synovate economic $ummary q2 2010

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  • 2010 Synovate Inc.

    $ynovate Economic$ummary: Q2, 2010

  • 2010 Synovate Inc. 2

    Background

    Quarterly overview of trends and driving forces in the US economy and the Financial Services(FS) sector.

    - Useful as a backdrop against which to interpret changes in market research tracking data.

    Includes a number of key market metrics:

    - Economic & financial indicators (S&P 500, interest rates, forex, commodity prices, etc.)

    - Consumer measures (Synovates Financial Sentiment Index, the Conference BoardsConsumer Confidence Index)

    - Other indicators (housing data, unemployment, etc.)

    Definitions:

    - Leading economic indicators change in advance of the overall economy and are useful forprediction. Example: stock market returns, since the market usually declines and improvesbefore the economy does.

    - Lagging economic indicators do not change direction until a few quarters after theeconomy does and are useful for confirmation. Example: the unemployment rate; it tendsto increase 2 - 3 quarters after the economy starts to improve.

    - Coincident economic indicators move at the same time the economy does and thereforeare the best measures of the current state of the economy. Examples: Gross DomesticProduct and personal income.

    Half Full Half Empty AdvertisingInterestingHeadlines

    LookingAhead ReferencesBackground Summary

    What's In TheNews

    Key EconmicIndicators

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  • 2010 Synovate Inc.

    The quarter that wasThe economic recovery continued in Q2 2010 although the pace of the recoveryslowed significantly. As predicted in our $E$ over a year ago, the recovery continuesits false-starts; a series of W-patterns are to be expected until some of thesignificant risks like commercial real estate, housing, sovereign defaults, etc., arebehind us.

    Half Full:- Consumer Confidence- Small businesses- Increasing retail sales- Positive GDP

    Half Empty:- A sustained high unemployment

    rate- Commercial real estate- Consumer lending- Global worries (especially of the

    euro-zone kind)

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  • Whats In The News?

  • 2010 Synovate Inc.

    S.E.C. Accuses Goldman Sachs of Fraud (Apr. 16): The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs over afraudulent housing deal. The S.E.C. claims that Goldman Sachs created and sold a mortgage investment that was secretly intended to fail. The bankdenies the accusations.

    Deepwater BP Oil Spill (Apr. 20): The Deepwater Horizon exploded in the Gulf of Mexico killing 11 people. The subsequent oil spill disaster hasdevastated a vast area of the U.S. marine environment and has had a serious impact on the local fishing industry. BP has since set aside a $20 billionescrow fund to compensate U.S. businesses or workers who have been hurt by the spill. Analysts are estimating the total cost of this disasteranywhere between $29 billion to as high as $63 billion.

    United, Continental Announce Merger (May. 3): The chairmen of United Airlines and Continental Airlines announced their intent to merge, withUnited's purchase of Continental. The new enormous airline company will have 10 national hubs and will be bigger than the current leader, Delta AirLines.

    Apple Passes Microsoft as Most Valuable Technology Company (May. 26): In a stunning turnaround over the last decade, Apple passed Microsoftas the world's top technology company. Microsoft had dominated the technology industry for over 20 years.

    Fannie & Freddie Stocks Delisted (June. 16): The Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac demanded for thestocks to be delisted as early as July. The announcement caused the stock price to fall almost 40% for both companies. The move, although harsh onthe existing stock holders, signals that these companies should eventually emerge out of conservatorship in a different form.

    Merrill Makes Move Into Online Investing (June. 21): Bank of America Merrill launched Merrill Edge, an online discount brokerage. This brokerageintends to help Bank of America Merrill combat the expanding influence of the likes of Charles Schwab and Fidelity Investments, which now arepopular destinations for younger investors who arent ready for a full-service adviser.

    Financial Regulation Bill passes House and Awaits Senate Vote (June. 30): After more than a year of work and two weeks of negotiations,lawmakers passed the financial regulation bill. The bill address the following key areas:Consumer Protection: Creates a consumer agency, credit scores for consumers, Interchange fees, etc.Too Big to Fail: New oversight committee, unwinding powers to FDIC, forcing skin in the game, etc.Risky Bets: Regulating derivatives, spinning off swaps desks, curbing executive pay, etc.

    Key Financial & Industry News

    5

    Half Full Half Empty Advertising ReferencesSummaryWhat's In The

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  • Key EconomicIndicators

  • 2010 Synovate Inc.

    Key Financial Measures and News

    National Mortgage Rates 1 year

    Volatility returned to global financialmarkets with a vengeance in the secondquarter, sending investors fleeing fromstocks world-wide and driving them intodefensive investments, especially U.S.Treasury's and gold.

    7

    The S&P 500 (a leading indicator) postedits worst quarterly performance since thefinal three months of 2008 when thefinancial crisis was in full swing. The S&P500 fell about 12% for the quarter.

    The prime rate (a coincident indicator) remained level at 3.25% this quarter.

    Mortgage rates fell to a record low during Q2 2010. The 30-year fixed-rate mortgage dropped to 4.69%, the lowest since FreddieMac started the survey in April 1971. The decline in mortgage rates is related to the weak economy and falling treasury yields.

    Quarterly Markets Review

    Prime Rate

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  • 2010 Synovate Inc.

    Currency Rates & Trade

    8

    GB

    Pv.

    U.S

    .$

    1yr

    U.S

    .$v.

    JPY

    1

    yr

    During the second quarter, the euro faced its biggest test inits relatively brief life as the Greek debt crisis threatened totear apart the European Union.

    The euro was sent into a tailspin which by early Juneamounted to an 11% decline against the U.S. dollarfrom the end of March. At one point, the euro camewithin shouting distance of the $1.18 at which itexited the first day of trading when it was introducedin 1999.

    The euro-zone worries took the GBP down with it,however, the GBP recovered quickly and differentiateditself from the euro.

    As contagion from the debt crisis threatened globalmarkets, investors seeking haven gave a boost to theU.S. dollar and Japanese yen despite those countries'own economic and fiscal woes, including yawningdeficits and low interest rates.

    Euro

    v.U

    .S.$

    1

    yr

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  • 2010 Synovate Inc. 9

    Yuans New DirectionOn June 20, China announced that it would allow theRenminbi to appreciate against the USD once again.

    China has kept the yuan pegged against the dollarsince July 2008.

    The effect of this currency undervaluation istwofold:

    1. It makes the Chinese goods

    artificially cheap to foreigners

    (enhancing exports)

    2. .While making foreign

    goods artificially expensive to

    the Chinese (reducing imports)

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  • Outlook: Half Full orHalf Empty

  • 2010 Synovate Inc.

    The Gloom Lifts A Little, But Its Still DarkOut There

    11

    Most Americans are still feeling blue about the change in their personal financial situationsover the past year, although the picture is a little less gloomy than in March of last year, justbefore the stock market hit its recessionary low.

    The Conference Board said its index of consumer confidence for June increased modestly to 52.9 comparedwith the 52.5 seen in March.

    Synovates Consumer Financial Sentiment Index (FSI) now stands at -52, an improvement of 12 points fromthe March 2010 FSI of -64.

    Half Full Half Empty AdvertisingLookingAhead ReferencesBackground Summary

    What's In TheNews

    Key EconmicIndicators

    InterestingHeadlines

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  • 2010 Synovate Inc.

    Government Trying To Help Small Business

    12

    The economy is on the mend. The government has launched a boatload of programs to get financing for smallbusinesses. President Obama has urged banks to give companies a "third and fourth look" before rejecting themfor loans. Yet entrepreneurs are still struggling to land credit.

    The government is trying to entice more small businessesto tap one of its loan programs,the Small Business Administration's 504 loan program.

    - Hoping to spur expansion among small companies, the SBA is offering inducementslike lower rates and no-fee deals.

    The U.S. House approved legislation to create a $30 billion fund to boostlending to small businesses through community banks.

    - T

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