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Forecast 2014Tuesday, February 4, 2014 | 1st Floor Conference Room

Words We LearnedA phablet is aYoung childs attempt at spelling alphabetPrescription medicationA device in size between a more traditional smart phone and tablet computer2Phablet

3Words We LearnedBitcoin isSomething to do with computer storageSomething you use for an arcade gameA peer-to-peer payment network and digital currency4Bitcoin

5Words We LearnedA selfie isA type of self-portrait photograph, typically taken with a hand-held digital camera or phoneThe Oxford dictionary 2013 word of the yearIs 100% culturally accepted in todays world, but probably something were going to make fun of ourselves for sometime in the futureAll of the above6Selfie

7Where Weve Been2013 PerformanceS&P 500 +30%10-year Treasury Yield @ 3%Gold -28%MSCI Emerging Markets -8%

8Experts OpinionLPL Mid-Year Stock Market Outlook, We are preparing for rocky terrain and difficult footingS&P 500 has gained +14% from end of JuneAlso called for uptick in volatilityVIX, volatility index declined 26% in second half of the yearWe are not out of the woods yet9Experts OpinionBlackrocks Byron WienGold will reach $1,900/oz in 2013S&P 500 will fall below 1,300Harry DentDow Jones Index will fall below 5,000 in 2013Finished year at 16,481Average Wall Street Bank S&P 500 price target: 1,543Finished at 1,842UBS predicted 1,425Merrill Lynch predicted 1,60010Experts OpinionDavid Tepper, Founder and President of Appaloosa Managementguys that are short, they better have a shovel to get themselves out of the grave.Quote from CNBC Squawk Box interviewIf the Fed doesnt taper back, were going to get into this hyper-drive market.Called the stock market a My Cousin Vinny marketReference to a popular 1992 film where evidence supporting his bullish case was overwhelming and undeniable11Experts Opinion2014 Outlooks

12All-Time HighsMajor stock indices reach fresh all-time highsOne of the best years ever? Actually, not that extraordinary

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The Fed Tapered, ButFederal Reserve announced their decision to reduce asset purchases by $10 billion per monthHowever...Bernanke was quoted as saying, The action today is intended to keep the level of accommodation the same overallFed vows to keep interest rates unchanged until unemployment rate is below 6.5%14Meet the New Chairman Chairwoman of the FedBen Bernanke will step down as Chairman at the end of JanuaryJanet Yellen will now take charge of the Federal ReserveFirst ever Chairwoman of the U.S. Federal Reserve

15Government Shutdown = Speed BumpShutdown sounded more scary than it wasLasted 15 days from October 1-16Only 17% of government actually shutdownSince 1976, there have been 17 shutdownsIncluding one lasting 21 days in December 1995 January 1996

16Government Shutdown = Speed Bump

17Government Shutdown = Speed BumpDebt ceiling suspended until February 7, 2014Allowed Treasury Department a window to theoretically issue as much debt as they want

18Commercial

19Where We Are Consumer SpendingU.S. economy grows 4.1% in Q3Personal consumption showing significant improvement

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The Commerce Department, who initially reported the U.S. economy grew at 2.8 percent in the third quarter, revised their data to indicate the economy grew at a much faster 3.6 percent rate. Many economists expressed skepticism the report indicates the U.S. economy has truly improved at a substantial pace; however, citing the majority of the growth was due to business inventories growing by an annualized pace of $116.5 billion, which is the most rapid acceleration witnessed since the first quarter of 1998, according to Bloomberg. However, an undeniably bright increase in household disposable income of 2.9 percent in the third quarter, on top of a revised 4.1 percent gain in the second quarter, gives much credence to corporations expectations that increased spending is on the way as households have more money to spend.

Bull Case: 4.1 percent economic growth is very solid and it shows weve finally turned the corner. Hardly anyone expected growth to register at this pace at any point during 2013 and not many are predicting for it to continue. If the economy continues to surprise to the upside, this stock market rally is probably just getting started.

Bear Case: This number will prove to be an aberration and we will revert back to the slow growth weve seen over the last several years. Were not out of the woods yet because there are too many structural problems with our economy, i.e., debt, tough employment conditions, etc.20JobsUnemployment rate continues to decline

http://dattaman.com/wp-content/uploads/2013/06/Unemployment-Rate3.jpg

The U.S. Labor Department announced 203,000 net new jobs were created in November, besting consensus expectations for an 185,000 gain, according to Bloomberg. Furthermore, the headline unemployment number dropped to the lowest level since November 2008 and now stands at 7.0 percent, as depicted on the chart. The report indicated broad strength across many industries, including overall factory jobs breaching the 12 million mark for the first time since 2009.

Bull Case: The jobs market here in the United States is clearly improving and the results are showing up throughout the rest of the economy. This trend is likely to continue and it will be beneficial for stock investors.

Bear Case: Sure, the unemployment rate has declined, but wait until I show you this next slide.21JobsLabor force participation rate near multi-decade lows

http://i2.cdn.turner.com/money/dam/assets/130906122738-labor-participation-rate-historical-620xa.png

Perhaps most interesting, the labor participation rate, or the percentage of the working age population that either has a job or is actively seeking employment, was near the lowest level seen since March 1978. This should be interpreted as a positive sign for the health of the U.S. job market because, despite more people entering the labor force, the unemployment rate still managed to decline from last month.

Bull Case: This has much more to do with the demographics of our nation than people dropping out of the workforce because they cant find a job. Not much of a concern, plus it just recently finally reversed for the first month in a long time in November.

Bear Case: The main reason the unemployment rate is declining is because people who havent been able to find a job after a long search, are dropping out of the labor force altogether. This is a structural problem you shouldnt ignore and, until our labor market actually improves in real life and not just on the statistics our government issues, our economy wont be able to grow at a sustainable enough pace to warrant the recent advances weve seen in the market.22Low Quality Jobs, Wages Stuck

23Low Quality Jobs, Wages Stuck

24Low Quality Jobs, Wages Stuck

25HousingHome construction at highest levels in almost six years

26HousingMortgage rates have increased, but still low compared to historical averages

27Inflation? What Inflation?Inflation remains lowAllows Fed to maintain accommodative monetary policy

28What is inflation anyway?Large portion tied to housingFood and beverage purchased more frequently, but not much more than 10% of total

29Household Wealth SoarsNet worth of Americans is higher than ever beforeStill lower than 2007 peak after adjusting for inflation

30Corporate EarningsThe S&P 500 rally has outpaced earnings growthCurrently expected to only slightly accelerate in 2014 and 2015

31EuropeEuropean crisis concerns silencedStocks rally overseas as confidence is restored

32Europe Steals Page From U.S. Fed

European Central Bank copies U.S. Fed policy by pushing interest rates towards 0%Same policy, same results. Low rates, stocks rally33ChinaGovernment stated the nations economy grew 7.6% in 2013Slight slowdown from 7.7% growth in 2012

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35What to Watch - 2014Federal Reserve ExitMoney FlowsRevenue & Earnings GrowthPoliticsGeopolitical Tension

36Fed ExitInterest Rates continue to rise?How will that effect economy as borrowing costs increase?

37Fed ExitWhat effect will reversing stimulus have on emerging markets?Fragile Five

38Money FlowsWill the Great Rotation accelerate?Can this propel valuations even higher?

39Money FlowsCan this propel valuations even higher?P/E ratio still below average, especially given current level of interest rates

40Revenue & EarningsStocks will eventually need sales and earnings to grow in order to sustain rallyHowever, valuations are far from high levels witnessed in1999/2000

41Revenue & EarningsSales growth estimates vary by sector

42Politics

2014 is an election yearNew debt ceiling and budget debates coming in first few months of year43Obamacare vs. Affordable Care ActCNBC survey showed46% of respondents oppose Obamacare37% of same respondents oppose Affordable Care Act29% of respondents approved of Obamacare22% of respondents approved of Affordable Care ActProblem is theyre the exact same thing!44Obamacare vs. Affordable Care Act

45Politics

46PoliticsObamacare Effects?

47Geopolitical Tension

In 2013, we escaped potential conflicts as they arose, but many threats remain that could rattle financial markets48Final Thoughts

49The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.Leonidas Maheras is a LPL Financial Advisor with, and securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

Thank You For Your Continued Support!

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