Measurement The forecast models constructed for this publication selected based on the high accuracy, precision and continuity of the data sources available. For the equities, bond and corporate bonds yahoo data was used. For the bank prime rate, the Federal Reserve of St. Louis was used. Each data set was compared against three sources and in all scenarios was determined to a 100% match, and no missing data. This passes the requirements for accuracy, precision and continuity.

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research Methods Spectral Analysis: determines the amplitude of cycles present at regular frequency intervals from a single time series. If the interval is 1 then the result is similar to a Fourier Analysis. If the frequency is more than 1 then it has finer measurements than Fourier Analysis. Multivariate regression analysis: establishes the statistical relationship between one independent variable and two or more dependent variables. This form of analysis uses variance between independent and dependent variables to determine correlation and significance based on probability within specified confidence levels. For our analysis, we’ve used a 95% confidence level, which subsequently means a 0.05 beta. Visual representation for cycles: by using a proprietary algorithm derived from the methods above and additional factors, we’ve established a model that creates what we’ve termed as the economic heartbeat, which visually shows future patterns based on all known patterns, effects – both external and internal to the data, and finally the strength of the prior. Considering our opening comments, cycles and patterns exist in everything; however, they are only measurable by the known data that is available. The graphic below highlights both our theory and window of known data and the subsequent cycle types that can be created through our model.

This diagram illustrates that various types of cycles that could occur and be identified. As previously mentioned; however, cycles are only identifiable through the continuous data that exists. As such, many of the cycles indicated in the chart are simply unidentifiable and unpredictable, as the beginnings and ends of the cycles aren’t observable through data. The most obvious cycle that this reality applies to is that of the beginning and end of time cycle that is represented by the red line and text. The shaded box represents the window of time, which there is data to track the beginning and ends of various cycles. One very important point to highlight is that this chart is not a time series – it simply represents the size via duration between a beginning and end of any given cycle, which also indicates how many cycles can fit within other various cycle types.

In the next few sections, we will review and interpret the results of our analysis with respect to the forecast model explained above. These models are created using algorithms that identify and visualize observable cycles in a given dataset.

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research 2013 Forecast Models Equities In charts 1 and 2, the S&P 500 is expected to see a low and a potential crash in the second week of February. In addition, when looking at the long range forecast, a larger crash is expected in mid year 2015. Chart 1: S&P 500 (2012-2014)

Chart 2: S&P 500 (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research In charts 3 and 4, the Dow Jones is expected to see a low and a potential crash in the second week of February. In addition, when looking at the long range forecast, a larger crash is expected in mid year 2015. Chart 3: DJIA (2012-2014)

Chart 4: DJIA (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research In charts 5 and 6, the NASDAQ is expected to see a low and a potential crash in the third week of February. In addition, when looking at the long range forecast, a larger crash is expected in mid year 2015. Chart 5: NASDAQ (2012-2014)

Chart 6: NASDAQ (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research Debt In charts 7 and 8, the 5 year treasury yield is expected to see a high in the second or third week of February. In addition, the thick gray bands indicate that rates will remain â&#x20AC;&#x201C; on average â&#x20AC;&#x201C; at this higher point throughout 2013 into 2014 and will observe significant volatility in 2014, then level out in 2015 and 2016. Chart 7: 5 year treasury yields (2012-2014)

Chart 8: 5 year treasury yields (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research In charts 9 and 10, the 10 year treasury yield is expected to see a high in the final week of February. In addition, the long range forecast indicates a slow descent from the observed high that will extend into 2016. Chart 9: 10 year treasury yields (2012-2014)

Chart 10: 10 year treasury yields (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research In charts 11 and 12, the 30 year treasury yield is expected to see a high in the final week of February. In addition, the long range forecast indicates a slow descent from the observed high that will extend into 2016. Chart 11: 30 year treasury yields (2012-2014)

Chart 12: 30 year treasury yields (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research In charts 13 and 14, the AAA Corp Bond Rates are expected to see a high in mid February. In addition, the long range forecast indicates a reset in 2014, but then a gradual ascent through 2016. Chart 13: AAA Corp Bond Rates (2012-2014)

Chart 14: AAA Corp Bond Rates (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research In charts 15 and 16, the Bank Prime Rates are expected to see a high in mid February. In addition, the long range forecast indicates a slight reset in 2014, but then a gradual ascent through 2016 to a higher but steady state. Chart 15: Bank Prime Rates (2012-2014)

Chart 16: Bank Prime Rates (1999-2016)

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

John Galt Research As corporate bond rates increase, it will be too expensive for most organizations to afford the increased fixed fee associated to servicing the bond. In addition, we also know from previous forecasts associated to the equities market, it will not be beneficial in 2013 to issue new stock to the equities markets as the value of the equities markets will be substantially lower than it will be in the future. This lack of options will force businesses to look deeper and more internally into the cash available to fund improvements and growth. This, intern, will create higher demand for cash, which is of course is the most likely asset class to absorb value from all of these deflating asset classes. We will discuss this concept of demand for currency or the US dollar in more detail over the next few sections. The final class we forecasted is the one that impacts both businesses and consumers. In the forecast model provided on page 10, we have analyzed the short and long-term forecasts for bank prime rates. In these models we observe that the bank prime rates will increase in late February, with a slight possibility to delay until March, and will stay high through most of 2016. The prime rate increase will be felt by consumers as they try to restructure already high mortgage payments, or purchase a new car, deal with revolving credit, etc. This ultimately will cause fewer dollars to be in consumer pockets, which of course is the same as a reduced supply of dollars and will contribute to the increased demand for dollars – general supply and demand concepts apply. In addition to this expected change in consumer pockets, there will be yet more constraints to the consumer’s available dollars as a result of the tax changes that took effect January 2013.

Unintended Consequences and Outcomes All of these factors collectively create a severe squeeze on consumer buying power, and over time that translates to reduced demand for goods and services. If reduced demand remains, for a prolonged period of time, businesses that supply goods and services will be forced to evaluate their pricing models to preserve or improve profits. Those firms that are publicly traded will be forced to do this evaluation sooner than private firms. As firms evaluate product and service pricing, they will also evaluate cost structure – as many have already started. As firms make short term decisions to preserve profitability we will see an increase in unemployment, which of course contributes to reduced consumer spending. All of these factors support that GDP will continue to decline over the next several years. We also see the migration out of equities and debt markets and into cash as a very significant shift. This will create an interesting cultural paradigm in America. The general consumer, low to middle income, will experience a reduced cash supply for the reasons provided in the analysis above. The wealthy class will simply observe a change in asset class – from equities and debt to cash. This increased separation in social class will further support a deflationary period in the US, where consumer behavior prefers cash as opposed to investing for future return.

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2013 Macro Forecast| Copyright by Reuben Vandeventer February 1, 2013

2013 John Galt Research Macro Forecast

This publication provides a unique glimpse into the the cultural and economic shifts expected to occur in 2013 leading into 2016.