that perhaps you seek
too much, that as a result of your seeking you cannot find. When someone
is seeking, it happens quite easily that he only sees the thing that he is seeking;
that he is unable to find anything, unable to absorb anything, because he is only
thinking of the thing he is seeking, because he has a goal, because he is obsessed
with his goal.

Stray Reflections

23

Jawad S. Mian

May 2015

Seeking means: to have a goal; but finding means: to be free, to be receptive,

to have no goal. You, O worthy one, are perhaps indeed a seeker, for in striving
towards your goal, you do not see many things that are under your nose.
Dont we all spend our lives searching for something?
We write our goals, design our paths, and then chase after it with everything we have.
We pursue our objectives aggressively and directlyignoring all other possibilities
and try our best not to deviate from the plan.
In place of hurrying on the path with our hands stretched out, reaching for the goal
which always seems farther out in the distance, fleeing from our grasp even as we get
closerperhaps we should walk through life with our arms wide open and our palms
tilted toward the sky.
In this manner, we would be open to receiving everything that comes our way and
live in the present, as opposed to pursuing some uncertain future. Rather than feeling
tired of life and the long road ahead, we would be free of worry and slowly discover
the joy of surprising ourselves instead.
Maybe we learn something new on every step along the way. When Siddhartha glanced
at the river, he realized something: This water ran and ran, incessantly it ran, and
was nevertheless always there, was always at all times the same, and yet, new in every
moment!
Ive grown up to believe there are no coincidences in life. We are always in the right
place, and everything happens at exactly the right time. Instead of obsessing about our
goals or destination, maybe we should remain in the present moment and just let the
universe move about.
Like the river, life has its own flow; we cannot impose our own structure upon it. We
cant control itall we can do is listen to its current. Sometimes, when the outside noise
dulls down, the quietness within reveals a lot, but only if you listen, intently.
In the end we all belong to God, and to Him we shall return.

Jawad S. Mian

Stray Reflections

24

Jawad S. Mian

May 2015

Positions
We currently have 44 open trades across 15 investment themes.

Stray Reflections

25

Jawad S. Mian

May 2015

Positions - Closed

Stray Reflections

26

Jawad S. Mian

May 2015

Stray Reflections Track Record Summary

Stray Reflections is a global macro advisory publication with a focus on major investment
themes and actionable trade ideas. Our primary objective is to achieve long-term capital
appreciation by identifying a diversified portfolio of trades that each add incremental
alpha for our clients.
The inefficiencies at the heart of macro investing are permanent, as they relate to the
inherent uncertainty of the future. The vast majority of the data required is publicly
available. The differentiating factor is the ability to analyze and thematically organize
the information into coherent theories.
The starting point of our investment process is complete independence of analysis
and thought. We do not set out to be consensus or to be contrarian, but instead to
be independent. Our guiding principle is to help investors understand and navigate
through all the complexities of an unstable, deflation-prone world.
We share excerpts from our research publication below, which highlight some of our
important macro calls and investment recommendations since inception in February
2014.

February 2014
The US 10-year bond yield since 1986 shows a clear secular downward channel. We
monitor this very closely since it has served as one of the best signals to time low-risk
entry and exit points from global markets. The cyclical peaks and troughs in yields have
coincided with a major risk-off and risk-on response in stocks, respectively.
Since the US 10-year bond yield hit a secular low of 1.43% on June 1, 2012 (its lowest
level ever), it gained 113% to 3.05% on January 2, 2014. This was the fastest rate of
change increase over an 18-month period in the past 30 years. Such a quick and sharp
adjustment higher in rates has nearly always preceded a drop in stock prices. It would
be prudent to build a protector portfolio concentrated in US Treasuries.
The US 10-year bond yield declined from above 2.7% in February 2014 to 1.65% in
January 2015. It was one of the biggest surprises of 2014.

Stray Reflections

27

Jawad S. Mian

May 2015

March 2014
In trading markets this year, our strategy is guided by the words of Horace Many
shall be restored that are now fallen and many shall fall that are now in honor. To
heed Horaces advice, we started looking for assets that were held in honor that may
suddenly fall from grace. Social-media stocks. Biotech.
Social network stock prices have seen a more than three-fold surge since mid-2012.
These baskets of stocks are trading at 12 to 13 times sales, almost equivalent to valuation
levels at the peak of the tech bubble. Hot money flows into the biotech group have
driven up valuations to nosebleed levels. A sizeable price decline is probably around
the corner, and we have initiated a short position in social-media and biotech stocks.
Biotech stocks peaked on February 25 and fell 21% in the next two months; socialmedia stocks peaked on March 7 and fell 25% in the next two months.

April 2014
We think the downside in Chinese equities is much less than what people currently
anticipate. In our view, Chinese stocks are probably late in the process of completing a
massive de-rating since the equity market is down more than 50% from its 2007 peak
and trades two standard deviations below the average measure of Chinese GDP relative
to global GDP.
At its all-time highs, Chinese stocks traded more than two standard deviations above.
The current valuation level (6.8-times forward earnings) discounts much of the macro
concerns in our view. We are perhaps among the few who actually see the weakness
in Chinese equity markets as providing a special opportunity to establish strategic longterm positions.
Chinese stocks have been the best-performing asset class over the 12 months since our
recommendation, returning 114%.

May 2014
Solar stocks can be classified to have experienced one of the greatest bear markets of
the 21st centuryfrom an all-time high in May 2008 to the low in November 2012, an
incredible collapse of 95%. We believe rising electricity prices, lower solar costs, and
widening adoption and scalability will turn this group into a real winner in the long
run.
Solar stocks are up 27% since that call.

Stray Reflections

28

Jawad S. Mian

May 2015

June 2014
The real China story is taking place online. E-commerce is booming. The number
of Chinese online shoppers has surged to 300 million, more than doubling in three
years. We are enthusiastic about the long-term prospects for Chinese Internet stocks
and believe Chinas rush toward consumerism will lead to outsized gains for the bestpositioned players.
We believe Chinese Internet stocks have all the basic ingredients to turn into the next
investment mania: leading innovation, high growth expectations, abundant liquidity
and global speculation.
Our preferred Chinese e-commerce pick, JD.com, has risen 38% so far.

July 2014
While investing in Iraq carries plenty of risk, it is a risk worth taking, in our view. If
there was ever a time to buy when theres blood on the streets, it is nowto heed Baron
Rothschilds timeless advice. At a time when equity risk premiums are precariously
compressed around the world, we believe a small allocation to an uncorrelated secular
investment opportunity that has one of the highest potential growth rates and equity
risk premiums should be viewed as prudent portfolio strategy. There arent many
post-war reconstruction growth stories that are also blessed with world-class natural
resource endowments.
Iraqi stocks have since fallen 20%.
What makes us nervous [about oil] is speculative positioning in the CFTC oil futures
market, which stands at a record extreme and has previously led to sharp price
declines.
Oil prices peaked only days earlier, and July marked the beginning of the oil crash.

August 2014
The attitude of policymakers in Japan has firmly changed, and we expect to see that
reflected in the public and corporate Japan before long as well. The aggressive monetary
actions and supportive fiscal measures will result in a viable turnaround in the nations
attitude. We dont believe Japans equity re-rating is complete. We are witnessing a
secular shift in mood in Japan, and we feel stocks will stand out to be the clear winners.
Japan has one of the most favorable micro tailwinds in the world.

Stray Reflections

29

Jawad S. Mian

May 2015

Japanese stocks are up 30% since then. Corporate profits are at an all-time high, and
return on equity is on the rise, now at 8.3%, up from 5.7% two years ago. In 2014,
Japanese companies increased dividends by 19%, while share buybacks rose 55%.

September 2014
Investor enthusiasm for euro-denominated assets has dampened, but we feel this is
only temporary. Our analysis leads us to conclude that the risk of a major deflationary
bust in Europe, while not exaggerated, is likely to recede and that economic indicators
should improve, even if it takes time. We believe another buying opportunity will soon
emerge in European equities as risk appetite wanes over the next two to three months.
Our favorable macro view on Europe rests on understanding that the strong headwind
from bank deleveraging will now begin to ease and lead the economy to gradually
approach its trend growth rate of 1.5%.
European stocks bottomed in October but have risen 24% to date. German stocks are
up 35%. Europes economic turnaround is in its early stages, and growth should exceed
1.5% in 2015.

October 2014
The macro environment is turning against risk-seeking behavior: global growth
estimates are being downgraded on an almost weekly basis, world inflation keeps
creeping lower, liquidity and momentum are rapidly fading, copper and oil are
breaking down, and markets around the world are starting to act wobbly. It is the
month of October. Historically, it has been one of the most unkind months to investors.
US stocks peaked in September and fell sharply in October. The S&P 500 lost 7%, and
the Russell 2000 was down 11%.

November 2014
We believe we are entering a new oil normal where oil prices stay lower for longer.
Our analysis leads us to conclude that the price of oil is unlikely to average $100 again
for the remaining decade. We think the next five years will see a trading range develop
with prices oscillating between $55 and $85.
Brent was at $84 then. It fell to $45 by January.

Stray Reflections

30

Jawad S. Mian

May 2015

We dont see any signs of OPEC restraint at the groups next meeting on November 27.
It can be grasped that the lower the price of oil falls, the greater the need to compensate
for lower revenues with higher production, which paradoxically pushes oil prices even
lower.
No cuts were made at the OPEC meeting, as expected, and the oil crash accelerated.
Saudi Arabia raised oil production to above 10 million barrels per day (mbpd) in 2015.
In the past, higher resource prices increased the occasions for military conflicts as
nations would scramble to secure necessary supplies. Going forward, however, we
firmly believe lower oil prices pose a greater risk of escalating current geopolitical
challenges.
Saudi Arabia launched airstrikes against Yemen in March to bring political regime
change. Tensions between Saudi Arabia and Iran have increased further.

December 2014
We are skeptical of the consensus mindset and dont think that the US dollar can
appreciate significantly over the next five years. We view the recent strong run-up in
the currencys value as a cyclical phenomenonnot a secular upturnand suspect it
offers an excellent opportunity for investors to diversify outside of the dollar.
The dollar peaked in March after an 11% rally in the early months of 2015. It is down
6% from its peak.
We believe the dollar is now vulnerable to a re-widening of the current account deficit
on the back of stronger household consumption. The temporary fillip to the current
account from the shale oil boom, weak import demand, and lower interest rates should
reverse in the next five years. America will struggle to attract the same amount of
external capital as it has in the past.
In March, it was reported that the current US account deficit widened sharply in Q4
2014, the largest shortfall since 2012.
In May, it was reported that the demand for US government securities sold at auction
declined in Q1 2015. The bid-to-cover ratio was 2.75 in 2015, down from 2.87 in 2014
and the record 3.15 in 2012.

Stray Reflections

31

Jawad S. Mian

May 2015

January 2015
Our analysis leads us to conclude that the cyclical path of least resistance for
commodities will turn up later this year. The commodity cycle peaked with the blow-off
move in silver in April 2011, and we suspect the cycle has troughed with the crash in
the oil market in the back half of 2014, which has continued into the early part of 2015.
We feel the crosscurrents buffeting commodities will gradually settle on the side of
higher prices.
Commodities bottomed in March and have since risen 10%. Oil is up 50% from its lows.

February 2015
Once the shock of the speed of the recent drop in oil prices is overcome, we could see a
major mindset change in the bond market. German bunds are in a final fifth wave and
have reached the upper end of the 30-year, secular bullish-trend channel.
US 10-year Treasury yields have rallied from a low of 1.65% in January to 2.25% in
May, due to a rerating in both growth and inflation expectations.
German 10-year bund yields fell from 0.3% in February to below 0.1% in April and then
rallied sharply to above 0.6% in May.
Investors should diversify their holdings away from the US. The outperformance of
the US stock market has been exceptional, but relative valuations and monetary policy
settings favor Europe and Asia.
YTD Returns: US +2%, Germany 18%, Japan 12%, China 34%.

March 2015
We believe the deflationary psychology has progressed too far. The investment
landscape is about to shift for the first time in over four years, and it is important for
investors to take note. Since the summer of 2011, we have seen deflationary trends
dominate: US dollar rising, commodities falling, global growth slowing, global bond
yields declining, and US stocks outperforming the rest of the world. If we are correct
in our thinking about the deflation trade coming to an end, all these trends should
reverse.

Stray Reflections

32

Jawad S. Mian

May 2015

In mid-March, the dollar peaked, commodities bottomed, and yields made a higher low.
International stock markets are outperforming the US benchmark in 2015, which has an
almost 100% outperformance lead from the March 2009 low.
The ECB has commenced QE, and we wouldnt be surprised if markets copy and paste
the post-Fed QE implementation scripthigher euro, higher yields.
The euro made a multi-year low on March 16 at 1.048 and has risen above 1.12 in May.
German bund yields bottomed on April 17 and have seen the biggest upward climb in a
quarter-century.

April 2015
It may not seem like it now, but we believe monetary authorities have overcome the
threat of deflation. They have been successful in changing peoples perceptions and
breaking the deflationary mindset, even if this is not yet reflected in the level of global
government bond yields. The inflation environment has been changing substantially.
It is entirely conceivable that inflation in major economic blocs will stabilize as we
approach mid-year and enter a slow, long-term bull market.
The US 10-year break-even rate bottomed in January at 1.5%. By mid-March it had
reached 1.65% and is trying to push through 2% in May. In early January, the German
10-year break-even fell below 0.6% and doubled to 1.2% by mid-March. It has now
settled at 1.3%.
Should the S&P 500 hover above 2,000 and oil prices stay above $50, we think the Fed
will be keen to hike rates at the June FOMC meeting.
Remains to be seen.
We believe recent weakness in EM [emerging markets] does not herald a repeat of the
1997 Asian crisis. We dont think a Fed interest rate hike will lead to a disorderly carry
trade unwind, an EM debt crisis, and another global recession. Most importantly, we
now believe the risk of a one-off Chinese devaluation is also off the table.
If we are correct in our view that China is in the early stages of a new long-term bull
market, then emerging markets as a whole will not be left behind for too long. The
economic integration model led by China, with Xis vision of a New Silk Road, holds
the promise to provide a structural tailwind.

Stray Reflections

33

Jawad S. Mian

May 2015

The Peoples Bank of China (PBOC) is making more public overtures to make the
renminbi a global reserve currency.
The ongoing bull markets in Japan and China have also been followed by significant
breakouts in underperforming Asian markets, such as Hong Kong, South Korea, and
Taiwan.

The Stray Reflections Philosophy

As a global macro advisory publication, Stray Reflections is focused on major investment
themes and actionable trade ideas .
The investment environment is changing at a rate thats representative of global
economic imbalances, fund flows, and geopolitical risks. Very few past models are still
valid and such a situation has contributed to the extreme uncertainty that currently
prevails. With Stray Reflections, my guiding principle is to help investors understand
and navigate through all the complexities of an unstable, deflation-prone world.
You can begin receiving Stray Reflections each month by clicking here.

Stray Reflections

34

Jawad S. Mian

May 2015

Disclosure

Unauthorized Disclosure Prohibited

Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin
Economics Terms & Conditions of Use.
The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual
use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding,
copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the
publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be
involved at Mauldin Economics sole discretion, may violate the copyright laws of the United States, and may subject the violator
to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any
electronic means it deems necessary and may change those means without notice at any time. If you have received this publication
and are not the intended subscriber, please contact service@MauldinEconomics.com.

Disclaimers
The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Outside the Box, Over My Shoulder, World Money
Analyst, Bulls Eye Investor, Just One Trade, Transformational Technology Alert, Tony Sagamis Rational Bear, Stray Reflections,
and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not
intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions
expressed in such publications are those of the publisher and are subject to change without notice. The information in such
publications may become outdated and there is no obligation to update any such information. You are advised to discuss with
your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any
investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates
may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate
policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely
fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the
subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation
of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or
website, any infringement or misappropriation of Mauldin Economics, LLCs proprietary rights, or any other reason determined
in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice
Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would
like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.pubrm.net/signup/me
Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate
policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the
pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due
diligence before transacting any business with any firm, for any product or service.
Copyright 2015 by Mauldin Economics, LLC.

Stray Reflections

35