Download Title of Presentation Here - University of Utah Continuing Education

Economic Summit for Nonprofits
The Global Economy:
Navigating Through Economic Opportunities
…and How Economies in Cyprus and Elsewhere Affect Us in Utah
May 30, 2013
Steve Swensen
Sr. Investment Strategist
A note about disclosures: Please be sure to read the important disclosures at
the end of this presentation
Wells Fargo Private Bank provides financial services and products through Wells Fargo
Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo & Company and its
affiliates do not provide legal advice. Please consult your legal advisors to determine
how this information may apply to your own situation. Whether any planned tax result
is realized by you depends on the specific facts of your situation at the time your tax
preparer submits your return.
“Lies,
Damned Lies,
and Statistics”
Mark Twain
2
Today’s Agenda
Perception
vs. Reality
Global Consumers―The Engine of Growth
Velocity of Money, Income, and Yields
Investment Observations for 2013
3
4
Diversification and the Average Investor
GTM – U.S.

Source: Dalbar; FactSet; JP Morgan
5
Annual Returns and Intra-year Declines
GTM – U.S.
S&P 500 Intra-year Declines vs. Calendar Year Returns
Despite average intra-year drops of 14.7%, annual returns positive in 25 of 33 years
40%
34
31
30%
27
26
26
27
26
26
23
20
20
17
20%
15
15
14
12
10%
9
7
-10
4
2
1
4
3
-2
-7
-10 -13 -23
-38
0
%
-10%
-7
-8
-8
-9
-6
-8
-6
-3
-5
-9
-8
-17 -18 -17
-8
-11
-13
-20%
13
13
-12
-19
-20
-7
-8
-10
-10
-14
-16
-17
-19
-30%
-28
-30
-34
-34
-40%
-50%
-49
-60%
'80
'82
'84
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during
the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2012.
Data are as of 3/31/13.
6
Market Sentiment is Still Low
Consumer Confidence
160
140
INDEX
120
100
80
60
40
20
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
As of 04/2013: 68.1

Source: Conference Board; FactSet
7
Economic Growth and the Composition of GDP
GTM – U.S.
Components of GDP
Real GDP
4Q12 nominal GDP, billions USD
% chg at annual rate
20-yr avg. 4Q12
10%
Real GDP:
2.5%
$18,000
2.6% Housing
0.4%
8%
$16,000
10.6% Investment ex-housing
6%
$14,000
$625 bn of
output lost
4%
$12,000
2%
$10,000
0%
$8,000
-2%
$964 bn of
output
recovered
-4%
$6,000
19.2%
Gov’t Spending
70.9%
Consumption
$4,000
-6%
$2,000
-8%
$0
- 3.3% Net Exports
-10%
'04
'06
'08
'10
'12
-$2,000
Source: BEA, FactSet, J.P. Morgan Asset Management.
GDP values shown in legend are % change vs. prior quarter annualized and reflect 4Q12 GDP.
Data are as of 3/31/13.
8
The Aftermath of the Housing Bubble
Monthly Rent vs. Monthly Mortgage Payment GTM – U.S.
Home Prices
Indexed to 100, seasonally adjusted
Vacant properties
160
$1,100
Case Shiller 20-city
Monthly
Mortgage
Payment
$950
FHFA Purchase Only
150
Average Existing Home
$800
1Q13*:
$726
$650
$500
140
$350
1Q13*: $507
Monthly Rent
$200
130
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Home Inventories
Millions, annual rate, seasonally adjusted
120
4.5
4.0
110
3.5
3.0
100
2.5
2.0
90
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
1.5
Feb. 2013: 2.2
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Sources: (Left) National Association of Realtors, Standard & Poor’s, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management.
Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment
based on asking price. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. *1Q13 rent and mortgage
payment values are J.P. Morgan Asset Management estimates.
9
Data are as of 3/31/13.
Eurozone Troubles
High unemployment is constraining economic growth.
 Record Eurozone Unemployment
13.00
Percent
March 2013
12.10%
11.50
10.00
8.50
7.00
1991

1993
Source: FactSet, 04/30/13
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
10
Emerging Economies Have Low Debt/GDP
Estimated 2012 Ratio of Public Debt/GDP
In general, emerging economies have more fiscal flexibility than
the larger developed economies.
 Emerging Economies Debt/GDP Lower
200
180
160
Japan, $8.09
140
120
Italy, $2.05
100
80
US, $13.11 Trillion
Spain, $1.06
India, $1.20
60
Euro Area $8.86
40
Brazil, $0.75
20
Russia, $0.21
Australia, $0.18
0
-4
-3
-2
-1
0
1
China, $1.86
Canada, $0.64
2
3
4
5
6
7
8
9
10
Estimated 2012 Growth Rate (%)
Bubble size = 2012 Net (Public) Debt Estimates in US$ trillion
(Brazil, China and Russia = Gross Debt in US$ trillion)

Source: 2012 Growth Estimates, Wells Fargo Wealth Management, 10/12; IMF, WEO Database, 10/12
11
What Else Could Go Wrong?
Washington Policy Risks
Economic Paralysis―ObamaCare & Tax Hikes
Global Recession
Another Lost Decade
European Economic Slowdown
Too Much Stimulus Leads to Hyperinflation
12
Reality
13
Asset Allocation Matters
Not a "Lost Decade" for Diversified Portfolios
January 2000 through January 2011
$200,000
$180,000
68.6%
$160,000
$140,000
$120,000
7.1%
$100,000
-12.5%
$80,000
$60,000
$40,000
$20,000
Total Diversified Portfolio
S&P 500 TR
S&P 500 Price Return
$Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Portfolio Blend: Fixed Income 27% (50%/50% Taxable/Tax-Exempt); 55% Equity (35.8% Large/19.2% Developed Int'l); 11% REITS; 7% Commodities
Source: WMG Research; Morningstar
14
Asset Performance
Not a "Lost Decade" for Diversified Portfolios
January 2000 through March 2013
$250,000
130%
$200,000
77%
$150,000
37%
$100,000
$50,000
Total Diversif ied Portf olio
60% S&P 500, 40% Barclays Agg
S&P 500 TR Index
$0
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Portfolio Blend: 3% Cash,;4% Short Term Bonds, 17% Interm Bonds, 5% HY Bonds, 5% Developed Bonds, 5% EM Bonds; 15% US Large C ap, 5% US Mid Cap,
3% US Small Cap, 10% Developed Equiities, 6% EM Equites; 7% REITS; 5% Commodities; 2% Hedge Fund Conserv, 5% HF Diversified, 3% Hedge Fund
Aggressive. Rebalanced Quaterly*

Source: WMG Research; Morningstar
15
Bull Markets: Historical Perspective
History shows that the current bull market may only be in the
middle stages.
 Bull Market Returns
Bull Market Return (Percent)
700%
Average Bull Market: 68 Months, 178%
600%
Current Bull Market: 48 Months, 132%
'87-'00
500%
400%
300%
'47-'57
'82-'87
Current
Average
200%
'02-'07
'70-'73
'66-'68
100%
'62-'66'57-'61
0%
0
20
40
60
'74-'80
80
100
A larger circle represents a higher return bull market


Past performance is no guarantee of future results.
S&P 500 is an unmanaged index and is unavailable for direct investment.
Source: Bloomberg Finance LLP, S&P 500 Index Price Return as of 04/30/13
120
140
160
Bull Market Length (Months)
16
Central Bank Support Boosting Equities
The European Central Bank, U.S. Fed, and the Bank of Japan have
enacted monetary easing propelling stock markets higher.
The Fed, QE and the S&P 500
1800
1600
+29%
+33%
Index Level
1400
+80%
1200
1099
1000
1023
QE2 Announced
at Jackson Hole
Operation Twist &
LTRO
Operation
Twist
800
752
600
07/08

01/09
QE1
07/09
QE2
01/10
07/10
01/11
Source: Federal Reserve Board, Bloomberg Financial LLP, 05/08/13
07/11
QE3
01/12
07/12
01/13
17
Then and Now — Tax Rates
1980
2013
2012
Sources: Tax Foundation, U.S Federal Income Tax Rates. 03/25/2013
18
Then and Now — Tax Rates
Estate and Income Tax Rates
1916 - 2012
100
90
80
Percent
70
60
50
40
30
20
10
0
'16 '20 '24 '28 '32 '36 '40 '44 '48 '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12
Estate Tax: Top Rate
Income Tax: Highest Bracket

Source: U.S. Internal Revenue Service, May 2012

Note: Income tax brackets reflect rates for “Married and Filing Joint or Surviving Spouses”
19
Taxes – Who Pays What
Share of Taxes Paid by Income Quantile
100
90
86.0%
80
72.7
PERCENT
70
61.0
60
50
39.5
40
30
20
12.7
10
4.6
0
-0.3
-10
Top 20%
Top 10%
Top 5%
Top 1%
Fourth
20%
Middle
20%
Second
20%
-3.0
Lowest
20%
Note: Negative value denotes tax refund

Source: Congressional Budget Office
20
Average Tax Rates
Average Earnings and Tax Rates
by Income Quantile
$1,319,700
Average After-Tax Income
1,280,000
640,000
Average Tax Rate
17.6
19.0%
320,000
16.2
14.4
440,500
160,000
289,300
198,300
6.2
80,000
55,300
77,700
40,000
38,000
3.3
20,000
-0.4
17,700
10,000
-6.8
5,000
Top 1%
Top 5%
Top 10% Top 20%
Fourth
20%
Middle
20%
Second
20%
Lowest
20%
Note: Negative value denotes tax refund

Source: Congressional Budget Office
21
How We Got Here―Government Debt
U.S. and Japan are home to seven percent of
the world’s population, but account for what
percent of the world’s total government debt?
A. 25%
B. 33%
C. 50%
22
How We Got Here―Medical Costs
A 65-year-old retiree contributed what portion
of the Medicare benefit they will receive in
their lifetime?
A. 100%
B. 70%
C. 40%
23
Policy Detour: Massive Forecast Error
Instead of surpluses, the federal debt has nearly
tripled in 10 years.
Federal Debt
Billions of USD
Actual
Outcome
2011
$10.4 trillion
Federal Budget Balance
(Deficit)
Billions of USD
2011
$890 billion
Forecast
in 2001
2011
$820 billion
Actual
Outcome
Forecast
in 2001
2011
$1.4 trillion
Sources: BCA Research Inc, Congressional Budget Office, 04/12
24
U.S. Debt Ceiling and Sequestration
While sequestration has had an immediate impact on many government
sectors, the private sector has felt only a modest impact so far.
U.S. Debt vs. Debt Ceiling
$17
$16
U.S. Debt Ceiling and Total Public Debt
(in trillions)
$15
$14
Debt ceiling was hit
on December 31,
2012
$13
$12
$11
$10
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Source: U.S. Treasury Direct, 05/08/13
25
U.S. GDP Outlook
U.S. economy grew 2.5 percent in the first quarter of 2013.
 First Quarter U.S. GDP Growth Rebounds
4.5
Percent
4.0
4.0
4.1
Actual
Estimated
3.5
3.1
3.0
2.8
2.6
2.5
2.3 2.2
2.5
2.4
2.3
2.0
2.0
1.5
2.6
2.5
1.5
1.4
1.3
1.3
1.0
0.4
0.5
0.1
0.0

Source: Bloomberg Financial, LLP, 05/08/13
26
Job Gains Reinforce Recovery
The unemployment rate fell to 7.5 percent in April as the U.S.
economy added 165,000 new jobs.
 Unemployment Rate Continues to Fall
Percent
10
9
April 2009=
8.90%
8
April 2013=
7.5%
7
6
5
4
2003

2004
Source: FactSet, 4/30/13
2005
2006
2007
2008
2009
2010
2011
2012
2013
27
Employment and Income by Educational Level
Average Annual Earnings by Highest Degree Earned
Unemployment Rate by Education Level
Full-time workers aged 18 and older, 2011, USD
18%
$90,000
Less than High School Degree
High School No College
Some College
College or Greater
16%
14%
$87,981
$80,000
+29K
$70,000
Feb. 2013:
11.2%
12%
$59,415
$60,000
Feb. 2013:
7.9%
10%
$50,000
+24K
8%
$40,000
$32,493
Feb. 2013:
6.7%
6%
4%
$30,000
$20,000
Feb. 2013:
3.8%
2%
$10,000
$0
0%
'92
'94
'96
'98
'00
'02
'04
'06
Source: BLS, FactSet, J.P. Morgan Asset Management.
'08
'10
'12
High School Graduate
Bachelor's Degree
Advanced Degree
Source: Census Bureau, J.P. Morgan Asset Management.
Unemployment rates shown are for civilians aged 25 and older.
Data are as of 3/31/13.
28
Housing Recovery Underway
 Improvements in building permits, new home starts, sales, and
pricing are all pointing to a stronger housing market.
 Summary of Housing Indicators
Year over Year (SA)
Starts

46.74%
Permits

17.95%
New Home Sales

18.47%

10.31%

9.36%*

21%
Existing Home Sales
Price (Case-Shiller)*
Foreclosures as % of Sales

*as of 02/28/13

Source: FactSet, National Association of Realtors, 04/30/13
29
Consumer and Small Business Confidence
Despite some setbacks along the way, consumer and business
sentiment has been moving higher since 2009.
 Confidence is Improving
105
100
Consumer Confidence Survey
100
80
95
60
90
40
85
20
Small Business Confidence Index Level
Consumer Confidence Index Level
120
Small Business Optimism Survey
0
2006

80
2007
2008
Source: FactSet, Bloomberg, 05/08/13
2009
2010
2011
2012
2013
30
Policy Detour: Eurozone Crisis
The euro area could emerge from recession near the
end of 2013 or the beginning of 2014.
Euro Area GDP Growth Estimates
Percent
Actual
3.00
2.2 2.2 2.2 2.4
Estimated
1.6
2.00
1.0
1.00
1.3
0.6
0.3
0.00
-0.1
-1.00
-2.00
-2.3
-3.00
-4.00
-0.9-0.9 -0.7
-0.4
Shallow recession in
2012 expected to
continue thru 2013
-4.4
-5.00
-6.00
-0.5 -0.7
-5.3
Source: Bloomberg Finance LLP, Quarterly Consensus Estimates, 05/08/13
31
Sovereign Debt Stresses
GDP Growth, Gross Debt to GDP and Borrowing Costs
10%
Bubble size = 10-year
government bond yield
China
8%
Indonesia
10%
Real GDP Growth (2011 – 2013F)
6%
India
Malaysia
5%
Turkey
4%
Russia
Korea
Singapore
Mexico
Brazil
2%
Australia
U.S.
Germany
South Africa
Japan
France
EU
0%
U.K.
Italy
Spain
-2%
Portugal
-4%
Emerging Markets
-6%
Greece
Developed Markets
-8%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180% 240%
Gross Debt-to-GDP Ratios (2012F)
Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.
Growth and debt data are based on the October 2012 World Economic Outlook.
Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africa’s
borrowing cost is based on 7-year government bond yield due to data availability.
Data as of 3/31/13.
32
Eurozone: Sovereign Bond Yields
GTM – U.S.
European Sovereign Funding Costs
3/31/13
10-year benchmark bond yield
35%
Euro launch
30%
Greece
10.90%
Portugal
6.26%
Spain
Italy
Ireland 4.2%
5.06%
4.68%
4.40%
1.28%
Germany
25%
20%
LTRO
15%
OMT
10%
5%
0%
'95
'97
'99
'01
'03
'05
'07
'09
'11
Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management.
Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary Transaction (OMT)
program was announced in September 2012.
Data are as of 3/31/13.
33
Global Consumers―
The Engine of Growth
34
The World’s Economic Face is Changing
 Emerging Economies Overtaking Developed
Percent Share of Global GDP (PPP)
65
60
Emerging
Economies
2017 54% e
55
50
Developed
Economies
2017 46% e
45
40
35
2000


2002
2004
2006
2008
2010
2012
2014
2016
The Purchasing Power Parity (PPP) exchange rate is defined as the amount of currency needed to purchase the
same basket of goods and services as one unit of the reference currency, usually the U.S. dollar.
Source: IMF, 10/12
35
Emerging Economies’ Growing Middle Class
Middle class consumers are increasing at a rapid pace, especially in
emerging economies, adding spending power to the global markets.
6,000,000,000
 More Global Middle Class1 Consumers
5,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
1,800,000,000
2,000,000,000
1,100,000,000
1,000,000,000
0


1980
2009
Source: McKinsey Quarterly, 01/12
1 Defined as having daily per capita spending of $10 to $100 in purchasing-power-parity terms.
2030
36
More People, More Demand
37
Demographics Drive Demand
Global demographics support the shift in global
consumption trends.
Global Age Distribution
as % of Regional Population
0.0
0.2
0.5
100+
90-94
1.4
2.4
80-84
3.2
4.1
4.4
70-74
AGE RANGE
0.0
0.0
0.1
0.3
0.7
1.3
1.8
2.4
6.1
6.6
7.1
7.2
7.1
7.0
6.9
6.9
6.7
5.9
5.4
5.5
5.5
60-64
50-54
40-44
30-34
20-24
10-14
0-4
12
10
8
6
Emerging Country Population (%)
Developed Country Population (%)
3.3
4.4
4.9
6.3
7.1
7.4
7.6
8.4
9.1
8.9
8.7
8.7
8.8
4
2
0
2
4
6
8
10
12
PERCENT OF TOTAL REGION
Source: U.S. Census Bureau: International Database
38
Global Manufacturing Wages
Manufacturing Wages
Nominal, average USD per month
$4,000
Emerging Countries
Developed Countries
$2,000
$3,885
2001*
$3,716
$3,500
Latest
$1,750
$3,000
$1,500
$2,958
$2,942
$2,500
$1,250
$2,000
$2,089
$1,000
$2,077
$866
$1,500
$750
$1,000
$500
$455
$500
$309
$352
$348
$74
$323
$139
$250
$193
$112
$52
$148
$0
$0
U.S.
Germany
Japan
Brazil
Mexico
China
Thailand
Vietnam
Indonesia
Source: ILO (International Labor Organization), U.S. Bureau of Labor Statistics, Ministry of Labor-Mexico, EM Advisors Group, Thailand National Statistical Office, General
Statistics Office of Vietnam, Statistics Indonesia, IMF, FactSet, J.P. Morgan Asset Management.
Chinese wages are those of rural migrant workers as a proxy. *Data begins in 2005 for Vietnam due to availability of data.
Data is from 2012 for Mexico, China, and Thailand; 2011 for United States, Vietnam (preliminary), and Indonesia (preliminary);
and 2010 for Brazil, Germany, and Japan.
Data as of 3/31/13.
39
Out of Extreme Poverty
In East Asia, the number of “working poor” ($2/day)
has decreased dramatically.
East Asia*―Working Poor ($2/day)
as % of Total Employment
76.7%
1998E
18.0%
2011E
*China, Hong Kong, Macau, Taiwan,
North Korea, South Korea, Mongolia
E: Estimate
Source: United Nations, International Labour Organization, Global Employment Trends 2007-2011 &
Global Employment Trends 2012: Preventing a Deeper Job Crisis
40
Rising Incomes Spur Migration
Rising urban incomes continue to attract rural migrants
to China’s cities, promoting consumption.
China Per Capita Annual Urban Disposable Income
$4,500
Annual Per Capita Income in Current $
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: Bloomberg Finance LLP, 03/11/13
41
Uneven Growth Among Countries
Debt-heavy developed nations are expected to grow more slowly
than emerging and frontier economies.
 Global Macro GDP Forecasts 2013
Percent
9
Developed Economies
8
7.8 7.8
Emerging Economies
7
6.7 6.7 6.7
6.1
5.9 6.0
FrontierEconomies
6
5.3
5
4.2
4
3
2.3
2
2.8
3.0
1.6
0.6 0.7
1
1.1
0.0
0
-1
2.5
3.6
3.4 3.4 3.4 3.5 3.5
3.2 3.2 3.3
-0.6
-2

Source: Wells Fargo Wealth Management, 03/31/13
42
43
Crude Oil and Energy Independence
U.S. production and imports of crude oil have reversed
a 25-year trend.
Energy Independence―Progress
In thousands of barrels
6,000,000
Total Imports
2005-2012
Production
Up 25%
Production
5,000,000
4,000,000
2005
3,000,000
2005-2012
Imports
Down 16%
Peak
Imports
2,000,000
1,000,000
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
0
Source: U.S. Energy Information Agency, 04/09/13
44
Velocity of Money, Income,
and Yields
45
Velocity of Money is Low
Increased money supply has been absorbed by banks,
corporations, and individuals.
Willingness to Spend is Still Low
M2 Velocity
2.2
2.1
M2 Money Supply (in billions)
11000
Money Supply
M2 Velocity of Money
10000
2
9000
1.9
8000
1.8
7000
1.7
6000
1.6
5000
1.5
1999
4000
2002
2005
2008
2011
Source: Bloomberg Finance LLP, 03/11/13
46
Consumers Making Progress
Lower interest rates have helped bring U.S. household
debt service costs to the lowest level in 32 years.
U.S. Household Debt Service Ratio
14.5
14
Estimated Ratio of Debt Payments to Disposable Income
(in percent)
13.5
13
12.5
12
11.5
11
10.5
10
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Bloomberg Finance LLP, 04/09/13
47
Historical Rate Perspective
Treasury rates are at historic lows. We believe there are better
opportunities elsewhere.
Rate (in percent)
 10-Year U.S. Treasury Yield
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
04/30/2013 =
1.68%
0.0
'81


'83
'85
'87
'89
'91
'93
Past performance is no guarantee of future results.
Source: FactSet, as of 04/30/13
'95
'97
'99
'01
'03
'05
'07
'09
'11
48
Fixed Income: Yields vs. Price

Source: WMG Research
49
Lots of “Dry Powder” on the Sidelines
Ample liquidity remains available to support financial market
growth as risk appetites improve.
$ Billions
 Liquidity on the Sidelines
4,500
4,000
3,500
3,000
2,500
2,000
15-Year Average
1,500
1,000
500
0
1996

1998
2000
2002
2004
Source: ICI, as of 04/30/13
Liquidity represented by money market mutual fund assets.
2006
2008
2010
2012
50
Beware of Holding Too Much Cash
Inflation can eat away at investment returns. Exposure
to equities may help to maintain purchasing power.
Dollars
$2.50
$2.00
Real Growth of a Dollar
Cash - Scenario 1
Cash - Scenario 2
Cash - Scenario 3
S&P 500
$1.96
$1.50
$1.00
$1.00
$0.50
$0.54
0.0%
$0.74
1.5%
3.0%
6.4%
$0.00
Next 20 Years
Cash–Scenario 1 assumes 0.0% nominal return, Cash–Scenario 2 assumes 1.5% nominal return, Cash–Scenario 3 assumes 3.0%
nominal return, S&P 500 assumes 6.4% nominal return, and the inflation assumption is 3.0 percent.
Source: FactSet, 02/12
51
2013 Investment Observations
52
A Dynamic World Requires Discipline and Flexibility
 Governmental response to various crises—such as the
Eurozone debt crisis, unrest in the Middle East, and slowing
growth in emerging economies—could change the short-term
outlook for returns
 Tax code changes in U.S. require planning review
Strategies
Discipline: develop diversified strategic allocation
Flexibility: implement tactical tilts to take advantage of
temporary opportunities - Reduce Fixed Income; Add to Equities
Safety: maintain liquidity to avoid having to sell on unfavorable terms
Monitor: to avoid risk exposure drift
Source: Wells Fargo Wealth Management, 04/13
53
Take the Long-Term View
Large Cap Rolling 10-Year Returns
Annualized S&P 500 Total Returns
25%
Rolling 10-Year Return
Average
20%
15%
10%
5%
0%
-5%
-10%
'35 '39 '43 '47 '51 '55 '59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11

Source: WMG Research; FactSet
54
And Keep Performance in Perspective
Bear Markets
10000
S&P 500 Price Index
1950 - 2010
1000
-49%
-57%
-34%
100
-27%
-21%
-22% -36%
-48%
-28%
10
'50 '53 '56 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

Source: Bloomberg
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Core Investment Beliefs
The greatest risk faced by individual investors is not meeting their goals.
To minimize this risk we:
Employ broad asset class diversification and
broad global diversification
Pay attention to the portfolio risks beyond volatility
Provide our clients access to objective and impartial
investment choices
Develop long-term relationships with our clients and
their families
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Disclosures
Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.
The information and opinions in this report were prepared by the investment management division within Wells Fargo Private
Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their
accuracy or completeness. Opinions represent Wells Fargo Private Bank’s opinion as of the date of this report and are for general
information purposes only. Wells Fargo Private Bank does not undertake to advise you of any change in its opinions or the
information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with,
and reach different conclusions from, this report.
This material is for general information only, is not suitable for all investors and is not soliciting any action from any particular
investor. Information and opinions presented have been obtained or derived from sources we believe reliable, but we cannot
guarantee their accuracy or completeness. Opinions represent WFB’s judgment as of the date of the report and are subject to
change without notice. WFC affiliates may issue reports or have opinions, which are inconsistent with, and reach different
conclusions from, this report.
This report is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities mentioned. Wells Fargo & Company
and/or its affiliates may trade for their own accounts, be on the opposite side of customer orders, or have a long or short position in
the securities mentioned herein.
The investments discussed or recommended in this report are not insured by the Federal Deposit Insurance Corporation (FDIC) and
may be unsuitable for some investors depending on their specific investment objectives and financial position.
Past performance is not a guide to future performance. Income from investments may fluctuate. The price or value of the
investments also may fluctuate. There is always the potential for loss as well as gain.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Investing in foreign securities presents certain risks that may not be present in domestic securities and may not be suitable for all investors.
Real estate investment carries a certain degree of risk and may not be suitable for all investors.
Some real assets may be available to pre-qualified investors only.
Some alternative investments and complementary strategies may be available to prequalified investors only. Hedge strategies and
private investments may be speculative and involve a high degree of risk. Hedge strategies and private investment performance can
be volatile. An investor could lose all or a substantial amount of his or her investment. There is no secondary market for the
investor’s interest in a hedge fund or private equity investment and none is expected to develop. There may be restrictions on
transferring interests in a hedge fund or private equity investment.
Fixed income securities are subject to availability and market fluctuation. These securities may be worth less than the original cost
upon redemption. Certain high-yield/high-risk bonds carry particular market risks and may experience greater volatility in market
value than investment grade corporate bonds. Government bonds and Treasury bills are guaranteed by the U.S. government and, if
held to maturity, offer a fixed rate of return and fixed principal value. Interest from certain municipal bonds may be subject to state
and/or local taxes and in some instances, the alternative minimum tax.
57
Disclosures (cont.)
Investing in foreign securities presents certain risks that may not be present in domestic securities and may not be suitable for
all investors.
Municipal bonds offer interest payments exempt from federal taxes, and potentially state and local income taxes. Unlike U.S.
Treasuries, municipal bonds are subject to credit risk and potentially the Alternative Minimum Tax (AMT). Quality varies widely
depending in the specific issuer.
Corporate bonds generally provide higher yields than U.S. Treasuries while incurring higher risk.
Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an
investment decision.
Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this
information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of
your situation at the time your tax preparer submits your return .
You cannot invest directly in an index.
The Institute of Supply Management (ISM) Purchasing Manager’s Index gauges internal demand for raw materials/goods that go
into end-production. An index values over 50 indicate expansion; below 50 indicates contraction. The values for the index can be
between 0 and 100. You cannot invest directly in an index.
The S&P/Case-Shiller® U.S. National Home Price Index is a broad, market value-weighted composite of single-family home price
indices for the nine U.S. Census divisions and is calculated quarterly.
S&P 500 Index is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. The index includes
500 widely held U.S. market industrial, utility, transportation and financial companies.
S&P Midcap 400 Index is an unmanaged capitalization-weighted index of common stocks representing all major industries in the
mid-range of the U.S. stock market.
S&P Small Cap 600 Index is an unmanaged capitalization-weighted index of common stocks representing all major industries in the
small-cap (between $300mn and $2 billion) are of the market.
The Market Volatility Index (VIX) is an index designed to track market volatility as an independent entity. The index calculated
based on option activity and is used as an indicator of investor sentiment, with high values implying pessimism and low values
implying optimism.
Wilshire 5000® Equity Index is an unmanaged index made up of all U.S. stocks regularly traded on the three major U.S.
exchanges, including the New York Stock Exchange, American Stock Exchange, and Nasdaq.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values.
58
Disclosures (cont.)
Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower
forecasted growth values.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 ® Index, which represents
approximately 8% of the total market capitalization of the Russell 3000®.
Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent
approximately 25% of the total market capitalization of the Russell 1000 Index.
MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure
the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2007 the MSCI EAFE Index
consisted of 21 developed-market country indices.
MSCI Europe, Australasia, Far East & Canada Gross Return Index is a free float-adjusted market capitalization index that is
designed to measure the equity market performance of developed markets, excluding the U.S.
Morgan Stanley Capital International (MSCI) Emerging Markets Global Index is a market capitalization-weighted benchmark index
made up of equities from 29 developing countries.
FTSE NAREIT Equity REIT Total Return Index is an unmanaged index reflecting performance of the U.S. real estate investment
trust market.
Equity Hedge: Equity Hedge strategies maintain positions both long and short in primarily equity and equity derivative securities.
A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and
fundamental techniques.
Relative Value Arbitrage: Investment Managers who maintain positions in which the investment thesis is predicated on realization
of a valuation discrepancy in the relationship between multiple securities.
Short Term Asset Management (STAM) is designed for investors seeking professional assistance in managing short-term
fixed-income portfolios with an average maturity of generally less than one year.
Additional information is available upon request.
© 2013 Wells Fargo Bank, N.A. All rights reserved.
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