1 www.riskdimensions.org ph. 646.397.4218

F e a t u r e s

Asset Class overview pgs 2 thru 3

Equity – Sell-off is retrenchment and NOT reversal of uptrend.

Credit – HY and EU peripheral sovereign widening creates good entry point relative to Equity

Rates – 10Y trades close to top of our 1.50% - 2.50% band.

Currencies – Rate concerns trump credit allowing EUR to appreciate.

Commodities – AUD$ guilty by association as slow-growth contagion spreads.

Weekly Highlight pg 4 Regional Risk – See the inaugural launch of our Regional Risk Heat Map.

DataBank pg 5

View price/ spread movements and across Global markets.

Risk Heat Map pgs 6 thru 7

Market Risk Alert (MRA) increases to 2, from 1, on scale of 1 (low) to 5 (high)

Asset Allocation Model pg 8

Relationships Matter Chill in Rates is Potential Freeze for Housing & Banks.

In Jamie Dimon’s world, people are viewed through an accountant’s lens as either a debtor or creditor. As such, it is rumored that the lynchpin to his management success rests in the breast pocket of his jacket.

The tool is a single index card which lists the names of people who fall into one of two groups; people he owes and people who owe him. This simple management tool belies the importance Jamie places on process and relationships. Processes that helped him navigate through the 2008 credit crisis and relationships that just recently helped him retain his dual roles as Chairman and CEO. However, as last year’s record loss at the London Chief Investment Office demonstrated, balance sheets can become fouled rather quickly as processes fail and relationships disappoint. Suffice it to say that Mr. Dimon did not expect a risk-mitigating function to produce a $6 billion loss as the trader in the Chief Investment Office

did not perform to expectation. Fortunate for Mr. Dimon and others in the banking world, one relationship that has performed to expectation and to their benefit is the inverse relationship between mortgage

rates and housing prices. As QE drilled treasury and mortgage rates lower in 2013, the resultant increase in housing starts and home prices buttressed both corporate and consumer balance sheets. However, the recent back-up in the 10Y UST goes a long way to unwind this virtuous cycle as the +62BPs

increase in the UST 10Y pushed 30Y mortgage rates over 100BPs higher. With $10Trillion in residential mortgage debt on bank balance sheets in various forms of distress, Mr. Dimon and others may want to sharpen their pencils when examining the relationships among rising rates, housing prices and bank capital. (Full analysis available on client site)

Global Markets Monthly

A risk dimensions publication June 14th 2013

Edition 1, Vol. 26

Mark R. Connors 646-397-4218

mark@riskdimensions.org

“However, the recent back-up in the 10Y UST goes a long way to unwind this virtuous cycle [of lower rates and rising housing prices].”

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

Returns by Asset Class (Global)

6/14/2013

Global Equity Indices (loc)

Global Credit (loc)

Global Rates 10Yr Govt's. (loc)

Commodities (USD)

Currencies

6/14/2013

-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%

DXY EUR AUD GBP JPY EURCHF

5D 21D 63D

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

DXY EUR AUD GBP JPY EURCHF

YTD

YTD

-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%

S&P 500 (US) Euro STOXX HANG SENG(CH)

DAX (GDR) FTSE (UK) IBEX (SPA) FTSE (ITA)

5D 21D 63D

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

S&P 500 (US) DAX (GDR) FTSE (UK) IBEX (SPA) FTSE (ITA) HANG SENG(CH)

YTD (loc)

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Gold SILV OIL Corn

5D 21D 63D

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%Gold SILV OIL Corn

YTD

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

US Germany Italy UK Switzerland Japan

5D 21D 63D

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

US Germany Italy UK Switzerland Japan

YTD (loc)

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

CDX.IG CDX.HY Bk Loans ITRX_XOVR

5D 21D 63D

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CDX.IG CDX.HY Bk Loans ITRX_XOVR

YTD (loc)

15.2%

5.3%

-1.8%

-17.3%

1.2%

6.0%3.4%

-0.7%

-11.8%

1.1%

-20%

-10%

0%

10%

20%

Equity Credit (HY) Rates COMDTY (MTLS/AG) Currencies (DXY/EUR

YTD TRR (loc)US EUR

Returns Across Global Assets

Equities * Credit* Rates * Currencies * Commodities

2 June 2013

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

Equity U.S. Equity outperformance (-0.8%) vs. EU-core/peripheral (-3%)/ (-7%) and to a lesser extent Japan (-5.57%) since the May 22nd peak was expected (May 17th 2013 GMM). YTD returns for Spanish and Italian bourses were wiped out over the past month as the market distinguished between the solid European core and the indebted periphery. Inextricably linked by a common currency and likewise polarized by differing fiscal concerns, we expect this differentiation will continue - leading to bouts of ECB intervention and periods of broader market volatility.

Conclusion: Overweight U.S. Equities as EU economic/ structural and EM currency concerns remain.

Credit Global spread product widened based on historical BETA with little/no impact attributed to region or segment. We view this as an indication of the remaining institutional bid for spread product based on the conviction that Central Bank Involvement will reduce tail risk – but may not spur growth/inflation in the near-term. Rates It’s All about rates…unless it becomes All about currencies – something we pray does not come to pass. Clear to any new home buyer was the 1% rise in mortgage rates over the past month as the U.S. 10Y rose just 60BPs on talks of QE tapering. Spread product and equity markets likewise backed-up as near term growth concerns swamped the longer term benefits from of a market decoupled from a dominant FED. Currency Historical definition: Currency – n. 1. A medium of exchange. 2. n. A store of value. Current Definition: Currency – n. 1. A medium term solution to trade imbalances. 2. n. A tool to stoke the flames of war Apparently Mr. El-Erian of PIMCO took issue with the term “currency war” recently while engaging colleagues during a conference, opting instead for “currency tensions”. Some feel it is appropriate that the New Normal has a new lexicon, and cut Mohamed some professional slack on this apparent politique quip. We actually go a step further and validate his distinction and believe it follows our thesis of tribalism as coordinated currency debasement gives rise to tensions prior to the breakout of war. Discussion around accusations of FX rate fixing by banks will be fodder for another post.

Commodities Price risk remains in precious metals – silver in particular as AU/AG ratio likely to test 72/75 from current 63 level. We re-iterate last week’s post on PM: We suggest staying away from precious metals as markets digest a low growth/ potentially deflationary outlook amid the pressing need for cash flow. Look to Gold/Silver ratio for market insight – a move to 65 is bearish for equities. Oil bucked the trend in commodities as escalation of the tensions (there’s that work again) in Syria stoked supply concerns. We do not yet have an edge to share on how to play this obvious outperformance.

Asset Class Overview

Equities * Credit * Rates * Currencies * Commodities

3 June 2013

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

6/14/2013US

Euro-Zone (17) PIIGS EU (27) Asia (Dev'lpd)

Markets Bank CDS/ Equity Index Px

15% 30% 30% 42% 41%

Risk ReversalCorrel level &

2D Chg 14% 39% 60% 49% 56%

USEuro-Zone

(17) PIIGS EU (27) Asia (Dev'lpd)

Risk (1Y Spread Dist) 23% 32% 27% 57% 38%2D Chg (1Y Dist) 40% 43% 53% 42% 15%Risk (1Y Px Dist) 6% 27% 32% 28% 44%2D Chg (1Y Dist) 27% 74% 67% 56% 97%

US Germany Italy UK

Px Risk (1Y Dist) 1% 15.6% 28% 70%Px Risk (5Y Distr) 9% 14.9% 65% 20%2D Chg (1Y Dist) 2% 45% 86% 39%2D Chg (5Y Dist) 2% 40% 79% 28%

Regional View of Currrent Risk Premia & Potential Risk Reversal

Cross Mkt Correlations

Bank CDS

Equity Mkts

Sum

mar

yM

arke

tsRi

sk

Reve

rsal

-70%-60%-50%-40%-30%-20%-10%

0%10%20%30%40%

US Germany Italy UK

T-5 T-2 TodayTrend in X-Mkt Correlations

Regional Risk

Equities * Credit* Risk Reversal

4 June 2013

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

6/14/2013Today's Level vs. Period Range

S&P 500 21 Day 251 DayReturn 1Y 5Y2D 22% 30%5D 82% 72%21D 92% 74%

TOP 251D 13%

UST10Y 21 Day 251 DayReturn 1Y 5Y2D 4% 13%5D 31% 39%21D 87% 85%251D 92%

Spain 5Y CDS 21 Day 251 DayReturn 1Y 5Y2D 65% 63%5D 62% 59%21D 91% 72%251D 1%

CDX HY 5Y 21 Day 251 Day Return 1Y 5Y2D 9% 15%5D 73% 67%21D 97% 89%251D 17%

DXY (USD INDEX) 21 Day 251 DayReturn 1Y 5Y2D 78% 69%5D 93% 86%21D 98% 91%251D 73%

OIL (Brent v WTI) 21 Day 251 Day BrentReturn 1Y 5Y2D 10% 18%5D 34% 38%21D 33% 44%251D 38%

CCY

COMDTY

Time Frame

Time Frame

Cross-Asset Price & Return Analysis (21D & 1Y) Total Return Return Heat Map

Time Frame

Time Frame

Time Frame

Time Frame

Equity

Rates

Credit

-4%

-3%

-2%

-1%

0%

1%

5D 21D 251D

-5%

0%

5%

10%

5D 21D 251D

-5%

0%

5%

10%

15%

5D 21D 251D

-6%

-4%

-2%

0%5D 21D 251D

200

300

400

500

5/17 5/22 5/27 6/1 6/6 6/11

300400500600700

200

220

240

260

5/17 5/22 5/27 6/1 6/6 6/11

200

300

400

500

600

78

80

82

84

86

5/17 5/22 5/27 6/1 6/6 6/11

75

80

85

1550

1600

1650

1700

5/16 5/23 5/30 6/6 6/13

10001200140016001800

-0.6%

-0.9%

-2.3%

24%

-10%

0%

10%

20%

30%

1.601.802.002.202.40

5/17 5/22 5/27 6/1 6/6 6/11

1.001.502.002.50

80

90

100

110

5/17 5/22 5/27 6/1 6/6 6/11

75

100

125

150

0%

5%

10%

5D 21D 251D

DataBank

Equities * Credit * Rates * Currencies * Commodities

5 June 2013

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

Risk Heat Map Summary

Today 5D 21D 63D6/14/2013 Signals 6/14 7-Jun 17-May 20-Mar Jul '11 Apr '10 Mar '07

Short Term

23% 22% 27% 52% 53% 74% 98%

Medium Term

65% 70% 68% 70% 92% 87% 93%

*Long Term

93% 85% 76%

long term factors are subjective

TOP Risk Heat Map Detail

Market Risk

Vol Asset Fndg. Mkt CB

Eq/CCY HY Corp Bank Sov X-Correl Sht Trm Volumes Bal Sheets1Y data 76% 23% 15% 33% 1% 67% 35% 85%5Y data 20% 8% 6% 66% 9% 61% 63% 95%

1Y data 43% 9% 40% 54% 2% 46% 67% 71%5Y data 46% 15% 40% 46% 2% 45% 58% 89%

US US (Non-Dep)

Euro-Zone

Europe (Non-EU)

Japanese

Banks 18% 32% 62% 38% 55%

Sovereigns 83% 67% 68%

Euro-Zone

Europe (Non-EU)

Japanese

Structural 93% 80% 80%

6/14/2013

US

Trdg VolumesBal Sheets &

Heat Map Readings Prior to Major Market

90%

72%

Econ

omic/

Str

uctur

al Fa

ctors

Summ

aryDe

tail

Quantitative Signals

Credit (Mkt & Bal Sht)

Economic / Structural

C r e

d I t

(Ba

nks/

Sove

reign

s)

63%

Credit Spread

% of Occurrence

2D change in metric

Quan

titati

ve &

Sta

tistic

al

(G

lobal

Marke

ts)

Risk Heat Map

Equities * Credit * Rates * Currencies * Commodities

6 June 2013

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

Risk Heat Map Detail Attribution across Global Markets 0 % ind icates Max Risk On / 100% in dicates Max Risk Off

All Values Scaled 0 to 100%

MARKET RISK Private & Central Bank Positioning Fund Flows

Vol Corr Fndg. Mkt CB On Off% of Max Level Eq/CCY HY Bank Sov S&Pv1 Sht Trm Volumes Bal Sheets Eq/HY MMkt

% of 1Yr Max Risk 49% 27% 13% 12% 24% 31% % of 1Yr Max Risk 35% 92% % of 1Yr Max Risk 35% 20%% of 5Yr Max Risk 39% 22% 23% 44% 26% 25% % of 5Yr Max Risk 63% 92% % of 5Yr Max Risk 41% 17%

% of Occurrence: . Riskiness of Current Level: 1Y 76% 23% 15% 33% 1% 67% Riskiness of Current Level: 1Y 67% 85% Riskiness of Current Level: 1Y 41% 27%Riskiness of Current Level: 5Y 20% 8% 6% 66% 9% 61% Riskiness of Current Level: 5Y 58% 95% Today's level vs. 5Y distr. 57% 43%

Direction & Degree of Change

Riskiness of 2D Chg: 1Y 43% 9% 40% 54% 2% 46% Riskiness of 2D Chg: 1Y 45% 71% Riskiness of 2D Chg: 1Y 36% 55%Riskiness of 2D Chg: 5Y Data 46% 15% 40% 46% 2% 45% Riskiness of 2D Chg: 5Y Data 49% 89% Riskiness of 2D Chg: 5Y Data 44% 61%

6/14/2013 Market Risk Positioning Fund FlowsVol Credit Spreads Correl Funding Credit/ Equity Volumes Bal Sheet

Prim'y EU R on R on R offS&P DAX AUD$ US BofA ITALY AU v US IG S&P 500 Dealer Bank Fed Bal ECB Bal Equity HY Bond Strat Inc MMkt

Date VIX V2X Skew HY 5Y CDS 5Y CDS 10Y Euro LIB Eurib AG US ESP Bonds Index Corps Liq Sht (tr) Sht (tr) Flows Flows Flows Flows

6/14/2013 17.2 21.3 (1.4) 413 112 259 (16) 1 16.6 12.0 63 43 (167) 12.4 449 56 0.1 3.41 3.4 6/7/2013 15.1 20.0 (2.1) 404 104 258 (38) (4) 16.7 11.9 64 47 (151) 14.2 575 57 0.1 3.40 3.3 (4.2) 0.7 5.2 (3.3)

5/31/2013 16.3 18.9 (2.8) 391 101 255 (34) (7) 16.4 13.0 62 47 (148) 13.3 580 45 1.0 2.8 3.7 (1.2) 0.4 7.2 (16.2)4/30/2013 13.5 20.3 (1.1) 361 118 252 (71) 32 15.1 13.6 61 35 (129) 12.5 592 43 1.1 2.9 3.9 (1.7) (1.0) 7.8 (15.1)3/28/2013 12.7 21.2 1.4 430 133 1 (63) 46 14.3 13.0 56 42 (191) 11.2 595 49 0.2 2.9 3.4 3.9 2.3 12.6 (6.8)

12/31/2012 18.0 18.2 1.0 484 132 278 (76) (3) 15.9 12.0 55 39 (241) 12.2 580 45 0.6 2.9 3.5 (30.1) (0.4) 8.4 47.512/30/2011 23.4 32.2 (1.5) 680 412 503 (77) 79 49.8 96.8 56 73 (185) 2.4 592 47 0.5 2.9 3.5 (11.8) (3.2) 7.1 18.9

Min 11.3 14.9 (4.4) 337 87 216 (80) (37) 14 9 50 34 (591) 0.0 219 37 0.10 2.8 3.3 (30.1) (3.2) 0.9 (16.2)Max 22.7 28.4 5.4 621 277 569 (4) 82 31 51 64 55 (114) 17.9 1515 59 0.18 3.41 4.0 3.9 5.2 12.6 47.5

51.2% 47.2% 30.6% 26.9% 13.4% 12.2% 16% 32% 0% 7% 93% 42% 11% 69.4% 30% 94.7% 28.4% 100.0% 83.8% 76.4% 54.0% 63.7% 20.3%19.9% 24.3% 73.1% 21.8% 23.3% 43.8% #### 35.3% 4.6% 6.1% #### #### #### 60.5% 0 32.8% 13.1% 100.0% 83.8% 71.2% 46.0% 36.3% 16.6%

1Y Time Frame

S&P v OIS 2Y Sw

6/14/2013

R I s k

Credit Spread

Mutual Fund Flows 2mo lag

0%

20%

40%

60%

80%

100%

VIX V2X Skew HY 5Y CDS 5Y CDS 10Y Euro LIB Eurib AG US ESP Bonds Index Corps Liq Sht (tr) Sht (tr) Flows Flows Flows Flows

S&P DAX AUD$ US BofA ITALY S&P v OIS AU v 2Y Sw Sprds US IG S&P 500 Dealer Bank Fed Bal ECB Bal Equity HY Bond Strat Inc MMkt

Risk Heat Map DETAIL Equities * Credit * Rates * Currencies * Commodities

7 June 2013

analysis by risk dimensions www.riskdimensions.org Market Data: Bloomberg

Asset Al locat ing in the New Paradigm

A Call to Reboot We assert that several structural changes occurring in the Global Markets since 2008 have combined to blunt the tools and impair the processes employed by absolute and relative return managers.

A decline in trading liquidity, increase in regulation and rollout of a “Zero-Rate” policy globally has changed the timing, scope and source of profitability across the spectrum of Investment.

At Risk Dimensions we help you identify the changes necessary to differentiate returns with tools that predict, price and inform on evolving risks across your enterprise.

Our Process: Three Lenses

Through Quantitative, Credit Fundamental and Economic analyses our three-tiered model informs on the scope and timing of risk and opportunity across the major five liquid global markets.

Quantitative Tools have informed on market risk shocks including February 2007, September 2008, August 2011 and October 2012 to name a few with only one brief false signal. The same tools identify efficient hedge alternatives for the portfolio.

Credit Fundamentals are critical to our process as credit disintermediation impacts asset prices directly through liquidity and indirectly through GDP as credit creation is critical to growth. Today we see fewer intermediaries lending less to the few, which bears on the third and final layer of Economic Factors.

Economic Factors underpin our model and impact our longer term outlook. The benefit from understanding signals culled from the Qualitative and Credit lenses is augmented by understanding the interplay with models such as The Taylor Rule and the Money Multiplier effect. Given the heavy hand of Treasury and Central Bank officials, understanding the mechanics of this layer is critical to the Asset Allocation process.

Value Proposit ion

Partnerships are earned. We believe our services, like risk, are perishable products. Therefore we do not expect serial engagement; rather we seek specific mandates with estimated paybacks in the range of 3 to 10x client investment.

As a former Portfolio Manager, Hedge Fund Manager and most recently Head of Risk Management, I found the production of timely and relevant reports to be one pillar of any Investment & Enterprise Risk Management Process. The second pillar is a proper governance structure which we view as the vessel through which risk information travels and is eventually implemented.

Partnering with Risk Dimensions fortifies these pillars within your organization improving profitability and enterprise resiliency.

Asset Allocation Methodology

Equities * Credit* Rates * Currencies * Commodities

8 June 2013