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QUARTERLY RESEARCH CONFERENCE CALL

January 24, 201210 am PST

Wurts & Associates

December 2011 Quarterly Research Conference Call

Dial in: (888) 290-7503

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Introduction by: Jeffrey MacLean, Chief Executive Officer

Presented by:Jeffrey Scott, CFA, Chief Investment OfficerScott Day, CFA, Director Fixed IncomePeter Wilamoski, PhD, Director of Capital Markets Research

Brief Outline:

Introduction and Call Overview Global View US Perspective European Crisis Emerging Markets Portfolio Construction Lesson

Jeffrey J. MacLeanPresident, CEO

Jeffrey Scott, CFA

CIO

Scott Day, CFA

Director of Fixed Income

Peter Wilamoski, Ph.D.

Director ofCapital Markets Research

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C O N F E R E N C E C A L L O V E R V I E W

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Introduction & Call OverviewJeff MacLeanChief Executive Officer

Review of Quarterly Research Findings – Global ViewJeff Scott, CFAChief Investment Officer

Review of Quarterly Research Findings – US PerspectiveScott Day, CFADirector of Fixed Income

Review of Quarterly Research Findings – European CrisisPeter Wilamoski, PhDDirector of Capital Markets Research

Review of Quarterly Research Findings – Emerging MarketsJeff Scott, CFAChief Investment Officer

Quarterly Portfolio Construction LessonJeff Scott, CFAChief Investment Officer

M A C R O D I S C U S S I O N

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C O N F E R E N C E C A L L O V E R V I E W

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Global IMF forecasts 2012 GDP growth to fall to 3.7% from 3.9% in 2011

Growth is constrained by the global deleveraging cycle and fiscal austerity

Personal consumption and manufacturing are trending lower

US GDP growth is near potential but trending lower

Future growth is dependent upon growth in consumption – with growth in wages and credit required

Despite the Fed’s grand monetary experiment – inflation is contained for now by lack of wage and credit growth

Europe The debt crisis is restraining bank lending, consumption and overall GDP growth

Manufacturing surveys forecast GDP growth to contract 1% in 2012

Fiscal austerity resulting in government spending did not impact GDP in 2011 ‐ but will negatively effect GDP in 2012

Emerging Markets The strong economic recovery starting in 2009 resulted in inflation due to expansion in wages, credit and commodity prices

To stem the tide of inflation, central banks tightened monetary policy – effectively slowing growth in 2011

Good news ‐ Several major emerging market central banks are reversing course and starting to ease policy once again

Factors to watch over coming quarters Expansion in jobs, wages and credit to influence growth and inflation

Emerging markets monetary and fiscal policy success is dependent on balancing GDP growth versus inflation

1. Global GDP Growth

GDP Growth Rate %

G L O B A L - O P T I M I S M A B O U N D S : N O T S O F A S T !

6

Sources: BEA, Eurostat, IBGE, Bloomberg, Wurts

Has growth peaked?

US ChinaEurope Brazil

Has growth peaked?

Europe & Brazil manufacturing contracting

3. Global Manufacturing Surveys

Sources: ISM, Markit, China Federation of Logistic & Purchasing, NTC Economics, Bloomberg, WurtsSources: BEA, Eurostat, China Economic Information Network, IBGE, Bloomberg, Wurts

YoY % Cha

nge in Con

sumption

US ChinaEurope Brazil

US ChinaEurope Brazil

2. Global Personal Consumption Expenditure

U S – W H Y F A L L I N G U N E M P L O Y M E N T I S A P R O B L E M

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4. U6 Unemployment Rate 5. Labor Force Participation Rate

Unemployment declining due to falling

participation rate

Sources: BLS, Bloomberg, Wurts

6. Nonfarm Payroll Monthly Change

Payrolls gains: less robust and lower quality

Sources: BLS, Bloomberg, Wurts

Sources: BLS, Bloomberg, WurtsSources: BLS, Bloomberg, Wurts

Improvement in the labor market? Not so fast….

U‐6 Une

mploymen

t Rate

Avg Hrly

 & Payroll Une

mploymen

t Rate

High unemployment keeping wage growth suppressed

Average Hourly EarningsPayroll Unemployment RateU‐6 Unemployment Rate

7. Wages & Unemployment

8. Personal Consumption – Income & Credit

Personal Consumption ExpenditureUS Household Debt GrowthPersonal Income

Has consumption & growth peaked?

Trending lower

U S – W I L L T H E C O N S U M E R S A V E T H I S “ R E C O V E R Y ” ?

8

Sources: BEA, Federal Reserve, Bloomberg, Wurts

10. Household Credit Growth

Household credit continues to contract

Total Household Debt GrowthHome Mortgage Debt Growth

 $‐

 $2,000

 $4,000

 $6,000

 $8,000

 $10,000

 $12,000

1990

1991

1993

1994

1995

1997

1998

2000

2001

2002

2004

2005

2007

2008

2010

2011

Billion

s USD

9. Household Credit Outstanding

Home Mortgage DebtConsumer Credit

Reduction due to foreclosures & defaults and not pay downs

Sources: Federal Reserve Z.1, Bloomberg, Wurts Sources: Federal Reserve, Bloomberg, Wurts

Total U

nits of H

omes Sold

Averag

e Hom

e Price

U S – H O W I S T H E H O U S E O F C A R D S F A I R I N G ?

9Sources: Federal Reserve, U.S. Census Bureau, Bloomberg, Wurts

Home prices have yet to improve despite economy

recoveryExisting Home Sale Price NSANew Home Sale Price NSA

Home sale volumes have likewise seen

little improvement

New Home Sale Total UnitsHousing Starts Single Family

Excess supply of homes keeping home prices and construction

contained

Sources: Bloomberg, Wurts

Sources: National Association of Realtors, U.S. Census Bureau, Bloomberg, Wurts

11. US Home Prices

12. US Home Sale Total Units 13. Housing Inventory

US Pe

rson

al In

come (Billions)

U S – W H A T A R E T H E C H A N C E S O F S E E I N G M O R E F I S C A L S T I M U L U S I N A N E L E C T I O N Y E A R ?

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Sources: Bloomberg, WurtsSources: BEA, Bloomberg, Wurts

Personal IncomePersonal Income Excluding Transfer Receipts

14. Personal Income & Transfer Receipts

Personal income being supported by government subsidies at a record pace

15. US Budget Deficit % of GDP

U S – M R . B E R N A N K E , W I L L Y O U R G R A N D M O N E T A R YE X P E R I M E N T T U R N U S I N T O Z I M B A B W E ?

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Sources: Federal Reserve, Bloomberg, Wurts

Increase in monetary base only to offset drop in money multiplier

Fed M1 Money MultiplierFed M2 Money SupplyAggregate Monetary Base

Sources: BLS, Bloomberg, Wurts

17. Inflation Trends Driven by Earnings

CPI Headline (YoY)Average Hourly Earnings

Mon

etary Ba

se

Mon

ey Sup

ply/Multip

lier

16. Monetary Expansion to Offset Drop in Multiplier

E U R O P E – I S I T T I M E T O B U T C H E R T H E P I I G S ?

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Source: Bloomberg, Wurts

PortugalItalyIrelandSpain

Greece CDS at 7790

CDS Spread

20. 5 Year CDS - PIIGS

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Germany France Italy Spain Portugal Greece Ireland

1986 1996 2007

Sources: IMF, Wurts

18. Eurozone Debt to GDP

1990             2000           2011

0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US Europe UK

Sources: S&P, FTSE, Bloomberg, Wurts

19. Banking Sector Leverage (Debt/Equity)

European banking sector leverage remains a

primary concern

US              Europe          UK

E U R O P E – C A N E U R O P E A N S S P E N D T H E I R W A Y T O P R O S P E R I T Y ?

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Sources: Eurostat, ECB, Bloomberg, Wurts Sources: Eurostat, Bloomberg, Wurts

22. Household Austerity - Contracting Credit

Household credit continues to contract,

constraining consumption & inflation

EuroZone Unemployment RateHousehold ConsumptionH

ouseho

ld Con

sumption

Une

mploymen

t Rate

High unemployment is constraining consumption

21. Unemployment & Consumption

E U R O P E – A U S T E R I T Y W I L L B E A D R A G … C H I N A P L E A S EK E E P G R O W I N G

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Sources: Eurostat, Bloomberg, Wurts

Consumption Exports

GDP YoYExports External to EUHousehold Consumption

23. Austerity in Action – A Drag on Growth

ECB Main Refinancing RateECB M2 Money Supply YoYGov’t Expenditure Contribution to GDP

Sources: Eurostat, ECB, Bloomberg, Wurts

ECB Ra

te/G

ov’t Expe

nditu

re % GDP

Mon

ey Sup

ply Growth YoY

GDP & Con

sumption Growth

Expo

rts E

xterna

l to EU

24. GDP – Consumption to Export Dependent

E M E R G I N G M A R K E T S – F I N A L L Y T H E R E I S S T I L L A P L A C E I N T H E W O R L D W I T H J O B G R O W T H , B U T A T A C O S T

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Sources: Bloomberg, Wurts

26. Unemployment Rate

Brazil Unemployment RateChina Unemployment RateRussia Unemployment Rate

Brazil Manufacturing PMIChina Manufacturing PMIRussia Manufacturing YoY

Sources: IBGE, National Bureau of Statistics of China, Federal Service of State Statistics, Bloomberg, Wurts

25. Manufacturing

Source: IBGE, China Economic Information Network, Federal Service of State Statistics, Bloomberg,, Wurts

27. Inflation

Brazil CPI YoYChina CPI YoYRussia CPI YoY

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Has growth peaked?

29. UBS Commodity Index28. Central Bank Discount Rate

E M E R G I N G M A R K E T S – O U R K N I G H T I N S H I N I N G A R M O R

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Central banks raising rates to lower inflation –

slowing consumption & 

growth

Brazil Selic Target RateChina Rediscount RateRussia Refinance Rate

Source: Banco Central do Brasil, The Peoples Bank of China, Central Bank of Russia, Bloomberg, Wurts

‐13.32% in 2011

Sources: UBS, Bloomberg, Wurts

S U M M A R Y O F O U T L O O K

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S U M M A R Y O F O U T L O O K

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Global

The forecast for growth is a modest down shift

Inflation appears under control for the moment

It’s all about jobs and debt ‐ that is, not enough jobs and too much debt

US

Shows some signs of modest strength at the expense of personal savings

The fiscal and monetary policy well looks pretty dry in the near term going forward

Debt deleveraging cycle and housing correction still running its course

Europe

Stay tuned; this debt crisis is far from over

Austerity is good for the long term, but may be too much for the economy in the short term pushing Europe over the edge into recession

Who will bail out Europe, Germany or the IMF?

Emerging Markets

Monetary policy is working – growth slowed in 2011

Will monetary policy work in 2012 – for all of us, we better hope so

Commodity pushed inflation seems to be subsiding

Portfolio Implications

Portfolios should be positioned neutral to lower overall risk relative to the strategic asset allocation

Underweight equities – tilt equity portfolio to EAFE and Emerging Markets

Allocation from US equities to credit

Stay neutral in allocation to treasuries, even at these rich levels

C O R P O R A T E C A P I T A L S T A C K

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Senior Bank Debt

Public Debt(Investment Grade & High Yield)

Mezzanine Debt

Preferred Equity

Equity

Debt

Equity

Q & A Session

Thank you for participating in our December 2011 Quarterly Research Conference Call. We are now open for questions.

To ask a question, please dial in and follow the prompts:

Dial in:

(888) 290-7503

Participant code:

81460974

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