Today’s Economic Landscape and What’s on the Other Side

May 1, 2009

Presented by: Morris Segall, President SPG Trend Advisors

THE ECONOMY

Gross Domestic ProductQ1 2001 – Q1 2009

Source: Bureau of Economic Analysis

Contributions to GDP Growth by Component

Q4 2007 – Q1 2009

Source: Bureau of Economic Analysis

Historic and Projected World Output Growth,

2004 through 2010*

Source: International Monetary Fund

*2009-2010 data are projections This recession has spread worldwide with greater negative impact on export dependent overseas economies. Many overseas economies are now projected to contract this year led by severe recessions in Europe, Japan and Asia. These projections may still be too optimistic for 2009 and 2010.

Corporate Profits (before taxes on corporate income)

Q1 2000 – Q4 2008

Source: Bureau of Economic AnalysisCorporate profits are adjusted for inventory valuation and capital consumption. The measure includes both domestic and overseas operations.

Year-over-year Percentage Changes in Corporate Profit before Tax

Q1 2001-Q4 2008

Source: Bureau of Economic Analysis

Industrial Production January, 2008 - March, 2009

Source: Federal Reserve Bank

% decline Jan. 08- Feb. 09: 16%

Capacity Utilization by Status of ProductionJanuary, 2008 - March, 2009

Source: Federal Reserve Bank

Net Change in U.S. Jobs (Total Non-farm)June, 2005 – March, 2009

Source: Bureau of Labor Statistics

National Nonfarm Employment by Industry Sector GroupsJanuary, 2008 – March, 2009

Source: Bureau of Labor Statistics

National Nonfarm Employment by Industry Sector GroupsSeptember, 2008 – March, 2009

Source: Bureau of Labor Statistics

Initial Unemployment Claims January, 2009 – April 25th, 2009

Source: Department of Labor

Reflecting the rise in unemployment, new job losses rose dramatically in the first quarter of this year. However, the trend of new job losses appears to have peaked at around 650,000 since the latter part of February. Normally we would be prepared to predict a peaking in unemployment is at hand based on this trend. However, we believe a new surge in job losses is coming over the summer as the auto industry downsizes.

Continued Unemployment Claims February, 2006 – April 18th, 2009

Source: Department of Labor

Source: (Left) Census Bureau, (Right) Federal Reserve Bank

Retail Sales Less Food and Fuel March, 2007 – March, 2009

Consumer CreditQ4 2005 – February, 2009

Since the third quarter of 2008 consumer spending has been declining and the consumer is currently paying down outstanding debt. These trends have been negative for the economy in the short term but the reduction of consumer debt and an increase in consumer savings is positive for the economy and the improved creditworthiness of the consumer longer term.

Existing Home Sales v. Length on MarketMarch, 2006 -March, 2009

Source: (Left) National Association of Realtors, (Right) Census Bureau

New Home Sales Units Sold v. Length on Market

March, 2006- March, 2009

Housing remains weak but new home inventories may have peaked as new home construction , home prices and mortgage interest rates have declined. The latter will also help the existing home market. We expect the rate of decline in housing sales to diminish over the remainder of this year.

S&P/Case-Shiller Home Price Index 2006 – February, 2009

Source: Standard and Poors

% decline 2006-Feb. 09: 30.1%

Conference Board Consumer Confidence2005 - April, 2009

Source: Conference Board

Commercial Mortgage Backed Securities Delinquency Rates

among Major Investor GroupsJanuary, 2008 - March, 2009

Source: Intex, Trepp (Deutsche Bank)

Changes in Consumer Price Index in Percentage Terms

2006 v. 2005

2007 v. 2006

2008 v. 2007

6 months ended in Mar. 2009

All items 2.5% 4.1% 0.1% -5.4%Food at Home 1.4% 5.6% 6.6% -1.4%Food Away Home 3.2% 4.0% 5.0% 3.7%Rent of Primary Res 4.3% 4.0% 3.4% 2.8%Owners Equiv of Rent of Prim Res 4.3% 2.8% 2.1% 2.2%Household Energy 2.4% 5.3% 5.9% -11.4%Water/Sewer/Trash 4.8% 5.4% 6.5% 4.7%Houshold Ops 4.4% 2.2% 6.0% 1.0%Car Repair 3.8% 3.3% 5.9% 4.3 %Pub. Transp 0.1% 7.2% 1.8% -20.6%Medical 3.6% 5.2% 2.6% 3.3%Education 6.3% 5.6% 5.6% 5.2%Energy 2.9% 17.4% -21.3% -49.9%

Source: Bureau of Labor Statistics

While inflation has declined precipitously in the recession led by the collapse in energy and commodity prices, we are not in agreement with a fear of deflation hitting the U.S. economy. Food, basic services, healthcare and education prices are stubbornly high.

Source: Energy Information Administration

Crude Oil Spot Prices in U.S. DollarsOctober, 2003– April 21st, 2009

Nominal Broad Dollar Index April, 2000 – April 24th, 2009

Broad Dollar Index: a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

Source: Federal Reserve Board

THE GOVERNMENT’S RESPONSE

Money Supply (M2): January, 2007- April, 2009

Source: Federal Reserve Bank

Federal Budget Deficit (exclusive of Social Security Trust funds)

FY 2006 – March, 2009

Source: FMS, U.S. Treasury Department

U.S. Federal Budget Deficit, 1995-2010*

*2009-2010 data are projections

Source: Congressional Budget Office

Source: Federal Reserve Bank

Federal Reserve Balance Sheet: Reserve Bank Credit

June, 2008 – April, 2009

Source: (Left) Federal Reserve Bank, (Right) British Banker’s Association

Federal Fund Rates, January 2008-April 22nd, 2009

3-month LIBOR rates lent in US $January 2008-April 21st, 2009

The Fed and European Central Bank have cut interest rates to the banking systems here and abroad thus driving down the cost of bank funds to facilitate bank lending.

How do I get through it?Manage business on cash flow basisIncrease efficiency of asset turnover; increase liquidity Intensify customer service initiativesBecome innovative in controlling costs

Outsource where appropriate

Join Co-ops to spread costs over larger group

Look for new ways to leverage existing employees and infrastructure by investigating new sources of revenue from new products and markets. BE A SOLUTIONS PROVIDERSecure access to bank credit; firm up bank lines

How do I get through it? (cont.)Spend to increase productivity and market share

Take advantage of accelerated equipment write offs as part of government’s economic stimulus packageTake advantage of soft demand in economy to build for future by aggressive bargain purchasingIf access to capital and liquidity are not detriments, look to acquire troubled companies and/or strategic assets of other companiesTrain employees to be more productive and increase their value by enabling them to do more tasks

Increase networking and take advantage of trade associations for additional contacts and leadsPartner with other firms

What’s on the other side? 2009 - Recession Bottoms with Housing and Unemployment

Housing bottoms late this yearBank loan losses abate in the second half of this yearUnemployment peaks in the second half of this yearLower Energy Prices alleviate pressure on consumer spending – but virtually no economic growth or recovery

Obama Administration Increased economic “bailout” and middle class spending programs Increased federal budget deficits and higher taxes

What’s on the other side? (cont.)2009 – Business

Cost of goods declines from current levels as interest rates, labor costs and commodity prices decline but business is facing zero consumer and business demand. Corporate profits in decline for most of this year.Weak consumer spending but pent-up demand building

2010 – Economy Makes Gradual Cyclical Recovery

Increased employment = increased consumer spendingIncreased Corporate Sales = increased corporate profits = increased capital spendingIncreased interest rates and rising prices from higher demand and continuing federal budget deficits

Where are the opportunities?Healthcare – National ProgramEducationAgricultureEnergy ConservationEnvironmental Solutions Electric PowerTransportation – Increase Mass TransitExports

Water Conservation – New Supplies and RecyclingU.S. Government Procurement and Outsourcing – Base Realignment Program (BRAC)Real Estate – Recycle and Rehab Existing Commercial and Residential Property

ConclusionsWe have been in a deep and protracted recession that began in the fourth quarter of 2007. It began in housing and has spread through the entire U.S. and overseas economies. Economic weakness intensified through 2008 and has worsened through the first quarter of 2009. The first quarter should be the nadir of the economic contraction in the current recession cycle. Increased near term economic pressures include:

high cost and reduced availability of credit

lower corporate profitsincreased unemploymentcontinued weak levels of corporate capital and consumer spending

Conclusions continued

Severe reductions in State and Local Government spending and eroded municipal financial strength Weak exports as overseas economies continue in recessionContinued credit pressures in residential housing and consumer lending spread to commercial real estate markets and corporate lending

Conclusions continuedHowever, a bottoming of the housing cycle and an abatement in bank credit losses in the second half of this year, should set the stage for cyclical capital markets and economic improvements in 2009 and 2010. Indeed, capital markets in the U.S. and abroad have already staged a large recovery off what we believe are market cycle lows in the first quarter.

After an expected cyclical recovery in 2010-2012, we believe the longer term socio-economic issues facing this country will result in slower future economic growth for the United States.

The availability and cost of credit, particularly to consumers, will be more restricted and expensive in the future.

Thank You

You can always reach me at msegall@spgtrend.comAlso, if you need us in a hurry, we are at 410.522.7243 Please contact us when you require economic and capital markets research & policy analysis.Further information available at www.spgtrend.com