Kevin M. Wilson, ChFC, PhD President/CEO/CIO

1. Monthly Market Review • “Stormy Weather Should Provide • A Buying Opportunity” • (An Evaluation of the New Rising Rate Environment) September 19, 2013 Kevin M. Wilson, ChFC, PhD President/CEO/CIO Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst Ted A. Pavlovich, WMS VP Wealth Management Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397 Email: info@bluewater-cap.com www.bluewatercapitaladvisors.com 1405 Medical Arts Building 324 W. Superior Street Duluth, MN 55802 1

2. IntroductionTed a. pavlovich 2

3. Minnesota Gift/Estate Tax ChangesTed a. pavlovich 3

4. Federal & State Laws Impose Estate Tax to Prevent Oligarchy (With Limited Results) 4

5. Some States (e.g., MN) Are Worse Than Others MN Estate Tax Rules 1) Maximum state death tax rate 16% 2) $1 million exemption amount 3) Not aligned with federal tax code 4) Gift tax set at 10%

6. Asian Currency Crisiscauses uncertainty, but we can invest elsewhereDheenu v. sivalingam 6

7. Epicenter of the crisis is moving towards EM Countries 7

8. When the liquidity tide turns, EM assets are hurt EM assets (both bonds and equities) have suffered strong outflows this year. However, these outflows remain minor compared to cumulative inflows over the last 5 years. So potentially, much more outflows should be expected when the Fed effectively tightens its policy. 8

9. EM: structural issues (deficits) driving crisis The bull story has turned sour in some emerging markets as external balances have deteriorated. Countries with a deteriorating external balance have seen their currencies depreciated strongly since 22 May (e.g. India). 9

10. EM currencies now fully floating Compared to historical crises in EM countries, fewer and fewer EM currencies are directly pegged to the USD. While this may be a source of vulnerability in times of market turmoil, it has helped EM countries absorb external shocks more easily. As always, the market will concentrate on the weakest countries, putting their currency under strong pressure and drying up liquidity. 10

11. EM equities: do not catch the falling knife yet! (unless it’s just a trade) EM equities started to correct in 2010, when they traded at a premium of around 20% relative to developed markets (as measured by the price to book value ratio). We continue to stay away from EM equities (despite a 24% discount), as outflows are running at high levels. 11

12. What Really Happened • Massive austerity in Europe • Europe’s current account, which has swung from a deficit of almost $100 billion in 2008 to a surplus of almost $300 billion this year. • This extraordinary swing of almost $400 billion in the Eurozone’s current-account balance did not result from a “competitive devaluation”; the euro has remained strong. So the real reason for the eurozone’s large external surplus today is that internal demand has been so weak that imports have been practically stagnant over the last five years (the average annual growth rate was 0.25%). 12

13. Who will run deficits?? • As capital withdraws from EM they will be forced to go in to austerity mode • Europe is already in austerity mode, & China is yet to turn into a consumer economy • But who will then be able – and willing – to run deficits? • Unless the US resumes its role as consumer of last resort, global economic recovery will be weaker 13

14. Geopolitical Concerns cause uncertainty, butwe can hedge the risk KEVIN M. WILSON 14

15. Arab Spring Has Made Egypt Highly Unstable

16. Syrian Civil War Is Really A Proxy for the Sunni-Shiite War World War I Started In A Similar Way 16

17. If Iran-Saudi Struggle Escalates, Oil Prices Will Rise

18. But Inventories Are Falling And Spare Capacity Is Low (Due to Shutdowns in Libya, Iraq, Nigeria, Syria, Iran)

19. Sino-Japanese Conflict Could Escalate Backdrop

20. Hedging Strategy For Geopolitical Risks For Egypt/Syria/Middle East Crises Buy Oil Stocks For Egypt/Syria/Middle East Crises Buy Defense Stocks For Egypt/Syria/Middle East Crises Buy Gold For China-Japan Dispute Buy Defense Stocks For China-Japan Dispute Buy Nikkei/Short Yen

21. Economy improves, Fed Tapers (NOT), rates rise, stocks rally KEVIN M. WILSON 21

22. Four Main Economic Indicators Rising, But Real Income Impacted By Taxes

23. Fed Is Concerned About Structural Weakness In The Economy

24. Fed Also Concerned (Not Enough) About Impact Of QE On Markets

25. Fed’s Threat To Taper QE Caused A Huge Change in Mortgage & Treasury Rates

26. Goldman Sachs Says Stocks Will Now Move Into A Low Volatility Upward Trend, Analogous To What Happened In 1982-1987

27. Fed has threatened to taper back on QE, driving rates up by over 1.25% • Markets deemed by Fed to have over-reacted, hence no decision yesterday • Global equities should rally based on the delay in tightening; however, tapering • will still happen sometime soon as the economy improves • The Emerging Markets crisis will fade temporarily, but it will soon get even worse • The Middle East crises will probably spread, affecting oil prices for some time • The Sino-Japanese conflict will be dangerously escalated if their respective economies • start to decline • The best solution is to significantly increase stock allocations over the long term; • hedges against the above risks can be put in place using oil stocks, defense • stocks, developed country stocks, and gold Summary KEVIN M. WILSON 27

28. q & a KEVIN M. WILSON TED A. PAVLOVICH DHEENU V. SIVALINGAM 28

29. Disclaimer This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security or commodity and is not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, for its accuracy and interpretation are not guaranteed. Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as an indication of guarantee of future performance and no representation, express or implied, is made regarding future performance. The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser regarding tax matters. “BWCA is a state registered investment adviser in all states in which it is required to be registered. All Blue Water Capital Advisors’ customer assets are held in the customer name with Fidelity Institutional Services, clearing through National Financial Services (NFS), Member SIPC, a Fidelity Investments Company as Qualified Custodian.” 29