1. War Room 27 June 2013 China’s Slowing Growth

2. War Room Monthly macro discussion Using tools in context Update on HiddenLevers Features Your feedback welcome

3. China’s Slowing Growth I.China Boom – History + Current Snapshot II.China Slowdown – Effect on Macro III.China Slowdown – Effect on Markets IV.Historical Comparisons + Scenarios

4. HiddenLevers CHINA BOOM – HISTORY + CURRENT SNAPSHOT

5. China – Goodbye Mao, Hello World 1950s-1970s 4.5% GDP annual growth 1976 Death of Mao Zedong 1979 Free market reform Opened to foreign trade 1979-2012 10% GDP annual growth 500m people out of poverty economy doubled every 8 years

6. China – Now World’s #2 economy #1 merchandise exporter #1 manufacturer #1 holder of FX reserves #1 creditor nation #2 economy #2 merchandise importer #2 receiver of foreign direct investment source: IMF

7. China – Overtake the USA as #1? China as B-M-O-C Pundits thought China would be on top by 2014. #fail source: Economist From 2005 source: akarlin.comakarlin.com From 2006

8. China – 2008 Global Financial Crisis CHINA GDP Growth 2007:14.2% 2008:9.6% 2009:9.2% 2010:10.4% 2011:9.2% 2012:7.8% $586 billion government stimulus

9. China – Current Macro Picture GDP slowing real estate bubble popping tightening liquidity trade deficit 14.2 2013 below 7 2007

10. CHINA SLOWDOWN – EFFECT ON MACRO HiddenLevers It ain’t over til its over

11. China’s Global Investments Source: Heritage Foundation China’s global investments (energy is #1) are growing rapidly, and a pullback would be felt on every continent.

12. China’s Trade Balance Sources: China General Admin of Customs, ZeroHedge 2000 – 2008 Steady trade surplus 2008 – present Too many deficits to count consume!

13. China’s Import Trade Flows Source: IMF, UN FAO world’s largest importer wheat corn vegetable oil pork cotton rice Chinese imports are 10% of GDP for South Korea and Taiwan Significant GDP impact on most Asian neighbors and Australia

14. Australia: Canary in the Coal mine? Source: Heritage Foundation Over 25% of Australia’s exports directly to China 70% of exports to East Asia (all dependent on China) Australian Dollar down 14% over last month -14% Source: HiddenLevers bummer

15. Steel Copper Aluminum Industrial Metals: Case of Chinese Bird Flu? 1y -68% 1y -20% 1y -11% source: HiddenLevers

16. HiddenLevers CHINA SLOWDOWN – EFFECT ON MARKETS

17. China Slowdown – Markets Reacting to Macro Monday 24June 5.3% down in a day Shanghai Index 4.5 year low China A-Shares 70% off since peak China A-Shares 15% down in June Interbank rate 3.30% to 6.97%

18. China Slowdown – Corporates with most exposure Luxury will suffer (party’s over ladies)

19. China Slowdown – Corporates with most exposure Spirits will suffer (fake bags, fake booze)

20. China Slowdown – MSG tainting EM funds? source: HiddenLevers EM funds keeping pace with Shanghai Composite. two possibilities 1.PMs overexposed to China 2.PMs unloading all of Asia

21. China Slowdown – Sectors that will lose most? industrial metals mining + equipment industrial transportsolar energy luxurycommodities

22. China Slowdown – US Dollar will gain source: HiddenLevers Man that dollar sure is strong …

23. HISTORICAL COMPARISONS + SCENARIOS HiddenLevers

24. Historical Comparison: China vs Japan Growth Japan grew explosively from 1960-1995, then flat lined. China grew even faster: 1990-2010 What’s next? source: World Bank

25. Historical Comparison: China vs Japan Equities -69% -67% China equity market decline mirrors Japan China + Japan face same demographic problems source: HiddenLevers

26. Historical Comparison: Lehman vs China Beijing home value / income = 22.3 NYC home value / income = 5.3 Similarities to 2008Differences from 2008 China 2013 private credit / GDP = 180% US 2008 private credit / GDP = 195% US has free-flowing capital markets, 98% of China’s investment capital is domestic US 2008 crisis occurred before Fed intervention, while Chinese central bank is heavily involved in capital markets US real estate bubble popped when US entered recession – China GDP is similarly slowing Chinese equities have already crashed, while US equities were near highs

27. Good Soft landing Bad Hard Landing Ugly Chinese Recession China Slowdown Scenarios Copper prices a good metric for China’s economic health – key lever in scenarios Commodities are most impacted sector in all scenario outcomes China soft landing effectively priced in today Recession in China (and current Europe recession) overwhelms US economic recovery

28. China Scenarios – How priced in? Copper and S&P: Correlated over past decade Breakdown in Feb 2013: Is Dr. Copper right or wrong? source: HiddenLevers

29. HiddenLevers – Product Update Envestnet – Launch of Integration New Homepage + Headers New Levers – bond spreads Integration Partners – improved design Coming soon: 1. Obamacare Scenarios 2. Non-correlated securities screener 3. SMA support