presented by Harry S. Dent, Jr. (1993) (2011) Aging Baby Boomers Their Impact on the Economy and Financial Services Industry

Shocked by the Financial Meltdown

Be at Peace with Change

Immigration- adjusted Births Lagged for Peak Spending Dow Adjusted for Inflation The Spending Wave Births Lagged for Peak Spending Data Source: HS Dent Research, U.S. Census Bureau, Bloomberg, 2011

Average Annual Family Spending by Age (5-year age groups) Age

Labor Force Growth, Actual and Forecast (20-Year-Olds Minus 63-Year-Olds) Data Source: Bureau of Labor Statistics, HS Dent, Year Olds Labor Force Growth Rate

Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics 20 Year-Olds on a 3-Year Lag Minus 63 Year-Olds Inflation Inflation Forecast Annual Labor Force Growth Annual Inflation (%)

Inflation Indicator Data Source: Bureau of Labor Statistics, HS Dent, 2011 LABOR FORCE GROWTH 2.5-YR LAG INFLATION (CPI)

 Demographics What You Must Understand Now

 Demographics  Debt What You Must Understand Now

 Demographics  Debt  Deflation What You Must Understand Now

Part One: Demographics  Projecting Trends, not Years, but Decades in Advance  People Do Predictable Things as They Age

S&P 500 Adjusted for Inflation , Log Scale

Year Generation Cycle S&P 500 Adjusted for Inflation

Babies Are The Key to The Future

The Immigration Adjusted Birth Index Immigration Adjusted Births

This Is What You See

Potato Chip Purchases by Age Age of Head of Household $ Per Year 42

Motorcycle Sales by Age Age of Head of Household $ Per Year 45-49

What Would Grow As Baby Boomers Age?

Spending on Prescription Drugs by Age 81

Real Estate Spending Cycles Spending 20 Age Colleges

Real Estate Spending Cycles Spending 20 Age Offices

Real Estate Spending Cycles Spending 20 Age Apartments

Real Estate Spending Cycles Spending 20 Age Shopping Centers

Real Estate Spending Cycles Spending 20 Age Starter Homes

Real Estate Spending Cycles Spending 20 Age Trade-Up Homes

Real Estate Spending Cycles Spending 20 Age Vacation Homes

Real Estate Spending Cycles Spending 20 Age Resorts 54

Real Estate Spending Cycles Spending 20 Age Vacation / Retirement Homes 63-65

Real Estate Spending Cycles Spending 20 Age Vacation / Retirement Homes Resorts Vacation Homes Trade-Up Homes Starter Homes 26 Apartments / Shopping Centers 21 Offices 18 Colleges

Mortgage Interest by Age Average of Annual Numbers

Spring Summer FallWinter Stocks/ Economy Generation Spending Boom Consumer Prices/ Inflation Simple Four Season Economic Cycle Eighty Years in Modern Times Source: HS Dent

Past Forecasts “For the 1990s and Early 2000s – Our Greatest Boom: Dow Rises to 10,000.” Our Power to Predict, back cover (1989) “After those enormous deficits into 1992, the government will likely be in a balanced budget or surplus by ” The Great Boom Ahead, pg 62 (1994) “The next great depression will be from ” The Great Boom Ahead, pg 16 (1994) "No amount of government stimulus will prevent it…" The Great Boom Ahead, pg 35 (1994)

Top Federal Individual Income Tax Rates Source: IRS Percentage

Part Two: Debt  The Greatest Credit Bubble in History  The Great Real Estate Bubble

Government $14Trn Financial $17Trn Corporate $11Trn Consumer $14Trn Total: $56 Trn ! Source: Federal Reserve Flow of Funds Report Total U.S. Debt

Unfunded Entitlement Obligations In $Trillions Source: The White House, US Treasury Addition of Medicare Part D Includes Social Security and Medicare $46 trillion

Unfunded Entitlement (Medicare + Social Security) + Underfunded Entitlement Expenditures (Medicaid) = Among Largest Long-Term Liabilities on USA Inc.'s Balance Sheet Source: Kleiner, Perkins, Caufield & Byers - USA Inc. February 2011www.kpcb.com

Total US Debt Total Debt Obligations 7 x GDP !!! $56 trn + Unfunded Federal Liabilities$46 trn = $102 trn Total US Debt Obligations

Projected Federal Deficit for 2020 at Varying Revenue Levels ($ Billions) CBOHS Dent Optimistic HS Dent Realistic Total Revenues$4,416$3,029$2,524 Mandatory Expenditures$3,267 Discretionary Expenditures$1,487 Net Interest$916 Total Expenditures$5,670 Deficit($1,254)($2,641)($3,146) Source: Congressional Budget Office Presidential Budget, HS Dent

Long Term House Prices vs. Inflation Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton University Press, 2005.

Source: Japan Statistics Bureau Prices rose 2.6 times in 5 years Japan Residential Land Price National Index

Source: Japan Statistics Bureau Bubbles tend to go back to where they started

Source: Amherst Securities Pre-Tax Income Borrowing Power 2.8 times Borrowing Power of a Typical Home Purchaser

-55% -65% -33% Average US Home Prices Case-Shiller 10 City HPI: Jan 1994 – Mar 2011 Source: Standard & Poor’s Case-Shiller US 10-City Home Price Index Seasonally Adjusted In Thousands

Case-Shiller Top Metro Areas Percent Decline from Peak Values -54% -52% -48% Source: Standard & Poor’s Case Shiller US 20-City Index

Case-Shiller Top Metro Areas Percent Decline from Peak Values -54% -52% -48% -36% -34% Source: Standard & Poor’s Case Shiller US 20-City Index

Case-Shiller Top Metro Areas Percent Decline from Peak Values -54% -52% -48% -36% -34% -11% - 8% Source: Standard & Poor’s Case Shiller US 20-City Index

Miami

Dallas

The Ticking Time Bomb

Total 90-Plus Delinquencies and Foreclosures Source: Information provided by LPS Applied Analytics Inventory is 50X Monthly Sales

Part Three: Deflation  The Restructuring of Massive Private Credit will Outweigh Government Stimulus and Rising Debt  The Deleveraging of Credit Bubbles always Leads to Deflation, not Inflation

Spring Summer FallWinter Stocks/ Economy Generation Spending Boom Consumer Prices/ Inflation Simple Four Season Economic Cycle Eighty Years in Modern Times Source: HS Dent

Monetary Base Year/Year Percentage Change Source: Hays Advisory This must lead to inflation!

The Velocity of Money GDP to Adjusted Monetary Base Source: St. Louis Fed, US BEA

Household Net Worth Source: Federal Reserve -$26 trn + -$18 trn

Source: © The Economist Newspaper Limited, “Repent at Leisure,” June 4, 2010 GDP per $ of Debt

Median Household Net Worth by Age of Head Source: Federal Reserve, 2007 Survey of Consumer Finances

1929 Stock Market Peak Source: Edward Wolff, as printed in Wealth and Democracy and New York University, 2010 Net Worth of Top 1% of U.S. Households

Source: Edward Wolff, as printed in Wealth and Democracy and New York University, 2010 Financial Assets of Top 1% of U.S. Households

Source: New America Foundation Income of Top 1% of Households

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