Economic Overviewwww.wellscap.comSeptember 2009

Jay N. Mueller, CFAWells Capital Management Fixed Income Group

2Economic Overview

Big Six Summary

Growth: Q3 bounce followed by weak recovery

Employment: job losses slowing

Inflation: headline about to turn up; core stable

Monetary: Fed on hold

Fiscal: short term uncertainty; long run train-wreck

International: USA lags global recovery

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Growth

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U.S. GDP: quarterly growth rate (annualized)

Source: Bloomberg

Rate of contraction has moderated: Q3 likely to be positive

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Personal Consumption (real growth rate annualized)

Source: Bloomberg

Following a small bounce in Q1 consumption resumed its decline in Q2

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Private Domestic Fixed Investment % change

Source: Bloomberg

Though an improvement over Q1, PDI contracted for the 8th straight quarter in Q2

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Employment

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Payrolls: monthly change (non-farm, 000)

Source: Bloomberg

The pace of job loss is slowing, but still worrisome

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Unemployment Rate

Source: Bloomberg

Closing in on 10%

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Broad Unemployment (U6)

Including discouraged workers and underemployed

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Initial Claims for Unemployment Insurance (4 wk ma)

Claims off peak but remain uncomfortably high

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Initial Claims for Unemployment Insurance (4 wk ma)

Prior peaks in claims coincide with business cycle troughs

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Initial Claims (4 wk ma) versus Unemployment Rate

The 1982 claims peak was swiftly followed by a drop in the unemployment rate.Not so for the 1991 and 2001 peaks.

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Average Work Week

Hours worked remains very low

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Mean Period of Unemployment (weeks)

Out of work for nearly half a year on average

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Inflation

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CPI YOY

Source: Bloomberg

Energy-driven deflation likely to revert to inflation later this year

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CPI YOY – long term view

Source: Bloomberg

Most significant headline deflation in sixty years

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CPI Ex-food and Energy YOY

Source: Bloomberg

Core inflation is low and fairly stable

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Crude Oil – West Texas Intermediate spot price

Source: Bloomberg

Crude has trended higher since late ‘08

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Natural Gas – near futures contract

Source: Bloomberg

Much weaker than oil

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Copper – near futures contract

Source: Bloomberg

Substantial rally so far this year

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Monetary Policy

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Federal Funds Target Rate

Source: Bloomberg

Short term rate management has reached its downside limit

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Monetary Base

Source: Bloomberg

Quantitative Easing: a massive injection of bank reserves

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M1 year over year growth rate

Source: Bloomberg

Fastest money supply growth in twenty-five years

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Consumer Credit Outstanding

Source: Bloomberg

No traction from easy policy so far – consumer credit has been shrinking since September ‘08

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Fiscal Policy

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U.S. Federal Surplus/Deficit as a % of GDP

Source: Bloomberg

With Projection for 2009

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Deficit Projections – Obama Budget

containedhttp://bloghttp://wwwlnFmZ7gp

SOURCE: CBO, White House Office of Management and Budget | The Washington Post - March 21, 2009

Federal spending is running wild with worse to come

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Public Federal Debt Outstandingwith projection for 2009

Source: Bloomberg

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U.S. Federal Debt Projection

Federal public debt outstanding likely to double or worse over the next decade

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International

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Global Data Cross Section

GDP yoy CPI yoy IP yoy Unemployment

Eurozone -4.7% -0.7% -17.0% 9.5%

Japan -6.4% -2.2% -22.9% 5.7%

UK -5.5% +1.8% -9.3% 7.8%

U.S. -3.9% -2.1% -13.1% 9.7%

Source: Bloomberg

The U.S. was first into recession but Europe and Japan have been hit harder:

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Japan Unemployment Rate

Highest on record

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Euro/US Dollar

safe haven trade is unwinding

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Gold $/ounce

gold supported by doubts about the dollar

38Economic Overview

Thank you!

The Portfolio Manager has written this review for informational purposes only. The views expressed on the financial markets and sector valuations are based on the judgment and experience of the Portfolio Manager. This presentation is for the sole use of the intended recipient[s] and may contain privileged information. Any unauthorized review, use, disclosure or distribution is prohibited.