THE U.S. ECONOMY & STOCK MARKET

Stanley A. Nabi, CFA Vice Chairman October 2011

EXHIBIT I Real GDP has finally surpassed its prior peak reached in the 4th quarter of 2007 and is now formally in expansion mode. The intervening lag in employment, with about 6.5 million less holding jobs, confirms the strong gains in productivity; it also underscores the tight cost controls implemented by corporate managements.

u.s. real gross domestic product Billions of Chained 2005 Dollars Quarterly SA 3Q11: $13,352.8

14000

4Q07 $13,326.0

13500

3Q11 $13,352.8

13000 12500 12000

civilian employment Thousands November-07 2008 2009 2010 September-11

11500 11000 10500

146,647 145,342 139,877 139,064 140,025

11

10

09

08

07

06

05

04

03

02

01

00

99

98

97

10000 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. Note: Productivity has declined in the latest two quarters reported, and it may well indicate that the peak in productivity for this cycle may have been registered.

nonfarm productivity: output per hour 2005=100 Quarterly SA 2Q11: 110.3

115 110 105 100 95 90 85

11

10

09

08

07

06

05

04

03

02

01

00

99

80 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 concern over an economic relapse. Retail sales are typically a voting machine for consumer sentiment.

nominal retail sales ex food service % Y/Y Growth 3 Month MA SA September11: 8.3%

15 10 5

0 -5 -10

11

10

09

08

07

06

05

04

03

02

01

00

99

98

-15 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. real consumer spending

consumer spending as a % of gdp

Source: Silvercrest; BEA

4

07

10

08

06

8900 04

60 02

9000

00

62

98

9100

96

64

94

9200

92

66

90

9300

88

68

86

9400

84

70

82

9500

80

72

11

Billions of Chained 2005 Dollars Quarterly SAAR 3Q11: $9,449.5

3Q11: 71.1%

10

SAAR

09

Quarterly

08

%

Source: Silvercrest; BEA

EXHIBIT V Consumer spending is once again tracking the rise in Disposable Personal Income. Will events in the capital markets disturb the tight formation?

u.s. nominal consumer income & spending $Billions Monthly SAAR August11: $11,619 (DSPI), 10,768 (PCE)

12000 11500 11000 10500 10000 9500 9000

Disposable Personal Income (DSPI)

11

10

09

08

07

06

05

8500

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 recent recovery from the recession.

household debt / disposable personal income % Quarterly 2Q11: 114%

140 130 120 110 100 90 80 70 60

10

08

06

04

02

00

98

96

94

92

90

88

86

84

82

80

78

76

74

72

70

50 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. competitiveness.

u.s. real exports Billions of Chained 2005 Dollars Quarterly SAAR 3Q11: $1,782.4

1900 1800 1700 1600 1500 1400 1300 1200 1100

11

10

09

08

07

06

05

04

03

02

01

00

99

98

1000 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce

7

EXHIBIT VIII The troubled housing sector appears to be emerging from its recent trough, with new homes for sale at a record low, multifamily home permits up more than 50%, housing starts apparently bottoming, and rents rebounding. The weak recovery of recent months appears to be gaining momentum. new u.s. houses for sale

new housing starts Thousands

Monthly

Thousands

SAAR September11: 658

2500

600

2000

500

Monthly

NSA September11:163

400

1500

300

1000

200

0

0 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

100

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

500

u.s. cpi total rent

10

08

06

04

02

SA September11: 1.8%

00

Monthly

98

94

92

90

86

-1 84

0 11

1 0

10

100

09

2

08

200

07

4 3

05 06

300

04

5

03

400

02

7 6

01

500

00

8

98 99

600

88

% Y/Y Growth

96

multi-family permits Thousands 3 Month Ave. SAAR September11: 194

Source: Silvercrest; Census Bureau, Department of Commerce

8

EXHIBIT IX The current strong spending on plant and equipment in the U.S. is likely sustainable for an extended period due to the elevated age of facilities in place and the apparent revival in manufacturing which is being driven by rising exports and signs of repatriation. u.s. average age of mfg plants Historical-Cost Average

Annual

u.s. average age of equipment

2010: 13.2

14.0

Historical-Cost Average

Annual

2010: 5.7

5.8 5.6

13.0

5.4 12.0

5.2

11.0

5.0 4.8

10.0

4.6 9.0

4.4

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

Source: Silvercrest; BEA

9

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

4.2

8.0

Source: Silvercrest; BEA

EXHIBIT X Both industrial and agricultural commodities have retreated from their recent spike, easing fear of parabolic inflation triggered by rising demand from emerging economies.

goldman sachs commodity index Last Price

Weekly 14Oct11: $637.90

900 800 700 600 500 400

06 -2 01 1

12 -2 01 0

06 -2 01 0

12 -2 00 9

06 -2 00 9

12 -2 00 8

06 -2 00 8

12 -2 00 7

06 -2 00 7

12 -2 00 6

06 -2 00 6

12 -2 00 5

06 -2 00 5

12 -2 00 4

300

Source: Silvercrest; Bloomberg

10

EXHIBIT XI Debt service payments as a percentage of Personal Disposable Income has been declining since 2007 due to a drop in consumer borrowing, the persistent slide in interest rates and the renunciation of some mortgages. The Fed’s advertised determination to maintain a policy of very low interest rates should continue to improve the debt service ratio.

debt service as a % of disposable personal income %

Quarterly

2Q11: 11.1%

14.5 14.0 13.5 13.0 12.5 12.0 11.5 11.0

10

08

06

04

02

00

98

96

94

92

90

88

86

84

82

80

10.5 Source: Silvercrest; Federal Reserve

11

EXHIBIT XII 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.

federal spending as a % of nominal gdp %

Quarterly

SAAR

3Q11: 24.6%

28 26 24 22 20 18 16 14 12

11

09

07

05

03

01

97 99

95

93

91

89

87

85

83

81

79

77

75

73

71

69

67

65

63

61

59

57

55

51 53

49

47

10 Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce

12

EXHIBIT XIII Non-financial corporate debt relative to net worth is back to normal historical levels. This is in addition to the massive liquidity of almost $2.0 trillion on balance sheets.

u.s. non-financial corporate debt / net worth % Quarterly Historical Cost 2Q11: 62.8%

100 90 80 70 60 50 40 30

10

08

06

04

02

00

98

96

94

92

90

88

86

84

82

80

78

76

74

72

70

68

66

64

62

60

20 Source: Silvercrest; Federal Reserve

13

EXHIBIT XIV Profit margins have surpassed the prior record but appear to be peaking, presenting a challenge to corporate managements, particularly when viewed relative to corporate compensation (wages) as a % of corporate GDP.

compensation / corporate gdp

S&P 500 Net Margin (4Qtr Average) s&p net margins (4qtr average)

1 0%

70%

9%

68%

8% 7%

66%

6%

64%

5% 4%

62%

3%

60%

2% 1%

58% 50

0% '63

'66

'69

'7 2

'7 5

'7 8

'81

'84

'87

'90

'93

'96

'99

'02

'05

'08

Source: Strategas

14

55

60

65

70

75

80

85

90

95

00

05

10

'1 1

Source: Silvercrest; Bureau of Economic Analysis, Department of Commerce

EXHIBIT XV 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 attract investors’ attention.

average bond "p/e" by decade

average s&p 500 trailing "p/e" by decade

(100/10-Year Treasury Yield)

*

50x

47

45x

35x

40x 35x

30x

20x 15x

25x

23

21

20x

16

14

12.5

15x

10

10x

19.5

18.1

20.1

*

12.8

11.7

10x

5x 0x

5x

* As of 10/17/11

15

'0 0s

'9 0s

ur re nt C

* As of 10/17/11

'8 0s

'7 0s

ur re nt C

'0 0s

'9 0s

'8 0s

'7 0s

'6 0s

0x '6 0s

30x 25x

40x

EXHIBIT XVI Except for periods of highly elevated interest rates, market valuations (S&P 500) have rarely been as low as they are at present.

valuations of stocks at major market bottoms year 1963 1966 1970 1974 1982 1987 1990 2002 2009 Current*

low price (S&P 500) $51.35 72.28 68.61 60.96 102.20 216.46 294.51 768.63 666.79 $1,201.00

eps $3.67 5.55 5.13 8.89 12.64 17.50 22.65 46.04 56.86 a $96.00

p/e 14.0x 13.0x 13.4x 6.9x 8.1x 12.4x 13.0x 16.7x 11.7x 12.5x

div. yield 4.1% 4.0 4.6 5.9 6.7 4.1 4.1 2.1 3.4 2.1%

10-yr treas. ytm 3.9% 5.0 7.9 7.9 13.1 9.5 8.7 3.9 2.8 2.3%

* As of 10/17/2011. Current EPS is a Silvercrest estimate for next 12 months. (a) Silvercrest’s estimate NTM a

16

EXHIBIT XVII Compression in Price/Earnings ratios often occur near the trough of a market, in part reflecting capitulation. Investors are not differentiating between growth and value, according both nearly similar multiples.

S&P 500 financials price-to-book value ntm price to earnings ratio ntm price to earnings ratio s&p 500’s largest 50 companies s&p 500’s largest 50 companies March 2000

October 2011

Source: Strategas

17

Source: Strategas

EXHIBIT XVIII Financials represent a major slice of the S&P 500 Index (about 14%). They have been the poorest performing major sector of the market, causing their valuations to be particularly depressed. Can the stock market mount a significant rally without a meaningful participation by this group?

S&P 500 financials price-to-book value

Source: Strategas

18

EXHIBIT XIX Robust profits have allowed U.S. non-financial corporations to accumulate cash at a record pace, whether measured in absolute terms or as a ratio of Gross Domestic Product. u.s. nonfinancial corporate liquid assets $Billions

Quarterly

u.s. nonfinancial corporate as a % of nominal gdp

2Q11: $2,054

%

Quarterly

2Q11: 13.7%

14

2,504

13 12

2,004

11

1,504

10 9 8

1,004

7

504

6 5

19

11

08

05

02

99

96

93

90

87

84

78

81

75

72

69

66

63

11

08

02 05

99

96

93

90

87

84

78

75

72

69

66

63

60

81

Source: Silvercrest; BEA

60

4

4

Source: Silvercrest; BEA

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. undistibuted corporate profits with iva & ccadj

s & p 500 payout ratio %

Quarterly

2Q11: 26%

$Billion

Quarterly

SAAR

2Q11: $707.0

800

70 65

700

60 600

55 500

50 45

400

40

300

35 200

30 100

25

20

10

08

06

04

02

00

98

96

94

92

90

10

08

06

04

02

00

96

94

92

90

88

98

Source: Silvercrest; Standard and Poor’s

88

0

20

Source: Silvercrest; BEA, Department of Commerce

EXHIBIT XXI 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 Germany Sweden Australia France Japan Italy USA Canada UK

1996 28.99 23.88 19.36 27.80 23.93 20.88 22.11 19.01 16.88

2011* 44.89 44.61 42.54 38.67 36.89 33.74 33.53 32.52 30.72

* Estimates using 2009 wage rates and exchange rates as of 9/30/2011. Source: Silvercrest; US Bureau of Labor Statistics

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EXHIBIT XXII

economic forecast (As of October 1, 2011)

2009

2010

Estimated 2011

Projected 2012

Real GDP (Y-O-Y)

(2.6%)

3.1%

1.8%

Real Consumption Expenditures

(1.2%)

2.1%

2.3%

2.8% 2.5%

Business Fixed Investment

(17.1%)

4.4%

7.8%

7.0%

Inventory Investment (Billions)

($113.1)

$58.8

$49.0

$45.0

(4.3%)

(4.3%)

(1.6%)

4.5%

Government Spending* (Billions) (a)

$2,546.4

$2,562.9

$2,520.0

$2,545.0

Trade Balance-Goods & Services (Mil.)

($363.0)

($421.8)

($415.0)

($390.0)

($1,413.8)

($1,294.2)

($1,271.0)

($1,150.0)

$11,910

$13,167

$14,725

$16,130

Consumption Price Deflator

0.2%

1.8%

2.8%

2.6%

Producer Price Index (Finished Goods)

4.3%

3.8%

5.2%

4.0%

Consumer Price Index

(0.3%)

1.6%

3.3%

3.0%

Industrial Production

(11.2%)

5.3%

4.1%

4.4%

Real Disposable Income

0.6%

1.8%

1.8%

2.8%

Hourly Compensation

2.0%

2.2%

2.4%

3.0%

(0.7%)

(2.0%)

4.4%

2.0%

Productivity Growth (% Change)

2.4%

4.1%

(1.6%)

(1.4%)

Personal Savings Rate (% DPI)

5.9%

5.3%

5.3%

5.6%

Capacity Utilization – Total Industry

69.2%

74.5%

77.0%

78.5%

Trade Weighted $ Exchange Rate (b)

4.7%

(3.0%)

(6.4%)

(2.0%)

Vehicle Sales (Million Units)

10.3

11.5

12.4

12.8

Housing Starts (Million Units)

0.554

0.585

0.593

0.780

Civilian Employment (Millions)

139.9

139.1

139.8

141.4

Civilian Unemployment Rate

9.3%

9.6%

9.1%

8.7%

Corporate Profits – After Tax – NIPA

3.6%

19.0%

7.8%

11.0%

S&P-500 Earnings-Operating

$65.26

$86.73

$94.00

$98.00

S&P-500 Dividends

$24.20

$24.50

$26.25

$28.50

90 Day U.S. Treasuries-Yield (%)

0.01-0.32

0.03-0.18

0.00-0.20

0.05-0.50

10-Year U.S. Treasuries-Yield (%)

2.20-3.95

2.39-3.99

1.70-3.74

1.75-2.50

Residential Investment

Federal Budget*: Unified (Billions) Gross Federal Debt* (Billions)

Unit Labor Cost (Non-Farm)

*Fiscal Year-end 9/30. (a) Federal, State, and Local; in 2005 dollars; (b) Fed Major Currency Exchange Rate.

22

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

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