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DAVE JANNY JULY 2016 INVESTMENT LETTER

2016 Volume 7

“TAKE A STEP BACKWARDS TO TAKE TWO STEPS FORWARD”

If you have a mechanical problem with your car, it would be best to stop driving and pull over into a

garage to get your car fixed before you continue to drive forward. Effectively, you’d be “taking a step

backwards” to insure that you can eventually safely go forward. Similarly, if you’re headed somewhere

and you find yourself having taken a wrong turn, it would be best to go back and figure out what the

“right” way is before you further veer off track and get lost. Thus, the expression, “take a step

backwards to take two steps forward”. Simply put, you understand you have a problem and you try to

fix it before you keep haphazardly hurdling forward.

If I were creating the platform for a new national political party today, I would use “take a step

backwards to take two steps forward” as the central theme for the platform. In the “instant

gratification” and “short term thinking” world that we live in today, it would probably be political suicide

to adopt that theme. Politically, it would be close to impossible to win an election that way, despite the

fact that it may be the exact right strategy the country needed. No one wants to take a step backwards

and take a long term view of things even if things are broken or we are lost.

But wait a second, maybe things are really broken! Maybe, more people will be contemplating the idea

of “taking a step backwards”! The “Brexit” vote may be the first significant example of people voting to

“take a step backwards”. I’ll explore this idea with some thoughts, articles and analysis on the “Brexit”

amongst other things. I’ll also provide more evidence, as I’ve been doing in all my Investment Letters

since last year, of why I feel that things are broken economically around the world and why we’re lost.

My overarching investment thesis is that we are in a central bank bubble. Central banks keep pushing

forward with more and more aggressive intervention that is obviously not producing the desired results.

The clock is ticking, but the bubble hasn’t burst yet. There are some signs that confidence in central

banks has been waning. More people (voters) are starting to question the actions of these central banks

and the “status quo” policies of the governments they represent. It may be a good idea for central

bankers to start to contemplate the idea of ”take a step backwards to take two steps forward”.

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In the meantime, the “risk on” vs. “risk off” battle of the markets continues with “risk on”, surprisingly in

vogue after the Brexit . Don’t be fooled by short term moves. Despite the continued possibility of further

stock market rallies, there are some glaring inherent risks in the markets that at some point can be

realized in a potentially big way. I’ll support those views in this Letter with plenty of pertinent thoughts

and comments from some of the resources that I regularly utilize.

THE”BREXIT”

What do British government leaders (former), EU leaders, the IMF, President Obama, Japanese

President Abe, Chinese President Xi Jinping and central bankers all have in common? They have two

things in common. Firstly, they urged British citizens to vote to “stay” because many bad things would

happen if they voted to “leave”. Secondly they were all part of the “status quo”. The”Brexit” vote was a

referendum against the “status quo”. It is a “status quo” that tells us everything is “good” despite the

fact that economic growth has been subpar and continues to struggle in basically all corners of the

globe. It is a “status quo” that continues to increase global debt at a staggering pace without any

commensurate economic benefit. It is a “status quo” that includes central bankers who are running the

largest financial experiment in the history of the world. It is a “status quo” that continues to implement

more of the same policies that aren’t working. It is a “status quo” that is responsible for the “wealth

gap” widening at a historic and alarming pace where the “elite” are doing well at the expense of the rest

of the population. There is no income growth for people not in the “elite” class. This lack of income

growth can become a bigger and bigger issue.

The “Brexit” squarely represents a threat to the EU. The EU is basically a large unelected bureaucratic

body of government that represents the views of the “elite” or entrenched political class. They are

making decisions for a wide range of members on far ranging issues from monetary policy to

immigration policy. These decisions are not a “one-size fits all “. The euro currency is not necessarily a

“one-size fits all” solution. The currency wasn’t even an issue for the Brits and they still voted to “leave”.

Rifts amongst EU members on some of these issues have been increasing. Overlay on that the fact that

economic growth continues to be difficult and the aforementioned “wealth gap” continues to widen,

and it’s pretty easy to see why the “Brexit” could lead to other defections from the EU. The Brits felt it

was better to “take a step backwards to take two steps forward”. Ironically the large British pound

devaluation actually represents a big short term positive for the Brits generally at the expense of the EU.

Keep in mind that currency devaluation has been one of the main goals of all global central bank policy.

The threat of other countries feeling the same way is certainly rising.

In the 6/26/16 edition of Mauldin Economics “Outside the Box”, highly regarded geopolitical analyst

George Friedman of Geopolitical Futures (formerly Statfor), does a great job following up on some of my

thoughts:

http://www.theboxisthereforareason.com/wp-content/uploads/2016/06/This-Week-in-Geopolitics-Is-

Brexit-the-End-of-the-EU.pdf

POST “BREXIT” REACTIONS, HEADLINES AND HELICOPTERS

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The lead up and subsequent market action around the “Brexit” has been very interesting. Most political

and investment pundits were warning of dire market consequences in the event of a vote for “leave“.

Despite the fact that polling was close right down to the end, most experts expected the Brits to vote to

“stay”. The “leave” result was certainly a surprise. The first two days caused a huge decline in the British

pound and a sharp negative global stock market selloff. At the same time, global government bonds and

gold rallied. Then came the warnings of further widespread central bank interventions and guess what?

Stocks rallied.

A 7/4/16 article in Action Forex put it this way:

“A strong sense of relief elevated the global markets during trading on Monday

with major stocks showing stability as expectations mounted over central banks

intervening to quell the post-Brexit chaos.”

Porter Stansberry of the Stansberry Digest in his 7/11/16 edition had these comments after Japanese

Prime Minister Abe’s party election victory:

“Just as we predicted, the Japanese government is set to "do more"… Following an

election win over the weekend, Japanese Prime Minister Shinzo Abe ordered a new

fiscal stimulus package. He didn't share details on its size, but news service Reuters

reports it will be more than 10 trillion yen (about $100 billion). In addition, current

Bank of Japan ("BOJ") Governor Haruhiko Kuroda met with former Fed Chair Ben

Bernanke over lunch in Tokyo this morning.

Bloomberg reports the BOJ did not issue a statement on the substance of the talks,

but it's believed that Bernanke was there to discuss "monetary-financed fiscal

programs." These are a form of so-called "helicopter money," where the central

bank prints new money out of thin air and gives it to the government to spend

directly.

But Japan may not be alone in seeking new stimulus measures for long… A

separate report from Bloomberg shows Europe may soon have to expand its QE

program. Because of eurozone rules, German bonds must make up the largest

percentage of the European Central Bank's ("ECB") QE bond purchases.

Unfortunately, nearly 70% of Germany's $1.1 trillion in sovereign debt is no longer

eligible to be purchased today. This is because the yields on these bonds have

plunged below the ECB's short-term rate of -0.4%. Said another way, the ECB is

literally running out of bonds to buy. Don't be surprised if the ECB soon follows

Japan… and begins buying stocks as well.”

The Key phrase from the above excerpt was “helicopter money”. Here’s why ( from Investopedia):

DEFINITION of 'Helicopter Drop (Helicopter Money)'

Also known as helicopter money, a helicopter drop is a hypothetical,

unconventional tool of monetary policy that involves printing large sums of money

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and distributing it to the public in order to stimulate the economy. Helicopter drop

is largely a metaphor for unconventional measures to jumpstart the economy

during deflationary periods. While “helicopter drop” was first mentioned by noted

economist Milton Friedman, it gained popularity after Ben Bernanke made a passing

reference to it in a November 2002 speech, when he was a new Federal Reserve

governor. That single reference earned Bernanke the sobriquet of “Helicopter Ben,”

a nickname that stayed with him during much of his tenure as a Fed member and

Fed chairman.

So “helicopter money” (basically giving money to the people) is the next frontier of “extreme” central

bank intervention and quantitative easing. It is where central banks are threatening to go after they

recognize that even negative interest rates are not enough. The speculation was that this is what that

Bernanke/Kuroda meeting was about. Therefore, in the warped current world of “bad news is good

news” investing, I believe this was a catalyst for the latest market rally move. Short term thinking

without regard for long term consequences is again the order of the day. Here’s the Bloomberg account

of the meeting:

http://www.bloomberg.com/news/articles/2016-07-11/japan-turns-again-to-bernanke-as-fruits-of-

abenomics-wither

Value Walk did a 7/11/16 story on a Jeffries research report on the topic of Japanese “helicopter

money”:

http://www.valuewalk.com/2016/07/helicopter-money-explained/

Scott Minerd who is the sharp Chief Investment Officer at Guggenheim investments put out this

prescient note on the potential for Japanese “helicopter money” on 5/26/16:

https://www.guggenheiminvestments.com/perspectives/macro-view/why-the-g7-may-be-hastening-

helicopter-money

That brings us back to Europe. The ECB has already relaxed rules to be able to buy corporate debt. It

doesn’t seem to be that much of a stretch to be able to buy stocks like the Bank of Japan (BOJ, People’s

Bank of China (PBOC) and Swiss National Bank (SNB) are doing. We’ll see over the short term if the BOJ

can live up to elevated market expectations for more radical intervention. Saying that global bond and

stock markets are distorted due to central bank intervention would be an understatement. David

Stockman has written some terrific articles at his website, David Stockman’s Contra Corner, about this

distortion. Here are a couple of excerpts from his 7/1/16 article entitled “Price Discovery, R.I.P.”, that

discusses just how distorted Stockman thinks the current state of central banking intervention and

investing has become.

Between the $21 trillion already owned by the central banks, and the trillions more

held by front-running speculators who expect them to buy more, there is a big fat

thumb on the scale; and, as a consequence, there are hideously large and unearned

windfalls being captured by these same speculators.

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Needless to say, the vast falsification of sovereign debt prices has not happened in

a vacuum. It has caused a massive scramble for yield among bond managers and

homegamers alike which in turn, has distorted and deformed the corporate debt

markets like never before.

Much of the headline news since the “Brexit” has not been very good. A number of UK commercial real

estate funds have halted redemptions for investors. The Italian banks are really struggling with bad debt

and the Italian government and the EU are debating ”bail out” vs “bail in” proposals . The bottom line is

Italians banks have plenty of bad loans on the books. These headlines are reminiscent of headlines that

we saw during the financial crisis. So approximately 8 years and trillions of dollars of central bank

intervention later, we’re still in the same boat. As I’ve stated before, there were plenty of stock rallies in

2007 and 2008 before the final March 2009 bottom. Don’t let rallies fool you into thinking that things

are “fixed”.

Former Fed adviser and now proprietor of Money Strong LLC, Danielle Martino Booth, has been

generating some great economic and market observations (I’ve included her work frequently lately). She

put out another a great piece on 6/29/16; this time on the political, economic and banking issues facing

Italy aptly called “The Italian Job”. Read it to understand the issues facing Italy and the significance of

the national election in Italy coming up in October:

http://dimartinobooth.com/the-italian-job/

THE CASE OF THE DIVERGENT JOBS REPORTS

On July 8th, 2016 the Bureau of Labor Statistics (BLS) report the widely followed June Nonfarm Payrolls

report and revised the May report. The June report came in at 287,000jobs while the May report was

revised from 38,000 to only 11,000. Talk about outliers, how could the disparity be that large from

month to month? It’s tough to take those numbers seriously, especially when there is so much ill-

advised short term market focus on them. The report supposedly sparked a stock market rally. Morgan

Stanley U.S. Economist Ted Wieseman had a more realistic take. (Morgan Stanley Economic Data

Bulletin, 2016)

“Mixed report. Nonfarm payrolls rose a larger than expected 287,000 overall, or

253,000 excluding returning Verizon strikers, but other key aspects of the report

were softer. With as much of an upside surprise as there was in June payrolls, it

was abnormal to see a net downward revision to May (11K v. 38K) and April (144K

v. 123K). Concurrent seasonals spread upside in the current month partly to prior

months, but that was offset this time by the underlying NSA change over April and

May being cut by 35,000. The unemployment rate backed up 0.2pp to4.9% from

4.7%. That partly reflected a reversal of a steep drop in the labor force in May, but

the household gauge of employment ‐‐ +67,000 or ‐119,000 after adjustment to be

more comparable with payrolls concepts ‐‐ was weak again, and the employment‐to‐

population ration fell for a third straight month. Average hourly earnings growth

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surprisingly slowed to 0.1%; aggregate earnings gained 0.3%, which will be close to

zero in real terms.

* In addition to the 70,000 swing from the Verizon strike, upside in payrolls came

from a number of areas that were quite weak in May doing better in June, including

construction (0K v. ‐16K), manufacturing (14K v. ‐16K), temp help agencies (15 v. ‐

19), and leisure and hospitality (59K

v. ‐3K). Stronger results were also seen in retail (30K v. 3K), healthcare (58K v. 48K),

and government (22K v. 17K). With the June rebound, the average payroll change in

Q2 came to a four‐year low of 147,000, down from 196,000 in Q1 and 282,000 in

Q4.”

The key point to note is “the average payroll change in Q2 came to a four‐year low of 147,000, down

from 196,000 in Q1 and 282,000 in Q4.” Doesn’t sound that good, does it?

COMPARING STOCK MARKET PERFORMANCE

Let’s look at the stock market impact of some of the news that I’ve been writing about. You would think

that, with the continued unprecedented central bank interventions, most global stock markets would be

doing really well. Despite the recent rally, not so much. Take a look at these charts:

EUROPE

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The Euro Stoxx 50 (broad Europe), the DAX (Germany) and the FTSE (UK) are all at or below where they

were at the beginning of 2014. Incredibly 2 ½ years of aggressive ECB monetary policy hasn’t help

European stocks too much.

ASIA

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The Hong Kong Hang Seng, the Nikkei (Japan) and the Shanghai indices all trade materially lower than

where they were in 2015. Here’s an interesting fact to ponder, according to Wikipedia, the all-time high

for the Nikkei was 38,957 on 12/19/1989. Yes, 1989. By the way the 7/14/16 close for the Nikkei was

16,497 almost 27 years later.

United States

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Our markets have fared a little better since the beginning of 2015, but certainly not much to get excited

about. Some indices have done better than others. The DJ Transports., The Russell 2000 and the Nasdaq

Composite have not taken out their 2015 highs. The DJ Transports are still more than 10% off the high

they achieved in 11/14 (further back than in the above chart). The Russell 2000 peaked 6/15 while the

Nasdaq Composite peaked 1/15.

The S&P 500 and the DJ industrials just eked out new highs this month. These two indices are a little bit

of a mirage and make the markets look better than they really are. Since the 2/16 lows, it seems a

narrow swath of large dividend paying blue chips stocks have benefited those two indices. Investors

have gotten caught up in a “chase for yield”. The outperformance of those types of stocks (usually

slower moving) has outpaced the broader market in a big divergence. I’d be cautious with those types

of stocks because they may have gotten ahead of themselves on a valuation basis.

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MY DEFENSIVE ASSET ALLOCATION CLASSES

CBOT 30 Year U.S. Treasury Index represents long dated U.S. treasuries. The NYSE Arca Gold Bugs Index

is an index that represents exposure to precious metals miners. Since I started my Investment Letters

(mid 2015), long dated U.S. treasuries and precious metals miners, are asset allocation classes that I

have consistently preferred. They have outperformed the market in a meaningful way and I continue to

feel that they can be a better place to be than the other stock market indices shown above.

MORE AND MORE NEGATIVE RATE BONDS

It’s interesting that, generally speaking, global bond markets have outperformed stock markets.

According to the Daily Economist the amount of global bonds now trading at negative rates is $13

trillion. http://www.thedailyeconomist.com/2016/07/global-bonds-at-negative-yield-reach-13.html

That is absolutely mind boggling. The only reason to buy a negative yielding bond is because you think

the rate gets even more negative and you expect capital appreciation. There could be a currency

component as well, but price appreciation is definitely the motivating factor. Anyone that intends on

holding the bond to maturity would not buy it. Realistically individual investors aren’t buying these. I

believe the only people buying or holding these bonds are speculators and central banks. I believe the

speculators are front- running the massive ongoing bid that central banks have in place to continue to

buy these bonds. At $13 trillion dollars, it is one hell of a large speculation. Talk about insanity. Talk

about a bubble. How could things possibly be good? How could this possibly be unwound without dire

consequences?

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Peter Boockvar is the chief market analyst at Lindsey Group. He is highly regarded and frequently

interviewed. Here’s a portion of a 7/8/16 Yahoo article by Brian Price about Boockvar’s view on negative

rates:

“One of the most crowded trades on Wall Street is about to implode, says one

market watcher. “We’re in an epic bubble of colossal proportions,” Peter Boockvar,

managing director and chief market analyst at The Lindsey Group, said Tuesday on

CNBC ‘s “ Futures Now ” in reference to the fixed income market. Global yields have

been tumbling to record lows, with many dipping into negative territory. The U.S.

10-year (U.S.: US10Y) hit its lowest level ever this week as traders continue to seek

safety in the bond market. Yields move inversely to prices.

“However, Boockvar believes that this activity is a ticking time bomb for the global

economy. He reasoned that U.S. Treasury yields are being dragged down by

negative-yielding debt out of Germany, Japan and Switzerland and misplaced

monetary policy, and is therefore skeptical as to how much longer the rally can

continue. “It could be central banks that end this,” said Boockvar in regard to

upward momentum for bonds. In his recent coverage, he reacted to the newly

released FOMC minutes and further questioned the Fed’s ability to act effectively.

“They’ll call it being ‘patient.’

In Europe, concern for Italy’s economy continues to rise as that nation struggles to

maintain negative interest rates while simultaneously raising capital for its banking

system, which is straddled with mounting debt. Maybe Italian banks are telling us

that central bankers and their negative interest rate policies are actually destroying

the Japanese and European banking system?” asked Boockvar in the CNBC

interview. He reasoned that Bank of Japan Governor Haruhiko Kuroda and

European Central Bank President Mario Draghi could take a look at what’s

happening in Italy and decide that their respective monetary policies are the wrong

course of action. Ultimately, Boockvar warned of the fallout that could occur if

multiple nations opt to end what he referred to as a “negative deposit rate regime.

”“Even if they put it back to zero, imagine the carnage, at least in the short-term

bond markets,” concluded Boockvar.”

Compare negative rates to U.S. Treasuries; this why longer dated U.S. Treasury bonds have continued to

rally. If that remains the trend, yields still have a ways to go before they approach zero or negative.

OFF THE RADAR CHINA

As I’ve noted in past Investment Letters, China is the engineer of the largest debt binge the world has

ever seen. China has been very quiet on the news front recently. But in the shadows of all the other

global economic and market news, the PBOC has devalued the yuan even more than it did last summer.

The August 2015 stock market correction occurred with yuan devaluation in the headlines. In 2016 the

devaluation has been achieved in much smaller and gradual increments. Stay tuned. This could still turn

into big news as the slowing of the Chinese economy amidst continued debt accumulation and

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manipulation of bad debt continues. Two market prognosticators on this topic that garner much

attention are Kyle Bass and Andy Xie. Bass is the CIO of hedge fund Hayman Capital Management. Andy

Xie is a former World Bank and former Morgan Stanley economist who now provides independent

opinions. I urge you to read these two articles on their views on China. The China debt story is not going

away:

http://www.zerohedge.com/news/2016-07-01/kyle-bass-shares-stunning-thing-central-banker-once-

told-him

http://www.marketwatch.com/story/this-economist-thinks-china-is-headed-for-a-1929-style-

depression-2016-06-30

CONCLUSION

I continue to urge a cautious approach. There is no shortage of potentially negative catalysts out there

to change the current direction of this last stock market rally. If global economic weakness and further

earnings weakness persist, it will only be tougher to justify current U.S. stock market valuations. How

tough has earnings growth been for the S&P 500? According to a 7/8/15 Factset report by Sr. Earnings

Analyst, John Butters:

“As of today, the S&P 500 is expected to report a year-over-year decline in earnings

of 5.6% for the second quarter…. If the index does report a decline in earnings for

Q2, it will mark the first time the index has recorded five consecutive quarters of

year-over-year declines in earnings since Q3 2008 to Q3 2009.”

Stocks have rallied recently despite this. Central banks have no doubt distorted natural market cycles.

This is an already very long upcycle (3/2009) by historic standards. It could last longer than seems

reasonable, but don’t get caught up in the chase. Stay patient and defensive with exposure to U.S.

Treasuries and precious metals related plays. We will shortly be entering the seasonally tough

August/September/October stretch within the already- tougher May to October period. If I haven’t

already, I’d love the opportunity to review your portfolios that I am not currently involved with. Please

call me with any questions or observations. Enjoy the summer

David Janny Senior Vice President Financial Advisor NMLS# 1279369 Morgan Stanley Wealth Management 200 Nyala Farms Rd. Westport, CT 06880 203 221-6093

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The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth

Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any

opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future

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Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy

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This material does not provide individually tailored investment advice. It has been prepared without regard to the individual

financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material

may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate

particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness

of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

International investing may not be suitable for every investor and is subject to additional risks, including currency fluctuations,

political factors, withholding, lack of liquidity, the absence of adequate financial information, and exchange control restrictions

impacting foreign issuers. These risks may be magnified in emerging markets.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including

but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and

international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading

activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of

a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various

factors, including lack of liquidity, participation of speculators and government intervention.

Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more

sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option,

fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from

sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market

conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the

issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk,

which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.

Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to

the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one’s state

of residence and, if applicable, local tax-exemption applies if securities are issued within one’s city of residence. The

tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and

marketability.

Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of

investment grade securities, including greater credit risk, price volatility, and limited liquidity in the secondary market. Investors

should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing

in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.

Foreign currencies may have significant price movements, even within the same day, and any currency held in an account may

lose value against other currencies. Foreign currency exchanges depend on the relative values of two different currencies and

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are therefore subject to the risk of fluctuations caused by a variety of economic and political factors in each of the two relevant

countries, as well as global pressures. These risks include national debt levels, trade deficits and balance of payments, domestic

and foreign interest rates and inflation, global, regional or national political and economic events, monetary policies of

governments and possible government intervention in the currency markets, or other markets.

Asset allocation does not guarantee a profit or protect against a loss in a declining financial market.

An investment cannot be made directly in a market index.

NASDAQ Composite Index is a market-value-weighted index of all NASDAQ domestic and non-U.S. based common stocks listed

on NASDAQ stock market.

Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents

approximately 11% of the total market capitalization of the Russell 3000 Index.

Euro STOXX: Provides a blue-chip representation of supersector leaders in the Eurozone.

Shanghai Stock Exchange Composite: A capitalization-weighted index. The index tracks the daily price performance of all A-

shares and B-shares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value

of 100.

The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the

Tokyo Stock Exchange. The Nikkei Stock Average was first published on May 16, 1949, where the average price was ¥176.21

with a divisor of 225. *We are using official divisor for this index

DAX Index: A stock index that represents 30 of the largest and most liquid German companies that trade on the Frankfurt

Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. A free-float

methodology is used to calculate the index weightings along with a measure of average trading volume.

The FTSE 100 is an index composed of the 100 largest companies listed on the London Stock Exchange (LSE). These are often

referred to as 'blue chip' companies, and the index is seen traditionally as a good indication of the performance of major

companies listed in the UK.The Hang Seng Index (abbreviated: HIS) is a freefloat-adjusted market capitalization-weighted stock

market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock

market and is the main indicator of the overall market performance in Hong Kong.

A price-weighted average of 20 transportation stocks traded in the United States. The Dow Jones Transportation Average

(DJTA) is the oldest U.S. stock index, compiled in 1884 by Charles Dow, co-founder of Dow Jones & Company. The index initially

consisted of nine railroad companies - a testament to their dominance of the U.S. transportation sector in the late 19th and

early 20th centuries - and two non-railroad companies. In addition to railroads, the index now includes airlines, trucking, marine

transportation, delivery services and logistics companies.

Morgan Stanley Smith Barney LLC. Member SIPC.