IT’S THE ECONOMY STUPID By John P. Bott, II 1

Full service Houston-based brokerage firm founded in 1986 Fixed income specialists Success is built upon long-standing client relationships based on trust, honesty, and quality service 2

John P. Bott, II Chairman of Tri-Star Financial GP of Parallax Investments, GP& CIO of Parallax Capital Partners, LP Hedge fund and Portfolio Manager of Parallax Investments 3

Dow Jones Industrial Average 4

S&P 500 5

NASDAQ Composite 6

Average Hourly Earnings YoY % Change What It Is The average hourly earning of nonsupervisory workers on private non-farm payrolls. Why It Matters Payrolls can give good indication of strength of the economy and potential inflation. If average hourly earnings are rising sharply it indicates overtime is being paid and higher wages are happening. Chart indicates economy still weak. Obama care impact 25 hr weeks etc 7

Average Hourly Earnings YoY % Change 8

US Auto Sales Total Annualized What It Is The seasonally adjusted annual sales of total light vehicles sold in the U.S., in millions. Why It Matters Auto sales are a huge measure of current consumer health. Cars are replaced every 7 to 10 years. The earlier the cycle occurs the healthier the economy. 9

US Auto Sales Total Annualized 10

US Job Openings By Industry Total What It Is The number and rate of job openings, hires and separations for the nation, by industry and geographic region. Why It Matters This number tells you, not only how many job openings are out there, but where they are located in the country. 11

US Job Openings By Industry Total 12

Unemployment Rate What It Is Represents the number of unemployed persons as a percent of the labor force. Why It Matters Higher unemployment Lower retail sales lower auto sales lower lower housing sales lower manufacturing lower inflation lower job openings lower consumer confidence 13

Unemployment Rate 14

Underemployment Rate (U6) What It Is Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor Why It Matters This is the “real unemployment rate” this number is better than the “total number of employed” because of volatility of population growth. 15

Underemployment Rate (U6) 16

Conference Board Consumer Confidence What It Is An average of responses to a series of five questions covering business conditions, employment conditions, and total family income. Why It Matters The question is going forward will consumers likely spend more or less? Very simple but asked to a lot of people. 17

Conference Board Consumer Confidence 18

Federal Funds Target Rate What It Is The interest rate charged by one depository institution on an overnight sale of valances at the Federal Reserve to another depository institution, as determined by the Federal Open Market Committee. Why It Matters Although not the best tool in the Federal Reserves tool chest, it is the most acceptable. When the Fed is tightening it moves the bar for overheating businesses but also for struggling businesses. 19

Federal Funds Target Rate 20

ISM Manufacturing Purchasing Managers Index What It Is An indicator of the economic health of the manufacturing sector. Why It Matters This number establishes for manufacturers the relative strength of all manufacturing in the economy. Below 50 is contraction above 50 is expansion. 21

ISM Manufacturing PMI 22

ISM Prices Paid What It Is Represents business sentiment regarding future inflation, where a higher figure indicates stronger expectations of inflation. Why It Matters Along with strength of the economy this number is an inflation prediction number 23

ISM Prices Paid 24

S&P/Case-Shiller Composite-20 Home Price Index What It Is Home price changes within all 20 metropolitan markets for which MacroMarkets LLC and S&P have an index. Why It Matters This number is very accurate and pertinent to the actual health of housing. Many other factors can be in play with overall indexes which include small towns and farming communities. Large urban has standardized impact on just urban areas. 25

S&P/Case-Shiller Composite-20 Home Price Index 26

Personal Consumption Expenditure Core Price Index YoY What It Is Personal consumption expenditures by major type of product. Why It Matters Fed Res indicator of inflation. Much better than the CPI or PPI or Import Price Index 27

Personal Consumption Expenditure Core Price Index YoY 28

US New One Family Houses Sold Annual Total What It Is Number of new one family houses sold annually. Why It Matters Covers all price range of housing as well as city, small town and country housing. 29

US New One Family Houses Sold Annual Total 30

US Existing Home Sales SAAR What It Is Total existing homes sales based on closings. Includes single family, townhomes, condominiums, co-ops. Foreclosed homes are only counted in the inventory if the bank is working with a realtor. Why It Matters Shows real volumes of housing sales. New house construction is very important to the strength of the economy. 31

US Existing Home Sales SAAR 32

Consumer Pricing Index YoY % Change What It Is Represents changes in prices of all goods and services purchased for consumption by urban households. Why It Matters Tells price change for all urban households not good for telling middle class impact versus rich and poor. 33

Consumer Pricing Index YoY % Change 34

Advanced Retail Sales What It Is Advanced estimates of U.S retail and food services sales, adjusted for seasonal variation and holiday trading-day differences, but not for price changes. Why It Matters Inflation can distort this number as well as internet sales. 35

Advanced Retail Sales 36

Initial Jobless Claims What It Is The number of people who have filed for Unemployment benefits for the first time. Why It Matters More claims mean worse economy. Considered a very early warning system for health of the economy 37

Initial Jobless Claims 38

Producer Price Index YoY % Change What It Is Measures average changes in prices received by domestic producers of commodities in all stages of processing. Why It Matters Can be a very early indicator of inflation in the rest of the economy. Tends to catch commodity spikes, and labor spikes which will be passed on to the consumer. 39

Producer Price Index YoY % Change 40

Import Price Index YoY % Change What It Is Measures changes in the prices of imports of merchandise into the country. Why It Matters When dollar strength of weakness is creating inflation or disinflation. It will show up here first. 41

Import Price Index YoY % Change 42

Export Price Index YoY % Change What It Is Measures changes in the prices of exports of merchandise out of the country. Why It Matters Flip side of import price. If export prices are rising it could imply that price pressure is coming to internal economy. 43

Export Price Index YoY % Change 44

Capacity Utilization What It Is Measures the rate at which potential output levels are getting met or used. Why It Matters Especially big number right now shows excess capacity which is unused and available to increase production in the short term. 45

Capacity Utilization 46

Mortgage Delinquencies As % Of Total Loans What It Is The total number of residential loans 30-, 60-, and 90- days past due. Why It Matters When mortgage delinquencies are high it is unlikely that consumer spending will be strong. 47

Mortgage Delinquencies As % Of Total Loans 48

Mortgage Foreclosures As % Of Total Loans What It Is Total foreclosures at the end of the quarter, started during the quarter and seriously delinquent. Why It Matters Can predict up turns and down turns coming in the economy. 49

Mortgage Foreclosures As % Of Total Loans 50

NFIB Small Business Optimism Index What It Is An index that is compiled from a survey conducted each month by the National Federation of Independent Business of its members. Why It Matters My favorite indicator of middle class participation and health in the economy 51

NFIB Small Business Optimism Index 52

Disclaimer  The preceding presentation has been prepared for informational purposes only. It does not constitute an offer, recommendation, or solicitation to buy or sell, nor is it an official confirmation of terms. The above is based on information generally available to the public from sources reasonably believed to be reliable. Note that for any collateralized mortgage product, (CMO), the yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO and changes in the current interest rates. Past performance is not indicative of future returns. Tri-Star Financial makes no representations or warranties, express or implied as to the accuracy or completeness of the above information or that any returns indicated will be achieved. 53