THE U.S. ECONOMY & STOCK MARKET

THE U.S. ECONOMY & STOCK MARKET Stanley A. Nabi, CFA Vice Chairman August, 2011

EXHIBIT I Significant revisions of GDP data has reduced the magnitude of growth for several quarters and now indicate that the U.S. economy has not as yet fully recovered from the 20-2009 recession. Nonetheless, the lag on the employment front, with about 6.5 million less holding jobs, confirms strong gains in productivity. 14000 13500 13000 12500 u.s. real gross domestic product Billions of Chained 2005 Dollars Quarterly SA 2Q11: $13,270.1 4Q07 $13,363.5 2Q11 $13,270.1 12000 11500 100 500 civilian employment Thousands 2007 146,7 20 145,342 2009 139,877 20 139,4 July-11 139,296 000 97 98 99 00 01 02 03 05 07 09 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 1

EXHIBIT II Strong gains in productivity and restrained wages have favorably impacted profits and margins. How long can this trend continue? 115 nonfarm productivity: output per hour 2005=0 Quarterly SA 2Q11: 1.4 1 5 0 95 90 85 80 99 00 01 02 03 05 07 09 11 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 2

EXHIBIT III Consumers continue to spend at a moderately rising clip and do not seem intimidated by the threat of an economic downturn. Retail sales are typically a voting machine for consumer sentiment. 15 nominal retail sales ex food service % Y/Y Growth 3 Month MA SA June11: 8.0% 5 0-5 - -15 98 99 00 01 02 03 05 07 09 11 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 3

EXHIBIT IV Sluggish employment growth and limited gains in wages and incomes have failed to impede the recovery in consumer spending. 72 u.s. consumer spending as a % of nominal gdp % Quarterly SAAR 2Q11: 71.0% 70 68 66 64 62 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 60 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 4

EXHIBIT V Consumer spending is once again tracking the rise in Disposable Personal Income. Will events in the capital markets disturb the tight formation? 12000 u.s. nominal consumer income & spending $Billions Monthly SAAR June11: $11,592.9 (DSPI),,643.6 (PCE) 11500 100 500 000 9500 9000 8500 05 07 09 11 Disposable Personal Income (DSPI) Personal Expenditures (PCE) Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 5

EXHIBIT VI Although it has been in decline for more than three years, U.S. household debt remains elevated by historical standards. Therefore, growth in consumer spending may remain modest following its recovery from the recession. 1.4 u.s. household debt / disposable personal income % Quarterly 1Q11: 1.16% 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 Source: Silvercrest; Federal Reserve; Bureau of Economic Analysis, Department of Commerce 6

EXHIBIT VII The sharp rebound in exports to a record high leads to two observations: supportive global demand, particularly by emerging economies, and some revival in U.S. competiveness. 1900 u.s. real exports Billions of Chained 2005 Dollars Quarterly SAAR 2Q11: $1,775.3 1800 1700 1600 1500 1400 1300 1200 10 00 98 99 00 01 02 03 05 07 09 11 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 7

EXHIBIT VIII The troubled housing sector appears to have reached a trough, with new homes for sale at a record low, multi-family home permits up nearly 50%, housing starts clearly bottoming, and rents recovering. 2500 new housing starts Thousands Monthly SAAR June11: 629 600 new u.s. houses for sale Thousands Monthly NSA June11:165 2000 1500 00 500 600 500 400 300 200 0 0 0 76 7880 82 84 86 8890 92 9496 98 0002 multi-family permits Thousands 3 Month Average SAAR June11: 195 98 99 00 01 02 03 05 07 09 11 500 400 300 200 0 0 76 8 7 6 5 4 3 2 84 86 88 90 92 94 96 1 0-1 90 78 80 82 84 86 88 00 92 94 96 98 02 u.s. cpi total rent % Y/Y Growth Monthly SA June11: 1.2% 98 00 02 Source: Silvercrest; Census Bureau, Department of Commerce 8

EXHIBIT IX Both industrial and agricultural commodities have retreated from their recent spike, easing fear of parabolic inflation triggered by rising demand from emerging economies. 900 goldman sachs commodity index Last Price Weekly 5Aug11: $645.75 800 700 600 500 400 300 12/20 /2005 12/2005 /20 12/20 /2007 12/2007 /20 12/20 /2009 12/2009 /20 12/20 /2011 Source: Silvercrest; Bloomberg 9

EXHIBIT X Inflation in developing economies reflect a much larger component of food and energy items. Will acceleration in the cost of food and energy impair the superior growth of many emerging countries? food and energy weight in the cpi 60 53 50 40 43 42 40 37 33 30 20 26 24 22 22 18 0 India Thailand Russia Poland Brazil Japan Canada S. Africa U.S. Australia U.K. Source: Silvercrest; Strategas

EXHIBIT XI Initial Jobless Claims are in decline and approaching the long-term equilibrium of about 400,000. In addition, small businesses have traditionally been the main source of employment. Both are in favorable patterns, despite recent hesitation. Thousands 700 600 initial jobless claims 4 Wk Moving Average Weekly 30Jun11: 407,750 30 25 small business hiring plans & job openings survey Average % Monthly July11: 7.0% 500 20 15 400 300 5 200 0 86 88 90 92 0 94 96 98 00 02 86 88 90 92 94 96 98 00 02-5 Source: Silvercrest; BLS Source: Silvercrest; NFIB 11

EXHIBIT XII Debt service payments as a percentage of Personal Disposable Income has been declining since 2007 due to a drop in consumer borrowing and the persistent slide in interest rates. The Fed s advertised determination to maintain a policy of very low interest rates should continue to improve the debt service ratio. 14.5 debt service as a % of personal disposable income % Quarterly 1Q11: 11.5% 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 05 07 09 11 14.0 13.5 13.0 12.5 12.0 11.5 11.0.5.0 Source: Silvercrest; Federal Reserve 12

EXHIBIT XIII Federal Spending as a percentage of Gross Domestic Product is at the highest level since World War II. Reversion to a more normal ratio of about 20% requires extreme, almost heroic, efforts and very delicate rebalancing, if deleterious consequences are to be avoided. 28 federal spending as a % of nominal gdp % Quarterly SAAR 2Q11: 25.5% 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 26 24 22 20 18 16 14 12 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 13

EXHIBIT XIV Federal tax revenues are exceeding projections, growing at an annual rate of 9%. If the trend persists, the improvement for this fiscal year (9/30) could total $122 billion. At the same time, spending is well below forecast. The improvement relative to projections could exceed $250 billion for the current fiscal year. Perhaps this is no cause for applause! 2700 federal tax receipts $Trillion Monthly 12 Month Rolling Total June11: $2,299 2600 2500 2400 2300 2200 20 2000 /20 /20 02/2007 /2007 /2007 02/20 /20 /20 02/2009 /2009 /2009 02/20 /20 /20 02/2011 /2011 Source: Silvercrest; Treasury Department 14

EXHIBIT XV Non-financial corporate debt relative to net worth is back to normal historic levels. This is in addition to the massive liquidity of almost $1.4 trillion on balance sheets. 0 u.s. non-financial corporate debt to net worth % Quarterly Historical Cost 1Q11: 65.8% 90 80 70 60 50 40 30 20 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 Source: Silvercrest; Federal Reserve 15

EXHIBIT XVI Profit margins have surpassed the prior record, presenting a challenge to corporate managements, particularly when viewed relative to corporate compensation (wages) as a % of corporate GDP. % S&P 500 Net Margin (4Qtr Average) s&p net margins (q1 estimate) 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% '63 '68 '73 '78 '83 '88 '93 '98 '03 ' Source: Strategas compensation / corporate gdp 70% 68% 66% 64% 62% 60% 58% 50 55 60 65 70 75 80 85 90 95 00 05 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce 16

EXHIBIT XVII Earnings are not the only support for the economy, the stock market, and capital spending. Cash Flow and Free Cash Flow are also notably robust. Although capital spending is in a strong uptrend, current cash flow continues to exceed ongoing outlays. Pressure is mounting to deploy some of the abundant corporate liquidity. s&p 500 cash flow, free cash flow, operating earnings 17 Source: Standard and Poor s, FactSet, BMO Capital Markets

EXHIBIT XVIII The risk profile of the fixed income sector is depicted in the charts below. U.S. Treasury bonds are currently valued at an implied P/E nearly triple that of stocks (S&P 500) even after applying a risk premium of 500 bps. With corporate profits certain to register further gains, at least over the next 6 months, this disparity is likely to become more relevant. average bond "p/e" by decade (0/-Year Treasury Yield) average s&p 500 trailing "p/e" by decade 40x 35x 36 * 40x 35x 30x 25x 20x 15x x 5x 0x '60s 21 * As of 8/8/11 '70s 14 '80s '90s 16 '00s 23 Current 30x 25x 20x 15x x 5x 0x '60s 18.1 * As of 8/8/11 '70s 12.5 11.7 '80s '90s 19.5 20.1 '00s Current 12.4 * 18

EXHIBIT XIX Except for periods of highly elevated interest rates, market valuations (S&P 500) has rarely been as defensive as they are at present. valuations of stocks at major market bottoms year low price eps p/e div. yield -yr treas. ytm 1963 $51.35 $3.67 14.0x 4.1% 3.9% 1966 72.28 5.55 13.0x 4.0 5.0 1970 68.61 5.13 13.4x 4.6 7.9 1974 60.96 8.89 6.9x 5.9 7.9 1982 2.20 12.64 8.1x 6.7 13.1 1987 216.46 17.50 12.4x 4.1 9.5 1990 294.51 22.65 13.0x 4.1 8.7 2002 768.63 46. 16.7x 2.1 3.9 2009 666.79 56.86 11.7x 3.4 2.8 Current* $1,140.00 $94.00 12.1x 2.1% 2.4% * Current Low is as of 8/8/11. Current EPS is a Silvercrest estimate. 19

EXHIBIT XX With earnings and cash flow at record levels and headed higher, corporate America is under pressure to raise dividends among other measures to deploy the excessive accumulation of cash on balance sheets. Note that the current payout ratio is at a historic low. s&p 500 payout ratio % Quarterly 1Q11: 27% 70 65 60 55 50 45 40 35 30 25 20 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 05 07 09 Source: Silvercrest; Standard and Poor s 20

EXHIBIT XXI Strong corporate balance sheets have sharply reduced the need for equity financing. Combined with the flood of share repurchases, these have recently translated into a net reduction in new equity issuance as well as the supply of stocks. 200 u.s. net supply of non-financial equities $Billions Quarterly SAAR 1Q11: -$332.9 Billion 0-200 -400-600 -800-00 -1200 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 05 07 09 11 Source: Silvercrest; Federal Reserve 21

EXHIBIT XXII Hourly compensation in the U.S. is near the lowest among the major industrialized countries. This is favorable to U.S. competitiveness. Hourly Compensation in U.S. Dollars All Employees, Manufacturing OECD 1996 2011* Germany 28.99 48.46 Sweden 23.88 48.42 France 27.80 41.76 Australia 19.36 46.85 Japan 23.93 35.27 Canada 19.01 35.02 Italy 20.88 36.43 USA 22.11 33.53 UK 16.88 31.56 * Estimates using 20 wage rates and exchange rates as of 6/30/2011. Source: Silvercrest; US Bureau of Labor Statistics 22

EXHIBIT XXIII Emerging economies have recently surpassed the developed economies on their claim to global GDP, using purchasing power parity as a basis for calculations. This trend is likely to persist as long as the former group generates superior growth to the latter. % of global nominal gdp Purchasing Power Parity Emerging 2011E: 53% Developed 2011E: 47% 23 Source: ISI

EXHIBIT XXIV economic forecast (As of August 4, 2011) Estimated Projected 2009 20 2011 2012 Real GDP (Y-O-Y) (2.6%) 3.0% 1.9% 2.6% Real Consumption Expenditures (1.2%) 2.0% 2.1% 2.4% Business Fixed Investment (17.1%) 4.4% 7.0% 7.0% Inventory Investment (Billions) ($113.1) $58.8 $53.0 $45.0 Residential Investment (4.3%) (1.6%) 4.4% 5.6% Government Spending* (Billions) (a) $2,546.4 $2,562.9 $2,516.4 $2,526.0 Trade Balance-Goods & Services (Mil.) ($363.0) ($421.8) ($405.0) ($400.0) Federal Budget*: Unified (Billions) ($1,413.8) ($1,294.2) ($1,300.0) ($1,5.0) Gross Federal Debt* (Billions) $11,9 $13,167 $14,467 $15,617 Consumption Price Deflator 0.2% 1.8% 2.8% 2.6% Producer Price Index (Finished Goods) (2.6%) 4.2% 5.7% 4.2% Consumer Price Index (0.3%) 1.6% 3.3% 2.8% Industrial Production (11.2%) 5.3% 3.9% 4.2% Real Disposable Income 0.6% 1.8% 1.8% 2.8% Hourly Compensation 2.0% 2.2% 2.1% 2.8% Unit Labor Cost (Non-Farm) (1.6%) (1.6%) 0.6% 1.0% Productivity Growth (% Change) 3.7% 3.8% 2.8% 1.4% Personal Savings Rate (% DPI) 5.9% 5.3% 5.5% 5.6% Capacity Utilization Total Industry 69.2% 74.5% 77.0% 79.0% Trade Weighted $ Exchange Rate (b) 4.7% (3.0%) (7.8%) 2.0% Vehicle Sales (Million Units).3 11.5 12.4 12.8 Housing Starts (Million Units) 0.554 0.585 0.592 0.725 Civilian Employment (Millions) 139.9 139.1 139.8 141.6 Civilian Unemployment Rate 9.3% 9.6% 9.1% 8.6% Corporate Profits After Tax NIPA 3.6% 19.0%.1% 11.0% S&P-500 Earnings-Operating $65.26 $86.73 $94.00 $2.00 S&P-500 Dividends $24.20 $24.50 $26.25 $28.00 90 Day U.S. Treasuries-Yield (%) 0.01-0.32 0.03-0.18 0.05-0.80 0.50-1.30 -Year U.S. Treasuries-Yield (%) 2.20-3.95 2.39-3.99 2.60-3.40 3.35-4.20 *Fiscal Year-end 9/30. (a) Federal, State, and Local; in 2005 dollars; (b) Fed Major Currency Exchange Rate. 24

NOTES TO RESEARCH This publication contains the personal opinions, as of the date set forth herein, about the securities, investments, and/or economic subjects discussed by Mr. Nabi. This presentation provides general information only and does not constitute personal investment advice for any particular client or type of client, so the reader should not infer or assume that any securities, sectors or markets described are appropriate to meet the objectives, situation or needs of a particular investor. It is not a recommendation. The implementation of any financial strategy, and the purchase or sale of any security, should only be made after consultation with an attorney, tax advisor and/or investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. This publication was prepared for the use of Silvercrest and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express, written consent of Silvercrest. Any unauthorized use or disclosure is prohibited. This publication does not constitute an offer to sell or provide, or a solicitation of any offer to buy, sell, or receive, any securities or investment advisory services. Silvercrest may use the analysis contained in this report in providing investment advice to its clients, and may cause its clients to trade in the same and/or contrary to the manner discussed in this publication. Silvercrest does and seeks to do business with companies covered in its research publications. As a result, you should be aware that Silvercrest may have a conflict of interest that could affect the objectivity of this publication. Silvercrest Asset Management Group LLC 25