Conference Call 10/23/06

Questions to Consider Is U.S. economy Slowing? If so, how fast is economy slowing? What about inflation?

Key Indicators LEI – Rose.1% in September – Must look over 6 month period  down 0.9% for that time – Has fallen 5 of the past 8 months – Index is forecasting a “slow growth” economy for the next 6 months Q306 GDP  this Friday – Expected is 2.1% – 2.6% last quarter – Will inflation slow?

Indicators Overall CPI fell 0.5% in September – Up 2.1% for the past 12 months Core CPI is high – Rose 0.2% in September – Better forecaster for consumer price trends – Rose 2.9% for past 12 months – Want CPI to be closer to 2% than 3% for the year – Until inflation slows, do not expect increase in Fed Funds rate

Housing Demand  home sales Supply  housing starts – Up 5.9% in September – New housing starts are down 18% YTD – Large sampling errors  not best indicator Wednesday  existing home sales Thursday  new home sales

Markets Healthcare is up Pharma  reporting good earnings Financials – Fell 0.9% last week – BOA reported slightly above forecast – Citigroup reported disappointing earnings – Use financials as a leading indicator – No trend in earnings for financials

Markets Tech fell 1.1% – Earnings are not great and expect weak Q4 – SAP lowered revenue forecast for Q4 Industrials fell 1% – CAT  earnings were up but were expected to be a lot more – Management discussed weak housing as a concern going forward

Earnings Reports Tuesday – Bell South, Amazon Wednesday – Boeing Thursday – Exxon FOMC meeting