SHAMBLING FORWARD. WALL STREET, MAIN STREET, AND CAPITOL HILL: AN ECONOMIC UPDATE Shamble: To walk in an awkward, lazy, or unsteady manner, shuffling the feet FEBRUARY 12, 2014 David B. Hanson, CPA, CFA Chief Executive Officer WORLD POPULATION 2 1
WORLD POPULATION COMPARISON 3 Rest of the World Source: CIA World Factbook WORLD GDP (PURCHASING POWER PARITY 2012 EST.) 4 Source: CIA World Factbook 2
GLOBAL GDP COMPARISON AND TOTAL NATIONAL DEBT* 5 Rest of the World * External Debt Public and private debt owed to rest of world Source: CIA World Factbook GLOBAL GDP COMPARISON AND TOTAL NATIONAL DEBT* 6 Debt to GDP Comparison: U.S. 15.9 / 15.9 1.00 China 12.6 / 0.8 0.06 India 4.8 / 0.4 0.08 Italy 1.9 / 2.5 1.34 Spain 1.4 / 2.3 1.61 Germany 3.2 / 5.7 2.25 United Kingdom 2.4 / 10.1 4.21 Switzerland 0.4 / 1.6 4.23 Ireland 0.2 / 2.2 11.28 Source: CIA World Factbook 3
GLOBAL GDP PER CAPITA COMPARISON 7 World Average Source: CIA World Factbook WORLD OIL PRODUCTION & CONSUMPTION 8 Source: CIA World Factbook 4
OIL PRODUCTION & CONSUMPTION BY COMPARISON 9 Production: Million Barrels/Day Consumption: Million Barrels/Day Source: CIA World Factbook GLOBAL ECONOMIC MOMENTUM 10 Global Purchasing Managers Index for Manufacturing Jan'12 Feb'12 Mar'12 Apr'12 May'12 Jun'12 Jul'12 Aug'12 Sep'12 Oct'12 Nov'12 Dec'12 Jan'13 Feb'13 Mar'13 Apr'13 May'13 Jun'13 Jul'13 Aug'13 Sep'13 Oct'13 Nov'13 Dec'13 Global 51.0 51.2 51.6 51.3 50.3 49.7 48.8 48.7 48.7 48.9 49.6 50.0 51.5 50.9 51.2 50.4 50.6 50.6 50.8 51.6 51.8 52.1 53.1 53.3 U.S. 54.3 53.6 56.0 56.0 54.0 52.5 51.4 51.5 51.1 51.0 52.8 54.0 55.8 54.3 54.6 52.1 52.3 51.9 53.7 53.1 52.8 51.8 54.7 55.0 Canada 50.6 51.8 52.4 53.3 54.7 54.8 53.0 53.0 52.4 51.4 50.4 50.4 50.5 51.7 49.3 50.1 53.2 52.4 52.0 52.1 54.2 55.6 55.3 53.5 U.K. 50.8 51.1 52.0 50.2 46.8 48.8 45.5 49.1 48.2 48.0 48.4 50.7 50.9 48.2 49.3 50.6 52.1 53.0 54.7 57.3 56.7 56.5 58.1 57.3 Euro Area 48.8 49.0 47.7 45.9 45.1 45.1 44.0 45.1 46.1 45.4 46.2 46.1 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 Germany 51.0 50.2 48.4 46.2 45.2 45.0 43.0 44.7 47.4 46.0 46.8 46.0 49.8 50.3 49.0 48.1 49.4 48.6 50.7 51.8 51.1 51.7 52.7 54.3 France 48.5 50.0 46.7 46.9 44.7 45.2 43.4 46.0 42.7 43.7 44.5 44.6 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 Italy 46.8 47.8 47.9 43.8 44.8 44.6 44.3 43.6 45.7 45.5 45.1 46.7 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 Spain 45.1 45.0 44.5 43.5 42.0 41.1 42.3 44.0 44.5 43.5 45.3 44.6 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 Greece 41.0 37.7 41.3 40.7 43.1 40.1 41.9 42.1 42.2 41.0 41.8 41.4 41.7 43.0 42.1 45.0 45.3 45.4 47.0 48.7 47.5 47.3 49.2 49.6 Ireland 48.3 49.7 51.5 50.1 51.2 53.1 53.9 50.9 51.8 52.1 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 Australia 51.6 51.3 49.5 43.9 42.4 47.2 40.3 45.3 43.0 42.8 44.3 44.3 40.2 45.6 44.4 36.7 43.8 49.6 42.0 46.4 51.7 53.2 47.7 47.6 Japan 50.7 50.5 51.1 50.7 50.7 49.9 47.9 47.7 48.0 46.9 46.5 45.0 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 China 48.8 49.6 48.3 49.3 48.4 48.2 49.3 47.6 47.9 49.5 50.5 51.5 52.3 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 Indonesia 48.5 50.6 50.8 50.5 48.1 50.2 51.4 51.6 50.5 51.9 51.5 50.7 49.7 50.5 51.3 51.7 51.6 51.0 50.7 48.5 50.2 50.9 50.3 50.9 Korea 49.2 50.7 52.0 51.9 51.0 49.4 47.2 47.5 45.7 47.4 48.2 50.1 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 Taiwan 48.9 52.7 54.1 51.2 50.5 49.2 47.5 46.1 45.6 47.8 47.4 50.6 51.5 50.2 51.2 50.7 47.1 49.5 48.6 50.0 52.0 53.0 53.4 55.2 India 57.5 56.6 54.7 54.9 54.8 55.0 52.9 52.8 52.8 52.9 53.7 54.7 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 Brazil 50.6 51.4 51.1 49.3 49.3 48.5 48.7 49.3 49.8 50.2 52.2 51.1 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 Mexico 52.2 53.7 53.8 56.3 55.2 55.9 55.2 55.1 54.4 55.5 55.6 57.1 55.0 53.4 52.2 51.7 51.8 51.3 49.7 50.8 50.0 50.2 51.9 52.6 Russia 50.8 50.7 50.8 52.9 53.2 51.0 52.0 51.0 52.4 52.9 52.2 50.0 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8. Source: CIA World Factbook 5
ECONOMIC GEAR BOX: JOBS, HOUSING, AND CONFIDENCE 11 Global Overview Recap of Recent GDP Growth Economic Gear Box Consumer and Small Business Confidence Employment Housing Private Sector Business / The Equity Market The Issue: Government Debt and Spending A Glimpse of Optimism 12 GDP Recap 6
QUARTERLY GDP 13 6.0 4.0 2008 2009 2010 2011 2012 2013 2.0 (2.0) (4.0) (6.0) GDP Real Final Sales of Domestic Products (RFSDP) (8.0) (10.0) Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 QUARTERLY GDP NOTEWORTHY 14 Personal Consumption grew between 1.5% 2.5% every quarter from Q1 11 to Q3 13. Q4 13 was 3.3% growth State and Local Gov t spending declined 10, 11, 12, and Q1 13, but has been increasing since Q2 13 Federal Spending has declined in 11 of the last 13 quarters, and was down significantly (12.6%) in Q4 2013 Real Residential declined for the first time since Q3 10. In spite of double digit growth in 7 of the last 9 quarters, residential investment is only $486B as of Q4 13 down from $765B in 2006. 7
DELAWARE GDP VS. U.S. 15 Source: JP Morgan Chase ECONOMIC GEAR BOX EACH GEAR DRIVES THE OTHER 16 Housing used to be ~5% of GDP now it s about 3% Jobs Consumer Spending is ~70% of GDP Unemployed people don t buy houses 1.9 million construction workers remain unemployed Businesses that lack confidence don t hire Housing Confidence Lack of Confidence = Low Spending Unemployment is the biggest influencer of consumer confidence Small Business employs 52% of Americans 8
17 Consumer and Small Business LESS DEPRESSED AND LESS FRAGILE 18 Impact of Gov t Shutdown Impact of Fiscal Cliff Impact of Debt Ceiling 9
AND IN PRETTY GOODFINANCIALSHAPE 19 13.5% 13.0% Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted $90,000 $80,000 Household Net worth Billions USD, not seasonally adjusted 12.5% $70,000 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% $60,000 $50,000 $40,000 $30,000 $20,000 9.0% '80 '85 '90 '95 '00 '05 '10 $10,000 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 20 Employment 10
EMPLOYMENT 21 12.00% Unemployment 11.00% 10.00% 10.7% 10.0% Unemployment Rate 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 5.7% 5.2% 7.6% 3.9% 6.1% 4.4% 6.6% 3.00% '75 '80 '85 '90 '95 '00 '05 '10 Source: Bloomberg, FFA Investment Management EMPLOYMENT 22 12.00% Unemployment & Labor Force Participation Rate The Real Story 68% 11.00% 10.00% 66.3% 10.0% 67% 66% Unemployment Rate 9.00% 8.00% 7.00% 6.00% 5.00% Since 12/31/09: 64.9% 6.6% 62.7% 65% 64% 63% 62% Labor Participation Rate 4.00% 3.00% '75 '80 '85 '90 '95 '00 '05 '10 Source: Bloomberg, FFA Investment Management 3.4% drop in unemployment rate 3.2% drop in labor participation rate 61% 60% 11
EMPLOYMENT 23 600 400 200 Employment Total Private Payroll Total job gain/loss (thousands) 8.8mm jobs lost 0 200 7.6mm jobs gained 400 600 800 1000 The U.S. economy filled 53 million jobs last year; and 51 million employees left jobs '04 '05 '06 '07 '08 '09 '10 '11 '12 '13. Source: Bloomberg, FFA Investment Management EMPLOYMENT 24 Source: JP Morgan Chase 12
25 Housing a riddle wrapped in an enigma HOUSING STARTS 26 Housing starts unexpectedly fell to a seasonally adjusted rate of 835,000 in June but have rebounded back to1m+ as of November. 3000 2500 Housing Starts About 2/3 of homebuilders from 2007 are out of business The recent increase in average 30 year fixed mortgage rates to ~4.5 may slow purchases and regulatory changes make mortgages hard to get 2000 1500 1000 500 Worst month since 1958 0 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 Housing Starts 13
HOUSING STARTS 27 Housing starts unexpectedly fell to a seasonally adjusted rate of 835,000 in June but have rebounded back to1m+ as of November. 3000 2500 Housing Starts and Mortgage Rates 18.6% And we built 873k houses (vs. 835k in June 2014) 20.00% 18.00% 16.00% About 2/3 of homebuilders from 2007 are out of business 2000 14.00% 12.00% The recent increase in average 30 year fixed mortgage rates to ~4.5 may slow purchases and regulatory changes make mortgages hard to get Since 1971 there have been 28 months out of 517 where mortgage rates were lower than now. 1500 1000 Average Mortgage Rate since 1972 = 6.8% 500 0 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 Housing Starts 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% HOUSING STARTS DE 28 Source: JP Morgan Chase 14
HOUSING 29 Prices are up nicely but not so much in DE Housing Affordability Index Avg. mortgage payment as a % of household income 40% 35% 30% 25% Affordability remains strong Nov. 2013: 13.2% 20% 15% Average: 20.5% 10% '75 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 Home Inventories Millions, annual rate, seasonally adjusted 4.5 4.0 3.5 3.0 2.5 There s nothing to buy 2.0 Nov. 2013: 2.3 1.5 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 Source: Bloomberg, FFA Investment Management, JP Morgan Chase Source: JP Morgan Asset Management; Census Bureau, Nat l Assn of Realtors OFFICE SPACE 30 Source: JP Morgan Chase 15
31 Private Sector and the Equity Markets S&P 500 EARNINGS AND REVENUES PER SHARE 32 $1,200 $1,100 S&P Earnings per share (annual) & Revenue per share $105.92 $120 $100 $1,000 Revenue Per Share $900 $800 $700 $600 $80 $60 $40 Earnings Per Share $500 $20 $400 $0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Bloomberg, FFA Investment Management 16
QUITE AROLLER COASTER 33 2000 1800 1600 1400 1200 1000 800 600 400 Mar. 24, 2000 P/E(fwd.) = 25.6x 1,527 Oct. 9, 2002 P/E(fwd.) = 14.1x 777 Oct. 9, 2007 P/E(fwd.) = 15.2x 1,565 Mar. 9, 2009 P/E(fwd.) = 10.3x 677 Dec. 31, 2013 P/E(fwd.) = 15.4x 1,848 Comparative Valuation Characteristics: +106% Mar 2000 Oct 2007 Dec 2013 Index Level +101% 1,527 1,565 1,848 +173% 49% 57% P/E Ratio (fwd) 25.6x 15.2x 15.4x Dividend Dec. 31, 1996Yield 1.1% 1.8% 1.9% P/E(fwd.) = 16.0x 741 10 yr. Treasury 6.2% 4.7% 3.0% 200 0 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Bloomberg, FFA Investment Management STOCK VALUATIONS 34 S&P 500 Current Earnings Yield vs Baa Bond Yield 10.00% 9.00% S&P 500 Earnings Yield: 5.7% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% Moody s Baa Yield: Earnings Yield: 5.7% 2.00% '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Bloomberg, FFA Investment Management 17
FAIR PRICE FOR LONG TERM INVESTORS 35 P/E and Total Return Over 1-yr. Periods Quarterly, 1Q 1952 to 3Q 2012 60% P/E and Total Return Over 5-yr. Annualized Periods Quarterly, 1Q 1952 to 3Q 2008 60% 40% 40% 20% 20% 0% 5x 10x 15x 20x 25x 30x 0% 5x 10x 15x 20x 25x 30x -20% -20% -40% -40% Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterly dividends. Valuation based on long -term P/E ratio. Note: Orange line denote results of linear regression with R -squared of 0.13 for 1-yr. returns (left) and 0.27 for 5-yr. returns (right). Guide to the Markets U.S. Data are as of 12/31/13. GLOBAL EQUITY MARKETS 36 Weights In MSCI All Country World Index Share of Global GDP 8% 5% 4% United States Europe U.K. Emerging Markets 5% 5% 2% 19% Japan 11% 48% Pacific Canada 16% 8% 16% 51% 3% Source: J.P. Morgan, FFA Investment Management 18
MSCI EAFE INDEX AT INFLECTION POINTS 37 1400 1200 1000 800 +70% Mar. 29, 2000 P/E(fwd.) = 28.7x 1,136 +141% Jul. 16, 2007 P/E(fwd.) = 14.5x 1,212 57% Dec. 31, 2013 P/E(fwd.) = 13.3x 956 +85% 600 400 200 Dec. 31, 1996 P/E(fwd.) = 19.5x 670 56% Mar. 12, 2003 P/E(fwd.) = 13.2x 503 Mar. 9, 2009 P/E(fwd.) = 10.2x 518 0 '97 '99 '01 '03 '05 '07 '09 '11 '13 Source: Bloomberg, FFA Investment Management 38 Now time for your prozac: The Federal Government 19
FEDERAL FINANCES 39 12.00% 9.00% Federal Budget Deficit/(Surplus) % of GDP 9.0% 8.3% 8.3% 7.2% 6.00% 3.00% 5.1% 4.5%4.6%4.7% 4.7% 4.0% 3.7% 3.8% 3.4% 2.7% 2.7% 3.6%2.9% 2.6% 2.8% 2.3%2.2%1.3% 1.7%2.1% 2.2% 1.6% 0.6% 2.9% 3.4% 2.7% 2.6% 2.0% 1.1% 1.2% 5.0% 0.00% 0.6% 1.1% 3.00% 2.0% 1.9% 6.00% 9.00% Federal Budget Deficit Or Surplus as a % of Nominal GDP (Inverse) 12.00% '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Bloomberg, FFA Investment Management FEDERAL FINANCES 40 12.00% 9.00% Federal Budget Deficit/(Surplus) % of GDP 9.0% 8.3% 8.3% 7.2% 6.00% 3.00% 5.1% 4.5%4.6%4.7% 4.7% 4.0% 3.7% 3.8% 3.4% 2.7% 2.7% 3.6%2.9% 2.6% 2.8% 2.3%2.2%1.3% 1.7%2.1% 2.2% 1.6% 0.6% 2.9% 3.4% 2.7% 2.6% 2.0% 1.1% 1.2% 5.0% 0.00% 0.6% 1.1% 3.00% 2.0% 1.9% 6.00% 9.00% Federal Budget Deficit Or Surplus as a % of Nominal GDP (Inverse) GDP Growth 12.00% '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Bloomberg, FFA Investment Management 20
FEDERAL FINANCES 41 12.00% 9.00% Federal Budget Deficit/(Surplus) % of GDP 9.0% 8.3% 8.3% 7.2% 6.00% 3.00% 5.1% 4.5%4.6%4.7% 4.7% 4.0% 3.7% 3.8% 3.4% 2.7% 2.7% 3.6%2.9% 2.6% 2.8% 2.3%2.2%1.3% 1.7%2.1% 2.2% 1.6% 0.6% 2.9% 3.4% 2.7% 2.6% 2.0% 1.1% 1.2% 5.0% 0.00% 0.6% 1.1% 3.00% 2.0% 1.9% 6.00% 9.00% Federal Budget Deficit Or Surplus as a % of Nominal GDP (Inverse) GDP Growth Spread (Add to Debt to GDP) 12.00% '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Bloomberg, FFA Investment Management THE DEFICIT ISSTILL AHUGECHALLENGE 42 Federal Budget (billions) 2011 2012 2013 Revenue $2,303 $2,450 $2,712 Expense $3,603 $3,537 $3,685 Deficit $1,300 $1,087 $ 973 % of GDP 8.7% 7.0% 6.0% Debt % of GDP 67.7% 72.6% 76.6% 2013 U.S. Federal Revenue (billions): Personal Income $1,234 Corporate Income $ 288 SS, Medicare, FUT $ 951 Excise, Duties, T&E, etc. $ 239 Total $2,712 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2,032 Discretionary Spending Mandatory Spending Net Interest 2,193 2,253 2,386 2,545 2,651 1,285 1,264 1,235 1,266 1,277 1,292 1,308 1,329 1,359 1,388 1,420 1,452 220 222 222 252 298 370 459 544 616 677 741 804 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: www.whitehouse.gov Budget of the United States Government, Fiscal Year 2014, Summary Tables S 1 and S 4 2,768 2,958 3,126 3,315 3,552 3,706 5.6% CAGR 21
DOES THE ANSWER LIE IN FAIRER INCOME TAXES? 43 100% 80% % of Income (Total $7.8T) % of Taxes (Total $865B) Average Tax Rate Income Splits 87% 88% 98% $400,000 $350,000 71% 68% $300,000 60% 59% $250,000 45% $200,000 40% 37% 34% $150,000 20% 0% 19% 23.4% 20.6% 18.5% 15.2% 13.1% 12% $369,691 $161,579 $116,623 $69,126 $34,338.00 2% 2.4% Top 1% Top 5% Top 10% Top 25% Top 50% Bottom 50% $100,000 $50,000 $0 Source: Tax Foundation, Data reflects 2010 U.S. Federal Tax returns DOES THEANSWERLIE IN HIGHER INCOME TAX RATES? 44 Source: Political Calculations 22
DOES THEANSWERLIE IN HIGHER TAX RATES? 45 Source: Political Calculations 46 A Glimpse of Optimism 23
GLOBALGDP PER CAPITA COMPARISON 1870 2008 47 35,000 30,000 United States 25,000 Why? Japan 20,000 Western Europe 15,000 10,000 Eastern Europe Latin America 5,000 Middle East China 0 India, Asia, Africa 1870 1900 1913 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 A WEE BIT OF GOOD NEWS: U.S. PATENT GRANTS 48 140,000 120,000 U.S. U.S. % of World Total 100% 90% 80% 100,000 70% 80,000 60% 50% 60,000 40% 40,000 30% 20,000 20% 10% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0% 24
49 Thank You CONSUMER PRICE INDEX 50 15.00% CPI and Core CPI % change vs. prior year, seasonally adjusted 13.00% 11.00% 9.00% 7.00% 5.00% 3.00% 1.00% 1.00% 3.00% '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 Core CPI Headline CPI Source: Bloomberg, FFA Investment Management 25
CAPACITY UTILIZATION 51 Capacity Utilization US Capacity Utilization % of Total Capacity seasonally adjusted 100.00% 95.00% 90.00% 85.00% 80.00% 75.00% 70.00% 65.00% 60.00% '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 Source: Bloomberg, FFA Investment Management INTEREST RATES 52 Treasuries rose, pushing the yield on the 10 year note to the lowest in more than a week, on speculation the Federal Reserve will press on with bond buying into next year. 8 7 6 5 4 3 2 1 0 Aug 97 Feb 98 Aug 98 Feb 99 Aug 99 Feb 00 Aug 00 Feb 01 Aug 01 Feb 02 Aug 02 Feb 03 Aug 03 Feb 04 Aug 04 Feb 05 Aug 05 Feb 06 Aug 06 Feb 07 Aug 07 Feb 08 Aug 08 Feb 09 Aug 09 Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 T Bills 10 Year Bonds Source: Bloomberg, FFA Investment Management 26