Risk-Adjusted Return Monitor Summary & Views

a global macro investment newsletter by Neil Azous

Morning Edition | October 12, 2018

Risk-Adjusted Return Monitor

CROSS-ASSET FOREX FIXED INCOME EQUITIES COMMODITIES THEMATIC PAIRS

India SENSEX EUR/CNY UK 5-Yr Gilt India SENSEX Soybean China Exposure EU Cyclicals vs Defensives Saudi Tadawul USD/TWD South Korea 10-Yr Saudi Tadawul Gold None EU Domestic vs EM Exposure

* Highlights the largest overnight positive and negative risk-adjusted returns across 160+ market proxies

Summary & Views Contents

These Are Not The Droids You Are Looking For Summary & Views Top Observations . The Pedestrian View Tracking Portfolio . Our View – Mutual Funds Economic Data . Our View – Hedge Funds

. Our View – Global Macro . Financial Conditions Tracking Portfolio

Admin – Schedule Tracking Portfolio Twitter @sbstimestamp The next edition of Sight Beyond Sight will be delivered on Monday. Bloomberg MCRO

Any updates to the tracking portfolio will be sent via Twitter (@sbstimestamp) or Bloomberg (MCRO). Links

Subscribe Now! Newsroom View Archive Permissions/Reprints

Connect

Twitter @neilazous

These Are Not The Droids You Are Looking For

The Pedestrian View

This is the 23rd correction greater than 5% in the S&P 500 Index (SPX) since the March 2009 low. The average correction is -9.3% and the median correction is -8.4%. The average VIX peak is 32.1 and median peak is 30.3.

From the high-to-low, the S&P 500 fell 7.8%, and the VIX peaked at 28.84.

Add in the drawdowns in other benchmarks – Russell 2000 Index (RTY) -11.29% and NASDAQ-100 Index (NDX) - 10.49% – and the dozens of intra-day indicators showing extremes, and it is easier to understand that the correction is largely complete.

The next trade is a recovery.

Our View

We have a lot of sympathy for the pedestrian view except the recovery call.

While we would not be surprised to see the benchmark indices up 1-2% today, that dead-cat bounce misses the bigger picture. Here is what we mean by that statement.

Mutual Funds

Put yourself in the seat of a mutual fund manager.

Earnings season starts today. Why would a Portfolio Manager buy individual stocks in front of their earnings release?

Considering the degree of weakness seen following a negative preannouncement for this quarter, their bias is to wait for confirmation that the company delivers on earnings, and the stock reacts positively. Otherwise, they risk purchasing the stock too early, which is the same thing as being wrong.

Also, unlike February, where large buybacks were the catalyst that marked the bottom at the index level, buyers of stocks today do not get the tailwind of buybacks until later in October or early in November.

Finally, the sell-off in risk assets began with FAANG and the momentum factor. Netflix, the "N" in FAANG, reports earnings on Tuesday, and will likely set the tone for tech earnings season. Last quarter, after missing on subscriber growth, NFLX fell 14% and has not recovered. The key point here is that buying back the momentum stocks or growth strategies that were sold in advance of NFLX earnings is premature.

Hedge Funds

Put yourself in the seat of a hedge fund manager.

The best thing that could have happened to a long/short strategy is a market correction. Not only did it narrow their underperformance to the benchmark significantly, with the S&P 500 only up 2% YTD now, but there is also no anxiety over fourth quarter performance chasing. Last October, the S&P 500 was up significantly and on its way to having the highest Sharpe ratio in 50 years. The profile today is very different.

This is a good thing because if anyone is playing for a V-shaped recovery and wanted to get out in front of that index move higher, S&P 500 call option spreads that have a payout ratio of more than 5 to 1 with implied volatility this elevated is non-existent. Said differently, the only true way to play for a slingshot bounce higher is to own stocks (i.e., “deltas”).

Also, the two “alpha” trades – small caps and Chinese internet stocks – for the fourth quarter are currently dead.

No one is buying an IWM call option fly (i.e., 1x2x1) in case the Republicans win the House, and small caps recover the most. Nate Silver, at FiveThirtyEight, told you that is throw away money. Besides, every hedge fund is still suffering from Trump Derangement Syndrome (TDS) and believes there is no way Republicans can win in the House.

Despite 20-40% underperformance to their US peer group, Chinese stocks are now contending with a different sentiment. In the last two weeks, the market has begun to shift to “China Cold War 2.0” from just a trade war. The 15 executive departments, or Cabinet, and the National Security Council are now waging some state of political hostility towards China, not just the Commerce Department.

Global Macro

Put yourself in the seat of a global macro manager.

The correction in February was the recognition that the rest of the world (RoW) passed its peak growth rate, whereas the US was still accelerating.

The question now is – with momentum and growth strategies faltering because investors are marking-to-market long duration technology stocks relative to a steeper yield curve and higher absolute level of real interest rates, is this the signal that US growth is also now past its peak?

Either way, the ”strong US versus weak everywhere else” narrative is changing. It is too early to tell if that leads to relief in the RoW or the US will force the RoW even lower.

Next, there are too many professionals looking to last February as a parallel for what happens next in stocks. The backdrop now is extremely different.

Since February, the Fed has raised interest rates three times. The fixed income market is priced for another four hikes. The Fed has removed the forward guidance goal post of the neutral rate cap. The Fed’s balance sheet runoff (i.e., “QT) is now $50bn per month, up from $20bn.

Except for the S&P 500 and NASDAQ-100 indices or a one-off index here or there, every asset globally, both risk and risk-free, is negative on the year.

In fact, now, the US cash equivalent interest rate is higher than the S&P 500 YTD performance. Add in the breadth of weakness across asset classes and regions, how can someone label this still a bull market?

There were no US mid-term elections, trade war (or China Cold War 2.0), or Italy problems at the time.

Finally, the stock market has not dropped enough to test the “Fed put.” Based on what professionals heard over the last month, a sustained stock market correction is required to slow the Fed down or price in a pause. At best, this week’s events removed 30-40% of one hike next year. Said differently, fixed income barely batted an eye.

Conclusion

Like many, we are left asking if this correction is different, especially given the juncture of the Fed tightening cycle.

One scenario that we are not ruling out is if the SPX drops 8-10% and just sits here for a while. Right now, there is no fourth quarter wall of worry that needs to be climbed.

If you are looking to buy something, then buy crude oil on this pullback or gold priced in Mexico peso (XAU/MXN). At least the former has a stellar profile, and the latter has the two most extreme positioning across assets and is attempting to break out of a 10-week rectangle.

Update – US Financial Conditions

Since the Fed recently removed the neutral rate cap as a yardstick, and the stock market has not fallen enough on a sustained basis to impact future interest rate hike probabilities, we fall back on US financial conditions.

Below is a yield curve populated with USD denominated senior unsecured fixed-rate bonds issued by US companies with a rating of BBB+, BBB or BBB-.

On aggregate, the BBB corporate yield is now higher on an absolute basis than the worst of the 2015-16 industrial recession and close to breaching the 2013 taper tantrum high level.

We highlight this because corporate yields are the largest component of financial conditions.

The Goldman Sachs US Financial Conditions Index (Bloomberg symbol: GSUSFCI), an index created by former NY Fed President William Dudley that is incorporated in the FOMC’s economic models, has retraced more than 61.8% of the easy financial conditions since the start of the Fed hiking cycle in December 2016.

Here are the components of this index. (Source: Goldman Sachs). In this index, corporate spreads hold the second largest weight beyond 10yr US Treasury yields.

As the Federal Reserve continues to tighten financial conditions, either through interest rate hikes or running down their balance sheet (“QT”), it is worth keeping an eye on these metrics.

Top Observations

Money Flow

. Fund Flows (Source: BAML, EPFR data)

o Bond funds see “massive” outflows of $14bn, most since the first week of February. o Investment grade corporate bond funds see record weekly outflows of $7.5b, while high-yield bond funds see outflows of $6.1b o Equities overall see small outflows of $1.4b

. Fund Flow Reports for the Week Ended 10/10/18 (Source: Lipper)

o ExETFs - All Equity funds report net outflows totaling -$2.632 billion o ExETFs - Domestic Equity funds reporting net outflows of -$1.699 billion o ExETFs - Non-Domestic Equity funds reporting net outflows of -$0.932 billion o ExETFs - Emerging Markets Equity funds report net outflows of -$0.273 billion o Net outflows are reported for All Taxable Bond funds of -$5.993 billion, bringing the rate of outflows for the $2.789 trillion sector to -$0.787 billion/week o International & Global Debt funds posted net outflows of -$0.016 billion o Net outflows of -$0.360 billion were reported for Corp-Investment Grade funds o High Yield funds reported net outflows of -$4.928 billion o Money Market funds reported net inflows of $20.753 billion o ExETFs - Municipal Bond funds report net outflows of -$0.637 billion.

Central Banks

. RBA: Overall, in its Financial Stability Review, the RBA is characterized as continuing to be alert, but not alarmed, with respect to a range of domestic and global risks. The housing finance data supports our view that dwelling construction will fall over the coming 12 months, making a negative contribution to GDP growth. (Source: Nomura)

. MAS: Singapore's MAS "slightly" increased the slope of the SGD NEER band while maintaining its width and centre at last night’s semi-annual policy review. The MAS expects core inflation to rise modestly over the near term, with the output gap positive, forecasting core CPI at 1.5-2.0% over 2018 and 1.5-2.5% in 2019. The slope is believed to be moved up to 1% from 0.5%.

Equities

. US Banks: The BKX’s performance during the bank earnings season (defined 2 weeks post the 1st Large-Cap bank reporting), has increased in each of the last 4 quarters, 9 of the past 11, and 18 of 23.

. Market Observations from Yesterday:

o The NYSE TICK hit its second-lowest level in a decade, a level which typically coincides with intraday panic conditions.

o For the first time in history, volume in inverse ETFs neared 2% of total NYSE volume, almost double the prior record from February.

o Volume: Over 50 billion option/stock/futures quotes Yesterday (3 terabytes)! Previous record was yesterday with 42 Billion (Nanex) - Yesterday was the largest volume since Feb break.

o RSI: 14day RSI on SPY at 18, and QQQ at 22 – both lowest since 2015.

o Citi Oversold (Bloomberg symbol: CGUSOVER) through 2018 lows.

o VIX: 3-month VIX curve most “backwardation” since February.

o S&P 500 closed below the 200-day MAVG only twice in the last 2.5 year. Note, both times, SPX bounced back above the day after.

o 73% of stocks in the S&P 500 are oversold (>1 st deviation below 50-DMA) as the S&P 500 Closed 3.8 st deviations below 50-DMA. Most oversold reading since August 2015 (Source: Bespoke)

o Leverage: Hedge Fund leverage Has been reduced to near year’s lows. (Source: Credit Suisse)

o Buybacks: Yesterday was the peak of the buyback blackout window. (Source: Morgan Stanley)

o The percentage of S&P 500 stocks that are above their 50-DMA slumped to 11% yesterday, worse than the February and March lows of this year.

o S&P 500: Today was down 3.88 sigma on 20 day rolling volatility. Worst day since Feb 27, 2007 (3.94). There have only been 6 occurrences of 3.5 sigma or worse moves since ES inception in 1997. Red event day and then 10 prev and 50 fwd plotted. (Source: Dave Bergstrom)

o S&P 500 P/E decline of 1.3x is well in excess of move in rates and trade impacts: The S&P 500 is now trading at 15.5x NTM EPS, the lowest since Feb '16 when the ISM was below 50 and not 60. The 1.3x de- rating since Sept is in excess of what our model implied (0.4x) based on higher rates and other macro drivers. The difference of 0.9x or 5% is in excess of our estimate of the growth hit from China tariffs on S&P EPS (~2%) while the USD and oil have yet to be an incremental headwind to earnings. (Source: UBS, Strategist, Keith Parker)

. US Equities: We remain fundamentally bearish on the outlook for US equities as we have reached peak policy and peak profits. (Source: BAML, Michael Hartnett)

. Sentiment (Source: BAML)

o Bear market price action triggers BofAML Global Breadth Rule, but not yet a Feb'16 entry point o "buy signal" triggered by BofAML Global Breadth Rule (Table 1); 89% of MSCI country equity indices <50 & 200-day averages; global stocks rallied 3.6% median in 4 weeks in past 7 out of 8 buy signals.

. Anatomy of NASDAQ Market Declines: Since 1971, when the NASDAQ has lost -5%, the probability of it turning into a -10% decline has been 33%. Of those that did turn into a -10% dip, 50% went on to lose 15%. And another 50% of severe corrections became full blown bear markets. (Source: Ned Davis)

. Classic Contrarian Indicator: The median 3-month return following a CNBC special market report is +5.4%, 11 out of 12 positive. The sole loser was -0.2%. (Source: SentimentTrader)

Fixed Income

. Brexit: Go Long September 2020 Short Sterling Futures as a Brexit smooth-transition is already priced in by the market ahead of the EU summit next week, which suggests risk-reward favors longs in Gilts. (Source: Citigroup)

o Gilt yields are hovering near post-referendum highs, with 3 hikes priced into markets over the next 3-years o The front-end is the best spot for a ’no-deal’ hedge, recommends buying L U0 (Sept. 2020 short sterling) at implied yield of 1.49%, targets 1.2%, stop 1.65% . This is appealing as if progress is made markets will struggle to price a more aggressive BOE cycle, while if ’no-deal’ becomes more probable the front-end should scale back hike pricing

. Germany: Stay mildly bearish on bunds as ECB may signal an end to net bond purchases this month, which will weaken the grip on forward guidance and allow 2020-2021 rate expectations to become more ’un-anchored’. Technicals are also due to shift with higher net EGB supply next year. (Source: Citigroup)

o Risks include more aggressive moves by rating agencies o Currently, expect only Moody’s to downgrade in the near-term. S&P Ratings likely to move to negative outlook o Recommend entering a proxy for EUR 5s30s flatteners via receiving EUR 5y12 vs paying 12y . Re-pricing of a more hawkish ECB outlook in 2020 should be most bearish for 5-year sector . There is also value in the "curve steepness" as EUR 5y5y is close to buy level, and 10y10y near 2.15% where real end user demand is seen o Recommend selling FRTR 05/2026 vs DBR 07/2044 as a hedge for BTP bear risk and to capture repatriation flows from Japanese investors who are likely to return funds to yen bond market . France has been the biggest beneficiary from Japanese buyers and should see the greatest impact . Further, scarcity of bonds in German bonds is supportive, the sector is well bid in ASW

. Loving the risk-adjusted carry in the 2-Year UST: at 2.9%, over the course of a year, yields would have to rise to 4.5% in order to lose money, and the federal reserve would have to move policy almost 12 times in the year in order to sustain losses, which we think unlikely. (Source: Blackrock, Global Fixed Income CIO, Rick Rieder)

Foreign Exchange

. Japan - Yen: Ms. Watanabe (i.e., retail) is the most short USD/JPY in 8 years.

. Trade – Buy AUD/CAD: We enter a long AUDCAD position (spot reference: 0.9230) in our FX Model Portfolio with a target of 0.9600 and a stop-loss of 0.9040. AUD has been one of the worst performing major currencies over the past three months. This reflects a mix of the trade wars and the underperformance of China-linked assets since the start of the year, highlighting the theme of maga across global asset markets. Chinese equities and base metals, for instance, are among the worst performers YTD. This raises the question of how much pain AUD has priced. Our AUD HFFV gauge shows a 3% discount while AUD implies a lower level of the global PMI. We showed recently that USD is running rich to the implied move in growth dynamics where AUD holds a high correlation. Notably, a proxy index for China stress also shows that AUDUSD is trading near the implied levels while AUDCAD should be trading around 0.9340. We think AUD is trading with a heavy risk premium while CAD reflects plenty of good news. Also noteworthy is the fact that AUDCAD's beta to USDCNH has flipped, where AUD's beta has declined and CAD's has risen. We also flag that positioning leans short AUDCAD. (Source:: TD Securities, dated 10/10/18)

. Watch EUR/JPY downside: Some currencies tend to be forgotten and we think EUR/JPY is one of them. Yet, it has some attractive features. One has to be that both the euro area and Japan share many characteristics – such as having current account surpluses, being low yielders and having similar political stances on trade – which allows the differences to be magnified. (Source: Nomura, Global FX Strategy, Bilal Hafeez, dated 10/10/18)

o Positive yen carry: One notable difference is that Japan has higher short-term yields than the euro area, so being short EUR/JPY is actually positive carry. This also means that Japanese investors have no incentive to buy euro area bonds currency unhedged, so any Japanese investor buying of euro area bonds is unlikely to see any net yen selling.

o Longer-dated JGB yields rising on BOJ: Perhaps a more important recent shift has been the Bank of Japan’s greater tolerance for JGB yields to rise especially beyond the 10yr sector of the yield curve. This makes longer-dated domestic Japanese bonds even more attractive than overseas bonds. Indeed, we have started to see the 20yr rate differential between the euro area and Japan correlate more closely with EUR/JPY than the 5yr rate differential (Figures 2 and 3). The rate spreads appear to have peaked, which could cap any EUR/JPY upside.

o Euro banking woes: Outside of core rate trends, Japan does not share the same sovereign and bank risks as the euro area. Concerns on Italy’s fiscal path and broader troubles across euro area banks have weighed on the euro, and other safe-haven markets such as the dollar and the yen would naturally benefit. As expected EUR/JPY has shown a strong correlation with these factors, especially to relative bank sector performance.

. Funding Pressure on Currencies: Funding scarcity and tighter liquidity conditions should mainly play out against equity-sensitive and capital-importing currencies like EM, CAD, AUD and NZD. With Libor rising and cross-currency basis widening, this would add additional funding pressure for Australian banks and tighten financial conditions, which is bearish Aussie. Given that mainland Chinese equities significantly underperforming following the sell-off in S&P, AUD weakness is expected to persist. (Source: Morgan Stanley)

. GBP – Brexit: An imminent deal on Brexit is overwhelmingly probable, and the chances of a no-deal hard Brexit are very low, and a deal in the coming weeks will likely allow the pound to rally. Sterling is very under-valued and under-owned and it is still reasonable to view 1.55 as a valid fair value and the center of gravity for cable. (Source: SLJ Capital, Stephen Jen)

. US Treasury report: A change in criteria is possible; watch RMB and THB (Source: Nomura, Asia FX Strategy, Craig Chan)

o US Treasury Department expected to release its report on the “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” in coming days. This report has previously been released as late as 30 October (in 2013). o We believe that, even if the US Treasury were to adjust its criteria so that China can be labelled a currency manipulator, the impact on RMB would be limited. According to legislation, it would mark the beginning of a one-year period of “enhanced bilateral engagement”. Subsequently, if remedial steps are not taken, it could then lead to further action. However, we see the impact from such a scenario as limited, as the US has already taken significant bi-lateral actions against China through tariffs and we have seen no evidence of a shift in RMB depreciation tactics, if any, undertaken by Chinese policymakers. Indeed, January to August adjusted FX reserves have declined by an average of USD6.8bn per month, while the introduction of the counter cyclical factor since August has only helped to slow RMB depreciation. o For the rest of Asia, a change in the criteria in order to label China and/or increase the list of countries considered a “Major Trading Partner” by the US (top-12 and Switzerland; April 2018 report highlighted this possibility4) would have significant implications. It is unclear which criteria would be used/changed and which countries would also fall into the FX manipulator camp, but we see the risks as highest for Thailand, Malaysia, South Korea and Singapore, given that these countries have broken either two or two of the current FX manipulation criteria. We view Thailand as at the highest risk of being labelled, especially if the US expands its monitoring list to the 21 top trading partners or beyond. o In a scenario where Thailand is labelled a currency manipulator, we believe BOT USD-buying intervention would drop materially, likely resulting in strong gains in THB –especially once global factors become more

conducive for EM. In our analysis of previous instances where currencies were labelled as manipulated, we noticed that currencies of open economies with freely floating currencies (KRW and TWD) generally appreciated.

Commodities

. Gold Miners: GDX 134m shares (30% of outstanding) traded yesterday, 30m shares in the last minute. Highest volume since March 2017 (record volume was 235m Oct 4, 2016)

. Gold: Thursday's jump in the price of gold was its biggest one-day move in more than two years.

Emerging Markets

. MSCI AC Asia Pacific excluding Japan: Current valuation levels are comparable to trough P/Es and P/Bs of an average minor correction, and are 10% above those of a major correction. (Source: Goldman Sachs)

Sell-Side Strategy & Calls of Note

. Europe Equity Strategy: We believe in extended European and global economic cycle into 2019-2020 and sees significant upside risk to European stocks over the coming 12-18 months, but recognizes near-term investor concerns. (Source: Citigroup, strategist Jonathan Stubbs, Bloomberg)

o Ahead of the current global equity sell-off, Europe led other regions in terms of outflows, which were primarily driven by U.S.-based investors sensitive to PMI trends and political risks o European net flows, wide equity-bond yield gap and depressed bank valuations suggest that investors aren’t positioned for an extending cycle; Citi sees opportunity to take on risk, but little appetite to do so

. Global Equity Strategy: Investors should consider a larger long-term exposure to emerging-market assets, despite the recent downturn. (Source: UBS Wealth Management, CIO Jorge Mariscal)

o Emerging-market assets are becoming increasingly hard to ignore for global investors o EM makes up more than 60 percent of total global economic output and more than 70 percent of global GDP growth o Despite short-term volatility, long-term returns have been excellent o Allocations to EM equities in global portfolios remain at 12.5 percent of overall equities allocation, even though EM makes up 32 percent of the world’s equity market capitalization

o "While tactical asset allocation can take advantage of bouts of volatility, emerging-market exposure should be seen as strategic in nature"

. Emerging Markets: Valuations of EM bonds and equities are attractive on a long-term view since fundamentals are still strong. (Source: Fidelity International, portfolio manager Toby Gibb, Bloomberg interview)

o Rising rates provide better environment for value stocks to outperform, especially after extended underperformance o Gold also offers good downside protection o Unlikely that European stocks will rise when U.S. stocks are falling, though U.S. outperformance may narrow o European financials have attractive valuations that have priced in a lot of risks and a reasonable outlook o Fidelity International’s multi-asset portfolio has been adding cash and cutting equity allocation over past few months to a small underweight o Its tactical funds have been increasing duration exposure and adding to Treasuries and Australian bonds o U.S. growth and earnings expectations are still quite strong, though high corporate leverage and wage pressure warrant some caution; key is to watch earnings season

[Back to top]

Tracking Portfolio

DOWNLOAD LATEST TRACKING PORTFOLIO UPDATE

Details & Disclaimer

The linked document includes FAQs regarding how the tracking portfolio is administered, and important disclaimers.

The tracking portfolio illustrations referenced within this material are hypothetical and intended for informational purposes only. No actual investments have been implemented, and any references to transactions, positions, gains, or losses on the portfolio are theoretical. Past performance is not necessarily indicative of future results.

Economic Data

Inflation

China

Event Period Surv(M) Actual Prior Revised Trade Balance Sep $19.20b $31.69b $27.89b $26.65b Trade Balance CNY Sep 136.20b 213.23b 179.75b 171.41b Exports YoY CNY Sep 9.2% 17.0% 7.9% 7.3% Imports YoY CNY Sep 15.2% 17.4% 18.8% 18.7% Exports YoY Sep 8.2% 14.5% 9.8% 9.1% Imports YoY Sep 15.3% 14.3% 20.0% 19.9%

[Back to top]

Newsletter Disclaimer

Sight Beyond Sight is published by and is the property of Rareview Macro LLC ("RVM") and is distributed for informational and educational purposes only. The content of this newsletter is intended for institutions and professional advisers only. This distribution is not intended for use by private clients or retail investors.

Sight Beyond Sight is not, and is not intended to be a research report, a recommendation or investment advice, as it does not constitute a substantive research or analysis. It does not take into account the particular investment objectives, restrictions, tax and financial profile or other needs of any specific client or potential client. In addition, the information is not intended to provide a sufficient basis on which to make an investment decision. Any investment decision should only be made after consulting appropriate tax, legal, financial and any other relevant advisors. Subscribers are expected to make their own investment decisions without reliance on this material. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy securities. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of distribution, RVM makes no representation as to its accuracy or completeness, and it should not be relied upon as such. The market, currency, economic, political, business, technological and other factors upon which our writing are based may change without warning or become outdated and RVM is under no obligation to update any such information. Accordingly, all opinions expressed herein are subject to change without notice.

Neither Rareview Macro LLC, nor any officer, employee or affiliate of RVM, accepts any liability whatsoever for any direct or consequential loss arising from any use of this newsletter or its contents.

WARNING: Subscribers should verify all claims and do their own due diligence before investing in any investment referenced in this publication.

FORWARD LOOKING STATEMENTS: Certain statements made in this publication may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. RVM undertakes no responsibility to update publicly or revise any forward looking statements.

DERIVATIVES: Investing in securities and other investments, such as Options and Futures, is speculative and carries a high degree of risk. Subscribers may lose money trading and investing in such investments. Prior to buying or selling an option, investors must read a copy of the Characteristics & Risks of Standardized Options, also known as the options disclosure document (ODD). It explains the characteristics and risks of exchange traded options.

FOREIGN EXCHANGE: There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Subscribers may lose money investing in such investments. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters.

ALTERNATIVES: Investing in alternatives and other investments, such as Hedge Funds, Private Equity or Venture Capital, is speculative and carries a high degree of risk. Subscribers may lose money investing in such investments. Alternative investment fund and account managers may have total trading authority over their funds or accounts; the use of a single adviser applying generally similar investment strategies could lead to a lack of diversification and higher investment risks as a result. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

WRITER NOTICE – RESEARCH & INVESTMENT ADVISORY:

RESEARCH: Rareview Macro LLC is an independent research company and is not a registered investment advisor and is not acting as a broker-dealer under any federal or state securities laws.

Neil Azous is the Founder and Managing Member of Rareview Macro LLC.

Rareview Macro LLC and Neil Azous provides research-related services to clients separate and apart from the position as a publisher/writer of Sight Beyond Sight. In that separate capacity, RVM/Azous may recommend that such clients maintain positions or purchase or sell securities discussed or mentioned in the applicable subscription newsletter. It is also possible that RVM/Azous may recommend that their clients maintain positions or purchase or sell securities that are not mentioned to readers of the subscription newsletter or that conflict with information provided in the subscription newsletter.

There are readers of this subscription newsletter that also receive services and advice from the writer as a client.

In accordance with applicable SEC and FINRA requirements, Rareview Macro LLC may have a marketing relationship with products and services mentioned in this letter for a fee.

Rareview Macro LLC, Sight Beyond Sight, www.rareviewmacro.com, www.sightbeyondsight.com, www.rvmacro.com, @neilazous, and @sbstimestamp are not an offering for any investment. They represent only the opinions of Neil Azous. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with, Azous’ other firms and affiliations.

INVESTMENT ADVISORY: Neil Azous is the Founder and Managing Member of Rareview Capital LLC (“RVC”), an investment advisory firm registered with the SEC.

Rareview Capital LLC may provide complimentary subscriptions of this newsletter to investment advisory clients or prospective clients.

Rareview Capital may market and use the Tracking Portfolio referenced herein with investment advisory clients or prospective clients.

Rareview Macro LLC and Rareview Capital LLC share resources, including staff, physical location, technology, data analytics, and administration.

Certain personnel of Rareview Macro LLC (i.e. Research Analysts) are registered investment adviser representatives of Rareview Capital LLC.

As registered investment adviser representatives of Rareview Capital LLC our analysts must follow Rareview Capital LLC’s Compliance Policies and Procedures Manual. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.

POSITION NOTICE: It should be assumed that, from time, or as of the publication date of this newsletter referencing any instrument or security in Equities, Foreign Exchange, Interest Rates, Commodities, or Credit, RVM (possibly along with or through our partners, affiliates, employees, clients, investors, industry contacts and/or

consultants) may have a position in the instrument or security covered herein, and therefore stands to realize gains if the forecasts and judgments about the future presented in this communication prove to be accurate. Following publication of this newsletter, it should also be assumed that we intend to continue transacting in the instruments and securities highlighted therein, and RVM may be long, short or neutral at any time thereafter regardless of the initial position or communication.

THIRD PARTY RESEARCH: Any third-party research report(s) or summary or excerpt of that third-party research report(s) included in Sight Beyond Sight should not be construed as a recommendation, investment advice, endorsement or the opinion of Rareview Macro LLC (“RVM”) or any of its officers, employees, and affiliates. You acknowledge that recommendations in the third-party research report(s) to buy, sell, hold, or otherwise consider particular securities are not, and should not be construed as, recommendations or advice to you designed to meet your particular objectives or financial situation.

AFFILIATE NOTICE: Rareview Macro LLC may have affiliate agreements in place that may include fee sharing. If you have a business, website or publication and would like to be considered for inclusion in the RVM affiliate program, please Contact Us.

COPYRIGHT & MONITORING NOTICE: Rareview Macro LLC reserves all rights to the content of Sight Beyond Sight and related materials. The information provided in this newsletter is private, privileged, and confidential information, permitted for your sole individual use as a subscriber. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion of the publication or any release of specific investment recommendations, is strictly prohibited. RVM reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. To gain prior written consent, please Contact Us.

WARNING: Significant personal liability and criminal prosecution will occur if there is unauthorized disclosure of this publication. This material is sent to prospective and existing subscribers of RVM.

CANCELLATION NOTICE: Rareview Macro LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period and refund policy. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any RVM publication, any infringement or misappropriation of RVM's proprietary rights, or any other reason determined in the sole discretion of RVM.