Box 359, Mendham, New J ersey 07945-0359
TEL: 973.267.6886 FAX: 973.267.5525

2014 Positives and Negatives

Positives Negatives
1. US economic data is positive 1. Europe is sliding back into recession
2. Central banks remain dovish 2. Russian sanctions affecting global trade patterns
3. Corporate profits are strong 3. Geopolitical risks rising in the Middle East
4. Employment continues to improve 4. Volatility is creeping back into stock market
5. Environmental tail risks: Ebola, Fukushima

3rd quarter in review
During the 3
quarter, the S&P 500 and Dow J ones Industrial Average hit historic highs but it was largely
a sideways move for the major market indices. Under the surface, however, divergences have been
growing as small caps stocks, international stocks and commodities weakened. European markets headed
lower because fears increased that the Eurozone is slipping into a recession. ECB President Mario Draghi
appears to have declared another “We will do whatever it takes” policy stance. Draghi is especially
concerned about deflation within Europe. In the US, economic data points to moderate growth and an
improving employment situation. The US Dollar strengthened by 7% relative to the Euro and 7.8% to the

Will Europe Drag the US Down?
While the US economy has been resilient since the Great Recession, Europe has struggled to find growth.
At the end of 2013, many economists were turning positive on Europe; however this nascent recovery
from its second recession in five years stalled in the first half of 2014. After just one year of mediocre
growth, Europe didn’t show any growth at all in the second quarter. The Eurozone has been more
vulnerable to the Ukraine crisis and Russian sanctions are definitely hurting trade patterns between these
large partners. Inflation has moved down to levels that are dangerously close to deflation. These

Q3 2014

RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New J ersey 07945-0359
TEL: 973.267.6886 FAX: 973.267.5525
conditions have prompted Draghi’s ECB to announce an action plan that follows in the steps of the Fed
and then some. It has cut policy rates to zero and committed to a large asset-buying program intended to
expand its balance sheet by roughly 50%.

A Tired Bull
As we enter the 4
quarter of 2014, the bull market
is quickly closing in on its 6
anniversary. Since the
end of WWII, only one bull market had a bigger
percentage increase from its market trough and that
was the golden bull market from 1990-2000. It was
a period of strong productivity gains and robust 4%
GDP growth.

This bull market is very different with only
moderate growth that has been supported by
unprecedented accommodative monetary policy
from the big three central banks. While the Fed is
expected to finish with its asset purchase program
next month, the ECB and Bank of J apan remain
highly accommodative. The last two times the Fed
QE program ended, markets reacted sharply to the downside. It remains to be seen if the stock market is
ready to stand on its own two feet without artificial stimulus from the Fed. While many economists are
forecasting the first interest rate hike in 2015, don’t be surprised if the Fed finds an excuse to keep rates
low. Even at 2.5%, our 10-year Treasury rates are higher than most of the developed world.

While the US economy isn’t booming, the US is doing well relative to the rest of the world. Revised 2Q
GDP came in at a robust 4.6% and the latest jobs report showed unemployment fall to 5.9%. After several
years of significant fiscal policy tightening, fiscal policy for the next couple of years is much closer to
neutral. Meanwhile, the wealth effect from rising stock prices and the turnaround in housing has boosted
consumer spending. With commodity prices contracting and gas prices now below $3, consumers have
more dollars to spend on discretionary purchases. US corporate profits remain healthy but face headwinds
of slowing global demand as well as the strengthening dollar.

Stocks are beginning to look fully valued. However with extremely low bond yields and interest rates,
stocks still look good on a relative basis. 30-year Treasury rates have fallen to close to 3% and short-term
rates are close to zero. Because of this, 2014 has seen an increasing push into high dividend equities
(utilities, REITS, MLPs) by baby boomers who are desperately seeking income.

In October, volatility has picked up with concerns looming over the state of the European economy and
the impact of the end of the Fed’s asset purchase program. We have begun steering our balanced and
equity accounts into a more defensive position. Our accounts hold only US Treasuries and the highest
quality growth stocks, which have been the hallmark of our long held investment strategy that always
emphasizes “quality, quality and quality.” We vigilantly monitor the critical variables that signal a new
bear market. If we see the threat of a significant downturn, we will not hesitate to take further steps to
protect client assets.

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

RUNNYMEDE CAPITAL MANAGEMENT, INC. ▪ P.O. Box 359, Mendham, New J ersey 07945-0359
TEL: 973.267.6886 FAX: 973.267.5525
Please remember that past performance may not be indicative of future results. Different types of investments involve varying
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Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be
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may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or
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©2014 Runnymede Capital Management, Inc.

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