Stanek Team. Monthly Newsletter. The. Government Budget Issues and Investor Insights. Inside

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1 The Stanek Team Monthly Newsletter Inside This Issue October 2013 Government Budget Issues and Investor Insights Have You Thought About Going Paperless? Tip of the Month: Nicknaming Your Accounts Online Team Innovations Government Budget Issues and Investor Insights With the Congress failing to agree on legislation that would prevent government shutdown, investors now turn their attention to the next critical date for government operations: the debt ceiling. What exactly is the debt ceiling? Since 1917, the gross debt issued by the Treasury has been subject to a limit, in other words known as the debt ceiling. Over the years, Congress continued to increase the debt ceiling, causing the current public debt be subject to a limit of $16,699,421,095, In simpler terms, about $16.7 trillion! The crisis occurs on the day the Treasury will run out of cash, at which point it starts pending payments. So when is the Treasury expected to run out of cash? The date to default is uncertain as revenues and expenses are volatile. Morgan Stanley calculates that even if Secretary sticks to precedent, the Treasury would run out of cash by November. Why not pass a new budget? Over the past five years, the government has been unable to pass a new budget, so instead it approved of legislation known as a Continuing Resolution (CR). Continuing Resolution appropriates funding from existing federal programs based on the last budget signed into law. Contact Information: Phone: (312) Fax: (312) Sylvia.Cano@ms.com Every time the legislative body is unable to pass a new budget, Continuing Resolution buys the Congress 45 days to the next budget standoff. However, as the politicians legislate (or argue) over a new budget, the Congress is forced to increase the debt ceiling.

2 What can investors expect regarding the debt ceiling? Considering the dysfunction of our legislative body and the government shutdown, it is expected that market participants will worry about the possibility of the Congress failure to raise the debt ceiling. The inability of Congress to reach a new budget agreement and uncertainty regarding the debt ceiling increase the possibility of another credit downgrade for the United States. While the initial downgrade by Standard and Poor s had little market impact, a second downgrade has a greater potential for a negative market reaction. Considering the current shutdown and legislative battle over the increase of the US debt ceiling this month, it is expected that market volatility will rise over the next few weeks. During periods of uncertainty, such as the one caused by the dysfunction of United States legislative body, it is important to determine market strength. According to Dorsey Wright & Associates, defensive periods, such as this one, result in quite different performance in strong markets vs. weak markets. For research purposes, a strong market is determined when Domestic Equity in the Dynamic Asset Level Investing (DALI) table is ranked #1 or #2. A weak market is determined when Domestic Equity moves to rank #3 or lower in that same table. Where does Domestic Equity rank now? According to Dorsey Wright & Associates it ranks as #1, reflecting a strong market. Ranking Asset Class 1 Domestic Equity 2 International Equity 3 Fixed Income 4 Foreign Currency 5 Cash 6 Commodity Source: Dorsey Wright & Associates (data.dorseywrigtht.com),10/07/2013

3 Considering that Domestic Equity provides evidence we are in a strong market, let s compare the results of defensive periods in both weak and strong equity markets: Source: Dorsey Wright & Associates (data.dorseywrigtht.com), 10/07/2013 In defensive periods where Domestic Equity ranked #1 or #2, we can note a much stronger performance compared to defensive periods in weak equity market. Concluding Thoughts Although the current government shutdown and debt ceiling talks are scary, our indicators show that with Domestic Equity ranked as highest within the Dynamic Asset Level Investing (DALI), we would expect, in our opinion, short, shallow market corrections. Any market declines due to budget talks point to evidence that they may be temporary and in fact may offer some opportunities.

4 Have You Thought About Going Paperless? Have you ever considered going paperless? If not, here are some benefits to consider: Avoid paper clutter and stay organized, Get instant access download statements and other documents to your computer, Easily print the document if a paper copy is desired, Preserve paper and the environment. For quick and easy steps on how to enroll your Morgan Stanley accounts in an electronic document delivery, call or Sylvia Cano ( / Sylvia.Cano@ms.com). Tip of the Month: Nicknaming Your Accounts Online Morgan Stanley Online allows users to create nicknames for their account and change the order modules display on the Account Summary page. 1. Log on to Morgan Stanley Online (if you need to enroll, please reach out to Sylvia Cano at / Sylvia.Cano@ms.com for enrollment steps). After logging in, you should see the Account Summary page:

5 2. All accounts are displayed as a nine digit Morgan Stanley account number (628-xxxxxx). We can nickname those accounts for your convenience. 3. Click on Your Profile & Settings link in the top right corner of the screen 4. Go to the third section titled Account Settings and click on View next to Account Nicknames. 5. You can now enter a nickname for all your existing accounts (for example: John Doe IRA, John and Jane Doe Joint Account, Jane Doe Roth IRA, etc.) 6. You can also switch the order in which the accounts show up on the main page by using the up and down blue arrows on the right side of the page. 7. Make sure to select Save prior to exiting the screen. Need Additional Help? Contact our team to walk you through Morgan Stanley Online!

6 Team Innovations Client Advisory Board: For those that are not aware, we host a Client Advisory Board dinner two times per year. At this dinner we have two things we look to accomplish: 1. Listen intently to you on what is working well with your relationship with us, and also take suggestions for improvements. 2. Take action on the most impactful ideas you give us to be a better team for you. If you would like to attend one of these dinners, please sylvia.cano@mssb.com to let us know. Stanek Team Website: we encourage everyone to check our team website on a regular basis! The website contains articles, Morgan Stanley research, and updates on any upcoming conference calls. Link: We Always Look for Feedback! We always look for new ways to improve. If you have any suggestions for our team, please share them with us by contacting Sylvia Cano ( / Sylvia.Cano@ms.com). The Stanek Team at Morgan Stanley 227 W. Monroe St. Suite 3400 Chicago, IL Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC. The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Smith Barney or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.