economic concerns slide show 2 09

i i li i lFinancial ConcernsFinancial Concernsin challenging timesin challenging timesin challenging timesin challenging times

Mark J. DeschainePresident & Chief Investment Officer

D h CDeschaine & Company, L.L.C.A Registered Investment Advisor

Belleville, Illinois

1

Is not to scare youIt’ t t f It’s not to confuse youAnd it’s certainly not to sell you anything

’ fIt’s to Inform you

Our Objective todayOur Objective todayOur Objective todayOur Objective today2

Today, all investors Today, all investors are faced with three are faced with three are faced with three are faced with three important questions:important questions:

d h i h f iHow do I get the Right InformationOn the Right Topicsg p

In time to make the Right decisions

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Failure of major financial institutionsGovernment “Bailouts” Economic “Stimulus” PlansStock market lossesRapidly declining home valuesHistorically LOW interest rates

h fEver present threat of TerrorismSocial Security Funding

Economic ConcernsEconomic ConcernsEconomic ConcernsEconomic Concerns4

All threaten ourEconomic Security

Economic SecurityEconomic SecurityEconomic SecurityEconomic Security5

In the Great Depression real GDP declined 4 years in a row y

for a total of 27%

1930 1931 1932 1933 1934-8.6% -6.4% -13.0% -1.3% +10.8%

Another Great Depression?Another Great Depression?Another Great Depression?Another Great Depression?6

In the current downturn real GDP is expected to fall for 4 quarters p q

For a total of 3-5%

2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3-0.5% -3.8% -4.9% -1.5% +0.8%


Longest Since the Great Depression

Post-War Recessions MonthsAverage: 10 Previous Post-War Recessions 10 mos.

Longest (1973-75 & 1981-82 16 mos.

Current Recession (Since December 2007) 14 mos.

Current Forecast (12/07-12-09) 24 mos.

The Great Depression (1929-1933 42 mos.


Consumer confidence sinksConference Board’s measure sinks

id di l j b k t

Consumer confidence sinks

amid dismal job market and credit crunch.

NEW YORK (CNNM ) A k f NEW YORK, (CNNMoney.com) A key measure of consumer confidence fell to an all-time low in December 2008, amid a dismal job market and uncertain outlook for the new year. y

The Conference Board, a New York based business research group, said that its Consumer Confidence Index fell to 38 in December form h i d i N b the a revised 44.7 in November 2008

Some Reason for ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern9

Auto Sales worst in 26 years

NEW YORK, (CNNMoney.com) Auto

Auto Sales worst in 26 years

, ( y )sales tumbled 38% in January, plunging even more than expected to their worst levels since 1982 during the depths of the last major recession.

Sales declined for all major automakers for the first time ever.


Worst January ever for Dow S&P 500

NEW YORK, (CNNMoney.com)

Worst January ever for Dow, S&P 500

NEW YORK, (CNNMoney.com) The Dow Jones Industrial average and the Standard & Poor’s 500 finished their worst Poor s 500 finished their worst January ever, as investors eyed abysmal reports on economic growth and quarterly corporate earnings outlook.


Are banks safe?

The FDIC is watching 171 b k t f b t 8 500

Are banks safe?

banks out of about 8,500 in the U.S.

Bottom line: the vast majority of banks are in good financial shape, and when banks do fail customers and when banks do fail, customers rarely lose money because of deposit insurance.


Worst year of jobs since 1945Worst year of jobs since 1945

NEW YORK, (CNNMoney.com) NEW YORK, (CNNMoney.com) The hemorrhaging of American jobs accelerated at a record pace at the end of 2008 at the end of 2008.

Total job losses for the year was 2.6 million, the highest in more than 6 decades.


Home prices continue to plungeHome prices continue to plunge

NEW YORK, (CNNMoney.com) Home prices continued to t bl i th fi l th f 2008 d i t d tumble in the final months of 2008, dropping at a record rate of 16.9% in December.

The silver lining? Home prices are at their lowest prices are at their lowest levels since 2004. Will that be enough to stop prices from falling further.g


Six obstacles to rescuing the economy:

OBSTACLE #1: America’s accumulated debt

now totals $294 trillion.

That’s 300 times larger than the That s 300 times larger than the combined government rescues to date.

Economic ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles15

OBSTACLE # TWO: Massive wealth destruction

is already underway

An estimated $10 trillion in U.S. household wealth has been lost in the last two years.


Obstacle # Three: Plunging incomes

Unemployment, declining investment income, home values etc, are all lowering the average , g g

household’s ability to weather the storm.

Spending will drop considerably over the next Spending will drop considerably over the next few years, leading to a slow recovery


Obstacle # Four: Wealth destruction is fast; ;

government rescues are slow

The rescue plan is the wrong prescription, which rescues the wrong people,

for the wrong reasonsfor the wrong reasons.


Obstacle # Five: Sinking Confidence

Yes, the government can buy bad debts, preferred stocks and even a little time.

But it can’t buy confidenceThat’s why the trends are still down yas selling continues (at any price)

to cover debts—slowing any recovery.


Obstacle # Six: Financing the Rescues

Yes, the government can borrow (at least for now) all it needs to finance its folly. (at least for now) all it needs to finance its folly.

But it can’t do it without eventually driving inflation and interests higher undermining inflation and interests higher, undermining

the very recovery its trying to ignite.


The question is, How do we protect our assets from:

Declining pricesD li i l t t lDeclining real estate valuesA long economic recessionRising tax environmentRising tax environmentRising prices long-term

Specific ConcernsSpecific ConcernsSpecific ConcernsSpecific Concerns21

How do we protect our income from:

Record low interest ratesDividend cutsAn increase in taxesInflation The unknown

Specific ConcernsSpecific ConcernsSpecific ConcernsSpecific Concerns22

Wh t h ld d ?What should we do?And when should we do it?

The two big questions are:The two big questions are:The two big questions are:The two big questions are:23

We’re in a Long-Term Bear MarketLong term bear markets do not end until price/earnings ◦ Long-term bear markets do not end until price/earnings ratios reach single digits

Th t / ti th S&P 500 i b t 13 5◦ The current p/e ratio on the S&P 500 is about 13.5xStill 50% “Overvalued” by historical standards

◦ Protecting principal as P/E ratios erode to single digits is critical to equity portfolio results

The Stock Market OutlookThe Stock Market OutlookThe Stock Market OutlookThe Stock Market Outlook24

I B ll M kIn Bull MarketsReturns come from Capital Appreciation

Like 1982 to 2000Like 1982 to 2000


I B M kIn Bear MarketsReturns come from Dividend Income

Like 1966 to 1982Like 1966 to 1982


The Current Bear MarketThe Current Bear MarketReturns come from Dividend Income

Like 2000 to 2008


Record Low Interest Rates Pose a challenge to earning income

Interest Rates OutlookInterest Rates OutlookInterest Rates OutlookInterest Rates Outlook29

The great debt unwinding continues

Th i dThe recession deepensMore corporate bankruptciesGrowing unemploymentGrowing unemploymentDeclining real estate pricesDeclining stock pricesg pDeclining bond prices

Economic Recovery OutlookEconomic Recovery OutlookEconomic Recovery OutlookEconomic Recovery Outlook30

The economic stimulus package will not “stimulate” the economy

The recession is likely to last longer than is generally expectedAdditional major corporate bankruptciesU l t ill h d bl di it Unemployment will reach double digits before year end


A glut of Residential Real Estate and tight credit means:

There is more downside pressure on real estate prices

Home prices are not likely to reach Home prices are not likely to reach recent high prices for years


If you are waiting to sell Residential Real Estate or downsize:

Keep in mind: Home prices are not likely to reach

recent high prices for years


Record low interest rates puts all long-term bonds at risk:g

Raising interest rates means lower pricesRating down grades, possible bankruptcies and defaults add additional d id i k t ll b ddownside risk to all bondsBond “Funds” are at particular risk


Some suggestions to help protect your assetsp y

Build the biggest nest egg of cash you canSell all long term bonds and bond “Funds” Consider an inverse interest rate ETFConsider a Gold ETF

Protecting Your AssetsProtecting Your AssetsProtecting Your AssetsProtecting Your Assets35

Some additional suggestions to help protect your assetsp p y

Don’t chase “high yields” Be particularly weary of scams and “get rich quick” schemes Hold cash in the event of a bank “holiday”

Protecting Your AssetsProtecting Your AssetsProtecting Your AssetsProtecting Your Assets36

Gathering information takes timeInterpreting information takes experiencep g p

Do you have the time and the o you a e t e t e a d t eresources to do all this?

Getting Information You NeedGetting Information You NeedGetting Information You NeedGetting Information You Need37

We gather financial and economic ginformation constantlyWe filter and sort it into usable formatsWe would be happy to pass on data that’s relevant to youW ’ll t t ti We’ll try to answer your questions . . .

When You Need itWhen You Need itWhen You Need itWhen You Need it38

C l t th i h kli t d th Complete the economic concern checklist and the contact information card.

When we encounter news or information of value to When we encounter news or information of value to you, we’ll sent it to you by email.

You can email us with questions anytime and we will q ydo everything we can to provide useful answers.

If something develops quickly, if you like, we’ll happy be to give you a call and will leave you a voice be to give you a call and will leave you a voice message with the information.

What to do nextWhat to do nextWhat to do nextWhat to do next39

Your information will never be provided to any outside third party—ever.

You are under no obligation to retain our iservices—ever.

ConfidentialityConfidentialityConfidentialityConfidentiality40

We feel an obligation to help as many people as we can as many people as we can, survive the most difficult

i d i t t economic and investment environment of our lifetime.

Why Help?Why Help?Why Help?Why Help?41

Mark J. Deschaine President

Deschaine & Company, L L CDeschaine & Company, L.L.C.128 South Fairway Drive

Belleville, IL 62223618 397 1002618-397-1002

[email protected]

Your questions?Your questions?Your questions?Your questions?42

economic concerns slide show 2 09

Economy & Finance