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: Blue Water’s Monthly Market Review: “Election Year Rally May Continue” September 20, 2012 Ted A. Pavlovich, WMS VP Wealth Management 11

INTRODUCTION TED A. PAVLOVICH 2

We Seem To Be Following The Pattern 3

GLOBAL ECONOMIC SLOWDOWN - THE EVIDENCE KEVIN M. WILSON 4

Eurozone GDP Still Falling 5

6 Short-Term Central Bank Loans Expanding in Europe

7 Chinese Economic Activity Reduced That Sinking Feeling

8 Japan Strongly Impacted

9 US Mfg. Indexes Dropping Sharply (Source:

10 Leading/Coincident Indicators Falling NR

11 Other Indicators Negative ?

12 NBER Recession Measures Mixed

THE SUMMER RALLY AND ITS ELECTION YEAR SEQUEL DHEENU V. SIVALINGAM 13

The Stock Market in Presidential Election Years 14

The Seasonal and Not-So-Seasonal Facts Historically, there is a strong seasonality in the stock market where the majority of stock market gains have been made in the November-April time period–and this effect has become more pronounced in the past 50 years. Sell in May… 15

16 Economic Surprise Index Partly Responsible

Month-by-Month Seasonal Pattern 17

2012 S&P500 PR Q1: 12% Q2 :-3.29% Q3: ??? (Should be Positive) 18

THE FED/ECB WILL (CONTINUE TO) INTERVENE, BUT WILL IT MATTER? KEVIN M. WILSON 19

20 Fed Worried About Deficits And Diminishing Rate of GDP Growth

21 Fed Deeply Concerned About Structurally High Unemployment

22 Other Concerns Include Interest on the Debt… …and the “Fiscal Cliff” – But Note That Effects of Cliff Are Exaggerated

23 Structural Limitations on GDP Growth Make the Situation Precarious

24 The Fed’s Response Has Been Bold Fed Bal. Sheet Assets Projected To Reach $3.5T in 2013 Fed Will Now Buy $50B of MBS Per Month

25 Other Central Banks Have Printed Far More Than The Fed

26 In Spite of Monetary Support, Big Banks Are Just Piling The Money Up Instead of Lending It Out

27 QE’s Effect on Bonds

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29 Fed’s QE Has Simply Offset The Dips In the S & P

30 Many Risk Assets Have Soared, But Especially Gold +166% +119%

31 Dow (in Gold Terms) “Low”

32 Jan Sept. 2012

THE IMPORTANCE OF INCOME STRATEGIES 33 TED A. PAVLOVICH

Aug SELL BUY Valuations May Limit Upside Aug P/B Ratio = 2.20; Bond/Stock Yld. Ratio =

35 July 2012 Avg. Expected Returns Are Low for Next 7 Years

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SUMMARY & CONCLUSIONS 39 KEVIN M. WILSON 1)It May Be That If Market Rally Continues, Obama Will Win… 2)It May Be That If Market Corrects, Romney Will Win… 3)Unless Something Else Happens! 4)In Any Case, Money Printing Will Continue Around The World 5)In This Environment, An Income Orientation May Work Well 6)In This Environment, Gold May Help Offset Falling Dollar

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