ll lh Wells Fargo Wealth Management Economic and Market Strategy Update | January 2012 Economic and Market Strategy Update | January 2012 Wells Fargo Private Bank provides financial services and Please be sure to read the important disclosures at the end of this presentation A Note about Disclosures products through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your situation at the time your tax preparer submits your return. 1 200907125 TPB-IM21019 (08/09)
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ll l hWells Fargo Wealth ManagementEconomic and Market Strategy Update | January 2012Economic and Market Strategy Update | January 2012
Wells Fargo Private Bank provides financial services and
Please be sure to read the important disclosures at the end of this presentation
A Note about Disclosures
products through Wells Fargo Bank, N.A. and its variousaffiliates and subsidiaries. Wells Fargo & Company and itsaffiliates do not provide legal advice. Please consult yourlegal advisors to determine how this information may applyto your own situation. Whether any planned tax result isrealized by you depends on the specific facts of yoursituation at the time your tax preparer submits your return.
1 200907125 TPB-IM21019 (08/09)
Top 15 Business Stories of 2011
MF Global
Arab Spring – Tunisia, Egypt, Libya, Syria
Japan Earthquake and Tsunami
U.S. Debt downgrade
Europe on the Brink
Commodity prices
Global market volatility
Obama versus Wall Street
Occupy Wall Street/Class Warfare
Seeking Wise Men
Municipalities on hard times
China
Unemployment
Housing market
2
Passing of Steve Jobs
Source CNBC
Today’s Agenda
Where are we in this economic cycle?
I i id i f li
Where are we in this market cycle?
Investment strategies to consider in your portfolio
3
U.S. GDP OutlookU S i h i d i h hi d W U.S. economic growth improved in the third quarter. We are on track to reach our full-year 1.7 percent estimate.
The Purchasing Power Parity (PPP) exchange rate is defined as the amount of currency that would be needed to purchase the same basket ofd d i it f th f ll th US d ll
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Source: IMF, 9/2011
goods and services as one unit of the reference currency, usually the US dollar.
Agricultural Commodities Prices FallThe global slowdown has brought down many commodities prices.
Price Changes in Select Commodities
30%
4%
17%12%
21%
0%
10%
20%
30%YTD %Chg
12Mo %Chg
hang
e
-20%
-7%-2%
-10%
-22% -22%
-12%
-1% -1% 0%
-20%
-10%
0%
Perc
ent
Ch
-32% -31% -28%-24% -27%
-31% -30%-26%
-22% 22%
-40%
-30%
15
Source: FactSet, 11/2011
Today’s Agenda
Where are we in this economic cycle?
I i id i f li
Where are we in this market cycle?
Investment strategies to consider in your portfolio
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Equity Market Forecasts Gains are expected in 2012, supported by solid earnings growth and accommodative monetary policies.
Eq it Market EstimatesEquity Market Estimates
2010(a) 2011(a) 2012(e)
S&P 500 1258 1230 1350
Russell 2000 784 728 850
MSCI EAFE 1658 1428 1500
MSCI EM 1151 934 1100
Volatility (VIX Index) 18 24 27Index price at December 31Note: An index is not managed and unavailable for direct investment.
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ga: actual; e: estimate
Source: Bloomberg Finance, LLP, as of 12/12/11
Bull Markets Historical Perspectiveb l h l b ll k ff dWe believe the latest bull market is off to a good start.
History shows we may only be in the early stages.
'87-'00
500%600%700%
urn
Average Bull Market: 68 Months, 178%
Current Bull Market: 31 Months, 67%
'47-'57'82-'87
C t Average200%300%400%500%
Mar
ket
Retu
'62-'66
'70-'73
'02-'07Current
'57-'61'66-'68 '74-'80
Average
0%100%200%
Bul
l
0 20 40 60 80 100 120 140 160Bull Market Length (Months)A larger circle represents a higher return bull market
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Source: Bloomberg Finance LLP, S&P 500 Index Price Return as of 11/30/11
Past performance is no guarantee of future results.The S&P 500 is an unmanaged index and is unavailable for direct investment.
Th h b j i th b f d th S&P
U.S. Market Volatility is High
Daily Volatility Has Been Very High
There has been a jump in the number of days the S&P 500 Index has moved up or down one percent or more.
52%
61%60.00%
70.00%
Daily Volatility Has Been Very High
36%
52%
33% 32%36%
30 00%
40.00%
50.00%
hang
e (%
)
24%20%
12%9%
20%24%
20%
10.00%
20.00%
30.00%
dex
Dai
ly C
0.00%Ind
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Source: Bloomberg 11/11
Equities k h b dRiskier assets have been mixed in 2011. We expect
returns in line with earnings growth in 2012.
i b kEquity Returns by Market Segment40.0 YTD 2011 2010
3 0
19.2
8.2
26.9
15.5
25.5
15.1 16.7
10.0
20.0
30.0
Cha
nge
-10.9
-4.8-1.6 -1.4
1.1 3.0
20 0
-10.0
0.0% C
-17.2
-30.0
-20.0
MSCI EM MSCI EAFE Russell 2000
R1000 Value
Russell Midcap
S&P 500 R1000 Growth
20
Source: Bloomberg Finance, total return as of 11/30/11
Past Performance is no guarantee of future results.
Global Dividend Yields d d d ld l hEquity dividend yields are attractive relative to cash
and U.S. Treasurys.
Key YieldsKey Yields
5.05
6
ield
2 1 2 2
2.93.3
3.7 3.8 3.9
3
4
Y
0.53
2.1 2.2
1
2
Past Performance is no guarantee of future results
0Cash 10-yr TSY U.S. MSCI AC
WorldChina Brazil U.K. Germany Australia
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Source: Factset, MSCI All Country World Index, 11/30/11.
Past Performance is no guarantee of future results.
Lots of “Dry Powder” on the SidelinesfAmple liquidity remains available to support financial
market growth as risk appetites improve.
Li idit th Sid li
4000
4500
4000
4500Liquidity on the Sidelines
2500
3000
3500
2500
3000
3500
Bill
ions
1000
1500
2000
1000
1500
2000$ B
15-Year Average
0
500
1000
0
500
1000
1996 1999 2002 2005 2008 2011
22
Source: ICI, as of 10/31/11Liquidity represented by money market mutual fund assets.
1996 1999 2002 2005 2008 2011
Key Points – Economy and Markets
We expect the U.S. economy to grow between 1.5-2.0 percent in 2011.
IN OUR VIEW:
The U.S. appears more strongly positioned than countries more directly impacted by the Eurozone debt problems.Stubbornly high unemployment and weak housing could Stubbornly high unemployment and weak housing could continue to constrain U.S. economic growth.Commodity prices are easing, helping consumers and supporting corporate profit margins.supporting corporate profit margins.The Federal Reserve’s stated intention is to keep short-and long-term interest rates low.Stocks in the U.S., Emerging markets and Europe are trading at attractive valuations from a historic perspective
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Today’s Agenda
Where are we in this economic cycle?
I i id i f li
Where are we in this market cycle?
Investment strategies to consider in your portfolio
24
Asset ClassesTactical adjustments:
Underweight Overweight
Treasury BondsAgency BondsDuration
High Yield Bonds U.S. Large Cap EquityDuration
Developed Market Bonds
International Emerging Markets Equity
Conservative and Conservative and Diversified Hedge Funds1
†Strategic or neutral recommendation is 0% Asset class may not be underweighted because short
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†Strategic or neutral recommendation is 0%. Asset class may not be underweighted because short positions in any asset class are prohibited. 1Some complementary strategies may be available to pre-qualified investors only. Suggestions as of 11/30/11
Managing Through Uncertain Times
Market uncertainty is not new
Utilize a disciplined process to avoid the temptation to panic
Increased volatility can present challenges and
Strategies:
opportunities
g
Hold enough (but not too much) liquidity
M t h t ll ti t ti h iMatch asset allocation to time horizon
Use the RiskOptics® approach to assess types of risk
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risk
Invest in a globally diversified portfolio
Key Points – 2012 Strategy Highlights
Globalize all asset classes.Seek growth in emerging/frontier markets.
OUR RECOMMENDATIONS:
g g g/Consider investing in the consumer companies that are benefiting from the wealthy in Asia and the more price-conscious consumers in the EM.Consider energy and technology companies.Seek income in all four asset groups including fixed income,
it l t d l t t t iequity, real assets and complementary strategies.Focus on fundamental valuation measures, such as P/E ratios.Maintain liquidity to avoid having to sell on unfavorable terms.Apply RiskOptics® approach to ensure that the sources of
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Apply RiskOptics approach to ensure that the sources of portfolio risk are truly diversified.
1. Some complementary strategies may be available to pre-qualified investors only.
DisclosuresWells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.The information and opinions in this report were prepared by the investment management division within Wells Fargo Private Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Wells Fargo Private Bank’s opinion as of the date of this report and are for general information purposes only. Wells Fargo Private Bank does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.
This material is for general information only, is not suitable for all investors and is not soliciting any action from any particular investor. Information and opinions presented have been obtained or derived from sources we believe reliable, but we cannot guarantee their accuracy or completeness. Opinions represent WFB’s judgment as of the date of the report and are subject to change without notice. WFC affiliates may issue reports or have opinions, which are inconsistent with, and reach different conclusions from, this report.
This report is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities mentioned. Wells Fargo &Company and/or its affiliates may trade for their own accounts, be on the opposite side of customer orders, or have a long or short position in the securities mentioned herein.
The investments discussed or recommended in this report are not insured by the Federal Deposit Insurance Corporation (FDIC) and may be unsuitable for some investors depending on their specific investment objectives and financial position(FDIC) and may be unsuitable for some investors depending on their specific investment objectives and financial position.
Past performance is not a guide to future performance. Income from investments may fluctuate. The price or value of the investments also may fluctuate. There is always the potential for loss as well as gain.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Investing in foreign securities presents certain risks that may not be present in domestic securities and may not be suitableInvesting in foreign securities presents certain risks that may not be present in domestic securities and may not be suitablefor all investors.
Real estate investment carries a certain degree of risk and may not be suitable for all investors.
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DisclosuresSome real assets may be available to pre-qualified investors only.
Some alternative investments and complementary strategies may be available to prequalified investors only. Hedge strategies and private investments may be speculative and involve a high degree of risk. Hedge strategies and private investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. There isno secondary market for the investor’s interest in a hedge fund or private equity investment and none is expected to develop. There may be restrictions on transferring interests in a hedge fund or private equity investment. develop. There may be restrictions on transferring interests in a hedge fund or private equity investment.
Fixed income securities are subject to availability and market fluctuation. These securities may be worth less than the original cost upon redemption. Certain high-yield/high-risk bonds carry particular market risks and may experience greater volatility in market value than investment grade corporate bonds. Government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and fixed principal value. Interest from certain municipal bonds may be subject to state and/or local taxes and in some instances, the alternative minimum tax.
I ti i f i iti t t i i k th t t b t i d ti iti d t b it blInvesting in foreign securities presents certain risks that may not be present in domestic securities and may not be suitablefor all investors.
Municipal bonds offer interest payments exempt from federal taxes, and potentially state and local income taxes. Unlike U.S. Treasurys, municipal bonds are subject to credit risk and potentially the Alternative Minimum Tax (AMT). Quality varies widely depending in the specific issuer.
Corporate bonds generally provide higher yields than U.S. Treasuries while incurring higher risk.Corporate bonds generally provide higher yields than U.S. Treasuries while incurring higher risk.
Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your situation at the time your tax preparer submits your return .You cannot invest directly in an indexYou cannot invest directly in an index.The Institute of Supply Management (ISM) Purchasing Manager’s Index gauges internal demand for raw materials/goods that go into end-production. An index values over 50 indicate expansion; below 50 indicates contraction. The values for the index can be between 0 and 100. You cannot invest directly in an index.The S&P/Case-Shiller® U.S. National Home Price Index is a broad, market value-weighted composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly.
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S&P 500 Index is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.
DisclosuresS&P Midcap 400 Index is an unmanaged capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market.
S&P Small Cap 600 Index is an unmanaged capitalization-weighted index of common stocks representing all major industries in the small-cap (between $300mn and $2 billion) are of the market.
The Market Volatility Index (VIX) is an index designed to track market volatility as an independent entity. The index l l t d b d ti ti it d i d i di t f i t ti t ith hi h l i l i i i calculated based on option activity and is used as an indicator of investor sentiment, with high values implying pessimism
and low values implying optimism.
Wilshire 5000® Equity Index is an unmanaged index made up of all U.S. stocks regularly traded on the three major U.S. exchanges, including the New York Stock Exchange, American Stock Exchange, and Nasdaq.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values and higher forecasted growth values. Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000®.
Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2007 the MSCI EAFE Index consisted of 21 developed-market country indices.
MSCI Europe, Australasia, Far East & Canada Gross Return Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets excluding the U S designed to measure the equity market performance of developed markets, excluding the U.S.
Morgan Stanley Capital International (MSCI) Emerging Markets Global Index is a market capitalization-weighted benchmark index made up of equities from 29 developing countries.
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Disclosures
FTSE NAREIT Equity REIT Total Return Index is an unmanaged index reflecting performance of the U.S. real estate investment trust market.
Equity Hedge: Equity Hedge strategies maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both
i i d f d l h iquantitative and fundamental techniques.
Relative Value Arbitrage: Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Short Term Asset Management (STAM) is designed for investors seeking professional assistance in managing short-term fixed-income portfolios with an average maturity of generally less than one year.
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