Is the Chinese Roller Coaster Near the Bottom?

McVEAN

Trading Trading & & Investments, Investments, LLC LLC

Is the Chinese Roller Coaster Near the Bottom?

ROCKY MOUNTAIN ECONOMIC SUMMIT VICTOR, IDAHO JULY 12, 2018

Michael Drury Chief Economist McVean Trading and Investments, LLC

Past Performance Is Not Necessarily Indicative Of Future Results.

1

AVERAGE PRICE FOR NEW RESIDENTIAL BUILDINGS IN CHINA % CHANGE FROM YEAR AGO

12.5

10.0

7.5

5.0

%

2.5

0.0

-2.5

-5.0

-7.5 05 05 06 06 06 07 07 07 08 08 08 09 09 09 10 10 10 11 11 11 12 12 12 13 13 13 14 14 14 15 15 15 16 16 16 17 17 17 18 18 20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 / 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 30 31 31 /30 /31 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ 4/ 8/ 12/ Apr-18 4 8

Past Performance Is Not Necessarily Indicative Of Future Results.

2

CHINA SOCIAL FINANCING 12 MONTH AVERAGE

1750

1500

1250

1000

750

500

250 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 b- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- eb- ug- ebe F A F A F A F A F A F A F A F F A F A F A F A F A F A F A F A F A

May-18

Past Performance Is Not Necessarily Indicative Of Future Results.

3

CREDIT CRUNCHES FOCUS ON THE ELITE

Source: Strategas Past Performance Is Not Necessarily Indicative Of Future Results.

4

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%

00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 / 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 1/1 7/1 1/1 7/1 1/1 7/1 1/1 7/1 1/1 7/1 1/1 7/1 1/1 7/1 1/1 7/1 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ May-18 RAIL ELECTRICITY PRODUCTION

Past Performance Is Not Necessarily Indicative Of Future Results.

5

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% 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 l-07 -08 l-08 -09 l-09 -10 l-10 -11 l-11 -12 l-12 -13 l-13 -14 l-14 -15 l-15 -16 l-16 -17 l-17 -18 l-18 n- ul- an- ul- an- ul- an- ul- an- ul- an- ul- an- ul- an- EXPORTS n n n u an Ju an u an u an u an u an u an u an u a J J J J J J J J J J J J J J Ju Ja Ju Ja Ju Ja JIMPORTS J J J J J J J J J J J May-18 J J J J J

Past Performance Is Not Necessarily Indicative Of Future Results.

6

YUAN PER US DOLLAR (INVERTED SCALE)

0.17 0.17 0.16 0.16 0.15 0.15 0.14 0.14 0.13 0.13 0.12 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 0 1 1 1 2 2 2 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 00 200 200 200 200 200 200 200 200 200 200 200 200 200 200 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 21 /27 /30 2/3 6/9 /13 /16 /22 /26 /29 7/4 1/7 /13 /17 /20 /26 /30 2/3 4/8 /12 /16 /20 /24 /28 5/3 9/6 /10 /16 /19 /23 /29 0/2 2/5 /10 /14 /17 /23 /27 3/2 7/6 / 1 3 7 11 3 7 1 8 12 4 8 12 1 5 9 1 5 9 1 5 1 6 10 2 6 10 10 2 6 10 2 July 2018

Past Performance Is Not Necessarily Indicative Of Future Results.

7

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

36%

32%

28%

24%

20%

16%

12%

8%

4%

0%

Q1 2018 Past Performance Is Not Necessarily Indicative Of Future Results.

8

COPPER VS CRUDE 450

160

400

140

350 120 300 100 250 80 200 60 150

40

100

50

20

Copper

WTI Crude Oil

Past Performance Is Not Necessarily Indicative Of Future Results.

June -18

9

CHINA TRADE GAP FOUR QUARTER AVERAGE

600

8.0%

450

6.0%

300

4.0%

150

2.0%

0

0.0%

2 5 8 1 2 3 4 4 7 0 2 3 4 5 6 7 8 9 0 1 5 6 7 8 9 0 1 -1 c-1 p-1 n-1 -0 c-0 p-0 n-0 -1 c-1 p-1 n-1 -0 c-0 p-0 n-0 -0 c-0 p-0 n-1 -1 c-1 p-1 n-1 -2 c-2 p-2 ar ar ar ar ar ar ar e e e e e e e e u e u e u e u e u e u e J J J M J J J M M M D M M M D S D S D S S D S D S D S

BILLIONS OF DOLLARS

SHARE OF CHINESE GDP

Q1 2018 Past Performance Is Not Necessarily Indicative Of Future Results.

10

TRADE WAR IN PERSPECTIVE • US places 25% tariffs on $50 billion in Chinese goods = $12.5 B • US hits another $200B in Chinese goods with 10% tariff = $20 B • US firms and consumers adjust to avoid tariffs reducing effect • US Supreme Court says states may tax internet = $13 B • Trump reduces payments on Obamacare = $10.2 B • Fed raise 25 bp on $5 trillion in short term debt = $12.5 B • Price of oil changes $5 a barrel on 8 mbd imports = $14.6 B • Index capital gains for inflation = $10 B to $20 B • Consumption vs income based taxes – talk amongst yourselves

Q1 2018 Past Performance Is Not Necessarily Indicative Of Future Results.

11

2018 GLOBAL GDP $86.0 TRILLION

NAFTA $23.2T

EUROPE $19.2T

US $20.3T

EUROZONE $13.4T

JAPAN+SOUTH KOREA+TAIWAN $7.3T CHINA $13.4T

HK + MACAU+ OPEC+ BRAZIL+ RUSSIA+ AUSTRALIA+ ARGENTINA $10.5T

OTHER $11.4T

Source: IMF/McVean Past Performance Is Not Necessarily Indicative Of Future Results.

12

COASTAL CHINA = FSU + ITALY, AUSTRIA & GREECE

Eastern Europe 455 million @ $13,200 Eastern China

499 million @ $13,500

ONE BELT, ONE ROAD

Past Performance Is Not Necessarily Indicative Of Future Results.

14

CHINA CORRELATES THEIR POLLUTION PROBLEM WITH CLIMATE CHANGE

Past Performance Is Not Necessarily Indicative Of Future Results.

15