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Quarterly Investment Briefing May 2, 2012

Quarterly Investment Briefing May 2, 2012. Clayton Bill, CFA . Stephen J. Nilles, CFP. Capital Market Returns Current and Annualized thru 3-31-2012. What Worked and What Didn’t in 1Q 2012. What W orked Equities Microcap +15% Eurozone +12%, Germany +21%, Greece +14%

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Quarterly Investment Briefing May 2, 2012

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  1. QuarterlyInvestment BriefingMay 2, 2012 Clayton Bill, CFA Stephen J. Nilles, CFP
  2. Capital Market Returns Current and Annualized thru 3-31-2012
  3. What Worked and What Didn’t in 1Q 2012 What Worked Equities Microcap +15% Eurozone +12%, Germany +21%, Greece +14% Fixed Income Global High Yield +7% U.S. Financial Institutions +5% Emerging Markets Debt +6% Real Assets Unleaded Gas +22% / Brent Crude +18% REITs Asia +17% What Didn’t Work Equities Utilities 0% Spain -3% Fixed Income U.S. Treasuries 20+ Year -7% Real Assets Natural Gas -32% Coffee -18% Source: Russell
  4. U.S. Equities have Experienced Short Leadership Cycles Source: FactSet
  5. Buyers Bid Up Income How much are dividend-paying stocks yielding? How much do dividend-paying stocks cost? Boosted by 2003 tax changes and recent recession Compressed during tech bubble Average Dividend Yield What else should investors consider? Concentration risk – 75% of the 71 highest dividend-paying stocks in the Russell 1000® Index are concentrated in the financials and utilities sectors. Tax status – taxation of dividends could more than double as of 2013 absent government action. Investment management decision versus income management decision – not all dividend-paying companies are created equal – dividend-paying companies are not necessarily better long-term investment opportunities. Source: Russell
  6. Investor Search for Yield Comes with Risk Source: MSCI, S&P, FTSE, and Barclays Capital
  7. Why Municipal Bonds Source: Moody
  8. Key Market Risks Tensions in the Middle-East Spanish Sovereign Debt U.S. Fiscal Cliff China
  9. Tensions in the Middle-East Source: EIA, J.P. Morgan
  10. Spanish Sovereign Debt Source: FactSet
  11. Spanish Sovereign Debt Source: FactSet, BIS, ECB, J.P. Morgan
  12. US Fiscal Cliff Source: Strategas
  13. China: The Challenge Source: JP Morgan
  14. Right-sizing Perceptions of China China is the largest emerging market economy. At 11% of global GDP it is integral to, but not the sole driver of, global growth. Recent downward GDP revisions by the Chinese government from 8% to 7.5% are not hugely concerning. Moderating growth still means strong growth and history shows that China tends to have above trend growth. Source: Russell
  15. Cautiously Optimistic Outlook Inflation/Interest Rates Bank Lending and Consumer Spending Corporate Profits Equity Market Valuations
  16. Energy Prices are in the News, but Inflation Remains Mild Russell believes that inflation will remain benign into 2013 Headline inflation is dominated by housing, transportation and food Housing is the largest component. It had a small year-over-year change (2%) which helped keep inflation in check. Recreation, 6% Current 1-year inflation rate is well below 50-year average: 1-year = 2.9% 50-year average = 4.2% Source: U.S. Bureau of Labor Statistics.
  17. Inflation/Interest Rates Source: FactSet
  18. Banks Lend, Consumers Spend Bank lending up 4.47% (yoy change 4/6/12) Consumer spending up 4.12% (yoy change 2/29/12) Initial unemployment claims continue to trend downward
  19. Corporate Earnings at Record Levels Earnings Source: S&P
  20. Valuations Below Historical Averages
  21. Diversification and “Staying the Course” Worked Source: Vanguard
  22. Fixed Income as a Shock Absorber Source: Vanguard
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