Aspen Publishers

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Aspen Publishers

Blue ChipFinancial Forecasts

Top Analysts Forecasts Of U.S. And Foreign Interest Rates, Currency Values

And The Factors That Influence Them

Vol. 28, No. 10, October 1, 2009

Wolters KluwerLaw & Business


2/19

BLUE CHIPFINANCIALFORECASTS

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RANDELL E. MOORE

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TABLE OF CONTENTS

Domestic Commentary p. 1

Domestic Summary Table Table of consensus forecasts of

U.S. interest rates and key economic assumptions p. 2

International Summary Table Table of consensus forecasts of

international interest rates and foreign exchange values p. 3

International Commentary p. 3

Individual Panel Members U.S. Forecasts Of interest rates and

key assumptions for the next six quarters p. 4-9

Individual Panel Members International Forecasts Of

international interest rates and foreign exchange values p. 10-11

Viewpoints A sampling of views on the economy and government

policy excerpted from recent reports issued by our panel members p. 12-13

Special Questions Results of special questions posed to panel

members about the economy, financial markets and government policy p. 14

Databank Monthly historical data on many key indicators of

economic activity p. 15

Calendar Release dates for important upcoming economic

Data, FOMC meetings, etc. p. 16

List Of Contributing Economists To Domestic and International

Survey inside of back cover
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3/19

Consensus Still Sees Trend-Like Real GDP Growth Over Coming YearDomestic Commentary Confidence remains high that the U.S.economy began growing again this summer, ending the longest,deepest recession in the post World War II era. Indeed, more than90% of our panelists say the recession has ended. Moreover, consen-sus forecasts of near-term economic growth again moved higher overthe past month, extending the streak of upgrades that began in April.Nonetheless, the consensus continues to only foresee trend-like real

GDP growth of 2 % or so over the coming year, well short of theebounds that followed prior recessions in the past 60 years.r

Among the data released since our last survey that helped lift expec-tations of near-term GDP growth was a four-point jump in the Insti-tute of Supply Managements August index of manufacturing activityto 52.9, matching its highest reading since July 2006. Other Augustreports also exceeded expectations, including a 2.7% surge in retailsales, a 0.8% jump in industrial production and a 1.5% increase inhousing starts that left them at their highest level in nine months.Moreover, the Conference Boards index of leading economic indica-tors rose for a fifth consecutive month in August and is up 4.7% overhe past five months, the strongest such gain since early 1983.t

The news, however, was not uniformly upbeat. The unemploymentrate jumped 0.3 of a percentage point to 9.7% in August. The trade

deficit widened by a much larger than expected $4.5 billion in July.Sales of new single-family homes rose a smaller-than-expected 0.7%in August while sales of existing homes actually fell 2.7%, accompa-nied by a second-consecutive drop in the median sales price. Neworders for durable goods unexpectedly declined by 2.4% in Augustand nondefense capital goods shipments excluding aircraft dropped1.9% to a fresh cycle low. Early indications suggest unit sales of carsand light trucks fell dramatically in September following the cashor clunker induced increases in July and August.f

Key factors expected to cap the strength of the economic recoveryover the next six quarters include: an unusually slow improvement inlabor market conditions; only modest gains in consumer spending,restrained by tepid growth in personal income, tight credit and a de-sire by households to pare debt; an atypically muted recovery in resi-

dential investment due to still rising home foreclosures and persis-tently high inventories of unsold existing homes; a sharp further pull-back in commercial construction; and limited improvement in capitalspending resulting from the excess capacity that exists in many sec-ors and still-tight credit for small and mid-size businesses.t

As for the specifics of our September 23rd-24th survey results, theconsensus predicts real GDP expanded at an annual rate of 3.2% inQ3 and will grow at a 2.5% clip in the final quarter of this year andin Q1 2010. The Q3 forecast increased 0.9 of a percentage point overthe past month, the Q4 2009 and Q1 2010 estimates rose 0.2 of apercentage point and 0.1 of a point, respectively. Consensus forecastsof real GDP growth in subsequent quarters were little changed thismonth. Real GDP is predicted to expand at a 2.7% rate in Q2 2010,0.1 of a point less than predicted last month. Real GDP is forecast to

grow at a 2.8% rate in both Q3 and Q4 of next year, the Q3 projec-tion 0.1 of a point better than predicted last month. Our panelistsfirst stab at predicting real GDPs growth rate in Q1 2011 produced aonsensus forecast of 2.9%.c

Given the subdued pace of recovery, inflationary pressures are ex-pected to remain relatively muted over the next year, according to theconsensus. Since December 2008 and March 2009, respectively, theProducer Price Index (PPI) and the Consumer Price Index (CPI) havecontracted on a year-over-year basis, primarily the result of the steeprun-up and subsequent pull-back in energy and food prices. In July,the 12-month decline in the PPI widened to -6.8% while the declinein the CPI reached -2.1%. In August, however, the y/y change in thePPI narrowed to -4.3% while the change in the CPI shrank to 1.5%.

By late this year or early next, the y/y change in both measures ofinflation is widely expected to become positive again, but largelybecause of less favorable year ago comparisons. On the other handthe y/y change in inflation excluding food and energy prices iswidely expected to continue working its way lower for the time being. For example, the core CPI was up 1.9% y/y in April but hasdeclined each and every month since to stand at 1.4% in August

While the overall CPI likely rose at a seasonally-adjusted annual rateof 2.7% in the current quarter, the consensus continues to foreseerowth rates of 2.0% or less between Q4 2009 and Q4 2010.g

In light of uncertainty about the strength of the recovery and theexpectation that inflation will remain subdued, the consensus contin-ues to believe the Federal Reserve will move very cautiously in un-winding its monetary accommodation. The policy statement issued athe conclusion of the Federal Open Market Committees September22nd-23rd meeting did nothing to dissuade panelists of that beliefPolicymakers discussion of the economic outlook was a bit moreoptimistic, noting signs of a pick-up in economic activity and thatlong-term inflation expectations remain tame. The committee alsoreiterated its commitment to leave the target federal funds rate un-hanged for an extended period.c

The most notable news from the meeting, word that the Fed wouldpurchase a "total" of $1.25 trillion of agency-issued mortgage-backedsecurities (MBS). Earlier statements said the Fed would buy "up to"$1.25 trillion. However, the FOMC retained the "up to" phrasing foits planned purchases of $200 billion of agency debt. The FOMC alsoannounced it would slow the rate of buying for both programs andextend the purchases through the first quarter of next year. The dayfollowing conclusion of the FOMC meeting the Fed announced iwould reduce the size of upcoming Term Auction Facility (TAF) andTerm Securities Lending Facility (TSLF) operations in light of improving market conditions. Neither represent a tightening of policybut rather administrative moves designed to align the size of lendingacilities with underlying demand.f

Given the unanimous vote at the FOMC meeting, credit markets were

taken aback by Fed Governor Kevin Warshs hawkish op-ed in theSeptember 25thWall Street Journal. In it, Warsh said prudent riskmanagement indicates that policy likely will need to beginnormalization before it is obvious that it is necessary, possibly withgreater force than is customary. Warsh added that If "whatever itakes" was appropriate to arrest the panic, the refrain might turn outo be equally necessary at a stage during the recovery to ensure theFederal Reserve's institutional credibility. Short-term rates jumpedand long-term yields swooned in reaction to the op-ed. However, inthe Q&A after a speech later that day, Warsh said his hawkish tone inthe op-ed did not imply an imminent change in Fed policy.

Consensus Forecast The consensus still predicts the FOMC willeave its target federal funds rate at 0.0%-0.25% until late nextspring. By the end of 2010, the consensus thinks the FOMC will have

raised its target rate by about 100 basis points. In the interim, the Fedis expected to continue unwinding its various lending facilities andpurchase programs. The Treasury yield curve is expected to flattenover the coming year as short-term market rates increase faster thanlong-term yields. The consensus assumes the dramatic narrowing incorporate spreads seen over the past several months may struggle toontinue (see page 2 for U.S. consensus forecasts).c

Special Questions About 70% of the panelists think that by the endof this year Congress will extend, expand or both the $8,000 federaltax credit program for first-time homebuyers. However, just 42%believe Congress should do so. About 60% of the panelists say thetrade deficit will widen in the second half of this year; almost three-quarters think it will widen in 2010 (see page 14).


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2 BLUE CHIP FINANCIAL FORECASTS OCTOBER 1, 2009

Consensus Forecasts Of U.S. Interest Rates And Key Assumptions1

-------------------------------------History----------------------------------------- Consensus Forecasts-Quarterly Avg.---------Average For Week End-------- ----Average For Month---- Latest Q* 4Q 1Q 2Q 3Q 4Q 1Q

Interest Rates Sep. 25 Sep. 18 Sep. 11 Sep. 4 Aug. July June 3Q 2009 2009 2010 2010 2010 2010 2011Federal Funds Rate 0.15 0.16 0.15 0.15 0.16 0.16 0.21 0.16 0.2 0.2 0.3 0.6 1.0 1.5Prime Rate 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.2 3.2 3.3 3.6 4.1 4.5LIBOR, 3-mo. 0.29 0.30 0.31 0.34 0.42 0.52 0.62 0.41 0.5 0.5 0.7 1.0 1.4 1.8Commercial Paper, 1-mo. 0.13 0.14 0.13 0.15 0.17 0.18 0.18 0.16 0.2 0.3 0.4 0.7 1.2 1.6Treasury bill, 3-mo. 0.10 0.11 0.14 0.14 0.17 0.18 0.18 0.16 0.2 0.3 0.4 0.7 1.1 1.5Treasury bill, 6-mo. 0.20 0.20 0.22 0.23 0.27 0.28 0.31 0.25 0.3 0.4 0.6 0.9 1.3 1.7Treasury bill, 1 yr. 0.41 0.40 0.40 0.42 0.46 0.48 0.51 0.45 0.5 0.7 0.8 1.2 1.6 1.9Treasury note, 2 yr. 1.00 0.98 0.92 0.93 1.12 1.02 1.18 1.04 1.1 1.3 1.5 1.8 2.1 2.5Treasury note, 5 yr. 2.44 2.43 2.34 2.33 2.57 2.46 2.71 2.48 2.5 2.7 2.8 3.0 3.2 3.5Treasury note, 10 yr. 3.46 3.46 3.41 3.37 3.59 3.56 3.72 3.53 3.6 3.7 3.9 4.1 4.2 4.4Treasury note, 30 yr. 4.21 4.24 4.25 4.18 4.37 4.41 4.52 4.34 4.4 4.5 4.6 4.8 4.9 5.1Corporate Aaa bond 5.16 5.15 5.18 5.12 5.26 5.41 5.61 5.28 5.3 5.4 5.4 5.6 5.7 5.8Corporate Baa bond 6.31 6.36 6.39 6.37 6.58 7.09 7.50 6.67 6.6 6.7 6.7 6.8 6.9 7.0State & Local bonds 4.04 4.20 4.33 4.37 4.60 4.72 4.81 4.50 4.5 4.6 4.7 4.8 4.9 5.0Home mortgage rate 5.04 5.04 5.07 5.08 5.19 5.22 5.42 5.15 5.2 5.3 5.4 5.6 5.8 5.9

----------------------------------------History------------------------------------------- Consensus Forecasts-Quarterly4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q* 4Q 1Q 2Q 3Q 4Q 1Q

Key Assumptions 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011Major Currency Index 73.3 72.0 70.9 73.5 81.3 82.7 79.4 75.4 75.2 75.1 74.6 74.6 74.9 75.2Real GDP 2.1 -0.7 1.5 -2.7 -5.4 -6.4 -1.0 3.2 2.5 2.5 2.7 2.8 2.8 2.9GDP Price Index 2.3 1.9 1.8 4.0 0.1 1.9 0.0 1.4 1.2 1.5 1.6 1.7 1.7 2.0Consumer Price Index 5.8 4.5 4.5 6.2 -8.3 -2.4 1.3 2.7 1.8 1.7 1.6 2.0 2.0 2.1Forecasts for interest rates and the Federal Reserves Major Currency Index represent averages for the quarter. Forecasts for Real GDP, GDP Price Index and Consumer PriceIndex are seasonally-adjusted annual rates of change (saar). Individual panel members forecasts are on pages 4 through 9. Historical data for interest rates except LIBOR is fromFederal Reserve Release (FRSR) H.15. LIBOR quotes available from The Wall Street Journal. Interest rate definitions are the same as those in FRSR H.15. Treasury yields arereported on a constant maturity basis. Historical data for the Fed Major Currency Index is from FRSR H.10 and G.5. Historical data for Real GDP and GDP Chained Price Indexare from the Bureau of Economic Analysis (BEA). Consumer Price Index (CPI) history is from the Department of Labors Bureau of Labor Statistics (BLS).

U.S. Treasury Yield CurveWeek ended September 25, 2009 and Year Ago vs.

4Q 2009 and 1Q 2011 Consensus Forecasts

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

3mo 6mo 1yr 2yr 5yr 10yr 30yr

Maturities

Percent

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00Year Ago

Week ended 9/25

Consensus 1Q 2011

Consensus 4Q 2009

U.S. 3-Mo. T-Bills & 10-Yr. T-Note Yield

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

1Q

2001

1Q

2002

1Q

2003

1Q

2004

1Q

2005

1Q

2006

1Q

2007

1Q

2008

1Q

2009

1Q

2010

1Q

2011

Percent

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00(Quarterly Average) History Forecast

3-Month T-Bill Yield

Consensus

Consensus

10-Yr. T-Note Yield.

Corporate Bond SpreadsAs of week ended September 25, 2009

0

50

100

150

200

250

300

350

400

450

500

550600

650

700

2006 2007 2008 2009

BasisPoints

0

50

100

150

200

250

300

350

400

450

500

550600

650

700

Baa Corporate Bond

Yield minus 10-YearT-Bond Yield

U.S. Treasury Yield CurveAs of week ended September 25, 2009

-100

-50

0

50

100

150

200

250

300

350

400

2006 2007 2008 2009

BasisPoints

-100

-50

0

50

100

150

200

250

300

350

400

10-Year T-Bond

minus 3-Month T-Bill

(Constant Maturity Yields)

Aaa Corporate Bond Yield

minus 10-Year T-Bond Yield


5/19

OCTOBER 1, 2009 BLUE CHIP FINANCIAL FORECASTS 3

-------------3-Month Interest Rates1----------------

-----------History---------- Consensus Forecasts Month Year Months From Now:

Latest: Ago: Ago: 3 6 12U.S. 0.78 1.00 4.47 0.40 0.51 1.01Japan 0.51 0.46 1.02 0.44 0.46 0.53U.K. 0.83 0.85 6.31 0.71 0.86 1.35Switzerland 0.45 0.44 2.80 0.30 0.37 0.60Canada 0.68 0.70 4.00 0.57 0.72 1.30Australia 3.80 3.80 7.74 3.40 3.55 3.83Eurozone 0.78 0.95 5.06 0.83 0.93 1.23

-----------10-Yr. Government Bond Yields1------


Latest: Ago: Ago: 3 6 12U.S. 3.41 3.45 3.84 3.66 3.96 4.33Germany 3.34 3.26 4.25 3.41 3.49 3.70Japan 1.34 1.33 1.48 1.44 1.49 1.63U.K. 3.72 3.55 4.67 3.80 3.96 4.29France 3.59 3.51 4.50 3.68 3.75 3.94Italy 4.06 4.03 4.92 4.19 4.28 4.45Switzerland 2.11 2.02 2.84 2.07 2.32 2.52Canada 3.43 3.40 3.70 3.67 3.97 4.42Australia 5.44 5.47 5.78 5.50 5.60 5.85Spain 3.85 3.77 4.71 3.98 4.04 4.20Eurozone 3.89 3.85 4.67 3.50 3.58 3.85

----------------Foreign Exchange Rates1-----------


Latest: Ago: Ago: 3 6 12U.S. 73.785 74.882 73.854 79.1 80.3 82.1Japan 89.74 94.60 105.80 92.5 93.5 96.8U.K. 1.5945 1.6503 1.8558 1.71 1.72 1.72Switzerland 1.0274 1.0613 1.0813 1.07 1.08 1.09Canada 1.0892 1.0799 1.0355 1.04 1.06 1.11Australia 0.8656 0.8349 0.8385 0.88 0.88 0.89Euro 1.4686 1.4305 1.4737 1.49 1.50 1.48

Consensus Consensus3-Month Ratesvs. U.S. Rate

10-Year GovtYields vs. U.S. Yield

Now In 12 Mo. Now In 12 Mo.

Japan -0.27 -0.48 Germany -0.07 -0.63U.K. 0.05 0.34 Japan -2.07 -2.70Switzerland -0.33 -0.41 U.K. 0.31 -0.04Canada -0.12 0.29 France 0.18 -0.39Australia 3.02 2.81 Italy 0.65 0.12Eurozone 0.00 0.21 Switzerland -1.30 -1.81

Canada 0.02 0.09Australia 2.03 1.53Spain 0.44 -0.12Eurozone 0.48 -0.48

Forecasts of individual panel members are on pages 10 and 11. Defini-

tions of variables are as follows:1Three month currency interest rates.

Short term rates are call for the US Dollar and Yen, others: two days

notice. Government bonds are yields to maturity. Foreign exchange rate

forecasts for U.K., Australia and the Euro are currencies per U.S. dollar.

For the U.S dollar, forecasts are of the U.S. Federal Reserve Boards

Major Currency Index.

International Commentary The past month delivered a mix bag onews for global financial markets to chew on. Data continued to indicate the global economy will emerge from recession during the secondhalf of this year. The rebound has been especially striking in non-Japan Asia, but improving activity, if sometimes more uneven, continued to be see in North American and European economies. As aresult, forecasts of economic growth over the forecast horizon are still

rising. Nonetheless, most analysts still predict the recovery in Westerneconomies will be more subdued than is usual given the considerableheadwinds (tighter credit, persistently high levels of unemploymentetc.) that are likely to prevail well into next year. That would be espe-cially true, many argue, if policymakers prematurely begin an un-winding of the massive fiscal and monetary stimulus put in place overthe past year, dampening prospects for a self-sustaining upturn inconomic activity.e

As for the markets, global equity indices generally moved higher overthe past month though there were some signs of back-tracking as Sep-tember wound down. Sovereign bond markets were directionless, withyields up a little in some nations and down elsewhere. Howeverspread product generally continued to perform well, especially weregovernments were acting as financiers. Perhaps the most notable de-velopment was in the foreign exchange markets where the U.S. dollarcontinued to slide, dropping to it lowest level in more than a yeargainst many currencies.a

The European Central Bank (ECB) left its refi rate unchanged at 1.0%at the September meeting and also announced that its next 12-monthtender would again be allocated at 1.0%, signaling to markets its in-tention to keep rates lows for the foreseeable future. While ECB offi-cials have warned against overdone optimism about the growth out-look, recent data still point to recover. PMI data for both themanufacturing and service sectors continues to improve with the latterin September indicating out-right growth. Factory orders are up andbusiness sentiment is still increasing. However, retail sales fell in Julyand possibly August, after being unchanged in June, demanddampened by still rising unemployment and damp income growth

he ECB is not expected to raise interest rates until next spring.TAt its September meeting, the Bank of England (BoE) held its assetpurchase target steady at 175 billion pounds and the repo rate was lefunchanged. Minutes from the meeting indicated there was no discus-sion of lowering the interest rate paid on reserves held at the Bank ofEngland. However, speculation on a BoE deposit rate cut continuedwhen City economists were invited to a special meeting at the bankGovernor King had previously acknowledged the BoE was lookinginto the possibility of following the Riksbank and cutting its deposirate to offer negative rates on bank reserves to encourage banks tolend rather than to hoard the cash. Real GDP is expected to expandthis quarter, snapping a five-quarter string of declines. Howeverrowth of just 1.0% or so still is expected in 2010.g

The Bank of Canada (BoC) left its policy rate at 0.25% in September

and maintained its conditional commitment to leave rates unchangeduntil June of next year. While the bank has voiced more optimismabout GDP growth going forward the persistent strength of the loonierecently prompted BoC president Carney to threaten the use quantita-ive easing to combat its upward trajectory.t

The Bank of Japan (BoJ) maintained its call rate at 0.1% on Septem-ber 17th where its been stuck since last December. While the BoJnoted "economic conditions are showing signs of recovery" and thatfinancial conditions "increasingly (are) showing signs of improve-ment," the "risks to the economy are still on the downside. Real GDPgrew at a downwardly revised rate of just 2.3% in Q2 versus the 3.7%originally estimated. Prices continue to fall at an alarming clip withthe national core CPI down a record -2.2% y/y in July and headedlower(see 10 and 11 for individual panel members forecasts).


6/19


7/19

OCTOBER 1, 2009 BLUE CHIP FINANCIAL FORECASTS

First Quarter 2010Interest Rate Forecasts Key Assumptions

--------------------------------------------------------------------Percent Per Annum -- Average For Quarter-------------------------------------------------------------- Avg. For ------(Q-Q % Change)---

Blue Chip -------------------------------------Short-Term------------------------------------ ------------Intermediate-Term----------- -----------------Long-Term------------------ ---Qtr.--- ------------(SAAR)--------

Financial Forecasts 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 A. B. C. D.

Panel Members Com. Treas. Treas . Treas . Treas . Treas . Treas. Treas. A aa B aa State & Home F ed's Major GDP Con

Bank Rate Paper Bills Bills Bills Notes Notes Notes Bond Corp. Corp. Local Mtg. Currency Real Price Pric

Rate Rate 3-Mo. 1-Mo. 3-Mo. 6-Mo. 1-Yr. 2-Yr. 5-Yr. 10-Yr. 30-Yr. Bond Bond Bonds Rate $ Index GDP Index IndeWoodworth Holdings 0.5 H 3.5 H 0.7 0.5 0.5 0.6 0.7 1.3 2.7 3.6 4.4 5.3 6.5 4.3 5.2 71.0 3.3 1.0 1.7

Action Economics 0.3 3.3 0.7 0.3 0.4 0.6 1.1 1.7 2.8 4.0 4.6 5.3 6.5 4.7 5.2 73.3 2.3 2.3 1.6

RBS Securities 0.3 3.3 0.7 0.3 0.6 H 0.9 H 1.3 H 1.8 3.1 4.1 5.0 5.6 6.9 4.7 5.6 76.0 3.7 2.8 2.0

Russell Investments 0.3 3.3 0.5 0.3 0.2 0.5 0.8 1.4 2.7 3.5 4.4 5.2 6.2 4.1 L 5.1 73.7 2.2 1.4 1.4

Stone Harbor Investment Partners 0.3 3.3 0.5 0.5 0.2 0.3 0.7 1.4 2.9 3.9 4.8 5.5 7.9 na 5.4 72.0 1.3 2.3 2.3

The Northern Trust Company 0.3 3.3 0.5 na 0.2 na 0.6 1.1 2.4 3.7 4.5 na na na 5.2 na 1.9 2.3 2.5

Bank of Toyko-Mitsubishi UFJ 0.3 3.3 0.4 0.3 0.2 0.3 0.4 L 1.5 3.2 4.2 4.9 5.2 6.4 4.5 5.7 70.0 L 2.9 2.8 2.3

Swiss Re 0.3 3.3 0.3 0.6 H 0.1 L 0.3 0.5 1.0 L 2.5 3.6 4.4 5.2 6.4 na 5.4 na 2.1 3.5 H 1.4

Scotiabank 0.3 3.3 na na 0.4 na na 1.5 3.0 4.3 H 4.8 5.3 6.6 4.6 5.3 na 5.0 1.5 1.9

ClearView Economics 0.2 3.3 0.5 0.2 0.2 0.4 0.8 1.4 2.8 3.7 4.4 5.3 6.4 4.4 5.2 72.5 4.2 2.0 2.4

DePrince & Assoc. 0.2 3.2 1.2 H 0.3 0.3 0.4 0.6 1.3 2.5 3.6 4.3 5.4 6.4 4.4 5.3 77.3 1.4 1.9 1.7

MacroFin Analytics 0.2 3.3 0.6 0.5 0.4 0.5 0.8 1.3 2.7 3.9 4.5 5.2 7.1 4.5 5.1 76.5 1.8 1.0 0.8

PNC Financial Services Corp. 0.2 3.3 0.4 0.3 0.2 0.3 0.5 1.0 L 2.5 3.5 4.3 5.3 6.5 4.7 5.3 74.0 2.5 1.8 2.2

RDQ Economics 0.2 3.3 0.3 0.3 0.4 0.5 0.7 1.2 2.7 4.2 5.0 5.5 6.7 5.0 5.7 73.0 2.2 2.7 2.7

Woodley Park Research 0.2 3.3 0.6 0.4 0.3 0.4 0.6 1.2 2.4 3.4 5.0 5.0 6.2 4.3 5.0 76.9 3.4 1.4 0.2

Wells Fargo 0.2 3.3 0.3 0.3 0.3 0.4 0.5 1.2 2.7 3.7 4.5 5.6 6.8 4.8 5.3 78.5 2.0 0.9 1.1Societe Generale 0.2 3.3 0.3 na 0.2 0.3 na 1.2 1.4 L 3.9 4.3 5.4 6.7 na 5.4 72.0 2.6 1.0 0.9

Fannie Mae 0.2 3.3 na na 0.2 na 1.0 na na 3.6 4.2 5.3 na na 5.8 H na 2.6 1.0 1.1

Conning & Company 0.2 3.3 na 0.2 0.2 0.3 0.5 1.0 L 2.6 3.7 4.4 5.4 6.7 4.5 5.5 74.0 1.5 1.0 1.6

Wayne Hummer Investments 0.2 3.2 0.6 0.2 0.3 0.4 0.6 1.6 2.8 3.8 4.5 5.4 6.5 4.4 5.2 79.0 2.7 1.6 1.7

Thredgold Economic Assoc. 0.2 3.2 0.6 0.3 0.2 0.3 0.5 1.1 2.5 3.6 4.5 5.5 7.0 4.7 5.2 75.0 2.8 1.5 1.8

Mesirow Financial 0.2 3.2 0.5 0.3 0.2 0.4 0.8 1.4 2.4 3.7 4.4 5.5 6.9 4.8 5.4 76.9 2.6 1.0 0.1

Kellner Economic Advisers 0.2 3.2 0.5 0.3 0.3 0.4 0.6 1.3 2.8 3.8 4.6 5.6 7.2 5.0 5.7 75.0 -1.5 L 1.6 2.0

Cycledata Corp. 0.2 3.2 0.4 0.2 0.2 0.3 0.5 1.0 L 2.5 3.6 4.3 5.4 6.5 4.4 5.2 75.0 3.5 2.0 2.9

J.W. Coons Advisors LLC 0.2 3.2 0.6 0.5 0.4 0.5 0.7 1.1 2.4 3.4 4.3 5.1 6.3 na 5.1 72.3 3.3 1.3 2.4

SunTrust Banks 0.2 3.2 0.3 0.2 0.1 L 0.3 0.4 L 1.0 L 2.5 3.4 4.2 5.2 6.3 5.5 H 4 .5 L 74.1 5.4 H 0.8 2.5

Nomura Securities, Inc. 0.2 3.3 0.4 0.2 0.2 0.3 0.5 1.5 3.4 H 3.7 4.4 5.2 5.9 L na 5.2 77.0 2.3 1.0 1.1

Naroff Economic Advisors 0.2 3.3 0.9 0.4 0.4 0.5 0.8 1.3 3.2 4.1 4.8 5.8 7.4 4.9 5.5 72.5 1.6 1.4 2.5

Daiwa Securities America 0.2 3.3 0.5 0.3 0.3 0.4 0.6 1.5 2.7 3.8 4.5 5.4 6.5 4.2 5.4 72.0 2.8 1.8 1.8

Loomis, Sayles & Company 0.2 3.3 0.4 0.2 0.2 0.3 0.7 1.5 2.6 3.8 4.5 5.4 6.6 4.6 5.4 73.3 2.9 1.0 0.8

Goldman Sachs & Co. 0.2 3.3 0.4 na 0.2 na na 1.0 L 2.2 3.1 L 3.8 L 4.8 L na na 5.1 na 2.0 0.0 1.1

Wells Capital Management 0.2 3.3 0.2 L 0.1 L 0.1 L 0.3 0.7 1.2 2.7 3.9 4.4 5.1 6.0 4.2 5.5 74.2 3.5 1.9 1.8JPMorgan Privare Wealth Mgt. 0.2 3.2 0.6 0.2 0.1 L 0.2 L 0.4 L 1.0 L 2.5 3.5 4.2 5.2 6.4 4.6 5.2 74.0 2.8 1.2 1.5

Comerica Bank 0.1 L 3.3 0.7 0.3 0.3 0.6 1.0 1.4 3.0 4.0 4.7 5.7 7.1 4.6 5.6 82.0 4.5 2.0 1.2

Chmura Economics & Analytics 0.1 L 3.3 0.4 0.2 0.2 0.4 0.6 1.2 2.8 3.8 4.5 5.6 7.3 4.4 5.3 81.0 2.5 1.0 1.4

BMO Capital Markets 0.1 L 3.3 0.3 0.2 0.2 0.2 L 0.7 1.6 2.8 3.8 4.6 5.4 6.5 4.3 5.3 73.5 2.3 1.0 1.5

Moody's Capital Markets 0.1 L 3.3 0.3 0.2 0.2 0.4 0.7 1.1 2.8 3.7 4.5 5.4 6.6 4.4 5.3 74.8 2.3 1.9 2.3

Economist Intelligence Unit 0.1 L 3.2 1.0 0.3 0.3 0.4 0.5 1.2 2.5 3.7 4.4 na na na 5.2 na 1.0 na 0.8

Moody's Economy.com 0.1 L 3.2 0.8 0.6 H 0.3 0.7 0.9 1.8 2.5 4.2 5.1 H 6.3 H 8.1 H na 5.8 H na 1.0 -0.4 L 1.6

Argus Research 0.1 L 3.1 L 0.6 0.2 0.3 0.4 0.6 1.0 L 2.4 3.7 4.5 5.5 6.3 4.7 5.3 76.0 1.8 2.5 4.8

GLC Financial Economics 0.1 L 3.1 L 0.4 0.2 0.1 L 0.3 0.4 L 1.0 L 2.3 3.4 4.2 5.3 6.7 4.5 5.1 73.8 1.5 2.1 2.2

UBS 0.1 L na 0.5 na 0.3 na na 2.0 H 3.1 3.8 4.4 na na na na na 2.5 1.6 1.7

J.P. Morgan Chase 0.1 L na 0.5 na 0.2 na na 1.0 L 2.2 3.3 3.9 na na na na na 3.0 0.8 1.1

Banc of America-Merrill Lynch 0.1 L na 0.4 na 0.2 na na 1.2 2.6 4.1 4.7 na na na na na 3.5 1.5 2.3

Georgia State University 0.1 L 3.3 na na 0.2 0.3 0.5 1.0 L 2.6 3.6 4.5 5.3 6.7 na 5.2 na 1.0 1.2 0.1

Barclays Capital 0.1 L 3.3 0.4 0.3 0.2 0.6 0.8 1.7 3.2 4.0 4.9 5.7 7.1 5.1 5.8 H na 5.0 1.2 2.2

Nat'l Assn. of Realtors 0.1 L 3.1 L 0.8 0.3 0.3 0.6 0.9 1.3 2.8 3.7 4.4 5.5 6.9 5.1 5.6 na 2.3 1.4 1.9

Standard & Poor's Corp. 0.1 L 3.2 0.7 0.4 0.3 0.4 0.5 1.1 2.6 3.8 na 5.5 6.8 4.8 5.3 85.1 H 1.7 1.7 1.1

October Consensus 0.2 3.2 0.5 0.3 0.3 0.4 0.7 1.3 2.7 3.7 4.5 5.4 6.7 4.6 5.3 75.1 2.5 1.5 1.7

Top 10 Avg. 0.3 3.3 0.8 0.5 0.4 0.6 0.9 1.7 3.1 4.1 4.9 5.7 7.3 5.0 5.7 79.0 4.2 2.5 2.7

Bottom 10 Avg. 0.1 3.2 0.3 0.2 0.1 0.3 0.5 1.0 2.2 3.4 4.2 5.1 6.2 4.3 5.0 72.1 1.0 0.7 0.7

September Consensus 0.2 3.3 0.6 0.3 0.3 0.5 0.8 1.4 2.8 3.9 4.6 5.6 7.0 4.8 5.4 76.2 2.4 1.4 1.7

Number of Forecasts Changed From A Month Ago:

Down 10 6 34 20 28 28 27 28 27 34 30 33 31 23 27 25 17 13 12

Same 37 38 7 16 17 12 12 14 13 10 12 7 5 7 10 5 9 16 18

Up 1 1 3 3 3 1 3 5 7 4 5 3 4 3 8 5 22 18 18

Diffusion Index 41 % 44 % 15 % 28 % 24 % 17 % 21 % 26 % 29 % 19 % 23 % 15 % 16 % 20 % 29 % 21 % 55 % 55 % 56

Federal Prime LIBOR

Funds


8/19


Second Quarter 2010Interest Rate Forecasts Key Assumptions

----------------------------------------------------------------------Percent Per Annum -- Average For Quarter--------------------------------------------------------------- Avg. For ------(Q-Q % Change)---

Blue Chip -------------------------------------Short-Term------------------------------------ ------------Intermediate-Term----------- -----------------Long-Term------------------ ---Qtr.--- ------------(SAAR)---------

Financial Forecasts 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 A. B. C . D

Panel Members Com . Tr eas . T re as . T rea s. T rea s. Tr eas . T rea s. T re as. Aaa B aa St ate & Ho me Fed's Ma jor G DP Co n


Rate Rate 3-Mo. 1-Mo. 3-Mo. 6-Mo. 1-Yr. 2-Yr. 5-Yr. 10-Yr. 30-Yr. Bond Bond Bonds Rate $ Index GDP Index Inde

Action Economics 0.8 H 3.8 H 1.3 H 0.8 0.9 H 1.1 1.5 2.0 3.1 4.2 4.8 5.4 6.5 4.8 5.2 73.3 2.6 1.7 1.3

Woodworth Holdings 0.8 H 3.8 H 0.9 0.8 0.7 0.8 1.0 1.6 3.0 3.8 4.6 5.3 6.5 4.3 5.2 71.5 4.3 1.2 1.8

Bank of Toyko-Mitsubishi UFJ 0.8 H 3.8 H 0.9 0.8 0.7 0.8 0.9 2.0 3.4 4.4 5.1 5.3 6.5 4.6 5.9 68.0 L 2.6 2.9 2.0

J.W. Coons Advisors LLC 0.7 3.7 1.1 1.0 H 0.8 1.0 1.2 1.6 2.8 3.7 4.5 5.4 6.6 na 5.4 68.6 3.2 0.8 2.7


Wells Capital Management 0.5 3.6 0.5 0.5 0.5 0.6 1.1 1.6 3.0 4.2 4.7 5.3 6.1 4.4 5.8 74.4 3.2 2.0 2.1

MacroFin Analytics 0.5 3.8 H 0.9 0.7 0.7 0.9 1.1 1.5 2.9 4.0 4.0 5.1 7.2 4.6 5.2 77.5 2.2 1.3 1.0

Daiwa Securities America 0.5 3.5 0.8 0.6 0.6 0.7 0.9 1.8 3.0 4.0 4.8 5.6 6.7 4.0 L 5.7 72.0 2.5 1.6 1.6

Scotiabank 0.5 3.5 na na 0.8 na na 2.0 3.5 4.5 H 5.2 5.4 6.7 4.7 5.4 na 3.0 1.5 1.9

DePrince & Associates 0.4 3.4 1.2 0.5 0.5 0.6 0.8 1.5 2.7 3.8 4.4 5.5 6.5 4.5 5.5 78.1 1.8 2.2 2.3

UBS 0.3 na 0.8 na 0.6 na na 2.5 H 3.2 3.8 4.4 na na na na na 2.8 1.6 -0.6

Nat'l Assn. of Realtors 0.3 3.3 1.0 0.6 0.8 1.0 1.2 1.7 3.1 3.8 4.5 5.6 7.0 5.2 5.7 na 2.5 1.7 2.0


Kellner Economic Advisers 0.3 3.3 0.4 0.4 0.4 0.5 0.7 1.4 3.0 4.0 4.8 5.8 7.4 5.2 5.9 74.0 0.0 L 1.5 1.8

RBS Securities 0.3 3.3 1.1 0.5 0.8 1.2 H 1.7 H 2.5 H 3.7 H 4.5 H 5.4 H 5.7 7.2 5.0 6.1 H 78.0 4.2 2.0 2.4


Naroff Economic Advisors 0.3 3.5 1.0 0.7 0.6 0.9 1.2 1.6 3.5 4.3 5.1 6.2 7.8 H 5.2 5.8 71.0 2.3 1.7 2.3Russell Investments 0.3 3.3 0.6 0.3 0.2 0.5 0.8 1.4 2.7 3.6 4.5 5.2 6.2 4.1 5.2 73.4 3.1 1.3 1.5


Societe Generale 0.3 3.3 0.4 na 0.2 0.4 na 1.3 1.5 L 4.1 4.3 5.4 6.7 na 5.5 77.0 3.0 0.9 -0.5

Swiss Re 0.3 3.3 0.3 L 0.6 0.1 L 0.3 L 0.5 L 1.0 L 2.6 3.7 4.4 5.2 6.3 na 5.4 na 2.2 3.1 1.0

GLC Financial Economics 0.2 3.2 0.5 0.3 0.2 0.4 0.6 1.0 L 2.3 3.4 4.3 5.4 6.9 4.5 5.2 73.6 1.6 2.0 2.1


RDQ Economics 0.2 3.3 0.4 0.3 0.5 0.7 0.8 1.3 2.9 4.5 H 5 .3 5.8 7.0 5.1 6.0 72.0 2.3 2.6 2.8


Barclays Capital 0.2 3.3 0.5 0.3 0.3 0.8 1.1 2.3 3.6 4.4 5.0 5.9 7.2 5.1 6.0 na 3.0 1.0 -0.6

Wells Fargo 0.2 3.3 0.5 0.3 0.4 0.5 0.6 1.3 2.8 3.8 4.6 5.6 6.8 4.8 5.4 80.3 1.8 1.0 1.3

Fannie Mae 0.2 3.3 na na 0.2 na 1.4 na na 3.7 4.3 5.2 na na 5.9 na 3.2 0.6 1.0

Conning & Company 0.2 3.3 na 0.2 L 0.2 0.3 L 0.5 L 1.1 2.8 3.8 4.5 5.4 6.7 4.5 5.6 73.0 2.0 1.0 1.8

Thredgold Economic Assoc. 0.2 3.2 0.6 0.3 0.2 0.3 L 0.6 1.3 2.7 3.8 4.6 5.5 7.0 4.7 5.4 75.0 2.8 1.5 1.8

Mesirow Financial 0.2 3.2 0.5 0.3 0.2 0.5 1.0 1.5 2.4 3.8 4.5 5.6 7.0 4.8 5.5 76.4 3.0 0.6 1.0

Cycledata Corp. 0.2 3.2 0.5 0.2 L 0.2 0.4 0.6 1.1 2.6 3.6 4.3 5.5 6.6 4.5 5.2 74.0 2.2 2.0 2.5

SunTrust Banks 0.2 3.2 0.3 L 0.3 0.2 0.3 L 0.5 L 1.1 2.6 3.5 4.3 5.2 6.3 5.6 H 4.3 L 72.2 4.0 1.2 2.5

Nomura Securities, Inc. 0.2 3.3 0.4 0.2 L 0.2 0.3 L 0.5 L 1.6 3.4 3.7 4.4 5.1 5.8 L na 5.3 79.0 2.9 0.9 1.1Loomis, Sayles & Company 0.2 3.3 0.4 0.2 L 0.2 0.3 L 0.9 2.0 2.8 3.9 4.6 5.4 6.6 4.5 5.5 73.3 2.9 0.6 1.0

Goldman Sachs & Co. 0.2 3.3 0.4 na 0.2 na na 1.0 L 2.2 3.0 L 3.7 L 4.5 L na na 5.0 na 2.0 0.4 0.6

Chmura Economics & Analytics 0.2 3.3 0.4 0.2 L 0.2 0.3 L 0.5 L 1.1 2.3 3.4 4.2 5.4 na na 5.0 72.2 1.7 2.2 1.9

JPMorgan Privare Wealth Mgt. 0.2 3.2 0.6 0.3 0.2 0.3 L 0.5 L 1.1 2.5 3.6 4.3 5.3 6.4 4.7 5.3 73.8 2.7 1.3 1.6

Comerica Bank 0.1 L 3.3 0.7 0.3 0.3 0.6 1.0 1.4 3.0 4.0 4.7 5.7 7.1 4.6 5.6 82.0 4.5 H 2.0 1.2

Moody's Capital Markets 0.1 L 3.3 0.4 0.2 L 0.4 0.6 0.9 1.2 3.0 3.9 4.6 5.5 6.6 4.4 5.5 75.0 3.4 2.2 2.3

BMO Capital Markets 0.1 L 3.3 0.3 L 0.2 L 0.2 0.3 L 0.9 2.0 3.1 4.0 4.7 5.5 6.6 4.3 5.4 73.0 2.5 1.4 2.6

Moody's Economy.com 0.1 L 3.2 0.9 0.7 0.4 0.7 1.0 2.1 2.8 4.4 5.2 6.4 H 7.8 H na 6.1 H na 2.0 0.9 1.2

Economist Intelligence Unit 0.1 L 3.2 1.1 0.3 0.4 0.5 0.5 L 1.3 2.6 3.8 4.5 na na na 5.3 na 0.9 na 0.8

Argus Research 0.1 L 3.1 L 1.1 0.5 0.6 0.7 0.8 1.2 2.5 3.9 4.8 5.5 6.3 4.7 5.5 78.0 1.7 4.0 H 3.9

J.P. Morgan Chase 0.1 L na 0.5 na 0.2 na na 1.1 2.4 3.5 4.1 na na na na na 4.0 0.6 1.0

Banc of America-Merrill Lynch 0.1 L na 0.4 na 0.2 na na 1.5 2.8 4.2 4.8 na na na na na 3.3 0.0 L 0.2

Georgia State University 0.1 L 3.3 na na 0.3 0.4 0.6 1.1 2.7 3.7 4.6 5.3 6.6 na 5.3 na 1.3 1.2 1.0

Standard & Poor's Corp. 0.1 L 3.2 0.8 0.4 0.3 0.4 0.5 L 1.1 2.7 3.8 na 5.5 6.8 4.9 5.4 83.4 H 1 .6 1.5 1.5

na na na na na na na na na na na na na na na na na na na

na na na na na na na na na na na na na na na na na na na


Top 10 Avg. 0.6 3.7 1.1 0.7 0.7 0.9 1.3 2.1 3.4 4.3 5.1 5.8 7.3 5.1 5.9 79.2 3.8 2.6 2.7

Bottom 10 Avg. 0.1 3.2 0.4 0.2 0.2 0.3 0.5 1.1 2.3 3.5 4.2 5.1 6.3 4.3 5.0 70.8 1.4 0.6 0.4



Down 17 13 33 20 28 25 27 29 27 32 29 32 29 19 26 25 21 14 14

Same 29 29 8 13 17 12 12 13 12 12 13 8 5 9 12 4 14 18 21

Up 2 2 3 5 3 3 2 5 8 4 5 2 4 3 6 3 13 15 13

Diffusion Index 34 % 38 % 16 % 30 % 24 % 23 % 20 % 24 % 30 % 21 % 24 % 14 % 17 % 24 % 27 % 16 % 42 % 51 % 49

Funds

Federal Prime LIBOR


9/19


Third Quarter 2010Interest Rate Forecasts Key Assumptions

----------------------------------------------------------------------Percent Per Annum -- Average For Quarter--------------------------------------------------------------- Avg. For ------(Q-Q % Change)---

Blue Chip -------------------------------------Short-Term------------------------------------ ------------Intermediate-Term----------- -----------------Long-Term------------------ ---Qtr.--- ------------(SAAR)---------

Financial Forecasts 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 A. B. C. D

Panel Members Com. Treas . Treas. Treas. Treas . Treas. Treas . Treas . A aa Baa State & Hom e Fed's Major GDP Con


Rate Rate 3-Mo. 1-Mo. 3-Mo. 6-Mo. 1-Yr. 2-Yr. 5-Yr. 10-Yr. 30-Yr. Bond Bond Bonds Rate $ Index GDP Index IndeNat'l Assn. of Realtors 1.5 H 4.5 H 1.7 1.6 1.6 1.7 1.9 2.2 3.3 3.9 4.6 5.8 7.1 5.3 5.8 na 2.6 1.9 2.1

RBS Securities 1.3 4.3 2.4 H 1.7 H 1.7 H 2.3 H 2.7 H 3.2 H 4.1 H 4.8 H 5.6 5.9 7.4 5.2 6.5 H 82.0 4.5 2.2 2.8

Naroff Economic Advisors 1.3 4.3 1.9 1.7 H 1.7 H 1.9 2.2 2.6 3.9 4.6 5.4 6.5 8.1 H 5.4 6.1 70.4 1.8 2.0 2.6


Bank of Toyko-Mitsubishi UFJ 1.3 4.3 1.5 1.4 1.2 1.3 1.4 2.3 3.2 4.2 4.9 5.3 6.5 4.5 5.7 66.0 L 3.1 2.6 2.2




Daiwa Securities America 1.0 4.0 1.2 1.0 1.0 1.1 1.2 2.3 3.4 4.4 5.1 5.9 7.0 4.2 L 6.1 71.0 2.5 1.5 1.5

Woodworth Holdings 1.0 4.0 1.1 1.0 1.0 1.1 1.2 1.8 3.2 3.9 4.7 5.4 6.6 4.4 5.3 74.0 5.2 H 1.4 1.8

Scotiabank 1.0 3.8 na na 1.5 na na 2.6 3.8 4.7 5.3 5.5 6.5 4.6 5.5 na 2.5 1.5 2.0

Cycledata Corp. 0.8 3.8 1.2 0.8 0.8 1.0 1.2 1.7 3.0 4.1 4.8 5.6 6.7 4.6 5.9 74.0 2.0 2.0 2.5




DePrince & Assoc. 0.7 3.7 1.3 0.8 0.7 0.8 1.1 1.8 2.9 3.9 4.5 5.6 6.6 4.5 5.7 78.7 1.8 2.2 2.4

GLC Financial Economics 0.7 3.7 1.0 0.8 0.7 0.8 1.0 1.4 2.6 3.7 4.5 5.9 7.5 4.8 5.8 73.8 1.6 2.1 2.6

UBS 0.6 na 1.1 na 0 .9 na na 2.8 3 .3 3 .9 4.5 na na na na na 3.0 1.6 1.6

Wells Fargo 0.6 3.8 0.8 0.6 0.7 0.8 0.9 1.5 2.9 3.9 4.7 5.6 6.8 4.8 5.5 81.0 2.1 1.3 1.5

Conning & Company 0.5 3.8 na 0.5 0.3 0.4 0.7 1.2 3.0 4.0 4.8 5.6 6.7 4.6 5.8 73.0 2.5 1.2 1.8

Georgia State University 0.5 3.6 na na 0.8 1.0 1.2 1.6 2.8 3.9 4.8 5.4 6.8 na 5.4 na 1.4 1.4 2.1

Argus Research 0.5 3.5 1.8 1.0 1.2 1.2 1.3 1.9 2.6 4.1 5.0 5.5 6.3 4.8 5.5 79.2 1.0 L 4.0 H 3.4


JPMorgan Privare Wealth Mgt. 0.5 3.5 1.0 0.6 0.6 0.6 0.8 1.5 2.9 3.9 4.7 5.6 6.8 5.0 5.6 73.9 2.6 1.4 1.9


Chmura Economics & Analytics 0.5 3.5 0.7 0.5 0.5 0.5 0.8 1.3 2.5 3.5 4.3 5.4 na na 5.3 70.4 2.3 2.3 2.9

Comerica Bank 0.4 3.5 1.0 0.5 0.5 0.9 1.3 1.7 3.3 4.2 4.8 5.8 7.0 4.6 5.8 84.0 H 4.4 1.1 1.2

Kellner Economic Advisers 0.4 3.4 0.5 0.5 0.5 0.6 0.8 1.6 3.2 4.2 5.0 6.0 7.6 5.2 6.1 73.0 1.0 L 1.6 1.8


Moody's Capital Markets 0.4 3.5 0.8 0.5 0.6 0.7 1.2 1.7 3.2 3.9 4.6 5.5 6.4 4.3 5.5 75.1 2.7 2.3 2.5

Swiss Re 0.4 3.4 0.4 0.7 0.2 L 0.4 0.5 L 1.3 2.9 3.9 4.7 5.4 6.4 na 5.7 na 2.9 4.0 1.2

Barclays Capital 0.3 3.3 0.6 0.4 0.4 1.3 1.5 2.6 3.8 4.6 5.0 6.1 7.2 5.5 6.2 na 3.5 1.0 2.4


Economist Intelligence Unit 0.3 3.4 1.3 0.5 0.4 0.6 0.8 1.4 2.7 3.9 4.7 na na na 5.6 na 1.8 na 0.8



Societe Generale 0.3 3.3 0.4 na 0.2 L 0.5 na 1.5 1.7 L 4.4 4.4 5.6 6.8 na 5.5 83.0 3.2 1.0 2.4

Moody's Economy.com 0.2 3.2 L 0.8 0.7 0.4 0.8 1.1 2.2 3.0 4.7 5.5 6.6 H 7.8 na 6.4 na 2.3 0.7 2.1

RDQ Economics 0.2 3.3 0.4 0.3 0.5 0.8 0.9 1.3 3.1 4.8 H 5.7 H 6.2 7.3 5.2 6.3 71.0 2.2 2.7 2.9

Fannie Mae 0.2 3.3 na na 0.3 na 1.8 na na 3.8 4.4 5.2 na na 6.0 na 3.3 0.4 L 0.7

Mesirow Financial 0.2 3.2 L 0.6 0.3 0.3 0.6 1.0 1.6 2.6 4.0 4.6 5.6 7.0 4.9 5.6 75.9 3.4 0.4 L 0.6

SunTrust Banks 0.2 3.2 L 0.3 L 0.3 0.2 L 0.4 0.5 L 1.2 2.7 3.5 4.4 5.4 6.5 5.7 H 4.0 L 70.0 4.2 1.7 1.9

Nomura Securities, Inc. 0.2 3.3 0.4 0.2 L 0.2 L 0.3 L 0.5 L 1.8 3.5 3.8 4.5 5.1 5.8 L na 5.3 80.0 2.4 0.8 1.0

Goldman Sachs & Co. 0.2 3.3 0.4 na 0.2 L na na 1.1 L 2.2 3.0 L 3.7 L 4.5 L na na 5.0 na 1.5 0.4 L 0.1

BMO Capital Markets 0.1 L 3.3 0.4 0.3 0.2 L 0.3 L 1.1 2.1 3.2 4.0 4.8 5.5 6.6 4.3 5.4 72.0 2.7 1.6 2.4

Banc of America-Merrill Lynch 0.1 L na 0.4 na 0.2 L na na 1.7 2.9 4.3 4.9 na na na na na 3.3 1.8 2.6

Standard & Poor's Corp. 0.1 L 3.2 L 1.0 0.6 0.5 0.7 0.8 1.3 2.8 4.0 na 5.5 6.9 5.0 5.4 81.5 2.0 1.2 2.0


Top 10 Avg. 1.2 4.2 1.6 1.3 1.3 1.5 1.8 2.5 3.6 4.5 5.2 6.1 7.5 5.2 6.1 80.6 4.0 2.7 2.8

Bottom 10 Avg. 0.2 3.2 0.4 0.3 0.2 0.4 0.7 1.3 2.5 3.6 4.4 5.1 6.3 4.4 5.1 69.6 1.6 0.7 0.9



Down 15 15 32 21 24 23 28 27 27 30 24 28 30 20 24 27 14 15 18

Same 26 26 8 12 17 11 10 12 11 13 15 11 5 7 11 5 14 18 21

Up 6 4 3 6 6 7 4 7 8 4 7 4 5 6 10 3 19 13 8

Diffusion Index 40 % 38 % 16 % 31 % 31 % 30 % 21 % 28 % 29 % 22 % 32 % 22 % 19 % 29 % 34 % 16 % 55 % 48 % 39

Funds

Federal Prime LIBOR


10/19


Fourth Quarter 2010Interest Rate Forecasts Key Assumptions

----------------------------------------------------------------------Percent Per Annum -- Average For Quarter--------------------------------------------------------------- Avg. For ------(Q-Q % Change)--



Panel Members Com. Treas . Treas . Treas . Treas . Treas . Treas. Treas . Aaa Baa State & Hom e Fed's Major GDP Con


Rate Rate 3-Mo. 1-Mo. 3-Mo. 6-Mo. 1-Yr. 2-Yr. 5-Yr. 10-Yr. 30-Yr. Bond Bond Bonds Rate $ Index GDP Index IndeNaroff Economic Advisors 2.5 H 5 .5 H 3 .1 2.8 H 2 .8 H 3 .0 3.1 3.5 4.2 4.9 5.7 6.8 H 8 .5 H 5 .8 H 6.5 71.0 2.3 2.2 2.7

RBS Securities 2.4 5.4 3.5 H 2 .8 H 2.8 H 3.4 H 3.7 H 3.8 H 4.5 H 5.0 H 5.8 6.1 7.5 5.3 6.8 H 85.0 4.5 H 2.4 3.0



Bank of Toyko-Mitsubishi UFJ 1.8 4.8 2.0 1.9 1.7 1.8 1.9 2.6 3.1 4.1 4.8 5.3 6.5 4.5 5.6 65.0 L 2 .8 2.7 2.4

Scotiabank 1.8 4.8 na na 2.5 na na 3.2 3.9 5.0 5.3 5.5 6.5 4.6 5.7 na 2.0 1.8 2.0


Argus Research 1.7 4.7 2.0 1.1 1.4 1.5 1.7 2.2 2.8 4.3 5.2 5.5 6.3 4.8 5.5 81.3 1.1 L 3.6 4.7



Cycledata Corp. 1.5 4.5 1.9 1.6 1.5 1.7 1.9 2.4 3.8 4.9 5.6 6.6 7.5 5.4 6.5 74.0 1.3 2.0 2.5


Woodworth Holdings 1.5 4.5 1.6 1.5 1.5 1.6 1.7 2.3 3.5 4.0 4.8 5.3 6.5 4.5 5.2 80.0 4.3 1.5 1.9



Wells Capital Management 1.1 4.1 1.1 1.0 0.9 1.0 1.3 2.0 3.1 4.3 4.8 5.3 6.0 4.4 5.9 74.7 3.8 2.3 2.7Wayne Hummer Investments 1.1 4.1 1.4 1.2 1.3 1.4 1.6 2.1 3.3 4.3 5.0 5.8 6.7 5.1 5.6 78.1 3.3 1.7 2.2

Comerica Bank 1.1 4.1 1.6 1.1 1.1 1.5 1.9 2.3 3.6 4.5 5.0 5.8 7.0 4.8 6.2 85.0 H 4.0 1.2 1.4

DePrince & Assoc. 1.1 4.1 1.6 1.3 1.2 1.3 1.6 2.3 3.1 4.1 4.5 5.8 6.7 4.7 5.8 79.5 1.9 2.2 2.4

Wells Fargo 1.0 4.5 1.4 0.8 1.3 1.4 1.5 1.8 3.0 4.0 4.8 5.7 6.9 4.9 5.6 81.2 2.2 1.6 1.8

GLC Financial Economics 1.0 4.0 1.3 1.1 1.0 1.1 1.3 1.7 2.8 3.9 4.7 6.3 7.9 5.0 6.2 74.5 2.2 1.4 2.8

Conning & Company 1.0 4.0 na 1.0 0.8 0.9 1.1 1.6 3.4 4.2 5.0 5.8 6.8 4.6 6.0 72.0 2.0 1.4 2.0



Chmura Economics & Analytics 0.9 3.9 1.1 1.0 0.9 0.9 1.1 1.5 2.7 3.6 4.4 5.4 na na 5.3 68.3 3.6 1.8 1.9

Kellner Economic Advisers 0.9 3.9 1.0 1.0 1.1 1.2 1.4 1.8 3.4 4.4 5.2 6.2 7.8 5.4 6.3 72.0 1.5 1.8 2.0

UBS 0.9 na 1.4 na 1.1 na na 2.9 3.5 4.0 4.6 na na na na na 3.3 1.6 0.5


PNC Financial Services Corp. 0.8 3.8 1.1 0.9 0.7 0.8 1.0 1.3 2.8 3.9 4.7 5.6 6.7 5.1 5.7 73.0 3.2 1.8 2.2

Moody's Economy.com 0.8 3.8 1.3 1.1 0.8 1.1 1.4 2.6 3.1 5.0 5.8 6.7 7.9 na 6.7 na 3.0 0.7 1.8

Economist Intelligence Unit 0.8 3.8 1.8 0.8 0.8 0.8 1.2 1.6 2.8 4.0 4.8 na na na 5.7 na 1.6 na 0.8

Moody's Capital Markets 0.8 3.8 1.3 0.9 0.9 1.1 1.4 1.8 3.2 4.0 4.6 5.4 6.3 4.3 5.6 75.2 2.9 2.3 2.4JPMorgan Privare Wealth Mgt. 0.8 3.8 1.2 0.9 0.8 0.9 1.1 1.7 3.1 4.2 4.9 5.9 7.0 5.3 5.9 73.5 2.7 1.4 1.9

Swiss Re 0.8 3.8 0.8 1.0 0.6 0.7 0.8 1.8 3.3 4.2 4.9 5.6 6.6 na 6.0 na 3.1 4.3 H 1.3

Barclays Capital 0.8 3.8 0.6 0.8 0.7 0.2 L 2.0 2.7 3.9 4.6 5.1 6.2 7.3 5.6 6.4 na 3.5 0.9 2.3


BMO Capital Markets 0.5 3.5 0.8 0.7 0.5 0.6 1.5 2.4 3.5 4.2 4.9 5.6 6.7 4.4 5.5 71.5 2.9 1.8 1.5

SunTrust Banks 0.5 3.5 0.6 0.7 0.5 0.6 0.6 L 1.4 2.7 3.8 4.4 5.4 6.5 5.8 H 4.2 L 69.8 4.2 2.3 2.7

Standard & Poor's Corp. 0.5 3.5 1.4 1.0 0.9 1.1 1.2 1.8 3.0 4.2 na 5.7 7.0 5.2 5.6 79.3 3.0 1.2 2.0

Societe Generale 0.4 3.7 0.4 L na 0.4 0.7 na 1.8 2.0 L 4.5 4.6 5.8 6.8 na 5.8 85.0 H 2.7 1.0 1.5


Nomura Securities, Inc. 0.3 3.3 0.4 L 0.3 L 0.3 0.4 0.6 L 2.0 3.7 3.9 4.5 5.1 5.9 L na 5.4 82.0 2.6 0.7 1.0


RDQ Economics 0.2 3.3 0.5 0.4 0.6 0.9 1.0 1.4 3.2 5.0 H 6.0 H 6.5 7.5 5.2 6.5 70.0 2.4 2.8 3.0

Mesirow Financial 0.2 3.2 L 0.7 0.3 L 0.4 0.7 1.1 1.8 2.7 4.1 4.7 5.6 7.0 5.0 5.7 75.5 3.4 0.2 L 0.4

Goldman Sachs & Co. 0.2 3.3 0.4 L na 0.2 L na na 1.2 L 2.3 3.0 L 3.7 L 4.5 L na na 5.0 na 1.5 0.5 -0.3

Banc of America-Merrill Lynch 0.1 L na 0.6 na 0.5 na na 2.0 3.0 4.4 5.0 na na na na na 3.0 1.5 2.3


Top 10 Avg. 1.9 4.9 2.3 1.9 2.0 2.1 2.4 3.0 3.9 4.8 5.5 6.4 7.7 5.4 6.5 81.8 3.8 2.8 3.1

Bottom 10 Avg. 0.3 3.4 0.6 0.6 0.4 0.6 1.0 1.5 2.6 3.8 4.4 5.2 6.3 4.4 5.2 69.1 1.6 0.7 0.8



Down 14 16 26 17 23 25 23 24 26 24 20 26 22 16 24 25 18 16 16

Same 25 22 10 14 13 7 13 15 13 18 18 12 8 8 10 5 11 16 21

Up 8 7 7 8 11 9 6 7 7 5 8 5 6 5 11 5 18 14 10

Diffusion Index 44 % 40 % 28 % 38 % 37 % 30 % 30 % 32 % 29 % 30 % 37 % 26 % 28 % 31 % 36 % 21 % 50 % 48 % 44

Funds

Federal Prime LIBOR


11/19


First Quarter 2011Interest Rate Forecasts Key Assumptions

----------------------------------------------------------------------Percent Per Annum -- Average For Quarter--------------------------------------------------------------- Avg. For ------(Q-Q % Change)--



Panel Members Com. Treas . T reas . T reas. Treas. Treas . T reas . Treas . Aaa Baa State & Home Fed 's Major GDP Con

Bank Rate Paper Bil ls Bills Bills Notes Notes Notes Bond Corp. Corp. Local Mtg. Currency Real Price Pric

Rate Rate 3-Mo. 1-Mo. 3-Mo. 6-Mo. 1-Yr. 2-Yr. 5-Yr. 10-Yr. 30-Yr. Bond Bond Bonds Rate $ Index GDP Index Ind

Naroff Economic Advisors 3.8 H 6.8 H 4.2 4.5 H 4.0 H 4.1 H 4.3 H 4.6 H 5.1 H 5.5 H 6.2 H 7.3 H 8.9 H 6.3 H 7.0 72.0 2.0 2.4 3.0

RBS Securities 3.4 6.4 4.4 H 3.7 3.6 4.1 H 4.3 H 4.3 4.8 5.2 6.0 6.3 7.6 5.4 7.1 H 88.0 4.6 H 2.9 3.2





Argus Research 2.0 5.0 2.0 1.2 1.7 1.8 1.9 2.4 2.9 4.6 5.3 5.5 6.3 4.8 5.5 82.0 1.8 3.2 4.3

Comerica Bank 2.0 5.0 2.5 2.0 1.9 2.2 2.7 3.0 3.9 4.8 5.3 6.0 7.2 5.0 6.6 86.0 4.0 1.3 1.4


Bank of Toyko-Mitsubishi UFJ 1.8 4.8 2.0 1.9 1.7 1.8 1.9 2.6 3.1 4.1 4.8 5.3 6.5 4.5 5.6 65.0 L 3.4 2.7 2.4


DePrince & Associates 1.6 4.6 1.9 1.8 1.7 1.8 2.1 2.8 3.5 4.3 4.6 6.0 6.9 4.8 6.0 80.4 2.3 2.2 2.4

Cycledata Corp. 1.5 4.5 1.9 1.6 1.5 1.7 1.9 2.4 3.8 4.9 5.6 6.6 7.5 5.4 6.5 73.0 1.3 2.0 2.5


Woodworth Holdings 1.5 4.5 1.6 1.5 1.5 1.6 1.7 2.3 3.5 4.0 4.8 5.3 6.5 4.5 5.2 80.0 4.3 1.5 1.9Conning & Company 1.5 4.5 na 1.5 1.3 1.4 1.6 1.8 3.6 4.5 5.2 6.0 6.9 4.7 6.2 72.0 2.0 1.6 2.0


PNC Financial Services Corp. 1.4 4.4 1.8 1.5 1.3 1.4 1.6 1.8 3.1 4.1 4.9 5.8 6.8 5.3 5.9 74.0 na na na



Chmura Economics & Analytics 1.3 4.3 1.5 1.4 1.3 1.4 1.4 1.8 2.9 3.7 L 4.6 5.4 na na 5.5 67.3 3.0 2.0 2.3

Wells Fargo 1.3 5.3 2.1 1.0 2.0 2.1 2.2 2.2 3.1 4.1 4.9 5.9 7.1 5.0 5.7 82.4 2.7 1.8 2.2


Kellner Economic Advisers 1.3 4.3 1.4 1.5 1.4 1.4 1.7 2.1 3.6 4.6 5.6 6.6 8.0 5.4 6.8 70.0 2.0 2.0 2.4

Moody's Capital Markets 1.3 4.3 1.8 1.4 1.4 1.6 1.8 2.0 3.4 4.2 4.6 5.5 6.4 4.3 5.8 75.5 2.2 2.3 2.4

Swiss Re 1.3 4.3 1.4 1.5 1.1 1.2 1.5 2.3 3.6 4.4 5.1 5.8 6.8 na 6.3 na 3.4 4.7 H 1.3

SunTrust Banks 1.3 4.3 1.0 1.1 1.2 1.3 1.4 2.1 3.1 4.2 4.5 L 5.6 6.7 5.9 4.8 L 68.4 3.8 3.4 3.6

Moody's Economy.com 1.2 4.2 1.7 1.5 1.2 1.6 1.9 3.0 3.3 5.1 5.9 6.8 7.9 na 6.8 na 3.8 1.6 1.9


Societe Generale 1.0 4.3 0.5 L na 0.9 1.1 na 2.3 2.4 L 4.7 4.8 5.0 L 6.8 na 5.8 88.0 H 2.7 1.2 1.4

Economist Intelligence Unit 1.0 4.0 2.0 0.9 0.9 1.0 1.3 1.8 2.9 4.0 4.8 na na na 5.7 na 0.6 L na 1.6

GLC Financial Economics 1.0 4.0 1.3 1.1 1.0 1.1 1.3 1.6 L 2.8 3.9 4.7 6.3 7.9 5.0 6.1 75.6 2.7 2.0 3.0

BMO Capital Markets 1.0 4.0 1.3 1.2 1.0 1.2 1.7 2.6 3.6 4.3 5.0 5.7 6.8 4.5 5.6 71.0 3.0 1.9 1.8

Standard & Poor's Corp. 0.9 3.9 1.9 1.5 1.4 1.6 1.7 2.3 3.3 4.4 na 5.8 7.1 5.4 5.8 77.3 3.3 1.3 1.9

JPMorgan Privare Wealth Mgt. 0.8 3.8 1.3 0.9 0.8 0.9 1.1 1.7 3.2 4.2 4.9 5.9 7.1 5.3 5.9 73.2 2.5 1.5 2.0



Nomura Securities, Inc. 0.5 3.5 0.7 0.6 0.5 L 0.6 L 0.9 L 2.3 3.9 4.0 4.6 5.1 5.6 L na 5.5 82.0 3.2 1.0 0.9


Mesirow Financial 0.2 L 3.2 L 0.8 0.3 L 0.5 L 0.9 1.4 2.0 2.8 4.2 4.8 5.7 7.1 5.1 5.8 75.0 4.0 0.4 L 0.1


Top 10 Avg. 2.4 5.4 2.8 2.5 2.4 2.6 2.9 3.3 4.1 5.0 5.6 6.4 7.7 5.5 6.7 82.7 4.0 3.1 3.1

Bottom 10 Avg. 0.7 3.7 1.0 0.8 0.8 1.0 1.3 1.8 2.9 4.0 4.6 5.3 6.3 4.5 5.3 69.1 1.8 1.1 1.1

September Consensus na na na na na na na na na na na na na na na na na na na


Down na na na na na na na na na na na na na na na na na na na

Same na na na na na na na na na na na na na na na na na na na

Up na na na na na na na na na na na na na na na na na na na

Diffusion Index na % na % na % na % na % na % na % na % na % na % na % na % na % na % na % na % na % na % na

Funds

Federal Prime LIBOR


12/19


International Interest Rate And Foreign Exchange Rate Forecasts

United States3 Mo. Dollar Rate 10 Yr. Gov't Bond Yield % Fed's Major Currency $ Index

Blue Chip Forecasters In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 Mo.

Scotiabank 0.40 0.65 1.60 3.75 4.25 4.70 na na na

Deutsche Bank AG na na na na na na na na na

WestLB 0.50 0.50 0.75 3.60 4.00 4.50 78.0 78.0 80.0

ING Financial Markets 0.40 0.60 1.40 3.80 4.00 4.40 83.8 86.7 88.9

Mizuho Research Institute 0.30 0.30 0.30 3.50 3.60 3.70 75.5 76.1 77.5

October Consensus 0.40 0.51 1.01 3.66 3.96 4.33 79.1 80.3 82.1High 0.50 0.65 1.60 3.80 4.25 4.70 83.8 86.7 88.9

Low 0.30 0.30 0.30 3.50 3.60 3.70 75.5 76.1 77.5

Last Months Avg. 0.48 0.55 0.81 3.73 4.03 4.39 78.4 79.7 82.7

Japan3 Mo. Yen Rate 10 Yr. Gov't Bond Yield % Yen/USD


Scotiabank 0.30 0.40 0.60 1.40 1.40 1.60 95.0 92.0 88.0


WestLB 0.50 0.50 0.60 1.40 1.50 1.60 95.0 95.0 100.0


Mizuho Research Institute 0.47 0.43 0.38 1.35 1.35 1.40 90.0 92.0 94.0


Low 0.30 0.40 0.38 1.35 1.35 1.40 90.0 92.0 88.0

Last Months Avg. 0.48 0.46 0.56 1.43 1.49 1.63 96.5 97.5 100.0

United Kingdom3 Mo. Sterling Rate 10 Yr. Gilt Yields % USD/Pound Sterling


Scotiabank 0.50 0.80 1.20 3.80 4.10 4.50 1.72 1.74 1.76


WestLB 0.80 0.90 1.25 3.80 4.00 4.25 1.73 1.73 1.75


Mizuho Research Institute 0.85 0.85 0.80 3.80 3.85 3.90 na na na

October Consensus 0.71 0.86 1.35 3.80 3.96 4.29 1.71 1.72 1.72

High 0.85 0.90 2.15 3.80 4.10 4.50 1.73 1.74 1.76Low 0.50 0.80 0.80 3.80 3.85 3.90 1.68 1.69 1.65

Last Months Avg. 0.84 0.93 1.48 3.80 3.96 4.30 1.72 1.73 1.75

Switzerland3 Mo. Franc Rate % 10 Yr. Gov't Bond Yield % CHF/USD


Scotiabank 0.30 0.40 0.70 2.00 2.30 2.50 1.03 1.02 1.01


WestLB 0.30 0.40 0.65 2.00 2.25 2.50 1.05 1.05 1.03


Mizuho Research Institute na na na na na na na na na


Low 0.30 0.30 0.45 2.00 2.25 2.50 1.03 1.02 1.01

Last Months Avg. 0.32 0.37 0.60 2.03 2.25 2.52 1.07 1.08 1.09

Canada3 Mo. Dollar Rate 10 Yr. Gov't Bond Yield % CAD/USD


Scotiabank 0.55 0.90 1.60 3.50 4.00 4.40 0.96 0.97 1.00


WestLB 0.70 0.80 0.90 3.70 3.90 4.50 1.07 1.07 1.10




Low 0.45 0.45 0.90 3.50 3.90 4.35 0.96 0.97 1.00

Last Months Avg. 0.70 0.78 0.92 3.72 4.03 4.52 1.09 1.11 1.15


13/19


Australia3 Mo. Dollar Rate 10 Yr. Gov't Bond Yield % USD/AUD

Blue Chip Forecasters In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 M

Scotiabank 3.40 3.60 3.90 5.50 5.60 5.80 0.88 0.90 0.94


WestLB 3.40 3.50 3.75 5.50 5.60 5.90 0.86 0.88 0.90

ING Financial Markets na na na na na na 0.89 0.85 0.82


October Consensus 3.40 3.55 3.83 5.50 5.60 5.85 0.88 0.88 0.89High 3.40 3.60 3.90 5.50 5.60 5.90 0.89 0.90 0.94Low 3.40 3.50 3.75 5.50 5.60 5.80 0.86 0.85 0.82

Last Months Avg. 3.40 3.50 3.78 5.50 5.60 5.85 0.86 0.86 0.87

Eurozone3 Mo. Euro Rate 10 Yr. Euro Bond Yield % USD/EUR

Blue Chip Forecasters In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 M

Scotiabank 0.80 1.00 1.60 3.40 3.50 3.80 1.50 1.53 1.58


WestLB 1.00 1.00 1.35 3.60 3.65 3.95 1.45 1.50 1.55ING Financial Markets 0.80 1.10 1.35 3.50 3.60 3.80 1.55 1.52 1.40

Mizuho Research Institute 0.70 0.60 0.60 na na na 1.44 1.43 1.40

October Consensus 0.83 0.93 1.23 3.50 3.58 3.85 1.49 1.50 1.48High 1.00 1.10 1.60 3.60 3.65 3.95 1.55 1.53 1.58Low 0.70 0.60 0.60 3.40 3.50 3.80 1.44 1.43 1.40Last Months Avg. 0.93 0.96 1.23 3.50 3.58 3.85 1.43 1.43 1.44

International Interest Rate And Foreign Exchange Rate Forecasts

Blue Chip Forecasters In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 Mo. In 3 Mo. In 6 Mo. In 12 M

Scotiabank 3.40 3.50 3.80 3.70 3.80 4.00 4.10 4.30 4.50 4.00 4.10 4.20

West LB 3.30 3.35 3.65 3.50 3.55 3.85 4.10 4.15 4.45 3.80 3.85 4.15

ING Financial Markets 3.50 3.60 3.80 3.75 3.85 4.05 4.20 4.30 4.50 4.00 4.10 4.30

Mizuho Research Institute 3.45 3.50 3.55 3.75 3.80 3.85 4.35 4.35 4.35 4.10 4.10 4.15

October Consensus 3.41 3.49 3.70 3.68 3.75 3.94 4.19 4.28 4.45 3.98 4.04 4.20High 3.50 3.60 3.80 3.75 3.85 4.05 4.35 4.35 4.50 4.10 4.10 4.30

Low 3.30 3.35 3.55 3.50 3.55 3.85 4.10 4.15 4.35 3.80 3.85 4.15

Last Months Avg. 3.41 3.49 3.70 3.69 3.74 3.91 4.19 4.26 4.40 3.98 4.04 4.18

10 Yr. Gov't Bond Yields %Germany France Italy Spain

Japan -2.07 -2.23 -2.48 -2.70 Japan -0.27 0.04 -0.97 -0.48United Kingdom 0.31 0.14 0.00 -0.04 United Kingdom 0.05 0.31 0.35 0.34

Switzerland -1.30 -1.60 -1.65 -1.81 Switzerland -0.33 -0.10 -0.15 -0.41

Canada 0.02 0.00 0.00 0.09 Canada -0.12 0.17 0.20 0.29

Australia 2.03 1.84 1.64 1.53 Australia 3.02 3.00 3.04 2.81

Germany -0.07 -0.25 -0.48 -0.63 Eurozone 0.00 0.43 0.41 0.21

France 0.18 0.01 -0.21 -0.39

Italy 0.65 0.53 0.31 0.12

Spain 0.44 0.31 0.07 -0.12

Eurozone 0.48 -0.16 -0.38 -0.48

Consensus Forecasts10-year Bond Yields vs U.S. Yield

In 3 Mo.

Consensus Forecasts3 Mo. Interest Rates vs U.S. Rate

In 3 Mo.Current CurrentIn 6 Mo. In 12 Mo. In 6 Mo. In 12 Mo


14/19


Viewpoints: A Sampling of Views on the Economy, Financial Markets and Government PolicyExcerpted from Recent Reports Issued by our Blue Chip Panel Members and OthersT

racking The Bounce

Following the weaker-than-expected numbers on home sales and dura-ble goods, the risks to our 3% GDP forecast for 2009Q3 again lookroughly balanced. While none of the downside surprises were large bythemselves, what caught my eye is the fact that all measures of big-

ticket demand except auto sales (which benefited from cash-for-clunkers) have flattened or declined in the past 1-2 months after signifi-cant gains in Q2. This could well mean that the earlier gains wereoverstated by a bounce from the financial disruptions before April.Suppose that planned big-ticket demand was $100 in Q4, $90 in Q1,$90 in Q2, and $90 in Q3. But also suppose that $10 of planned de-mand wasnt financeable in Q1 because of credit market disruptionsand had to be delayed until Q2. In that case, observed sales would bebeen $100 in Q4, $80 in Q1, $100 in Q2, and $90 in Q3. This wouldcreate the erroneous impression of a sharp rebound in big-ticket de-mand in Q2, followed by a renewed drop in Q3, when in fact demandwas flat all along. While this example is clearly a caricature, it will beimportant to track the big-ticket demand data in coming months to seeow important a factor the underlying mechanism might have been.h

Growth is likely to stay around 3% in Q4, but we still expect a renewedslowdown in 2010 as the economy loses the temporary boost from fis-cal stimulus and the inventory cycle. By our estimates, the impact ofthese factors will go from 4 percentage points in 2009H2 to around 0 in2010H2. This means that underlying final demand needs to accelerateby 4 percentage points over the next year to keep the economy growingat the same pace. Some acceleration is likely, but I dont expect any-thing close to 4 percentage points given the continued weakness inhousehold income, the upward pressure on the saving rate, and all thether headwinds on final demand in a post-bubble economy.o

Our most out-of-consensus view remains the call for a further sharpslowdown in core CPI inflation to around 0% by late 2010. The rentand owners equivalent rent (OER) indexes, which together account fornearly 40% of the total core, are important to this view. Rent and OER

inflation is highly sensitive to the rental vacancy rate, which currentlystands at a historical record of 10.6% and still seems to be rising asmore foreclosed homes end up on the rental market. As a result, rentand OER look set for outright declines in 2010 (the 3-month annualizedrate is already below 0.5%). That would go a long way to push coreCPI inflation toward zero, supporting our call for no Fed rate hikeshrough the end of 2010.t

So how should we interpret the September 25th Wall Street Journalarticle and Chicago speech by Fed Governor Kevin Warsh, and hisstatement that he would hazard the view that prudent risk manage-ment indicates that policy likely will need to begin normalization be-fore it is obvious that it is necessary, possibly with greater force than iscustomary? Although this clearly sounds hawkish, I dont think it issuch a strong signal. In the speech (though not the WSJ article), Warsh

further elaborates with the following sentence: In my view, if policy-makers insist on waiting until the level of real activity has plainly andsubstantially returned to normal--and the economy has returned to self-sustaining trend growth--they will almost certainly have waited toolong. Warsh simply seems to be saying that a) the tightening processneeds to have started by the time the unemployment gets back to theFeds estimate of the sustainable rate and b) when the hikes come, theyare likely to be faster than the 25bp every 6 weeks seen in 2004-2006.Most people would agree with this, and given how far the unemploy-ment rate is from a normal level, it doesn't mean that rate hikes areikely anytime soon.l

One increasingly popular counterargument against our Fed view is thatmonetary policy might become more reactive to asset bubbles in the

future. While a standard Taylor rule might say that the funds rateshould be deeply negative, the argument goes, its time to move awayfrom monetary policy rules that dont take into account potential asseprice misalignments. What should we make of this? I agree that Fedofficials should (and probably will) pay more attention to asset price

misalignments in the future than they have in the past, i.e. the Fedreaction function might well change. But I dont think this argument iery relevant at the moment, for two reasons:v

For policymakers to worry about a bubble, a big asset price gain isntenough. You also need some evidence that valuation levels are sufficiently out of line with standard fair value metrics to send a reliablesignal to policymakers. I am not aware of any market where this ilose to being the case.c

As research at the Bank for International Settlements showed in theyears leading up to the crisis, overvalued asset prices are most danger-ous when they are accompanied by a credit boom. The experience othe past decade is a great example of thiswhile the bursting of theunleveraged stock market bubble of the 1990s had few effects on thefinancial system, the bursting of the leveraged housing bubble of the

2000s caused the biggest financial crisis since the 1930s. This is important to the re-emerging bubble debate because right now, credit is stilcontracting across the board. Thats another reason why it is very premature to expect Fed officials to deviate from a focus on the real econ-omy in favor of bubble busting in my view, even if their reactionunction ultimately moves in that direction.f

Jan Hatzius, Goldman Sachs, New York, NY

C

an Pickup Persist?

Hardly a day goes by without another sign that an economic recovery isunderway. Looking at a basket of individual indicators, in July andagain in August, there appeared to be a bottoming in the compositecoincident indicators index, which includes some key components usedby the National Bureau of Economic Research (NBER) Business Cycle

Dating Committee to help identify business cycle peaks and troughsMoreover, with the leading economic indicators (LEI) index up for thefifth straight month in August, more good news on coincident indicatorslikely lies ahead. In this setting, we remain comfortable with our forecasts of quarterly annualized real GDP growth of 2.5% in Q309, 3.0%n Q409, and 2.6% in calendar 2010.i

Recessions are started for a variety of reasons in different business cy-cles; however, exits from cyclical downturns have much more in com-mon. In the public sector, there are countercyclical monetary and fiscalpolicy responses once the downturn becomes reasonably obvious. In theprivate sector, firms slashing labor, inventories, and capex eventuallystop doing so once they have reduced those inputs into better alignmentwith below-normal output and sales levels. Households naturally be-come more cautious during a recession, as they postpone some expendi-

tures and typically raise their savings rate. However, legislated tax cutsand Fed-induced interest rate reductions stimulate consumer spendingand at some point, households become more satisfied with a highersavings level commensurate with their changed economic and financiacircumstances. In the second half of 2009, this history is starting toepeat itself.r

Countercyclical monetary policy has played a pivotal role in the recentrecession as the Fed addressed an unprecedented financial system crisisand credit crunch with an also unprecedented surge in its balance sheetThe accompanying succor for the global financial markets has beenevidenced in the sharp compression of yields versus Treasury rates inthe US mortgage-linked and corporate bond markets. Note: From afunds flow perspective, the Fed has been (continued on next page)


15/19

OCTOBER 1, 2009 BLUE CHIP FINANCIAL FORECASTS 13

Viewpoints A Sampling of Views on the Economy, Financial Markets and Government PolicyExcerpted from Recent Reports Issued by our Blue Chip Panel Members and Othersbuying mortgage-linked, agency, and Treasury securities from sellers

ho have directed part of those proceeds to the corporate bond market.)wFiscal policy stimulus has also been unprecedented. Federal income taxcuts and higher transfer payments started to boost after-tax, disposable

personal incomes in H109, and more of the planned stimulus on thepending side of the ledger has started to come through in Q309.s

While countercyclical public policies have been playing a powerfulstabilizing role so far this year, there are limits to how far policymakerscan proactively raise the Federal deficit and the Feds balance sheet.Such actions are necessary to initiate a recovery. However, there mustbe follow-through from households by far the largest element ofaggregate demand. And that follow-through reflects two critical consid-rationsincomes and the personal saving rate.e

Although the personal saving rate has risen, as it usually does duringrecessions, it remains comparatively low versus its longer-term history.Thus, an ongoing debate is whether American consumers must save stillmore to reduce debt and build financial assets in the wake of the sizabledeclines, on balance, in the prices of stocks and residential real estate in

ecent years.rOur view has been that the approximate 3.0 percentage point upwardpersonal saving rate adjustment from its 2005 level of just 1.4%thelowest calendar average level in the past half centuryto around 4.4%in H109 represents about as much adjustment as should occur, at leaston a multi-quarter measurement basis. That is because our researchindicates that the net worth (NW)/disposable personal income (DPI)ratio and interest rates are much more tightly correlated with savingsbehavior than is the unemployment rate, which has increased to almost10%. Recently, our estimated personal saving rate model with bothNW/DPI and the three-month Treasury bill rate as explanatory vari-ables was consistent with a Q209 personal saving rate of 4.8% versushe actual reported 5.0%.t

Our saving rate model suggests that the personal saving rate has re-mained much less than in past similarly serious recessions for two mainreasons. First, relatively low interest rates have been limiting interestincomea comparatively highly-saved form of personal income. Also,the NW/DPI ratio, despite being at around its lowest level of the currentecade, still has been higher than in past serious recessions.d

The other critical consideration for consumer spending is income for-mation. In H109, household purchasing power was boosted by Federalincome tax cuts and higher transfer payments (eg, a 5.8% Social Secu-rity cost-of-living adjustment). These constituted a one-time permanentboost to the DPI level but just a temporary booster of DPI growth,unless there are further tax cuts, for example. In H209 and 2010, thekey to income formation will be aggregate wages and salaries53.5%of overall pretax personal income last year. After falling sharply duringmost of H109, wage and salary disbursements edged up in July as joblosses slowed and average hourly earnings continued to grow, albeit at

slower rate than before the recession.aLabor market weakness should continue to fade. Gross job losses stillexceed gross hiring. However, hiring levels rose somewhat in July.Moreover, layoffs have been declining, with the latest four-week mov-ing average of 554,000 weekly initial claims for state unemploymentinsurance in the week ended September 19 being the lowest since Janu-ary. As signs of more stable product demand persist, there should be

fewer firms incrementally reducing their headcounts, and layoffs should fall further and closer to alreadystabilizing gross hiring levels. Note:One major sign of stabilizing product demand already has been reported

in Q209, when real final sales edged up at a 0.4% annual rate after fal-ing at a 3.9% annual rate over the three previous quarters.l

While cutting jobs, capex, and inventories made sense in response to

slumping product demand, continuing to do so once demand stabilizes

starts to raise market share and competition-related risks. Firms apparently already arestarting to appreciate that the rapid pace of inventoryliquidation earlier this year now entails growing risks of losing salesdue to inadequate inventories of goodsfor sale. And continuing to delayaddressing critical capital replacement needs entails growing competitive costdisadvantages versus those domestic and foreign competitorsthat have forgedahead with the adoption of the latest cost-saving technologies. Thus, capex orders have been just about stabilizing even avery low industrial capacity utilization rates. In addition, headcountscan be cut too much, with negative consequences for retaining talentnd maintaining quality of services for customers.a

Firms also are influenced by pricing power, which will remain limitedwith still abundant spare productive capacity in the global economyHowever, the related weakness in consumer prices over the past year

has represented a redistribution of overall current dollar national in-come to the household sector. And American consumers will play aritical role in heading off a relapse into another recession in 2010.c

M

aury Harris, UBS, New York, NY

R

everse Repos -- A Form of Tightening?

The Fed has started to make plans for arranging reverse repurchaseagreements with primary dealers (and possibly other counterparties) inorder to drain the abundant volume of reserves from the banking sys-tem. Some observers have suggested that the Fed could begin this efforwell before it decides to raise interest rates, and these transactions, bythis view, would represent a tightening in monetary policy. The thoughhas intuitive appeal, and the beginning of such transactions will represent a notable development, but we do not see reverse repos by themselves as representing tighter policy. When the Fed tightens, the shif

ill take the form of higher interest rates.wAs conditions in financial markets improve, depository institutions wilnaturally feel less need to hold extreme liquidity positions. They wilmost likely seek to lighten their holdings of excess reserves, and theseefforts, all else equal, would put downward pressure on short-term in-terest rates -- pressure that would leave the federal funds rate close tozero. Arranging reverse repos in this environment would merely helpdepository institutions pare their excess reserves, thereby keeping thefederal funds rate in the middle of its target range. The reverse repos inthis case represent a defensive transaction, one designed to stabilize thefunds rate and prevent an inadvertent easing. A reverse repo in thisetting would represent an important transaction because it would signaa return to normal conditions in the money market. However, the trans-ction would not represent a tightening in policy.a

If the Fed began to arrange reverse repos while depository institutionsstill wished to maintain large liquidity positions, the Fed's transactionwould put upward pressure on the federal funds rate and other short-term interest rates. Such action would represent tighter policy, but it isthe change in rates, not the reverse repo, that constitutes the change inpolicy. The Fed would probably transmit such a change by announcingan increase in the target federal funds rate or by lifting the rate paid onbank reserves. After the announcement, reverse repos would be used tocarry out the change in policy. The reverse repo would be the means tohe end, not the end itself.t

Michael Moran, Daiwa Securities America, New York, NY


16/19


Special Questions:

1. Please provide your forecasts of the quarter-to-quarter annualized percent change in Real GDP, the GDP Price Index and the Consumer Price In-dex during Q3 2009

Q/Q Annualized Percent change in Q3 2009Real GDP GDP Price Index Consumer Price Index

Consensus 3.2% 1.4% 2.7%Top 10 Average 4.2% 2.3% 3.7%Bottom 10 Average 2.1 0.7% 1.1%

2. Has the U.S. recession ended?(Percentage of those responding)

Yes No90.9% 9.1%

3. Will the FOMC raise its target federal funds rate before the end of Q2 2010?

(Percentage of those responding)Yes No38.6% 61.4%

4. Consumer credit soared over the past couple of decades as households took on more and more debt to support standards of living that could not befinanced out of incomes alone. However, year-over-year growth in outstanding credit peaked in July 2008 and by July of this year was down 4.2%on a y/y basis, the sharpest rate of contraction since the mid-1940s. The decline results from decreased demand for consumer debt as householdsattempt to repair tattered balance sheets coupled with a reduction in the availability of consumer debt as lenders grapple with rising default rates

hen will the y/y change in outstanding consumer credit once again turn positive?W

(Percentage of those responding)

Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Later

0.0% 0.0% 17.8% 37.8% 24.4% 20.0%

5. A. Sales of new and existing home have generally increased over the past several months, no doubt helped by the $8,000 federal tax credit forfirst-time home buyers. However, the tax credit expires at the end of November. WILL the $8,000 federal tax credit for first-time home buyers bextended, expanded, or both by Congress prior to the end of THIS YEAR?e


Yes No71.1% 28.9%

B. SHOULD the $8,000 federal tax credit for first-time home buyers be extended, expanded, or both?

(Percentage of those responding)Yes No42.2% 57.8%

6. Do you worry that federal stimulus programs like cash for clunkers and the $8,000 first-time home buyers tax credit have merely brought de-and forward, setting the stage for renewed weakness thereafter?m


Yes No68.9% 31.1%

7. A shrinking trade deficit contributed significantly to GDP during the first half of 2009. However, the trade deficit widened sharply in July. Willhe trade sector contribute to GDP growth in the second half of 2009? Will the trade deficit shrink in 2010?t


Will trade deficit shrink Will trade

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