Vining Sparks Economic Outlook 2012
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Vining Sparks Economic Outlook 2012

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Economic Outlook provided by Vining Sparks during their session in the Executive Track during the 9th Annual Police Officers' Credit Union Conference.

Economic Outlook provided by Vining Sparks during their session in the Executive Track during the 9th Annual Police Officers' Credit Union Conference.

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  • 1. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyQ2 2012 Economic OutlookThe Sputtering EconomyWhy the U.S. Economy Has Not Achieved Escape Velocity Coming out of the Great RecessionPresented by:Craig DismukeChief Economic Strategistcdismuke@viningsparks.com
  • 2. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyOne Year Later, Even Lower Yields Treasury Yield Curve Source: Bloomberg, Vining Sparks6 Average Since 199054 June 20113 -130 bps2 2% June 20121 1%0 FF 3M 1 2 3 5 7 10 30 6/19/2012 Page 2
  • 3. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyWeak U.S. Economy, Fed Action, Greece, Treasury Yields Sources: Bloomberg, Vining Sparks3.5 Operation Twist3.0 “Late 2014”2.52.0 “Mid 2013” U.S. Downgrade Payrolls Disappoint1.5 GDP Revision Spain Comes into Focus Greek Plan Strong Payroll Report1.0 Involves No Greece Defaults New Money FOMC More Neutral0.5 Dovish FOMC0.0 M J J A S O N D J F M A 6/19/2012 Page 3
  • 4. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyExpectations Drop Further Fed Funds Futures Contracts Source: Bloomberg, Vining Sparks2.5 June 2012 June 20112.01.51.0 0.5%0.50.0 A M J J A S O N D J F M A M J J A S O N D J F M A M J J A 2012 2013 2014 6/19/2012 Page 4
  • 5. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyGrowth Continues to Be Moderate GDP Growth QoQ Annualized Source: Bureau of Economic Analysis, Vining Sparks 3.8 3.9 3.8 3.0 2.5 2.3 1.7 1.8 1.9 1.3 0.4 -0.7 -6.7 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 6/19/2012 Page 5
  • 6. Recap Weak Growth Consumption Investment Risks to Stability Monetary Policy Recovery Not As Robust As Others Change In GDP from Beginning of Recessions Source: Bureau of Economic Analysis, Vining Sparks 20% July 1981 Recession July 1990 Recession 15% March 2001 Recession December 2007 RecessionPercentage of Peak GDP 10% 5% 0% -5% -10% -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 Quarters from Beginning of Recession 6/19/2012 Page 6
  • 7. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyDeleveraging Continues, More to Come Household Debt as a Percentage of Disposable Income Sources: Federal Reserve, Vining Sparks140% Peak: 129%130%120%110% Current:100% 112%90% Average 1985-2000: 83%80%70% Average 1962-1984: 63%60%50% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 6/19/2012 Page 7
  • 8. Recap Weak Growth Consumption Investment Risks to Stability Monetary Policy Confidence Rebounded, Still Low Consumer Confidence Sources: Conference Board, University of Michigan, Vining Sparks 120 160 110 140 100 120University of Michigan Conference Board Long-Term Average 90 100 80 80 70 60 60 40 50 Conference Board 20 Great Recession Debt Ceiling Debate University of Michigan 40 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 6/19/2012 Page 8
  • 9. Recap Weak Growth Consumption Investment Risks to Stability Monetary Policy Rising Equity Prices Lifting Spirits Household Net Worth - Financial Assets Sources: Federal Reserve, Bloomberg, Vining Sparks 15,000 58 Peak: $55.4 T 14,000 56 -7.7% Current: $52.3 T Household Net Worth (Trillions)Dow Jones Industrial Average 13,000 54 +99.7% 12,000 52 11,000 50 10,000 48 9,000 46 Dow Jones Industrial Average 8,000 Quarter-End 44 Nadir: $44.2 T Household Net Worth – Financial Assets 7,000 42 6,000 40 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 6/19/2012 Page 9
  • 10. Recap Weak Growth Consumption Investment Risks to Stability Monetary Policy Payroll Growth Has Been Inconsistent Monthly Change in Nonfarm Payrolls Sources: BLS, Vining Sparks 700 Monthly Change in Nonfarm Payrolls 3-Month Average 500 300Thousands 100 3-Month Average Growth 96k -100 12-Month Average Growth 149k Current Total Nonfarm Payrolls 133.0 MM -300 Pre-Recession Total Nonfarm Payrolls 138.0 MM Net Difference -5.0 MM -500 2010 2011 2012 6/19/2012 Page 10
  • 11. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyUnemployment Rate Dropping Headline Unemployment Rate Source: Bureau of Labor Statistics, Vining Sparks12% Peak: 10.0%10% Current: 8.2%8%6%4% Not in the Labor Force Employed2% 10% Peak 82.7 MM 138.4 MM May 2011 85.7 MM 139.6 MM May 2012 87.9 MM 142.0 MM0% 1982 1987 1992 1997 2002 2007 2012 6/19/2012 Page 11
  • 12. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyFundamental Shift in Labor Market Jobs/Population Ratio Source: Bureau of Labor Statistics, Vining Sparks65% = [(Full Time x 1) + (Self Emp. x 1) + (Part Time x .5)] / Total Civilian Pop.64%63%62%61%60%59%58% 57.48%57%56% 1982 1987 1992 1997 2002 2007 2012 6/19/2012 Page 12
  • 13. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyEarnings Growth Has Been Weak Average Hourly Earnings YoY Source: Bureau of Labor Statistics, Vining Sparks 5.0 4.5 4.0Average Hourly Earnings (YoY) 3.5 3.0% 3.0 2.5 2.0 1.7% 1.5 1.0 0.5 0.0 1985 1990 1995 2000 2005 2010 6/19/2012 Page 13
  • 14. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyReal Disposable Income Growth Weak Disposable Personal Income Growth Sources: Bureau of Economic Analysis, Vining Sparks10% 8% 6% 4% 3.5% 2% 0% 0.9%-2%-4%-6% Disposable Personal Income (3M/3M Ann.)-8% Disposable Personal Income, Adjusted for Inflation (3M/3M Ann.)-10% 2009 2010 2011 2012 6/19/2012 Page 14
  • 15. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyCannot Use Home Equity This Time Household Net Worth - Real Estate Sources: Federal Reserve, Bloomberg, Vining Sparks 250 2003 – 2007 17 230 Home Prices Up 54% 210 $2.2 Trillion Extracted 15 Household Net Worth - TrillionsS&P CaseShiller Home Prices 190 13 170 $13.5 T 11 150 130 9 110 $6.3 T 7 90 Household Net Worth – Real Estate 5 70 S&P CaseShiller Home Price Index 50 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 6/19/2012 Page 15
  • 16. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyHousing Suppressing Investment Gross Private Investment (Chained SAAR) Sources: Bureau of Economic Analysis, Vining Sparks $1,400 Non-Residential Investment in Equipment Non-Residential Investment in Structures $1,200 Residential Investment $1,000Billions 6.3% of GDP $800 $600 $400 2.3% $200 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 6/19/2012 Page 16
  • 17. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyHome Sales Up, Still Low New And Existing Homes Sales Sources: National Assoc. of Realtors, Vining Sparks 8,000 1,400 Existing Home Sales New Home Sales 7,000 Existing Home Sales in Thousands (SAAR)New Home Sales in Thousands (SAAR) 1,200 6,000 1,000 5,000 800 4.62 MM 4,000 600 3,000 400 343k 2,000 200 1,000 0 0 2003 2005 2007 2009 2011 6/19/2012 Page 17
  • 18. Recap Weak Growth Consumption Investment Risks to Stability Monetary Policy Permits Up, Still Very Low Total Building Permits by Type Sources: U.S. Commerce Department, Vining Sparks 2,500 2,263k Total Single Family Permits Multi-Family Permits 2,000 1,500Thousands 1,000 723k Total 500 0 2000 2002 2004 2006 2008 2010 2012 6/19/2012 Page 18
  • 19. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyNon-Distressed Prices Finding Support CoreLogic Home Price Indices Sources: CoreLogic, Vining Sparks20%15%10% 5% 0%-5%-10%-15% National Home Price Index National Home Price Index, Excluding Distressed-20% 2002 2004 2006 2008 2010 2012 6/19/2012 Page 19
  • 20. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyMust Work through Excess Supply Home Inventory by Type Sources: National Association of Realtors, Mortgage Bankers Association, Vining Sparks 10 Shadow Inventory (MBA) 9 Existing Home Inventory 8 New Home Inventory 7 Applying 12-Month Rate of Change 6Millions 5 4 Pre-Bubble Level 3 Pre-Bubble Level 2 1 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 6/19/2012 Page 20
  • 21. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicySignificant Risks to Economic Stability Europe: A Debt Crisis and a Recession Year-End Fiscal Cliff Unwinding Monetary Accommodation Oil Prices Possibility of Inflation 6/19/2012 Page 21
  • 22. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyDebt Continues to Grow 2011 Estimated Budget Deficit as a Percentage of GDP Sources: European Commission Est., Vining Sparks 2 0Deficit -2 -4 -3.0% -6 -8 -10 Maastricht Treaty Requirement -12 6/19/2012 Page 22
  • 23. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyDebt Continues to Grow Debt as a Percentage of GDP Greece (159%) Sources: Eurostats, Vining Sparks, Q3 2011 Est.140 Italy120 (120%) Portugal100 (110%) 80 Euro Area (87%) 60 Spain 40 (66%) Ireland 20 (105%) Maastricht Treaty Requirement 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 6/19/2012 Page 23
  • 24. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyA Double Dip Makes Matters Worse GDP (YoY) Sources: Eurostats, Vining Sparks, Q3 2011 Est.10 8 6 4 2 0 -2 Greece -4 Portugal Ireland -6 Spain -8 Italy Euro Area-10 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 6/19/2012 Page 24
  • 25. Recap Weak Growth Consumption Investment Risks to Stability Monetary Policy U.S. Fiscal Policymakers Face Tough Choices U.S. Debt and Total GDP Sources: Treasury, Bureau of Economic Analysis, Vining Sparks 18 Total GDP 16 Total U.S. Debt Outstanding 14 Debt Ceiling 12Trillions 10 8 6 4 2 0 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 6/19/2012 Page 25
  • 26. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyYear-End Fiscal Cliff Expiration of Bush Tax Cuts Expiration of Payroll Tax Cut Extension of Unemployment Insurance $1.2 Trillion in Automatic Fiscal Cuts Total: E3.5% GDP $16.4 Trillion Debt Ceiling Will Be Hit Moody’s, S&P, and Fitch Warnings 6/19/2012 Page 26
  • 27. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyMonetary Policy: Accommodative Fed Funds Target Rate – 0.00% to 0.25% Fed Funds Rate Projections – “Late 2014” Grown Balance Sheet: $2.88 Trillion Operation Twist Ongoing, Ends June 2012 Longer Average Maturity Talking Frequently about Housing New Quantitative Easing Tabled for Now Slightly More Hawkish Tone in April 6/19/2012 Page 27
  • 28. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyProjections Reveal Minor Shifts in Fed Sentiment Federal Funds Target Projections by FOMC Members Sources: Federal Reserve Appropriate Pace of Policy Firming Chart, Vining Sparks 5.0 April FOMC Projection (Average) 4.5 January FOMC Projection (Average) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2012 2013 2014 Longer Run 6/19/2012 Page 28
  • 29. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyInflation Expectations Anchored Implied Future Inflation Rates Source: Bloomberg, Vining Sparks2.82.6 10-Year TIPs Breakeven Rate2.4 2.13%2.22.01.81.6 1.69% 5-Year TIPs Breakeven Rate1.41.21.0 F M A M J J A S O N D J F M A M 6/19/2012 Page 29
  • 30. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyProjections Are Historically Unreliable Federal Reserve GDP Projections and Actual GDP Sources: Federal Reserve (Green Books and SEP), Vining Sparks6 1 Year before Period5 2 Years before Period432 Actual10-1-2 Average Variance from Actual-3 1 Year before Period: 1.3 2 Years before Period: 1.8-4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6/19/2012 Page 30
  • 31. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicyA Tough Exit for the FOMC No Evidence of Rapid Economic Growth Risks Creating Significant Market Volatility  Fed has been biggest buyer of Treasuries  $1.9 trillion in excess holdings to sell or let pay down  Longer yields are very low, in part because of Fed’s stance *Drives Mortgage Rates Higher Increases Government’s Borrowing Cost Unwinds Spread Tightening in Other Sectors 6/19/2012 Page 31
  • 32. Recap Weak Growth Consumption Investment Risks to Stability Monetary PolicySummary Consumption Is Modest, but Household Finances Still Face Long-Term Headwinds  Watch Earnings and Disposable Income Growth Housing Is Poised to Be Accretive to Growth, Still Need to Work through Foreclosure and Shadow Inventories  Watch Shadow Inventory and Building Permits Overall Growth Will Continue to Be Modest Risks to Economic Stability Are Significant Exiting Accommodative Policies Will Be Very Tenuous for Fed – Unlikely to Do So Soon 6/19/2012 Page 32
  • 33. INTENDED FOR INSTITUTIONAL INVESTORS ONLY. The information included herein has been obtained from sources deemedreliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Anyand all details offered in this publication are preliminary and are therefore subject to change at any time. This has beenprepared for general information purposes only and does not consider the specific investment objectives, financial situation andparticular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacksinformation critical to making final investment decisions. Investors should seek financial advice as to the appropriateness ofinvesting in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections isdependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during theprojection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned.Member FINRA/SIPC. 6/19/2012 Page 33
  • 34. Portfolio Strategies – Q2 2012Presented by:Craig DismukeChief Economic Strategistcdismuke@viningsparks.com
  • 35. Portfolio Strategies – Rate Environment Fed Funds Futures Contracts Source: Bloomberg, Vining Sparks1.00 5/31/20120.90 4/30/20120.80 3/30/2012 2/29/20120.700.600.500.400.300.200.100.00 6/19/2012 Page 35
  • 36. Portfolio Strategies – Rate Environment Treasury Yield Curve Source: Bloomberg, Vining Sparks3.5 6/7/20123.0 4/30/2012 5/31/20112.52.0 1.651.51.0 0.710.5 0.280.0 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 6/19/2012 Page 36
  • 37. Portfolio Strategies – Rate Environment 2s10s Spread Source: Bloomberg, Vining Sparks350300250200150 2s10s Spread (137)100 Average +/- 1 SD50 0 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 6/19/2012 Page 37
  • 38. Portfolio Strategies – Rate Environment 2s5s Spread 5s10s Spread Source: Bloomberg, Vining Sparks Source: Bloomberg, Vining Sparks180 160160 140140 120120100 100 80 80 60 60 40 5s10s Spread (94) 2s5s Spread (43) 40 20 Average Average 0 20 +/- 1 SD +/- 1 SD-20 0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 6/19/2012 Page 38
  • 39. Portfolio Strategies – Rate Environment 2s3s Spread 3s5s Spread Source: Bloomberg, Vining Sparks Source: Bloomberg, Vining Sparks 70 120 2s3s Spread (11) 60 Average 100 50 +/- 1 SD 80 40 30 60 3s5s Spread (32) 20 40 Average 10 +/- 1 SD 20 0-10 0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 5s7s Spread 7s10s Spread Source: Bloomberg, Vining Sparks Source: Bloomberg, Vining Sparks 90 90 80 80 70 70 60 60 50 50 40 40 5s7s Spread (38) 30 30 Average 7s10s Spread (56) 20 +/- 1 SD 20 Average 10 10 +/- 1 SD 0 0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 6/19/2012 Page 39
  • 40. Portfolio Strategies – Relative Value 5Y Bullet Spread / 5Y Treasury Source: Vining Sparks180 Agency Spread (31)160 Average +/- 1 SD14012010080604020 Treasury 0 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 6/19/2012 Page 40
  • 41. Portfolio Strategies – Relative Value 5Y NC 1Y Spread / 5Y Bullet Source: Vining Sparks 120 Callable Spread (11) Average 100 +/- 1 SD 80 60 40 20 Bullet 0 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 6/19/2012 Page 41
  • 42. Portfolio Strategies – Relative Value 15Y CC MBS Spread / 5Y Treasury Source: Bloomberg, Vining Sparks350 MBS Spread (96) Median300 +/- 1 SD250200150100 50 Treasury 0 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 6/19/2012 Page 42
  • 43. Portfolio Strategies – Relative Value 15Y CC MBS Spread / 5Y NC 1Y Source: Bloomberg, Vining Sparks120 MBS100 80 60 40 20 Spread (54) 0 Median +/- 1 SD Callable Agency-20 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 6/19/2012 Page 43
  • 44. Portfolio Strategies – Relative Value 15Y 4.00 Minus 30Y 4.00 MBS Price Source: Bloomberg, Vining Sparks6.0 30 Year Price Diff. (-0.31) Median5.0 +/- 1 SD4.03.02.01.00.0 15 Year-1.0 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 6/19/2012 Page 44
  • 45. Portfolio Strategies – Relative Value 15Y 5.00 Minus 15Y 3.50 MBS Price Source: Bloomberg, Vining Sparks7.0 3.50% MBS Price Diff. (2.06) Median6.0 +/- 1 SD5.04.03.02.01.0 5.00% MBS0.0 Aug-10 Feb-11 Aug-11 Feb-12 6/19/2012 Page 45
  • 46. Portfolio Strategies – Relative Value Sector Yield Curves - Short End Source: Vining Sparks2.001.80 Treasuries Agency Bullets1.60 Agency 1Y Callables1.40 PAC CMOs1.20 Sequential CMOs1.00 Corporates (A Rated) Municipals (Taxables)0.80 SBA (Premium Pool)0.600.400.200.00 3M 1 2 3 6/19/2012 Page 46
  • 47. Portfolio Strategies – Relative Value Sector Yield Curves - Belly Source: Vining Sparks4.003.50 Treasuries Agency Bullets3.00 Agency 1Y Callables PAC CMOs2.50 Sequential CMOs2.00 Corporates (A Rated) Municipals (Taxables)1.50 MBS (15 Year) MBS (30 Year)1.000.500.00 3 4 5 6 7 8 9 10 6/19/2012 Page 47
  • 48. Portfolio Strategies – Relative Value Sector Yield Curves - Long End Source: Vining Sparks6.005.50 Treasuries5.00 Agency Bullets4.50 Agency 1Y Callables4.00 PAC CMOs Sequential CMOs3.50 Corporates (A Rated)3.00 Municipals (Taxables)2.502.001.501.00 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 6/19/2012 Page 48
  • 49. Portfolio StrategiesA. Rate Environment 1. Low interest rates 2. Fed on hold – Staying in cash or overnights will be painful 3. Asymmetric interest rate risk 4. Yield curve has flattened, with the steepest part beyond 7 yearsB. Sector Relative Value 1. Agency spreads are tight 2. MBS spreads are fairly tight, but prepay and extension risks are concerns 3. Corporate and municipal spreads remain relatively attractive 4. With long yields as low as they are, short-amortizing products with lockout make most senseC. Concentration Risks 1. Longer maturity agencies 2. Mortgages with significant prepayment risk 1. Higher coupons 2. Fast prepays causing lower book yields 3. Longer maturity mortgages with too much extension risk or price volatility 4. Excessive short-term cashflow 6/19/2012 Page 49
  • 50. Portfolio StrategiesD. Portfolio Strategies 1. Optimize* 2. Invest cash 3. Push short cashflows out to 2013 and beyond when economics make sense 4. Consider sector swaps to take advantage of cross-sector relative value 5. Swap out of extension and/or prepayment risks in MBS 6. Reduce line items through odd-lot cleanups 6/19/2012 Page 50
  • 51. Optimize: Finding the Best Sector Allocation 9.4% 14.1% 30.1% 65.0% 83.2% 80.3% 66.8% 33.7% 6/19/2012 Page 51
  • 52. Invest Cash: The Cost of Waiting Is too High 6/19/2012 Page 52
  • 53. Example Strategy 6/19/2012 Page 53
  • 54. Example Strategy: Buy/Sell Details 6/19/2012 Page 54
  • 55. Example Strategy: Cashflows 6/19/2012 Page 55
  • 56. Example Strategy: ResultsA. Give Up 32 BPS IncomeB. Take $10K Loss on $54 Million TransactionC. Go into Sectors with Better SpreadsD. Dramatically Reduce Price Volatility (-7.63% +300)E. Shortens Interest Rate SensitivityF. Push $5 Million of Cashflow from 2012 to 2017 6/19/2012 Page 56
  • 57. INTENDED FOR INSTITUTIONAL INVESTORS ONLY. The information included herein has been obtained from sources deemedreliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Anyand all details offered in this publication are preliminary and are therefore subject to change at any time. This has beenprepared for general information purposes only and does not consider the specific investment objectives, financial situation andparticular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacksinformation critical to making final investment decisions. Investors should seek financial advice as to the appropriateness ofinvesting in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections isdependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during theprojection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned.Member FINRA/SIPC.