War Room 15 Dec 2011

US Decouples from the World

War Room

•Monthly macro discussion

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•Feedback - what should it to be?

US Decoupling

•US Economic Picture Improving

•Continued government support

•Scenarios that can kill the dream

Improving Picture - Labor

- 1.65 million more people working in Nov 2011 than Nov 2010

-US still down 6.2 million from peak employment (July 2007)

Source: Bureau of Labor Statistics

Jobless claims- Most recent = 366k- lowest since May 2008- was low 300s in mid 2007

Non-Farm Payrolls- Most recent = +120k- Up 14 consecutive months- leading indicator for S&P

Levers tell the truth

Improving Picture – Retail + Auto

Retail Sales- consumer confidence turning up- Strong holiday sales so far- CPI low = not just inflated retail #s- Macy’s earnings foreshadowed

Car Sales- Rising 5 consecutive months- Pent up demand- Median car age – 8 years in 2008

11 years today- Ford reinstating dividend

Improving Picture - Housing

•Housing starts picking up

•Commercial Foreclosure rates dropping fast

•Toll Brothers just beat estimates

•Change in sentiment toward home builders by rating agencies

•Home Prices close to bottoming?

US Government SupportCongress:• Payroll tax cut likely to be extended• Unemployment benefits likely to be extended• Deficit spending of 10% of GDP = programs continue to get funding

Fed• O% interest rates through 2013• Ready to pursue further easing in Euro contagion• USD Swap arrangements with other central banks(foreign currency liquidity swap lines)

Executive• No major drag on above initiatives

Contrasts between US + Europe

Austerity (Europe) vs No Austerity (USA)- Consumption not crippled- Programs and basics paid for- Sentiment – Not adding insult to injury

ECB vs Fed- ECB not aggressive in cutting rates- ECB refusing to do QE - Minimal sovereign debt purchases

Obama vs EU leadership• Merkel opposing aggressive intervention• UK effectively leaving European Union• 17 fighting leaders vs 1 guy doing nothing

Spanish firefighters protesting spending cuts in public services (14/Dec AP)

US Decoupling – Dream Killers

• Europe – counterparty risk

• Deflation – USD too strong for growth

• China hard landing – 50% of world econ growth

• Iran + Oil – oil shocks lead to recession

PRODUCT UPDATE + ROADMAP

HiddenLevers

Some Features Added During 2011

• April: Support Model Portfolios & Custom Branding

• May: Create Custom Scenarios + Portfolio Comparison

• July: Max Drawdown, Volatility, 2yr regressions added

• Aug: Historical Scenarios and 28 new indices added

• Sep: New reports, Macro Themes + Macro Snapshot

• Oct: Options/short support, portfolio sharing

• Nov/Dec: Portfolio Charting, report excel output

2012 Roadmap

• Scenario Hedging Wizard and Report

• Client-facing iPad app

• Fixed Income Support

• Inter-asset correlations

• Much more including your suggestions