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March 4, 2009 Presented by Jerry Lynch

Life After Stimulus: When Reflation Meets Deleveraging. March 4, 2009 Presented by Jerry Lynch.

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March 4, 2009 Presented by Jerry Lynch

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  1. Life After Stimulus: When Reflation Meets Deleveraging March 4, 2009 Presented by Jerry Lynch The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”), and is not to be distributed outside of the organization to which it is presented. The material is based on sources believed to be reliable and/or from proprietary data developed by GR-NEAM, but we do not represent as to its accuracy or its completeness. This is not an offer to buy or sell any security or financial instrument. Certain assumptions, including tax assumptions, may have been made which have resulted in any returns detailed herein. Past performance results are not necessarily indicative of future performance. Changes to the assumptions, including valuations or cash flows of any instrument, may have a material impact on any results. Please consult with your tax experts before relying on this material. Additional information is available upon request. This document and its contents are proprietary to GR-NEAM. They were prepared for the exclusive use of your Company. Neither this document nor its contents are to be given or discussed with anyone other than employees, directors, trustees or auditors of your Company without our prior written consent.

  2. Leading Economist

  3. September 7, 2008 – November 18, 2008 • Fannie Mae/Freddie Mac Bailed Out • Lehman Bankruptcy • Bank Of America/Merrill Lynch • Federal Reserve Rescues AIG • Bailout Plan • Goldman And Morgan Stanley Become Banks • Washington Mutual Seized • Wells Fargo Acquires Wachovia • Crisis Spreads To Europe • Central Banks Coordinate Rate Cuts • Treasury To Inject Capital In Banks • Obama Elected • Detroit Seeks Bailout • China Proposes Stimulus

  4. Conclusions Deleveraging Recession Policy Response Global

  5. Three R’s Reliquify Recapitalize Re-Regulate

  6. Response Ad Hoc Ideology Politics Fear

  7. U.S. Real Economic Growth Cyclical Secular Global Forces Stimulus Fiscal/ Monetary Stimulus

  8. Where Are We Now?

  9. U.S. Real GDP

  10. Unemployment Rate vs. Broader Total Unemployed*

  11. Industrial Production (January)

  12. Shedding Workers

  13. Unemployment Rate

  14. U.S. Real Consumer Spending Y/Y % Dec. – 1.7%

  15. Housing Starts

  16. Homeowner Vacancy Rate

  17. Median Family Home Price Relative to Median Family Income

  18. Capital Utilization Manufacturing (SIC) SA, % of Capacity Source: Federal Reserve Board, Merrill Lynch

  19. U.S. Trade in Goods Exports vs. Imports

  20. “Beggar Thy Neighbor”

  21. Year over Year Change (%) German Industrial Production

  22. Crisis of Confidence

  23. Japanese Exports

  24. Sources of Remittances by Recipient Regions, 2008

  25. Remittances and Capital Flows to Developing Countries

  26. Top 10 Remittance-Recipient Developing Countries in 2008

  27. Non-Classic Classic Recession

  28. Classic Recession • Characterized by: • Inventory cycle • 80% of decline in GDP due to de-stocking in manufacturing sector • Traditional stimulus almost always works to absorb excess by stimulating demand • Lasts 18 months • Non-Classic Recession • Characterized by: • Balance sheet compression • Deleveraging • Debt elimination • Rising saving rates • Expansion of government’s balance sheet to offset contraction in private sector • 3 years or more

  29. Historical Recession Analysis

  30. Job Losses in Recent Recessions

  31. Job Losses* in Post WWII Recessions

  32. Job Losses in Post WWII Recessions Current Recession

  33. Deleverage (Trigger Event) Liquidity Economic Impact (Duration And Depth Of Downturn) Shape Of Recovery Where Are We Heading? Leverage

  34. Low Interest Rates Liquidity New Banking System Confidence Leverage Leverage

  35. On the Hook

  36. Deleveraging Deleveraging Leverage Deleveraging is a process not an event.

  37. = 100% GDP Components of GDP Consumption 70% + Investment 16% + Net Exports <1>% + Government 15% Source: BLS, GR-NEAM Analytics

  38. Total U.S. Debt

  39. Leverage

  40. Consumer

  41. Consumer

  42. GDP Growth GDP Growth: With and Without Mortgage Equity Withdrawal

  43. Deleveraging: Has Process Begun?

  44. Growth in Household Debt

  45. Growth in Non-Financial Corporate Debt

  46. Growth in Federal Debt

  47. Is There a Shortage of Credit?

  48. Credit Conditions

  49. Market Cap

  50. Market Cap

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