Conference Call February 5, 2007

The Economy Federal funds rate remained at 5.25% GDP grew at 3.5% in Q406 – versus 2.0% in the 3rd quarter – 4.4% increase in consumer spending – 10% increase in exports for the quarter. Inflation, measured by the core personal consumption expenditure index, rose only 2.1% in the 4th quarter – 2.3% for the year Business spending on new investment declined 0.4%  leading indicator and warning of slowing Business spending on equipment and software declined 1.8% Q406.

The Economy The Labor Department report – Nonfarm payroll employment posted a 111,000 gain in January (consensus 160,000) – Revised 206,000 increase in December and 196,000 rise in November – Payroll is not slowing down  unchanged over year Jobs were added in the services, government and non- residential construction – Jobs were lost in the manufacturing and residential construction – The jobs added in non-residential construction (+126,000) offset those lost in residential construction (-104,000) for all of 2006

The Economy Institute for Supply Management – reported manufacturing index fell to 49.3% in January 2007 – Was 51.40% in December 2006 – Weakness in manufacturing is consistent with the payroll data – Although manufacturing is a small part of the US economy, it has been an excellent leading indicator in past business cycles for overall economic activity

The Markets Fed says US economy is growing moderately and inflation pressures are slowly dissipating Major indexes rose sharply for the week Leading sector was energy and oil and gas industry group rose 3.42% for the week.

The Markets Corporate earnings for Q406 still growing  ~10% over the same quarter in 2005 Analysts forecast slower earnings growth in the first half of 2007 – United Parcel Service (UPS) issued a profit warning for Q107  short term correction?? – However, Lowry’s Net Advances and its Buying Power Index (technical indicators) imply higher stock prices in the next few months.

QInsight Thoughts QInsight’s business cycle model  in PLUNGE Financial, Financial Services, Basic Materials, Consumer Discretionary and Consumer Staples sectors have historically led the broad stock market indexes during the PLUNGE phase BUT: QInsight is worried investors are predicting a possible cut in short-term rates earlier than Fed indicates

Plunge Industry Groups that have Historically Outperformed S&P 500 on a Risk/Return Basis (QInsight) Retail - General Merchandise Apparel Health Care -- Medical Products Containers -- Metal and Plastic Textiles -- Apparel Beverages -- Non-Alcoholic Oil -- International Foods Semiconductors Beverages -- Alcohol Retail -- Food Chains Railroads Waste Management Retail -- Dept. Stores Consumer Products Chemicals -- Diversified Cosmetics Chemicals Health Care -- Diversified Insurance -- Property Household Products Aerospace/Defense Toys Truckers Office Equipment Electrical Equipment

Outperforming Sectors based on Dr. Nawrocki

Outperforming Sectors during Ease-off Healthcare Consumer Staples Consumer Discretionary Financials Information Technology Industrials Utilities Telecom

Outperforming Sectors during Plunge Industrials Consumer Discretionary Consumer Staples Healthcare Materials Information Technology

Outperforming Sectors during Revival Consumer Discretionary Industrials Financials Consumer Staples Materials Energy Healthcare Utilities Information Technology

Overlapping Sectors between Ease off and Plunge Industrials Consumer Discretionary Consumer Staples Healthcare Information Technology

Overlapping Sectors for Plunge and Revival Consumer Discretionary Industrials Financials Consumer Staples Healthcare Utilities Information Technology