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Macro: SP 500 November 30, 2017

We believe that the chief determinant of future total returns is the relative valuation of the index at the time of purchase. We measure
valuation using the Price/Peak Earnings multiple as advocated by Dr. John Hussman. We believe the main benefit of using peak
earnings is the inherent conservatism it affords: not subject to analyst estimates, not subject to the short-term ebbs and flows of
business, and not subject to short-term accounting distortions. Annualized total returns can be calculated over a horizon period for
given scenarios of multiple expansion or contraction.

Our analysis highlights expansion/contraction to the minimum, mean, average, and maximum multiples (our data-set begins in January
1900) . The baseline assumptions for nominal growth and horizon period are 6% and 10 years, respectively. We also provide graphical
analysis of how predicted returns compare to actual returns historically.

We provide sensitivity analysis to our baseline assumptions. The first sensitivity table, ceterus paribus, shows how future returns are
impacted by changing the horizon period. The second sensitivity table, ceterus paribus, shows how future returns are impacted by
changing the growth assumption.

We also include the following information: duration, over(under)-valuation, inflation adjusted price/10-year real earnings, dividend
yield, option-implied volatility, skew, realized volatility, historical relationships between inflation and p/e multiples, and historical
relationship between p/e multiples and realized returns.

Our analysis is not intended to forecast the short-term direction of the SP500 Index. The purpose of our analysis is to identify the
relative valuation and inherent risk offered by the index currently.

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Predicted Returns November 30, 2017
SP 500 Valuation Model: Peak Earnings
Predicted 10-Year Annual Return v Realized
March 1957- Current, Monthly Observations
30.00 30.00

25.00 25.00

20.00 20.00

15.00 15.00

10.00 10.00

5.00 5.00

0.00 0.00

(5.00) (5.00)

(10.00) (10.00)

Predicted 10-Y Annual Return (Maximum Price/Peak Earnings) Predicted 10-Y Annual Return (Average Price/Peak Earnings)
Predicted 10-Y Annual Return (Median Price/Peak Earnings) Predicted 10-Y Annual Return (Minimum Price/Peak Earnings)
Actual Annual Return (RHS)

As of 11/30/2017: If current Price/Peak Earnings of 23.6 expands or contracts to:

Maximum Price/Peak Earnings of 33.5, Predicted Return = 11.32%, Capital Gain 9.77% Dividend 1.55%
Minimum Price/Peak Earnings of 3.0, Predicted Return = -5.71%, Capital Gain -13.87% Dividend 8.16%
Average Price/Peak Earnings of 12.6 Predicted Return = 2.19%, Capital Gain -0.42% Dividend 2.61%
Median Price/Peak Earnings of 12.1, Predicted Return = 1.87%, Capital Gain -0.81% Dividend 2.68%

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Predicted Returns: Sensitivity Analysis November 30, 2017

Price / Peak Earnings


Time Horizon 3.0 7.0 9.0 11.0 12.1 12.6 14.0 16.0 18.0 21.0 23.0 25.0 27.0 29.0 31.0 33.5
10 (5.71) (2.15) (0.45) 1.07 1.83 2.14 3.05 4.21 5.27 6.70 7.57 8.38 9.14 9.86 10.53 11.32
9 (7.67) (3.41) (1.47) 0.24 1.10 1.45 2.47 3.77 4.96 6.57 7.54 8.45 9.30 10.11 10.87 11.75
8 (10.06) (4.96) (2.74) (0.78) 0.19 0.59 1.75 3.23 4.57 6.40 7.50 8.54 9.50 10.42 11.28 12.28
7 (13.04) (6.92) (4.34) (2.09) (0.97) (0.51) 0.83 2.53 4.08 6.18 7.46 8.65 9.76 10.82 11.82 12.98
6 (16.84) (9.46) (6.44) (3.80) (2.49) (1.95) (0.39) 1.60 3.43 5.89 7.39 8.79 10.11 11.36 12.53 13.91
5 (21.85) (12.89) (9.29) (6.14) (4.57) (3.94) (2.07) 0.33 2.52 5.49 7.30 9.00 10.60 12.11 13.55 15.22
4 (28.75) (17.79) (13.40) (9.55) (7.62) (6.84) (4.53) (1.56) 1.16 4.89 7.17 9.31 11.34 13.26 15.09 17.23
3 (38.77) (25.33) (19.83) (14.95) (12.48) (11.47) (8.49) (4.62) (1.05) 3.89 6.94 9.83 12.57 15.19 17.70 20.64
2 (54.29) (38.29) (31.24) (24.77) (21.42) (20.04) (15.91) (10.46) (5.32) 1.93 6.49 10.87 15.09 19.16 23.10 27.78
1 (78.54) (64.58) (56.28) (47.73) (42.97) (40.94) (34.67) (25.88) (17.04) (3.73) 5.16 14.07 22.99 31.92 40.86 51.88

Price / Peak Earnings


Growth Rate 3.0 7.0 9.0 11.0 12.1 12.6 14.0 16.0 18.0 21.0 23.0 25.0 27.0 29.0 31.0 33.5
0.06 (5.71) (2.15) (0.45) 1.07 1.83 2.14 3.05 4.21 5.27 6.70 7.57 8.38 9.14 9.86 10.53 11.32
0.05 (6.52) (3.04) (1.35) 0.15 0.90 1.20 2.10 3.25 4.30 5.71 6.57 7.38 8.13 8.84 9.51 10.28
0.04 (7.33) (3.92) (2.26) (0.78) (0.04) 0.27 1.15 2.29 3.32 4.73 5.58 6.37 7.12 7.82 8.48 9.25
0.03 (8.15) (4.81) (3.17) (1.71) (0.97) (0.67) 0.20 1.33 2.35 3.74 4.58 5.36 6.10 6.80 7.45 8.21
0.02 (8.96) (5.70) (4.08) (2.63) (1.91) (1.61) (0.75) 0.36 1.38 2.75 3.58 4.36 5.09 5.77 6.42 7.18
0.01 (9.77) (6.58) (4.99) (3.56) (2.84) (2.55) (1.69) (0.60) 0.40 1.76 2.58 3.35 4.07 4.75 5.40 6.14

Valuation Date 11/30/2017


Current Price / Peak Earnings 23.6
Growth Rate 0.06
Time Horizon (Years) 10
Current Dividend Yield 0.0182

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Price to Peak Earnings November 30, 2017
SP 500 Valuation Model
Price / Peak Earnings
March 1957- Current, Monthly Observations
40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

As of 11/30/2017: Price/Peak Earnings 23.6


To get at the significance of the P/E, you have to start by understanding that stocks are not a claim to earnings anyway. Stocks are a claim to a future stream of
free cash flows the cash that can actually be delivered to shareholders over time after all other obligations have been satisfied, including the provision for future
growth. Knowing this already tells us a lot. For example, price/earnings ratios based on operating earnings are inherently misleading, since that earnings figure
does not deduct interest owed to bondholders nor taxes owed to the government. This isn't to say that P/E ratios are useless, but it's important for the E
chosen by an investor to have a reasonably stable relationship to what matters, which is the long-term stream of free cash flows. For that reason, our favored
earnings measure for market valuation (though it can't be used for individual stocks) is peak earnings - the highest level of net earnings achieved to date.
(Excerpted from Dr. John Hussman)

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Duration November 30, 2017
SP 500 Valuation Model
Duration In Years (Price / Dividend)
March 1957- Current, Monthly Observations
100.0

90.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

As of 11/30/2017: Duration 55.0 years


In the case of equities, duration measures the percentage change in stock prices in response to a 1% change in the long-term return that stocks are priced to deliver.
So we have a basic financial planning concept. If a buy-and-hold investor with no particular view about market conditions or future returns wishes to have a fairly
predictable amount of wealth at some future date, that investor should hold a portfolio with a duration that is roughly equal to the investment horizon. (Excerpted
from Dr. John Hussman)

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Valuation November 30, 2017

SP 500 Valuation Model


Relative to 10% Annual Total Return over 10-Year Horizon
March 1957- Current, Monthly Observations
225.000 (5.00)
A
c
200.000 t
u
175.000 a
O
v 0.00 l
e 150.000
r A
(

U n
Y
n P 125.000 n
e
e u
d 5.00 a
r 100.000 a
e r
c l
r
e
)

75.000 H
n
R
V t o
e
a a 50.000 r
10.00 t
l g i
u
u e z
25.000 r
a o
n
t n
i 0.000
O
o 15.00 v
n (25.000) e
r
(50.000)
1
0
(75.000) 20.00
-

Percentage Over(Under) Valued Actual Annual Return

As of 11/30/2017: Overvalued by 108.8%

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Inflation Adjusted PE November 30, 2017
SP500 Valuation Model
Real Price to 10-Year Real Earnings
March 1957- Current, Monthly Observations
50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

As of 11/30/2017: Real Price to 10-Year Real Earnings 31.9x

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Dividend Yield November 30, 2017
SP 500 Valuation Model
Dividend Yield
March 1957- Current, Monthly Observations
7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%

As of 11/30/2017: Dividend Yield 1.82%

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Option Implied Volatility November 30, 2017

CBOE VIX Index


10-Day Exponential Moving Average
75.00

11/21/2008, 69.34

65.00

55.00

45.00
10/4/2011, 40.28
10/10/2002, 39.17

35.00

9/2/2015, 26.83

25.00

15.00

7/7/2014, 11.17 11/30/2017, 10.56


2/23/2007, 10.39

5.00

VIX measures 30-day expected volatility of the S&P 500 Index. The components of VIX are near- and next-term put and call
options, usually in the first and second SPX contract months. Near-term options must have at least one week to expiration; a
requirement intended to minimize pricing anomalies that might occur close to expiration.

As of 11/30/2017: 10-Day EMA 10.56

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Option Skew November 30, 2017

CBOE Skew Index


10-Day Exponential Moving Average
150.00
3/20/2017, 146.57

145.00 6/28/2016, 141.16

1/15/2016, 140.07

140.00 7/14/2014, 137.31

135.00

8/29/2005, 131.14 2/18/2011, 131.07

130.00

125.00

120.00

115.00

11/30/2017, 129.94

110.00

105.00

100.00

The CBOE SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk. The price of S&P 500 tail risk is calculated
from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that
the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW
rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become
more significant.

As of 11/30/2017: 10-Day EMA 129.94

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Realized Volatility November 30, 2017
SP500 Valuation Model
Annualized Volatility
March 1957- Current, Monthly Observations
30.00

25.00

20.00

15.00

10.00

5.00

0.00

As of 11/30/2017: 5.04%

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Inflation and PE Multiples November 30, 2017

Price to Peak Earnings v %Y/Y CPI


40.00

35.00
P
r
i
c 30.00
e

t
o 25.00

P
e
20.00
a
k

E 15.00
a
r
n
i 10.00
n
g
s
5.00

0.00
(4.00) (2.00) 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00
%Y/Y CPI

1970s 1980s 1990s 2000s 2010s

Lower levels of inflation are rewarded with higher earnings multiples.


Higher levels of inflation are punished with lower earnings multiples.

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


Inflation and PE Multiples November 30, 2017
Price to Peak Earnings v Volatility of %Y/Y CPI
40.00

35.00
P
r
i
c 30.00
e

t
o 25.00

P
e
20.00
a
k

E 15.00
a
r
n
i 10.00
n
g
s
5.00

0.00
0.00 0.50 1.00 1.50 2.00 2.50 3.00
1Y StDev %Y/Y CPI

1970s 1980s 1990s 2000s 2010s

Lower levels of volatility are rewarded with higher earnings multiples.


Higher levels of volatility are punished with lower earnings multiples.

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919


PE Multiples and Realized Returns November 30, 2017

Realized Returns v Valuation


20.0

R 15.0
e
a
l
i
z A
n
e 10.0
n
d
u
a
1 l
0
i
Y
z
5.0
e
R d
e
t
u
r
n 0.0

(5.0)
5.00 10.00 15.00 20.00 25.00 30.00 35.00
Price to Peak Earnings

1970s 1980s 1990s 2000s

Lower valuations are rewarded with higher realized returns.


Higher valuations are punished with lower realized returns.
As of 11/30/2017: Price to Peak Earnings 23.6x Average: 12.6x

GTA 2017 j.brett.freeze@globaltechnicalanalysis.com 704.408.3919