February 24, 2010, presentation

1. Bread & Circuses
February 2010
Investment Management & Trust Services
Tower Private Advisors

2. Bread & Circuses
•Roman poet Juvenal around 100 AD
•Roman politicians devised a plan to win the votes of the poor by
giving out cheap food and entertainment.
•Politicians decided that this policy “bread and circuses” would
be the most effective way to rise to power.
•To many it connotes the decadence and hedonism that defined
the Roman Empire prior to its decline.
•Spanish intellectuals between the 19th and 20th centuries
complained about similar “bread and bullfights”.

3. Tim Frey
Vice President
Portfolio Manager
Investment Management & Trust Services
Tower Private Advisors

4. Market Outlook 2010
• Economy is recovering
– Global economies are healing
– Strength of recovery varies, by country and industry sector
– Rally has been technical in nature - coming off lows in march-and
Gov’t stimulated
– Focus now will be more on fundamentals - forward earnings
• Key question is sustainability
– Normally (historically) need about 5 preconditions for a sustained
recovery
– Massive monetary & fiscal policy response, inventory replacement,
financial stability, stabilization and improvement in consumer
sentiment, and job growth

5. Recent clouds over markets to abate
• China slowing lending and increasing reserve requirements
• Sovereign debt crisis – PIGS
• Eurozone vs Dollar
The real problem is staring us in the face (USA)
• Vast majority of states running deficits
• 40% are being fed currently by stimulus $$$
• Unfunded pension liabilities - $2 trillion
• Another $1 trillion shortfall for health / retirement / plan assets
• The elections in 2010 won’t focus much on this – 37 governor seats up for
grabs!
• More tax increases will be coming!

6. Other Negatives
• Banks aren’t lending or we aren’t borrowing- banks have $1 trillion in
excess reserves (15x normal)
• Mortgages will be a problem for at least 10-12 months. Applications at a
12 yr low - housing starts are flat
• Foreclosures may rise (as many as 3 million) as resets and loan
modification programs fail
Positives
• Earnings picking up, companies more productive
• Industrial production was stronger in Jan, inventories slowly rising
• Capital spending is on the rise (3.5% in 2010-mostly on IT)
• Hiring should pick up in 2010 – 62% of S&P 500 say yes!
• More stimulus coming

7. What does all this mean in a secular bear market?
Daily Data 1/14/2000 - 2/12/2010 (Log Scale)
Cyclical Bull and Bear Markets within current Secular Bear Market
Cyclical Bull Markets
29.1% 94.4% 54.3%
14399 14399
14063 Dow Jones Industrial Average 14063
13735 13735
13415 13415
13102 13102
12797 12797
12498 12498
12207 12207
11922 11922
11644 11644
11373 11373
11108 11108
10849 10849
10596 10596
10348 10348
10107 10107
9872 9872
9641 9641
9417 9417
9197 9197
8982 8982
8773
8568 You can still make money 8773
8568
8369 8369
8174 in a sideway market! 8174
7983 7983
7797 7797
7615 7615
7437 7437
7264 7264
7095 7095
6929 6929
6768 6768
6610 Total Change Over Secular Bear: -13.9% 6610
6456 Detailed Statistics for each Cyclical Market 6456
-29.7% -31.5% -53.8%
Cyclical Bear Markets
(Shaded)
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D
(S0203D) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

8. Cyclical Bulls - Secular Bear Markets (1900-2009)
• 18 cases historically with an average 64% gain over a
mean length of 508 days
• Current cyclical rally since March 09-up 49% and has
lasted 350 days
• There may be more left in 2010!
Note: Secular Bear - flat or declining stock prices over a long time --- have
averaged about 15 years from 1900 - 1999
Cyclical Bull - 30% rise in 50 days or 13% after 155 days

9. GDP- Can we get to and sustain 3-4% growth?
Quarterly Data 3/31/1960 - 12/31/2009 (Log Scale)
Standard & Poor's 500 Quarterly Close
1397 S&P 500 Gain/Annum When:
1397
1172 (3/31/1960 - 12/31/2009) 1172
984 984
Y/Y Change of Gain/ %
826 Real GDP Is: Annum of Time
826
693 693
Above 6 -4. 6 10. 5
581 581
Between 0.5 and 6 7. 1 76. 4
488 488
* 0.5 and Below 10. 1 13. 1
409 409
344 344
288 288
242 242
203 203
170 170
143 143
120
101
3Qtr GDP 2.2% 120
101
85
71
4Qtr GDP 5.7% 85
71
60 60
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
9 9
12/31/2009 = 0.1%
8 8
7 7
Very Strong Economic Growth
6 6
5 5
4 4
3 3
2 2
1 1
0 0
Very Weak Economic Growth
-1 -1
-2 -2
-3 -3
(S687) Year-to-Year Change of Real GDP
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

10. Inflation is in check for now
Monthly Data 1/31/1950 - 12/31/2009
CPI vs CPI Less Food & Energy Inflation
14.5 14.5
14.0 14.0
13.5 13.5
13.0 Year-to-Year Changes 13.0
12.5 12.5
12.0 12.0
11.5 11.5
11.0 CPI Less Food & Energy Index 11.0
10.5 (Core Inflation) 10.5
12/31/2009 = 1.8%
10.0 ( ) 10.0
9.5 9.5
9.0 9.0
8.5 CPI Index 8.5
8.0 12/31/2009 = 2.7% 8.0
7.5 ( ) 7.5
7.0 7.0
6.5 6.5
6.0 Don’t worry – yet! 6.0
5.5 5.5
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
-0.5 Shaded areas represent -0.5
-1.0 National Bureau of -1.0
Economic Research recessions.
-1.5 -1.5
(E706) 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

11. We are rebuilding inventories
Monthly Data 1/31/1948 - 1/31/2010
ISM Manufacturing Index (PMI)
78 78
77 77
76 76
75
74 Need to get above 50
Shaded areas represent
75
74
73 National Bureau of 73
72 72
Economic Research recessions
71 71
70 70
69 69
68
67 Need to keep momentum going 68
67
66 66
65 65
64 64
63 63
62 62
61 61
60 60
59 59
58 58
57 57
56 56
55 55
54 54
53 53
52 52
51 51
50 50
49 49
48 48
47 47
46 46
45 45
44 44
43 43
42 42
41 41
40 40
39 39
38 38
37 37
36 36
35 35
34 34
33 33
32 32
31 1/31/2010 = 58.4 31
30 Source: Institute for Supply Management, ISM Report on Business Excerpt from E0225A 30
(TNT0908H) 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

12. There is plenty of room to grow
Monthly Data 6/30/1961 - 12/31/2009 (Log Scale)
The Economy (The Index of Coincident Economic Indicators)
109 109
Correct Signals: 77%
100 Expansion Mode GPA: 2.7% 100
91 Contraction Mode GPA: -1.4% 91
Buy-Hold Gain/Annum: 1.9%
84 84
Signal Dates: 1/31/1970 - 11/30/2009
77 77
71 71
65 65
60 60
55 55
Latest data point repeated for signal purposes
50 50
46 46
42 42
39 39
Signals Generated When Capacity Utilization:
36 36
Rises by 2.1% = Expansion
33 Source: The Conference Board Falls by 4.8% = Contraction 33
1965 1970 1975 1980 1985 1990 1995 2000 2005
93 12/31/2009 = 72.0% 93
92 92
91 91
90 Falling = Economy Slowing Full Capacity 90
89 89
88
87
86
Need to get above 80 again Overbought 88
87
86
85 85
84 84
83 83
82 82
81 81
80 80
79 79
78 78.7 78
77.9 77.8
77 77
76 76
75 75
74 Surplus Capacity 74
74.1 Rising =
73 73.5 73
72 Economy Accelerating Oversold 72
71 Shaded areas represent 71
70.9 National Bureau of
70 70
69 Economic Research recessions. 69
68.3
(E230) Capacity Utilization
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

13. Consumer sentiment has improved
Monthly Data 12/31/1953 - 7/31/2010
Real GDP vs Consumer Sentiment (Smoothed Year-to-Year Changes)
46 9.6
44 Latest Consumer Sentiment Reading 9.2
42 Corresponds to 5.9% Real GDP Growth 8.8
40
38 Real GDP 8.4
36 Scale Right 8.0
34 ( ) 7.6
32 7.2
30 Correlation Coefficient = 0.54
6.8
28
6.4
26
24 6.0
22 5.6
20 5.2
18 4.8
16
4.4
14
12 4.0
10 3.6
8 3.2
6 2.8
4
2.4
2
0 2.0
-2 1.6
-4 1.2
-6 0.8
-8
0.4
-10
-12 0.0
-14 -0.4
-16 -0.8
-18 -1.2
-20
-1.6
-22
-24 -2.0
-26 -2.4
Reuters/University of Michigan
-28 Consumer Sentiment Index -2.8
-30 (Moved Ahead Five Months) -3.2
-32 Scale Left Reuters/University of Michigan
Source: -3.6
-34 ( ) Surveys of Consumers
(E0815) 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

14. Consumer has retrenched
Quarterly Data 3/31/1980 - 9/30/2009
Household Debt Service and Financial Obligations Ratios
18.9 18.86 18.9
18.6 Financial Obligations Ratio 18.6
18.3 9/30/2009 = 17.76% 18.3
17.98
18.0 18.0
17.7 17.7
17.4 17.4
17.1 17.1
16.8 16.8
16.5 Includes vehicle leases, rent, 16.5
16.2 insurance, property taxes 16.2
15.9 16.05 15.9
15.6 15.6
15.45
Renter Financial Obligations Ratio Homeowner Financial Obligations Ratio
30 17
9/30/2009 = 24.50% 9/30/2009 = 16.36%
29 Scale Left Scale Right
( ) ( )
28 16
27
26
15
25
24
14
23
13.91
13.8 13.8
13.5 Debt Service Ratio Minimum Debt Service Payment 13.5
13.2 9/30/2009 = 12.85% on Mortgage Debt and Consumer Credit 13.2
12.9 as a % of Disposable Personal Income 12.9
12.6 12.6
12.38
12.3 Mean = 12.07% 12.3
12.0 12.0
11.7 11.7
11.4
11.1
Would like below 12 % 11.4
11.1
10.8 10.8
10.73
10.60
(E0509) 1980 1985 1990 1995 2000 2005
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

15. Need to create jobs! Unemployment is too high!
Monthly Data 1/31/1948 - 12/31/2009 (Log Scale)
Barclays Capital Long-Term Treasury Bond Price Index
2324 2324
2200 2200
2082 2082
1971 1971
1866 1866
1766 1766
1672 1672
1583 1583
1498 1498
1418 1418
1343 1343
1271 1271
Long-Term Tsy Bonds Gain/Annum When:
1203 1203
1139 Unemployment Gain/ % 1139
Rate Is: Annum of Time
1078 1078
1021 * Above 6.6 2. 4 24. 1 1021
966 Between 4.4 and 6.6 -0. 2 52. 3 966
915 4.4 and Below -3. 6 23. 5 915
866 866
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
10 Shaded areas represent 10
National Bureau of
9
Economic Research recessions. Will it stay high and 9
8 Weak Employment Growth how long? 8
7 7
6 6
5 5
4 4
Strong Employment Outlook
3 3
12/31/2009 = 10.0%
(B644) Unemployment Rate
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .

16. Did you know?
• During previous expansion from 2001-2007 we created about
100,000 jobs/month to keep unemployment rate under 6%
(considered full employment)
• Today it would take 150,000 new jobs /month for ten years to
absorb the 15-17 million unemployed and keep up with
population trends
• If we create 200,000 jobs/month it would take 6 years to get
to 6% unemployment
• Our Government is going to try and create about
100,000/month from here forward— just to get the 8 million
that lost jobs the past 2 years back to work

17. Global recovery is still accelerating
• Australia leading index up for a 7th straight month
• Germany’s Purchase Manager Index surged in Feb
• Japan grew at 4.6% in 4qtr after a flat 3qtr
• Canada manufacturing sales rose a 4th straight month
Emerging Markets are still a good place to be
• Valuations have corrected some
• Deficits are in better shape than most of the rest of the world
• Recent commodity sell-off due to sentiment not lack of growth
• Earnings are still strong – have provided great returns the past
ten years

18. Domestic valuations were getting stretched!
Monthly Data 12/31/1968 - 12/31/2009 (Log Scale)
Standard & Poor's 500 Stock Index
1426 1426
1206 1206
Price Move of:
1020 1020
863 -0.2% to Overvalued (+1SD) = S&P 500 Level of 1113.34 863
730 730
618 -25.5% to Median Fair Value = S&P 500 Level of 830.78 618
523 -50.8% to Undervalued (-1SD) = S&P 500 Level of 548.22 523
442 442
374 374
316 316
268 268
226 226
192 192
162 162
137 137
116 116
98 98
83 83
12/31/2009 = 1115.10
70 70
1970 1975 1980 1985 1990 1995 2000 2005
32 Very Overvalued 32
30 30
+2 SD
28 28
26 Overvalued 26
24 24
+1 SD
22 22
20 20
41.1-Year
18 Median = 16.5 18
Median
16 16
14 14
12 Recent sell off has helped 12
-1 SD
10 10
8 correct this somewhat 8
6 Bargains 6
12/31/2009 = 22.2
(DAVIS100) S&P 500 Median Price/Earnings Ratio (NDR Calculation) with Historical Median
©Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .