Conference Call February 12, 2007

The Economy Bureau of Labor Statistics reported labor productivity for non-farm businesses rose 2.1% (YOY) in Q – Important determinant for both corporate profits and inflation Productivity improved in Q (2.1% v. 1.3% Q3) but grew slower for the year Unit labor costs for non-farm businesses rose 2.8% in Q4 and 3.2% for 2006

The Economy Institute for Supply Management reported that its non-manufacturing index rose to 59% in January 2007 v. 56.7% in December 2006 William Poole, St. Louis Fed Reserve Bank and voting member of the FOMC, stated he believes US economy should grow at a sustainable pace in 2007 and that inflation may decrease during year – However, he stated the Fed is ready to take action if the core inflation does not drop below 2% (meaning raise short- term interest rates)

The Markets Comments by Fed officials that it is willing to raise short-term interest rates if the core inflation does not drop below 2% caused the bond and stock markets to react negatively for the week Financial sector fell -0.51% on concerns about higher interest rates and reports from HSBC that delinquencies on sub-prime mortgages are falling Technology sector fell -0.71% for the week on reports of pricing declines for memory chips in Q1 2007

The Markets Dow Jones Home Construction group fell 7.25% for the week after Toll Brothers announced a 33% drop in orders QInsight believes investors should anticipate most short-term price correction in the major stock indexes, but outlook in coming months for stocks looks promising

QInsight Thoughts QInsight’s business cycle model  in PLUNGE Financial, Financial Services, Basic Materials, Consumer discretionary, and Consumer Staples have historically led during Plunge QInsight is concerned investors are expecting the Fed to reduce short-term rates earlier than economic data or Fed statements indicate is likely