iron gate presentation halftime 2011

2 0 1 1

2011 State of the Markets

AGENDA

• A Review of the First Half • Factors Affecting Our Economy • Economist Projections • Investment Strategies


A Look Back


The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. All index returns exclude reinvested dividends. Past performance is no guarantee of future results.

Indices are unmanaged and cannot be invested into directly. Data Source: Yahoo Finance,.

+ 6.79 -6.23 + 6.38

-6.99

+4.36

A Look Back


The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. All index returns exclude reinvested dividends. Past performance is no guarantee of future results.

Indices are unmanaged and cannot be invested into directly. Data Source: Yahoo Finance, News points source: infoplease.com

Jan. 7 Announcement: Economy Adds 103,000 Jobs in

December; Unemployment Dips

to 9.4%

Feb. 26 Security Council Approves

Sanctions on Libya

Mar. 1 Oil Drilling to resume in the Gulf

Mar. 11 Massive 9.0 Magnitude

Earthquake and Tsunami

Devastate Japan Jun. 30 All U.S.

stock indexes finish slightly positive for

the first half.

Feb. 14 President Obama Proposes

2012 Federal Budget Jan. 25 President Obama Announces

Budget Cuts, Freezes

Jan. 28 Egyptian President Asks Army

to Intervene After Days of Violent

Protest

Mar. 19 No-Fly Zone is Imposed in Libya

Mar. 2 President Obama Signs Two-

Week Budget Extension

Apr. 27 Series of Tornadoes

Devastate Southern States

Jun. 3 Unemployment

Rises as Job Growth Slows

May. 1 Osama bin Laden Is Killed in

Pakistan

S&P Performance


15.1 17.8 11.7 11.3 12.7 10.7 10.6 3.1 3.4 3.7 100

-3.1 2.1 13.9 8.0 11.4 8.3 7.9 7.1 9.1 3.6 6

-53.3 0.5 5.7 -7.1 3.1 13.3 24.0 -9.2 -5.3 -0.7 -8.4

154.8 110.5 70.5 155.4 88.8 162.2 73.9 73.5 65.7 136.4 104.7

S&P Weight

2011 YTD

Since Peak (Oct. 07)

Since Low (Mar. 09)

Source: Standard & Poor’s. All calculations are cumulative total return, including dividends for the stated period. Since Market Peak represents period 10/09/07 to 6/30/11, illustrating market returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 – 06/30/11, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are

cumulative, not annualized. Past performance is not indicative of future returns. Data as of 06/30/2011.

Bear Markets vs. Bull Runs


Market Peak Market Low Bear Market Return

Length of Decline

(Months) Bull Run Length of

Run (Months)

Years to Reach Old

Peak

5-29-46 5-19-47 -28.6% 12 257.6% 122 3.1

7-15-57 10-22-57 -20.7% 3 87.4% 50 0.9

12-12-61 6-26-62 -28.0% 6 79.8% 44 1.2

2-9-66 10-7-66 -22.2% 8 48.0% 26 0.6

11-29-68 5-26-70 -36.1% 18 74.2% 31 1.8

1-5-73 10-3-74 -48.4% 21 125.6% 74 5.8

11-28-80 8-12-82 -27.1% 20 228.8% 60 0.2

8-25-87 12-4-87 -33.5% 3 582.1% 148 1.6

3-24-00 10-9-02 -49.1% 31 101.5% 60 4.6

10-9-07 3-9-09 -56.8% 17 95.1% 28* ?

Average -35% 14 Months 176.0% 68 Months 2.2 Years

Source: Standard & Poor’s. A bear market is defined as a peak-to-trough decline in the S&P 500 Index (price only) of 20% or more. The bull run data reflect the market expansion from the bear market low to the subsequent market peak. All returns are S&P 500 Index returns and do not include dividends . Past performance is not indicative of future returns.

*Current bull run from 3-9-09 to 6-30-11. Data as of 6-6-2011.


Welcome to the “New Normal”

Recessions and Expansions


Average Lengths:

Recessions: 15 Months Expansions: 44 Months

Source: www.nber.org/cycles. Past performance is not indicative of future returns. For illustrative use only. Data as of 06-30-2011. *Based on expansion from July 2009 thru June 2011.

Our Fiscal House is Crumbling!


Source: U.S. Treasury, BEA, CBO, OMB, J.P. Morgan Asset Management.. Numbers reflect CBO estimates for FY 2010. Data reflect most recently available as of 6/30/11.

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Total Government Spending Sources of Financing

The 2011 Federal Budget Trillions, USD

Medicare & Medicaid: $841bn (23%)

Defense: $733bn (20%)

Social Security: $727bn (20%)

Other $504bn (14%)

Non - defense Discretionary: $636bn (17%)

Net Int.: $214bn (6%)

Revenues: $2,228bn (61%)

Borrowing: $1,427bn (39%)

Total Spending: $3.7tn

Over-leveraged Uncle Sam



Deleveraging – A Painful Path Back to Prosperity

Housing–Still Ugly


Source: National Association of Realtors. Home price based on median sales price of existing homes and are cumulative, not annualized. Data reflect most recently available as of 6/30/11.

Unemployment–Stuck in First Gear


Source: BLS.gov Data reflect most recently available as of 6/30/11.

3

4

5

6

7

8

9

10

11

12

1960 1970 1980 1990 2000 2010

50-Year Average

June 2011: 9.2%

Unemployment-State By State


.

9.1%

9.3%

11.7%

12.1%

9.4%

7.3%

9.1%

7.3%

6.0%

8.7%

6.9%

8.0%

5.3%

6.6%

4.1%

4.8%

3.2% 6.6%

6.0%

8.9%

7.8%

8.2% 9.6% 10.3% 9.8%

10.6%

9.7%

8.9%

7.4% 10.3%

8.2% 8.6%

9.8%

9.7%

6.0% 8.6%

7.4%

7.9%

6.8% 8.0% 9.4%

9.8% (DC)

10.9%

7.7% 5.4% 4.8%

7.6%

9.1%

10.0%

Lowest Quintile

Second Quintile

Third Quintile

Fourth Quintile

Highest Quintile

7.4%

6.0%

Source: BLS.gov Data reflect most recently available as of 6/30/11.

Inflation


Economic Environment Examples

Deflation A decrease in the money supply often accompanied by a decrease in prices.

United States in the Great Depression

Disinflation Prices are still increasing, but at a slower rate than before.

United States in the 1990s

Inflation An increase in the money supply often accompanied by an increase in prices. Most normal periods

Stagflation High inflation and high unemployment rate/stagnant economic growth. United States in the 1970s

Hyperinflation Prices increase rapidly (out of control) as a currency loses its value Often ends in extreme political turmoil.

Germany post-World War I

Source: DWS Investments. This information is subject to change at any time based on market and other conditions and should not be construed as investment advice.

Inflation-Components of CPI


Source: BLS as of 12/31/10.

Housing 42%

Transportation 17%

Food and Beverage 15%

Medical Care 7%

Recreation 6%

Education and Communication

6%

Apparel 4%

Other Goods and Services

3%

Inflation


Source: BLS as of 5/13/11.

Sovereign Debt


Sovereign Debt


Source: MSNBC.com

12.0% 3.0% 5.4% 10.0%

88.0% 97.0% 94.6% 90.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

U.S. Economic Activity U.S. GDP U.S. Bank LoanExposure

Total U.S. Bank AssetExposure

Other

Trade with Europe

The Talking Heads


43%

39%

6% 4% 4% 4%

0% 0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

A PersistentSlowdown in

Hiring

A SustainedIncrease in Oil

Prices

A U.S. Default onits Debt

The EuropeanSovereign Debt

Crisis

A Slowdown inChinese Growth

A Further LetDown in the

Housing Market

The Expiration ofthe Fed's QE2

Program

The Biggest Risk to the U.S. Economy

Source: online.wsj.com. The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.

Jobs-Are They Serious?


Current as of June 2011, 9.2%

End of 2011, 8.6%

End of 2012, 7.9%

7

7.5

8

8.5

9

9.5Unemployment Rate

Source: online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.


Targeted Rate

Jobs created per month to achieve targeted rate

Reducing Unemployment – The Harsh Reality

Housing Projections-Wishful Thinking?


2011 -2.85%

2012 1.75%

-4

-3

-2

-1

0

1

2Home Prices - Annual Percent Change

Source: online.wsj.com. Average home prices are based on opinions of analysts polled at the time of the survey. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.


Housing Projections-A Bit of Realism

Inflation


June 2011, 3.4%

End of 2011, 3%

June 2012, 2.3%

End of 2012, 2.4%

0

0.5

1

1.5

2

2.5

3

3.5

4

Consumer Price Index

Source: BLS.gov, online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.

Overall Growth


Source: BLS.gov, online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Real Gross Domestic Product at an annualized growth rate. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56 economists throughout the year.

Broad surveys on more than 10 major economic indicators are conducted monthly.

2.3%

-0.8%

0.2%

2.8% 2.7% 3%

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

2007 2008 2009 2010 2011 2012

Annual Gross Domestic Product


Fighting “Economic Gravity”

Fighting “Economic Gravity”

When: • Credit Spreads on Corporate Debt wider than 6

months prior • S&P 500 below its level of 6 months prior • Treasury Yield Curve flatter than 2.5% (10 year minus

3 month) • Year-over-Year GDP Growth below 2% • ISM Purchasing Managers Index below 54 • Year-over-Year Growth in Nonfarm Payrolls below 1% • AND Plunging Consumer Confidence


• 100% of time historically has resulted in a recession

Then:


The Wisdom of Bernanke?


“…most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.” - Ben Bernanke, Federal Reserve Chairman August 26, 2011


"The Fed has spent a lot of its bullets. The real focus lies on what's going on with the political side of the equation. That's where the problem needs to get solved, not what the Fed does.“ - Mead Briggs, IronGate Partners August 9, 2011


A Way Forward

Investment Strategies for the “New Normal”


Avoid Emotional Investing


The S&P 500 Index is a broad-based unmanaged index not available for direct investment. Results reflect the reinvestment of dividends. Average equity investor as measured by Dalbar, Inc. Dalbar derives the average equity investor return using a proprietary model that measures actual historical returns and average shareholder holding periods. Past performance is no guarantee of future

results. Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz, Inflation: CPI. Returns are annualized (and total return where applicable) and represent the 20-year period ending 6/30/11 to match Dalbar’s most recent

analysis.

10.5%

8% 7.7% 7.2%

6.1%

4.7%

2.8% 2.6% 2.4%

0

2

4

6

8

10

12

REITS Oil S&P 500 Gold Bonds EAFE Homes AverageInvestor

Inflation

20 Year Annualized Returns By Asset Class (1991-2010)

Avoid Significant Losses!


20% 30% 35% 40%

50% 60%

25%

42.8% 55%

66%

100%

150%

% Loss

% Needed to Get Back to Even

The above hypothetical scenarios are for illustration purposes only, and are not a prediction of future market conditions.

Rowing vs. Sailing

2011 State of the Markets Source: Rydex Investments and Robert J. Shiller; Irrational Exuberance

0

5

10

15

20

25

30

35

40

45

1896 1916 1936 1956 1976 1996

19011966

2000

Price-Earnings Ratio 8/26/2011

19811921

1929

20.23

Diversify


Source: Lipper, Inc. Annual returns are based on calendar years. Indexes are unmanaged and do not take transaction costs or fees into consideration. It is not possible to invest directly in an index. Performance figures assume reinvestment of dividends and capital gains. This chart is for illustrative purposes only and does not represent the performance of any particular investment. Diversification

does not guarantee against a loss. Past performance is no guarantee of future results. Large growth is represented by the Russell 1000 Growth Index, a market capitalization-weighted index of securities in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Large value is represented by the Russell 1000 Value Index, a market capitalization-weighted index of

securities in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Small/Mid growth is represented by the Russell 2500 Growth Index which measures the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values. Small/Mid value is represented by the Russell 2500 Value Index which measures the

performance of those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. International is measured by the (MSCI) EAFE Index, a market value-weighted, arithmetic average of the performance of more than 900 securities listed in several developed world markets, excluding the United States. Bonds are measured by the Lehman Aggregate Bond Index which includes U.S. government, corporate, and mortgage-backed securities with maturities up to 30 years. Cash represents the performance of the 3-month T-bill, published by the Federal Reserve.

Diversified is represented by the average return of the six indexes above, excluding cash. It does not represent any specific index.

Best

W

orst

Diversified Portfolio -2.21%


Diversified Portfolio 13.92%

Diversified Portfolio

5.37%




7.37%




2007 2000 2001 2002 2003 2004 2005 2006 2008 2009

Cash 0.16%

Small/Mid Cap Value

-7.27%

Large Cap Growth -22.42%

International -21.44%

Small/Mid Cap Growth

-29.09% Cash

1.03% Cash

1.38% Bond 2.43%

Bond 4.33%

Large Cap Value

-0.17%


-16.09%



Bond 4.10%

Bond 4.34%

Cash 3.07%

Cash 4.67%



-10.83% International

-15.94% Large Cap

Growth 29.75%

Large Cap Growth 6.30%



Cash 4.40%


12.26%

Large Cap Value

-15.52%

Large Cap Value

30.03%

Large Cap Value 7.05%

Cash 5.94%

Large Cap Value

-5.59%


14.59% Bond 6.97%

Large Cap Value 7.01%

Cash 3.48%

Small/Mid Cap Value

-9.87% International

38.59% Large Cap

Value 16.49%

Small/Mid Cap Value

7.74%

Small/Mid Cap Value

20.18%


9.69%

Bond 11.63%

Bond 8.44%

Cash 1.61%

Small/Mid Cap Value

44.93% International

20.25% Small/Mid

Cap Growth 8.17%

Large Cap Value


11.17%

Small/Mid Cap Value

20.79%

Small/Mid Cap Value

9.74% Bond

10.25% Small/Mid

Cap Growth 46.31%

Small/Mid Cap Value



26.34% Large Cap

Growth 11.81%


Small/Mid Cap Value -41.50%


-31.99%

Cash 1.40%

Bond 5.24%


Large Cap Value

-36.85%

Bond 5.93%


Large Cap Value

19.69%

International 32.46%

Small/Mid Cap Value

27.68%


41.66%

Cash 0.01%

Bond 6.67%


Large Cap Value

15.51%

International 4.86%

Small/Mid Cap Value

24.82%


28.86%


16.23

2010


Think Globally

Weathering The Storm Investment Themes for Remainder of 2010

1. Protect the downside! 2. Overweight fixed income vs. equities. 3. Favor multi-asset class managers over

single mandate managers. 4. Provide upside through income

guarantees. 5. Utilize the collective wisdom of our team

to continually refine our investment strategy.

Questions?

Where the Rubber Meets the Road

July 22, 2011 thru August 10, 2011

• S&P 500 (16.7%) • Average IGP Client (2.1%)


iron gate presentation halftime 2011

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