Download There is no guarantee that forecasts discussed will be realized.

The Wall of Worry:
U.S. Economic and Market Outlook
May 5, 2008
Samuel A. Wardwell, CFA
Senior Vice President
Director of Investment Communications
Pioneer Investment Management, Inc.
The views expressed in this presentation are those of the investment
professional and are subject to change at any time. These views do
not necessarily reflect the views of Pioneer or others in the
Pioneer organization.
Not FDIC insured
May lose value
No bank guarantee
Today’s Wall of Worry (a partial list)
 Recession warnings
 Credit crunch
 Rising energy prices
 Falling home prices
 Sub-prime mortgage defaults
 Falling dollar
 Bear market
 Politics
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 2
Year-to-Date Market Returns
Total Return in US$ (rescaled to 12/31/07)
5%
Lehman
Aggregate
ML HY Bond
0%
-5%
MSCI Emg
Mkts
S&P 500
-10%
MSCI EAFE
-15%
-20%
12/31/07
1/31/08
2/29/08
3/31/08
4/30/08
The S&P 500, MSCI EAFE, MSCI Emerging Markets, Lehman Brothers Aggregate Bond Index, and ML High Yield Master II
index are commonly accepted measures of the performance of US stocks, non-US developed-market stocks, emerging market
stocks, investment-grade US bonds and US high yield bonds, respectively.
Historical performance shown is provided to illustrate market trends and is not intended to represent the past or future
performance of any Pioneer product. Indices are unmanaged and their returns assume reinvestment of dividends and, unlike
investment products returns, do not reflect any fees or expenses. It is not possible to invest directly in an index.
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 3
U.S. Economic and Market Outlook
Key Themes
 The economy had not entered recession at the end of 2007 and may
well avoid recession in 2008
– The consumer is weakening, but aggressive fiscal stimulus is coming
– The Fed has moved aggressively
– Exports are a significant source of growth
– Falling home prices and the credit crunch are significant sources of risk
 Food and energy prices are rising, but core inflation is a lesser
concern
 Treasuries appear overvalued, while equities and credit bond market
valuations appear relatively inexpensive
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 4
First Quarter GDP Growth (Advance Reading) Was 0.6%
Growth Has Slowed…But Is it a Recession?
Change in U.S. Real Gross Domestic Product
8
6
4
2
0
-2
Quarterly (annualized)
-4
Q4 1985
Q4 1990
Q4 1995
Rolling 4 Quarter
Q4 2000
Q4 2005
Source: DataStream. Last data point: 4th quarter 2007 (Advance)
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 5
Pioneer’s U.S. Real GDP Forecast: Recession Not Expected
Change in U.S. Real Gross Domestic Product
8
6
4
2
0
-2
Quarterly (annualized)
Rolling 4 Quarter
-4
Q4 1987
Q4 1992
Q4 1997
Projected
Projected
Q4 2002
Q4 2007
Historical Data Source: DataStream. Last data point: 1st quarter 2007 (Advance)
Projections by Pioneer Investments Macroeconomics Team. Last forecast: March 26, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 6
Components of GDP Growth
Pioneer’s 2008 U.S. Real GDP Forecast: 1.9%
US GDP Components
6
5
4
3
2
1
0
-1
-2
1999
2000
2001
Investment
2002
Consumption
2003
2004
Government
2005
2006
Inventories
2007
2008 E
Net Trade
Source: Pioneer Investments Macroeconomics Team. Last forecast: March 26, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 7
The U.S. Housing Market Remains Weak
$250
Median Existing Single Family Home
Selling Price ($000)
$200
Nominal
Constant (12/05) $
600
Existing Single-Family Home Monthly
Sales (000)
400
$150
$100
200
$50
$0
Dec-65
Dec-75
Dec-85
Dec-95
Dec-05
Rolling 12-Month Price Change
20%
15%
10%
4
Dec-75
Dec-85
Dec-95
Dec-05
Existing 1-Family Homes for Sale
(mm)
3
`
2
5%
0%
1
-5%
-10%
Dec-65
0
Dec-65
Dec-75
Dec-85
Dec-95
Dec-05
0
Dec-65
Dec-75
Dec-85
Dec-95
Dec-05
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 8
Homebuilding Continues to Contract
2500
U.S. Housing Permits and Starts (000)
Single-Family Permits
Total Permits
Starts
2000
1500
1000
500
0
Dec-60 Dec-65 Dec-70 Dec-75 Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 9
Home Prices are Falling
Median Existing Single Family Home Selling Price ($000)
$250
Month
Rolling 12-Month Average
Latest
$200
$150
$100
$50
$0
Dec-65
Dec-75
Dec-85
Dec-95
Dec-05
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 10
Elements of the Credit Market Crisis
 Securitization
 Relying on ratings
 Greed
 Leverage
 Mark-to-market
 Margin calls
 Fear
 Panic
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 11
Fear and Illiquidity in Interbank Lending Markets
Spread Between LIBOR and Treasury Bill Yields
2.5
3 Month
Latest
2.0
1.5
1.0
0.5
0.0
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
Source: FactSet. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 12
A Flight to Quality
Difference Between 1-Month T-Bill Yield and Fed Funds (%)
1
Yield Spread
Latest
0
-1
-2
-3
12/31/01
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 13
A Flight to Quality…And a Partial Retreat
6
Fed Funds and U.S. Treasury Yields (%)
5
4
3
2
Fed Funds Target Rate
1
2 Year
5 Year
0
6/30/07
10 Year
9/30/07
12/30/07
3/30/08
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 14
Inflation-Adjusted 10-Year Treasury Yields Are Near 25-Year Lows
15%
10-Year Treasury Bond Yield
Rolling 12-month Core CPI
10%
5%
0%
10%
Real Treasury Bond Yield
5%
0%
-5%
12/31/65
12/31/75
12/31/85
12/31/95
12/31/05
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 15
The Evolving Federal Reserve Outlook…And Willingness to Act
Excerpts from Recent Press Releases and Speeches
 September 18, 2007: “…intended to help forestall some of the
adverse effects on the broader economy that might otherwise arise
from the disruptions in financial markets…”
 February 14, 2008: “The Federal Open Market Committee will be
carefully evaluating incoming information bearing on the economic
outlook and will act in a timely manner as needed to support
growth and to provide adequate insurance against downside risks.”
 April 30, 2008: “…will act as needed to promote sustainable
economic growth and price stability.”
Source: Federal Reserve press releases and congressional testimony
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 16
Monetary Policy Is Very Accommodative
The Fed Funds Rate is Below Trailing 12-Month Core Inflation
20%
Fed Funds Rate
15%
Rolling 12-month Core CPI
10%
5%
0%
10%
5%
0%
-5%
-10%
12/31/60
Real Fed Funds Rate
12/31/70
12/31/80
12/31/90
12/31/00
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 17
Oil Prices Increases are Accelerating
…And Food Prices are in the Headlines
Oil (WTI in $US)
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 18
Commodity Prices Have Lifted Headline CPI relative to Core CPI
The Fed’s Focus is (Appropriately) on Core CPI
50%
40%
30%
20%
10%
0%
-10%
-20%
Dec-60
6%
5%
Rolling 12-Month Inflation
CPI
Core CPI
CPI-Energy
Dec-65
Dec-70
Dec-75
Dec-80
Dec-85
Dec-90
Dec-95
Dec-00
Dec-05
Rolling 12-Month Inflation
CPI
Core CPI
4%
3%
2%
1%
0%
Dec-95
Dec-00
Dec-05
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 19
Unit Labor Costs and Inflation: Strong Long-Term Relationship
Recent Data Suggests Diminishing Labor Cost Pressures on Core CPI
14%
Unit Labor Costs and Inflation (Rolling 4 Quarter Change)
Unit Labor Costs
Core CPI
12%
10%
8%
6%
4%
2%
0%
-2%
Q4 1960
Q4 1970
Q4 1980
Q4 1990
Q4 2000
Source: DataStream. Last data point: 2007Q4
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 20
The Unemployment Rate Stands at 5.0%
Unemployment is Not Rising as Rapidly as in Past Recessions
11
U.S. Unemployment Rate
10
9
8
7
6
5
4
3
2
1
0
Dec-60 Dec-65 Dec-70 Dec-75 Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05
Source: DataStream. Last data point: April, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 21
Initial Unemployment Claims Continue to Trend Higher
But Remain Below Levels of the Last Recession
U.S. Initial Unemployment Claims (000)
600
claims
latest
13-wk average
500
400
300
200
100
0
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Source: DataStream. Last data point: week ending April 26, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 22
New Job Creation Continues to Weaken
But Job Losses Are Not (Yet) as Severe as in the Last Recession
600
Monthly Change in non-Farm Employment
400
200
0
-200
-400
Monthly Change
-600
Dec-85
Dec-90
Most Recent
Dec-95
Rolling 12-Month Average
Dec-00
Dec-05
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 23
Why Employment Matters: A Top-Down View of the US Economy
Composition of 2007 U.S. Gross Domestic Product
Personal Consumption
Private Investment
Change in Inventories
Net Exports
Government
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: DataStream
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 24
Incremental Contribution to Rolling 4-Quarter GDP Growth
Spending Growth Has Slowed, But Not Stopped
5%
Personal Consumption
0%
0%
-5%
-5%
5%
Net Exports
5%
Private Investment
5%
0%
Government, Change in Inventories
0%
Change in Inventories
-5%
Q4 1970
Government
-5%
Q4 1980
Q4 1990
Q4 2000
Q4 1970
Q4 1980
Q4 1990
Q4 2000
Source: DataStream. Last data point: 1st Quarter 2008 (Advance)
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 25
The Economic Stimulus Act of 2008 Should Provide Significant
Stimulus for Consumer Spending
Recession-Fighting Tax Rebates and Change in U.S. Real GDP
9
Intervention (as % of GDP)
Rolling 4 Quarter GDP Growth
7
5
3
1
-1
-3
-5
Q4 1955
Q4 1965
Q4 1975
Q4 1985
Q4 1995
Q4 2005
Source: DataStream. Last data point: 2007Q4
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 26
US Trade Weighted Dollar Is At 30-Year Lows
Trade-Weighted Value of the U.S. Dollar
150
140
130
120
110
100
90
80
70
12/31/75
12/31/80
12/31/85
12/31/90
12/31/95
12/31/00
12/31/05
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 27
Stronger Export Growth is Shrinking the Trade Deficit
US Foreign Trade (% of GDP)
20%
Imports
Exports
Deficit
15%
10%
5%
0%
-5%
-10%
Q4 1955
Q4 1965
Q4 1975
Q4 1985
Q4 1995
Q4 2005
Source: DataStream. Last data point: 1st Quarter 2008 (Advance)
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 28
U.S. Capacity Utilization Remains at High Levels
And Industrial Production Continues to Grow
95
U.S. Capacity Utilization and Industrial Production Growth
Capacity Utilization
Industrial Production annual growth (RHS)
20%
15%
90
10%
85
5%
80
0%
75
-5%
70
65
Dec-67
-10%
Dec-72
Dec-77
Dec-82
Dec-87
Dec-92
Dec-97
Dec-02
-15%
Dec-07
Source: DataStream. Last data point: March, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 29
Losses in the Financial Sector Have Stalled Profit Growth
Profit Growth Outside the Financial Sector Remains Solid
U.S. After-Tax Corporate Profits (log scale)
Q4 1950
Q4 1960
Q4 1970
Q4 1980
Q4 1990
Q4 2000
Source: DataStream. Last data point: 4th Quarter 2007
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 30
U.S. Equity Valuations Are Very Attractive Relative to Treasury Yields
S&P 500 Earnings Yield and Bond Yields
7
6
5
4
3
S&P 500 E/P (T-12)
2
Dec-00
Dec-01
Dec-02
Dec-03
10-Yr T-Bond
Dec-04
Dec-05
Dec-06
Dec-07
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. The
historical performance shown is provided to illustrate market trends and is not intended to represent the past or future
performance of any Pioneer product. Indices are unmanaged and their returns assume reinvestment of dividends and, unlike
investment products returns, do not reflect any fees or expenses. It is not possible to invest directly in an index.
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 31
High Yield Bond Default Rates Remain Low
Defaults are Expected to Rise…
Trailing 12-Month U.S. High Yield Bond Issuer-Based Default Rate
15
10
5
0
Dec-75
Dec-80
Dec-85
Dec-90
Dec-95
Dec-00
Dec-05
Source: Moody’s Investor Service. Chart prepared by Pioneer. Last data point: March, 2008.
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 32
Credit Spreads Remain Extremely Wide After the Flight to Quality
Spreads Have Narrowed Slightly Since Mid-March
US Investment Grade
Mortgages
200
300
250
150
+3 sd
+2 sd
+1 sd
Average
-1 sd
-2 sd
200
100
150
100
50
50
0
Dec-88
0
Dec-92
Dec-96
Dec-00
Dec-04
Dec-97
Dec-00
Dec-06
Dec-03
Global HY, ex-US
US High Yield
1200
900
900
600
600
300
0
Dec-89
300
Dec-93
Dec-97
Dec-01
Dec-05
0
Dec-99
Dec-02
Dec-05
Source: Bloomberg. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 33
Wider Spreads Were Largely the Product of Lower Treasury Yields
Investment-Grade Corporate Bond Yields Have Not Risen Dramatically
US Bond Index Yields
9
8
7
6
5
4
3
2
1
0
Dec-04
10-yr Treasury
Lehman BAA Credit
Lehman AA Credit
Merill Lynch BB Corporate
Dec-05
Dec-06
Dec-07
Source: Bloomberg. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 34
The US Dollar in 2007-8
A Bottom or Just a Bear Market Rally?
U.S. Dollar Relative to the Euro and Yen (rebased to 12/31/2007)
15%
US$
stronger ->
Euro
Yen
10%
5%
0%
<- weaker
-5%
-10%
-15%
-20%
12/31/06
12/31/07
Source: DataStream. Last data point: April 30, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 35
U.S. Economic and Market Outlook
Summary
 The economy can avoid recession in 2008
+ weak dollar, fiscal stimulus, accommodative monetary policy
- House prices, credit availability, systemic risk
 Home prices are a key source of risk
 There is elevated risk of systemic failures in the financial system
 Investor psychology remains dominated by fear
 Valuations appear to reflect market technical conditions more than
underlying fundamentals
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 36
Global Tactical Asset Allocation Outlook – April 24, 2008
 Global Equities
 U.S. Dollar
– US
 Yen
– Europe
 Euro
– Japan
– Emerging Markets
 Bonds
– US Government
– European Government
– Japanese Government
– US Inv. Grade Corporate
– US High Yield Corporate
– European Corporate
 US Cash/Liquidity
Source: Pioneer Investments Global Asset Allocation Committee. Last update: April 24, 2008
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 37
Investment Suitability Is Important
There is no guarantee that forecasts discussed will be realized.
The views expressed in this presentation are those of the investment
professional and are subject to change at any time. These views do not
necessarily reflect the views of Pioneer or others in the Pioneer organization.
Learn More
For information about Pioneer Investments or Pioneer products and services, visit
us at www.pioneerinvestments.com
Pioneer Investment Management USA, Inc.
60 State Street
Boston, Massachusetts
www.pioneerinvestments.com
2008 Pioneer Investments
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 38
Glossary of Terms
The consumer price index (CPI) is a statistical time-series measure of a weighted average of prices of
a specified set of goods and services purchased by consumers. The CPI measure of core inflation
systematically excludes food and energy prices because they are highly volatile.
The federal funds rate is the interest rate at which depository institutions lend balances (federal funds)
at the Federal Reserve to other depository institutions overnight.
The Goldman Sachs Commodity Index is a composite index of commodity sector returns, representing
an unleveraged, long-only investment in commodity futures that is broadly diversified across the
spectrum of commodities. The returns are calculated on a fully-collateralized basis with full
reinvestment. The combination of these attributes provides investors with a representative and realistic
picture of realizable returns attainable in the commodities markets.
Government Bonds and Treasury Bills are guaranteed by the US government as to the timely payment
of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
A Treasury Inflation-Protected Security (TIPS) is identical to a treasury bond except that principal and
coupon payments are adjusted to eliminate the effects of inflation.
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S.
stock market.
Indices are unmanaged and it is not possible to invest directly in an index.
There is no guarantee that forecasts discussed will be realized.
Past performance is no guarantee of future results.
19220-21-0508 | May 2008 | Page 39