MPSIF Economic Update Presentation by MPSIF Growth Fund 3/29/04.

MPSIF Economic UpdateMPSIF Economic Update

Presentation byPresentation by

MPSIF Growth FundMPSIF Growth Fund

3/29/043/29/04

3/29/043/29/04 MPSIF Economic UpdateMPSIF Economic Update

AgendaAgenda

OverviewOverview Recent Economic IndicatorsRecent Economic Indicators Current Economic SentimentCurrent Economic Sentiment Threat AnalysisThreat Analysis Market DataMarket Data StrategyStrategy


Recent Economic IndicatorsRecent Economic IndicatorsGDPGDP

Source: Commerce Dept.

4Q real GDP growth was 4.1%


Current Economic SentimentCurrent Economic SentimentUnemploymentUnemployment

Source: Federal Reserve

Unemployment now around 5.6%, down from 10 year peak at 6%.Unemployment now around 5.6%, down from 10 year peak at 6%.


Recent Economic IndicatorsRecent Economic IndicatorsCorporate ProfitsCorporate Profits

Steady rise in Corporate Profits supports economic recovery. Steady rise in Corporate Profits supports economic recovery. 44thth quarter profits increased at a 7.6% annual rate quarter profits increased at a 7.6% annual rate..

Source: Federal Reserve & WSJ


Recent Economic IndicatorsRecent Economic IndicatorsCorporate DividendsCorporate Dividends

Corporate Dividends are rising, prompted by new legislation which Corporate Dividends are rising, prompted by new legislation which cut corporate dividend tax rate.cut corporate dividend tax rate.

MPSIF benefits from increased total return on equity holdingsMPSIF benefits from increased total return on equity holdings..



Recent Economic IndicatorsRecent Economic IndicatorsCrude Oil Spot PricesCrude Oil Spot Prices



GDP Growth Expectations GDP Growth Expectations Strong for ‘04 Strong for ‘04


U.S. Productivity Growth U.S. Productivity Growth

• Non-farm Productivity grew 4.4% in 2003 after 5.0% gain in 2002

• Projected to grow by 4.5% in 2004• Fuels economic growth early in a recover

without a need for additional labor inputs• Indicates that employment will eventually pick

up


Inflation Expected to Remain Inflation Expected to Remain Tame for the rest of 2004Tame for the rest of 2004

Source: WSJ, July

May and November estimates around 2%


Unemployment Expected Unemployment Expected Decrease throughout 2004Decrease throughout 2004

Source: WSJ, July

5.6% expected for May and 5.4% estimated for November


Interest Rates Expected to Interest Rates Expected to Increase during 2004Increase during 2004

Source: WSJ, July

Fed Funds rate expected to hold steady in near-term at 1% but increase to 1.5% by year end


Micro Economic IndicatorsMicro Economic Indicators

Source: WSJ

Indicators show continued improvement


Summary of Economic Summary of Economic SentimentSentiment

Economy continues to show signs of Economy continues to show signs of improvementimprovement– Growth in corporate profitsGrowth in corporate profits– GDP GrowthGDP Growth

Employment is not keeping paceEmployment is not keeping pace– Productivity gainsProductivity gains– ““Just-in-time” hiringJust-in-time” hiring

Threats could derail economic and stock market Threats could derail economic and stock market performanceperformance


Threats To Continued Threats To Continued Economic GrowthEconomic Growth

Terrorism / Geopolitical UncertaintyTerrorism / Geopolitical Uncertainty Continued and increasing budget deficitsContinued and increasing budget deficits Weakness in dollar and trade deficitsWeakness in dollar and trade deficits Interest ratesInterest rates Rising cost of oil and other commodities Rising cost of oil and other commodities Employment / Consumer sentimentEmployment / Consumer sentiment InflationInflation Taxes / Gov’t economic policy Taxes / Gov’t economic policy China and India China and India


Effects on the Stock MarketEffects on the Stock Market

Increasing employment will drive consumer Increasing employment will drive consumer confidence and stock pricesconfidence and stock prices

Earnings strength in Q1 will have a positive Earnings strength in Q1 will have a positive impact on stock pricesimpact on stock prices

Market barometers such as P/E ratios, New Market barometers such as P/E ratios, New High/New Low ratios, low interest and low High/New Low ratios, low interest and low inflation indicate that a steep decline is unlikely inflation indicate that a steep decline is unlikely in the near termin the near term


Market DataMarket Data


Market DataMarket Data


Market DataMarket DataU.S. TREASURIES

Bills

COUPONMATURITYDATE

CURRENTPRICE/YIELD

PRICE/YIELDCHANGE

TIME

3-Month N.A. 06/24/2004 0.92/0.94 0.01/0.013 03/26

6-Month N.A. 09/23/2004 0.97/0.98 0.01/0.006 03/26

Notes/Bonds

COUPONMATURITYDATE

CURRENTPRICE/YIELD

PRICE/YIELDCHANGE

TIME

2-Year 1.500 03/31/2006 99-27/1.56 -0-04/0.064 03/26

3-Year 2.250 02/15/2007 100-27/1.95 -0-08/0.088 03/26

5-Year 2.625 03/15/2009 99-08/2.79 -0-16/0.109 03/26

10-Year 4.000 02/15/2014 101-12/3.83 -0-26/0.098 03/26

30-Year 5.375 02/15/2031 109-08/4.77 -1-06/0.074 03/26


StrategyStrategy

Is the equity market cheap?Is the equity market cheap?


StrategyStrategy

Investor risk aversion has risen in response to the terrorist acts in Spain and mixed economic news in the US.

Decline in the S&P 500 index along with the rise in bond prices, has boosted the relative attractiveness of equities.


StrategyStrategy

Shares now appear between 15% and 20% under priced.

According to GS: “Our yearend 2004 S&P 500 fair value price target remains 1250.”


StrategyStrategy

Maintain growth biasMaintain growth bias Look for companies punished too harshlyLook for companies punished too harshly Watch interest rates and react accordinglyWatch interest rates and react accordingly Attractive sectorsAttractive sectors

– Diversified Financial / Investment ServicesDiversified Financial / Investment Services

– Basic MaterialsBasic Materials

– Consumer ProductsConsumer Products


StrategyStrategy

Questions?Questions?

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MPSIF Economic Update Presentation by MPSIF Growth Fund 3/29/04.

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