Kevin M. Wilson, ChFC, PhD President/CEO/CIO Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst 1405 Medical Arts Building 324 W. Superior Street Duluth, MN Office: Toll Free: Fax: Monthly Market Review “Bonds Have More Fun” (An Exercise in Contrarian Thinking) March 21, Ted A. Pavlovich, WMS VP Wealth Management

INTRODUCTION TED A. PAVLOVICH 2

BOND, JAMES BOND TED A. PAVLOVICH 3 What Markets Fear

4 Fed Interventions Have Supported Treasuries

5 Bonds Are Seemingly Quite Risky Now

6 No One On Wall Street Likes Long Bonds, But Look How They’ve Done!

Uncertainty Has Kept The Public Buying Bonds For Safety & Yield 7

BOND TRADING OPPORTUNITIES KEVIN M. WILSON 8

9 Models Projecting A Rise In Yields Assume Normal Recovery From Here - And At Some Point It Will Happen

10 But There Are Reasons For A Treasury Rally First – Especially If Stocks Fade

11 Treasuries Will Help Offset the Risk of Stocks

12 History Also Suggests Yields Can Go Lower As Economy Pays Off Debt Bubble Excesses

13 Fed Also Wants Debt Service To Stay As Cheap As Possible

14 Massive Buying By Fed Won’t Stop Because of Continued Deficit Spending

15 Fed Has Caused A Supply Problem, Which Provides Support For Higher Prices

16 The European Crisis Also Drives Demand For US Treasuries

17 Other Bonds That Should Do Well If Interest Rates Stay Low Include “Build America Bonds” and Mortgage-Backed Bonds

18 Corporate Bonds Should Continue To Do Well

19 High Yield (Junk) Bonds Also May Rally, But Are Extremely Risky At This Level

20 Convertible Bonds Will Rally When Stocks Go Up… …And Bank Loan Securities Are Less Risky Than In The Past

EMERGING MARKET BONDS 21 DHEENU V. SIVALINGAM

The Case For Emerging Markets Bonds  More than 80% of the world’s 6.5 billion people live in emerging markets such as Brazil, Mexico and Indonesia.  Many of these markets have young, expanding populations, a rising middle class, and improving economic and political stability leading to growth opportunities in these economies.  Most surprising to investors, many emerging market countries now offer greater fiscal stability than many developed markets. 22

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Conversely, the world’s developed markets have experienced a surge in debt levels, slow growth and downgrades of many advanced economies. 24

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SUMMARY/Q & A 28 KEVIN M. WILSON 1)When the Next Stock Pullback Occurs, Long Treasuries Will Do Well 2)Mortgage-Backed Bonds Will Do Moderately Well At The Same Time 3)Build America Bonds Will Likewise Do Well 4)When the Stock Pullback Ends, All of These Will Sell Off Again, But The LT Yield Trend May Continue 5) At Which Time It Will Pay To Buy CB’s, BLB’s, HYB’s, & EMB’s

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