New York Metro Chapter
Roundtable Panel: Changing Times, New Opportunities
GLOBAL ECONOMIC DISTRESS AND POTENTIAL OF REBOUND
Miguel A. Paredones
Managing Partner, Global Principal Investments
Clifftop Capital Management
St. Regis Hotel | New York
January 14, 2009
Sharp Investment Thinkers | Passionate about Top Performance

Agenda
• Overview
− The End of a Golden Cycle
− Anatomy of the Crisis
• Policy Response and Potential of Recovery
• Economic Outlook
• Q&A
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 1

Transformation of the US Financial System . . .
Transition from a banking-driven system to a market-driven system led by
broker dealers tapping capital markets through securitizations
Select US Financial Institutions: Commercial Banks vis-à-vis Investment Banks
(Base Index October 1999 =100, 1999 – 2008)
450
400
350
300
250
200
150
100
50
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Wells Fargo Citigroup BAC JP Morgan Merrill Lynch Goldman Morgan Stanley
Source: Bloomberg and Clifftop Capital Management estimates
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 2

. . . fueled and later froze down the golden cycle
Real GDP Select Equity Markets
(YOY %, 2004 – 2008) (Base Index 100 = January 2004. Weekly Data, 2004 – 2008)
3.50
450
3.1
3.00 400
2.7
350
2.50 2.4
2.3
300
2.00 250
1.50 200
150
1.00
100
2004 – 2007 Average Growth = 2.83% 0.7
0.50 50
0.00 0
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008 Dow Jones S&P500 NASDAQ MSCI World MSCI BRIC MSCI EM
US 10-Year Treasury Yield US Unemployment Rate
(Monthly Observations, 2004 – 2008) (Monthly Observations, 2004 – 2008)
6.00% 8.00
7.00 7.2
5.00%
6.00
5.4 4.9
4.00%
5.00 4.8
4.4
3.00% 4.00
3.00
2.00%
2.00
1.00%
2004 – 2007 Average Growth = 4.88%
1.00
0.00% 0.00
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
Source: Bloomberg and Clifftop Capital Management estimates
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 3

Anatomy of the crisis
Select Housing Indices Evolution Mortgage Default Evolution
(Base Index January 2002 = 100, 2002 – 2008) (In % of Total Loans, 2002 – 2008)
220 25.00%
2H:2007 The mortgage crisis is
accentuated by the meltdown of (2)
ABS funds managed by Bear 20.00%
20%
200 Stearns, which lost nearly US$ 1.5
billion in value 197
15.00%
180 13%
180 1Q:2005: Demand initiates 12%
decreasing trend as new home 10.00%
sales drops 7% in 2005
7%
160 1Q:2006: Untold Origin of the 4%
5.00%
Subprime Crisis. Prices fall less 3%
abruptly but continuously,
suggesting that the booming 1%
cycle is over 0.00%
140 Mortgage Delinquencies Index Mortgage Foreclosures Index
137
Subprime Deliquences Subprime Foreclosures
2002 2003 2004 2005 2006 2007 2008
120 NYSE Financials Index Evolution
(Base Index January 2002 = 100, 2002 – 2008)
210.00
100 190.00
86 170.00
80 150.00
65 130.00
60 1Q:2006: Mortgage borrowers 110.00
struggling to repay facilities;
foreclosures propel primarily from 90.00
subprime non-performing loans 50
40 70.00
Housing Price Index Mortgage Delinquencies Index Mortgage Foreclosures Index
50.00
US Housing Starts New Home Sales Mortgage Applications NYSE Financials Index
2002 2003 2004 2005 2006 2007 2008
2002 2003 2004 2005 2006 2007 2008 2009
Source: Bloomberg and Clifftop Capital Management estimates
Note: Housing Price Index was calculated by normalizing the S&P Case Shiller Housing Price Index.
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 4

Factors that led to the current liquidity crunch
Sound Conditions until 1Q:2007
• Abundant cash and liquidity
• Volatility and risk premiums were continuously contracting
• Risk seeking investors leveraged heavily at low cost of financing
• Strong stock market performance (Dow Jones Index up 19.04% and 1.41% in
2006FYE and in January 2007, respectively)
• Short-term rates rising coupled with steady long-term rates. 3M-Libor averaged
5.36% for the 1Q:07 and 5.29% for the entire 2007. Today is at 1.08% p.a.*
• Foreign capital inflows into US assets kept long term rates low
Deteriorating Factors emerging in 2H:2007 and exacerbating in 2H:2008
• Mortgage Default and Foreclosure rates start increasing sharply
• Mortgage Backed Funds (2) managed by Bear Stearns collapse, opening the
door to credit crash and a meltdown in the subprime mortgage market
• Banks start facing huge negative revaluation of mortgage-backed portfolios
• Bear Stearns goes under; Lehman Brothers CDS (default probability) propels
• Failure to bail out Lehman Brothers caused a major financial panic
• Banks opt for tightening lending; liquidity leaves the market
Source: Bloomberg through function BTMM <GO>. * Note: Indicative value as of January 14, 2009
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 5

Economic Policy Response
Taylor Rule
(In %, 2000 – 2008)
Monetary Stance 7.00
Monetary policy is running out of options. If Fed
Fund rates reach 0.00%, rationality among investors
will be greatly challenged. Thus, the FED could have 6.00
Taylor Rule estimate = 165bps
a passive role, one as communicator of future
monetary direction
5.00
Deflation is around the corner unless a significant
change in conduct of policy takes place
4.00
Fiscal Policy
Global deleveraging requires effective economic
3.00
policies – fiscal policies, including tax cuts , might
revive economic conditions in 2H:09; however,
estimated growth will be still in negative terrain 2.00
Government Spending
Public spending should oxygenate the increasing 1.00
rate of unemployment Fed Fund Rate = 25bps
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 6

Size and composition of the Credit Losses
Global Writedowns vis-à-vis Capital Injections Global Writedowns by type of institution
(In US$ billions) (In US$ billions)
1,200
1,038
1,000 Worldwide Capitalization Gap:
940 US$ 98 billion
800
719
Americas Capitalization Gap:
US$ 161 billion
600 558
400
327
289
200
31 56
0
Worldwide Americas Europe Asia
Credit Losses Capital Infusion
Source: Bloomberg through function WDCI<GO>. Data as of January 14, 2009
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 7

Scale and potential of contagion across Emerging Markets
Historical Leverage in the US Magnitude of Select Financial Crises
(Expressed in % (Debt/GDP) vs. historical trendline, 1920 – 2009f) (In US$ Billion ─ X Axis; and, as Percentage of GDP ─ Y Axis)
140.00%
120.00%
100.00% 07’ US Credit Crisis:
97’ Asian Crisis:
US$ 404 bn US$ 1,400 bn
80.00% 10% of GDP
34% of GDP
60.00%
40.00%
20.00% 90’ Japanese Banking Crisis:
y = 0.089ln(x) + 0.0203 US$ 745 bn
0.00% 15% of GDP
Net Capital Flows to Emerging Markets Debt Evolution: USA vis-à-vis Emerging Markets
(In US$ Billion, 1995 – 2009f) (In US$ Billion, 1995 – 2009f)
Post Contraction Post Contraction Post Contraction
(53%) in Capital (28%) in Capital (59%) in Capital
1,000 8.00%
14,000
900 7.00%
Real GDP 12,000
800
6.00%
700 10,000
600 5.00%
8,000
500 4.00%
400 6,000
3.00%
300 4,000
2.00%
200
Capital Flow 1.00% 2,000
100
0 0.00% 0
Net Private Flows Real GDP % change Crisis Episode USA Emerging Markets
Source: Bloomberg , IMF, Institute of International Finance (IIF) and Clifftop Capital Management estimates
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 8

Economic Outlook
Actuals Forecast
Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Economic Activity
Real GDP (yoy %) 3.70 0.80 1.60 2.50 3.60 2.90 2.80 2.00 1.20 -1.30
CPI (yoy %) 3.38 2.82 1.58 2.28 2.68 3.38 3.23 2.87 4.00 -0.60
Core PCE (yoy %) 1.68 1.90 1.78 1.40 2.05 2.18 2.23 2.10 -- --
Unemployment (%) 4.00 4.70 5.80 6.00 5.50 5.10 4.60 4.60 5.70 7.90
External Balance
Curr. Acct. (% of GDP) -4.25 -3.80 -4.41 -4.78 -5.35 -5.87 -5.98 -5.30 -4.80 -4.30
Fiscal Balance
Budget (% of GDP) 2.60 0.90 -2.20 -3.50 -3.30 -2.50 -1.60 -1.30 -5.00 -3.70
Interest Rates
Central Bank Rate (%) 6.50 1.75 1.25 1.00 2.25 4.25 5.25 4.25 0.25 0.25
3-Month Rate (%) 6.40 1.88 1.38 1.15 2.56 4.54 5.36 4.70 1.43 0.75
2-Year Note (%) 5.10 3.03 1.60 1.82 3.07 4.40 4.81 3.05 0.77 1.16
10-Year Note (%) 5.11 5.05 3.82 4.25 4.22 4.39 4.70 4.03 2.21 3.00
Exchange Rates
EUR/USD 0.94 0.89 1.05 1.26 1.36 1.18 1.32 1.46 1.40 1.55
Source: Bloomberg and Clifftop Capital Management estimates
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 9

Subduing global investment challenges in 2009
Currency
Strategy • Stay sharply underweight on the U.S. dollar
Equities
Strategy • Moderately overweight defensive stocks
versus bonds
Interest Rate
Strategy
• Maintain close to normal interest rate risk
Credit
Strategy • Add special situations and well-collateralized
loans
Macro
Strategy • Emphasize key strategic sectors on emerging
markets
NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 10

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NEW YORK METRO CHAPTER | ROUNDTABLE: CHANGING TIMES, NEW OPPORTUNITIES 11