Session 2 john mousseau

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

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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

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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

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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

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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

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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.