Horne presentation - Nov 0308

Outlook for the Economy and Financial Markets 3 November 2008 Hebrew University - Jerusalem

David R. Kotok Chairman & Chief Investment Officer & J. Paul Horne Independent International Market Economist (*) 614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

• Source: The Washington Post, 24 October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 2

Source: IMF “Global Financial Stability Report” – October 2008 614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

Chart 3

Exposure of U.S. fixed income market

• Source: IMF “Global Financial Stability Repor t ” – October 2008

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 4

U.S. housing & credit bubbles deflate

• Source: IMF “World Economic Outlook” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 5

•

Source: IMF “ Global Financial Stability Repor t ” – October 2008

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 6

$28 trln. of f world equity capitalization since Oct07 peak

• Source: Bloomberg chart. Data through 19oct08.

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 7

Equity losses: from Oct’07 hi to 24 Oct. ‘08

World mkt cap down $27 trn. But above ‘02 low.

• Source: Bloomberg, MSCI Barra, Wilshire. Data as of 24oct08.

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 8

• Source: IMF “ World Economic Outlook” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 9

What Will History Say? Q uarterlyD ata12/31/1981-6/30/208

H o useh o ldR e alE staea ndS to cksR e la tivetoG D P 280 270 260 250 240 230 20 210 20 190 180 170 160 150 140 170 160 150 140 130

S um of H ousehold ListedM arketC ap(N D R C alculation*) asaP ercentageofG D P 6/30/208

R eal

E state

= 238.0%

and (

the )

M ean=201.4%

C onceptC ourtesy:P aulJones

V a lue

of H ousehold

T otal

Listed

120

6/30/208=135.8%

M arket 6/30/208=102.2%

R eal

E state

(

R elative

170

to G D P

160 150

) V a lue*

(

R elative

280 270 260 250 240 230 20 210 20 190 180 170 160 150 140

140

to G D P

130

)

120

10

10

10

10

90

90

80

80

70 60

70 60

50

*Listed M arket C om m onS tockO nly,E xcludingA D R s,M utualF unds,& P refered

40 (D A V IS 215)

1985

190

195

Source: Ned Davis davis215.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

C ap

includes:

N Y S E ,

A M E X ,

& N A S D A Q

50 40

200

205

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 10

What Will History Say? 10985 9613 8412 7361 641 5637 493 4316 377 305 2892 2531 215 1938 1696

Q uarterlyD ata3/31/1947-6/30/208

R e alG D P vsT w inD efictsasa% o fN o m in a lG D P W hen D eficit/N om inal

2-Q uarter

A bove

C hange of T w in G D P (botom clip)

Is:

R eal

0.8

B etw een

-1 and

* -1 and

0.8

B elow

N om inal

G D P

G P A

4 3 .

0 9.

1 4.

3 4 .

8 6.

6 5 9.

2 3 .

7 5.

16.

10985 9613 8412 7361 641 5637 493 4316 377 305 2892 2531 215 1938 1696

R ealG D P

% of T im e

6/30/208=1727.4 T rade+B udgetD efict(S urplus)/N om inalG D P

6 4 2 0 -2 -4 -6 -8

6/30/208=-9.5%

6 4 2 0 -2 -4 -6 -8

6/30/208=-2.8

6 5 4 3 2 1 0 -1 -2 -3

S urplus

D efict

T w oQ uarterC hangeofT w inD eficts/G D P

6 5 4 3 2 1 0 -1 -2 -3 (D A V IS 45)

G P A

G D P

Im provingD efict

D etrioratingD efict 1950

195

1960

1965

1970

1975

1980

Source: Ned Davis davis45.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

1985

190

195

200

205

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 11

Capitulation? And Strategy D ailyD ata1/03/1950-10/17/208(LogS cale)

S ta nd a rd& P or's5 0In d ex S P 50 D ays Later

A verage

A l P eriods

30

6 3 0 .

9 0 8 .

60

0 5.

9 1.

90

1 8 0.

0 3 2 .

2 8 6 0 .

0 9 2 .

252

2081091_C )

204

199

194

1989

1984

1979

1974

1969

1964

1959

U pA row sD esignatetheF irstT im e theS & P 50D ropedB elow its 20-D ayM ovingA verageby2%

21 18 15 12 9 6 3 0 -3 -6 -9 -12 -15 -18 -21 -24 -27 -30 (H O T

1696 1323 1032 805 628 490 382 298 232 181 141 10 86 67 52 41 32 25 19

% G ain: B elow -22%

1954

1696 1323 1032 805 628 490 382 298 232 181 141 10 86 67 52 41 32 25 19

21 18 15 12 9 6 3 0 -3 -6 -9 -12 -15 -18 -21 -24 -27 -30

V eryO versold

S & P 5 0P e rce ntageF ro m 2 0-D ayM o vingA ve ra ge

Source: Ned Davis HOT200810091_c.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 12

Capitulation? And Strategy D ailyD ata3/05/1957-10/20/208(LogS cale)

S ta nd a rd& P or's5 0In d exa ndD a ilyV o latily 142 172 96 796 656 541 46 367 303 249 206 169 140 15 95 78 64 53 4

A verage P ercentageR eturns A fterV olatiltyS pikes D ays Later

S & P

500

A fter S pikes

A l P eriods

10

1 0.

0 3 .

2

3 0.

0 6 .

63

3 8.

1 9 .

126

1 5 4.

3 9 .

189

2 3 1.

6 0 .

252

2 1 0.

8 2 .

P eaksinD ailyV olatiltyselctedinhindsight.

B oxindicateshow S & P 50perform edafter peaksinD ailyV olatilty.

S pikesin4-D ayV olatiltyforS & P 50Index (4-D ayA verageD ailyH ighM inusLow % C hange)

4.0

12/15/87

3.0

+2S D

2.5

+1S D

2.0

M ean

D ashedLines=S tdD ev

0.5

10/15/98

7/12/62

1.5

-1SD

1.0

3.5

9/502

1.0 0.5

-2SD

1.5

12/10/82

6/25/70

3.0

2.0

4.0

10/31/74

3.5

2.5

142 172 96 796 656 541 46 367 303 249 206 169 140 15 95 78 64 53 4

Index

10/20/208=4.3%

Source: Ned Davis S233.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

207

202

197

192

1987

1982

197

1972

1967

(S 23)

1962

C onceptC ourtesyofS am S toval

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 13

What Do Panic Lows Look Like?

N ew C hart

D JIA P e rfo rm an ceA ro undW a te rfa lD e clin es 132.0 130.

128.1 126.2 124.3 12.5 120.7 18.9 17.1 15.4 13.7 12.0 10.3 108.7 107.1 105.

103.9 102.4 10.9

H istoricalC ycleD JIA ( A lcyclesindexedto10atendofW aterfalD eclin e(dashedverticaline).

(D A V IS 18)

10/29/1929 10/18/1937 5/24/1940 9/10/1946 10/2/1957 5/28/1962 5/26/1970 10/4/1974 10/19/1987 7/23/202

H istoricalC yclesB asedonendofW aterfalD eclineD atesof:

13 107 101 95 90 85 80 75 71 67 63 59 56

132.0 130.

128.1 126.2 124.3 12.5 120.7 18.9 17.1 15.4 13.7 12.0 10.3 108.7 107.1 105.

103.9 102.4 10.9

)

H istoricalC ycle10-D ayS m othingofN Y S E V olum e(

-63

-42

<-D aysB efore->

-21

0

+21

+42

Source: Ned Davis davis118.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

13 107 101 95 90 85 80 75 71 67 63 59 56

)

<-D aysA fter->

+63

+84

+105

+126

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 14

What Do Panic Lows Look Like?

N ew C hart

D o w Jo n esIn d u stria lA vera g eT h isC ycle 138.4 136.3 134.3 132.3 130.3 128.4 126.5 124.6 12.7 120.9 19.1 17.3 15.

13.8 12.1 10.4 108.

107.2 105.6 104.0 102.4 10.9

D JIA 7/2/208-10/20/208( D JIA & V olum eindexedto10on10/10/208(dashedvertica line).

104 97 90 83 7 71 6 61 57 53 (D A V IS 18A )

138.4 136.3 134.3 132.3 130.3 128.4 126.5 124.6 12.7 120.9 19.1 17.3 15.

13.8 12.1 10.4 108.

107.2 105.6 104.0 102.4 10.9

)

10-D ayS m othingofN Y S E V olum e(

-63

-42

<-D aysB efore->

-21

0

+21

+42

Source: Ned Davis davis118a.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

104 97 90 83 7 71 6 61 57 53

)

<-D aysA fter->

+63

+84

+105

+126

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 15

Real and Nominal Price of Oil West Texas Intermediate Crude 160 140

WTI Nominal Oil Price ($/BBL) WTI Real Oil Price ($/BBL)

120 100 Cumberland estimated September PCE

80 60

WTI off to $62.05 on 24oct08

40 20 0 1986

1990

1994

1998

2002

2006

2010

Source: LSU Energy Center and Bureau of Economic Analysis. September 2008 PCE estimated. Data through 10/03/08.

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 16

S&P 500 Energy Sector and the S&P 500 Excluding Energy Sector Returns D ailyD ata12/21/198-10/20/208(LogS cale)

S & P 5 0E n e rgyS e ctorsR e tu rnsa ndth eS & P 5 0E xclu d ingE n e rg yS e ctorR etu rn s

353 35 317 301 285 270 256 243 230 218 207 196 186 176 167 158 150 142 135 128 121 15 109 103 98 93 8 83 79 75 71 67 64 (C LD 2)

( (

)S & P )S & P

50 50

E nergy S tock

S ector Index

E xcluding

Index

E nergy

353 35 317 301 285 270 256 243 230 218 207 196 186 176 167 158 150 142 135 128 121 15 109 103 98 93 8 83 79 75 71 67 64

S ector*

*D ailyconstiuentchangestoS & P 50Indexintroduces asm alm arginoferorinS & P 50IndexexcludingE nergysector.

M

199

J

S

D

200

M

J

S

D

201

M

J

S D M

202

J

S D

203

M

J

S

D

204

M

J

Source: Ned Davis CLD2.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

S

D

205

M

J

S

D M

206

J

S

D M

207

J

S

D M

208

J

S

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 17

Food, fuel, metals - real trends

• Source: IMF “World Economic Outlook ” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 18

Housing Inventory to Sales Ratios M onthlyD ata6/30/1982-8/31/208

H o usin gInven to ry-to -S ale sR atios 12

T otal

8/31/208=10.1

12

1

1

10

10

9

9 T oM anyH om esA vailable

8

8

7 6

7 6

B alncedM arket

5 4 13 12 1 10 9 8 7 6 5 4 1

5 4

T oF ew H om esA vailable

M easuredasM onths'A vailableS uply E xistingS ingle-F am ilyH om es

8/31/208=10.

S ource:H averA nalytics,N ationalA sociationofR ealtors

N ew H om es

10

8/31/208=10.9

13 12 1 10 9 8 7 6 5 4 1 10

208

207

206

205

204

203

202

201

200

199

198

197

196

195

194

193

192

4 191

5

4 190

5

1989

6

198

7

6

1987

7

1986

8

1985

8

1984

9

1983

9

(E 246I)

Source: Ned Davis E246I.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 19

S&P/Case-Shiller Composite Home Price Index M onthlyD ata1/31/1987-7/31/208(LogS cale)

S & P /C a se -S h ilerC o m po siteH om eP riceInd e xs 218 202 18 174 162 150 139 129 120 11 103 96 89 82 76 71 6

C om posite

C om posite

7/31/208=-17.5%

10 H om e (

P rice

7/31/208=-16.3%

20 H om e

20 H om e (

P rice

Index

P rice

P ricesR isng

Index

)

Index

)

P ricesF aling

208

207

206

205

204

203

202

201

200

)

199

(

198

7/31/208=16.2

196

195

194

)

Index

193

(

192

P rice

191

190

1989

198

1987

7/31/208=178.5

10 H om e

197

C om posite C om posite

20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16 (E 0760)

218 202 18 174 162 150 139 129 120 11 103 96 89 82 76 71 6

T heindexesm easurew eighted-averagechangesinvaluesofresidential housingm arketsacrosselctm ajoregionalm etropolitanareas.

20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16

S & P /C a se -S h ilerC o m po siteH om eP riceInd e xs(Y ea r-to -Y e a rC h a ng e )

Source: Ned Davis E0760.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 20

Reuters / University of Michigan Consumer Sentiment Index for Personal Finances M onthlyD ata1/31/1978-9/30/208

R e uters/U n ive rsityo fM ich iga nC o n su m erS e n tim e ntInd e xforP e rso na lF in aces 142 140 138 136 134 132 130 128 126 124 12 120 18 16 14 12 10 108 106 104 102 10 98 96 94 92 90 8 86 84 82 80 78 76 74 72 70

142 140 138 136 134 132 130 128 126 124 12 120 18 16 14 12 10 108 106 104 102 10 98 96 94 92 90 8 86 84 82 80 78 76 74 72 70

P ersonalF inances

E achm onth50surveysofU S householdsareconductedaskingIsyourfam ilybeterorw orseofinancialythanayearago?

208

207

206

205

204

203

202

201

200

199

198

197

196

195

194

193

192

191

190

1989

198

S ource:R euters/U niversityofM ichiganS urveysofC onsum ers 1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

S hadedareasrepresent N ationalB ureauof E conom icR esearchrecesionsdates.

(C D L 3)

Source: Ned Davis CDL3.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 21

Real GDP v. Conference Boardâ&#x20AC;&#x2122;s Expectations of Business Conditions R e alG D P vsC o n fe rn ceB o ard 'sE xpe ctaion sofB usine sC o nd ito n s 32 30 28 26 24 2 20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 -20 -2 -24 -26 -28 (E 0817)

S m othedY ear-to-Y earC hange

R eal S caleR ight (

G D P

M onthlyD ata12/31/1970-6/30/209

LatestE xpectedB usinesC onditonsIndexR eading C orespondsto-0.9% R ealG D P G row th

) E xpected

(M ovedA headN ineM onths)

B usines

C onditons S caleLeft (

Index

)

C orelationC oeficient=0.71

S ource:T heC onferenceB oard 1975

1980

1985

190

Source: Ned Davis E0817.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

195

200

8.4 8.1 7.8 7.5 7.2 6.9 6.

6.3 6.0 5.7 5.4 5.1 4.8 4.5 4.2 3.9 3.6 3.

3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0.

-0.3 -0.6 -0.9 -1.2 -1.5 -1.8 -2.1 -2.4 -2.7

205

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 22

Unemployment Rate v. NFIB Hiring Plans M onthlyD ata10/31/1974-1/31/209

U n em p lo ym e ntR a tevsN F IB H irngP la ns -5

N F IB H irng (S ix-M onthS m othing) A dvancedF ourM onths 1/31/209=5.5% InvertedS ca leLeft

-4 -3 -2

P lans

(

Index

U nem ploym ent 9/30/208=6.1% S ca leR ight (

)

-1

10.8 10.6 10.4 10.2 10.

9.8 9.6 9.4 9.2 9.0 8.

8.6 8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0 6.8 6.

6.4 6.2 6.0 5.8 5.6 5.4 5.2 5.0 4.8 4.6 4.

4.2 4.0 3.8

R ate )

0 1

Im pliedU nem ploym entR ate for10/31/208=7.21%

2 3 4 5 6 7 8 9 10 1 12 13 14

C orelationC oeficent=-0.85

15 16 17

209

208

207

206

205

204

203

202

201

200

199

198

197

196

195

194

193

192

191

190

1989

198

1987

1986

1985

1984

1983

1982

1981

D atreportedquarterlypriorto1986 1980

1979

197

1976

1975

19

1978

N ationalF ederationof S ource: IndependentB usines T heS m alB usinesE conom icT rends

18

(E 832)

Source: Ned Davis E832.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 23

Muni Madness

Source: Bloomberg. Daily data through 10/21/08.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 24

Muni Move Unprecedented W eklyData1/08/1965-10/17/208(LogScale)

M unis,TreasurysandtheIm pliedTaxRate 15 12

20-Year Treasury 10/17/208=4.60% (

10

Yield )

Munis,AgenciesandtheIm pliedTaxR 15

8.6

12

8.0

10

7.4

8

8

7

7

6

6

5

6.8 6.3 5.8 5.4

5

5.0

4

4.6

3

3

4.2

120 12 MuniYieldsasa% ofTreasuryYields 104 96 8 80 72

120 12 104 96 8 80 72

15 10 105 10 95 90 85 80

34.2 30.4 26.

2.8 19.0 15.2 1.4 7.6 3.8 0.

-3.8 -7.6 -1.4 -15.2 -19.0 -2.8 -26.

21 18 15 12 9 6 3 0 -3 -6 -9 -12 -15

20-Year

4

Bond (

Yield

)

MunisUndervalued

Mean=85.2%

MunisOvervalued Implied

Tax Rate

= 1 - Muni Yield TreasuryYield

10/17/208=130.7% CurentImpliedRate=-30.7%

Munis Undervalued Ifinthe35% taxrate,favorMunisonayieldbasi Ifinthe15% taxrate,favorMunisonayieldbasi

Munis Undervalued

196 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 197 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 198 1989 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208

34.2 30.4 26.

2.8 19.0 15.2 1.4 7.6 3.8 0.

-3.8 -7.6 -1.4 -15.2 -19.0 -2.8 -26.

10/17/208=6.01%

Municpal

(B470)

(B471)

Source: Ned Davis B470, B471.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 25

20-Year

Implied

TED Spread, Fed Funds and TAF 6 3 MO LIBOR 5 Fed Funds

3 MO T-BILL

4

Term Auction Facility

3

2 TAF London Interbank Offered Rate, (USD LIBOR), 3 Month

1

OIS 3 Mo

USD Swap OIS 3 Mo Treasury Bill, Benchmark, 3 month, Yield percent, US

0

Federal Funds Target Rate, Percent, US

-1 Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Source: Federal Reserve Board of Governors and Global Insight. Data through 10/20/08.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 26

Apr-08

Jul-08

Oct-08

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Factors Adding to Reserves and Off Balance Sheet Securities Lending Program 8/8/07 – 10/23/08 Securities Lent - Off Balance Sheet Overnight

1850

Securities Lent Off Balance Sheet Term Facility Mutual Fund Facility

1650

Other Assets less Euro-TAF Maiden Lane

1450

$ Billions

Other Credit Extensions

1250

Primary Dealer Credit Facility Foreign CB TAF inc. 9 CBs

1050

TAF RPs

850 PDCF 03/16/08

TSLF 03/11/08

TAF 12/12/07

450

Series Break

TDWP 08/17/07

650

'Reg Disc Window Lending (Prim, Second & Seas Credit" Securities

15-Oct-08

17-Sep-08

20-Aug-08

23-Jul-08

25-Jun-08

28-May-08

30-Apr-08

2-Apr-08

5-Mar-08

6-Feb-08

9-Jan-08

12-Dec-07

14-Nov-07

8-Aug-07

Week

Misc (Float, Treas Curr, Spec Draw Rights & Gld Stock

Note: Date are weekly averages for all but the Foreign Central Bank TAF which are as of the last day of the week.

Source: Federal Reserve Board of Governors Statistical Release H.4.1. Data through 10/23/08. ©Copyright 2008 Cumberland Advisors, Inc.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 27

Further distribution prohibited without prior permission.

Global Bond Risk Premiums Were Shrinking Outside the United States (1/2/98 â&#x20AC;&#x201C; 10/21/08) 800

1800

LTCM

700

1600

600

Basis Points

1400 1200

9/11

500

Argentina default

17-Mar-08

400 300

1000

18-Jul-07

200

21-Feb-07

9-May-06

800

100 Jan-06

Jan-07

Jan-08

600 400 200

Daily Spreads of JPMorgan's Emerging Market Bond Index (EMBI)+ Sovereign over US Benchmark Bond Yields. Daily data through 10/21/08.

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: JP Morgan and Cumberland Advisors.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 28

Global Bond Risk Premiums Were Shrinking Inside the United States (1/7/98 â&#x20AC;&#x201C; 10/16/08)

Basis Points

1500

1500 1400 Argentina 1300 800 default 1200 9/11 1100 1000 9-May-06 100 LTCM 900 Jan-06 800 700 600 500 400 300 High Yield Index II (formerly DLJ High Yield Index) Spread to Worst 200 CS expressed in basis points. Weekly data through 10/16/08.

100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Bloomberg and Cumberland Advisors.

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

17-Mar-08

18-Jul-07 21-Feb-07

Jan-07

Jan-08

Jan-09

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

Chart 29

Financial crises compared

• Source: IMF “ Global Financial Stability Repor t”, October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 30

• Source: IMF “Global Financial Stability Repor t ” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 31

World trade and decoupling in doubt

• Source: IMF “ World Economic Outlook ” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 32

Leading indicators off the cliff

• Source: IMF “World Economic Outlook ” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 33

Summer time optimism at the IMF

• Source: IMF “World Economic Outlook” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 34

• Source: IMF “World Economic Outlook ” – October 2008 Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 35

USD - EUR Trends

â&#x20AC;˘ Source: Daily data from Federal Reserve.

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

Š

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 36

Long view in real terms – Up & Down

• Source: Standard & Poor’s, Cowles Commission data. Dividends not reinvested.

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 37

About Cumberland Advisors Cumberland Advisors supervises approximately $960 billion in separate account assets for individuals, institutions, retirement plans, government entities, and cash management portfolios. Cumberland manages portfolios for clients in 42 states, the District of Columbia, and in countries outside the U.S. Cumberland Advisors is an SEC-registered investment adviser.

Munis, Taxables, ETFs Cumberland’s portfolio management efforts emphasize long-lasting relationships and continuous dialogue among clients, their consultants, tax advisors, accountants, estate planners, and their assigned portfolio management contact at Cumberland.

Cumberland offers several different investment portfolio management styles. Our investment strategy is described in detail on our website.

Fixed Income All of our fixed-income offerings are total return strategies, but can take the client’s current income needs into consideration. Our fixed income styles are Tax-Free Municipal Bonds, Taxable Bonds, and Short-Term Investment Program Stocks Cumberland uses Exchange-Traded Funds to manage global equities. Exchange-Traded Funds (ETFs) are securities that mimic the price performance and dividend yield of an index, or a basket, of securities. Cumberland uses ETFs as building blocks in crafting a portfolio, investing in attractive equity sectors, industries, market capitalization strata, styles, and regions. Our equity portfolios are U.S. Exchange-Traded Funds (ETF) Equity, International Exchange-Traded Funds (ETF) Equity, Emerging Markets Exchange-Traded Funds, and Global Multi-Asset Class Exchange-Traded Funds.

Balanced Accounts Cumberland can blend the strategies presented above to create a balanced mix of stocks and bonds.

For further information about Cumberland Advisors, please visit our website at www.cumber.com.

* Cover page : J. Paul Horne is not and has not been an employee of Cumberland Advisors.

Copyright 2008 Cumberland Advisors, Inc. Further distribution prohibited without prior permission.

©

614 Landis Avenue, Vineland, NJ 08360 800-257-7013 www.cumber.com

Chart 38