A. Gary Shilling & Co., Inc.Economic Consultants

Dr. A. Gary Shilling

President

A. Gary Shilling & Company, Inc.

Damn the End of QE! Buy the

Dollar and Treasurys!

Period Military Engagement No. of Years

Annualized Wholesale

Price Change

1749-1755 Peacetime 6 -0.50%

1756-1763 French-Indian War 8 2.27%

1764-1774 Peacetime 11 -0.35%

1775-1783 American Revolution 9 12.31%

1784-1811 Peacetime 28 -1.91%

1812-1815 War of 1812 4 7.78%

1816-1845 Peacetime 30 -2.36%

1846-1848 Mexican-American War 3 -0.40%

1849-1860 Peacetime 12 1.05%

1861-1865 Civil War 5 14.75%

1866-1916 Peacetime 51 -0.74%

1917-1918 World War I 2 23.92%

1919-1940 Peacetime 22 -2.31%

1941-1945 World War II 5 6.12%

1946-1992 Cold War 47 4.20%

1993-2000 Peacetime 8 1.43%

2001-2014 War on Terror 13 2.81%

No. of Years Avg. Price Change

Wartime: 97 5.64%

Peacetime: 168 -1.16%

Years Total: 265 1.29%

Historic Inflation and DeflationChart 1

1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 20142%

4%

6%

8%

10%

12%

14%

16%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

20 Year Treasury Yield - left axis

Consumer Price Index (Yr/Yr % Change) - right axis

20-Year Treasury Yield and Consumer Prices

Last Points - CPI 12/14: 0.8%, Treasury Yield 01/15: 2.20

Source: Federal Reserve Board,

Bureau of Labor Statistics.

Chart 2

1980 1985 1990 1995 2000 2005 2010-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

Federal Budget Balance$ Bil.

Source: Congressional Budget Office

Last Point 2014: -483

Chart 3

Sep-12 Dec-12 Mar-13 Jun-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-140

10

20

30

40

50

60

70

80

90

0

10

20

30

40

50

60

70

80

90

Monthly Federal Reserve QE Purchase Announcementsbillions of dollars

Source: Federal Reserve

10/18/12

09/13/12

12/18/13

01/29/14

03/19/14

04/30/14

06/18/14

07/30/14

09/17/14

10/29/14

Chart 4

Real GDP Growth During Expansionsannualized rates of expansion from NBER trough-to-peak

*Through 4Q 2014Source: BEA, NBER

7.6%

4.0%

5.6%

4.9% 5.1%

4.3% 4.4% 4.3%

3.6%

2.8%2.3%

1950 1954 1958 1961 1971 1975 1980 1983 1991 2002 20090%

1%

2%

3%

4%

5%

6%

7%

8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Expansion Start Date

*

Chart 5

1947-I 1959-III 1972-I 1984-III 1997-I 2009-III 58%

59%

60%

61%

62%

63%

64%

65%

66%

67%

68%

7%

8%

9%

10%

11%

12%

13%

14%

15%

Compensation of Employees - left axis

Corp. Profits with IVA and CCAdj - right axis

Corporate Profits and Employee Compensationas a percentage of National Income

Source: Bureau of Economic Analysis

Last Points 3Q 2014 - Corp. Profits: 14.3%, Employee Comp: 60.7%

Chart 6

Real Average Family Income by Income Bracketthous. $2012

Source: Thomas Piketty and Emmanuel Saez

34.1

127.7

204.4

396.5

708.4

2147.9

12240.4

30.4

131.0

216.9

441.4

837.4

2782.3

21569.2

bottom 90%

top 10% to 5%

top 5% to 1%

top 1%to 0.5%

top 0.5%to 0.1%

top 0.1% to 0.01%

top 0.01%

2002

2012-10.7%

+2.6%

+6.1%

+11.3%

+18.2%

+29.5%

+76.2%

2002-2012% change

Chart 7

1980 1985 1990 1995 2000 2005 2010-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Avg. Real Weekly Wages of Production and Supervisory Employees

Real Median Household Income

Real Weekly Wages and Household Incomesyear/year percent changes

Source: Bureau of Labor Statistics, Census Bureau

Last Points 2013 - Income: 0.3%, Wages: 0.4%

Chart 8

2005 2006 2007 2008 2009 2010 2011 2012 2013 20145%

6%

7%

8%

9%

10%

11%

12%

5%

6%

7%

8%

9%

10%

11%

12%

Chinese Gross Domestic Productyear/year percent change

Last Point 4Q 2014: 7.3%

Source: Chinese National Bureau of Statistics

Chart 9

Jan-95 Mar-99 May-03 Jul-07 Sep-11-20

-10

0

10

20

30

40

50

6

7

8

9

10

11

12

13

Chinese Electricity Consumption - left axis

Chinese GDP - right axis

Chinese GDP and Electricity Consumptionyear/year percent change

Source: China National Bureau of Statistics, China Electricity Council

Last Points - GDP 4Q 14: 7.3%, Electricity 12/14: 4.2%

Chart 10

1980 1985 1990 1995 2000 2005 2010 2015 2020170

180

190

200

210

220

230

240

250

170

180

190

200

210

220

230

240

250

Chinese Population Aged 15-24millions

*Projections start after 2010Source: United Nations

Projections

Chart 11

Problems in China

1. Slowing economic growth

2. Transition from export-led to domestic-driven economy

3. Rising militarism

4. Anti-corruption campaign

5. Manipulation of the yuan

6. Shadow banking risks

7. Interest rate deregulation

8. Real estate bubble

Chart 12

Japanese Real GDP

Source: Japanese Cabinet Office

Last Point 3Q 2014 - Q/Q: -1.9%, Y/Y: -1.2%

2007 2008 2009 2010 2011 2012 2013 2014-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

Quarter / quarter percent change SAAR

Year / year percent change

Chart 13

Eurozone Real GDP Growth

Source: eurostat

Last Point Q3 2014: Q/Q 0.6; Y/Y 0.8

2007 2008 2009 2010 2011 2012 2013 2014-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

quarter/quarter % change, seas. adj. annual rates

year/year % change

Chart 14

Jan-97 Mar-01 May-05 Jul-09 Sep-13150

200

250

300

350

400

450

150

200

250

300

350

400

450

Reuters/Jefferies CRB Index

Source: Haver Analytics

Last Point January 2015: 221.1

Chart 15

Dec-13 Mar-14 May-14 Aug-14 Oct-14 Dec-142.40

2.50

2.60

2.70

2.80

2.90

3.00

3.10

3.20

3.30

3.40

3.50

2.40

2.50

2.60

2.70

2.80

2.90

3.00

3.10

3.20

3.30

3.40

3.50

Copper Pricesnearest futures contract; dollars per pound

Source: Thomson Reuters

Last Point 01/30/15: 2.528

Chart 16

1774 1814 1854 1894 1934 1974 20140

200

400

600

800

1000

1200

1400

0

200

400

600

800

1000

1200

1400

Real U.S. Commodity PricesCRB Index Deflated by CPI

Source: Bianco Research, BLS, Historical Statistics of the United States

Last Point December 2014: 102.89

Chart 17

1994 1996 1999 2001 2004 2006 2009 2011 201425

30

35

40

45

50

55

60

25

30

35

40

45

50

55

60

Non-OPEC

OPEC

Crude Oil Output for Non-OPEC and OPEC Countriesmillion barrels per day

Source: Energy Information Administration

Last Points - 3Q 2014 Non-OPEC: 56.54; OPEC: 36.16

Chart 18

Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec-1440

50

60

70

80

90

100

110

120

40

50

60

70

80

90

100

110

120

Brent Crude Oil

WTI Crude Oil

Brent and WTI Crude Oildollars per barrel, nearest futures contracts

Source: Thomson Reuters

Last Point 01/30/15 - Brent: 52.99, WTI: 48.24

Chart 19

Jan-59 Jan-68 Jan-77 Jan-86 Jan-95 Jan-04 Jan-130

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18

U.S. Personal Saving Rateseasonally-adjusted annual rate

Last Point December 2014: 4.9%

Source: Bureau of Economic Analysis

Chart 20

Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14220

240

260

280

300

320

340

1.00

1.50

2.00

2.50

3.00

3.50

4.00

CPI, Airline Fare (1982-84=100) - left axis

Jet Fuel Price ($/gal.) - right axis

Airline Fares and Jet Fuel Prices

Source: Bureau of Labor Statistics and

Energy Information Administration

Last Points - December 2014: CPI 291.7; Jet Fuel $1.80

Chart 21

Jan-14 Mar-14 May-14 Jul-14 Oct-14 Dec-143.0

3.5

4.0

4.5

5.0

5.5

6.0

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Junk Bond Option Adjusted SpreadBank of America Merrill Lynch High Yield Master II Index

Source: BofA Merrill Lynch and Federal Reserve

Last Points 01/30/15 - 5.37

Chart 22

Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec-146%

8%

10%

12%

14%

16%

18%

20%

30

35

40

45

50

55

60

65

70

Central Bank Rate

Russian Rubles per U.S. dollar (right axis )

Russian Central Bank Rate and Rubles per USD

Last Points 01/30/15 Central Bank Rate: 15%; Ruble: 69.47

Source: Russian Central Bank, Bloomberg

Chart 23

Jan-14 Feb-14 Apr-14 Jun-14 Jul-14 Sep-14 Oct-14 Dec-140

20

40

60

80

100

120

140

160

180

200

0

20

40

60

80

100

120

140

160

180

200

Black Market Exchange Rate

Official Exchange Rate

Venezuelan Official and Black Market FX RatesBolivar per USD

Source: Dolar Today Venezuela

Last Points 1/31/15 Black Market 189.85; Official 6.29

Str

on

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US

D

Str

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US

D

Chart 24

Global Consumer Price Indicesyear/year percent change

Source: OECD, National Statistical Agencies

Country Latest Data as of: Country Latest Data as of:

Greece -2.6 Dec-14 Finland 0.5 Dec-14

Spain -1.0 Dec-14 United Kingdom 0.5 Dec-14

Hungary -0.9 Dec-14 Netherlands 0.7 Dec-14

Poland -0.9 Dec-14 Iceland 0.8 Dec-14

Luxembourg -0.6 Dec-14 Korea 0.8 Dec-14

Estonia -0.5 Dec-14 New Zealand 0.8 Q4-14

Belgium -0.4 Dec-14 United States 0.8 Dec-14

Portugal -0.4 Dec-14 Austria 1.0 Dec-14

Ireland -0.3 Dec-14 Canada 1.5 Dec-14

Sweden -0.3 Dec-14 Australia 1.7 Q3-14

Switzerland -0.3 Dec-14 Norway 2.1 Dec-14

Israel -0.2 Dec-14 Japan 2.4 Dec-14

Slovak Republic -0.1 Dec-14 Mexico 4.1 Dec-14

Italy 0.0 Dec-14 Chile 4.6 Dec-14

Czech Republic 0.1 Dec-14 Turkey 8.2 Dec-14

France 0.1 Dec-14

Germany 0.2 Dec-14 G7 0.8 Dec-14

Slovenia 0.2 Dec-14 eurozone -0.2 Dec-14

Denmark 0.3 Dec-14 OECD - Total 1.1 Dec-14

Chart 25

Jan-14 Mar-14 May-14 Aug-14 Oct-14 Dec-14-1.40%

-1.20%

-1.00%

-0.80%

-0.60%

-0.40%

-0.20%

0.00%

0.20%

0.40%

-1.40%

-1.20%

-1.00%

-0.80%

-0.60%

-0.40%

-0.20%

0.00%

0.20%

0.40%

Finland

Japan

Germany

Switzerland

2-Year Sovereign Bond Yields

Source: Fusion Media Limited

Last Points 01/30/15: Fin. -0.13%; Jap. 0.02%; Ger. -0.18%; Swiz. -0.75%

Chart 26

Jan-07 Dec-08 Nov-10 Oct-12 Sep-14600

800

1000

1200

1400

1600

1800

2000

600

800

1000

1200

1400

1600

1800

2000

Gold Spot Pricedollars per troy ounce

Source: Thomson Reuters

Last Point 01/30/15: 1283

Chart 27

PCE Deflator seasonally-adjusted

Source: Bureau of Economic Analysis

Last Point December 2014 - M/M: -0.2, Y/Y: 0.7

2007 2008 2009 2010 2011 2012 2013 2014-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

Month/Month % Change - left axis

Year/Year % Change - right axis

Fed Target: 2.0%

Chart 28

Consumer Price Index ex. Energyall items ex. Energy, seasonally-adjusted

Source: Bureau of Labor Statistics

Last Point December 2014 - M/M: 0.0, Y/Y: 1.9

2007 2008 2009 2010 2011 2012 2013 2014-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Month/Month % Change - left axis

Year/Year % Change - right axis

Chart 29

Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

30

40

50

60

70

80

90

100

110

120

130

140

CPI (month/month % change) - left axis

WTI Crude Oil ($/barrel) - right axis

Consumer Price Index and Crude Oil

Source: Haver Analytics

Last Points December 2009 - CPI: 0.05% WTI: 74.8

Chart 30

Jan-85 Jun-85 Nov-85 Apr-86 Sep-86 Feb-87 Jul-87 Dec-87-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

10

12

14

16

18

20

22

24

26

28

30

32

CPI (month/month % change) - left axis

WTI Crude Oil ($/barrel) - right axis

Consumer Price Index and Crude Oil

Source: Haver Analytics

Last Points December 1987- CPI: 0.17% WTI: 17.35

Chart 31

Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec-14

0.70

0.75

0.80

0.85

0.90

0.95 1.05

1.10

1.15

1.20

1.25

1.30

USD/AUD - left axis (inverted)

USD/NZD - left axis (inverted)

CAD/USD - right axis

Aussie, Kiwi, and Loonie Exchange Rates

Last Points: 01/30/15 USD/AUD: 0.777 USD/NZD: 0.726; CAD/USD: 1.273

Source: Thomson Reuters

Str

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US

D

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US

D

Chart 32

Jul-12 Nov-12 Apr-13 Aug-13 Jan-14 Jun-14 Oct-14

1.10

1.15

1.20

1.25

1.30

1.35

1.40 75

80

85

90

95

100

105

110

115

120

125

USD/EUR - left axis (inverted)

JPY/USD - right axis

Euro and Yen Exchange Rates

Last Points - 01/30/15 USD/EUR: 1.129, JPY/USD: 117.44

Source: Thomson Reuters

Str

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US

D

Str

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US

D

Chart 33

Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-1480

100

120

140

160

180

200

220

240

260

280

80

100

120

140

160

180

200

220

240

260

280

Japanese Monetary Basetrillion yen

Source: Bank of Japan

Last Point December 2014: 267.402

Chart 34

Japanese Real GDPyear/year percent change

Source: Haver Analytics/Japanese Cabinet Office

Last Point 3Q 2014: -1.2%

1981 1985 1989 1993 1997 2001 2005 2009 2013-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

April 19973 to 5% sales tax increase

April 20145 to 8% sales tax increase

Chart 35

1955 1965 1975 1985 1995 2005-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Japanese Populationyear/year percentage change

Last Point 2013: -0.2%

Source: Japanese Statistics Bureau

Chart 36

Canada 62.1%

U.S. 59.9%

U.K. 57.2%

Germany 53.2%

France 51.2%

Japan 47.7%

Italy 39.7%

G-7 Female Labor Force Participation Rates - 2012

Source: Bureau of Labor Statistics

Chart 37

Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec-14-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Japanese Yen

Thai Bhat

Singapore Dollar

Chinese Yuan

Korean Won

Asian Foreign Exchange Rateschange vs. U.S. dollar since 12/31/13

Source: Thomson Reuters

Last Points: 01/30/15

Str

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U.S

. D

oll

ar

Str

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U.S

. D

oll

ar

Chart 38

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13May-14 Oct-14-4%

-2%

0%

2%

4%

6%

8%

10%

-4%

-2%

0%

2%

4%

6%

8%

10%

Consumer Prices

Import Prices

Eurozone Consumer and Import Pricesyear/year percent change

Source: eurostat

Last Points - Consumer 01/15: -0.6, Import 11/14: -3.0

Chart 39

Jan-13 May-13 Oct-13 Feb-14 Jul-14 Dec-141.50

2.00

2.50

3.00

3.50

4.00

1.50

2.00

2.50

3.00

3.50

4.00

30-Year Yield

10-Year Yield

10 and 30 Year Treasury Yields

Source: Federal Reserve

Last Points 01/30/15: 30-year 2.25%; 10-year 1.68%

Chart 40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20151.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

10-Year Treasury Rate

12-Month Forecast

Survey of Professional Forecasters: Average 12-month Forecast for 10-Year Treasury Yield

Source: Federal Reserve Bank of Philadelphia

Last Point 4Q 2015: 2.98%

Chart 41

10-Year Treasury Note Forecasts for January 2015forecasts made June 8, 2014

David Blanchflower 2.00

Marc Faber 2.40

Larry Lindsey 3.05

David Rosenberg 3.25

Gary Shilling 1.80

Ed Yardeni 3.05

Chart 42

Yield Spread vs. Treasurys

Switzerland -0.05 -1.71

Japan 0.28 -1.38

Germany 0.31 -1.35

Denmark 0.36 -1.3

Netherlands 0.38 -1.28

Australia 0.41 -1.25

Finland 0.44 -1.22

France 0.54 -1.12

Belgium 0.69 -0.97

Ireland 0.94 -0.72

Norway 1.24 -0.42

Canada 1.28 -0.38

U.K. 1.33 -0.33

Spain 1.53 -0.13

Italy 1.60 -0.06

U.S. 1.66 --

Australia 2.45 0.79

Portugal 2.63 0.97

Greece 10.78 9.12

10-Year Sovereign Bond Yieldsas of 01/30/15

Source: Financial Times

Chart 43

Oct-81 Oct-86 Oct-91 Oct-96 Oct-01 Oct-06 Oct-110

5000

10000

15000

20000

25000

30000

35000

0

5000

10000

15000

20000

25000

30000

35000

25 Year Zero Coupon Bond (Oct-81=100) 30,851 or 18.8% Annual Return

S&P 500 Total Return (July-82=100) 4,257 or 12.2% Annual Return

Comparative Stock and Bond Performances

Last Points January 2014 - Stocks: 4,257; Bonds: 30,851

Source: Bianco Research & Haver Analytics

Chart 44

Jan-73 May-81 Sep-89 Jan-98 May-06 Sep-1460

70

80

90

100

110

120

130

140

150

60

70

80

90

100

110

120

130

140

150

Dollar Indexvs. Major Currencies

Source: Federal Reserve

Last Point January 2015: 87.38

Chart 45

S&P 500 Close 2014 % Change

12/31/2014 2058.90 11.39%

12/31/2013 1848.36

S&P 500 Sectors 2014 % Change

Utilities 24.3%

Health Care 23.3%

Information Technology 18.2%

Financials 13.1%

Consumer Staples 12.9%

Consumer Discretionary 8.1%

Industrials 7.5%

Materials 4.7%

Telecommunication Services -1.9%

Energy -10.0%

2014 S&P 500 Sector Performance

Source: S&P Indices

Chart 46

Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13 Jul-14600

800

1000

1200

1400

1600

1800

2000

2200

600

800

1000

1200

1400

1600

1800

2000

2200

S&P 500 Index

Source: Thomson Reuters

Last Point 01/30/15: 1995

Chart 47

1881 1901 1921 1941 1961 1981 20010

5

10

15

20

25

30

35

40

45

0

5

10

15

20

25

30

35

40

45Last Point January 2015: 26.80

Cyclically Adjusted Stock Price to Earnings RatioS&P 500 price /avg. earnings from previous 10 years

Source: Robert Shiller

Average:

16.6

Chart 48