Got Income?24 April 2014

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HiddenLevers War Room

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Presentation deck

Product UpdatesScenario Updates

I. Market Update

II. Scenarios – First World Deflation

III. Got Income?

IV. Do Income Strategies Work?

Got Income?

HiddenLevers

MARKET UPDATE

Market Update

Canada Middle Class

New Cold War

Greece celebration

BRICS baton passing

Macro Snapshot

Nasdaq saw a slight correction - Was that it? S&P earnings good, driving down P/E. New home sales are bucking the uptrend.

SCENARIOS – FIRST WORLD DEFLATION HiddenLevers

Deflation Review – How did we get here?

sources: HiddenLevers, TSPstrategies , MoneyCafe

Fed Funds Rate Near 0% = CDs Near 0%.

Falling 10-Year Interest Rate= Shrinking Annuity Income

Deflation Review – Global

sources: HiddenLevers, Economist,

technology automation

commodities sinking

first world baby bust

decreasing birth rate

sluggish GDP growth

Deflation Review – USAZIRP = Zero Interest Rate Policy

- max that monetary policy can do

- ensures housing loans are cheap

- will outlast quantitative easing

- makes returning to normalcy hard (Japan)

sources: HiddenLevers, LA Times, Bloomberg

5 yearsno

inflationzero rates

5 yearsUSD d

ZIRP – the costsNo interestZIRP has cost savers 760 billion usd in interest

Just inflationBank customers 100 billion in purchasing power each year since 2009 because inflation, while low, isn’t zero

Scenario: First World DeflationGood

rates and inflation at 0

Badworldwide

ex-US

Uglyworldwide

including US

The Goldilocks scenario – can the Fed keep the bowl warm but not hot?

Sweden and Japan already at/near deflation – if EU tips, this might push US to correction.

If entire first world falls into deflation, a global recession is likely close behind.

HiddenLevers

GOT INCOME?

Got Income? – Overview MLPs and Energy Trusts

Municipal CEFs Buy-Write on Dividend Stocks

REITs + mREITs

Got income? – MLPs + Trusts

source: HiddenLevers

Master Limited Partnerships• Many with 7%+ yields• Almost all in energy sector• Be aware of MLP tax

complexity• ETFs and MFs exist as well

Energy Trusts• Simply a share of royalties in

certain oil/gas fields• Double-digit yields common

• Beware new finite life trusts! Older is often better here

Got income? – REITs

source: HiddenLevers

Correlation Screener

Diversified REITs Yield S&P beta

Omega Healthcare Investment (OHI) 5.90% .80

Arbor Realty Trust (ABR) 7.2% 2.06

Apollo Commercial RE Finance (ARI) 9.6% .50

Mortgage REITs Yield S&P beta

Hatteras Financial Corp (HTS) 10.6% .52

American Capital Agency (AGNC) 11.9% .52

iShares Mortgage Real Estate (REM) 15.77% .92

Got income? – Muni Bond Closed-End Funds

Muni Closed-End Funds• Trade like stocks and ETFs• Tax-equivalent yields of 10-15% for

many clients• Less liquid than MFs and large ETFs

source: HiddenLevers, CEFConnect.com

High leverage = risk

Discount to NAV = opportunity

Got income? – Dividend Equities + Call Writing

Buy-Write Strategy• Buy the stock, sell the call• If the call expires, repeat• If call is exercised, capital

gains realized• Quarterly writes work well

source: HiddenLevers, Yahoo Finance

GE Example• Sell July $27 call for 0.57• 4 writes/year = 8.5% income• 11.8% total yield• Equity downside remains

HiddenLevers

DO INCOME STRATEGIES WORK?

Risk versus Income – MLP review

source: HiddenLevers

MLPs have generally outperformed the S&P over the last 10 years.

5 years shows MLPs keep pace, struggle to outperform recent bull market.

Master Limited Partnerships Yield S&P beta

TC Pipelines, LP (TCP) 6.6% 0.83

Fiduciary/Claymore MLP Fund (FMO) 6.1% 1.1

Enbridge Energy Partners, LP (EEP) 7.5% 0.95

Risk versus Income – REITs review

source: HiddenLevers

Mortgage REITs have been crushed by rising rates – bonds in equity clothing?

REIT Fund vs mREIT Yield S&P beta

Annaly Capital Management (NLY) 10.9% 0.55

SPDR Dow Jones REIT ETF (RWR) 3.2% 1.16Traditional REITs have recovered with S&P in current bull market.

Is income generation really that difficult?

boomers more used to volatility

pervasive marketing of ETFs and MFs

easy to give up and chase S&P

no one wants to do the

homework

short term thinking

Bonds + CDs suck

Life of Pi “You might think I lost all hope at that point. I did. And as a result I perked up and felt much better.” Yann Martel

Meredith Whitney

yes, you too can generate income sky high yields = caveat emptor

global deflation happening under your nose

Got income? – Recap

demographics = destiny

HiddenLevers Use Cases

scenarioEnd of QE

War RoomDemographic

Shift

War Room Tech Bubble 2.0

scenarioCommodities Perfect Storm

scenarioFirst World Deflation

Got Income?

Data CenterCPI + 10y rates

Macro ThemeMega Caps with

Yield

Macro ThemeMLPs with 5%+

Yield

• Overall Performance improvements

• Risk Monitoring – export to MS Excel, re-run stress test

• Proxy mapping improvements

• Cross Correlations - Color Highlighting in Matrix

Coming soon:

- Annuities Support (Fixed / Variable / Equity Indexed)

- Advisor Fees Support

- Options Support – Call Writing

Product Update