1 Economic/Market Outlook late 2007—early 2008 Penn Mutual November 6 th, 2007

2 Rob Morgan Investment Strategist

3 Full service Securities Broker/Dealer 1832, Headquartered in Philadelphia Regional Firm but National Client Base 2 nd Oldest NYSE Seat 1,000 Financial Consultants, 2,000 Employees 100 Branch Offices along US East Coast Top 10% of all US Securities Broker/Dealers Primarily Private Client Focused but Active Capital Markets/Institutional Functions

4 -Financial Planning -Trust & Estate Planning -Investment Advisory -Money Management -401(k) & Qualified Plans -Lending, Cash Management -Business Advisory Services -Tax Planning -Asset Allocation -Performance Reporting Serving Client Needs through “Wealth Management” -Individual Equities -Individual Fixed Inc. -Securities -Mutual Funds -Unit Investment Trusts -Closed-end Funds -Hedge Funds -Life Insurance -Annuities -Exchange Traded Funds

5 The Economy

6 Economic Uncertainties-2007 Will credit problems cause recession? How high will inflation go? How many times will Fed cut rates? Earnings still strong in ’07?

7 Will Credit Problems Cause Recession? Magnitude of the problem Sub prime problem and housing market slowdown-creeping into economy? Resolution

8 How High Will Inflation Go? The Bad News—commodity prices are skyrocketing The Good News—wages are not skyrocketing Bottom Line—inflation trending downward.

9 How Many Times Will The Fed Cut Rates? We think neutral level is 4%. Mindset of Fed chairman and Fed governors Will the Fed overshoot to the downside?

10 Earnings 2007 should be slower than still high single digit EPS growth. Companies very conservative in post- Enron environment. Even with slower growth, stocks can advance if expectations are exceeded.

11 Equity Markets During a Fed Pause

12 January 2 nd, 2007—October 1 st, 2007 Sector Returns Energy33.62 Materials22.98 Telecom18.35 Industrials16.79 Info Tech15.84 Utilities10.54 Staples9.52 Healthcare7.24 Discretionary-3.86 Financials-5.23 January 2 nd, 2007—October 1 st, 2007 Large Cap vs. Mid/Small Cap Returns Mid Cap9.49 Small Cap3.13 Large cap9.13 Growth vs. Value Value7.79 Growth10.54 International vs. Domestic MSCI EAFE13.56 S&P Equity Market Returns

13 Equity Market Forecast 2007 In a fairly-valued market, equity total return should follow EPS growth. PE of S&P 500 approximately 15 times 2007 EPS. Earnings growth deceleration, but still high single digits.

14 Equity Market Strategy Overweight stocks versus bonds. Within stocks: Overweight technology, basic materials and industrials Underweight healthcare, consumer staples and consumer discretionary Overweight large cap versus small cap Overweight international Overweight growth versus value

15 Fixed Income

16 Yield Curve January 2 nd, 2007—October 1 st, 2007

17 Fixed Income Forecast 2007 Fed is probably above neutral level now. 2% real rates + 2% inflation= 4% Fed Funds. If inflation continues to trend lower, Fed is too high on rates.

18 Fixed Income Strategy Keep duration less than benchmarks. Stay in higher quality names if possible.

19 Favorite Names In… Technology Basic Materials Industrials

20 Questions?