March2010Chartbook

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Slide 1:

Simple Truths :

Simple Truths Liberty cannot be preserved without general knowledge among the people. John Adams Character, in the long run, is the decisive factor in the life of an individual and of nations alike. Theodore Roosevelt Democracy cannot succeed unless those who express their choice are prepared to choose wisely. The real safeguard of democracy, therefore, is education. Franklin D. Roosevelt All great change in America begins at the dinner table. Ronald Reagan 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

Lie to me and tell me everything is alright… :

Lie to me and tell me everything is alright… Right off the bat, some iFun. Jonny Lang, from the Album Lie to Me, the title Track, Lie to Me http://www.youtube.com/watch?v=DayCrQWJXuI The kid was 16 when he recorded this and he can really make that Fender Telecaster go. Who said young people today are nearly worthless? 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

Revenge of the Actuary…a horror story :

Revenge of the Actuary…a horror story Revenge of the Actuary you ask? Well, if we wish to anchor our future in reality and not fantasy, we have to listen to what the actuaries have been telling us for years. “Social programs are a demographic time bomb that is about to go off.” 4/8/2010 Source: The Economist Copyright 2003-2010, All rights reserved. investwithcornerstone.com

The Problem(s) :

The Problem(s) The fundamental problem in the USA is we have been living with a number of lies. The reason this business cycle has stung so badly is a number of these lies have been laid bare for all to see. The reason most are still concerned is a number of the lies are still before us, hidden, but in plain sight. 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

3 Examples of Problems Laid Bare :

3 Examples of Problems Laid Bare GM’s ratio of employees on benefits vs. employees actively manufacturing vehicles Alabama’s PACT goes “Poof”, State Treasurer blames “the market” Many municipalities are facing austerity due to underfunding pension obligations 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

Problems to come…Underfunded State Pensions, a lie :

Problems to come…Underfunded State Pensions, a lie These five States represent the worst of the worst in terms of adequacy of funded State Pension obligations The problem won’t magically repair itself with “growth” Further, these States are near the upper end of the Sales and Income tax burden, so new taxes will just lead to population flight and exacerbate the problem 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

Social Security, another problem :

Social Security, another problem The annual cost of Social Security benefits represented 4.4 percent of GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, and then decline to about 5.8 percent of GDP by 2050 and remain at about that level. The projected 75-year actuarial deficit in the combined Old-Age and Survivors and Disability Insurance (OASDI) Trust Fund is 2.00 percent of taxable payroll, up from 1.70 percent projected in last year's report. This increase is due primarily to the recession, slightly lower estimates for real GDP after the economy recovers in 2015, and faster reductions in mortality rates. Although the combined OASDI program passes our short-range test of financial adequacy, the Disability Insurance Trust Fund does not; DI program costs have exceeded tax revenue since 2005, and trust fund exhaustion is projected for 2020. In addition, OASDI continues to fail our long-range test of close actuarial balance by a wide margin. Projected OASDI tax income will begin to fall short of outlays in 2016, and will be sufficient to finance 76 percent of scheduled annual benefits in 2037, after the combined OASDI Trust Fund is projected to be exhausted. Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16 percent increase in the payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate reduction in benefits of 13 percent or some combination of the two. Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement. You can find the full summary from the Trustees here: http://www.ssa.gov/OACT/pubs.html 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

Slide 9:

Slide 10:

Ah, the Greeks, so much History, so much Debt :

Ah, the Greeks, so much History, so much Debt 4/8/2010 Greece is symbolic of the whole set of problems to come, much like “There is no Free Lunch” you cannot get something for nothing on a Society level. The Greeks may get bailed out by the Germans to save the Euro in the short term, but long term the Greeks are headed for the Dumpster. Painful to say, but likely opinion that will become fact. Copyright 2003-2010, All rights reserved. investwithcornerstone.com

The High End Repo Man… :

The High End Repo Man… http://online.wsj.com/article/SB10001424052748704125804575096392965443342.html Cries of 'Hey, That's My Jet!' Don't Deter High-End Repo Men Business Takes Off for Mr. Cage; Snatching a $15 Million Gulfstream That has got to be a good business to be in today! 4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com

Leverage within a Financial System can be a problem :

Slide 14:

No matter tax policy, the US Govt’s share of income is a fixed number…yikes…wait…yaaaaay! :

The reason it doesn’t feel like growth has returned… :

How much more Govt debt can we cash flow? :

Slide 18:

The Outlook :

4/8/2010 The Outlook Copyright 2003-2010, All rights reserved. investwithcornerstone.com The recession is over, but the economic recovery will be gradual for a number of reasons. Consumer behavior has been modified and the areas of growth are not going to be strongly linked to consumption as in past economic recoveries Job recovery will remain weak Fiscal and Monetary Stimulus are counterproductive after a time There will be continued demand for equities, but the rapid returns from the crisis are already realized. Estimated annualized returns of ~ 8% for the next 5 – 10 years as the heroic measures are “undone”. There will be pockets of opportunity and pockets of value destruction. Selective global opportunities will be better than domestic.

That, my friends, is what a “V” shaped (strong) economic recovery looks like :

More “V” shaped data :

Slide 22:

More “V” shaped data, yes indeed, Car prices! :

More “V” shaped data, yes indeed, that is home prices! :

More “V” shaped data, Dr. Copper! :

Slide 26:

4/8/2010 Copyright 2003-2010, All rights reserved. investwithcornerstone.com Parting shot… I leave you with this, a photo of the triumph of Human Ingenuity. We have no problems of a Human origin that we cannot find a Human Solution. After all, there are footprints on the moon a scant ten years after the challenge was laid down. We have made promises too rich for taxpayers to keep, now that we know, hold your elected officials accountable!

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