Macro Strategy for March

March 8th, 2014
in contributors

Forward Markets Monthly Review

by Jim Welsh, with David Martin and Jim O'Donnell, Forward Markets

U.S. Economy

If you haven't experienced weeks of subzero temperatures accompanied by wind chill that drops the equivalent temperature to 20-40 degrees below zero, you simply can't fathom the impact. Listening to native Californians whine when the temperature fails to rise above 60 degrees in January or February doesn't elicit much empathy from those encased in the polar vortex. The extreme weather is not just limited to freezing temperatures. Chicago has been buried by almost three times their average snowfall of 24 inches, while Atlanta was brought to a standstill in early February by 2.6 inches of snow and ice.

Follow up:

As of February 12, more than 60%  of the lower 48 states were blanketed in snow. It was colder in Chicago in January than it was in the South Pole, and Anana, the lone polar bear at Chicago's Lincoln Park Zoo, had to stay indoors to keep warm. The temperature plunged to -42 degrees in Minnesota, which was colder than the Gale Crater on Mars, where NASA's robotic rover, Curiosity, is stationed. Students have enjoyed more snow days in 2014 than in the last 10 years combined. This unexpected delight may be forgotten if their school year is extended in June, when the sun is shining and the temperatures are worthy of shorts and beaches.

With so much of the country's densely populated sections experiencing such extreme weather, economic reports for January and February have been adversely affected. The chill coursing through a wide range of economic reports has increased concerns that the economy may be experiencing something worse than a weather-induced soft patch. As temperatures thaw and spring flowers bloom, a rebound and catch up in activity is likely to make the economy look stronger in March and April than it probably is. The challenge in the next few months is accepting that there is no way to know how much the awful weather is lowering activity in January and February, or how much normal weather will lift the data that comes in better than expected in April and May.

In navigating the data head fakes, we will continue to focus on wage and income growth as our North Star. Consumer spending represents almost 70% of gross domestic product (GDP) and consumers rely on income far more now than credit cards or withdrawals from home equity, which was a huge supplement to income during the housing boom. Since the financial crisis, more consumers have been paying down credit card debt and tighter bank lending standards have made it tougher for homeowners to borrow home equity even though home values have been rising.

According to the U.S. Department of Labor's (DOL) January employment report, average weekly earnings were up only 1.9% from January 2013. Although the headlines focused on the 113,000 jobs created in January (revised up in the latest report to 129,000) , which was far below the consensus estimate of 180,000, the more important data point remains to be the ongoing weak growth in workers' income.

The DOL also reported that only 262,000 workers said they couldn't get to work due to the weather in January, versus an average of 330,000 during the past 10 Januaries. This discrepancy between the inclement weather in January and the jobs report may be due to a window of less severe weather during the week the survey was taken in January. For instance, the DOL conducted February's employment survey during the week of February 10, which coincided with dreadful weather in much of the country. According to the National Climatic Data Center, average temperatures were 18 degrees lower in New England than a year earlier, 19 degrees lower in the Upper Midwest and 20 degrees lower in the Northern Rockies and the Plains. This will likely have a greater impact on February's employment report, which will be released on March 7.  (Editor's note: The March 7 report was surprisingly strong with a total non-farms payroll gain of 175,000.)

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While the official unemployment rate (U3), which includes individuals who have actively sought work within the past four weeks, dipped to 6.6% from 6.7% in December, the U6 rate was still 12.7%. The U6 rate includes those working part time but who are seeking full-time employment.

The average length of time someone is unemployed is more than 35 weeks. In every other recovery since World War II, the mean duration of unemployment never exceeded 21 weeks. Despite the modest improvement since 2011, the average duration of unemployment is still 60% higher than at any other time over the last 68 years.

One contributing factor may be a skills and education mismatch. Of the 155 million workers in the U.S., 50 million have a college degree or more, 73 million workers have a high school diploma and some college, and 11 million workers don't even have a high school diploma. The unemployment rate for those with a college degree is 3%, less than half the overall unemployment rate. The unemployment rate for workers with a high school education is 7.3% and it's 9.6% for those without a high school diploma.

With so many less educated workers chasing a limited number of new jobs, employers have little reason to increase wages for existing employees in lower paying sectors requiring low skill levels. As long as personal income and job growth do not materially improve, consumer demand is unlikely to strengthen.

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The Consumer Price Index (CPI) has increased 9.2% since the recovery started in June 2009, while median income has only increased by 4.5%, based on Census Bureau and DOL data. The net result is that inflation-adjusted median income has declined by 4.7% since the recovery started in June 2009.

Although overall food prices are up 9% since June 2009, egg prices have risen by 27% and milk is up 20%. While overall energy prices are up 18%, gasoline prices have increased 32%. Since most consumers eat food and drive a car, the CPI doesn't completely capture the impact from higher prices and how incomes have failed to keep up with the cost of living. This is why the current recovery feels hollow for many consumers and why the rebound in consumer confidence has been so anemic since June 2009.

The level of consumer confidence in February (78.1) remains at levels more consistent with a recession over the past 40 years than other post-World War II recoveries. A recent Rasmussen Reports poll found that 49% of those surveyed believe the economy is in recession. A new Gallup poll published on February 17 showed that 23% of Americans now consider unemployment as the country's greatest challenge. Only 63% of working-age Americans have a job or are looking for one, which means the participation rate is the lowest since 1978. Retiring baby boomers probably account for only 50-60% of the decline in the participation rate from 67% in the late 1990s.

In the July 2013 Macro Strategy Review (MSR), we reviewed all the factors that had contributed to the 19% rebound in existing home sales from 4.27 million at the end of 2010 to 5.09 million  in June 2013. We also discussed why the favorable more demand than supply imbalance that had been so supportive of the housing market since the end of 2010 was likely to weaken. Our analysis was timely since existing home sales peaked the next month at 5.39 million in August 2013 before slowing to 4.62 million in January.

In the last six months, the volume of existing homes sales has declined 14.28% and is only up 8.2% from the end of 2010. The slowdown in existing home sales since last August undermined median home prices, which fell 9.9% between August and January, with prices dropping from $209,700 to $188,900.

Despite the price weakness in the fourth quarter, existing median home prices were up 9.9% in 2013, according to the National Association of Realtors. New home sales fell 10.6% from a peak of 463,000 in October to 414,000 in December, a weak ending to 2013. However, new home sales were up 4.5% for the year. While the increase in new home sales in 2013 is a plus, existing home sales represented more than 90% of housing transactions in 2013 and they were down 0.61%.

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There are a number of headwinds that have caused housing activity to soften. Home prices in many markets rose far more than median income, which has priced some potential homebuyers out of the market. Mortgage rates are up about 1% from a year ago, which has lowered affordability.

The combined impact of higher home prices and mortgage rates has raised the monthly cost of buying a home by 20% from the beginning of 2013 in many housing markets around the country. Although mortgage lending standards have eased, they are still tight when compared to the almost nonexistent standards that fueled the 2002-2006 housing boom.

All of these factors have weighed on first-time homebuyers, which now make up 20% of new home purchases and 26% of existing homebuyers, versus a historical average of 40%. The amount of student loan debt is also making it tougher for some college graduates to save enough money for a down payment. According to the Federal Reserve Bank of New York, student loan debt increased 12% in 2013 to $1.08 trillion and has more than tripled over the last eight years. At the end of 2013, 11.5% of student loans had not received a payment in more than 90 days, up from 8.5% that were delinquent at the end  of 2011.

Historically, credit cards have had the highest delinquency rate, but the default rate on credit card debt has fallen from 13% at the beginning of 2011 to 9.5% in December 2013. Based on analysis by the Federal Reserve Bank of New York, prior to 2009 young adults with student loan debt were more likely to own a home and have a car loan than were people of the same age without student loans. This suggests those with student loans had received their degrees, had a job which paid more than those who didn't have a student loan and had higher credit scores. Now the opposite is true for  those with student loans. They are less likely to own a home or car, have lower credit scores and are more likely to be living with their parents. This suggests that the huge increase in student loans is in part driven by students who fund college with a student loan, but fail to get their degrees.

The housing boom and bust was the result of lax lending by banks and mortgage brokers who had little responsibility for enforcing lending standards and had no financial risk if the loans went bad, since the loans would be securitized and not held by the loan originator. The same pattern is evident in student loans and how they are distributed. Student loans are made by colleges that use no underwriting criteria and few limits on how much a student can borrow. Since the colleges have no financial risk if the loans go bad, their primary incentive is to create more revenue for the college by increasing the amount of student loans they provide. If the student is overburdened with debt or fails to obtain a degree, it doesn't matter to the college.

More than 37 million students have student loans and the average graduate in 2011 owed $26,600, according  to NBC News. If the 11.5% default rate holds in coming years, roughly 4 million former students will have ruined credit, will make it far more difficult for them to buy a home or even a car on credit. Less demand for housing and cars from the millions more struggling to pay student loans has the potential to impair economic growth for the next decade.

After Googling "number  of student loans," the second search result listed was displayed exactly as follows, "OBAMA LOAN Forgiveness - STUDENT Loan Forgiveness Programs." Since the federal government is behind 90% of all student loans, taxpayers are on the hook for any losses. Whereas the colleges that profited from originating so many loans aren't on the hook for a single penny.

In the July MSR, we noted that a number of factors had boosted vehicle sales by 7.6% to 15.6 million units in 2013. The average car price was $200 lower in 2013 from 2012 and leasing accounted for 26% of new vehicle purchases in 2013, up from 16-20% prior to 2008. Credit standards fell almost to 2007 levels, and deep subprime auto loans comprised 26% of new vehicle sales up from 24.8% in 2012.

Encouraged by strong sales, car manufacturers boosted production, which lifted manufacturing activity. In November, the Institute for Supply Management's (ISM) Manufacturing Index reached 57.3%, the highest level since spring 2011. Higher production also meant that car manufacturers were pushing dealers to accept more vehicle inventory, since Ford, General Motors (GM) and Chrysler record sales when vehicles are shipped to dealers. Dealers normally like to maintain a 60- to 80-day inventory relative to sales, but at the end of December, inventories for Ford dealers were 111 days and 114 for GM dealers, with Chrysler dealers holding 105 days of inventory.

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In the January MSR, we surmised that even if sales held up, automakers would likely lower production in coming months to bring inventories back to normal levels, probably resulting in a drop in the ISM Manufacturing Index. On February 3, the ISM reported that its manufacturing index fell from 56.5% in December to 51.3% in January. The new orders component recorded its steepest one-month decline since December 1980, falling 13.2 points to 51.2 points.

Although the ISM said weather did not play a role in the report's weakness, it is hard to believe that it didn't to some extent. Since car shopping in subzero weather and blizzards is not much fun, it was no surprise that vehicle sales fell 3% in January. Lower sales is only going to make the problem of bulging inventories worse, so you may find special sales events at a dealer near you in March or April. If sales don't rebound sufficiently after the weather moderates, the car manufacturers may have to cut production even more.

Excluding vehicle sales and gasoline purchases, retail sales fell 0.2% in January and December's tally was revised lower from a 0.6% gain to just 0.1%. Weather undoubtedly played a role here as well, but even accounting for the impact from weather, retail sales were not stunning in December and January. With potential shoppers choosing to shelter from subzero temperatures within the comfort of their own homes, online sales should have benefited. Surprisingly, online sales in January were actually down 0.5%, which hints that there is more at work than weather weighing on consumer spending.

According to research by economists Steven Fazzari of Washington University and Barry Cynamon of the Federal Reserve Bank of St. Louis, the middle class in America has been shrinking since the current recovery began. From 2009 through 2012, inflation- adjusted spending by the bottom 95% of income earners has increased by only 1%. In contrast, spending by the top 5% rose 17% and at the end of 2012 comprised 38% of domestic consumption, up from 28% in 1995. Between 2009 and the end of 2012, the top 5% of wage earners accounted for 92.9% of the increase in inflation-adjusted spending. It is likely this imbalance increased in 2013 given stock market gains last year.

The increase in spending by those with stock portfolios was one of the intended consequences of quantitative easing (QE). In a Washington Post op-ed piece, as the Federal Reserve was beginning the second phase of its quantitative easing program (QE2) in November 2010, Fed Chairman Ben Bernanke contended that higher stock prices would lift consumer spending and the overall economy. The Fed assumed that more spending would translate into stronger job creation and higher income for workers. Since November 1, 2010, the S&P 500 Index has zoomed from 1,184 to 1,840, a gain of more than 55%.

Unfortunately, average monthly job growth over the last three years has been mired under 200,000 new jobs per month and personal income is still growing less than 2%. The economic data paints a clear picture. Quantitative easing worsened the inequality in assets and income between the top 5% and everyone else, since it disproportionately benefited those with stock portfolios and more expensive homes.

With economic growth becoming more dependent on the spending habits of the top 5% of wage earners and asset holders, the economy could be vulnerable to more volatility. Should the stock market suffer a significant decline, the top 5% are likely to cut back on their spending, which could result in a sharp contraction in demand and potentially cause the next recession.

The federal budget and many state budgets are vulnerable to large swings in the stock market due to an increasing dependence on capital gains tax revenue. A review of federal government revenue trends released by the Congressional Budget Office in 2010 found that capital gains taxes accounted for an average of 9.2% of individual income tax revenue in fiscal years 1996 through 2009. However, the percentage varied significantly from year to year. In the dot- com bubble year of 2000, capital gains taxes represented 11.8% of individual tax revenue, but plunged as a result of the 2001-2003 bear market in stocks to 6.3% in 2003. In 2013, individual income taxes amounted to $1.5 trillion. A decline of 5% in capital gains taxes would represent a decline in federal tax revenue of $75 billion and make a federal budget deficit larger by $75 billion.

The same pattern has occurred in states with high capital gains tax rates, like New York and California. California's capital gains tax revenue, as a percentage of the state's general fund, plummeted from 12% in 2007 to just 3% in 2009. If a similar 9% decline occurs in the future, it could result in a $10 billion decline in capital gains tax revenue, contributing to a larger budget deficit.

Political spendthrifts at the federal and state level generally resort to higher taxes in addressing budget deficits since cuts in spending are normally not much of a vote generator. The federal and state budget deficit experiences in 2001-2003 and 2007-2009 were worsened by a large decline in capital gains tax revenue. These experiences exposed the problem of relying on such a volatile revenue source and provided a valuable lesson of what not to do if the goal is to fund government spending with stable tax revenue streams.

Curiously, the federal government last year, as well as some states, increased the capital gains tax to provide funding for expanded government programs. Congressional and state politicians effectively voted to increase the volatility in future tax revenue and larger budget deficits the next time the stock market suffers a bear market decline. Why would any politician choose to increase our dependency on a volatile revenue source to fund needed programs? A cynic would reply that prior experience indicates it simply provides politicians the cover to "solve" the next budget deficit problem by raising taxes on income or assets again.

Over the last three years, income growth has been about 2%, which has kept GDP growth tethered to a range of 2.0-2.5%. There is no evidence yet that the growth in jobs and personal income is about to accelerate. The savings rate fell from 5.1% in September to 3.9% in December, which was the lowest since April 2008. Consumers maintained their spending by dipping into their savings, especially during the last four months of 2013.

We expected a bit of slowing  in the economy during the first quarter, as production levels were lowered so excessive inventories could be reduced. The extreme weather in January and February lowered retail sales and likely increased bloated inventory levels further. Although better weather will likely result in a rebound in retail sales, the bounce may not meet expectations, unless income growth improves soon. If correct, production levels may need to be cut more in the second quarter than currently expected.

Many economists are still forecasting GDP growth to exceed 3% in 2014. Even if GDP growth does grow in excess of 3%, it won't mean much if it doesn't trickle down into more jobs and higher incomes. GDP grew faster in 2013 than in 2012, but job creation was slightly less in 2013 than in 2012 and income growth did not pick up. Real disposable income, which accounts for taxes and inflation, rose just 0.7% in 2013, the weakest growth since 2009.


Business activity effectively ground to a halt from January 29 through February 5, as China celebrated its Lunar New Year on January 31. In 2013, the Lunar New Year was February 10, so the celebration ran from February 7 through February 16. The timing of the New Year celebrations in 2013 and 2014 will make year-over-year comparisons a bit muddy. Since the HSBC's China Manufacturing Purchasing Managers' Index measures activity monthly, rather than yearly, it has more validity. The preliminary reading for February fell to a seven-month low of 48.3 from 49.5 in January. Readings below 50 indicate that manufacturing is contracting.

Any slowing in the Chinese economy is going to add stress to those Chinese corporations that are already overburdened with debt. According to JPMorgan Chase, corporate debt as a percent of GDP has soared from 92% in 2008 to 124% at the end of 2012. For each $1 in GDP between 2008 and 2012, Chinese corporations added $1.35 of debt to their balance sheets.

Corporate debt as a percent  of GDP in other emerging economies ranges between 40% and 70% of GDP, while U.S. corporate debt to GDP is 81%. The debt burden carried by Chinese corporations is becoming much heavier since interest rates have increased by more than 40% from the previous year's levels. In April 2013, AA-rated corporations paid 4.20% to borrow money for a year. As of February 21, AA-rated corporations had to pay 6.23%, an increase of 49.50% in interest expense on money borrowed for one year.

Chinese banks are also facing much higher costs in their funding. The state-owned China Development Bank was able to issue five-year bonds at 4.16% in January 2013. In early February, it was forced to pay 5.75% for its five-year bonds, an increase of 38.2% in funding costs. The Export-Import Bank of China saw its borrowing costs for three-year bonds rise from 3.62% in February 2013 to 5.44% in early February, an increase of 50.30%.

The high level of corporate indebtedness and the profit margin squeeze from higher interest expenses are likely to result in less corporate spending and investment in coming quarters. As we said last month, by the end of 2014, the discussion may center on whether China's GDP growth will drop below 7%. Financial markets won't find much comfort in that conversation.

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Wealth management products (WMP), which play a significant  role in China's shadow banking system, are experiencing a liquidity squeeze that is likely to result in a default sooner or later. According to Nomura Securities, sales of WMP were down 50% in January from January 2012. The rising awareness that WMPs are risky and may not return an investor's principal is why sales are slumping.

With more than $620 billion of the $1.8 trillion in outstanding loans coming due in 2014, this is a ticking time bomb. Since 2012, more than 20 wealth management trust products valued at more than $3.9 billion have experienced payment issues, according to UBS. On January 31, a $500 million WMP yielding 11.5% avoided default when a mysterious third party agreed to pay off the principal, but provided a much lower interest rate return for the last two years. This has the potential, depending on the size of a default, to be  a mini-Lehman moment for the Chinese banking system, unless a mysterious third party appears from the shadows every time a WMP default looms.

Over the last five years Chinese corporations have been taking on debt 35% faster than GDP growth, which is simply unsustainable. With borrowing costs rising 40-50% for many banks and corporations, the day of reckoning is approaching. Before the end of 2015, if not sooner, it is likely that a host of Chinese corporations are going to miss an interest payment to investors in a WMP or to  a bank.

When this occurs, borrowing costs will increase further, as investors attempt to discern which companies are likely to be the next domino to fall and which banks have the most exposure to the most troubled sectors. As liquidity is withdrawn from weak banks, a liquidity crisis could develop.

Needless to say, should anything close to this scenario begin to play out, the global financial markets will shudder.


We have remained constructive about the stock market since momentum has been strong and the S&P 500 has continued to make higher highs and higher lows, which is the technical definition of a bull market. At the recent high in mid-January, our proprietary Major Trend Indicator (MTI) suggested that corrections were likely to be in the 4-7% range.

The late January correction in the S&P 500 was 6.1%, but the S&P 500 did undercut a prior low when it fell below the December low of 1,768 during the correction. The break of a prior low suggests the foundation of the market's advance since the low last June has developed a "crack." The last time the S&P 500 broke below a prior low was just before the 21.6% correction between May and October 2011, as the downgrade of U.S. debt and the debt-ceiling impasse in Congress caused a sharp increase in selling pressure. Unfortunately, it is not the only sign of weakening.

Between January 14 and February 4, as the S&P 500 was correcting -6.1%, the five-day average of total NYSE volume rose from 680 million shares to 834 million shares, an increase of 22.6%. From the low on February 5 through February 24, the five-day average of total volume fell from 834 million shares to 720 million shares, a decline of 13.7%. This is not a healthy sign, especially since the S&P 500 recorded a new all-time high on February 24. This indicates that the S&P 500 rallied to a new high, not on the back of stronger buying pressure, but due to a lack of selling pressure.

As of February 25, the MTI is also displaying a loss of upside momentum, even though the S&P 500 rallied to a new high. After peaking in May 2013, the MTI has continued to make lower peaks and has so far failed to show sufficient strength to confirm the recent rally. Historically, a failed rally in the MTI sets the market  up for a larger decline, if selling pressure increases.

This is the first time since July 2011 that the MTI has experienced a failed rally. Should the MTI fall below the recent low in early February and last September, the odds of a larger correction would increase. In analyzing the chart of the S&P 500, the rally from the June low last year may be completing a five-wave pattern as illustrated. If this pattern analysis is correct, the S&P 500 may be near the beginning of a correction that would likely retrace 38.2-50.0% of the 300-point rally from last June, potentially testing the 200- day average near 1,724.

When the S&P 500 made a new high on February 24, a number of major averages did not make a new high. Unless these averages make new highs in coming weeks, it would suggest that the market was becoming fragmented, which is often seen just prior to corrections. The 89-day average of the Volatility Index (VIX) reached 13.87 last May, which was the lowest level in 2013. In January, the 89-day average of the VIX dropped to 13.80, which looks like a potential double bottom. The highs last year in the 89-day average of the VIX were 15.26 in July and 15.24 in October. A move above 15.26 in the VIX moving average would be an upside breakout and suggest that a period of higher volatility and lower stock prices was likely to ensue.

The first sign of trouble will be indicated if the S&P 500 closes below 1,824 and more so if it closes below 1,800.

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In January, we thought the 10-year Treasury yield might rise to  near 3.15-3.20%, before falling to 2.5-2.7%. The yield on the 10-year Treasury bond peaked at 3.04% and then fell to 2.72% on January 27. In the February letter (written on January 21) we wrote, "If the S&P 500 falls below 1,765, the 10-year yield could dip to 2.46% to 2.63%." On February 3, the S&P 500 broke below 1,765 and the 10-year Treasury yield bottomed at 2.58%. On February 25, as this is being written, the 10-year Treasury yield is 2.70%. Although the 10-year Treasury yield might rise to 2.86% in coming days, it is likely to fall below 2.58% and approach 2.46%, before any sustained rise in yield occurs.

Definition of Terms

10-year Treasury is a debt obligation issued by the U.S. Treasury that has a term of more than one year, but not more than 10 years.

AA is a Standard & Poor's long-term credit rating that reflects a bond issuer's financial strength, or its ability to meet its financial commitments in a timely fashion. AA is given when an issuer's capacity to meet its long- term debt obligations is very strong.

China Manufacturing Purchasing Managers' Index measures economic health within the manufacturing industry and its operating conditions in China. It consists of monthly surveys completed by purchasing professionals of approximately 420 manufacturing companies.

Consumer Price Index (CPI) is an index number measuring the average price of consumer goods and services purchased by households. The percent change in the CPI is a measure of inflation.

Gross domestic product (GDP) is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. The GDP of a country is one of the ways of measuring the size of its economy.

The Institute of Supply Management (ISM) Manufacturing Index is a monthly index that tracks the amount of manufacturing activity that occurred in the previous month. This data is considered a very important and trusted economic measure.

Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset's price.

Quantitative easing (QE) refers to a form of monetary policy used to stimulate an economy where interest rates are either at, or close to, zero.

S&P 500 Index is an unmanaged index of 500 common stocks chosen to reflect the industries in the U.S. economy.

VIX (the ticker symbol for the Chicago Board Options Exchange Volatility) Index is a popular measure of the implied volatility of S&P 500 Index options.

Volatility is a statistical measure of the dispersion of returns for a given security or market index.

Note:  One cannot invest directly in an index.


Investing involves risk, including possible loss of principal. The value of any financial instruments or markets mentioned herein can fall as well as rise. Past performance does not guarantee future results.

This material is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product, or as an offer or solicitation with respect to the purchase or sale of any investment. Statistics, prices, estimates, forward-looking statements, and other information contained herein have been obtained from sources believed to be reliable, but no guarantee is given as to their accuracy or completeness. All expressions of opinion are subject to change without notice.

The new direction of investing

The world has changed, leading investors to seek new strategies that better fit an evolving global climate. Forward's investment solutions are built around the outcomes we believe investors need to be pursuing-non-correlated return, investment income, global exposure and diversification. With a propensity for unbounded thinking, we focus especially on developing innovative alternative strategies that may help investors build all-weather portfolios. An independent, privately held firm founded in 1998, Forward (Forward Management, LLC) is the advisor to the Forward Funds. As of December 31, 2013, we manage $5.2 billion in a diverse product set offered to individual investors, financial advisors and institutions.

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