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Puerto Rico Global Interdependence Center New York, New York January 15, 2014

John R. Mousseau, CFA Executive Vice President & Director of Fixed Income (800) 257-7013 ext. 307 John.Mousseau@Cumber.com Twitter: @CumberlandADV

Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

Internal Advisor Use Only

SMRU 523868

©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

2 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


Puerto Rico COFINA Debt Puerto Rico  COFINA  Debt  -­‐  Senior  vs  Subordinate   PR  COFINA  Seniors  5%  '46   9  

8

April 18  ,   2012:   Moody's   places   COFINA  on   revenue  for   downgrade  

Yield

7

PR COFINA  Sub  5.5%  '42   August  28,   2012:  Puerto   Rico  credit   spreads   widen   drama[cally  

December 19,   2012:   Moody's   downgrades   Puerto  Rico's   university   system,   power   authority  

AAA 30-­‐yr.  MMA   June  20,   2013:  Puerto   Rico  Electric   Power   downgraded   to  BBB  by   S&P  

HYD HY  Muni  ETF   August  26,   2013:  Barron's   ar[cle  on   Puerto  Rico  is   released  

6

5 December  23,   2013:  Puerto   Rico    lawmakers   approve   teachers'   pension  system   overhaul  

4

3

Source: Bloomberg Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

3 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


Puerto Rico GO Debt Puerto Rico  GO  Debt  -­‐  AGM  Insured  vs  Uninsured   PR  GO  AGM  5.75%  '37  

PR GO  5%  '41  

AAA 30-­‐yr.  MMA  

HYD HY  Muni  ETF  

10

9

8

Yield

7

6

5

4

3

2

Source: Bloomberg Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

4 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


Puerto Rico Highway Debt Puerto Ricy  Highway  Debt  -­‐  AGM  Insured  vs  Uninsured   PR  HWY  5%  '37  

PR HWY  AGM  5.25%  '41  

AAA 30-­‐yr.  MMA  

HYD HY  Muni  ETF  

11

10

9

Yield

8

7

6

5

4

3

Source: Bloomberg Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

5 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


AAA 30-Year MMA AAA 30-­‐yr.  MMA   5.5   5.3   5.1   4.9   4.7   4.5   4.3   4.1   3.9   3.7  

Source: Bloomberg Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

6 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


Muni Bond Fund Flows Municipal Bond  Fund  Flows  (All  Municipal)   Municipal  Bond  Fund  Flows  (All  Municipal)  

2 per.  Mov.  Avg.  (Municipal  Bond  Fund  Flows  (All  Municipal))  

15,000

10,000

5,000

0

-­‐5,000

-­‐10,000

-­‐15,000

Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

7 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


Puerto Rico Market Notes • 

Most retail desks extremely cautious, in some cases only bidding insured paper and certainly bidding only for their own clients and not for the street.

• 

Hedge Fund Involvement came after the falloff. They WERE the bottom feeder for Puerto Rico bonds this past fall, and they did provide liquidity as many others passed.

• 

After the stabilization in the fall, yields continued to rise on uninsured paper. This was exacerbated by tax loss selling towards year end.

• 

Since year-end there have been much fewer sellers.

• 

This is partly because of rollover cash in funds that has reduced some of the need for selling. There is now also less retail selling, most likely because the majority of it was done for tax-loss purposes before year-end.

• 

Bonds that have come out have been getting stronger bids than year-end.

Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

8 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.


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.

Florida Office   One  Sarasota  Tower 2  N.  Tamiami  Trail,  Suite  303 Sarasota,  FL  34236  

New  Jersey  Office    614  E.  Landis  Avenue  Vineland,  NJ  08360  

 (800)  257-­‐7013                

9 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission.

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