2013 Positives and Negatives Positives 1. US economic recovery is on track 2. Profit margins and levels at all time high 3. S&P earnings estimates are trending higher 4. Mutual fund flows are positive for equities 5. Rising home prices and improving housing data


Negatives 1. European financial system remains weak 2. Middle East unstable 3. Foreign exchange volatility 4. Efficacy of Fed/ECB/Government Policy

1st quarter in review During the 1st quarter, the US stock market indices powered to historic highs. Despite the wall of worry emphasized by the media, the US economic recovery continues to improve. While slightly below the historic average, this recovery is steadily moving in the right direction. The housing market is finally showing a consistent upturn since last summer, unemployment has dropped to 7.7%, and corporate profits and margins have surpassed all previous cycles. The capacity utilization rate is running below 80% allowing businesses to grow without putting pressure on labor, capital, and raw materials. Earnings are coming in above expectations. At the same time, S&P 500 valuation is reasonable at a P/E of 14x earnings of $108 in 2013. Given this backdrop, as we predicted in our last quarterly letter, stocks continue to push higher and commodities like gold are weakening. The S&P 500 has climbed over 15% since midNovember and a short-term correction would be healthy, and not unusual, for a bull market. Cyprus risk? Europe continues to be bombarded with scary headlines because of the banking holidays in Cyprus and little to no economic recovery on the continent for more than four years. Our interpretation of the situation is more hopeful than the news headlines, however. Cyprus is a miniscule part of the European economy, but we are aware that contagions start small so we will monitor the situation closely. We believe the eventual outcome for the Eurozone may be challenging, but the economies will stabilize over the near term. Longer term, the future of the EU remains unclear because its competitive structure is weak relative to the US and the BRICS countries in both trade and development. Strong Dollar = Strong America Across the Atlantic, the events in Cyprus are helping to strengthen the US Dollar. Combining the poorly handled rescue effort in the Mediterranean with worldwide central banking money printing, the US Dollar and financial markets look primed to strengthen further. We firmly believe that a strong dollar policy is good for America. Former Presidents Reagan and Clinton embraced the strong dollar which led to lower gas prices and a thriving economy. The US economy is still dominated by the service sector at over 80% of GDP. The best tax break, and therefore stimulus, that politicians can give to its citizens would be a strong dollar pushing gasoline prices back toward a dollar per gallon. Consumers would immediately have more money to spend, a tailwind for US growth. Investment Outlook and Strategy The US economy is doing surprisingly well, and on a relative basis to the EU and Japan is even more impressive. The stock market does not like uncertainty and many fiscal issues (fiscal cliff and sequestration) have been at least temporarily settled in the past quarter helping to reassure both consumers and businesses. The total deficit reduction for 2013 is now slated at over $300 billion and brings the

RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New Jersey 07945-0359 TEL: 973.267.6886 FAX: 973.267.5525 www.runnymede.com

deficit to just over $800 billion. While this is a headwind for growth, we believe the government must get spending under control or risk much bigger problems down the road. The Fed continues with its loose monetary policy. At its latest meeting, the Fed assured investors that interest rates would remain low and bond purchases would continue as long as the economy remained weak (unemployment greater than 6.5%) and inflation low. While we wonder how the Fed will eventually unwind its mammoth balance sheet, the short term effects have undoubtedly been positive. The US financial system is in much better health. Furthermore, the housing market has stabilized, and home prices have been trending upward. The stock market is at all time highs. The positive wealth effect has consumers feeling better and confidence is on the rise. Constituting roughly 70% of GDP, the consumer continues to drive the economy. Bond yields crept up marginally in the first quarter. Credit spreads tightened as supply of corporate and Treasuries remain very tight. In this low rate environment, investors have limited choices. They can seek higher returns by taking more risk. However, we believe in investing in the highest quality credit because when interest rates are very low, investors are not properly compensated for credit risk. Many investors make the mistake of chasing yield and buying lower grade credit. This is not a wise choice - just ask those who chased yield in Cyprus this year or CDS in 2007. Runnymede continues to invest fixed income portfolios laddered in short to intermediate Treasuries which provide safety and stability. While headlines talk about a “Great Rotation” from bonds into stocks, it still hasn’t yet occurred and could potentially propel the market on another leg upward. Stock funds accounted for 54% of total net mutual fund assets in 2007; but today account for 47%. If investors moved back to 2007 levels, over a trillion dollars would flow from bonds and/or money markets into the stock market. With or without a “Great Rotation,” we believe the positive environment in the stock market will continue for the rest of 2013. The US economy is better positioned and growing faster than most developed economies. Natural gas and oil abundance makes the prospect of energy independence a realistic possibility. Innovations in technology and robotics could spur a renaissance in US manufacturing. Corporate balance sheets are strong with excess cash to buyback shares, acquire attractive businesses, and re-invest into their growth prospects. Equity valuations remain quite attractive at current levels especially relative to low interest rates. Runnymede is disciplined in its investment philosophy of “investing in the best.” The companies in our portfolios have good fundamentals and great management teams that anticipate and continue to undergo positive change. Investment Team Members Samson Wang ext. 108 Andrew Wang ext. 103 Christopher Wang ext. 107
Disclaimer Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request. © 2013 Runnymede Capital Management, Inc.® No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Runnymede Capital Management, Inc.

RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New Jersey 07945-0359 TEL: 973.267.6886 FAX: 973.267.5525 www.runnymede.com