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Fritz Meyer Sample Presentation

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Financial economist Fritz Meyer's monthly PowerPoint presentation for advisors to use with clients, prospects, seminars, and webinars.

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Fritz Meyer Sample Presentation

  1. 1. Your Title <ul><li>Economics </li></ul><ul><li>Markets </li></ul><ul><li>Investment Strategy </li></ul>Your Name September 2010 ©2010 FritzMeyerPOV. All rights reserved.
  2. 2. Important Information <ul><li>The views and opinions expressed are those of the speaker and are subject to change based on factors such as market and economic conditions. These views and opinions are not an offer to buy a particular security and should not be relied upon as investment advice. Past performance cannot guarantee comparable future results. </li></ul>
  3. 3. Important Information <ul><li>Performance quoted is past performance and cannot guarantee comparable future results; current performance may be higher or lower. </li></ul><ul><li>Results shown assume the reinvestment of dividends. </li></ul><ul><li>An investment cannot be made directly in an index. </li></ul><ul><li>Investments with higher return potential carry greater risk for loss. </li></ul><ul><li>Investing in small companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity. </li></ul><ul><li>Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about these companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. </li></ul><ul><li>Investing in emerging markets involves greater risk than investing in more established markets such as risks relating to the relatively smaller size and lesser liquidity of these markets, high inflation rates, adverse political developments and lack of timely information. </li></ul><ul><li>Fluctuations in the price of gold and precious metals often dramatically affect the profitability of the companies in the gold and precious metals sector. Changes in political or economic climate for the two largest gold producers, South Africa and the former Soviet Union, may have a direct effect on the price of gold worldwide. </li></ul>
  4. 4. Important Information <ul><li>Asset allocation/diversification does not guarantee a profit or eliminate the risk of loss. </li></ul><ul><li>The S&P 500 ® Index is an unmanaged index considered representative of the U.S. stock market. </li></ul><ul><li>The MSCI EAFE Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. </li></ul><ul><li>The Vanguard 500 Index is an unmanaged index considered representative of the companies in the S&P 500 Index. </li></ul><ul><li>The Vanguard Balanced Index is representative of the standard 60% equity, 40% fixed income allocation. </li></ul><ul><li>The S&P/Case-Shiller U.S. National Home Price Index is an unmanaged index considered representative of single-family home prices for the nine U.S. Census divisions. </li></ul><ul><li>The S&P GSCI Total Return Index is world-production weighted; the quantity of each commodity in the index is determined by the average quantity of production in the last five years of available data. </li></ul><ul><li>The Barclays Capital Long-Term Treasury Bond Total Return Index is an unmanaged index considered representative of long-term treasury bonds. </li></ul><ul><li>The Dow Jones Total Stock Market Index is an unmanaged index that measures all U.S. equity securities that have readily available prices. </li></ul><ul><li>Government securities, such as U.S. Treasury bills, notes and bonds offer a high degree of safety and they guarantee the timely payment of principal and interest if held to maturity. </li></ul><ul><li>U.S. Treasury bills are short-term securities with maturities of one year or less. </li></ul><ul><li>Long-term government bonds used in this illustration have a maturity of approximately 20 years. </li></ul><ul><li>The Consumer Price Index (CPI) is a measure of change in consumer prices, as determined by the U.S. Bureau of Labor Statistics. </li></ul>
  5. 5. Agenda <ul><li>Market Trends </li></ul><ul><ul><li>Economic data </li></ul></ul><ul><ul><ul><li>Leading economic indicators </li></ul></ul></ul><ul><ul><ul><li>Labor market </li></ul></ul></ul><ul><ul><ul><li>Gross domestic product (GDP) </li></ul></ul></ul><ul><ul><ul><li>Housing </li></ul></ul></ul><ul><ul><ul><li>Consumers </li></ul></ul></ul><ul><ul><ul><li>Demographics </li></ul></ul></ul><ul><ul><ul><li>Inflation </li></ul></ul></ul><ul><ul><ul><li>Federal budget deficit </li></ul></ul></ul><ul><ul><ul><li>Taxes </li></ul></ul></ul><ul><li>Investment Strategies </li></ul><ul><ul><li>Wall Street’s advice </li></ul></ul><ul><ul><li>Modern portfolio theory </li></ul></ul><ul><ul><li>Asset allocation </li></ul></ul><ul><ul><li>Conclusions </li></ul></ul><ul><ul><li>Market data </li></ul></ul><ul><ul><ul><li>Stocks </li></ul></ul></ul><ul><ul><ul><li>Bonds </li></ul></ul></ul><ul><ul><ul><li>U.S. dollar </li></ul></ul></ul><ul><ul><ul><li>Commodities </li></ul></ul></ul><ul><ul><ul><li>Gold </li></ul></ul></ul><ul><ul><ul><li>Crude oil </li></ul></ul></ul><ul><ul><li>Conclusions </li></ul></ul>
  6. 6. “ I need some short-term stimulus.” Economic Data
  7. 7. Index of Leading Economic Indicators Economic Data “ The indicators point to a slow expansion through the end of the year. With inventory rebuilding moderating, the industrial core of the economy has moved to a slower pace. There appears to be no change in the pace of the service sector. Combined, the result is a weak economy with little forward momentum. However, the good news is that the data do not point to a recession.” The Conference Board August 19, 2010 Leading Economic Indicators (LEI) components: 1) average weekly hours worked, manufacturing; 2) average weekly initial unemployment claims; 3) manufacturers’ new orders – consumer goods and materials; 4) index of supplier deliveries – vendor performance; 5) manufacturers’ new orders, nondefense capital goods; 6) building permits – new private housing units; 7) stock prices, S&P 500; 8) money supply – M2; 9) interest rate spread; 10-year Treasury less fed funds; 10) index of consumer expectations. Source: Copyright 2010, The Conference Board. Data as of July 31, 2010.
  8. 8. Index of Leading Economic Indicators Six-month percent change Economic Data Source: Copyright 2010, The Conference Board. Data as of July 31, 2010. Historically, the LEI’s six-month rate of change has provided a reliable signal for the onset of recession. Today’s reading remains well into expansion territory.
  9. 9. ISM Manufacturing Purchasing Managers Index (PMI) Economic Data Source: Copyright 2010, Institute for Supply Management; data as of Aug. 31, 2010. &quot;Manufacturing activity continued at a very positive rate in August as the PMI rose slightly when compared to July. … New orders continued to grow but at a slightly slower rate.” Institute for Supply Management (ISM) September 1, 2010 Shaded bands indicate recessions. 25 35 45 55 65 75 Jan-60 Jan-62 Jan-64 Jan-66 Jan-68 Jan-70 Jan-72 Jan-74 Jan-76 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Index
  10. 10. Gross Domestic Product Growth Latest consensus forecast: sustained recovery Economic Data Sources: Bureau of Economic Analysis, data through June 30, 2010, last revised Aug. 27, 2010; Wall Street Journal survey taken Sep. 3-7, 2010.
  11. 11. Gross Domestic Product Growth Fed’s latest central tendency forecast Economic Data Source: Minutes of the Federal Open Market Committee meeting, June 22-23, 2010, released July 14, 2010. Sustained recovery through 2012 +2.5% to +2.8% longer run
  12. 12. GDP = C + I + G + Net Exports Contributions to percent change in real gross domestic product Source: Bureau of Economic Analysis, data through June 30, 2010, last revised August 27, 2010. Economic Data Percent change at annual rate (%) Percent change at annual rate (%) Percent change at annual rate (%) Percent change at annual rate (%)
  13. 13. Slow Improvement in Jobs Picture Economic Data 1 Temporary U.S. Census hiring in 2010 caused exaggerated volatility in the Total monthly change in payrolls. Private sector hiring is presented separately during that period. Sources: National Bureau of Economic Research, Bureau of Labor Statistics; data as of Aug. 31, 2010. -54 Total 1 +67 Private Sector 1
  14. 14. New Job Formation Household survey substantially outpacing establishment survey Economic Data The household survey led the establishment survey coming out of the 2001 recession. It may be leading again. YTD net new jobs : Household survey: 1,485,000 (185k/mo.) Establishment survey: 723,000 (90k/mo.) Source: Bureau of Labor Statistics, data as of Aug. 31, 2010.
  15. 15. Unemployment Is a Lagging Economic Indicator Economic Data Sources: National Bureau of Economic Research, Bureau of Labor Statistics; data as of Aug. 31, 2010. Clear bands indicate recession. 9.6% 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 Jan-60 Jul-61 Jan-63 Jul-64 Jan-66 Jul-67 Jan-69 Jul-70 Jan-72 Jul-73 Jan-75 Jul-76 Jan-78 Jul-79 Jan-81 Jul-82 Jan-84 Jul-85 Jan-87 Jul-88 Jan-90 Jul-91 Jan-93 Jul-94 Jan-96 Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Unemployment Rate (%)
  16. 16. Weekly Unemployment Claims Economic Data Source: U.S. Department of Labor, data through the week of Aug. 14, 2010. Weekly unemployment claims have turned higher following post-recession plunge. That pattern is typical of previous recoveries.
  17. 17. Housing Starts Gradually Recovering 1 Source: Joint Center for Housing Studies, Harvard University, March 2006. Sources: U.S. Census Bureau, data through July 31, 2010; Mortgage Bankers Association’s housing starts forecast dated Aug. 16, 2010. Annual Growth in Number of Households 1 (estimated) Housing Starts (actual) Housing Starts (estimated) end of buyers tax credit
  18. 18. Consumer Spending Economic Data
  19. 19. Consumer Income, Spending and Saving Are Up Source: Bureau of Economic Analysis, data through July 31, 2010. Economic Data July savings rate = 5.9%
  20. 20. Consumer Income by Source Source: Bureau of Economic Analysis, data through July 31, 2010. Economic Data Rising hours worked, average wages and meager, but positive, payroll gains are driving employee compensation.
  21. 21. Consumer Liquidity is at a Record High Source: Federal Reserve, Bureau of Economic Analysis; data through July 31, 2010. Economic Data M2 = cash, checking, savings and retail money market funds. Aggregate household spendable cash equals 75% of annual disposable personal income … or, approximately nine months’ income.
  22. 22. Consumer Spending Versus Household Net Worth How significant is the negative wealth effect on consumer spending? Sources: Federal Reserve, Bureau of Economic Analysis; data through March 31, 2010. Economic Data “ Declining household wealth has a relatively small implied negative impact on aggregate consumption expenditures.” Federal Reserve Bank of Boston Paper No. 09-9, Nov. 13, 2009
  23. 23. Household Debt By this often-cited measure consumers are near-record leveraged Economic Data Source: Federal Reserve, data as of March 31, 2010, released June 17, 2010.
  24. 24. Consumers’ Financial Obligations Ratio Has Improved By this all-in measure consumers don’t appear to be over-leveraged Source: Federal Reserve, data as of March 31, 2010, released June 17, 2010. Economic Data The financial obligations ratio consists of estimated required payments on outstanding mortgage and consumer debt plus automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance and property tax payments divided by disposable personal income.
  25. 25. Personal Income and Spending by Quintile Most consumers don’t appear to be tapped out Economic Data Because income and spending are skewed to the upper brackets, the recovery in spending growth rides significantly on spending behavior in the higher brackets. Sources: Bureau of Labor Statistics. Consumer Expenditure Survey, 2008, table 45. Note: In the NBER’s Working Paper 15408 published October 2009, the top income decile (10%) accounted for 50% of 2007 total income, using a definition of income somewhat broader than the BLS’s.
  26. 26. Retail Sales Recovering 1 CAGR: Compound annual growth rate. Source: U.S. Census Bureau, data as of July 31, 2010. Economic Data CAGR 1 3/09-7/10 = 5.8%
  27. 27. GDP Growth Potential = ∆ Productivity + ∆ Labor Force Labor force to grow 0.8% per year through 2016 Sources: 1909 to 2004: U.S. Census Bureau, 2007 Statistical Abstract; 2005 to 2007: U.S. Department of Health and Human Services, National Center for Health Statistics; 2008: Bureau of Labor Statistics. U.S. Live Births 1909–2008 Economic Data Birth Wave 1 (1946 –197 6) 117 million Birth Wave 2 (echo boomers) (1977 –20 08) 125 million
  28. 28. Benign Inflation Expected to Continue 1 From the minutes of the Federal Open Market Committee meeting, June 22-23, 2010, released July 14, 2010. Source: Bureau of Labor Statistics, data as of July 31, 2010. Federal Reserve’s core personal consumption expenditures (PCE) inflation forecast 1 Economic Data
  29. 29. Inflation Versus Capacity Use The “output gap” argument 1 Source: Federal Open Market Committee’s statement released June 23, 2010. Sources: Bureau of Labor Statistics, Federal Reserve; data as of June 30, 2010. “ With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.” 1 Economic Data
  30. 30. Inflation Versus Money Supply Growth 1 Source: Wikipedia Sources: Bureau of Labor Statistics, Federal Reserve; data as of April 30, 2010. The monetarist explanation of inflation operates through the Quantity Theory of Money, which states MV = PT. M is money supply, V is velocity of circulation, P is price level and T is transactions or output. Because monetarists assume that V and T are determined, in the long run, by real variables such as the productive capacity of the economy, there is a direct relationship between the growth of the money supply and inflation. 1 Economic Data
  31. 31. Money Supply Versus Monetary Base Economic Data Source: Federal Reserve, data as of May 31, 2010. The Federal Reserve has engineered an explosion in the Monetary Base — reserves that commercial banks keep on deposit at the Fed — in an effort to restore confidence in banks and stimulate the economy. M2 — which is a function of both supply and demand for funds — has not surged.
  32. 32. “ TIPS Spread” Implied Inflation Expectations Economic Data The difference between the Treasury Inflation Protected Securities (TIPS) yield and the U.S. Treasury bond yield of the same maturity provides a market –based theoretical measure of investors’ expected rate of annual inflation over the period to maturity. While inflation expectations have declined, investors are not anticipating de flation. Source: Copyright 2010© B0596A. Ned Davis Research, Inc. All rights reserved. Data as of Aug. 30, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained.
  33. 33. “ You’re in luck, in a way. Now is the time to be sick — while Medicare still has some money.” Economic Data
  34. 34. Actual and Projected Federal Budget Deficit Baseline scenario Sources: Actual: Bureau of Economic Analysis through Dec. 31, 2009; Projected: Congressional Budget Office (CBO), Budget and Economic Outlook: An Update, August 2010, Baseline Projection. Economic Data Y/Y ∆ GDP (%) Deficit/GDP (%) Projected Projected (dotted line) 2009 Deficit (E) = $1.4 trillion 2010 Deficit (E) = $1.3 trillion
  35. 35. Actual and Projected Federal Debt as a Percent of GDP Baseline scenario Sources: U.S. Office of Management and Budget data through Dec. 31, 2009; Congressional Budget Office’s (CBO) Budget and Economic Outlook: An Update, August 2010, Baseline Projection. Economic Data Projected (dotted line)
  36. 36. Actual and Projected Federal Debt as a Percent of GDP Source: Congressional Budget Office, Federal Debt and the Risk of a Fiscal Crisis, July 27, 2010, Alternative Fiscal Scenario. Assumptions include: 2001 and 2003 tax cuts extended, Alternative Minimum Tax (AMT) indexed for inflation, Medicare payments to physicians rise over time, taxes remain at ~19% of GDP. Economic Data Note: The extended-baseline scenario adheres closely to current law, following CBO’s 10-year baseline budget projections through 2020 (with adjustments for the recently enacted health care legislation) and then extending the baseline concept for the rest of the long-term projection period. The alternative fiscal scenario incorporates several changes to current law that are widely expected to occur or that would modify some provisions that might be difficult to sustain for a long period.
  37. 37. Congressional Budget Office Long-Term Spending Projections Source: Congressional Budget Office (CBO), The Long-Term Budget Outlook, June 2009. Extended-Baseline scenario. Medicare and Medicaid Social Security Other Federal Noninterest Spending Economic Data Actual Projected
  38. 38. Top Tax Brackets and GDP Growth Sources: Bureau of Economic Analysis; Tax Policy Center. Data through Dec. 31, 2009. Economic Data On Earned Income (right axis) On Capital Gains (dotted, right axis) Reagan Clinton Bush Bush Carter Nixon Johnson Kennedy Kennedy Johnson / Nixon Reagan “ read my lips” Bush II
  39. 39. Taxes as a Percent of GDP Fairly constant in recent decades despite changing top marginal rates Source: Bureau of Economic Analysis. Data through Dec. 31, 2009. Economic Data
  40. 40. “ How much are those?” Market Data
  41. 41. S&P 500 — Through the Financial Crisis Market Data Lehman bankruptcy Stress test recovery Sovereign debt crisis Euro stress test May 6 th “flash crash” Source: Baseline
  42. 42. Record Cash Stash and Stocks Source: Copyright 2010© S423A. Ned Davis Research, Inc. All rights reserved. Data as of July 31, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained. Money Market assets compared to the Dow Jones Total Stock Market Index Market Data
  43. 43. S&P 500 — Earnings Drive Stock Prices, Estimates Rising <ul><ul><li>1 Estimated 2010 and 2011 bottom-up S&P 500 earnings per share (left scale): for 2010, $81.12; for 2011, $95.06, as of Aug. 31 2010. </li></ul></ul><ul><li>Source: Thomson Baseline, data through Aug. 3, 2010. Reuters and Thomson Financial survey of consensus estimates. </li></ul>Market Data 2010 1 2011 1
  44. 44. Ned Davis Research’s Cycle Composite Rally in Q4? Source: Copyright 2010© S01666. Ned Davis Research, Inc. All rights reserved. Data as of Sept. 2, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained. Market Data 2010 Cycle Composite puts equal weight on: one-year seasonal cycle, four-year presidential cycle and 10-year decennial cycle.
  45. 45. Bond Bubble? Cash flow to equity and bond mutual funds Market Data Source: Copyright 2010© AA86. Ned Davis Research, Inc. All rights reserved. Data as of May 31, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained. Flows out of equity funds. Record flows into bond funds. Barron’s cover story July 12, 2010: “Beware Bond Funds — When interest rates finally rise, bond-fund holders will get slammed worse than owners of individual bonds.” WSJ article Aug. 18, 2010: “The Great American Bond Bubble,” by Jeremy Siegel and Jeremy Schwartz.
  46. 46. Bond Bubble? 10-year Treasuries are modestly over-valued in this model Source: Copyright 2010© B0410A. Ned Davis Research, Inc. All rights reserved. Data as of Aug. 31, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained. Ned Davis Research’s 10-year Treasury bond valuation model is based on core PCE price index, 6-month T-bill yield, real German bond yield and real GDP trendline growth.
  47. 47. 10-year U.S. Treasury Bond Yield Forecasts Most economists expect rising bond yields 1 Wall Street Journal , survey of 54 economists taken Aug. 6-9, 2010. 2 Median forecast. 3 At Aug. 12, 2010. Market Data Distribution of Forecasted Bond Yields — 54 Economists Surveyed 1 Current 3 3.10% 2 4.05% 2
  48. 48. 10-year U.S. Treasury Bond Yield Viewed from the long-term perspective bond yields could go lower Market Data Source: Copyright© Thechartstore.com, with permission, monthly data through Aug. 27, 2010.
  49. 49. Agency, Mortgage-Backed and Corporate Bond Yields Hitting new lows Source: Copyright 2010© B158A. Ned Davis Research, Inc. All rights reserved. Data as of Sept. 2, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained. Market Data Investment-grade corporate yields < 4%. High yield bonds yield 8%–9%. Emerging markets yield 5%–6%. Commercial Mortgage Backed Securities (CMBS) yield 5%.
  50. 50. U.S. Dollar Source: Copyright© Thechartstore.com, with permission, monthly data through Aug. 31, 2010. Trade-Weighted U.S. Dollar Index Market Data %
  51. 51. Commodities, Stocks and Inflation Source: Copyright© Ned Davis Research, Inc. B0705B. Data as of June 30, 2010. The data and analysis shown are provided “as is” and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on this information contained. Market Data Commodities have historically provided long-term returns comparable to stocks. Commodities have historically outperformed during periods of rising inflation.
  52. 52. Gold Lately ignoring $USD strength; reflecting relentless demand for safe haven Market Data Source: Baseline. Data as of June 30, 2010.
  53. 53. Crude Oil Rising post-recession demand forecast Market Data Source: U.S. Department of Energy, Energy Information Agency, International Energy Outlook, May 2010, reference case. 1 BRIC = Brazil, Russia, India and China. Actual Estimated
  54. 54. Crude Oil Historically inversely correlated to the $USD; reflecting rising global demand outlook Market Data Source: Baseline. Data as of June 30, 2010.
  55. 55. Conclusions <ul><li>Economic data: </li></ul><ul><li>Most economists believe that global economic recovery will continue despite the sovereign debt crisis and U.S. slowing. </li></ul><ul><li>The unemployment rate might trail economic recovery. </li></ul><ul><li>Consumers’ savings and liquidity have risen substantially. </li></ul><ul><li>The “negative wealth effect” may be over-estimated. </li></ul><ul><li>Significant skew in income; spending is relevant to economic recovery. </li></ul><ul><li>The U.S. economy is positioned to potentially continue its +2½% to +3% long-term trend rate of growth. </li></ul><ul><li>Inflation is subdued and has the potential to remain so for at least a few years. </li></ul><ul><li>The CBO projects massive budget deficits lasting two years. </li></ul><ul><li>Higher marginal tax rates don’t automatically equate to recession. </li></ul><ul><li>Market data: </li></ul><ul><li>Still significant cash on the sidelines. </li></ul><ul><li>Fund flows heavily weighted to bonds. </li></ul><ul><li>Stocks are attractively valued on estimated earnings. </li></ul><ul><li>The U.S. dollar is mid-range. </li></ul><ul><li>Commodities have historically provided equity-like returns. </li></ul><ul><li>Gold and crude oil both strong despite $USD rally . </li></ul>“ It’s just a correction. The fundamentals are still good.”
  56. 56. “ Winning is crucial to my retirement plans.” Investment Strategies
  57. 57. Wall Street’s Call for 2009 1 Published Dec. 22, 2008. 2 Retailers 3 Health care equipment 4 Semiconductors For illustrative purposes only. Barron’s 2009 Forecast 1 Survey of 12 stock market strategists sector picks and pans for 2009 Big Miss Good Call Wrong Wrong Big Miss Investment Strategies Missed Wrong Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Blackrock + - + + - - DB Private Wealth - + + + - Neuberger Berman - + - + + Oppenheimer Funds - + + U.S. Trust - + + - + + Wells Capital Management + - - + + + - Citigroup + 2 - + + 3 + 4 + - Goldman Sachs - + + - JP Morgan + - + + - - Merrill Lynch - + - - + - - + Morgan Stanley + - + + - - - + Strategas - + + + - - - - Net (+/-)l -2 +5 -2 -1 +9 -4 +4 -3 +2 -3 Actual 2009 Sector Return (Rank) +39% (3) +11% (8) +11% (7) +15% (6) +17% (5) +17% (4) +60% (1) +45% (2) +3% (10) +7% (9)
  58. 58. Wall Street’s Call for 2010 1 Published Dec. 21, 2009. 2 Media For illustrative purposes only. Barron’s 2010 Forecast 1 Survey of 12 stock market strategists sector picks and pans for 2010 Investment Strategies Only six out of last year’s 12 strategists returned for this survey. Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Blackrock - + + + - U.S. Trust - - + - + + + - Putnam - + + - Morgan Stanley + 2 - + + - Wells Capital Management + - + - + + + - Prudential - + - + + + - BofA Merrill - + + - + - Barclays - - + + + Goldman Sachs - + - + + - - JPMorgan - + + + - Citigroup + + - + - ISI Group - + + - Net (+/-) -2 -4 +4 0 -1 +7 +8 +5 -2 -8
  59. 59. Modern Portfolio Theory “ Your mother called to remind you to diversify.” Investment Strategies
  60. 60. Modern Portfolio Theory = Asset Allocation Asset allocation and diversification do not guarantee a profit or eliminate the risk of loss. Source: Riskglossary.com Modern portfolio theory was introduced by Harry Markowitz with his paper “Portfolio Selection,” which appeared in the 1952 Journal of Finance . Thirty-eight years later, he shared a Nobel Prize with Merton Miller and William Sharpe for what has become a broad theory for portfolio selection. Modern Portfolio Theory Diversify Optimize Rebalance Investment Strategies
  61. 61. Asset Allocation — An Example 7Twelve™ Global Balanced Index Investment Strategies Source:©7Twelve, November 2009, with permission. Prof. Craig Israelsen is an associate professor at Brigham Young University and a contributor to Financial Planning, Journal of Indexes, Bank Investment Consultant Magazine, Financial Advisor and other publications.
  62. 62. Asset Allocation — Example of of Modern Portfolio Theory 7Twelve™ Global Balanced Index Investment Strategies This hypothetical portfolio illustrates a possible fund diversification strategy. Discuss your portfolio diversification strategy with your financial adviser, who can help you select appropriate investments for your goals, time horizon and risk tolerance. Past performance cannot guarantee comparable future results. Source:©7Twelve, December 2009, with permission. Prof. Craig Israelsen is an associate professor at Brigham Young University and a contributor to Financial Planning, Journal of Indexes, Bank Investment Consultant Magazine, Financial Advisor and other publications. An investment cannot be made in an index. 100% Active 7Twelve Index 100% Passive 7Twelve Index Vanguard Balanced Index Vanguard 500 Index
  63. 63. FundQuest BNP Paribas Study 1 Bank Loan, Bear Market Commodities Broad Basket, Communications Conservative Allocation Consumer Discretionary, Consumer Staples Convertibles, Currency, Diversified Emerging Mkts Diversified Pacific/Asia, Emerging Markets Bond Equity Energy, Equity Precious Metals Europe Stock, Financial Foreign Large Blend, Foreign Large Growth Foreign Large Value, Foreign Small/Mid Growth Foreign Small/Mid Value, Global Real Estate Health, High Yield Bond, High Yield Muni Industrials, Inflation-Protected Bond Intermediate Govt’ Bond Intermediate-Term Bond, Japan Stock, Large Blend Large Growth, Large Value, Latin America Stock Long Government, Long-Short, Long-Term Bond Mid-Cap Blend, Mid-Cap Growth, Mid-Cap Value Miscellaneous Sector, Moderate Allocation Multisector Bond Muni National Interm, Muni National Long Muni National Short, Muni Single State Interm Muni Single State Long, Muni Single State Short Natural Resources, Pacific/Asia ex-Japan Stk, Real Estate Retirement Income, Short Government Bond Short-Term Bond, Small Blend, Small Growth Small Value Target Date 2000-2010 Target Date 2011-2015; 2016-2020; 2021-2025 Target Date 2026-2030; 2031-2035; 2036-2040 Target Date 2041-2045; Target Date 2050+ Technology, Ultrashort Bond, Utilities, World Allocation, World Bond, World Stock Investment Strategies 73 Fund Categories Analyzed 1 ©FundQuest BNP Paribas Group study dated June 2010, Jane Li, author. “When Active Management Shines vs. Passive — Examining Real Alpha in 5 full market cycles over the past 30 years.” “ Out of the 73 categories in our study, we recommend a bias to active management in 23 categories and a bias to passive management in 22 categories. Twenty-eight (28) categories were deemed neutral.”
  64. 64. About 7Twelve™ Excerpt from the Bank Investment Consultant magazine: The name refers to seven core asset classes with 12 underlying sub-assets. The 7Twelve Index is constructed to generally follow the time-tested 60/40 guideline, but it uses eight sub-assets instead of one to create an overall equity exposure of about 65% and four fixed-income sub-assets instead of one to create a &quot;bond&quot; exposure of about 35%. All 12 sub-assets are index-based, exchange-traded funds (the Passive 7Twelve Index) and all are equally weighted: Each represents 8.3% of the 7Twelve index. The fund is rebalanced annually to maintain the equal weighting. The Active 7Twelve Index is constructed using actively managed mutual funds. An investment cannot be made directly in an index. Source: © $icx. All rights reserved. Used with permission.
  65. 65. Asset Allocation — Emerging Markets Looking out five years — International Money Fund’s (IMF) 2014 GDP growth rate forecasts Investment Strategies Source: IMF, World Economic Outlook — October 2009.
  66. 66. Asset Allocation — Emerging Markets BRIC’s share of global GDP has surpassed the U.S. and Europe Investment Strategies 1 BRIC = Brazil, Russia, India and China. 2 E.U. = 27 countries using the euro currency Source: IMF World Economic Outlook, October 2009
  67. 67. Asset Allocation — Emerging Markets BRIC’s GDP per capita — growth potential from very low base Investment Strategies Source: IMF World Economic Outlook, October 2009. BRIC = Brazil, Russia, India and China. E.U. = 27 countries using the euro currency.
  68. 68. Conclusions <ul><li>Investment strategies: </li></ul><ul><li>Wall Street strategists don’t always systematically add value. </li></ul><ul><li>Global diversification with rebalancing provides support for modern portfolio theory (MPT). </li></ul><ul><li>Potential for long-term economic growth in emerging markets. </li></ul>“ I’m looking for a hedge against my hedge funds.”
  69. 69. And Don’t Believe Everything You Hear <ul><li>A study by Media Research Center of a year’s worth of economic coverage on ABC, CBS and NBC found more than twice as many stories and briefs focused on negative aspects of the economy (62%) compared to good news (31%). </li></ul>Source: Media Research Center, “Bad News Bears,” October 2006 “ We were wondering if now would be a good time to panic?”
  70. 70. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These materials may contain statements that are not purely historical in nature but are “forward-looking statements.” These include, among other things, projections, forecasts, estimates of income, yield or return or future performance targets. These forward-looking statements are based upon certain assumptions, some of which are described herein. Actual events are difficult to predict and may substantially differ from those assumed. All forward-looking statements included herein are based on information available on the date hereof and Fritz Meyer assumes no duty to update any forward-looking statement. Accordingly, there can be no assurance that estimated returns or projections can be realized, that forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. Note: Not all products, materials or services available at all firms. Advisers, please contact your home office. Important Information

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