Q3 2013

2013 Positives and Negatives Positives 1. Corporate profits at all-time highs 2. Central banks remain highly accommodative 3. US employment is improving 4. US housing market is healthy 5. Consumer benefitting from wealth effect Negatives 1. Fed created more volatility with no taper surprise 2. Bernanke is likely out, who is next Fed Chairman? 3. Debt ceiling debate is back in October 4. Sequestration/Fiscal 2013 Budget at year end 5. Syria conflict is pushing oil prices higher

3rd quarter in review After a strong 1st half, easy money around the world continued to push US market indices to all-time highs. Syria provided headline risk as the prospect of war drove oil and gold prices higher in August. However, none of the Western world can afford another costly and drawn out war in the Middle East. With Ben Bernanke on the way out, debate heated up over his potential successor. Frontrunner Larry Summers was a controversial figure who pulled himself out of the race, and it now looks like Bernanke’s co-chair Janet Yellen will be his likely replacement. If Yellen is elected, continued easy money and quantitative easing (QE) are probable. The biggest event of the quarter came in September when the FOMC stunned markets with their decision not to taper. Bernanke shocks and confuses markets As Fed Chairman Ben Bernanke wraps up his final term, he shocked financial markets with his September decision to delay tapering of the latest QE program which purchases assets of $85 billion per month. Markets were anticipating at least a $10 billion reduction as the Fed balance sheet is approching a staggering $4 trillion. In the past, Bernanke has prided himself on improving communication and targets for Fed decisions in order to decrease volatility in financial markets. Instead, he shocked virtually every economist on Wall Street by delaying tapering and failing to offer a clear explanation why. The prospect of continued money printing pushed asset prices higher including many major market indices to all-time highs. However, this knee jerk rally did not last long as markets digested the mixed messages from the Fed. Uncertainty is never good for markets. Is the bear (market) coming out of hibernation? With the market now 4.5 years into its bull run, investors must ask themselves, “How much longer can the party last?” Since the 1950s, there have been 10 bull markets with an average duration of 4 years. If you look from a glass half full perspective, 3 of the last 4 bull markets have lasted 5 or more years. The bad news is that the bulls of 1982 and 2002 lasted 5 years which we are closing in on, and few would mistake our current economy for the booming 1990s which benefited from gains in productivity, budget surpluses and high growth rates of output, employment and wages.

Bull Markets

Bull Market Duration: Years from Market Bottom to Peak
4.5 * 5 9.3 2.7 5 3.1 1.8 2.6 2.1 3.6 4.1

2009 2002 1990 1987 1982 1978 1974 1970 1966 1962 1957
0 1

Average = 4 years Median = 3.4 years










Number of Years

* through 9/24/13

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

Investment Outlook and Strategy The US economic growth continues to chug along at a slow pace while US corporate profits push to alltime highs. In September, jobless claims hit their lowest levels since June 2007, and unemployment continues to decline. In the 2nd quarter, gross domestic product increased by an annualized 2.5% which has been helped by the strengthening housing market. As rates rose sharply from May to August, housing weakened so GDP will likely show a slowing in the 3rd quarter. Looking ahead, everyone gets a little worried about October because it is a month that has produced some of the worst declines in history. All of us remember 1987’s Black Monday and more recently the worry of complete financial collapse in 2008. Nassim Taleb labels these “Black Swans” which means they were unpredictable and unforeseeable events. We disagree with his premise. Our investment professionals spend immense time on research in an effort to protect our clients from such events. We are proud of our unique history of appropriately identifying the market risk of 1987, 2000, 2008 and taking action to mitigate the severity of these downturns. Today, some market pundits are worried about the debt ceiling which Treasury Secretary Lew predicts will be breached sometime in October or November. You will most certainly see “debt ceiling” repeated a million times in the headline news for the next month. Politicians will be on their soap boxes threatening standoffs and then compromises. We hope that the government shutdown is resolved sooner than later. In 2011, markets reacted quite negatively at the debt ceiling standoff, but 2013 is much different than 2011. In 2011, when the debt ceiling roiled equities, the US budget deficit was well north of $1 trillion, the US credit rating hung in the balance, Europe was still on the brink, and confidence remained low. Today, deficit spending is in retreat, the US credit rating isn’t a headline concern, confidence has recovered, Europe is stable-to-improving, and fund flows have begun secular reversal. In short, the debt ceiling should not be the “Black Swan” event that ends the current bull market. Monetary conditions remain extremely accommodative around the world. Equities should continue to benefit from the rotation out of bonds as rates normalize to pre-crisis levels. Corporate profits are healthy as S&P reported earnings are estimated to grow at 14% over the next year. With the bull market nearing its 5 year anniversary, the Runnymede team is hyper vigilant and stand ready to protect client assets if we foresee a financial hurricane on the horizon.

Investment Team Members Samson Wang ext. 108 Andrew Wang ext. 103 Christopher Wang ext. 107
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RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New Jersey 07945-0359 TEL: 973.267.6886 FAX: 973.267.5525 www.runnymede.com