Economic Summary

Employment – Unemployment rate drops to 5%. Earnings growth jumps most since ’09, trend: above 2.5%. Full-time employment back to pre-recession levels. EVERYTHING IS “IN PLACE” FOR A RATE HIKE.

Q4 GDP Forecast – 2.3%

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Employment

The civilian unemployment rate has fallen to 5.0% (“consistent with full employment”) despite 94.5 million being out of the “labor force.”

Earnings growth is now above 2.5% and most importantly above the Fed 2% inflation target…

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Full-time work back to pre-Great Recession levels…

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HOWEVER, most hiring is still in low-paying jobs…

• Education and Health: +57K
• Professional Services: +54K
• Retail Trade: +44K
• Leisure and Hospitality: +41K
• Temp Help: +25K

… Manufacturing: 0

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Q4 GDP Forecast

The FED’s GDPNow model forecast for real Q4 GDP growth (seasonally adjusted annual rate) was 2.3% on November 4.

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To learn more, visit Federal Reserve Bank of Atlanta’s website.

Asset Allocation Summary

Major Asset Class Allocations – 5% Stocks, 75% Bonds, 20% Cash

Int’l Developed Stock Allocations – 1.25% – Italy/Germany

Int’l Emerging Stock Allocations – 1.25% – Mexico/Indonesia

Int’l Emerging – BRIC Stock Allocations – 2.5% – Brazil/Russia

US Bond Allocation – 62.5%

Int’l Developed Bond Allocation – 2.5%

Int’l Emerging Bond Allocation – 10%

Asset Class Trends (for new allocation commitments)

Int’l Developed Stock Trend – bearish

Int’l Emerging Stock Trend – bearish

US Bond Trend – neutral

Int’l Developed Bond Trend – neutral

Int’l Emerging Bond Trend – bearish

US Dollar – neutral

Euro – neutral

Emerging Markets Currencies – bearish

OVERALL RECOMMENDATION – hold existing allocations / no new allocation commitments

Country Stock Fundamentals – Market Cap/GDP ratios (October)

Int’l Emerging – BRIC offers the best opportunity based on their weighted Mkt Cap/GDP value to overall GDP weights across the globe.

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Int’l Developed

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Int’l Emerging

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Int’l Emerging – BRIC

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Yields

The 6 month trend in yields is down across almost all economies.

The one major exception is Brazil which is experiencing both political and economic turmoil.

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Dynamic Asset Class Expectations

Shiller’s 10 Yr. CAPE Ratio translates into a 2% 10 Yr. expected return on US stocks.

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Dynamic Asset Allocation

Based on efficiency, the most attractive mix is position 1.

US + International Allocations

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US Only Allocations

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To see how the approach works (plus the back-test): link

US Stock Sector – Fundamentals

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US Stock Sector – Allocations

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To see how the approach works (plus the back-test): link

International Stock Allocations

When we look at Market Cap/GDP/Volatility (October), our most attractive countries are mostly emerging.

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To see how the approach works (plus the back-test): link

Trends – Trade Execution – Utilizing Monthly Price Trends (& US Volatility)

The following tables enable entry and exit execution for new allocations.

US Stocks and Bonds

Price and volatility levels are back to July levels… with a bullish trend currently in place.

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For bonds, the trend remains neutral.

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To see how the approach works (plus the back-test): link

International Stocks

The trend for Developed and Emerging remains bearish.

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International Bonds

Developed bonds remain neutral and Emerging remains bearish.

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Currencies

The US Dollar is neutral, the Euro is neutral and Emerging Markets currency remains bearish.

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