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2014 Positives and Negatives

Positives Negatives
1. Central banks remain highly accommodative 1. Fed tapering is tightening on the margin
2. Corporate profits at all-time highs 2. Geopolitical risks are rising
3. Equity fund flows are positive 3. IPO market reminiscent of 2000 bubble
4. Unemployment is declining 4. Volatility is creeping back into stock market
5. Commodity inflation hurts consumer spending

quarter in review
During the 1
quarter, the US stock market indices moved mostly sideways with volatility increasing
despite the aggressive pumping of liquidity into the financial system. Leadership in the US market was
uninspiring as utilities were the best performing sector; while consumer discretionary stocks were
laggards thanks to one of the worst winters on record. Food inflation was up sharply with coffee, corn,
oats and wheat prices up double-digits. This has strong negative implications for the emerging markets
where food is a large portion of consumer spending. Slowing growth throughout emerging markets will
hurt many US multinational corporations that have relied on emerging markets for growth.

Bernanke Era Is Over
The Bernanke era was characterized by unprecedented financial engineering and market manipulation.
Central bankers seem to believe that by printing huge quantities of money, they have eradicated both
business and stock market cycles for the short and intermediate term.

Ben Bernanke left Washington and returned to
Princeton in J anuary. His legacy of creating
more debt to cure a debt problem will impact
the international economies negatively in the
years to come. The US Dollar has been
weakening since last summer while volatility
has been trending higher. “The Bernanke Put”
made stock investors fearless in the last couple
of years. Now with the Fed tapering, we have
seen signs of de-risking in the first quarter.
Investors know that the party can’t last forever.

With central banks’ coordinated effort to print their way out of the crisis, global debt surged over 40%
since 2008 to over $100 trillion. The US national debt exceeded $17 trillion, more than 100% of GDP.
With the help of the Congress, the total unfunded liability for Social Security, Medicare, Medicaid,
welfare and government pensions exceeds $200 trillion. It is a number that is totally unmanageable and
can't be repaid in our life time.

Bernanke has produced a debt bubble through a zero interest rate policy and quantitative easing, which
has driven the Fed's own balance sheet from $935 billion to $4.2 trillion in five and half years. The short-
term pleasure can easily turn into pain. Margin debt is at record levels as the broad market averages
reached new heights. However, debt creation has reached a cyclical limit. US economic data has shown

Q1 2014

RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New J ersey 07945-0359
TEL: 973.267.6886 FAX: 973.267.5525
signs of weakening for the past several months. While poor weather seems to have interrupted the upward
trajectory, parts of the economy, including the housing sector, were already showing some slowing even
before the cold weather arrived. 

The Yellen Era Has Begun
In her first FOMC meeting as Chair, J anet
Yellen stayed the course set by Ben Bernanke.
She reduced the extraordinary Fed purchases by
another $10 billion to $55 billion/month. If the
Fed continues to reduce asset purchases by this
amount/rate, Fed asset purchases will stop
altogether sometime in the 4
quarter with a
Fed balance sheet of well over $4 trillion.
Looking at the chart to the right, it is arguable
that the Fed’s actions have had much effect on
US GDP growth. The Fed balance sheet has
ballooned over the last year, but US growth has
barely moved above 2%. Bernanke probably
should have started tapering in mid-2013, and Yellen would actually be in a better position today. If the
economy slows now, where is the upper limit on the Fed balance sheet? Would Yellen be comfortable
with a $5 or $6 trillion balance sheet? We hope that we don't ever find out.

At the FOMC meeting, Yellen’s surprise comment was that the Fed could raise interest rates for the first
time roughly 6 months after completing its bond buying program. This means the Fed could raise interest
rates in the 1
half of 2015. We would view this as a positive as the Fed has kept its zero interest rate
policy (ZIRP) for far too long. The middle class, retirees, savers, religious and eleemosynary instituation
have been hurt tremendously by this policy.

The first quarter saw falling interest rates instead of the rising rates that most had anticipated as a result of
the Fed’s tapering. The 30-year Treasury rate fell from 3.97% to 3.56%. Slower-than-expected growth,
both in the US and Asia, as well as a flight to safety may have helped interest rates fall.

The New Bubble That Yellen Does Not See
Yellen’s view on asset bubbles is worrisome. At her confirmation hearing, she said bubbles are
notoriously hard to anticipate. Perhaps we shouldn’t be surprised that central bankers thought the
subprime problem was contained throughout 2007 and 2008. Yellen totally rejects the notion that stocks
are in bubble territory despite the major indices hitting record highs in the context of a stagnant economy
and high unemployment. Further, the recent IPO market is as hot and bubbly as it was in 1999/2000. 74%
of companies that have come public in the last 6 months are losing money. Despite this fact, most IPOs
are going up 100%+on their first day of trading.

As we march past the 5
anniversary of the bull market run, risk only increases that the next recession is
right around the corner. The US economic expansion is now going into its 59
month which is the
average length of US economic expansion following a recession. I don’t think anyone thinks our current
economy will run like the two longest expansions under Reagan and Clinton.

RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New J ersey 07945-0359
TEL: 973.267.6886 FAX: 973.267.5525
There are times to take risks, and there are times for asset protection. Based on our research, this is not a
time to take on risk. As advisers and stewards of our clients’ investments, we will do our best to navigate
our clients safely through this period of volatility.

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
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©2014 Runnymede Capital Management, Inc.

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Investment Team Members
Samson Wang ext. 108
Andrew Wang ext. 103
Christopher Wang ext. 107