UNCERTAINTY BRINGS OPPORTUNITY THE MATERIAL COVERED IN THIS PRESENTATION IS THE OPINION OF THE PRESENTER AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO BUY OR SELL ANY OF THE SECURITIES MENTIONED. INVESTORS SHOULD SEEK THE COUNSEL OF THEIR FINANCIAL ADVISOR BEFORE MAKING ANY KIND OF INVESTMENT. THE PRESENTER MAY OR
MAY NOT HOLD LONG OR SHORT The Facts We are not entering another Great Depression. In the 1930s government raised taxes and increased interest rates. Were now doing just the opposite. Valuations appear especially
attractive today. The markets are down to 1997 levels and a large number of companies are selling at significant discounts to their true A Typical Recession Averages 14 months in length Economic activity declines by 2.5% Unemployment rises by 2% - If unemployed, the average tenure is six weeks.
Weve had two recessions in the last 25 years (early 1990s and 2000 2001). They always end and the economy always rises to a higher plateau. Stimulating Enough? Spring 2008 $170 BillionTax Rebates Fall 2008
$350 BillionDrop in gas prices Proposed 2009 $790 BillionEconomic Stimulus Plan Changes Afoot? Repealing the Repeal of Glass Steagall Reinstate Trust Laws; an end to too big to fail. Re-instatement of the Uptick Rule
Solving the Financial Crisis Were doing all the right things. Stronger firms buying out weaker firms. Firms are fessing up to valuations and losses. Fed cutting interest rates.
The Feds Game of Whack- A-Mole* The Fed bailed out the mortgage mess, but.. This easy money created other bubbles -Commodities -Currencies What will further easing create? *Quote from Yardeni & Associates
Since World War II Weve had 10 Recessions 24 stock declines of 10% or greater 13 stock declines of 20% or greater What Counts is Corporate Earnings Darts vs. Professional Stock Pickers
Oil Wells Oil Often Overlooked Oil Dreco Energy Services Price Graph
31 May 26June 26th July 23rd Aug 20th Sept. 19th Oct.
15th Nov 29Nov Hang In There Over the past 30 years the stock market has produced an average annual rate of return around 8%. If you were out of the market
during the best 30 months your return would drop to just 2%. Sources of LongTerm Performance Stock, Fund or Money Manager Selection 5-10% Asset Allocation
90-95% Portfolio Rebalancing Makes a Big Difference The Root of the Problem It all started with the housing bubble We have about 1.5 million too
many homes This is about 12 months worth of sales Much of the problem is regionally based A dramatic slowdown in building and an increase in housing HEADLINE: Lou Dobbs Hosts Moneyline From
Window Ledge Source: Relevant Economic/Financial Issues 1.Energy Issues 2.Interest Rates 3.Domestic Politics 4.Valuation Levels
5.Investing Demographics Gulf Coast Wetlands Of Critical Importance: 1/3 of the nations energy production Bulk of Countrys refining capacity 30% of Americas
Seafood South Louisiana is the Nations largest port Wetlands are a buffer The Yield Curve As Prophet Fall 2000 3 month 6.00% 10 year 5.70%
Slope -30 basis points Predicting a sharp decline in corporate earnings. Summer 2003 3 month 0.95% 10 year 4.35% Slope +340 basis points Predicting a huge increase in corporate earnings
growth. Summer 2006 3 month5.10% 10 year 4.50% Slope -60 basis points Projected an end to double digit EPS growth. Important Yield Curve Spreads
Current Slope +310 Basis Points Ten year treasury note (3.30%) minus 3-month treasury bill (0.20%) Consumer Confidence Vs. Reality The 1982 recession was the worst since the Great Depression. Consumer confidence is now 20%
below the level it was back then. 1982 Now Unemployment 11.0% 8.9% Inflation +10.0% + 2.0% Ten-yr. USTN 14.0% 3.3%
Typical Recovery Painful Layoffs Credit Markets Gradually Thaw Merger and Acquisition Activity Heats Up Newly Streamline Companies. Small Improvement in Business Brings Much Larger Improvement in Profits Stock Market and Business Cycle Many stocks are cyclical in nature.
They tend to perform better in specific stages of business cycles. Forecasting these cycles can help to put you in the right stocks at the right time. Consumer Staples Excel ource: Fortune Magazine: 3/21/94 HEADLINE:
Wheel of Fortune Contestants Hit Hard as Vowel Prices Skyrocket Reserve Valuation ModelYield on 10 EPS for S&P 500 Price of S&P 500
= = Year Treasury Note 5.55 % $50.00 900.00
* The 10 yr. Treasury Currently Yields 3.30% *Forecasted 12 month EPS. Federal Reserve Model Source: Yardeni & Associates Fear Index
In February of 2009 Gold sold at $1000 an ounce and could then be exchanged for some pretty useful stuff. -150 shares of General Electric or 25 barrels of oil -Today Gold prices have dropped to $911 an ounce and could only buy 63 shares of General Electric or 15 barrels of oil.
HEADLINE: Mason-Dixon Line Renamed IHOP-Waffle House Line Source: Tis Double Death To Drown In Ken of Shore -Shakespeare -Twelve other Bear Markets since
1955 -Average decline was 22.5% and lasted 11 months -These were followed by recoveries averaging 12-month in length and producing 35.0% returns. -This is about 1.5 times the decline Investing Demographics The Pig and the Python
Very high birth rates from 1946 1964 Investing Concepts - Financial Services - Healthcare - Leisure Important Issues Favorable Demographics Troubles in the Housing Market Changes to Pension Plans
Source: Standard & Poors What Drives A Stock? Price Earnings Per Share ratio = P/E Using Home Depot for
Example: 12/02/08 $22.00 $1.85 = 12.0x Wal-Mart 2001-2006
Wal-Mart Stock P/Es vs. Earnings Per Share 2007 $43.00 = A PE of 13.0x $ 3.30
2001 $43.00 = A PE of 29.0x $ 1.50 The stock has remained flat as EPS growth has mirrored the decline in its PE ratio. In 2001 Wal-Mart shares were ahead of
Three Stages of a Bear Market Stage Characteristics 1. DENIAL Economy shows signs of slowing and stocks fall from their highs,
sometimes sharply. Investors shrug it off and act as though the bull market will last forever. 2. REALITY Stocks continue to decline. Investors start to realize how weak the economy really is. 3.
SURRENDE R Fear of deeper losses and a recession become so worrisome that investors give up on stocks, setting Started In Economic Downturns Procter & Gamble: The Panic of 1837
IBM: The Long Depression 1873 - 1896 General Electric: The Panic of 1837 General Motors: the Panic of 1907 United Technologies: The Great Depression 1929 Fed Ex: The Oil Crisis of 1973 GNP vs. Stock Market
Valuation The Future Has Not Been Cancelled Our economic problems are not insurmountable. Have patience, this turnaround will not happen overnight. The stock market is about 6-9 months ahead of the economy. Capitalism Works. The human
drive to succeed is very powerful. Great Reading/Sources Popular Books One Up On Wall Street, Peter Lynch (Simon & Schuster) A Zebra in Lion Country, Ralph Wanger (Simon & Schuster) The Money Masters, John Train (Harper & Row) The Little Book That Beats The Market, Joel Greenblatt Analytical Books The Intelligent Investor, Benjamin Graham (Harper & Row)
Security Analysis, Benjamin Graham (McGraw-Hill) Sophisticated and Well Written Common Stocks and Uncommon Profits, Phillip A. Fisher (Harper & Row) The Contrarian Investment Strategy, David Dremen (Random House) Great Investment Websites Bloomberg.com Investopedia.com NPR.org www.burkenroad.
org
