global market overview/ tactical asset allocation basics denver, co september 29, 2010

Global Market Overview/Tactical Asset Allocation Basics

Denver, CO September 29, 2010

Global Major Trend Index: Currently Positive…Suggests Global Markets Can Move Higher

• INTRINSIC VALUE - 21 Indicators.....current net reading of +89Global Markets Considered To Be Undervalued.

• ECONOMIC-INTEREST RATES- INFLATION - 15 Indicators, net reading of -12Deflation, Slower Growth, Rising Government Deficits.

• ATTITUDINAL - 22 Indicators, net reading of -64Mixed Signals Of Optimism/Pessimism

• MOMENTUM-BREADTH-DIVERGENCE - 41 Indicators, net reading of +186Technical work is decisively positive.

• TOTAL = 99 indicators, calculated weekly.....current net reading of +199.Ratio of positive to negative points = 1.30 (0.95 to 1.05 is Neutral)

Global Equity Valuations (Ex-US): Room For Multiple Expansion

1970 1980 1990 2000 2010

10

15

20

25

30

35Median Developed Country Ex U.S. -P/E on 5-Yr. Normalized EPS(Based on 20-quarter moving avg. of 12-Mo. Trailing EPS)

© 2010 The Leuthold Group

Median = 18.1x

10.2xAugust 31, 2010

Feb09 =

7.8x

May07 =30.2x

Jul82 =7.5x

Foreign markets have 40-50%

upside to their 1990 and 2002 valuation lows, and about 80% upside to their

long-term valuation median.

Emerging Market Equity Valuations: Room For Multiple Expansion

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

8

10

12

14

16

18

20

22

24

26

28

30

32

34MSCI Emerging MarketsP/E on 5-Yr. Normalized EPS(Based on 20-quarter moving avg. of 12-Mo. Trailing EPS)


10-Yr. Median = 18.6x

March 6, 2009

8.8x

October 26, 2007

30.9x

September 21, 2001

11.1x

September 17, 2010

17.2x

Global Equity Valuations: Comparatively Cheap To U.S.

1970 1980 1990 2000 2010

60

70

80

90

100

110

120

130

140

150

160

170

180USA/Rest Of World Normalized "Ratio Of Ratios"(Ratio of MSCI USA P/E to MSCI Median Country P/E; P/Es based on 5-Yr. Normalized EPS)


141%July 30, 2010

Nov07 =82%

Above 140% =U.S stocks expensive vs.

rest of world

1975-To-Date Median = 107%

Below 85% =U.S stocks cheap vs.

rest of world

U.S. Equity Valuations: Not As Much Room For Multiple Expansion

0

5

10

15

20

25

30

35

40

1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

MEDIAN 16.4x

S&P 500Quarterly Average

Normalized P/E Ratios1926 To Date338 Quarters

© The Leuthold Group 2010 S&P 500: P/E Ratios…Normalized1926 To Date

Global Equity Valuations They've Fallen And Can't Get Up:

100

90

80

40

50

60

70

30

20

10

0

MAY 31, 2007 JULY 31, 2010

P/E Percentile Ranks By Country(P/E based on 5-Yr. Normalized EPS;

percentiles based on period from 1975 to date)

AustraliaIrelandSweden

NorwayGreece

Hong KongSwizterland

PortugalGermanyNetherlands

U.K.

Belgium

SingaporeCanadaDenmark

New Zealand Spain

U.S.

France

Finland

Italy

Japan

Austria


Australia

Ireland

Sweden

Norway

Greece

Hong Kong

Swizterland

Germany

Netherlands

U.K.

Belgium

Singapore

CanadaDenmark

New Zealand

Spain

U.S.

France

Finland

Japan

AustriaItaly

Portugal

Above 70 = Expensive

1975-To-Date Median

Below 30 = Cheap

The Long Term Performance Impact Of Valuations:

16.6%15.3%

14.4%12.8%

10.0% 10.0%8.2% 8.5% 8.2%

4.4%

0%

5%

10%

15%

20%

25%

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

MEDIAN TEN YEAR ANNUAL COMPOUND TOTAL RETURNSFROM HISTORIC P/E DECILES

1926 TO DATE

Ten Years Out

DECILESStocks Cheap Stocks Expensive©The Leuthold Group 2010

Now

Money Flows: Contrarian Indicator

-$20.0

-$15.0

-$10.0

-$5.0

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Foreign Focus Equity Funds4-Mo. Avg. Net Cash Flow (1987 to Date)

Source: ICI, The Leuthold Group

MSCI EAFE IndexMonth End

©The Leuthold Group 2010Billions

800

1600

1400

1200

1000

900

1800

2000

2400

700

A Lead On The Global Economy

OECD + 6 Major Non-Member Composite Leading Indicator Peaks

90

92

94

96

98

100

102

104

106

108

110D

ec-7

0

Dec

-72

Dec

-74

Dec

-76

Dec

-78

Dec

-80

Dec

-82

Dec

-84

Dec

-86

Dec

-88

Dec

-90

Dec

-92

Dec

-94

Dec

-96

Dec

-98

Dec

-00

Dec

-02

Dec

-04

Dec

-06

Dec

-08

Dec

-10

© The Leuthold Group 2010

Global Stock Bond Performance

MSCI ACWI/Barclays Global Aggregate Index Ratio Around OECD+6 CLI Peaks

80

85

90

95

100

105

-11M

-10M -9M

-8M

-7M

-6M

-5M

-4M

-3M

-2M

-1M 0M 1M 2M 3M 4M 5M 6M 7M 8M 9M 10M

11M

12M

Global Stk/Bnd MedianPatternCurrent Global Stk/Bnd Perf.


CLI Peaks

Global Stock Bond Performance

MSCI ACWI/Barclays Global Aggregate Ratio vs. OECD + 6 Major Non-Member CLI

91

93

95

97

99

101

103

105

107

Jan-

86Ja

n-87

Jan-

88Ja

n-89

Jan-

90Ja

n-91

Jan-

92Ja

n-93

Jan-

94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

0.5

1

1.5

2

OECD+6 CLI

MSCI AC World Index/BarclayGlobal Agg. Index


Dividend Payers Outperform After CLI Peaks

Payout Yield Perf. Around OECD+6 Leading Indicator Peak

95

100

105

110

115

120

-11M

-10M -9M

-8M

-7M

-6M

-5M

-4M

-3M

-2M

-1M 0M 1M 2M 3M 4M 5M 6M 7M 8M 9M 10M

11M

12M

Payout Yld Perf. MedianPatternCurrent Payout Yld Perf.


CLI Peaks

Global Asset Allocation Structure Global MTI Went Positive Mid-September

68% GLOBAL EQUITIES: Increased (Net Exposure 60%)

8% EQUITY HEDGE: No Planned Change

15% INCOME: No Planned Change (Net Exposure 13%)

4% Global Government Bonds: Now made up of Brazilian and Australian government bonds, as well as Emerging Country Fixed Income ETFs.

4% Corporate Bond Funds: The two funds are now up 5.8% YTD.

4% High Yield Bonds: Yield spread is now considered neutral.

2% Treasury Inflation Protection Bonds (TIPS): Inflation is expected to pick up, and this holding should help in that environment.

1% Convertible Bonds: Focus is only on Foreign Convertible securities.

2% FIXED INCOME HEDGE: No Planned Change

The Fixed Income Hedge was established in September 2009 and is made up of a short holding in U.S. T-bonds.

4% REAL ESTATE INVESTMENT TRUSTS: No Planned Change

Position made up of mortgage REITs, along with a global real estate fund.

4% PHYSICAL METALS: Increased

An additional 1% of assets was committed here in early September due to our concern about inflation implications. Gold is now 3.1% of assets and Silver is 0.9%.

27% CASH EQUIVALENTS: Increased

Global Equity Portfolio StructureAugust Q2 Q1 Q4 Q3 Q2 Q1

2010 2010 2010 2009 2009 2009 2009Developed 68.3% 76.5% 69.3% 66.5% 66.3% 64.4% 82.1%Emerging 31.7% 23.5% 30.7% 33.5% 33.7% 35.6% 17.9%

Countries

United States 33.1%Japan 8.3%South Korea 7.4%China 5.2%Taiwan 4.5%Sweden 4.2%Canada 4.0%Brazil 3.6%Germany 3.4%Mexico 3.3%Hong Kong 3.2%United Kingdom 3.2%France 2.9%Singapore 2.9%Turkey 2.7%South Africa 1.6%Philippines 1.2%Malaysia 1.1%Russia 1.0%Portugal 0.9%Israel 0.9%Finland 0.5%Netherlands 0.5%Belgium 0.4%

Global Equities Portfolio Details

Characteristics Current Aug Avg August Avg August

Portfolio Portfolio Portfolio MSCI MSCI

Portfolio MSCI Sectors Weight Weight Performance Weight Performance

Mkt Cap (Mil.) Consumer Discretionary 28.0% 27.4% -0.3% 9.5% -3.1%Med 3,255 6,213 Materials 18.3% 15.1% 7.5% 8.4% -1.8%Wtd Avg 9,264 56,294 Industrials 18.2% 23.2% -2.4% 10.5% -5.1%

Div Yld 2.12 2.57 Information Technology 10.3% 7.3% -6.4% 11.8% -6.9%P/E Health Care 8.1% 8.4% -3.8% 8.6% 0.3%

Wtd Avg 12.91 39.50 Financials 7.1% 8.1% -5.3% 21.5% -5.8%Wtd Med 11.73 14.87 Consumer Staples 6.1% 6.1% -0.5% 9.9% -0.6%

FY1 P/E 11.33 12.83 Utilities 3.7% 3.8% -2.1% 4.3% 0.1%P / Cash Flow 6.65 8.88 Energy - 0.5% 3.1% 10.7% -3.9%P / Book 1.65 2.01 Telecommunication Services - - - 4.9% 0.7%P / Sales 0.89 1.50Sales Growth 4.67 4.62Est LTG Rate 10.80 9.88ROA 6.35 5.83ROE 13.52 12.89Oper Marg 9.81 14.79Net Marg 6.79 9.12LT D/C 29.82 30.40Beta 0.98 1.00% Domestic 33% 42%# of Holdings 114 2411

S&P 500 Technical Similarities With The Past

60

70

80

90

100

110

120

130

140

150

160

Fe

b-7

2

Au

g-7

2

Fe

b-7

3

Au

g-7

3

Fe

b-7

4

Au

g-7

4

Fe

b-7

5

Au

g-7

5

Fe

b-7

6

Au

g-7

6

Fe

b-7

7

Au

g-7

7

Fe

b-7

8

Au

g-7

8

Fe

b-7

9

Au

g-7

9

Fe

b-8

0

Au

g-8

0

Fe

b-8

1

Au

g-8

1

Fe

b-8

2

Au

g-8

2

400

600

800

1,000

1,200

1,400

1,600

Tracking The S&P 500: Technical Similarities With The Past

©The Leuthold Group 2010

1972-1982

Today

1974 Low

2009 Low

Possible Market Trajectory Based On 1974-1982

Mid Term Exams

90

95

100

105

110

115

120

-200

-190

-180

-170

-160

-150

-140

-130

-120

-110

-100 -9

0

-80

-70

-60

-50

-40

-30

-20

-10 0 10 20 30 40 50 60 70 80 90 100

110

120

130

140

150

160

170

180

190

200

Days Prior To Election Days After Election

S&P 500 Market Action: Before And After Mid-Term Elections

(1942 To Date)


Election Day Indexed To 100

S&P 500 Performance S&P 500 Performance200 Days Leading Up To 200 Days Following

Mid-Term Elections Mid-Term Elections1942 15.6% 30.5%1946 -15.3% 3.9%1950 12.4% 13.0%1954 23.7% 31.8%1958 25.1% 14.7%1962 -14.6% 22.6%1966 -14.0% 15.3%1970 -6.4% 16.6%1974 -22.2% 10.6%1978 5.2% 15.7%1982 18.6% 20.2%1986 19.6% 36.0%1990 -6.0% 25.6%1994 -1.3% 19.7%1998 13.5% 20.3%2002 -18.2% 8.5%2006 9.2% 6.1%

Average 2.6% 18.3%

Std Deviation 15.4% 8.7%# Positive 9 17

# Negative 8 0

Mid Term Exams

Net Seats Lost By President's Party In Mid-Term Elections(1942 To Date Average)

President's Approval Rating: Senate HouseUnder 50% -5 -36Over 50% -3 -18

Presidential Approval Rating vs. Mid-Term Changes In Congressional Majority (1942 To Date Average)

When Majority Power: Presidential Approval RatingChanges 51%

Doesn't Change 54%

Mid-Term Pre-Election Post-Election PresidentialPresident's Election Results Senate House Senate House Change Approval

President Party Senate House Majority Majority Majority Majority In Power? Rating *1942 FDR D D -8 D -45 D D D D No 701946 Truman D D -12 D -54 D D R R Yes 331950 Truman D D -5 D -28 D D D D No 391954 Eisenhower R R -2 R -18 R R D D Yes 611958 Eisenhower R R -12 R -48 D D D D No 571962 Kennedy D D +2 D -4 D D D D No 611966 Johnson D D -3 D -48 D D D D No 441970 Nixon R R +1 R -12 D D D D No 581974 Ford R R -4 R -48 D D D D No 541978 Carter D D -3 D -15 D D D D No 491982 Reagan R 0 R -26 R D R D No 421986 Reagan R R -8 R -5 R D D D Yes 631990 Bush Sr. R R -1 R -8 D D D D No 581994 Clinton D D -8 D -54 D D R R Yes 461998 Clinton D 0 D +5 R R R R No 662002 Bush Jr. R R +2 R +8 D R R R Yes 632006 Bush Jr. R R -6 R -30 R R D D Yes 382010 Obama D -- -- D D -- -- --

Average -4 -25* Final Gallup Poll Prior To Mid Term Election

Asset Allocation Principles

We believe the most important investment decision is proper asset class selection and a highly disciplined, unemotional method of evaluating risk/reward potential is necessary for successful asset allo-cation.

We adjust the exposure to each asset class to reflect our view of

the potential opportunity and risk offered within that category. Flexibility is central to the creation of an asset allocation portfolio

that is dependable in a variety of market conditions. We possess the flexibility and discipline to invest where there is value and to sell when there is undue risk.

Benenefits of Disciplined Tactical Asset Allocation

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

Dec-8

7

Dec-8

8

Dec-8

9

Dec-9

0

Dec-9

1

Dec-9

2

Dec-9

3

Dec-9

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Dec-9

5

Dec-9

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Dec-9

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Dec-9

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Dec-9

9

Dec-0

0

Dec-0

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Dec-0

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Dec-0

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Dec-0

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Dec-0

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Dec-0

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Dec-1

0

Core Investment Portfolio

S&P 500

Lipper Flex

Tactical Asset Allocation Basics

-5%

0%

5%

10%

15%

20%

25%

30%19

26

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Stock/Bond Performance Differential *20 Year Trailing Total Return ACR

* S&P 500 Vs. 10 Year Treasuries

>0% Stocks Outperform Bonds

<0% Bonds Outperform Stocks©The Leuthold Group 2010

10

25

50

100

250

500

10001500

S&P 500 CompositePrice Index


-5%

0%

5%

10%

15%

20%

25%

30%19

26

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010




<0% Bonds Outperform Stocks©The Leuthold Group 2010

Five Years Later.... S&P 500 TR: +33.8% (ACR)10 Year T-Note TR: +4.6% (ACR)

Five Years Later.... S&P 500 TR: +23.1 (ACR)10 Year T-Note TR: +1.6% (ACR)

10

25

50

100

250

500

10001500

S&P 500 CompositePrice Index


0%

2%

4%

6%

8%

10%

12%19

26

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

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2007

2010





Q1-2009All-Time Low

global market overview/ tactical asset allocation basics denver, co september 29, 2010

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