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Looking Ahead to 2011:  Surprise!!  The Economy is Better than You Might Think  Fred H. Dickson, CMT Senior Vice President...
D.A. Davidson Overview- Risks/Challenges  <ul><li>Market Thrills: </li></ul><ul><li>Stock Market up between 10% and 30% (d...
D.A. Davidson Overview- Risks/Challenges  <ul><li>Market Chills: </li></ul><ul><li>Economic Uncertainties due to 2010 Heal...
D.A. Davidson Overview- Risks/Challenges  <ul><li>Market Spills: </li></ul><ul><li>96-Day British Petroleum Gulf of Mexico...
D.A. Davidson Overview- Risks/Challenges  <ul><li>Stock Market:    DJIA: + 11% (11,572) </li></ul><ul><li>Gold:    +28%  (...
D.A. Davidson Overview- Risks/Challenges  <ul><li>We expect the economy to grow slightly faster in 2011 with GDP hitting 3...
D.A. Davidson Overview- Risks/Challenges  <ul><li>Geo-political tensions in Korea and the Middle East </li></ul><ul><li>Eu...
D.A. Davidson’s Economic Overview Summary  Bullish Factors (14): Bearish Factors (7): GDP – Positive – Contracting Annual ...
The Economy is Stronger than Most Realize Long-term View of the Growth Rate of the US Economy  12 Month % Change – Real GD...
D.A. Davidson’s Economic Overview Summary Consumer spending is back to Summer 2008 record levels  Source: Factset Data Sys...
Corporate Earnings (Cash Flow Basis before Tax).  Bottomed out 2Q 2008.  Source: Factset Data Systems   12 Month % Change ...
Updated 12/6/2010 Market Reaction to Government Programs: <ul><li>2010 Patient Care Protection and Affordable Healthcare A...
D.A. Davidson’s Economic Overview Summary Federal Budget Deficit – Projected to be $1.38 trillion in 2010 and $1.06 trilli...
Federal Debt Is a Big Growing Problem  Federal Debt as a Percent of Real GDP (1954-2010)  Updated 12/6/2010 Source: Factse...
Updated 12/6/2010 Economic Reaction to Government Programs: <ul><li>Businesses are slowly adjusting to the Healthcare and ...
Updated 12/6/2010 Economic Reaction to Government Programs: <ul><li>State Budgets feeling the pressure from the loss of Fe...
Should We Worry About a Bond Market Bubble? Bond Market Overview – 10 Year Treasury Yield.  Yields are extended on the dow...
Should We Worry About a Bond Market Bubble? Bond vs Stock Performance Last 15 Years… Bonds Won  Source: Factset Data Syste...
D.A. Davidson’s Stock Market Overview   S&P 500 – Still in a Long-term Bull Market. Market continues to track within is te...
INVESTABLE FUNDS LIQUIDITY/AVAILABILITY   ECONOMIC GROWTH Geo-political / Currency FOMC POLICY EPS EXPECTATIONS STOCK PRIC...
Market Valuation Metrics .  The market valuation is well below the long-term average.  The P/E ratio shows a very high deg...
What’s Happening in Oregon? Source: University of Oregon The U of O Economic Index for Oregon --- Back on the Road to Reco...
What’s Happening in Oregon? Source: Factset Data Systems Case-Shiller Home Price Index – Portland, OR (Now at July 2005 Le...
What’s Happening in Oregon? Source: Oregon Employment Dept OREGON UNEMPLOYMENT RATE REMAINS STALLED AT 10.6% (Dec 2011)
What’s Happening in Oregon? Source: Oregon Employment Dept Source: Oregon Employment Dept
What’s Happening in Oregon? Source: Oregon Employment Dept Source: Oregon Employment Dept Fastest Industry Growth in Oregon
What’s Happening in Oregon? Source: Oregon Employment Dept Source: Oregon Employment Dept
What’s Happening in Oregon? Source: OregonLive.com SPOT NOW
What’s Happening in Oregon? Source: Start-upHire.com Oregon Startups are Hiring   <ul><li>ClearEdge Power – Hillsboro </li...
What Type Jobs? Source: Start-upHire.com Oregon Startups are Hiring  - 70 Jobs are Advertised   <ul><li>Customer Advocate ...
<ul><li>Huge $ trillion long-term economic global growth drivers remain in place including: </li></ul><ul><li>Water resour...
In Summary : D.A. Davidson Overview   <ul><li>The economic data points to a gradual expansion  that should translate into ...
Disclosures   This material has been compiled from sources we deem to be reliable; it is not guaranteed as to its accuracy...
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Fred Dickson SOBC 2011

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Fred Dickson, Chief Investment Strategist for DA Davidson spoke at the Southern Oregon Business Conference on January 26, 2011. While our region has some specific challenges, it is good to hear that we are avoiding a double-dip recession and we can expect to continue a slow recovery.

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Fred Dickson SOBC 2011

  1. 1. Looking Ahead to 2011: Surprise!! The Economy is Better than You Might Think Fred H. Dickson, CMT Senior Vice President & Chief Investment Strategist January 26, 2011 Important Disclosures on Slide 24 SOUTHERN OREGON REGIONAL ECONOMIC DEVELOPMENT, INC
  2. 2. D.A. Davidson Overview- Risks/Challenges <ul><li>Market Thrills: </li></ul><ul><li>Stock Market up between 10% and 30% (depending on Index) </li></ul><ul><li>Consumer Spending Returned to the 2008 Prior Record Level by Year-end 2010 </li></ul><ul><li>No Double-Dip Recession </li></ul><ul><li>2010 Tax Reform Act (Extension of Bush Tax Rates) </li></ul><ul><li>The 2008 TARP Program Produced a Profit for the US Treasury </li></ul>2010 A Year of Thrills, Chills, Spills Updated 11/1/2010
  3. 3. D.A. Davidson Overview- Risks/Challenges <ul><li>Market Chills: </li></ul><ul><li>Economic Uncertainties due to 2010 Healthcare Reform Act </li></ul><ul><li>Massive Federal Reserve Quantitative Easing Programs </li></ul><ul><li>Political Tensions between North and South Korea </li></ul><ul><li>Escalated Domestic and Global Terrorist Threats </li></ul><ul><li>China’s Recent Moves to Slow Economic Growth and Inflation </li></ul><ul><li>Continuing Small Business Credit Lending Restraints </li></ul><ul><li>Rising Commodity-based Inflation Rate </li></ul>2010 Thrills, Chills, Spills Updated 11/1/2010
  4. 4. D.A. Davidson Overview- Risks/Challenges <ul><li>Market Spills: </li></ul><ul><li>96-Day British Petroleum Gulf of Mexico oil spill / Rising Oil Prices ($92/barrel) </li></ul><ul><li>European Debt Crisis (Greece and Ireland) </li></ul><ul><li>$14 Trillion Federal Debt – Rising Fiscal 2011 Budget Deficit to $1.5 Trillion </li></ul><ul><li>Massive State and Municipal Budget Deficits </li></ul><ul><li>154 FDIC Bank Closures </li></ul><ul><li>9.8% National Unemployment Rate </li></ul><ul><li>1 Million Home Foreclosures – Slow Recovery of Existing Home Sales </li></ul>2010 Thrills, Chills, Spills Updated 11/1/2010
  5. 5. D.A. Davidson Overview- Risks/Challenges <ul><li>Stock Market: DJIA: + 11% (11,572) </li></ul><ul><li>Gold: +28% ($1421/ounce) </li></ul><ul><li>Crude Oil: +28% ($91.38/bbl) </li></ul><ul><li>Economy: Real GDP +3.2% (2010 Est) </li></ul><ul><li>Unemployment: 9.4% 12/2009: 9.6% </li></ul><ul><li>Inflation: (CPI-Core) +1.1% 12/2009: +1.8% </li></ul><ul><li>Household Net Worth: +4.6% YTD (Fed Estimate) </li></ul>D.A. Davidson Overview- 2010 Overview Updated 11/1/2010
  6. 6. D.A. Davidson Overview- Risks/Challenges <ul><li>We expect the economy to grow slightly faster in 2011 with GDP hitting 3% to 3 ½%. </li></ul><ul><li>We expect the dollar to swing in a wide range with the euro trading between $1.15 and $1.45 </li></ul><ul><li>We expect interest rates to remain low, but rise gradually throughout 2011 reflecting Fed policy </li></ul><ul><li>We expect commodity prices to remain volatile with gold moving up to $1,500/ounce and crude oil trading between $70/barrel and $100/barrel in 2011 </li></ul><ul><li>We are looking for the stock market to be up from 10% to 15% in 2011 versus the year-end 2010 level </li></ul>D.A. Davidson 2011 Outlook
  7. 7. D.A. Davidson Overview- Risks/Challenges <ul><li>Geo-political tensions in Korea and the Middle East </li></ul><ul><li>European Bank Debt Crisis dramatically widens </li></ul><ul><li>The economic recovery stalls keeping the unemployment rate near 10% (20% probability) </li></ul><ul><li>Home Foreclosures continue to expand – Home price weakness continues through 2011 </li></ul><ul><li>Long-term personal and corporate tax reform debate </li></ul><ul><li>State and Municipal Government budgets problems dramatically worsen in 2011 </li></ul><ul><li>Unexpected fallout from the 2010 Healthcare and Financial Reform Acts </li></ul>D.A. Davidson 2011 Risk Factors – Dark Clouds
  8. 8. D.A. Davidson’s Economic Overview Summary Bullish Factors (14): Bearish Factors (7): GDP – Positive – Contracting Annual Growth Personal/Corp Income Tax Increases (2013) Corporate Investment Spending -Positive Home Foreclosure Rate –Negative Federal Reserve Monetary Policy- Positive Federal Budget Deficit – Negative/Worsening Real Corporate Profits-Positive Demographics (Age 45-54)—Negative Trend Auto Sales/Price Trend -- Improving Crude Oil Price- $90/Barrel and Rising ISM Indices – Positive -- Accelerating Unemployment rate – 9.4% Interest Rate Yield Curve –Positive Slope Falling Home Prices – Double Dip Inventories/Export Sales - Improving Durable Goods Orders -- Improving Neutral Factors (8): Major Global Economies –Positive Retail Sales Comps – Positive but Mixed Inflation (CPI Core) - Positive Housing Starts – Still Very Depressed Rail Car Loadings - Improving Employment Trends – Very Slow Improvement Overtime Hours- Positive Leading Indicators- Positive but Slowing Existing Home Sales – Weak but Accelerating Commercial Loan Write-offs –High/Declining The Economy is Stronger than Most Realize Source: Davidson Market Strategy
  9. 9. The Economy is Stronger than Most Realize Long-term View of the Growth Rate of the US Economy 12 Month % Change – Real GDP US Economy +3.2% Y/Y Updated 11/1/2010 ABOVE THE LONG-TERM AVERAGE GROWTH RATE
  10. 10. D.A. Davidson’s Economic Overview Summary Consumer spending is back to Summer 2008 record levels Source: Factset Data Systems US Retail Sales ($ billions) – Excludes Auto Sales (Recession Periods Shaded) The Economy is Stronger than Most Realize Updated 12/6/2010
  11. 11. Corporate Earnings (Cash Flow Basis before Tax). Bottomed out 2Q 2008. Source: Factset Data Systems 12 Month % Change Updated 12/6/2010 The Economy is Stronger than Most Realize
  12. 12. Updated 12/6/2010 Market Reaction to Government Programs: <ul><li>2010 Patient Care Protection and Affordable Healthcare Act……Student Aid and Fiscal Responsibility Act (rider) </li></ul><ul><li>Dodd-Frank Wall Street Reform and Consumer Protection Act </li></ul><ul><li>2011 Tax Reform Act (Extends Tax Brackets) </li></ul><ul><li>$600 Billion Federal Reserve Treasury Purchase Program (Quantitative Easing) </li></ul>Four Government Actions Continue to Impact the Financial Markets
  13. 13. D.A. Davidson’s Economic Overview Summary Federal Budget Deficit – Projected to be $1.38 trillion in 2010 and $1.06 trillion in 2011. Big Deficits present a huge obstacle to rapid future economic growth Source: US Treasury Department Impact of Government Programs on the Debt Reagan Bush 41 Clinton Bush 43 Obama Calendar Year Basis
  14. 14. Federal Debt Is a Big Growing Problem Federal Debt as a Percent of Real GDP (1954-2010) Updated 12/6/2010 Source: Factset Data Systems US Debt Burden is now in the Top 20 List of the Most Indebted Global Nations
  15. 15. Updated 12/6/2010 Economic Reaction to Government Programs: <ul><li>Businesses are slowly adjusting to the Healthcare and Financial Reform Acts </li></ul><ul><li>Financial services firm remain under market pressure due to uncertainty surrounding regulations that have not yet been defined </li></ul><ul><li>Extension of 2001 and 2003 Tax Brackets and Definition of Estate Taxes for 2011 and 2012 gave the stock market a lift but set up uncertainty for the fall of 2012 </li></ul><ul><li>Banking Credit Regulatory Lending restraint while slowly loosening remains a huge problem for the economic recovery </li></ul>
  16. 16. Updated 12/6/2010 Economic Reaction to Government Programs: <ul><li>State Budgets feeling the pressure from the loss of Federal Funding resulting from the 2009 $784 billion Economic Stimulus Act …….. Not likely to be extended </li></ul><ul><li>States must brace for substantial increases in Medicaid funding resulting from the 2010 Healthcare Reform Act </li></ul><ul><li>Municipalities in Oregon, and nationwide, continue to responded by cutting jobs. 2400 state/municipal jobs were cut in Oregon in December </li></ul><ul><li>We see this trend worsening until tax revenues begin to increase as the economy slowly recovers although municipal tax revenues rose 5% nationally in 2009. </li></ul>
  17. 17. Should We Worry About a Bond Market Bubble? Bond Market Overview – 10 Year Treasury Yield. Yields are extended on the downside barely providing a return that is above the inflation rate. Risk level: Moderate to High. Near Record Low Level Source: Factset Data Systems Updated 12/6/2010
  18. 18. Should We Worry About a Bond Market Bubble? Bond vs Stock Performance Last 15 Years… Bonds Won Source: Factset Data Systems Updated 12/6/2010
  19. 19. D.A. Davidson’s Stock Market Overview S&P 500 – Still in a Long-term Bull Market. Market continues to track within is technical “Uptrend Channel”. Our Target is 1400 at 12/31/2011. Our DJIA Target is 13,000 at 12/31/2011. Updated 12/6/2010 Uptrend Channel Downtrend Channel
  20. 20. INVESTABLE FUNDS LIQUIDITY/AVAILABILITY ECONOMIC GROWTH Geo-political / Currency FOMC POLICY EPS EXPECTATIONS STOCK PRICE TREND INFLATION EQUITY VALUATION INTEREST RATES MERGERS/IPO ACTIVITY DEMOGRAPHIC TRENDS LEGAL/REGULATORY/ POLITICAL FEDERAL BUDGET DEFICIT MARKET/ECONOMIC CYCLE POSITION PERSONAL SECURITY/SAFETY Bullish Bearish Neutral Federal, State. Local Personal/Corp Tax Rates D.A. Davidson Financial Markets Overview- Weight of the Evidence – Favoring Equities Source: DA Davidson Market Strategy INVESTOR SENTIMENT
  21. 21. Market Valuation Metrics . The market valuation is well below the long-term average. The P/E ratio shows a very high degree of market “fear” given current low interest rates, low inflation and projected recovery earnings growth. D.A. Davidson’s Market Metrics Overvalued Undervalued Updated 12/6/2010 Source: Factset Data Systems S&P 500 P/E (Projected Next Twelve Month EPS)
  22. 22. What’s Happening in Oregon? Source: University of Oregon The U of O Economic Index for Oregon --- Back on the Road to Recovery
  23. 23. What’s Happening in Oregon? Source: Factset Data Systems Case-Shiller Home Price Index – Portland, OR (Now at July 2005 Level)
  24. 24. What’s Happening in Oregon? Source: Oregon Employment Dept OREGON UNEMPLOYMENT RATE REMAINS STALLED AT 10.6% (Dec 2011)
  25. 25. What’s Happening in Oregon? Source: Oregon Employment Dept Source: Oregon Employment Dept
  26. 26. What’s Happening in Oregon? Source: Oregon Employment Dept Source: Oregon Employment Dept Fastest Industry Growth in Oregon
  27. 27. What’s Happening in Oregon? Source: Oregon Employment Dept Source: Oregon Employment Dept
  28. 28. What’s Happening in Oregon? Source: OregonLive.com SPOT NOW
  29. 29. What’s Happening in Oregon? Source: Start-upHire.com Oregon Startups are Hiring <ul><li>ClearEdge Power – Hillsboro </li></ul><ul><li>Inside Track Learning – Portland </li></ul><ul><li>Mobil Productivity, Inc – Portland </li></ul><ul><li>Archive Systems – Portland </li></ul><ul><li>Avnera – Beaverton </li></ul><ul><li>Ryan Herco Products – Portland </li></ul><ul><li>Dachis Group – Portland </li></ul><ul><li>Vesta – Portland </li></ul><ul><li>Barracuda Networks – Portland </li></ul><ul><li>Jive Software – Portland </li></ul><ul><li>Omneon – Beaverton </li></ul><ul><li>TriVium -- Beaverton </li></ul>
  30. 30. What Type Jobs? Source: Start-upHire.com Oregon Startups are Hiring - 70 Jobs are Advertised <ul><li>Customer Advocate 13. Senior Web Designer </li></ul><ul><li>Helpdesk Specialist 14. Senior Linux Programmer </li></ul><ul><li>Automotive Trainer 15. Applications Developer </li></ul><ul><li>Human Resources Manager 16. Software Engineer </li></ul><ul><li>Sales Associate 17. UI Designer </li></ul><ul><li>Communications Systems Engineer 18. Java Developer </li></ul><ul><li>Warehouse Facilitator 19. Documentation Engineer </li></ul><ul><li>Informational Designer 20. Revenue Manager </li></ul><ul><li>Senior Account Manager 21. Korea Program Director </li></ul><ul><li>Project Manager 22.Field Services Technician </li></ul><ul><li>Sales Engineer 23. Executive Assistant </li></ul><ul><li>Business Analyst 24. Senior Mechanical Engr. </li></ul>
  31. 31. <ul><li>Huge $ trillion long-term economic global growth drivers remain in place including: </li></ul><ul><li>Water resource acquisition, development and distribution; </li></ul><ul><li>Global food production and distribution; </li></ul><ul><li>National and business security activities; </li></ul><ul><li>Preventive and diagnostic healthcare ; </li></ul><ul><li>Productivity/advanced technology solutions; </li></ul><ul><li>Alternative energy/global environmental solutions; --- </li></ul><ul><li>Major infrastructure upgrades (roads, bridges, schools, energy refining and distribution, utility grid) </li></ul>Looking Ahead: 2011 and Beyond
  32. 32. In Summary : D.A. Davidson Overview <ul><li>The economic data points to a gradual expansion that should translate into a 10% to 15% operating earnings growth for the S&P 500 </li></ul><ul><li>We project a 2011 year-end unemployment rate of 9%, down from 9.8% in 2010.. </li></ul><ul><li>We remain in a very volatile long-term cyclical bull market for US equities </li></ul><ul><li>Market volatility remains high due to investor concerns over the economy, the European debt situation, pending long-term tax reform, inflation concerns. </li></ul><ul><li>We expect US interest rates to remain low but slowly rise during 2011 pending improving signs of a sustainable economic recovery with a modest rebound in jobs growth. Inflation remains subdued. </li></ul><ul><li>Market fundamentals matter most – above average dividend yield, very attractive stock market valuation, accelerating merger activity, and the need to investment invest huge amounts of cash sitting on the sidelines. </li></ul>
  33. 33. Disclosures This material has been compiled from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. All opinions and estimates contained in these reports constitute D.A. Davidson & Co.’s judgment as of the date of such reports, are subject to change without notice and are provided in good faith but without legal responsibility. The information is not intended to be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. It is not a representation by us, or an offer, or the solicitation of an offer, to sell or buy any security. Further, a security described in a report may not be eligible for solicitation in the states in which a client resides. Analyst Certification: The research analyst(s) responsible for this report, attests (i) that all the views expressed in this research report accurately reflect the personal views about the common stock of the subject company and (ii) that no part of the compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by him/her in the report. Further information and elaboration is available upon request.

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