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Kevin M. Wilson, PhD Chairman/CEO

Monthly Market Review “How to Play the New Asset Bubbles” (An Evaluation of Manias) November 21, 2013. Kevin M. Wilson, PhD Chairman/CEO. Ted A. Pavlovich, WMS President/Wealth Mgmt. Advisor. Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397 Email: info@bluewater-cap.com

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Kevin M. Wilson, PhD Chairman/CEO

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  1. Monthly Market Review • “How to Play the New Asset Bubbles” • (An Evaluation of Manias) November 21, 2013 Kevin M. Wilson, PhD Chairman/CEO Ted A. Pavlovich, WMS President/Wealth Mgmt. Advisor Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397 Email: info@bluewater-cap.com www.bluewatercapitaladvisors.com 1405 Medical Arts Building 324 W. Superior Street Duluth, MN 55802 1

  2. Introductionted a. pavlovich 2

  3. Announcementskevin m. wilson 3

  4. Blowing bubbles: the fed’s myopia KEVIN M. WILSON 4

  5. The Nasdaq & Housing Bubbles Were Created by The Fed Rates Too Low

  6. This Time We Hit The Zero Bound, So QE Was Used As Well Zero Bound QE (Bond Purchases) Expand Fed’s Balance Sheet

  7. Fed’s Actions Affected Markets, But Had Little Impact on Economy More Debt = Less GDP Growth Actual Results

  8. Fed Says We Can’t See Bubbles in Advance Somehow Not A Bubble (2013) Bubbles (2000,2007)

  9. NAVIGATING IN A BUBBLYSTOCK MARKET KEVIN M. WILSON 9

  10. Our Checklist For Calling The Top: Stocks Dropping 20% Exceed Stocks Making 52-Week Highs (NO) Market Peaks Minimum of 8 Months After First Rate Increase (NO) IPOs Reach A Maximum On 3-Month Rolling Basis (NO) Price/Book Ratio Of Spec. Co.’s Much Higher Than For Div. Payers (NO) Share Turnover Rate On NYSE Is Above 75% Over 3-Months (NO) Estimated S & P 500 Top May Be As High As 2325 (30% Higher) Or As Low As 1940 (8% Higher)

  11. Speculative Bubbles All Have The Same Causes (Part 1): 1) Easy Money 2) Explanatory Story 3) Irrational Exuberance Tulip Mania 1636 South Sea Land 1720

  12. Speculative Bubbles All Have The Same Causes (Part 2): 1) Easy Money 2) Explanatory Story 3) Irrational Exuberance 1929 Nikkei 1989, Nasdaq 2000, Shanghai 2007

  13. Bubble Psychology Is Somewhat Predictable Log Periodic Bubble Function

  14. Valuations Peaking? No One Rings A Bell At The Top, But You Can See It Coming Far in Advance Bear Market Syndrome Triggered Margin Debt Peaking?

  15. NAVIGATING IN A BUBBLY BOND MARKET TED A. PAVLOVICH 15

  16. Bond Yields (Prices) Set By Three Things: Fed Funds Rates QE Bond Buying Inflation Risk Rates Held Too Low For Too Long Inflation Subdued But Real Rates Rising

  17. End Of A 30-Yr. Bond Rally With All-Time Record High Prices (Low Yields) Record Low Yield For 10-Yr. Of 1.38% Reached 7/25/12

  18. Interest Rates Have Not Acted As Predicted By The Fed

  19. Fed’s Taper of QE May Threaten Bond Market Stability A Two-Percent Interest Rate Increase Will Double The Federal Debt Service

  20. RESOLVING THE INVESTOR’S DILEMMA TED A. PAVLOVICH 20

  21. 1) Costs Of QE And The Taper Caper

  22. Our Solution Is To Limit Risk; In Fact, We Would Rather Lose Half Of Our Clients, Than Lose Half Of Our Clients’ Money Tech Bubble’s Collapse Gave Back 5 Years of Gains in Just 2 Years; However, A Model Allocated According To Risk/Reward Fluctuations Ended Up Outperforming By A Wide Margin

  23. We’re Probably In An Equity Bubble Phase The S & P 500 Top May Possibly Be 8-30% Higher Corrections (Perhaps > 15%)Will Occur Along The Way The Bond Bubble Has Burst Already, So Handle With Care All Of The Above Assumes No Major Surprises Summary KEVIN M. WILSON 23

  24. q & a KEVIN M. WILSON TED A. PAVLOVICH 24

  25. Disclaimer This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security or commodity and is not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, for its accuracy and interpretation are not guaranteed. Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as an indication of guarantee of future performance and no representation, express or implied, is made regarding future performance. The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser regarding tax matters. “BWCA is a state registered investment adviser in all states in which it is required to be registered. All Blue Water Capital Advisors’ customer assets are held in the customer name with Fidelity Institutional Services, clearing through National Financial Services (NFS), Member SIPC, a Fidelity Investments Company as Qualified Custodian.” 25

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