Today’s Economic Landscape and What’s on the Other Side

Today’s Economic Landscape and What’s on the Other Side May 1, 2009 Presented by: Morris Segall, President SPG Trend Advisors

THE ECONOMY

Gross Domestic Product Q1 2001 – Q1 2009 Source: Bureau of Economic Analysis

Contributions to GDP Growth by Component Q4 2007 – Q1 2009

Source: Bureau of Economic Analysis

Historic and Projected World Output Growth, 2004 through 2010* Source: International Monetary Fund *2009-2010 data are projections This recession has spread worldwide with greater negative impact on export dependent overseas economies. Many overseas economies are now projected to contract this year led by severe recessions in Europe, Japan and Asia. These projections may still be too optimistic for 2009 and 2010.

Corporate Profits (before taxes on corporate income) Q1 2000 – Q4 2008

Source: Bureau of Economic Analysis

Corporate profits are adjusted for inventory valuation and capital consumption. The measure includes both domestic and overseas operations.

Year-over-year Percentage Changes in Corporate Profit before Tax Q1 2001-Q4 2008 Source: Bureau of Economic Analysis

Industrial Production January, 2008 - March, 2009

Source: Federal Reserve Bank

% decline Jan. 08- Feb. 09: 16%

Capacity Utilization by Status of Production January, 2008 - March, 2009

Net Change in U.S. Jobs (Total Non-farm) June, 2005 – March, 2009

Source: Bureau of Labor Statistics

National Nonfarm Employment by Industry Sector Groups January, 2008 – March, 2009

National Nonfarm Employment by Industry Sector Groups September, 2008 – March, 2009

Initial Unemployment Claims January, 2009 – April 25 th , 2009

Source: Department of Labor

Reflecting the rise in unemployment, new job losses rose dramatically in the first quarter of this year. However, the trend of new job losses appears to have peaked at around 650,000 since the latter part of February. Normally we would be prepared to predict a peaking in unemployment is at hand based on this trend. However, we believe a new surge in job losses is coming over the summer as the auto industry downsizes.

Continued Unemployment Claims February, 2006 – April 18 th , 2009

Source: Department of Labor

Source: (Left) Census Bureau, (Right) Federal Reserve Bank

Retail Sales Less Food and Fuel March, 2007 – March, 2009

Consumer Credit Q4 2005 – February, 2009

Since the third quarter of 2008 consumer spending has been declining and the consumer is currently paying down outstanding debt. These trends have been negative for the economy in the short term but the reduction of consumer debt and an increase in consumer savings is positive for the economy and the improved creditworthiness of the consumer longer term.

Existing Home Sales v. Length on Market March, 2006 -March, 2009

Source: (Left) National Association of Realtors, (Right) Census Bureau New Home Sales Units Sold v. Length on Market March, 2006- March, 2009 Housing remains weak but new home inventories may have peaked as new home construction , home prices and mortgage interest rates have declined. The latter will also help the existing home market. We expect the rate of decline in housing sales to diminish over the remainder of this year.

S&P/Case-Shiller Home Price Index 2006 – February, 2009

Source: Standard and Poors

% decline 2006-Feb. 09: 30.1%

Conference Board Consumer Confidence 2005 - April, 2009 Source: Conference Board

Commercial Mortgage Backed Securities Delinquency Rates among Major Investor Groups January, 2008 - March, 2009 Source: Intex, Trepp (Deutsche Bank)

Source: Bureau of Labor Statistics While inflation has declined precipitously in the recession led by the collapse in energy and commodity prices, we are not in agreement with a fear of deflation hitting the U.S. economy. Food, basic services, healthcare and education prices are stubbornly high. Changes in Consumer Price Index in Percentage Terms 2006 v. 2005 2007 v. 2006 2008 v. 2007 6 months ended in Mar. 2009 All items 2.5% 4.1% 0.1% -5.4% Food at Home 1.4% 5.6% 6.6% -1.4% Food Away Home 3.2% 4.0% 5.0% 3.7% Rent of Primary Res 4.3% 4.0% 3.4% 2.8% Owners Equiv of Rent of Prim Res 4.3% 2.8% 2.1% 2.2% Household Energy 2.4% 5.3% 5.9% -11.4% Water/Sewer/Trash 4.8% 5.4% 6.5% 4.7% Houshold Ops 4.4% 2.2% 6.0% 1.0% Car Repair 3.8% 3.3% 5.9% 4.3 % Pub. Transp 0.1% 7.2% 1.8% -20.6% Medical 3.6% 5.2% 2.6% 3.3% Education 6.3% 5.6% 5.6% 5.2% Energy 2.9% 17.4% -21.3% -49.9%

Source: Energy Information Administration

Crude Oil Spot Prices in U.S. Dollars October, 2003– April 21 st , 2009

Broad Dollar Index: a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

Source: Federal Reserve Board

Nominal Broad Dollar Index April, 2000 – April 24 th , 2009

THE GOVERNMENT’S RESPONSE

Money Supply (M2): January, 2007- April, 2009

Federal Budget Deficit (exclusive of Social Security Trust funds) FY 2006 – March, 2009

Source: FMS, U.S. Treasury Department

U.S. Federal Budget Deficit, 1995-2010* *2009-2010 data are projections Source: Congressional Budget Office

Federal Reserve Balance Sheet: Reserve Bank Credit June, 2008 – April, 2009

Source: (Left) Federal Reserve Bank, (Right) British Banker’s Association

Federal Fund Rates,

January 2008-April 22 nd , 2009

3-month LIBOR rates lent in US $

January 2008-April 21 st , 2009

The Fed and European Central Bank have cut interest rates to the banking systems here and abroad thus driving down the cost of bank funds to facilitate bank lending.

How do I get through it?

Manage business on cash flow basis

Increase efficiency of asset turnover; increase liquidity

Intensify customer service initiatives

Become innovative in controlling costs

Outsource where appropriate

Join Co-ops to spread costs over larger group

Look for new ways to leverage existing employees and infrastructure by investigating new sources of revenue from new products and markets. BE A SOLUTIONS PROVIDER

Secure access to bank credit; firm up bank lines

How do I get through it? (cont.)

Spend to increase productivity and market share

Take advantage of accelerated equipment write offs as part of government’s economic stimulus package

Take advantage of soft demand in economy to build for future by aggressive bargain purchasing

If access to capital and liquidity are not detriments, look to acquire troubled companies and/or strategic assets of other companies

Train employees to be more productive and increase their value by enabling them to do more tasks

Increase networking and take advantage of trade associations for additional contacts and leads

Partner with other firms

What’s on the other side?

2009 - Recession Bottoms with Housing and Unemployment

Housing bottoms late this year

Bank loan losses abate in the second half of this year

Unemployment peaks in the second half of this year

Lower Energy Prices alleviate pressure on consumer spending – but virtually no economic growth or recovery

Obama Administration

Increased economic “bailout” and middle class spending programs Increased federal budget deficits and higher taxes

What’s on the other side? (cont.)

2009 – Business

Cost of goods declines from current levels as interest rates, labor costs and commodity prices decline but business is facing zero consumer and business demand.

Corporate profits in decline for most of this year.

Weak consumer spending but pent-up demand building

2010 – Economy Makes Gradual Cyclical Recovery

Increased employment = increased consumer spending

Increased Corporate Sales = increased corporate profits = increased capital spending

Increased interest rates and rising prices from higher demand and continuing federal budget deficits

Where are the opportunities?

Healthcare – National Program

Education

Agriculture

Energy Conservation

Environmental Solutions

Electric Power

Transportation – Increase Mass Transit

Exports

Water Conservation – New Supplies and Recycling

U.S. Government Procurement and Outsourcing – Base Realignment Program (BRAC)

Real Estate – Recycle and Rehab Existing Commercial and Residential Property

Conclusions

We have been in a deep and protracted recession that began in the fourth quarter of 2007. It began in housing and has spread through the entire U.S. and overseas economies. Economic weakness intensified through 2008 and has worsened through the first quarter of 2009. The first quarter should be the nadir of the economic contraction in the current recession cycle.

Increased near term economic pressures include:

high cost and reduced availability of credit

lower corporate profits

increased unemployment

continued weak levels of corporate capital and consumer spending

Conclusions continued

Severe reductions in State and Local Government spending and eroded municipal financial strength

Weak exports as overseas economies continue in recession

Continued credit pressures in residential housing and consumer lending spread to commercial real estate markets and corporate lending

Conclusions continued

However, a bottoming of the housing cycle and an abatement in bank credit losses in the second half of this year, should set the stage for cyclical capital markets and economic improvements in 2009 and 2010. Indeed, capital markets in the U.S. and abroad have already staged a large recovery off what we believe are market cycle lows in the first quarter.

After an expected cyclical recovery in 2010-2012, we believe the longer term socio-economic issues facing this country will result in slower future economic growth for the United States.