DJIA: Five Worst Percentage Declines By Month:

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1 B.I.G. Tips / This Week In Review: A Series of Worsts Another month, another worst. March started of much the same way that February ended, with the worst week of 200 and a.2% decline in the DJIA. The inauspicious start to 200 continues, as the worst January on record (-.4%) was followed by the third worst February on record (-.2%), which is so far being followed by the worst start to March on record. Add them all together, and you get the worst start to the year ever with a decline of 24.4%. In the chart to the right, we highlight the Dow s daily changes during the worst five years since 00 through March th. In three of these years the DJIA finished the year higher than it was on March th, although there were no years where it rebounded by more than 0%. The one down year of the four was in 20 when the DJIA continued to decline an additional 24%. The market s declines so far this year have also officially ended what in 0 name only was a bull market off the 00 November 20th lows. As shown, from 0 the low on November 20th, through 00 January 2nd, the S&P 00 gained 24%, fitting the technical definition of a bull 0 market. Since then, the US benchmark 00 index has more than erased those 0 gains for a loss of 2%. The rally began on the premise of hope with Tim Geithner s nomination, but ended as reality set in DJIA: Five Worst Starts to a Year Since 00 (Thru /) 200: -2.% 20:.% 2000:.% : 0.% 0: 0.2% 2/ / / / / / S&P 00: /20 - / +24% S&P 00 vs. Oil Intraday: /2 - / S&P 00 (left axis) Oil (right axis) /2 / /4 / / DJIA: Five Worst Percentage Declines By Month: Year January Year February Year March Year YTD % /20/200 2/20/200 /20/200 2/20/ Page of Copyright 200,, LLC. Bespoke Investment

2 B.I.G. Tips / Not only have we erased the gains since November, or the gains during the previous bull market, but the market is lower now than it was at the end of, erasing more than 2 years worth of gains. Earlier in the week, we looked at the performance of the largest 00 stocks in the S&P 00 since October, which was the last time the index traded at these levels. Of the names in the index, are up, 4 are down, and the rest were either acquired or went bankrupt. As shown, the best stocks include AOL/Time Warner, Exelon, Wal-Mart, EMC, Amgen, Exxon Mobil, and Oracle. Intel is up just.%, JP Morgan is down 2%, GE is down %, and Citigroup and Ford are down 0%. There's no doubt that the S&P 00 will look much different if we fast forward 4,2 days to July 2, 202, but hopefully the index and most of its members will at least be higher! S&P 00 Stocks on October 0th, Ticker Company 0/0/ Current % Chg Ticker Company 0/0/ Current % Chg TWX AOL/Time Warner Inc BMY Bristol-Myers EXC Exelon Corp JPM JPMorgan Chase WMT Wal-Mart Stores Inc CPB Campbell Soup Co EMC EMC Corp RSH RadioShack Corp AMGN Amgen Inc MRK Merck & Co Inc XOM Exxon Mobil Corp WMB Williams Cos Inc ORCL Oracle Corp AEP American Electric Pwr IBM IBM.4..0 BA Boeing Co CL Colgate-Palmolive BDK Black & Decker Corp UTX United Technologies AES AES Corp BAX Baxter International SLE Sara Lee Corp ETR Entergy Corp WY Weyerhaeuser Co GD General Dynamics ATI Allegheny Tech MCD McDonald's Corp AA Alcoa Inc SO Southern Co GE General Electric Co MSFT Microsoft Corp DD EI Du Pont de Nemours TXN Texas Instruments Inc CBS CBS Corp CSCO Cisco Systems Inc DOW Dow Chemical Co BNI Burlington Northern EP El Paso CGP Co LLC FDX FedEx Corp XRX Xerox Corp PG Procter & Gamble Co BAC Bank of America Corp SLB Schlumberger Ltd HIG Hartford Financial Svcs JNJ Johnson & Johnson IP International Paper Co PEP PepsiCo Inc C Citigroup Inc HPQ Hewlett-Packard Co F Ford Motor Co MS Morgan Stanley.. 2. OMX OfficeMax Inc HD Home Depot Inc GM General Motors Corp AVP Avon Products Inc UIS Unisys Corp MMM M Co EK Eastman Kodak Co USB US Bancorp AIG American Intl Group HAL Halliburton Co...4 Alcatel-Lucent USA TYC Tyco International.40.. Bank One Corp NSM National Semi Clear Channel Comm HNZ HJ Heinz Co Delta Air Lines Inc Bankrupt INTC Intel Corp Enron Corp Bankrupt CI CIGNA Corp Gillette Co NSC Norfolk Southern Global Crossing Ltd Bankrupt VZ Verizon Comm Harrah's Entert T AT&T Corp HCA Inc WFC Wells Fargo & Co May Department PFE Pfizer Inc Medimmune Inc CSC Computer Sciences Merrill Lynch & Co Inc BHI Baker Hughes Inc Nestle Purina PetCare AXP American Express Co Nextel Comm LTD Ltd Brands Inc Pharmacia Corp DIS Walt Disney Co Sears Roebuck and Co RTN Raytheon Co Toys R US Inc KO Coca-Cola Co Nortel Networks Corp Bankrupt HON Honeywell Intl Lehman Brothers Bankrupt Page 2 of Copyright 200,, LLC. Bespoke Investment

3 B.I.G. Tips / With the Financial sector being at the center of the market s storm, many investors think a market rally is close to impossible without that sector participating. However, as Wednesday s trading showed, rallies without the Financial sector are becoming increasingly common. Even as the S&P 00 rose by over 2%, the Financial sector declined! Since daily sector data begins in, Wednesday was only the th time that the S&P 00 rose by more than % on a day when the Financial sector was down. Even more notable was the fact that Wednesday's decline in the sector was the first ever occurrence where the sector declined on a day when the S&P 00 rose by over 2%. Usually on a 2% day, almost everything goes up! Wednesday, though, of the stocks in the index that finished the day lower, 2 were Financials. As shown to the right, of the thirteen instances highlighted since, four have come during the last six months. That's what happens when a sector that was once over 22% of the S&P 00 now makes up only.4%, for its lowest weighting since 0. S&P 00 Up %+ and Financials Down Percent Change (%) Date S&P 00 Financial Sector 0/4/. -0. // // // /2/ // / / / / / / / Financial Sector Weight in S&P 00: (Percentage) '0 '2 '4 ' ' '00 '02 '04 '0 '0 Page of Copyright 200,, LLC. Bespoke Investment

4 B.I.G. Tips / The way things are going for the Financials, the outlook doesn t look too bright. On Thursday, Citigroup traded below $ per share. Citigroup is now the only stock in the Dow and one of six stocks in the growing list of S&P 00 stocks (AIG, ETFC, ODP, GNW, and THC) currently trading under a dollar. The only question investors have now is when does Citi get pulled from the Dow? Although at this point does it really matter? Consider the fact that if Citi dropped to zero, given its weight in the index, it would have less than an point impact on the overall price of the index. With a market cap of $ billion, what was once the largest bank in the US and the rest of the world is now smaller than most Russian, Chinese, and Indonesian banks. Additionally, the controversial $400 million naming deal for the new Mets stadium now represents % of the company s market cap. Regarding the stock price, it is now cheaper than the ATM fee Citi charges to use their ATMs, and cheap enough to be sold in a dollar store. Citigroup Intraday: / :0 :00 2:0 4:00 :0 While Citi may have been the Financial stock whose decline was the most talked about, it certainly wasn t the only one under pressure. The whole sector fell this week, as even names who were thought of as being relatively immune to the crisis, like JPM and Goldman, saw double digit percentage declines. Even non-financial companies with financial exposure were sold, with GE among the most high profile names to see declines. Last Friday, the decline in the stock began to intensify when the company announced that it would cut its dividend from $0. down to $0.0 per share. This came even after repeated assurances by CEO Jeff Immelt that the dividend was safe through 200. Even though the move wasn t much of a surprise to Wall Street, the company lost a considerable amount of credibility from their flip-flop. Page 4 of Copyright 200,, LLC. Bespoke Investment

5 B.I.G. Tips / This week the selling further accelerated as the stock traded under $ per share. What was once the largest company in the world in terms of market cap is now barely hanging in there on the list of twenty largest stocks in the S&P 00. With a market cap of $ billion, GE is now less than one quarter of the size of XOM, which remains the largest company in the index. Largest 20 Companies in the S&P 00 Ticker Name Sector Price Market Cap ($,bln) XOM Exxon Mobil Energy WMT Wal-Mart Consumer Staples MSFT Microsoft Information Technology PG Procter & Gamble Consumer Staples JNJ Johnson & Johnson Health Care T AT&T Telecommunication Services CVX Chevron Energy.. IBM IBM Information Technology 4.. GOOG Google Information Technology 0..0 KO Coca-Cola Consumer Staples..2 PFE Pfizer Health Care CSCO Cisco Systems Information Technology VZ Verizon Telecommunication Services 2.0. AAPL Apple Information Technology 4..4 GE General Electric Industrials. 2.2 ORCL Oracle Information Technology PEP Pepsico Consumer Staples ABT Abbott Labs Health Care INTC Intel Information Technology 2.2. PM Philip Morris Consumer Staples 2..4 Throughout the week, GE also made several assurances to investors that it remained on firm financial footing. On Thursday, the CFO even took the unusual step of appearing on the company s CNBC network to help dispel fears that the company was in financial trouble and needed to raise capital. While the stock stabilized somewhat, investors remained skeptical. After all, beginning with Alan Schwartz s claims that Bear Stearns was on solid financial footing three days before the firm collapsed, there has been a long line of financial sector executives saying one thing, when the reality was another (John Thain, Dick Fuld, Robert Steele, Jeff Immelt, etc ) Page of Copyright 200,, LLC. Bespoke Investment

6 B.I.G. Tips / With the market in a freefall, trading at more than 2 year lows, and a genuine lack of trust on the part of investors, it comes as little surprise that investor sentiment is at record lows. This week's survey of investor sentiment by the American Association of Individual Investors (AAII) showed that investors are now at their most bearish levels in the history of the survey. As shown, 0.2% of respondents to the weekly survey are currently in the bearish camp. While investors are at record high levels of bearish sentiment, strategists have yet to throw in the towel. While two more Wall Street strategists lowered their year-end S&P 00 price targets recently, collectively they're still looking for a 4% gain from the index's current levels. As shown below, UBS, Goldman, and Credit Suisse have now lowered their year-end price targets since the start of the year. The UBS move from,00 to,00 makes Deutsche Bank the most bullish with a target of,40. Barclays has the lowest price target of 4, which would still be a 2% increase from here. Price Target At % From S&P 00 Current Current % Firm Strategist Start of Year on 2/ Price Target From S&P 00 Deutsche Bank Binky Chadha UBS David Bianco JP Morgan Thomas Lee RBC Myles Zyblock Citigroup Tobias Levkovich HSBC Kevin Gardiner B of A Richard Bernstein Morgan Stanley Goldman Sachs David Kostin Credit Suisse Andrew Garthwaite Barclays Barry Knapp Average Lowered Strategist S&P 00 Year-End 200 Price Targets Page of Copyright 200,, LLC. Bespoke Investment

7 B.I.G. Tips / On the economic front, Friday s employment report, which showed the unemployment rate at a 2-year high, served as a reminder that the economy keeps digging itself deeper into a hole. On Wednesday, we noted that since initial and continuing jobless claims do not take the size of the labor force into account, they tend to overstate the severity of the jobs downturn. At the same time, though, other indicators like vehicle sales are understating the severity of the downturn in the consumer sector. This week's release of vehicle sales for the month of February came in at an annualized rate of. million cars and trucks, which was the lowest reading since December 200 (. mln). In the chart below we have calculated the monthly annualized auto sales number as a percentage of the US population. As shown, this February's level equaled 2.% (annualized) of the population, which is the lowest level in at least 40 years. US Vehicle Sales as a Percent of Total Population: Monthly Annualized Recessions 2.0% Percent of Population 4 2 / / / / / / / / / Page of Copyright 200,, LLC. Bespoke Investment

8 B.I.G. Tips / While the major averages have made new lows, the flight to Treasuries that we saw last time the market was this low hasn t materialized. The yield on the ten-year US treasury got as low as 2.0% late in 200, but with the anticipated issuance of government debt on the horizon, yields have remained in the high 2% range. High yield credit spreads are on the upswing once again, indicating heightened anxiety on the part of fixed income investors. While still below the lows of last year, the direction is discouraging. Similarly, financial default risk as measured by our 00 Bank and Broker CDS index has once again spiked to the same levels seen during the panic around 00 the time that Lehman went under. Back then, default risk for the major brokers was causing our in- / / / 0/ / 2/ / 2/ / dex to spike. Now it s default risk for the big banks like Citi, JP Morgan, Bank of America, and Wells Fargo that is pushing the index higher. Over the last month, financial default risk is up 4%, and it s up 2% in the last week. This is occurring at the same time that the entire financial sector is withering to nearly nothing. The S&P 00 Financial sector is now down to just 0 after crossing above the 00 level back in 200. The government still had a little bit of ammo left in late 200 when the first real panic spread. But that ammo is running very low, if not already gone, at this point. Basis Points Over Treasuries High Yield Credit Spreads: / - / (Merrill Lynch Index) Bespoke's Bank and Broker CDS Index vs S&P 00 Financial Sector 00 0 Bespoke Financial CDS Index Jan-0 Feb-0 Mar-0 Bespoke CDS Index S&P 00 Financials Apr-0 May-0 Jun-0 Jul-0 Aug-0 Sep-0 Oct-0 Nov-0 Dec-0 Jan-0 Feb-0 Mar S&P 00 Financials Page of Copyright 200,, LLC. Bespoke Investment

9 B.I.G. Tips / While most (if not) every aspect of the market seems to be negative, we would be remiss if we didn t at least point out some of the positives, and for the most part they are things that are just getting less worse. For starters, both the ISM Manufacturing index and the change in nonfarm payrolls increased compared to the prior month s level for the second straight month. Make no mistake, the levels of each indicator are extremely negative, but at least the pace of the declines is getting less worse. 0 ISM M anufacturing Index: Change in Non Farm Payrolls: While worries over increased supply in the pipeline has kept Treasury yields stubbornly high relative to their recent range, the dollar has managed to rally even in a climate of trillion dollar deficits and bailouts. One would think that the dollar would be under pressure, and yet this week it hit its highest level since April 200. But when you're competing against the likes of Europe, the dollar suddenly doesn't look so bad. So while, the US is faced with plenty of problems, our currency s status as a safe haven is a positive for our markets. US Dollar Index: Highest levelsince March Page of Copyright 200,, LLC. Bespoke Investment

10 B.I.G. Tips / While analysts continue to find themselves behind the curve in terms of earnings estimates, the pace of negative revisions is slowing. As we noted in this week s Earnings Revisions report, for the S&P 00 and each of the ten sectors, analysts are still cutting forecasts for more companies than they are raising forecasts for. However, for every sector with the exception of Utilities, the pace of negative revisions is slowing. While it will be hard for the market to make a meaningful advance until analysts find themselves behind the curve on the upside, you have to start somewhere, and what we have been seeing in the last several weeks is a step in the right direction S&P 00 Net Earnings Revisions By Sector 2//200 2//200 //200 For each sector, we measure the net percentage of companies in each sector that have seen estimates raised or lowered over the last four weeks Price S&P 00 vs Net Earnings Estimate Revisions 20 Price (Left Axis) 0 EPS Revisions (Right Axis) 0 0 2/ /2 /2 /2 /2 /2 /2 /2 Revisions rate improving, even as the market sinks to new lows Net Percentage of Upside Revisions (%) Page 0 of Copyright 200,, LLC. Bespoke Investment

11 B.I.G. Tips / As shown below, the S&P 00 and each of its ten sectors are all currently oversold to close out the week. As is often the case during bear markets, the correlation among the sectors is high at the moment. On Monday morning, we put a substantial part of our cash position to work in the model portfolio, and based on the market s performance during that time, we were clearly early. Not to beat on a dead horse, but the one positive that continues to stick out is the percentage of stocks in the S&P 00 making new lows. With today s decline to a new intraday low, only % of the stocks in the index made a new low. While this is high, it is nowhere near the levels we saw in October and November of last year. All we need now is a spark to get the fire going S&P 00 vs Net New Highs: /2 4/2 /2 0/2 /2 20 Net 2 Week Highs (Percentage of Stocks) % S&P 00 Sector Trading Ranges: / -0 -% -0-4% -00 /2 4/2 /2 0/2 /2 Sector Overbought/ Oversold Correlation with S&P 00 Dates Most Oversold Most Overbought S&P 00 OS - /2 /2 One Year Trading Range Cons. Discret. OS 0. 0/ / Cons. Staples OS 0. 0/ 4/ Energy OS 0. 0/0 4/2 Financials OS 0. 0/ / Health Care OS 0.4 /2 / Industrials OS.00 0/2 4/ Materials OS 0. /2 4/ Technology OS 0. / 4/2 Telecom Svcs OS 0. / / Utilities OS 0. / 4/ Normal Trading Range Most Oversold Reading Most Overbought Reading Page of Copyright 200,, LLC. Bespoke Investment

12 B.I.G. Tips / Stock Company Current Price Portfolio Weight (%) Entry Price Stop Price Date Added % Change Consumer Discret.. FDO Family Dollar /2 0.4 PZZA Papa John's /2 -. Consumer Staples.2 ADM Archer-Daniels /2 4. MO Altria Group /2. MKC McCormick /2-2. Energy. CVX Chevron Corp /2-0. Financials 0.0 GS Goldman Sachs /2-2. MA MasterCard /2 -. Health Care 4. CPSI Comp. Program /2 -. Industrials 0.0 Materials. MOS Mosaic /2. Technology. AAPL Apple / -. GOOG Google /2 -. INTC Intel Corp / -. Telecom Services 0.0 Utilities. WTR Aqua America /2 -. ETFs 0.0 Cash 2. Performance (%): Since Inception YTD S&P Model Portfolio vs. S&P Bespoke Model Portfolio Bespoke's Model Portfolio began with an initial value of $00,000 on /2. = New Position Page 2 of Copyright 200,, LLC. Bespoke Investment

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