Kevin M. Wilson, PhD Chairman/CEO 1405 Medical Arts Building 324 W. Superior Street Duluth, MN Office: Toll Free: Fax: Bi-Monthly Market Review “How to Beat Inflation” (Proven Allocations That Work Against Inflation) July 17 th, Ted A. Pavlovich, WMS President/Wealth Mgmt. Advisor 1

INTRODUCTION TED A. PAVLOVICH 2 (-82%)

RECENT ECONOMIC DATA SUGGEST INFLATION’S ON THE WAY KEVIN M. WILSON 3

4 Cost-Push Inflation With Wages Leading in 1970’s

5 Commodity and Land Prices Rising

6 Add Heathcare and Other Factors And You Get Higher Inflation

7 Middle Class Getting Squeezed $4326 (3x)

8 Wage Pressures Rising

9 Fed Has Created Dangerous Situation That Will Be Hard To Manage

JUDGING THE RISK POSED BY INFLATION TED A. PAVLOVICH 10

11 High Inflation Causes Big Problems For The Economy

12 Example: Bonds Lose Value

13 Example: Stocks Don’t Do Very Well

14 Even Diversified Moderate Portfolios Under-Performed Under High Inflation

THREE FACTORS IN INFLATION HEDGING TED A. PAVLOVICH 15

16 The 1970’s Demonstrated The Limits of A Standard Portfolio Approach

17 Factor 1: Sensitivity of Inflation Hedges

18 Factor 2: Reliability of Inflation Hedges

19 Factor 3: Volatility of Inflation Hedges

MIXING REAL ASSETS TO COMBAT INFLATION KEVIN M. WILSON 20

21 Diversification Has Variable Utility As Circumstances Change bonds all stocks

22 How Much Equity To Allocate Depends on the Inflation Rate (If Indexing)

23 A Wide Array of Assets Should Be Used In Combination, Depending on Rates

24 Sector Allocations Are Critical To Hedging Against Inflation Oil vs. Money Supply

25 Real Assets Like Land, Real Estate and Timber Are Also Effective Hedges houses stocks

26 Gold and Other Real Assets Have Complex Utility As Hedges

27 Hedging Involves a Time Factor (Must Have Active Mgmt.)

28 Allocation Weights Change As Inflation Rate Increases

SUMMARY 29 KEVIN M. WILSON 1)Inflation may be on the way 2)Risks to investors are high 3)Inflation risk can be hedged 4)Asset allocations will need to vary with inflation intensity

Q & A 30 KEVIN M. WILSON TED A. PAVLOVICH

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