Capital Markets Overview Presented by Fritz Meyer Senior Market Strategist CMO-PPT-2P 1.09.

Capital Markets Overview

Presented by

Fritz MeyerSenior Market Strategist

CMO-PPT-2P 1.09

2 CMO-PPT-2P 1.09 invescoaim.com

Important Information

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The views and opinions expressed are those of the speaker and are subject to change based on factors such as market and economic conditions. The author’s views and opinions are not necessarily those of Invesco Aim and are not guaranteed or warranted by Invesco Aim. These views and opinions are not an offer to buy a particular security and should not be relied upon as investment advice. Past performance cannot guarantee comparable future results.



Performance quoted is past performance and cannot guarantee comparable future results; current performance may be higher or lower.

Results shown assume the reinvestment of dividends.

An investment cannot be made directly in an index.

Investments with higher return potential carry greater risk for loss.

Investing in small companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.

Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about these companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.

Investing in emerging markets involves greater risk than investing in more established markets such as risks relating to the relatively smaller size and lesser liquidity of these markets, high inflation rates, adverse political developments and lack of timely information.



Diversification and asset allocation do not assure profit or eliminate the risk of loss.

The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.

Government securities, such as U.S. Treasury bills, notes and bonds offer a high degree of safety and they guarantee the timely payment of principal and interest if held to maturity.

U.S. T-bills are short-term securities with maturities of one year or less.

Long-term government bonds used in this illustration have a maturity of approximately 20 years.

The Consumer Price Index (CPI) is a measure of change in consumer prices, as determined by the U.S. Bureau of Labor Statistics.


Consumer Confidence — So Bad It Might Be Good

Source: Copyright 2008© S1060A. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 31, 2008.

Plunges have often coincided

with market bottoms.

Dow Jones Industrial Average

Consumer Confidence


Stock Market Volatility Volatility equals risk

Source: Copyright 2008© S0237. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 29, 2008.

Volatility has spiked from recent lows, shaking investors out of stocks.

Because stocks are volatile they have historically delivered an “equity risk premium.”

S&P 500 Volatility Index100-day average of absolute change in S&P 500 Index

S&P 500 Index


Taxable Bond Yield Spreads Versus U.S. Treasury Bonds

Source: Copyright 2008© B0384. Ned Davis Research, Inc. All rights reserved. Data as of Dec. 29, 2008.

U.S. Government

Agency Bonds

Mortgage- Backed

Securities

Investment-Grade

Corporate Bonds

High-Yield Bonds


Sources: Standard & Poor’s; National Bureau of Economic Research (NBER). Data as of Nov. 30, 2008.

10

100

1000

10000

Nov-6

1

Nov-6

3

Nov-6

5

Nov-6

7

Nov-6

9

Nov-7

1

Nov-7

3

Nov-7

5

Nov-7

7

Nov-7

9

Nov-8

1

Nov-8

3

Nov-8

5

Nov-8

7

Nov-8

9

Nov-9

1

Nov-9

3

Nov-9

5

Nov-9

7

Nov-9

9

Nov-0

1

Nov-0

3

Nov-0

5

Nov-0

7

Clear bands indicate recession.

S&P 500

Stocks Have Bottomed Mid Recession

Nov-0

8


Gross Domestic Product Growth — Actual and Forecast

Source: Bureau of Economic Analysis (BEA) data as of Dec. 23, 2008. Wall Street Journal survey taken Dec. 5-8, 2008.

2.8

-0.5

2.0

1.3

-0.5

-2.5

-4.3-5

-3

-1

1

3

5

7

9

1997-I

1997-III

1998-I

1998-III

1999-I

1999-III

2000-I

2000-III

2001-I

2001-III

2002-I

2002-III

2003-I

2003-III

2004-I

2004-III

2005-I

2005-III

2006-I

2006-III

2007-I

2007-III

2008-I

2008-III

2009-I

2009-III

Quart

er/

Quart

er

% C

hange (

annualiz

ed)

GDP (actual) Economists' Consensus Forecast (estimated)

Key recovery drivers: homebuilding, business investment in capital expenditures and inventories and consumer spending on durables (autos).

Stimuli: plunge in energy, lower mortgage rates and fiscal stimulus package.

Key recovery drivers: homebuilding, business investment in capital expenditures and inventories and consumer spending on durables (autos).

Stimuli: plunge in energy, lower mortgage rates and fiscal stimulus package.


Consumer Outlook — Household Balance Sheet

10%

12%

14%

16%

18%

20%

22%

1980Q

1

1981Q

1

1982Q

1

1983Q

1

1984Q

1

1985Q

1

1986Q

1

1987Q

1

1988Q

1

1989Q

1

1990Q

1

1991Q

1

1992Q

1

1993Q

1

1994Q

1

1995Q

1

1996Q

1

1997Q

1

1998Q

1

1999Q

1

2000Q

1

2001Q

1

2002Q

1

2003Q

1

2004Q

1

2005Q

1

2006Q

1

2007Q

1

2008Q

1

Source: Federal Reserve. Data through Sept. 30, 2008.

This ratio has jumped higher mainly due to falling asset prices (denominator).

Household Debt as a Percent of Total Household Assets


Housing Starts Outlook — Actual and Forecast

Sources: U.S. Census Bureau. Data as of Nov. 30, 2008. Mortgage Bankers Association’s housing starts forecast dated Dec. 11, 2008. Joint Center for Housing Studies, Harvard University, March 2006.

600

800

1,000

1,200

1,400

1,600

1,800

Sep-0

6

Nov-0

6

Jan

-07

Mar-0

7

May-0

7

Jul-0

7

Sep-0

7

Nov-0

7

Jan

-08

Mar-0

8

May-0

8

Jul-0

8

Sep-0

8

Nov-0

8

Q1

09

(E)

Q3

09

(E)

Q1

10

(E)

Q3

10

(E)

600

800

1,000

1,200

1,400

1,600

1,800

Housing Starts (estimated)

Housing Starts (actual)

Annual Growth in Number of Households (actual and estimated)


Big Picture: Echo Boom Bigger Than Baby Boom and Still GrowingLabor force to grow 0.8% per year through 2016

Sources: 1909 to 2004: U.S. Census Bureau; The 2007 Statistical Abstract; 2005 to 2007: U.S. Department of Health and Human Services; National Center for Health Statistics. Preliminary data for 2006 and 2007. Bureau of Labor Statistics.

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

190

9

191

2

191

5

191

8

192

1

192

4

192

7

193

0

193

3

193

6

193

9

194

2

194

5

194

8

195

1

195

4

195

7

196

0

196

3

196

6

196

9

197

2

197

5

197

8

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

Liv

e B

irth

s (0

00

)

Echo Boomers

(1977–2007)

120 million

Baby Boomers

(1946–1976)

117 million

U.S. Live Births 1909–2006

Is this the next baby boom?USA TodayJuly 17, 2008


Inflation Has Plunged With Oil Prices

Source: Bureau of Labor Statistics. Data as of Nov. 30, 2008.

Consumer Price Index and Core Consumer Price Index

1.0

2.0

0

2

4

6

8

10

12

14

16

Feb-7

0

Feb-7

2

Feb-7

4

Feb-7

6

Feb-7

8

Feb-8

0

Feb-8

2

Feb-8

4

Feb-8

6

Feb-8

8

Feb-9

0

Feb-9

2

Feb-9

4

Feb-9

6

Feb-9

8

Feb-0

0

Feb-0

2

Feb-0

4

Feb-0

6

Feb-0

8

Perc

ent

Change Y

ear/

Year


Federal Reserve PolicyShock and awe

“Sure we have mortgage money. It’s just that you can’t have any.”


Quantitative EasingFlooding the banking system with excess (lendable) reserves

Required Reserves (left scale)

Excess Reserves (left scale)

Money Supply (M2) (right scale)

0

100

200

300

400

500

600

700

800

900

01

/03

/20

07

01

/31

/20

07

02

/28

/20

07

03

/28

/20

07

04

/25

/20

07

05

/23

/20

07

06

/20

/20

07

07

/18

/20

07

08

/15

/20

07

09

/12

/20

07

10

/10

/20

07

11

/07

/20

07

12

/05

/20

07

01

/02

/20

08

01

/30

/20

08

02

/27

/20

08

03

/26

/20

08

04

/23

/20

08

05

/21

/20

08

06

/18

/20

08

07

/16

/20

08

08

/13

/20

08

09

/10

/20

08

10

/08

/20

08

11

/05

/20

08

12

/03

/20

08

$ B

illio

ns

6,400

6,600

6,800

7,000

7,200

7,400

7,600

7,800

8,000

8,200

Source: Federal Reserve. H.3 Table 5 and H.6 Table 7. Data as of Dec. 17, 2008.

Slope = +5.6%


Federal Budget Deficit

- 1200- 1100- 1000- 900- 800- 700- 600- 500- 400- 300- 200- 100

0100200300

$ B

illio

ns

-6.5%-5.3%

-5.0% -3.8%

- 9%

- 8%- 7%

- 6%- 5%

- 4%

- 3%- 2%

- 1%0%

1%2%

3%

1965Q

11966Q

11967Q

11968Q

11969Q

11970Q

11971Q

11972Q

11973Q

11974Q

11975Q

11976Q

11977Q

11978Q

11979Q

11980Q

11981Q

11982Q

11983Q

11984Q

11985Q

11986Q

11987Q

11988Q

11989Q

11990Q

11991Q

11992Q

11993Q

11994Q

11995Q

11996Q

11997Q

11998Q

11999Q

12000Q

12001Q

12002Q

12003Q

12004Q

12005Q

12006Q

12007Q

12008Q

1

Source: Actual: BEA. Quarterly data, seasonally adjusted annual rates. Data through Sept. 30, 2008. Projected: Congressional Budget Office, September 2008 Forecast. Annual data.

Federal Budget Deficit

Federal Budget Deficit as a Percent of GDP

Congressional Budget Office January 2009 Projections

Congressional Budget Office January 2009 Projections

200

8

201

0

201

2

201

4

201

6

201

8


Federal DebtAs a percent of GDP compared to other nations

J apan

Belgium

Germany

Canada

France

U.S.

Netherlands

Brazil

Switzerland

U.K.

Sweden

I ndia

Norway

I taly

0

20

40

60

80

100

120

140

160

180

% o

f G

DP

Source: CIA World Factbook, last updated December 2008 with 2007 estimates.


Congressional Budget Office Long-Term Spending Projections (2007)

Source: Congressional Budget Office (CBO), The Long-Term Budget Outlook, December 2007. The CBO’s actual and projected figures exclude interest payments on the federal debt which amounted to an estimated 1.7% of the GDP in 2007.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1962

1972

1982

1992

2002

2012

2022

2032

2042

2052

2062

2072

2082

Medicare and Medicaid

Social Security

Other Federal Noninterest Spending

Perc

ent

of

GD

P

Actual Projected


10452

1

S&P 500 — Earnings Drive Stock Prices

1 Range of bottom-up/top-down estimated 2009 S&P 500 earnings Per Share (left scale): $76.43/$63.002 Average 2009 S&P 500 year-end forecast (right scale) of the 12 Wall Street strategists surveyed by Barron’s, published Dec. 22, 2008Source: Thomson Baseline. Data through Dec. 22, 2008. Reuters survey of consensus estimates as of Dec. 19, 2008.


Stock Market Arithmetic 7% earnings growth + reinvested dividends = ~10%

* Growth paths are compounded monthly to yield 5% and 7% annually. ** Excludes write-offs. Data through Nov. 30, 2008. Source: Copyright 2008© Yardeni Research, Inc. Strategist’s Handbook, Dec. 5, 2008, page 18. All rights reserved. Used with permission.


S&P 500 Total Return Index Since 1925

Source: Copyright© Thechartstore.com, with permission. Data through Oct. 31, 2008.

Trend Line Slope = 11%


S&P 500 Index Total Return Since 1989

Source: Baseline. Data through Nov. 25, 2008.

Trend Line Slope = 11%

“History suggests that this is a smart time to invest in U.S. equities.”

- Warren Buffet Oct. 17, 2008

“History suggests that this is a smart time to invest in U.S. equities.”

- Warren Buffet Oct. 17, 2008


Investment Strategy

“Winning is crucial to my retirement plans.”


Asset Allocation Harvard-Yale Style

Source: Barron’s, June 2, 2008.

Mohammed El-Erian, Pimco CEO and CIO and former president of Harvard’s endowment:

“U.S.-based individual investors have too much invested in the U.S. and not enough internationally.”

“Use weakness to get exposure to emerging economies because that is where the growth is going to be long term.”

“People should be asking how much inflation protection they have. At some point, real estate will be attractive again as an inflation hedge.”

Portfolio for a New EraIn “When Markets Collide,” El-Erian proposes this neutral asset mix for long-term investors.

EquitiesU.S. 15%

Other advanced economies 15%

Emerging economies 12%

Private 7%

49%

BondsU.S. 5%

International 9%

Real AssetsReal estate 6%

Commodities 11%

Inflation protected bonds 5%

Infrastructure 5%

27%

Special Opportunities 8%Expected long-term real return 5%–7%

Expected standard deviation 8%–12%

Source: “When Markets Collide”


Investment Theme: Dividend Growth Dividend growers have historically done the best

Source: Copyright 2008© S09. Ned Davis Research, Inc. All rights reserved. Used with permission. Data as of Oct. 31, 2008.

Past performance cannot guarantee comparable future results.


About Risk

Investing in small companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.

Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about these companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.

Investing in emerging markets involves greater risk than investing in more established markets such as risks relating to the relatively smaller size and lesser liquidity of these markets, high inflation rates, adverse political developments and lack of timely information.


To Conclude

• Stock market volatility has cycled up and down over time. Spikes have marked stock market turns.

• The economy is in recession.

• Stocks have bottomed mid recession.

• Stocks have historically low forward price-earnings multiples.

• Stocks have an 11% long-term trend.

• Taxable and tax-exempt bonds are on sale.

• Commodities have corrected sharply.

• Asset allocation (modern portfolio theory) is one of the best investment methods yet.

• El-Erian’s recommended asset allocation is something to consider.

“It’s just a correction.The fundamentals are still good.”


And Don’t Believe Everything You Hear

A study by Media Research Center of a year’s worth of economic coverage on ABC, CBS and NBC found more than twice as many stories and briefs focused on negative aspects of the economy (62%) compared to good news (31%).

Source: Media Research Center, “Bad News Bears,” October 2006

“We were wondering if now would be a good time to panic?”

Thank You

CMO-PPT-2P 1.09 Invesco Aim Distributors, Inc.

Invesco AimSM is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the investment advisors for the products and services represented by Invesco Aim; they each provide investment advisory services to individual and institutional clients and do not sell securities. Please refer to each fund’s prospectus for information on the fund’s subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd.

All data provided by Invesco Aim unless otherwise noted.

Capital Markets Overview Presented by Fritz Meyer Senior Market Strategist CMO-PPT-2P 1.09.

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Transcript of Capital Markets Overview Presented by Fritz Meyer Senior Market Strategist CMO-PPT-2P 1.09.