CHINA’S CYCLE LEADS THE WORLD: TARIFFS ALONE CAN’T OFFSET STIMULUS

McVEAN

Trading Trading & & Investments, Investments, LLC LLC

CHINA’S CYCLE LEADS THE WORLD: TARIFFS ALONE CAN’T OFFSET STIMULUS GLOBAL INTERDEPENDENCE CENTER LITTLE ROCK, AR

Michael Drury Chief Economist McVean Trading and Investments, LLC

Past Performance Is Not Necessarily Indicative Of Future Results.

1

THIS IS THE TARIFF ROUND CHINA FEARED MOST

YOU START WITH THE LOW HANGING FRUIT SOLAR & WASHING MACHINES

STEEL & ALUMINUM

25% ON $50 B

10% ON $200B

$36B, THEN $14B

25% ON JAN 1

15% MORE ON THE SAME $200B

INDUSTRIAL PARTS & CHEMICALS

CHINA TIT FOR TAT RESPONSE

25% ON $50 B MOSTLY AGRICULTURE

10% TO 25% ON $60 B

5% TO 25% ON ANOTHER $60B

Past Performance Is Not Necessarily Indicative Of Future Results.

2

FURTHER TARIFFS WILL LIFT US PRICES

Past Performance Is Not Necessarily Indicative Of Future Results.

3

THE NEXT $325 B LANDS OUTSIDE CHINA

Past Performance Is Not Necessarily Indicative Of Future Results.

4

US FIRMS THAT DEPEND ON FOREIGN SALES ARE ALREADY HURTING

Past Performance Is Not Necessarily Indicative Of Future Results.

5

CURRENT EXPORTERS OF INDUSTRY

Past Performance Is Not Necessarily Indicative Of Future Results.

6

CURRENT IMPORTERS OF INDUSTRY

Past Performance Is Not Necessarily Indicative Of Future Results.

7

NEXT GENERATION FOR INDUSTRY

Past Performance Is Not Necessarily Indicative Of Future Results.

8

CHINA SHIFTS TO DOMESTIC FOCUS

38%

CHINESE EXPORTS VS IMPORTS AS A % OF GDP

33%

28%

23%

18%

13% 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 r-0 p-0 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 r-1 p-1 a e a e a e a e a e a e a e a e Q1 ar ep ar ep ar ep ar ep ar ep ar ep ar ep ar ep aEXPORTS a a M S M S M S M S M S M S M S M S M Se M Se M SIMPORTS M S M S M S M S M S M S M S M Se19

Past Performance Is Not Necessarily Indicative Of Future Results.

9

2016 CHINA + HONG KONG EXPORT PIE $2.0 TRILLION

PACIFI C RIM

NORTH

AMERI CA

30%

PAC RIM EUROPE NORTH AMERICA SOUTH ASIA MENA LATIN AMERICA OTHER

EUROPE 24%

22% Past Performance Is Not Necessarily Indicative Of Future Results.

10

2016 US EXPORT PIE $1.5 TRILLION

OTHER 23%

NORTH AMERICA 34% NORTH AMERICA WESTERN EUROPE PACRIM OTHER

PAC RIM 25%

EUROPE 18%

Past Performance Is Not Necessarily Indicative Of Future Results.

11

U.S. NATIONAL ECONOMY CIRCA 1982

R SUBU

RUST BE

B SU

BS R U

LT

BS

SUNBELT

Past Performance Is Not Necessarily Indicative Of Future Results.

12

WHAT DRIVES FED FUNDS

12

FED FUNDS RATE VS HOUSING STARTS 3 MO CHANGE FROM YEAR AGO

60%

10

40%

8

20%

6

0%

4

-20%

2

-40%

0

-60% 2 16 3 0 44 5 8 72 8 6 0 0 1 4 2 8 4 2 5 6 7 0 8 4 9 8 1 2 2 6 4 0 5 4 6 8 8 2 9 6 1 0 2 4 3 8 5 2 6 6 8 0 9 4 0 8 2 2 3 6 5 0 6 4 7 8 9 2 0 6 2 0 3 4 4 8 6 2 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 3 3 3 3 3 4 4 4 4 4 4 4 5 5 5 5 5 Dec 18 Fed Funds 3mo Avg - Year ago Housing Starts 18 mo lead (3mo %CH from Year Ago)

Past Performance Is Not Necessarily Indicative Of Future Results.

13

GLOBAL ECONOMY TODAY

SUBURBS

RUST BELT

Past Performance Is Not Necessarily Indicative Of Future Results.

SUNBELT

14

CHINA CREDIT LEADS THE WORLD ECONOMY CHINA SOCIAL FINANCING VS US & EUROPEAN PMI 1750

60

1500 55 1250

50

1000

750

45

500 40 250

0

35

CHINA SOCIAL FINANCING (12 MO AVERAGE)

AVERAGE OF EUROPE & US PMI (3MO AVG)

Apr19

Past Performance Is Not Necessarily Indicative Of Future Results.

15

CHINA FISCAL STIMULUS IS BECOMING A FLOOD • • • • • • • • •

Infrastructure -- mostly high speed rail -- raised by $80 billion Middle class income taxes and new deductions for key services Lowered interest rates and reserve requirements Pulled forward $220 billion in state government lending Small business loans increased Tariffs reduced (even for US) and export rebates increased Promised $300 billion in stimulus at National Congress Cut VAT from 1% to 3% depending on product $45 billion in new tax and fee reductions passed on April 15th

• Cumulative over 4% of GDP since mid-2018

Past Performance Is Not Necessarily Indicative Of Future Results.

16

RECOVERY ALWAYS STARTS IN HOUSING AVERAGE PRICE FOR NEW RESIDENTIAL BUILDING IN CHINA 12.5

10.0

7.5

5.0

%

2.5

0.0

-2.5

-5.0

-7.5

Mar19 Past Performance Is Not Necessarily Indicative Of Future Results.

17

SOE PROFIT ARE CHINA’S SAFETY NET

Past Performance Is Not Necessarily Indicative Of Future Results.

18

CHINA & US EQUITIES ARE REBOUNDING 5000

3000

4500 2500

4000

2000

3500

3000

1500

2500 1000

2000

1500

500 SHANGHAI COMPOSITE

S&P 500

Past Performance Is Not Necessarily Indicative Of Future Results.

19

CHINA LEADS AND IT’S STARTING TO RECOVER China, Eurozone and US PMI 65

54

60

52.5

55

51

50

49.5

45

48 Eurozone

US

CHINA

Apr19

Past Performance Is Not Necessarily Indicative Of Future Results.

20

CHINESE RAILROAD FREIGHT VS ELECTRICITY PRODUCTION 3 MONTH AVERAGE % CHANGE FROM YEAR AGO 3 MONTH AVERAGE

30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% 1 2 8 8 0 0 1 2 3 4 4 5 5 6 7 7 9 9 0 1 1 2 2 3 4 4 5 5 6 6 7 8 8 00 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 31 31 31 31 31 31 31 29 30 30 30 30 31 31 31 31 31 31 31 2/1 9/1 4/1 1/1 6/1 1/1 8/1 3/1 0/1 5/1 2/1 7/1 2/1 9/1 1 1/ 8/ 3/ 10/ 5/ 12/ 7/ 2/ 9/ 4/ 11/ 6/ 1/ 8/ 3/ 10/ 5/ 12/ 7/ 1 1 Apr-19 RAIL ELECTRICITY PRODUCTION Past Performance Is Not Necessarily Indicative Of Future Results.

21

BALTIC DRY INDEX 2500

2000

1500

1000

500

0 1 1 1 8 9 9 9 0 0 0 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 9 00 200 200 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / Apr-19 30 29 30 29 31 30 31 31 30 31 31 28 31 31 30 31 30 30 30 29 30 29 31 30 31 31 29 31 31 28 31 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/ 5/ 9/ 1/

Past Performance Is Not Necessarily Indicative Of Future Results.

22

CHINA EXPORTS VS IMPORTS

6 MONTH AVERAGE %CH FROM 6 MONTH AVERAGE YEAR AGO 66.0%

49.5%

33.0%

16.5%

0.0%

-16.5%

-33.0% 0 0 1 1 2 2 3 4 4 5 5 6 7 7 8 8 9 9 0 1 1 2 2 3 4 4 5 5 6 6 7 8 8 9 -0 g-0 r-0 t-0 y-0 c-0 l-0 b-0 p-0 r-0 v-0 n-0 n-0 g-0 r-0 t-0 y-0 c-0 l-1 b-1 p-1 r-1 v-1 n-1 n-1 g-1 r-1 t-1 y-1 c-1 l-1 b-1 p-1 r-1 n u u u e e p a c p a c a c Ap Ja Au M O Ma De J Fe Se A No Ju Ja Au EXPORTS M O Ma De J FIMPORTS S A No Ju Ja Au M O Ma De J Fe Se Apr-19

Past Performance Is Not Necessarily Indicative Of Future Results.

23

CHINESE PPI IS BOTTOMING

15

CHINA PPI CHANGE FROM SAME MONTH A YEAR AGO

10

5

0

-5

-10

Apr-19 Past Performance Is Not Necessarily Indicative Of Future Results.

24

MANAGING THE FREE FLOATING YUAN CORRUPTION CAMPAIGN CURRENCY BREAK

RE T

EU CRISIS

DE

CO E R

A TR

RECESSION PRE LEHMAN

RY E V

UR N

OOPS

SCHUMER

Past Performance Is Not Necessarily Indicative Of Future Results.

25

CHINA NOMINAL GDP GROWTH IN US$ CURRENT QUARTER % CHANGE FROM YEAR AGO

36%

32%

28%

24%

20%

16%

12%

8%

4%

0%

Actual: Q1 19

Forecast: Q3 20 Past Performance Is Not Necessarily Indicative Of Future Results.

26

IRON ORE

1000

900

800

700

600

500

400

300

May-19 Past Performance Is Not Necessarily Indicative Of Future Results.

27

CRUDE OIL 140

120

100

80

60

40

20

WEST TEXAS INTERMEDIATE

May-19 Past Performance Is Not Necessarily Indicative Of Future Results.

28

COPPER VS SOYBEANS 450

1800

400

1600

350 1400 300 1200 250 1000 200 800 150

600

100

50

400 Copper

Soybeans

Apr19 Past Performance Is Not Necessarily Indicative Of Future Results.

29

McVEAN

Trading Trading & & Investments, Investments, LLC LLC

CHINA’S CYCLE LEADS THE WORLD: TARIFFS ALONE CAN’T OFFSET STIMULUS GLOBAL INTERDEPENDENCE CENTER LITTLE ROCK, AR

Michael Drury Chief Economist McVean Trading and Investments, LLC

Past Performance Is Not Necessarily Indicative Of Future Results.

30