1. A Time to Be Rich  Chapter One - Lindsay Blum, Tara Gatto  Chapter Two - Lauren Maughan, Rick Inciardi  Chapter Three - Richard Greiner, Mark Wyand  Chapter Four – Adam Dekel, David Grimner  Chapter Five – Kate Washburn, Ryan Gilligan

2. Chapter 1: Three Fundamental Elements of Prosperity  Home Investment  Higher Education for Children  Money for retirement

3. Two Important Facts  Cycles of Economy are regular and repeat themselves  Understanding the rhythm of the business cycle is crucial to successful investing

4. Five Phase Economic Cycle  Natural order of cycle: Ease-off and Plunge, followed by Revival, Acceleration, and Maturation  Lengths are unpredictable  Each phase is characterized by distinct signals  Growth period lasts longer than recession phase

5. Expectations  Investment strategy  Components of GNP  Fluctuations of inflation  Interpreting consumer spending trends and consumer debt  Importance of elections and summit meetings  Deceptiveness of news reports

6. Chapter 2: The Five Phases of the Economy  Ease-Off  Plunge  Revival  Acceleration  Maturation

7. Phase One - Revival  The revitalization of business and consumer activity that ends a recessionary phase  RED FLAG EVENT – GNP turns positive  Declines in mortgage rates and financing rates  Interest rate and inflation begin to rise from pressure on credit demands and on prices

8. Phase Two - Acceleration  RED FLAG EVENT– Inflation begins to rise  Consumer spending becomes more confident  Housing activity picks up speed  Businesses start to rebuild inventories and spend more on plant and equipment

9. Phase Three - Maturation  RED FLAG EVENT– Consumer spending drops, and Business spending continues to increase  Economy continues going because of optimistic businesses  Foundation begins to crumble with dual pressures of accelerating inflation and rising interest rates

10. Phase Four – Ease Off  RED FLAG EVENT– GNP turns negative  Inflation and interest rates may continue to rise  Housing and big ticket items fall off severely reflecting consumer concern  Businesses continue spending

11. Phase Five - Plunge  RED FLAG EVENT– Peaking of interest rates  Businesses suffer and begin liquidating inventories rapidly  Employment drops sharply and corporate profits plummet  Eventually, interest rates and inflation come down and declining rates set the stage for Revival

12. Summary  Two of the economy’s principal parts: net consumer and government spending  Actions of the Federal Reserve underlie these major spending and investment shifts  The Fed uses its indirect control over the supply of money to alternately pump or deflate the economy Increase in supply – Fed easing Decrease in supply – Fed tightening

14. Chapter 3: General Investing Guidelines  Choosing a fund No load funds Family of funds  Deal with manager (no broker) Review manger surveys (WSJ, Bloomberg)  Automatic reinvestment

15. Guidelines Continued  Small initial investment ($1,000)  Check-writing capability/Liquidity  Past performance  Management fee  Bottom line: flexibility, liquidity, diversity

16. Types of Funds  Money Market (most conservative)  Provide income, no capital appreciation  Virtually risk-free  Good retreat for uncertain times  Tax-exempt available  Comprised of:  T-Bills  CD’s  Commercial Paper

17. Types of Funds  Intermediate/long-term bond funds Income and capital appreciation Tax-exempt available Mix of government and investment- grade corporate bonds Riskier funds include junk bonds

18. Types of Funds  Broad-based equity funds (riskiest) Best for capital appreciation Index funds available Growth and value funds Following economic cycle will help to properly invest with these funds Wide range of industries

19. Other Investments  Other riskier investments include: Gold Commodities Foreign equities and debt

20. In General…  Know your risk tolerance!  Do not risk more than you can afford to lose  Aim to invest between one third and one half of your assets later in life

21. Chapter 4: Investor Risk Profile 1)Determining our risk profile 2)Achieving investing goals within parameters 3)Utilizing business cycle beliefs with risk profile to remain flexible throughout investment process

22. Risk Profile  4 Types Highly Conservative  Start with $1,000  All Stock and Bond investment Cautious  Up to 25 percent of available funds.  Mostly Stock and Bond, tiny percentage gold and foreign currency. Aggressive  Up to 50 percent of available funds.  ¾ in stock and bonds, ¼ gold and foreign currency. High Roller  50 percent or more of available funds.  Actively trading investments and alternative investment

23.  Risk Profile+SRI Investment Guidline=Room for Agression Double Check Ease in and out depending on current business cycle analysis Don’t commit all at once

24. Remember…  Common Sense  Homeruns not necessary  Be Comfortable

25. Chapter 5: √ Checklist for Indicators  Indicators are worthless unless compared  Indicators that are “relatively immune to revision” are most reliable  First reports are released as preliminary reports and final revisions (sometimes a year later) are called benchmark revisions  Notice the time span they are useful and applicable i.e. annualized inflation rates  Is it real (inflation adjusted) or nominal (unadjusted)

26. Hunt relies on the following indicators:  Money Supply  Certain aspects of CPI and PPI  Certain aspects of GNP  And the following 5 other indicators that are the focus of Chapter 5 Best 5 Economic Indicators  Initial Unemployment Claims  Average Manufacturing Workweek  Non-farm Payroll Employment  Hours worked  Industrial Production

27. Initial Unemployment Claims  Hunt’s most reliable indicator, reported each Thursday  Measures new claims for unemployment compensation under all state programs  Short warning before expansion – turns negative near transition from Plunge to Revival  Random, short-lived ups and downs – recommends smoothing average  Claims rise at beginning of Ease-Off stage & only decline right before Revival stage  Complimentary Indicator – Help Wanted Ads Reflects monthly change & level of number of openings in existing & new jobs Reliable but precedes economic change very closely Rises shortly after expansion and falls soon after expansion matures – mirroring health of labor market movements

28. Best Indicators  Average Manufacturing Workweek Released 1 st Friday each month with few revisions Repetitive pattern – manufacturers increase workweeks as demand rises & vice versa  Non-Farm Payroll Employment Released on 1 st Friday each month Increases right after Revival stage begins, following hours worked Begins to fall as expansion matures

29.  Hours worked Released on first Friday of every month with few revision Turns upward early in Revival Declines as expansion matures but before non-farm payroll employment  Industrial Production Released approximately mid-month with moderate revisions The Fed estimates the physical output of the nation’s mines, factories, and utilities Turns up after Revival Declines very late in Maturation and continues to fall in recession Best Indicators

30. Other High Quality Indicators  Housing Starts and Building Permits Measures when construction begins and permits are filed – not directly related Permits turn up late in Plunge, Starts soon follow Permits turn down just after Maturation begins, Starts soon follow Bottoming of housing market is a prerequisite for start of economic revival  Composite Index of Leading Economic Indicators (LEI) Useful but overrated Contains many useful indicators that were already described

31. Unreliable Indicators  Retail Sales & Durable Goods Orders: Frequent and major revisions, and underestimate actual strength  Purchasing Managers Survey: doesn’t reflect changing nature of economy  Unemployment Rate: “Political football” & poorly calculated  Corporate Profits: R eleased too late to be meaningful  Consumer Sentiment Surveys: Reported irregularly & represents Present condition not Future trends

32. Economic Life Cycle & Indicators  How do we monitor the progress of our economy using these indicators?

33. REVIVAL  Onset - Building permits and housing starts bottom out  Early in Stage - Drop in initial unemployment claims and increase in help wanted advertising  Strong assurance stage is reached - sustained upswing in industrial production (3-6 month gain)  Late in Stage – Rise in corporate profits

34. ACCELERATION  Key indicators of Revival remain positive  Business capital kicks in  First sign that acceleration is ending - Drop in average manufacturing workweek (follow for 3-6 months)  When sinking trend in the growth rate of non-farm payroll employment occurs, Maturation Stage is usually within 6 months

35. MATURATION  First sign - Decline in building permits and housing starts  Midway - Pronounced drop in help wanted  About 3 -12 months from onset of Ease-off is a noticeable rise in unemployment claims & negative trend in Index of LEI’s  Ends with significant and consistent slippage in industrial production levels & indicate recession on the way

36. Economic Phases  EASE-OFF Virtually all major indicators show sharp negative trends for 1-2 months Dramatic drops in non- farm payroll employment, hours worked, manufacturing workweek, and industrial production Trends in indicators are critical in identifying the transition from Ease-off to Plunge  PLUNGE Negative Ease-off trends continue First sign of recovery - Increase in average manufacturing workweek Ends with Decrease in initial unemployment claims & Increase in non- farm payroll employment Confirm it is ending & Revival is underway with building permits and housing starts

37. Using these indicators to invest  Identify trends in individual indicators  Compare them to trends in other indicators

38.  Questions?