LOS ANGELES | BOSTON | LONDON | PARIS

“2017 Annual U.S.

Economic Health

Check Up”

Florida Court Clerks &

Comptrollers

2017 Winter Conference

PAYDEN.COM

Independence Payden & Rygel remains 100% owned by 21 employees active in the day-to-day management of

the firm. There have been no changes in the Investment Policy Committee or the Board of Directors

Average tenure of the Shareholders is about 17 years. Average industry experience is 25+ years.

Resources No outsourcing of any business function (portfolio management, settlements, reporting, I.T.)

Significant spending on I.T. upgrades to software and hardware.

Personnel 180 Employees worldwide.

Financial Stability Solid asset growth.

Increasing revenue base coming from East Coast and outside the US

Locations Los Angeles – Headquarters: 152 people

Boston – Client service: 8 people

London – Client service, research and trading: 20 people

Assets under management: $106.0 billion as of 12/31/16.

Overview

Investment Management

LOS ANGELES | BOSTON | LONDON | PARIS

PAYDEN.COM

A Holiday Gift Caused Consternation…Over My Health

The

Withings

Scale

Features

Weight

Pulse/HR

Body Composition

Water %

Body Pulse

PAYDEN.COM

PROBLEM: Lots of “Noise” in My Weight Data, Not Much Signal

DAY 1 - Weight

DAY 2

DAY 3

DAY 4

PAYDEN.COM

LESSONS:

1) Look at my weight, but take averages trend is key

2) Many “indicators” to follow, but

measurement accuracy is suspect, no perfect indicators

3) No definitive evidence in real-time takes time to develop best guess

PAYDEN.COM

DISCLAIMER: The Limits of Financial Market Economists

Things

people want

to know

about

Things

financial

market

economistsknow about

Contents

3

Jobs

Inflation

Economic Growth

Interest Rates

I

II

III

IV

Contents

3

Jobs

Inflation

Economic Growth

Interest Rates

I

II

III

IV

PAYDEN.COM

There Are Many Indicators of the Labor Market Which We Could Evaluate…

-4% 0% 4% 7% 11% 15% 18% 22%

Mining and logging

Manufacturing

State Government

Information Services

Federal Government

Arts, Entertainment, and Recreation

Other Services

Educational Services

Local Government

Construction

Financial Activities

Administrative and Waste

Professional and Technical Services

Accommodation and Food

Trade, Transportation and Utilities

Health Care and Social Assistance

% Change in Employment in the Last 12 Months

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Wage Growth%YoY

60

61

62

63

64

65

66

67

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Labor Force Participation Rate%

000s

-1000

-800

-600

-400

-200

0

200

400

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Monthly Nonfarm Payrolls

Source: Bureau of Labor Statistics

PAYDEN.COM

The Signal: We Use a 6 Month Moving Average of Nonfarm Payrolls. Steady Growth for Six Years

-1000

-800

-600

-400

-200

0

200

400

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

6 Month Moving Average of Nonfarm Payroll Growth

Source: Bureau of Labor Statistics

000s

Actual Job Growth Is In This Range – 125-225K

Contents

3

Jobs

Inflation

Economic Growth

Interest Rates

I

II

III

IV

PAYDEN.COM

Here’s the Problem With Consumer Prices: They Jump Around A Lot!

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Energy Prices

-2

-1

0

1

2

3

4

5

6

7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Food Prices

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Housing Prices

Source: Bureau of Labor Statistics

-8

-6

-4

-2

0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Goods Prices

%YoY %YoY

%YoY %YoY

PAYDEN.COM

Here is the Signal: Take a Median, It Smooths the Data

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cleveland Federal Reserve Bank’s Median CPI

Source: Federal Reserve Bank of Cleveland

% YoY

Actual Inflation Is Somewhere in this Range, 2-2.5%

Contents

3

Jobs

Inflation

Economic Growth

Interest RatesIV

PAYDEN.COM

Measures of Growth Are Even More Confusing: The Four Components of GDP Send Mixed Signals

-6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Consumer Spending

-40

-20

0

20

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Investment

-90

-60

-30

0

30

60

90

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Exports

Source: Bureau of Economic Analysis

%QoQ Ann.

-9

-6

-3

0

3

6

9

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Government Spending

%QoQ Ann. %QoQ Ann.

%QoQ Ann.

?

PAYDEN.COM

Luckily for Us, Consumer Spending Accounts for ~70% of Total GDP. If We Know Where That is Headed, We Have Good Bead on the Economy

-5

-4

-3

-2

-1

0

1

2

3

4

5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GDP and Consumer Spending % Change Year-Over-Year

Source: Bureau of Economic Analysis

% YoY

Consumer spending leads overall growth

PAYDEN.COM

The End Is Near! The End Is Near!

16

PAYDEN.COM ”

The End Is Near! The End Is Near! 2017 Economics Edition

17

“A rate CUT is more likely than

a rate hike.”

“Recessions often follow elections.”

“The business cycle is

in the ninth inning.”

“

PAYDEN.COM

Do Economic Expansions Die of Old Age? The Historical Evidence Suggests Otherwise.

18

Number of Months During an Economic Expansion

91

176

193

199

235

299

50 100 150 200 250 300

U.S. (2009 -Present)

Sweden (1993 -2008)

Britain (1991 -2008)

France (1975 -1992)

Canada (1961 -1981)

Australia (1991- Present)

Number of Months of ExpansionSource: Deutsche Bank, Haver Analytics

Contents

3

Jobs

Inflation

Economic Growth

Interest Rates

i

ii

iii

IV

PAYDEN.COM

US ECONOMIC HEALTH CHECK UP

Indicator Forecast 2017

Economic Growth +2.0%

Inflation 2.0-2.5%

Employment in 2017 2 million more jobs

Federal Funds Rate By Year End 1-1.25% (2 “rate hikes”)

PAYDEN.COM

Trump Is NOT Unequivocally Good For Business or Growth: The Good, The Bad, The Ugly

GDP+

GDP-

Inflation+Inflation-

Personal Income Tax Cut

Corp Tax Cut

Infrastructure Stimulus

Immigration

Restrictions

Import Tax/Anti-

NAFTA Policies

Deregulation Of Labor &

Product Markets

The Fed Tightens Faster

Fed Ceases Reinvestment,

Reduces Balance Sheet

Source: Payden Economics

Trump Policies Plotted According to Their Estimated Effect on Inflation and GDP

PAYDEN.COM

Ignore The Noise, Look at the Signals

=

PAYDEN.COM

LESSONS:

1) Look at trends over time, not single

months or quarters

2) There are NO perfect measures

Understand key metrics

Don’t track all indicators

3) NO definitive evidence in real-time

PAYDEN.COM

OUR QUARTERLY PUBLICATION: A LIFETIME SUBSCIPTION (FOR FREE)!

24