Update on the Economy

A Registered Investment Advisory Firm

Update on the Economy March 23, 2018

David R. Kotok Chairman & Chief Investment Officer david.kotok@cumber.com

ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

Rise and Fall of Famous Bubbles

Source: Convoy Investments, Coindesk, Concept: The Gartman Letter ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

Dec-17

May-17

Oct-16

Mar-16

Aug-15

Jan-15

Jun-14

Nov-13

Apr-13

Sep-12

Feb-12

Jul-11

Dec-10

May-10

Oct-09

Mar-09

Aug-08

Jan-08

Jun-07

Nov-06

Apr-06

Sep-05

Feb-05

Jul-04

Dec-03

May-03

Oct-02

Mar-02

Aug-01

Jan-01

Jun-00

Nov-99

Apr-99

Sep-98

Feb-98

Jul-97

Dec-96

1

May-96

Oct-95

Mar-95

Trillions

Total Assets: Fed 5

4

3

2

Pre-Tarp Average: $678 Billion

0

Source: Bloomberg

3

Fed Maturity Structure: Assets Less Than One Year

One To Ten Year

Over Ten Years

$5.0

QE3 $4.5

$4.0

$3.5

QE2

Trillions

$3.0

QE1 $2.5

$2.0

$1.5

$1.0

$0.5

$0.0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Factors Using Reserves

Deposits Not Reserve Balances

Reverse RPs Foreign Official & International Accts

Reserve Balances

TSLF-3/11/08

$5,200 $5,000 $4,800 $4,600 $4,400 $4,200 $4,000 $3,800 $3,600 $3,400 $3,200 $3,000 $2,800 $2,600 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0

Series Break PDCF-3/16/08 TSLF-3/11/08, 950 TAF-12/12/07 Series Break

$ Billions

Factors Using Reserves on Federal Reserve's Balance Sheet (Liabilities) from 8/8/2007 to 3/14/2018

Currency in Circulation Treasury Cash Holdings Reserve Balances TAF-12/12/07

Currency in Circulation

Reverse RPs: Foreign Official and International Accounts Deposits - Not Reserve Balances TSLF-3/11/08 PDCF-3/16/08

Reverse-RPs with Dealers Other Liabilities and Capital "TDWP - 8/17/07" Series Break

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Peak Quantitative Easing Behind Us

Source: Torsten Sløk, Deutsche Bank Research ©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

6

Federal Deficit Nixon 300

Ford Carter

Reagan

G.H. Bush

Clinton

G.W. Bush

Obama

Trump

100

-100

Annual Federal Deficit 2017 -$665.7

-300

OMB Estimate -500

Surplus/Deficit

-700

-900

-1100

-1300

Bloomberg Estimate 2018: -$832.6 Billion

-1500

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Interest Expense: Debt Outstanding 1,400.00

1,200.00

1,000.00

2028 $761

Billions

800.00

600.00

We have changed our past data source to be consistent with our projection data

400.00

2008 $252

2018 $310 2017 $262

200.00

-

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028

Interest Expense

OMB Estimate

Source: Whitehouse.gov, OMB ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Historical Debt Outstanding 35

2027 $29.9

30

25 2017 $20.2

2018 $21.5

Trillions

20

15

10

We have changed our past data source to be consistent with our projection data

2008 $10.7

5

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Debt Outstanding

OMB Estimate

Source: Whitehouse.gov, OMB ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Interest Expense: Debt Outstanding 2018 Estimate $21.49

1,000

900

25,000

2017 $20.6 20,000

800

700

600

Billions

Billions

15,000 2008 $10.7

500

400

10,000

We have changed our past data source to be consistent with our projection data

300

2008 $252

2017 $262

5,000

200

100

0

Interest Expense (left)

Debt Outstanding (right)

Source: Whitehouse.gov, OMB ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Fear & Greed Index

Source: CNN Money ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Fear & Greed Over Time

Source: CNN Money ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

12

Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18

CNN Money's Fear & Greed Index 100 34

90 32

80 30

70 28

60 26

50 24

40 22

30 20

20 18

10 16

0 14

Fear Greed Index

©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

Open Interest Options SPY ETF S&P 500 Index

Millions

Fear & Greed Index with Open Interest Options of SPY S&P 500 Index

SPY ETF (Right Axis)

Source: CNN Money, Bloomberg

13

Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

CNN Money's Fear & Greed Index 50.00

90.00

22

40.00 20

0.00

Fear Greed Index

©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

Open Interest Options SPY ETF S&P 500 Index

Millions

Fear Greed w/ Open Interest Options S&P Smoothed 28

80.00 26

70.00 24

60.00

30.00 18

20.00

10.00 16

14

SPY ETF (Right Axis)

Source: CNN Money, Bloomberg

14

Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18

CNN Money's Fear & Greed Index 50

100

70

60 7

40 6

30

0

Fear Greed Index

©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

Open Interest Options Russell 2000 Index

Millions

Fear & Greed Index with Open Interest Options of IWM ETF (Russell 2000 Index) 10

90 9

80

8

5

20 4

10

3

IWM ETF (Right Axis)

Source: CNN Money, Bloomberg

15

Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

CNN Money's Fear & Greed Index 60.00

50.00 6

40.00

30.00

0.00

Fear Greed Index

©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

Open Interest Options Russell 2000 Index

90.00

Millions

Fear Greed w/ Open Interest Options Russell 2000 Smoothed 9

80.00 8

70.00

7

5

20.00 4

10.00

3

IWM ETF (Right Axis)

Source: CNN Money, Bloomberg

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Consumer Price Index 15

CPI Year Over Year

13

11

9

7

5

3

1

-1

-3 67 69 70 71 72 73 74 76 77 78 79 80 81 83 84 85 86 87 88 90 91 92 93 94 95 97 98 99 00 01 02 04 05 06 07 08 09 11 12 13 14 15 16 18

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Consumer Price Index & Personal Consumption Expenditures 15

CPI & PCE Year Over Year

13

11

9

7

5

3

1

CPI

-1

PCE

-3 67 69 70 71 72 73 74 76 77 78 79 80 81 83 84 85 86 87 88 90 91 92 93 94 95 97 98 99 00 01 02 04 05 06 07 08 09 11 12 13 14 15 16 18

Source: Bloomberg ©Copyright 2018 Cumberland Advisors®. Further distribution prohibited without prior permission.

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Unemployment 11

U3 Unemployment

10

9

8

7

6

5

4

3 67 69 70 71 72 73 74 76 77 78 79 80 81 83 84 85 86 87 88 90 91 92 93 94 95 97 98 99 00 01 02 04 05 06 07 08 09 11 12 13 14 15 16 18

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Consumer Price Index Phillips Curve 15

Martin 79

Burns 13

Miller

74

80

Volcker Greenspan 11

Bernanke Yellen 81

Consumer Price Index Year Over Year

9

78

73

7

75 69

77

90 70

5

68 00

3

67

99

1

76 87

05

17

88

89

07

06

96 95

16 01 97 98

82

04 72 71

85

11

92 94 02

83 09

93

13

03 14

15

We are here

91

84

12

10

86

08

-1 3

4

5

6 7 U3 Unemployment

8

9

10

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Personal Consumption Expenditure Phillips Curve 13

Martin

74

Burns

11

80

Miller

79

Volcker Greenspan

Personal Consumption Expenditure Year over Year Deflator

9

Bernanke Yellen

73

81

78

7 75

77

69

5

90 88

70 68 89 07

05

3 00

67

99

04 96 95

170116

1

94

03

97

93

86

83 11

92

09

12 13

10

14

98

We are here

85 91

02

82

84

71 87

72

06

76

15

08

-1 3

4

5

6 7 U3 Unemployment

8

9

10

Source: Bloomberg ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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Disclosure All material presented is compiled from sources believed to be reliable. However, accuracy cannot be guaranteed. Past performance is no guarantee of future results. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk.

ŠCopyright 2018 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

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