Living In A Risky World CFA Victoria, May 11, 2017 Martin Barnes Economic Advisor BCA Research

The Fed's Economic Forecasts Vs. Outcomes MADE FORECAST CHANGE IN REA L GD P OVER NEXT 4 QUARTERS ACTUA CHANGE IN REA NEXT 4 QUARTERS* PEAK- T O-TROUGH % DRO IN GDP* DECEMBER 1969 1.4% -1.2% -1.5% NOVEMBER 1973 2.4% -4.9% -7.8% JU Y 1981 0.9% -1.9% -2.5% 1990 1.9% -0.8% MARCH 2001 2.6% -0.3% DECEMBER 2007 1.3% -0.5% -4.2% * THESE CALCULATIONS ARE BASED ON THE GDP DATA AVAILABLE AT THE TIME, NOT CURRENTLY PUBLISHED GDP DATA WITH REVISIONS AND CHANGES TO DEFINITIONS ETC. 2

The Ghastly Performance Of Active Fund Managers Share of U.S. equity funds underperforming benchmark Large-cap 88% 85% 92% MID-cap 90% 96% 95% SMALL-cap 97% 93% Data as of end-2016. Source: S&P Dow Jones Indices 5 years 10 years 15 years 3

Lots Of Things To Worry About The economic cycle and bull market are getting old China: A very unbalanced economy Europe: Brexit and ongoing problems with the single currency The Trump administration: Will they start a trade war? Geopolitics: North Korea, Middle East, Russia 4

Inflation And Wage Growth Are Tame 5

No Reason To Expect A Near-Term Recession 6

China's Remarkable Credit Boom 1 2 3 4 5 6 7 8 9 J A P N 1983-90 U.S. CHINA 2008-15 SEVEN-YEAR CHANGE IN PRIVATE DEBT-TO-GDP RATIO % 2000-07 7

UK Trade With The EU: An Unbalanced Picture 10 20 30 40 50 EXPORTS IMPORTS TRADE WITH THE EU AS % OF TOTAL UK TRADE 5 10 15 20 25 30 EXPORTS IMPORTS TRADE WITH THE UK AS % OF TOTAL EU TRADE 8

The Case For Infrastructure Spending In The U.S. 9

Not Clear That The U.S. Needs More Military Spending 10

The U.S. Is A Low-Tax Country 11

Canada’s Housing Boom 12

Consumers Are Deep in Hock 13

Secular Stagnation Ahead? 14

The Past Is Not A Guide To The Future COMPOUND % RETURNS ($Can.) THE P AST 1982-2015 THE FUTURE 2016-2026 PORTFOLIO WEIGHT CANAD A EQUITIES 9.6 5.0 30 U.S. EQUITIES 1 1.5 3.5 20 OTHER DEVELOPED EQUITIES 5.5 10 EM EQUITIES 11.9 7.5 5 10-YEAR GOVT. BONDS 8.5 CORPOR TE BONDS 9.5 3.0 T O L PORTFOLIO* 9.8 3.7 100 INFL TION 2.8 2.0 TOTAL PORTFOLIO REAL RETURN 6.8 1.7 *BASED ON WEIGHTS IN FINAL COLUMN