ned davis research group - · pdf filened davis research group is comprised of ned davis...

EquitiEs, CommoditiEs & AssEt AlloCAtion– trEnds intACt or in troublE?

November 8, 2006Schroders

Tim Hayes, CMT Chief Investment Strategist

Ned Davis Research Group

Ned Davis Research (NDR) is an independent, institutional research company with global reach. Since 1980, NDR has provided institutional investors with unbiased, "one-stop" investment research. Over the years, NDR’s professional staff has developed a reputation for espousing a disciplined approach to in–depth financial analysis which is supported by the firm’s sophisticated analytic tools, commitment to data integrity, and unsurpassed customer support.

With more than 10 commentary publications, clients receive some of the broadest and most unbiased historical market perspectives on the Street. From asset allocation to sector and group work, individual stocks, economic, or quantitative research projects, NDR offers its clients unparalleled access to over 10,000 charts, reports, models and studies, many of which are illustrated by the firm’s hallmark-rich graphics.

NDR’s underlying database is one of the largest, most consistent and accurate in the industry since the firm dedicates an entire department to scouring and scrubbing data from over 175 different data vendors.

Using services from the Custom Research division, clients are able to work with analysts to design and build proprietary indicators, studies, models, custom screens, analytic testing, or various other sophisticated projects.

With clients in over 30 countries, NDR serves more than 5,000 users worldwide at investment firms, banks, insurance companies, mutual funds, hedge funds, pension and endowment funds, registered investment advisors, equity research departments, and other major financial institutions.

Ned Davis Research Group is comprised of Ned Davis Research, Inc. (NDR) located in Venice, Florida, and Davis, Mendel & Regenstein, Inc. (DMR), an NASD institutional brokerage firm, located in Atlanta, Georgia. DMR is the exclusive provider of NDR’s products and services. The two closely integrated firms presently employ over 70 people ranging from market strategists, economists, quantitative and market analysts, and other market professionals.

about Ndr


tAblE oF ContEnts

Position summary 1Global Economy Reflation Theme 2 Interest Rate Cycle 3 - 4 Economic Cycle 5 - 6Asset Allocation models 7 u.s. stock market outlook Composite Assessment 8 Market Internals/Sentiment 9 - 12 Election Influences 13 Last Rate Hike Effects 14 - 16 Earnings/Valuation 17 - 20 Relative Strength 21 - 22Commodity demand theme Correlating Uptrends 23 - 24 Commodity Demand 25 Energy 26 - 25 Gold 27 U.S. Dollar 28 China 29 - 30Addendum Europe A1 - A4 Japan A5 - A10 More U.S. Perspectives A11 - A14 Housing A15 - A19 Styles A20 - A25 Sectors A26 - A28 Currencies and Commodities A29 - A36

Ned Davis Research Group 1

• Economic Growth No better than 3%, working assumption of 2.5% for 2007

• inflation Neutral, headline rate and core rate convergence around 3%

• Fed On hold for rest of 2006, first cut in Q2

• 10-year treasury Trading range of 4.55% to 4.95% - 5%

• bond duration 105% of benchmark

• domestic Allocation 50% stocks (underweight), 30% bonds (marketweight), 15% cash (overweight)

• Global Allocation 62% stocks (overweight), 38% bonds (overweight), 1% cash (underweight)

• style Allocation Neutral on Value vs. Growth, Large vs. Small

• sector Allocation Modest Overweight to Telecom, Industrials, Materials. Underweight to Health Care, Consumer Staples

• regional Allocation Emerging over Developed, selectively in commodity-producing markets. Pacific favored long-term. Watching for peak in European relative strength.

• Commodities Long-term bullish

• Gold Long-term bullish

• u.s. dollar Long term bearish

Position summAry

Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.2

(AA404)

Quarterly Data 3/31/1968 - 9/30/2006 (Log Scale)

Gold Spot Price

9/30/2006 = 598.6

Gold Gain/Annum When:

GDP Minus Bond Gain/ %Yield Spread: Annum of Time* Above 0 18. 9 39. 6

0 and Below 0. 3 60. 44049617592

113139171210258318391480591

4049617592

113139171210258318391480591

Nominal GDPYear-to-Year Change

(Bars)9/30/2006 = 5.8%

Long-TermT-Bond Yields

( )9/30/2006 = 4.9%

456789

1011121314

456789

1011121314

Nominal GDP Minus Long-Term Bond Yield

9/30/2006 = 1.0%Concept Courtesy: Comstock Partners-8-7-6-5-4-3-2-1012345

-8-7-6-5-4-3-2-1012345

1970 1975 1980 1985 1990 1995 2000 2005

Gold vs Nominal GDP Minus Long-Term Bond Yields

• Reflation continues ...


• ... as does the tightening cycle, which is global in scope.

Daily Data 7/01/1948 - 11/02/2006 (Log Scale)

(IE510)

U.S. Fed Funds Rate11/02/2006 = 5.25%

(scale right)

Discount Rate Before 1/2/1989

2

4

6

8

10

12

Bank Of JapanTarget Uncollateralized Overnight Call Rate

11/02/2006 = 0.25%(scale left)

Discount RateBefore 1/16/1998

Dashed Vertical Lines Mark Start Of Easing CyclesSolid Vertical Lines Mark Start Of Tightening Cycles Quantitative Easing

3/19/2001 to 3/9/2006

12345678

European Central BankTarget Discount Rate11/02/2006 = 3.25%

(scale right)

German Data Before 1/1/1999

3

4

5

6

7

8

Bank of EnglandOfficial Bank Rate

11/02/2006 = 4.75%(scale left)

Bank Rate Before 10/16/1972Minimum Lending Rate Before 8/25/1981

Minimum Band Dealing Rate Before 5/6/1997

Target Repo Rate Before 6/8/2006

468

10121416

Central Bank Policy Changes19

53

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003


(I 4032)

Monthly Data 1/31/1985 - 4/30/2007 (Log Scale)

Global Stock/Bond Total Return Ratio

10/31/2006 = 456.1

Ratio MS World LT Bonds %When Global Yield Curve: GPA TR GPA GPA of Time

Above 1.75% -5. 3 6. 3 12. 3 24. 9* Between 0.5% And 1.75% 7. 7 16. 9 8. 6 49. 8

0.5% And Below -7. 9 -0. 5 8. 0 25. 3Buy/Hold 0. 2 9. 6 9. 3 100. 0

Stock Returns Based on MSCIWorld Total Return Index

Bond Returns Based on LehmanGlobal Long-Term Government

Bond Total Return Index(NDR Estimates Prior to 5/31/1987)299

314329344360377395414434454476498522546572599628657689721

299314329344360377395414434454476498522546572599628657689721

Yield Curve Moved Ahead Six Months10/31/2006 = 0.80%4/30/2007 = 0.19%

Favors Bonds

Favors Bonds

Favors Stocks

Global Yield Curve Composite (10-Year Minus Three-Month)

*Equal-Weighted Composite of Gov't Interest Rates fromU.S., Japan, Euro-Zone, U.K., Switzerland, and Canada

*German data used prior to Euro-Zone data-1.8-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.82.12.42.73.0

-1.8-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.82.12.42.73.0

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Global Stock/Bond Ratio vs. Global Yield Curve Composite

• Composite global yield curve has flattened, which is negative for stocks versus bonds ...


(I 4034)


Global Stock/Bond Total Return Ratio10/31/2006 = 456.1

When G7 Leading Ratio MS World LT Bonds %Index Momentum: GPA TR GPA GPA of Time

Favors Stocks 5. 4 12. 0 6. 3 54. 9* Favors Bonds -5. 8 6. 7 13. 2 45. 1

Buy/Hold 0. 2 9. 6 9. 3 100. 0




324346369394421450481514549586626669715

303324346369394421450481514549586626669715

OECD G7 Composite Leading Indicator (CLI) Index(Moved Ahead Two Months)

10/31/2006 = 104.86872768084889296

100104

6872768084889296

100104

CLI Six-Month Point Momentum

10/31/2006 = -0.3%Rises One Percentage Point From Trough = Favors Stocks

Falls One Percentage Point From Peak = Favors Bonds-4-3-2-1012345

-4-3-2-1012345

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Stock/Bond Ratio vs. OECD G7 Composite Leading Indicator Index MomentumChart reflects data revisions

• ... and global economic outlook is worsening.


(I 4030)


Global Stock/Bond Total Return Ratio10/31/2006 = 456.1

When Business Confidence Ratio MS World LT Bonds %Indicators: GPA TR GPA GPA of Time

Favor Stocks (+1 to +2) 6. 0 7. 8 1. 6 26. 1* Mixed (0) 1. 6 11. 6 9. 8 51. 7

Favor Bonds (-2 to -1) -9. 2 7. 3 18. 1 22. 2Buy/Hold 0. 2 9. 6 9. 3 100. 0




300323347373400430462497534574617663712

279300323347373400430462497534574617663712

10/31/2006 = 148.2 (-1)Composite Rises 1% = Favors Stocks

Composite Falls 0.5% = Favors Bonds

NDR Business SentimentComposite is Equal-

Weighted Average of:U.S. ISM Index

German Ifo IndexJapan Tankan Survey of

Large Manufacturers (Three-Month Smoothing)105110115120125130135140145150

105110115120125130135140145150

Six-Month Momentum of Business Sentiment Composite

10/31/2006 = -3.4% (1)

Sentiment Rises Above 4%Stocks Overbought, Bonds Oversold

Sentiment Falls -3% And BelowStocks Oversold, Bonds Overbought

-12-8-4048

121620

-12-8-4048

121620

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Global Stock/Bond Ratio vs. NDR Global Business Sentiment CompositeChart reflects data revisions.

• Business confidence has peaked.


(I 4000)


Model Equity Line3/31/1986 - 10/31/2006 GPA = 11.16%Std. Dev. of 12-Month Returns = 8.23%

10/31/2006 = 884.2

Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash)3/31/1986 - 10/31/2006 GPA = 8.46%

Std. Dev. of 12-Month Returns = 9.26%

10/31/2006 = 532.4112137167203247300365445541659802

112137167203247300365445541659802

Model Equity % 10/31/2006 = 61.5%

Dashed Lines Indicate Benchmark Weights153045607590

153045607590

Model Bond % 10/31/2006 = 37.6%

1020304050607080

1020304050607080

Model Cash % 10/31/2006 = 0.9%

5101520253035404550

5101520253035404550

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Global Balanced Account Model

(AA500)

Weekly Data 2/06/1981 - 11/03/2006 (Log Scale)

Model Equity Line2/06/1981 - 11/03/2006 GPA = 15.01%

Std. Dev. of 52-Week Returns = 11.83%

11/03/2006 = 3663.0

Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash)2/06/1981 - 11/03/2006 GPA = 11.69%

Std. Dev. of 52-Week Returns = 11.29%

11/03/2006 = 1724.1113157219305425592826

1151160522373118

113157219305425592826

1151160522373118

Model Equity % 11/03/2006 = 54.5%

Dashed Lines Indicate Benchmark Weights20

40

60

80

100

20

40

60

80

100

Model Bond % 11/03/2006 = 28.8%

10203040506070

10203040506070

Model Cash % 11/03/2006 = 16.7%

48

121620242832

48

121620242832

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Balanced Account Model

• Our global and domestic asset allocation models are indecisive toward equities ...


(S38)


S&P 500 IndexS&P 500 Gain/Annum When:

Big Mo Gain/ %Composite Model: Annum of Time

Above 75% 28. 8 40. 5* Between 55% and 75% 3. 9 39. 9

55% and Below -10. 7 19. 6119155203266347454594777

10171330

119155203266347454594777

10171330

Big Mo Tape Composite10/27/2006 = 78.1%

153045607590

153045607590

Big Mo External Composite10/27/2006 = 68.8%

153045607590

153045607590

Big Mo Composite Model (50% Tape, 50% External)

10/27/2006 = 73.4%

102030405060708090

102030405060708090

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

S&P 500 Index vs. Big Mo Composite Model

• ... and Big Mo is still neutral.

ndr biG mo ComPositE modEl

Chart number Current mode** 11/03/2006 big mo Composite* S38 Neutral 74.0Tape Composite (50%) S035 Neutral 77.3External Composite (50%) S37 Mildly Bullish 70.6External Composite indicatorsindicator Chart number 11/03/2006 monetary:Yield Curve AA47 Bearish Three-Month T-Bill Yield Momentum S945 Bearish Three-Year T-Note Yield Momentum S950 Neutral 10-Year Treasury Yield Deviation from Trend S876 Bullish Long-Term Bond Yield S947 Bullish Economic:Real Monetary Fiscal & Exchange Rate Index AA530 Bullish NDR ISM Leading Index S1101A Bullish Real M2 Minus Industrial Production AA528 Neutral Commodity Price Momentum S972 Bullish Dollar-Adjusted Oil Momentum S992 Bullish sentiment:NDR Crowd Sentiment Composite*** DAVIS65 Neutral II Bull/Bear Sentiment + Monetary S502 Neutral VIX Deviation from Trend*** S0235 Bearish Total Put/Call Deviation from Trend*** S586 Bearish CBOE Five-Day Put/Call*** S0584A Bullish Valuation:Median S&P 500 Earnings Yield S782 Neutral Real Earnings Yield S698A Bullish BAA Yield Minus Earnings Yield AA526 Bullish Earnings Yield Minus T-Bill Yield S790A Neutral Real Bond Yield/Dividend Yield S788 Bullish

Unsmoothed External Composite Reading 71.9External Composite Reading (Five-Week Moving Average) S37 70.6

*BigMoCompositeModelconsistsof50%BigMoTapeCompositeand50%BigMoExternalComposite.**CurrentModebasedonperformanceboxshowninchartregardlessofdirection.***IndicatorreadingupdatedweeklywithBigMoComposite.Chartreadingisupdateddaily,sointra-weekreadingsonthisreportmaydifferfromchart.NedDavisResearch,Inc.SMS_8.RPT


• Breadth remains divergent ...

(S128)


10/27/2006 = 12090.26In the past 12 NDR-defined bull markets (last 7 shown)weekly new highs peaked out prior to each majormarket top by a median lead time of 32.5 weeks(We have also signalled current cycle's peak on 1/09/2004)844

981114013251539178920792416280832633792440651215951691680379340

1085512615

844981

114013251539178920792416280832633792440651215951691680379340

1085512615

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

1040

213

1008

731

300

663 614

1129

834668

398

1516

336

1607

1116 1034 1132

475

164

997

539

596

356

566516

272

706

654

243

645857

421

122

405 470324

224

923

428

83

211

590

232

390

237

763

402

606

209326

747Weekly New Highs

Weekly New Lows

Source: Barrons-1600-1225

-900-625-400-225-100

-250

25100225400625900

-1600-1225

-900-625-400-225-100

-250

25100225400625900

Dow Jones Industrial Average

New Highs and New Lows


• ... as does volume ...

(NDRII11)


S&P 500S&P 500 Gain/Annum When:

Volume Deviation Gain/ %from Trend Is: Annum of Time

Above 105.5 19. 4 45. 4* 105.5 and Below 3. 3 54. 6

11/02/2006 = 1367.3116144178220273337418517639791979

12121500

116144178220273337418517639791979

12121500

11/02/2006 = 3477.9NDR II

SMDaily Volume (millions)

395990

138211322493754

11521762269541226303

395990

138211322493754

11521762269541226303

11/02/2006 = 101.8NDR II

SMVolume Deviation from Trend

90-Day Smoothing/252-day Smoothing

9296

100104108112116120124128132

9296

100104108112116120124128132

1986

1991

1996

2001

2006

NDR Institutional IndexSM

Volume


• ... and we may have been in a "blow-off" in the DJIA.

blow oFFs From sElECtEd ndr bull mArkEts05/09/1901 - 10/11/2006

blow offdJiA

% Gaintrading

days

05/09/1901 - 06/17/1901 16.1 32

11/13/1905 - 01/19/1906 27.4 56

09/01/1916 - 11/21/1916 20.8 67

08/20/1919 - 11/03/1919 21.5 61

11/27/1922 - 03/20/1923 14.5 92

05/27/1929 - 09/03/1929 29.9 82

02/26/1946 - 05/29/1946 14.2 78

03/16/1948 - 06/15/1948 16.8 74

01/23/1956 - 04/06/1956 12.7 53

09/22/1959 - 01/05/1960 11.2 72

08/09/1968 - 12/03/1968 13.3 67

10/16/1972 - 01/11/1973 14.1 59

07/05/1978 - 09/08/1978 12.7 47

02/13/1981 - 04/27/1981 9.9 50

08/08/1983 - 11/29/1983 10.7 80

05/20/1987 - 08/25/1987 22.9 68

04/27/1990 - 07/16/1990 13.4 55

11/05/1993 - 01/31/1994 9.2 60

03/05/1998 - 07/17/1998 10.6 94

10/15/1999 - 01/14/2000 17.0 64

01/29/2002 - 03/19/2002 10.6 35

07/14/2006-10/26/2006? 13.3 73

median 14.1 64

Currentcasenotincludedinsummarystatistics.

NedDavisResearch,Inc. T_245.RPT



(DAVIS72)

S&P 500 Gain/Annum When:

Gain/ %VIX Index Is: Annum of Time

Above 28.5 66. 2 13. 7Between 21.5 and 28.5 -0. 3 31. 3

* 21.5 and Below -1. 2 55. 0

11/03/2006 = 1364.30

754.0783.3813.8845.4878.3912.5948.0984.9

1023.21063.01104.41147.41192.01238.41286.61336.61388.61442.71498.8

754.0783.3813.8845.4878.3912.5948.0984.9

1023.21063.01104.41147.41192.01238.41286.61336.61388.61442.71498.8

High Complacency

High Fear 11/03/2006 = 11.2Implied Volatility Index

10.211.011.912.913.915.016.217.518.920.422.023.825.727.730.032.434.937.740.844.0

10.211.011.912.913.915.016.217.518.920.422.023.825.727.730.032.434.937.740.844.0

1997M J S D

1998M J S D

1999M J S D

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S

Standard & Poor's 500 Stock Index vs VIX IndexWeekly Data 5/01/1981 - 11/03/2006

(Q2500)

14161820222426283032343638404244464850

14161820222426283032343638404244464850

NASDAQ/DJIA Ratio Gain/Annum When:

Gain/ %Risk Premium is Annum of Time

Above 1.9 0. 7 57. 4* 1.9 and Below -2. 0 42. 6


Risk Premium is Gain/ %Rising and Annum of Time

Above 1.9 -3. 0 30. 41.9 and Below -4. 0 16. 8


Risk Premium is Gain/ %Falling and Annum of Time

Above 1.9 5. 4 27. 1* 1.9 and Below -1. 1 25. 9

All Periods = -0.5% GPA

All Periods When Proxy is RISING = -3.5% GPAAll Periods When Proxy is FALLING = 2.2% GPA

Direction of Proxy Determined by Current Value versus Eight Weeks Ago

Current Proxy Direction is: FALLING

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Moody Baa-Rated Bond Yield minus 10-Year Treasury Yield

11/03/2006 = 1.67%0.60.91.21.51.82.12.42.73.03.33.63.94.24.54.85.1

0.60.91.21.51.82.12.42.73.03.33.63.94.24.54.85.1

Ratio of NASDAQ Composite / Dow Jones Industrial Average

Equity Risk Premium Proxy

• Complacency evident in low VIX, narrow credit spreads.


• The market has usually had trouble after a mid-term election when control of Congress has changed hands.

dow JonEs industriAl AVErAGE PErCEnt CHAnGE Around mid-tErm ElECtions

dJiA Percent Gain

mid-termyear

Electionday

Change inCongress*

ytd through Election day

Election day toEnd of year

Followingyear

1902 11/4/1902 No -0.01 -0.40 -23.611906 11/6/1906 No -2.36 0.45 -37.731910 11/8/1910 No -14.90 -3.48 0.391914 11/3/1914 No ** ** 81.661918 11/5/1918 Yes 16.46 -5.10 30.451922 11/7/1922 No 22.73 -0.80 -3.251926 11/2/1926 No -3.47 3.95 28.751930 11/4/1930 Yes -27.64 -8.47 -52.671934 11/6/1934 No -2.35 6.65 38.531938 11/8/1938 No 30.81 -2.10 -2.921942 11/3/1942 No 3.24 4.22 13.811946 11/5/1946 Yes -12.46 4.93 2.231950 11/7/1950 No 12.05 4.98 14.371954 11/2/1954 Yes 28.69 11.86 20.771958 11/4/1958 No 26.39 5.99 16.401962 11/6/1962 No -15.78 5.90 17.001966 11/8/1966 No -16.44 -2.99 15.201970 11/3/1970 No -4.03 9.22 6.111974 11/5/1974 No -20.70 -8.67 38.321978 11/7/1978 No -3.74 0.62 4.191982 11/2/1982 No 16.81 2.39 20.271986 11/4/1986 Yes 22.36 0.18 2.261990 11/6/1990 No -9.74 5.98 20.321994 11/8/1994 Yes 2.04 0.10 33.451998 11/3/1998 No 10.09 5.46 25.222002 11/5/2002 No -13.40 -3.88 25.32

median, All Periods: -2.35 0.62 15.80median, Change in Congress: 9.25 0.14 11.52median, no Change in Congress: -2.36 2.39 15.80*ChangeinCongressdefinedasmajoritypartychangingineithertheSenateorHouseofRepresentatives.**NYSEclosedfrom7/31/1914to12/11/1914duetoWorldWarI.

NedDavisResearch,Inc. T_SMF0634


• Final rate hike of a tightening cycle has usually been followed by weakness. Will oil prices remain low enough, and the housing market strong enough, for a soft landing and 1995 repeat?

(S01722)

Last Interest Rate HikeBy Federal Reserve

Daily Data Starting in 192012 Months = 252 Market Days *At least two consecutive rate increases before a decrease.

Fed Tightening DJIA Change DJIA ChangeEnd Dates* 126 Days Later 252 Days Later

6/1/1920 -5. 23 -15.571/8/1926 -8. 07 -2.588/9/1929 -26. 83 -35.0310/16/1931 -23. 81 -33.721/16/1953 -6. 18 0.388/23/1957 -8. 10 6.849/11/1959 -4. 80 -4.3912/6/1965 -6. 16 -15.754/3/1969 -12. 82 -14.684/25/1974 -22. 07 -2.902/15/1980 9. 24 6.185/5/1981 -10. 86 -12.132/24/1989 21. 78 14. 192/1/1995 21. 90 40. 235/16/2000 -3. 82 2.57Mean -5. 72 -4.42

90.991.291.591.892.192.492.793.093.393.693.994.294.594.895.195.495.796.096.396.696.997.297.597.898.198.498.799.099.399.699.9

100.2100.5100.8101.1101.4101.7102.0102.3102.6

90.991.291.591.892.192.492.793.093.393.693.994.294.594.895.195.495.796.096.396.696.997.297.597.898.198.498.799.099.399.699.9

100.2100.5100.8101.1101.4101.7102.0102.3102.6

Dow Jones Industrial Average Around Last Federal Reserve Interest Rate Hikes

-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6 +7 +8 +9 +10 +11 +12<--- Months Before Peaks ---> <--- Months After Peaks --->


• Also after final hike, bonds and Value have outperformed, small-caps and NASDAQ have underperformed ...

indEx PErCEnt GAin bEtwEEn lAst FEdErAl rEsErVE intErEst rAtE HikE And First Cut1

last Hikedate8

First Cutdate

numberof months2 dJiA6 dJtA6 dJuA6 nAsdAq6 small Caps3

s&P 5007

large-CapGrowth4

large-CapValue5

reuters-CrbCCi index

lehman lt Gov’tbonds6

6/1/20 5/5/21 11.1 -11.3 2.4 n/a n/a n/a n/a n/a n/a n/a n/a

1/8/26 4/23/26 3.5 -10.2 -3.0 n/a n/a -15.0 n/a n/a n/a n/a n/a

8/9/29 11/4/29 2.9 -23.8 -7.9 -27.2 n/a -44.2 -18.8 n/a n/a n/a n/a

10/16/31 2/26/32 4.4 -19.9 -35.5 -17.9 n/a -20.4 -16.7 n/a n/a n/a n/a

1/16/53 2/5/54 12.7 2.4 -4.9 4.7 n/a -2.5 7.4 n/a n/a n/a n/a

8/23/57 11/15/57 2.8 -7.7 -22.8 -2.4 n/a -11.5 -8.4 n/a n/a -0.1 n/a

9/11/59 6/10/60 9.0 2.8 -6.7 3.0 n/a 5.4 3.5 n/a n/a -2.2 n/a

12/6/65 4/7/67 16.0 -9.2 -5.6 -8.8 n/a 25.4 3.1 n/a n/a -4.0 n/a

4/3/69 11/13/70 19.4 -18.1 -38.9 -14.1 n/a -39.8 -12.2 n/a n/a 3.8 n/a

4/25/74 12/9/74 7.5 -29.9 -20.1 -16.4 -32.7 -24.7 -24.6 n/a n/a 1.4 n/a

2/15/80 5/30/80 3.5 -3.9 -6.3 -0.8 -7.5 -8.0 -2.1 -1.6 0.2 -7.7 16.3

5/5/81 11/2/81 6.0 -10.9 -8.0 3.9 -6.8 -5.9 -2.3 -2.4 -1.7 -5.2 -0.5

2/24/89 6/6/89 3.4 11.2 6.5 12.6 12.0 12.2 14.0 11.4 11.2 -4.2 7.4

2/1/95 7/6/95 5.1 21.2 19.7 5.6 25.7 16.7 19.1 19.1 16.4 -0.2 13.0

5/16/00 1/3/01 7.6 0.1 5.2 13.7 -29.6 -3.5 -7.4 -19.9 5.1 2.2 9.6

mean 7.6 -7.1 -8.4 -3.4 -6.5 -8.3 -3.5 1.3 6.2 -1.6 9.2

median 6.0 -9.2 -6.3 -0.8 -7.1 -6.9 -2.3 -1.6 5.1 -1.2 9.6

1.Tighteningcyclerequiresatleasttwoconsecutiverateincreaseswithoutaninterveningdecrease.2.Numberofcalendardaysmultipliedby12/365.3.IbbotsonSmallCompanyTotalReturnIndex(monthly)until1979.Russell2000TotalReturnIndexthereafter.4.S&P/BARRA500GrowthTotalReturnIndex(monthly)until1993.S&P/BARRA500GrowthPriceIndex(daily)thereafter.5.S&P/BARRA500ValuedTotalReturnIndex(monthly)until1993.S&P/BARRA500ValuePriceIndex(daily)thereafter.6.Priceonly.7.Totalreturn.8.Boldface=NDR-definedbearmarketinprogress.Boldanditalics=bearmarketstartedwithinfourmonths.

NedDavisResearch,Inc. T_SMF0629.1


• ... and earnings growth has tended to slow.

s&P 500 PriCE/EArninGs rAtio Around lAst FEdErAl rEsErVE intErEst rAtE HikE And First Cut1

Earnings y/y % Change3 Price/Earnings ratiolast Hike

dateFirst Cut

datenumber

of months2s&P 500 % Change

As oflast Hike

As ofFirst Cut

As oflast Hike

As ofFirst Cut % Change

08/09/1929 11/04/1929 2.9 -19.4 25.0 22.0 18.9 14.8 -22.0

10/16/1931 02/26/1932 4.4 -19.5 -39.1 -37.1 14.8 13.7 -7.6

01/16/1953 02/05/1954 12.7 1.1 -1.6 4.6 10.8 10.5 -3.4

08/23/1957 11/15/1957 2.8 -9.3 -5.0 0.3 13.0 11.6 -10.6

09/11/1959 06/10/1960 9.0 1.0 19.1 -4.1 16.9 17.1 1.3

12/06/1965 04/07/1967 16.0 -1.4 14.1 2.1 18.2 16.4 -9.9

04/03/1969 11/13/1970 19.4 -17.2 7.0 -9.0 17.3 15.6 -10.1

04/25/1974 12/09/1974 7.5 -26.8 22.9 8.9 10.7 7.2 -32.8

02/15/1980 05/30/1980 3.5 -3.6 20.5 15.0 7.8 7.3 -6.3

05/05/1981 11/02/1981 6.0 -4.7 -4.6 4.3 8.9 8.1 -9.0

02/24/1989 06/06/1989 3.4 12.9 35.7 16.4 12.1 13.0 7.5

02/01/1995 07/06/1995 5.1 17.8 39.8 36.6 15.4 16.1 4.7

05/16/2000 01/03/1901 7.6 -8.1 32.8 3.8 28.8 27.0 -6.3

06/29/2006? ? ? ? 17.9? ? 17.5? ? ?

All Periods:mean 7.7 -5.9 12.8 4.9 14.9 13.7 -8.0median 6.0 -4.7 19.1 4.3 14.8 13.7 -7.6

% P/E Compression 77%secular bulls:

mean 6.6 4.7 17.6 10.8 13.6 13.7 -0.1median 5.1 1.1 19.1 4.6 13.0 13.0 1.3

% P/E Compression 40%secular bears:

mean 8.4 -12.6 9.8 1.3 15.7 13.7 -13.0median 6.7 -12.6 17.3 4.1 16.0 14.2 -9.4

% P/E Compression 100%

1.Tighteningcyclerequiresatleasttwoconsecutiverateincreaseswithoutaninterveningdecrease.2.Numberofcalendardaysmultipliedby12/365.3.Earningsbasedonfour-quartertrailingreported(GAAP)earningspershare.Currentcasenotincludedinsummarystatistics.Shadedareas=NDR-definedsecularbearmarkets.

NedDavisResearch,Inc. T_IS0603.2


• Earnings growth is mean reverting ...

(S663)



Y/Y Earnings Growth Gain/ %Is: Annum of Time

Above 20% 2. 0 23. 7* Between 5% & 20% 5. 5 30. 3

Between -20% & 5% 13. 1 38. 8-20% and Below -14. 8 7. 3

Earnings x 15.910/31/2006 = 1254.5

( )

S&P 50010/31/2006 = 1377.9

( )

69

1422345484

131205319499780

1218

69

1422345484

131205319499780

1218

Y/Y S&P 500 GAAP Earnings Growth (%)

Earnings Growth High

Earnings Growth Low 12/31/2006(E) = 15.7%6/30/2006(A) = 17.6%

-40-30-20-10

010203040506070

-40-30-20-10

010203040506070

Average P/E at Earnings Peaks (Down Arrows) = 12.60Average P/E at Earnings Troughs (Up Arrows) = 18.82

Based on Earnings Reversals of 10%

12/31/2006(E) = $80.906/30/2006(A) = $74.49Trendline = 5.9 % Gain Per Annum

Shaded Area Indicates Estimated Earnings Used

0

1

2

4

10

25

59

0

1

2

4

10

25

59

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

S&P 500 GAAP Earnings Growth


• ... with negative implications for the stock market.

(SMF0635_C)


Earnings Growth Higher ThanIt Was 12 Months Ago


Y/Y Earnings Growth Gain/ %Is Rising And: Annum of Time* Above 15% 8. 7 24. 6

Between 5% & 15% -1. 9 14. 1Between -20% & 5% 14. 1 10. 9-20% and Below 6. 0 2. 2

Earnings Growth Lower ThanIt Was 12 Months Ago


Y/Y Earnings Growth Gain/ %Is Falling And: Annum of Time

Above 15% -3. 7 6. 7Between 5% & 15% 6. 4 9. 3Between -20% & 5% 11. 7 27. 2-20% and Below -22. 6 5. 15

71014192737517198

135187258356492679938

1295

57

1014192737517198

135187258356492679938

1295

Earnings Growth High

Earnings Growth Low 6/30/2006 (A) = 17.6%9/30/2006 (E) = 18.5%

-40

-30

-20

-10

0

10

20

30

40

50

60

70

-40

-30

-20

-10

0

10

20

30

40

50

60

70

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

New Chart

S&P 500 Index

S&P 500 GAAP Earnings Growth (Year-Over-Year Percent Change)


(S658)

Quarterly Data 9/30/1954 - 9/30/2006 (Log Scale)

9/30/2006 = 1485.3

S&P Gain/Annum When:9/30/1954 - 9/30/2006

Gain/ %Profit Margin: Annum of Time* Above 6.2 1. 1 17. 8

Between 5.4 and 6.2 7. 3 29. 8Between 3.3 and 5.4 12. 2 45. 73.3 and Below -2. 5 6. 7

283544556987

109137172216272342430541679854

107413501697

283544556987

109137172216272342430541679854

107413501697

9/30/2006 Est. = 7.5%Earnings & Sales Based on Four-Quarter Totals2.332.482.642.823.003.193.403.623.864.114.384.664.965.295.636.006.396.807.25

2.332.482.642.823.003.193.403.623.864.114.384.664.965.295.636.006.396.807.25

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Standard & Poor's Industrial Average

Standard & Poor's Industrial Average Profit Margin (Earnings/Sales) (S1108)

Quarterly Data 3/31/1948 - 9/30/2006

9/30/2006 = 1335.85


Unit Labor Costs Gain/ %(Y/Y Change) Are: Annum of Time

Above 6 -2. 2 17. 9* Between 3.5 and 6 5. 3 22. 6

3.5 and Below 12. 3 59. 4

1621273443567190

116147188240307392500638815

10401328

1621273443567190

116147188240307392500638815

10401328

Labor Costs Rising

Labor Costs Falling

9/30/2006 = 5.3%

-3-2-10123456789

101112

-3-2-10123456789

101112

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Standard & Poor's 500 Stock Index

Non-Farm Unit Labor Costs (Year-to-Year Change)

Chart reflects data revisions.

• Profit margins are also extreme, and threatened by rising unit labor costs.


(S797)

Weekly Data 3/27/1926 - 10/27/2006

10/27/2006 = 18.5

P/E Ratio Based on S&P 500 GAAP EPSAverage from 3/27/1926 - 10/27/2006 = 15.9 (heavy dashed line)Average from 1/2/1980 - 10/27/2006 = 19.5 (narrow dashed line)

810121416182022242628303234363840424446

810121416182022242628303234363840424446

As of 10/27/2006:Baa Yield = 6.42%

S&P Earnings Yield = 5.41%Spread = 1.01%

Average from 3/27/1926 - 10/27/2006 = -0.17% (heavy dashed line)Average from 1/2/1980 - 10/27/2006 = 3.60% (narrow dashed line)

Monthly Moody's Baa yield data used priorto 1/8/1965, weekly thereafter-13

-12-11-10

-9-8-7-6-5-4-3-2-10123456

-13-12-11-10

-9-8-7-6-5-4-3-2-10123456

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

S&P 500 Index Price/Earnings Ratio

Moody's Baa Bond Yield Minus S&P 500 Earnings Yield

• S&P 500 not cheap from long-term perspective.


• S&P 500 maintaining long-term downtrend versus the EAFE Index ...

Daily Data 12/31/1979 - 11/02/2006

(I 119A)

S&P 500 Total Return IndexLog Scale Right

( )

117141170206248299361436526635766924

111513461624195923642853

MSCI EAFE Total Return Index(U.S. Dollars)Log Scale Left

( )

Source: MSCI178212253301359428509607722861

10251221145417322063245729263485

Ratio moving up =S&P 500 Strength

Ratio moving down =EAFE Strength60

708090

100110120130140150160170180190

60708090

100110120130140150160170180190

1984

1989

1994

1999

2004

S&P 500 Total Return Index vs EAFE Total Return Index

Relative Strength -- Ratio of S&P 500 to EAFE


↑

• ... and it continues to rank low in Global Market Ranking, which shows continuing relative strength in most commodity-related emerging markets.

1 1 1 Lima Exchange Index Peru 190.97 10879.64 I5064 2 2 2 Indice D.C. Bursatil Venezuela 88.82 37992.02 I5092 3 3 4 Manila Exchange Index Philippines 63.92 2766.86 I5066 4 6 3 Jakarta Exchange Index Indonesia 59.26 1612.92 I5044 5 5 9 Warsaw WIG Index Poland 51.50 47833.42 I5068 6 7 5 BSE 100 India 50.24 6682.47 I5042 7 4 8 ** Madrid General Index Spain 49.64 1505.62 I5076 8 9 7 I.P.C. Mexico 47.65 23169.87 I5056 9 11 11 ** Hong Kong Hang Seng China 45.20 18749.69 I5024 10 10 10 Johannesburg All-Shares Index South Africa 41.16 23590.57 I5072 11 8 6 Colombo Exchange Index Sri Lanka 37.82 2516.00 I5078 12 12 32 ** OBX Stock Index Norway 31.29 342.57 I5062 13 13 12 IGPA Index Chile 29.17 10971.42 I5022 14 15 13 ** Swiss Performance Index Switzerland 28.73 6796.92 I5082 15 14 14 ** Straits Times Singapore 27.84 2722.31 I5070 16 26 19 Taiwan Trade-Weighted Index Taiwan 25.99 7161.61 I5084 17 21 28 Bovespa Index Brazil 25.45 40435.18 I5018 18 19 20 ** All Ordinaries Australia 24.34 5396.90 I5012 19 24 25 ** NZSX 50 FF Gross Index New Zealand 23.88 3778.41 I5060 20 18 22 ** ISEQ Overall Index Ireland 22.73 8544.15 I5046 21 25 18 Mishtanim 100 Israel 22.68 919.02 I5048 22 17 15 ** Stockholm All-Share Index Sweden 21.79 349.41 I5080↑ 23 36 34 Merval Index Argentina 21.04 1841.96 I5010 24 29 27 Kuala Lumpur Composite Malaysia 20.11 998.02 I5054 25 23 16 ** Brussels Bel-20 Index Belgium 19.01 4180.68 I5016 26 16 17 ** Frankfurt Xetra DAX Germany 18.94 6241.15 I5036 27 27 29 ** KFX Copenhagen Denmark 18.78 424.31 I5030 28 31 26 ** Milan MIBtel Index Italy 17.84 30624.00 I5050 29 20 21 ** Amsterdam AEX All-Share Netherlands 16.36 733.25 I5058 30 28 24 ** S&P 500 Index U.S. 13.12 1364.30 I5090 31 37 33 ** Athens Exchange Index Greece 12.23 4177.04 I5038 32 22 23 ** Paris CAC 40 France 11.56 5336.30 I5034 33 32 30 ** London FTSE 100 U.K. 11.24 6148.10 I5088 34 30 38 ** Austrian Traded Index Austria 9.83 4093.19 I5014 35 35 41 Prague PX-50 Index Czech Republic 8.38 1542.10 I5028 36 34 35 ** S&P/TSX Composite Canada 8.34 12239.04 I5020 37 33 31 ** Helsinki HEX General Finland 7.30 9067.78 I5032 38 38 39 Seoul Exchange Index South Korea 5.60 1383.88 I5074 39 42 40 Bangkok SET Index Thailand 3.13 732.30 I5086 40 41 37 Budapest Exchange Index Hungary -2.38 22123.20 I5040 41 40 42 IBB General Index Colombia -3.94 10328.81 I5026 42 39 36 ** TOPIX Index Japan -7.87 1619.02 I5052

↑=ChangefromUnderweighttoMarketweight**=DevelopedMarketOut-Of-SamplePerformanceResults2/9/1996-11/05/2006(WeeklyRebalancing);TopCategoryHasGained26.5%PerAnnum;Equal-WeightedUniverseHasGained10.6%PerAnnum;BottomCategoryHasGained9.2%PerAnnum.

NedDavisResearch,Inc. ICS_1

ndr GlobAl mArkEt indEx rAnkinG

Four Position Current Previous weeks Composite Entry Entry Current Gain/ rank week Ago market reading date Price Price loss (%) Chart

Four developed Previous weeks market Current rank week Ago (**) market Country Composite Price Chart

Full rAnk

OVERWEIGHTRanked 1-3 — Buy/Overweight: 1 1 1 Lima Exchange Index 190.97 02/05/2006 6314.38 10879.64 72.30 I5064 2 2 2 Indice D.C. Bursatil 88.82 03/12/2006 29520.70 37992.02 28.70 I5092 3 3 4 Manila Exchange Index 63.92 10/29/2006 2702.37 2766.86 2.39 I5066Ranked 4-13 After Reaching Ranks 1-3 — Hold/Continue to Overweight: 4 6 3 Jakarta Exchange Index 59.26 08/13/2006 1402.19 1612.92 15.03 I5044 5 5 9 Warsaw WIG Index 51.50 07/09/2006 42875.60 47833.42 11.56 I5068 6 7 5 BSE 100 50.24 11/27/2005 4663.97 6682.47 43.28 I5042 8 9 7 I.P.C. 47.65 11/27/2005 16879.37 23169.87 37.27 I5056 10 10 10 Johannesburg All-Shares Index 41.16 06/04/2006 20874.86 23590.57 13.01 I5072UNDERWEIGHTRanked 30-39 After Reaching Ranks 40-42 — Continue to Underweight: 35 35 41 Prague PX-50 Index 8.38 06/04/2006 1370.40 1542.10 12.53 I5028 39 42 40 Bangkok SET Index 3.13 06/11/2006 670.41 732.30 9.23 I5086Ranked 40-42 — Sell/Underweight: 40 41 37 Budapest Exchange Index -2.38 10/22/2006 22318.67 22123.20 -0.88 I5040 41 40 42 IBB General Index -3.94 09/10/2006 9052.87 10328.81 14.09 I5026 42 39 36 TOPIX Index -7.87 08/06/2006 1571.70 1619.02 3.01 I5052


(I 0105A)


NDR Global Oil & Gas Sector / NDR Global Composite(Equal-Weighted)

Scale Right11/02/2006 = 69.91

242730343842475258657281

Dow Jones Latin America Index /Dow Jones Developed

Markets IndexScale Left

11/02/2006 = 188.18

52586470788695

104115127140155171188

NDR Australia Composite /NDR Global Composite

Scale Right11/02/2006 = 72.87

2730333640444853586370

Comex Gold Futures IndexScale Left

11/02/2006 = 633.30

269296325358393432475523575632695

S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

Global Reflation Theme (II)

(I 0105)


MSCI China Index / MSCI World IndexScale Right

11/02/2006 = 2.96

2

3

4

5

7

10

Dow Jones Emerging Markets Index /Dow Jones Developed Markets Index

Scale Left11/02/2006 = 86.73

42465156616774818997

107117

NDR Global Basic Resources Sector/NDR Global Composite

Scale Right11/02/2006 = 42.18

1719212325273033363943

Reuters-CRB Continuous Commodity IndexScale Left

11/02/2006 = 391.69

191205220236253271291312335359385

S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

Global Reflation Theme (I)

• China-driven commodity demand theme still well intact ...


(STH0618A_C)


London Metals IndexScale Right

11/03/2006 = 3906.1

1047120913961612186121492481286433073818

LeadScale Left

11/03/2006 = 1710

430491560639729831948

1082123414071605

TinScale Right

11/03/2006 = 10190 38154196461450745580613667487421816089749868

NickelScale Left

11/03/2006 = 32690

41845120626776709387

114881406017207210602577531545

ZincScale Right

11/03/2006 = 4340

796936

110112941521178821022472290634164016

S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

London Metals Index and Select Components

(STH0618B_C)


Reuters-CRB Grains and Oilseeds IndexScale Right

11/03/2006 = 264.88

153164176189204219235253272292

Corn Futures*Scale Left

11/03/2006 = 351.38

191205221238256276297319344370398

Wheat Futures*Scale Right

11/03/2006 = 505.75

250272295320347376408443480521

Oats Futures*Scale Left

11/03/2006 = 263.62

109120131144158174190209229251

Orange Juice Futures*Scale Right

11/03/2006 = 197.89

*91-Day Perpetual Futures Contract 6068768595

106119134150168188

S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

Agricultural Commodity Perspectives

• ... with several base metals and agricultural commodities back at new highs.


• When freight index has reflected rising demand, commodities and emerging markets have benefited.


(I 187)

Reuters-CRB Continuous Commodity Index

9/30/2006 = 370.1

Reuters-CRB Index Gain/Annum When:

12-Month % Change Gain/ %Of Cass Freight Index Annum of Time* Above 7% 11. 4 36. 5

Between -3% and 7% 0. 5 45. 2-3% and Below -4. 0 18. 2

189200211222235248261276291307324342361381

189200211222235248261276291307324342361381

Cass Freight Index For Expenditures

9/30/2006 = 2.11.0

1.1

1.2

1.3

1.5

1.7

1.9

2.1

1.0

1.1

1.2

1.3

1.5

1.7

1.9

2.1

Cass Freight Index 12-Month Rate of Change(Three-Month Smoothing)

9/30/2006 = 18.8%-9-4-10149

1625

-9-4-10149

1625

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Reuters-CRB Continuous Commodity Index vs Cass Freight Index For Expenditures MomentumChart title has been changed.


(I 3161)

Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index

9/30/2006 = 85.0

Emerging/Developed Gain/Annum When:

Cass Freight Gain/ %Index Indicator: Annum of Time* Favors Emerging 5. 2 44. 6

Favors Developed -6. 9 55. 4

4347515559636874808693

100108116125135146157

4347515559636874808693

100108116125135146157

9/30/2006:Cass Freight Index For Expenditures ( )

9/30/2006 = 2.11Five-Month Smoothing ( )

9/30/2006 = 2.10

Five-Month Smoothing Rises 2.7% from Trough = Favors Emerging MarketsFive-Month Smoothing Falls 0.2% from Peak = Favors Developed Markets

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index

Cass Freight Index For Expenditures



(DAVIS60)

Reuters-CRB Energy Index Gain/Annum When:

Energy Sentiment Gain/ %Seven-Day Smoothing: Annum of Time

Above 63 -3. 5 19. 8Between 45 and 63 4. 9 44. 7

* 45 and Below 20. 9 35. 5

11/03/2006 = 533.17

313.7 322.1

482.5

671.0704.5

164.8

227.5

367.8

511.1

445.4

118131145160177195216239264292323357394436482532588650719

118131145160177195216239264292323357394436482532588650719

Extreme Optimism

Extreme Pessimism 11/03/2006 = 33.04

77.579.5

74.0

83.9

71.368.5

23.0

27.0

39.2

29.7

38.036.8

2024283236404448525660646872768084

2024283236404448525660646872768084

D1989M J S D

1990M J S D

1991M J S D

1992M J S D

1993M J S D

1994M J S D

1995M J S D

1996M J S D

1997M J S D

1998M J S D

1999M J S D

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S

Reuters-CRB Energy Index

NDR Crowd Sentiment Poll for Energy Futures (Seven-Day Smoothing)

• Energy has lagged, but futures sentiment is extremely pessimistic.


• Resource stocks still supported by commodity momentum, dollar weakness and gold strength.


(I 8011)

Basic Resources Sector RS Line Gain/Annum

When CRB/Dollar Ratio Gain/ %Momentum Is: Annum of Time* Above 10 5. 2 40. 2

Between -8 and 10 -3. 0 32. 9-8 and Below -7. 7 26. 9

NDR Global Basic Resources Sector/NDR Global Composite

(Equal-Weighted)

10/29/2006 = 42.118202225283236404550566371

18202225283236404550566371

Reuters-CRB Continuous Commodity Index/ Trade-Weighted U.S. Dollar Ratio

10/29/2006 = 453.4180210240270300330360390420450

180210240270300330360390420450

Reuters-CRB Continuous Commodity Index / Dollar Ratio

52-Week Rate of Change(Four-Week Smoothing)

10/29/2006 = 18.0%

-20

-10

0

10

20

30

40

50

-20

-10

0

10

20

30

40

50

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Global Basic Resources Sector RS Line vs Reuters-CRB/Trade-Weighted U.S. DollarChart title has been changed.


(I 8010)

NDR Global Basic Resources Sector/ NDR Global Composite

(Equal-Weighted)

10/29/2006 = 42.1

Relative Strength Gain/Annum When:

Smoothed 52-Week % Gain/ %Change of Gold: Annum of Time* Above 12 10. 0 23. 6

Between -12 and 12 -2. 8 65. 8-12 and Below -11. 8 10. 618

202225283236404550566371

18202225283236404550566371

Comex Gold

10/29/2006 = 598.2280320360400440480520560600640680

280320360400440480520560600640680

Gold52-Week Rate of Change(Three-Week Smoothing)

10/29/2006 = 26.3%-20

-10

0

10

20

30

40

50

60

-20

-10

0

10

20

30

40

50

60

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Global Basic Resources Sector Relative Strength vs Comex Gold Momentum


(I 241)


U.S. Dollar Index Gain/Annum When:5/08/1980 - 11/02/2006

200-Day Moving Gain/ %Average: Annum of Time

Is Rising 2. 2 55. 8* Is Falling -2. 9 44. 2

Moving average direction based on reversalsof 0.5% or greater.

11/02/2006:U.S. Dollar Index (Solid Line) = 85.34

200-Day MA (Dashed Line) = 86.93200-Day MA is Falling

81.583.285.086.888.690.492.394.296.298.2

100.3102.4104.5106.7

81.583.285.086.888.690.492.394.296.298.2

100.3102.4104.5106.7

Gold Futures Gain/Annum When:11/03/1980 - 11/02/2006

200-Day Moving Gain/ %Average: Annum of Time* Is Rising 4. 7 52. 2

Is Falling -5. 2 47. 8

Moving average direction based on reversalsof 0.5% or greater.

11/02/2006:Comex Gold Perpetual Futures (Solid Line) = 633.30

200-Day MA (Dashed Line) = 608.54200-Day MA is Rising

321335350366383400418436456476497520543567593619647676706

321335350366383400418436456476497520543567593619647676706

N J2003

M M J S N J2004

M M J S N J2005

M M J S N J2006

M M J S N

U.S. Dollar Index vs. 200-Day Moving Average

Gold Futures vs. 200-Day Moving Average


(I 242)

U.S. Dollar IndexScale Right

11/02/2006 = 85.3

81869196

102108114121128135143151160

Comex GoldScale Left

11/02/2006 = 633.3

When Dollar/Gold Ratio Dollar Gold %200-Day Moving Average: GPA GPA GPA of Time

Rising 8. 8 2. 9 -5. 5 47. 4* Falling -7. 4 -2. 9 4. 9 52. 6

Buy/Hold -1. 7 -0. 1 1. 6 100. 0

269295323355389427469515565620680746819

11/02/2006:U.S. Dollar / Gold (Solid Line) = 13.48200-Day MA (Dashed Line) = 14.36

200-Day MA is Falling

Moving Average direction based onreversals of 0.5% or greater.

121620242832364044485256

121620242832364044485256

U.S. Dollar and Gold vs. Dollar / Gold 200-Day Moving Average

19

84

19

89

19

94

19

99

20

04

• Inverse correlation evident in opposite trends and dropping dollar/gold ratio.


Quarterly Data 12/31/2002 - 9/30/2006

(IE15202)

Mean = 132.5

9/30/2006 = 136.7Not Seasonally Adjusted118

120122124126128130132134136

118120122124126128130132134136

Quarterly Point Change

Business Climate Improving

Business Climate Weakening

9/30/2006 = 0.8Source: Haver Analytics, China National Bureau of Statistics-12

-9-6-30369

1215

-12-9-6-30369

1215

Year-to-Year Point Change

9/30/2006 = 4.7-8-6-4-202468

10121416

-8-6-4-202468

10121416

4 12003

2 3 4 12004

2 3 4 12005

2 3 4 12006

2 3

Chinese Business Climate Index

(IE15000)

Monthly Data 1/31/1985 - 9/30/2006

Industrial ProductionValue Added

Smoothed Year-to-Year Change9/30/2006 = 16.17%

( )

Prime Lending Rate9/30/2006 = 6.12%

( )

Consumer Price IndexYear-to-Year Change

9/30/2006 = 1.5%( )

%

Source: Haver Analytics-2-10123456789

10111213141516171819202122232425262728

-2-10123456789

10111213141516171819202122232425262728

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Chinese Economic Factors

• China's expansion continuing at manageable pace ...


(I 0181A)

Reuters-CRB Percent GainEnding 10/31/2006:

Time Period: % Gain

One-Year Prior 17.5%

Six-Years Prior 75.1%

Reuters-CRB Continuous Commodity Index(2000 - 2006)

199

225

255

288

326

369

199

225

255

288

326

369

D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S D2007

M J S D2008

M J S D2009

M J S

MSCI China Index PercentGain Ending 10/31/2006:

Time Period: % Gain



MSCI China Index(2000 - 2006)

151822263137

151822263137

D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S D2007

M J S D2008

M J S D2009

M J S

NASDAQ Percent GainEnding 2/29/2000:

Time Period: % Gain



NASDAQ Composite Index(1994 - 2003)

86011681588215829333985

86011681588215829333985

M J S D1995

M J S D1996

M J S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

DJIA Percent Gain Ending 8/31/1929:

Time Period: % Gain



Dow Jones Industrial Average(1923 - 1932)

476899

145212310

476899

145212310

S D1924

M J S D1925

M J S D1926

M J S D1927

M J S D1928

M J S D1929

M J S D1930

M J S D1931

M J S D1932

M J

Nikkei Percent Gain Ending12/31/1989:

Time Period: % Gain



Nikkei 225 Average(1983 - 1992)

11039

13413

16298

19802

24060

29234

35520

11039

13413

16298

19802

24060

29234

35520

1984M J S D

1985M J S D

1986M J S D

1987M J S D

1988M J S D

1989M J S D

1990M J S D

1991M J S D

1992M J S D

Gold Percent Gain Ending1/31/1980:

Time Period: % Gain


Six-Years Prior 426.6% Comex Gold(1974 - 1983)

134180241324435583

134180241324435583

M J S D1975

M J S D1976

M J S D1977

M J S D1978

M J S D1979

M J S D1980

M J S D1981

M J S D1982

M J S D1983

Commodities & China Market vs. Bubbles (Log Scale)

• ... and for China and commodities alike, the bubble stage has yet to be reached.


AddEndum

Ned Davis Research Group A1

EuroPE

Daily Data 11/03/2004 - 11/03/2006

(IGB4000)

1148.21168.7

1455.0

1048.11075.5

1239.2

Composite Price Line 11/03/2006 = 1489.48 50-Day Smoothing (---)

Current = 400 Issues

Performance Analysis Dates:(9/11/1985 - 11/03/2006)

Current Mode Entry Date: 7/25/2006

Performance When Price & A/D Lines are: % Gain/Annum % of Time

* Both Above Smoothings 33. 3 51. 1

At Least One Below -6. 7 48. 9

960

1020

1080

1140

1200

1260

1320

1380

1440

1500

960

1020

1080

1140

1200

1260

1320

1380

1440

1500

38.4538.98

39.55

38.7138.25

39.88

40.97

43.05

37.34

38.06

37.0037.53

36.67

38.7039.32

Relative Strength Line 11/03/2006 = 44.17 50-Day Smoothing (---)

37

38

39

40

41

42

43

44

45

37

38

39

40

41

42

43

44

45

52.36

52.65 52.70

53.01

53.34

51.96

52.3952.29

52.87 52.81

Composite Advance-Decline Line 11/03/2006 = 53.63 50-Day Smoothing (---)

51.6

52.0

52.4

52.8

53.2

53.6

51.6

52.0

52.4

52.8

53.2

53.6

38 3648

36

50 51

80

% Issues at 30-Day New Highs & New Lows

-75

-50

-25

0

25

50

-75

-50

-25

0

25

50

N D J2005

F M A M J J A S O N D J2006

F M A M J J A S O N

NDR Europe Composite vs. Breadth Indicators Weekly Data 1/05/1986 - 11/05/2006

(IGR4000)

NDR Europe Composite (Log Scale) 11/05/2006 = 1489.5 40-Week Smoothings (---)

167214272347443565721919

117214951907

167214272347443565721919

117214951907

NDR Europe Composite / NDR Global Composite 11/05/2006 = 84.9 40-Week Smoothings (---)5560657075808590

5560657075808590

M+

1+

2+

3+

4-1

-2

Da

sh

ed

Lin

es =

Std

De

v

Sca

le =

% P

oin

ts

-30-25-20-15-10

-505

1015202530354045505560

-30-25-20-15-10

-505

1015202530354045505560

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Equal-Weighted Europe Composite and Relative Strength

Europe Composite (Y/Y) minus Global Composite (Y/Y) -- NDR Equal-Weighted Indices



(IGP4000)

Composite PerformanceAnalysis Dates: (10/06/1985 - 11/05/2006)

Composite Performance When % Gain/ %Participation Indicators are: Annum of Time

* Both in Upper Modes 32. 8 29. 1

Mixed 5.2 53. 9

Both in Lower Modes -1.2 17. 0

Buy/Hold 11. 4 100. 0

NDR Europe Composite 11/05/2006 = 1489.48

867905944986

1029107311201169122012731328138614471510

867905944986

1029107311201169122012731328138614471510

Percentage of Composite's Stocks Above Their 10-Week Moving Averages Upside Participation

Downside Participation11/05/2006 = 85.3210

20

30

40

50

60

70

80

90

100

10

20

30

40

50

60

70

80

90

100

Percentage of Composite's Stocks Above Their 40-Week Moving Averages Upside Participation

Downside Participation11/05/2006 = 87.5035404550556065707580859095

100

35404550556065707580859095

100

D J2004



F M A M J J A S O N

NDR Europe Composite Stock Participation IndicatorsWeekly Data 4/12/1992 - 11/05/2006

(I 2104)

Based on Total Return Indices

JP Morgan European Bond Index used prior to 1/3/1995.

When Momentum STOXX Bonds Ratio %Indicator is: TR GPA TR GPA GPA of Time* Above 6% 21. 8 3. 0 18. 3 25. 1

Between -4% and 6% 12. 5 8. 8 3. 4 55. 3-4% and Below -2. 9 11. 1 -12. 6 19. 6Buy/Hold 11. 5 7. 7 3. 5 100. 0

65707580859095

100105110115120125130135140145150155160165170175

65707580859095

100105110115120125130135140145150155160165170175

Six-Week Smoothing ofSix-Week Rate of Change of STOXX Index

Minus Six-Week Rate of Change of Bond Index

FavorsStocks

FavorsBonds

11/05/2006 = 6.9%-30-27-24-21-18-15-12

-9-6-30369

121518212427

-30-27-24-21-18-15-12

-9-6-30369

121518212427

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ratio of Dow Jones Stoxx Index to JP Morgan European Monetary Union Bond Index vs Momentum Indicator


(IE4230)


Business Climate

10/31/2006 = 105.385

88

91

94

97

100

103

107

85

88

91

94

97

100

103

107

Expectations

10/31/2006 = 99.28486889092949698

100102105

8486889092949698

100102105

Current Situation

10/31/2006 = 111.8Source: Haver Analytics, Ifo InstituteFor Economic Research, www.ifo.de

82

86

90

94

98

103

108

113

82

86

90

94

98

103

108

113

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Ifo Institute's Survey of Pan-German Business SentimentMonthly Data 1/31/1986 - 10/31/2006

(IE1200A)

European Commission Euro-ZoneEconomic Sentiment Index

10/31/2006 = 110.3768084889296

100104108112116

768084889296

100104108112116

EUCOM IndexMonthly Point Change

10/31/2006 = 1.0

-5-4-3-2-101234

-5-4-3-2-101234

EUCOM Index Year-to-Year Point Change

10/31/2006 = 9.9Sentiment Improving

Sentiment DeterioratingSource: Haver Analytics, European Commission

-20-15-10

-505

1015202530

-20-15-10

-505

1015202530

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

European Commission Euro-Zone Economic Sentiment Indicator


Monthly Data 1/31/1991 - 10/31/2006

(IE7203)

10/31/2006 = 97.17274767880828486889092949698

100102

7274767880828486889092949698

100102

10/31/2006 = -0.2Source: Haver Analytics-9-8-7-6-5-4-3-2-1012345

-9-8-7-6-5-4-3-2-1012345

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

ISAE Italian Business Confidence Survey

ISAE Business Confidence Survey (Monthly Point Change)

Monthly Data 4/30/1976 - 10/31/2006

(IE6202)

Mean = 100.0

10/31/2006 = 108

Above Normal

Below Normal

757881848790939699

102105108111114117120

757881848790939699

102105108111114117120

Business Climate Improving

Business Climate Weakening

10/31/2006 = 2

Source: Haver Analytics

-5

-4

-3

-2

-1

0

1

2

3

4

5

-5

-4

-3

-2

-1

0

1

2

3

4

5

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

INSEE French Composite Business Climate Indicator

French Business Climate Indicator (Monthly Point Change)


JAPAn

(IE3000)

Monthly Data 1/31/1966 - 9/30/2006

Industrial ProductionMining and Manufacturing

Smoothed Year-to-Year Change9/30/2006 = 4.48

( )

Three-Month Interest Rate9/30/2006 = 0.34

( )

Consumer Price IndexYear-to-Year Change

9/30/2006 = 0.60( )

%

Source: Economist Magazine, Haver Analytics-16-15-14-13-12-11-10

-9-8-7-6-5-4-3-2-10123456789

101112131415161718192021222324

-16-15-14-13-12-11-10

-9-8-7-6-5-4-3-2-10123456789

101112131415161718192021222324

1970 1975 1980 1985 1990 1995 2000 2005

Japanese Economic FactorsMonthly Data 1/31/1996 - 9/30/2006

(IE3702)

Consumer Price Index ( ) 0.6%Core Consumer Price Index ( ) 0.2%

Seasonally Adjusted

Source: Haver Analytics-1.5-1.4-1.3-1.2-1.1-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.70.80.91.01.11.21.31.41.51.61.71.81.92.02.12.22.32.42.52.6

-1.5-1.4-1.3-1.2-1.1-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.70.80.91.01.11.21.31.41.51.61.71.81.92.02.12.22.32.42.52.6

M J S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

Japanese Consumer Price Measures (Year-to-Year Changes)


Monthly Data 3/31/1978 - 9/30/2006

(IE3753)

9/30/2006 = 0.6%

CPI Points/Annum When:

Points/ %Operating Rate Is: Annum of Time

Above 109.5 0. 3 21. 1* Between 97.7 and 109.5 0. 0 59. 5

Below 97.7 -0. 6 19. 3

-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

8/31/2006 = 106.3%

Excess Capacity- Disinflationary

Tight Capacity - Inflationary

Source: Haver Analytics889092949698

100102104106108110112114

889092949698

100102104106108110112114

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Japanese Consumer Price Index (Year-to-Year Change)

Japanese Manufacturing Operating Rate

Quarterly Data 6/30/1983 - 9/30/2006

(IE3214)

Tankan Survey of LargeManufacturing Enterprises

9/30/2006 = 24Scale Right

( )

-50-45-40-35-30-25-20-15-10

-505

1015202530354045

*

*

*Survey methodology changed 3/31/2004Data adjusted historically

Tankan Survey of LargeNon-Manufacturing Enterprises

9/30/2006 = 20Scale Left

( )

More Businesses Confident

More Businesses Pessimistic-30-25-20-15-10

-505

101520253035404550556065

Large Manufacturer SentimentQuarterly Index Change

9/30/2006 = 3-20-15-10

-505

1015

-20-15-10

-505

1015

Large Non-Manufacturer SentimentQuarterly Index Change

9/30/2006 = 0Source: Bank of Japan-12

-9-6-30369

-12-9-6-30369

1985 1990 1995 2000 2005

Tankan Survey of Large Enterprises


(STH0618F_C)

Daily Data 11/03/2003 - 11/02/2006

U.S. DollarScale Right

11/02/2006 = 0.8539

0.9638

0.9800

0.9155

0.8762

0.9111

0.8923

0.8734

0.9205

0.8869

0.8267

0.8402

0.820.830.840.850.860.870.880.890.900.910.920.930.940.950.960.970.98

0.820.830.840.850.860.870.880.890.900.910.920.930.940.950.960.970.98

EuroScale Left

11/02/2006 = 0.6683

0.80330.7928

0.7505

0.7638

0.7272

0.70960.7211

0.70740.7131

0.7219

0.69690.68920.68

0.70

0.72

0.74

0.76

0.78

0.80

0.68

0.70

0.72

0.74

0.76

0.78

0.80

Chinese YuanScale Left

11/01/2006 = 6.73

7.98

8.11

7.92

7.07

7.297.39

7.23

7.62

6.686.76

6.66.76.86.97.07.17.27.37.47.57.67.77.87.98.08.1

6.66.76.86.97.07.17.27.37.47.57.67.77.87.98.08.1

N D J2004



F M A M J J A S O N

Foreign Currencies per 100 Japanese YenWeekly Data 7/09/1982 - 10/27/2006

(IE911)

Euro-Zone 2.17 ( )Switzerland 1.54 ( )U.K. 1.17 ( )

%

German data used prior to 1999, Euro-Zone data used thereafter.-2

-1

0

1

2

3

4

5

6

7

8

-2

-1

0

1

2

3

4

5

6

7

8

Canada 3.47 ( )U.S. 3.05 ( )Japan -0.23 ( )

%

-1

0

1

2

3

4

5

6

7

8

9

-1

0

1

2

3

4

5

6

7

8

9

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Three-Month Real Interest Rates (U.K., Euro-Zone, Switzerland)

Three-Month Real Interest Rates (U.S., Canada, Japan)


Weekly Data 1/05/1986 - 10/29/2006

(IGR999)

NDR Japan Composite (Log Scale) 10/29/2006 = 434.5 40-Week Smoothings (---)

133155182213249292341399468547641

133155182213249292341399468547641

NDR Japan Composite / NDR Global Composite 10/29/2006 = 24.6 40-Week Smoothing (---)2030405060708090

2030405060708090

Me

an

+1

SD

+2

SD

+3

SD

-1 S

D-2

SD

Sca

le =

% P

oin

ts

-40

-30

-20

-10

0

10

20

30

40

50

60

-40

-30

-20

-10

0

10

20

30

40

50

60

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Equal-Weighted Japan Composite and Relative Strength

Japan Composite (Y/Y) minus Global Composite (Y/Y) -- NDR Equal-Weighted Indices


(I 364)

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

Shaded Areas - Secular Bear MarketsUp Arrows - Start of Cyclical Bull MarketsDown Arrows - Start of Cyclical Bear Markets

106152218313450646928

133319152752395356798158

1172016837241883474849918

106152218313450646928

133319152752395356798158

1172016837241883474849918

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

Cyclical Turning Points Based on NDR Criteria

127168222293387511675891

11761553205127073575472062318227

1086314342

127168222293387511675891

11761553205127073575472062318227

1086314342

Nikkei 225 Average Bull and Bear Markets - Cyclical and Secular

Dow Jones Industrial Average Bull and Bear Markets - Cyclical and Secular

19

54

19

59

19

64

19

69

19

74

19

79

19

84

19

89

19

94

19

99

20

04



(I 379)

10/29/2006 = 16669.0782459263

10407116911313514756165781862520924235072641029670333333744842072

82459263

10407116911313514756165781862520924235072641029670333333744842072Nikkei 225 Gain/Annum When:

CD Rate Gain/ %Point Change Is: Annum of Time

Above 0.1 -8. 5 23. 3* Between -0.3 & 0.1 4. 3 50. 3

-0.3 and Below 8. 2 26. 5

CD Rate

10/29/2006 = 0.28%

12345678

12345678

Two-Week Smoothing

10/29/2006 = 0.10% Points

Bearish

Bullish

26-Week Point Change

-2

-1

0

1

-2

-1

0

1

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Nikkei 225 Average vs. Japan's Three-Month CD Interest Rate (26-Week Point Change) Monthly Data 6/30/1983 - 10/31/2006 (Log Scale)

(I 382)

10/31/2006 = 1010.6

MSCI Japan Index Gain/Annum When:

When Yield Gain/ %Spread Momentum: Annum of Time* Above 0 11. 6 61. 4

Below 0 -6. 3 38. 6393425459497537580627677732791855924999

107911661261136214721591

393425459497537580627677732791855924999

107911661261136214721591

Stock Earnings Yield FallingRelative To 10-Year Gov. Bond Yield

Stock Earnings Yield RisingRelative To 10-Year Gov. Bond Yield

10/31/2006 = 0.21% Points

-5

-4

-3

-2

-1

0

1

2

3

4

-5

-4

-3

-2

-1

0

1

2

3

4

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

MSCI Japan Index

MSCI Japan Earnings Yield Minus Japan 10-Year Gov't Bond Yield (12-Month % Point Change)

New Chart


EArninGs yiEld PErCEnt From rollinG moVinG AVErAGEs

msCi index Five-year mean 10-year mean 25-year mean Chart

World 22.5 38.6 13.5 IV100

North America 16.7 29.2 -6.3 IV140

World ex. U.S. 27.8 47.4 35.3 IV130

U.S. 16.3 28.9 -7.6 IV200

EAFE 28.4 48.6 37.9 IV110

EAFE ex. Japan 20.5 34.6 8.2 IV120

Europe 21.6 37.9 9.7 IV2000

Europe ex. U.K. 27.5 42.9 11.9 IV2010

Pacific Basin 59.3 92.7 73.0 IV14000

Far East 76.3 114.1 84.3 IV14020

U.K. 14.4 30.2 7.1 IV400

Japan 95.6 171.1 111.6 IV300

France 58.7 78.8 37.0 IV700

Pacific ex. Japan 10.6 5.6 N/A IV14010

Canada 18.9 29.3 16.6 IV500

Germany 45.7 59.5 25.4 IV600

Australia 13.7 16.9 -7.2 IV900

Italy 32.1 47.1 N/A IV800

Emerging -2.5 9.3 N/A IV3000

All Countries World 21.3 37.1 N/A IV3010

NedDavisResearch,Inc. ICS_25.RPT


(B151)

Daily Data 1/02/1979 - 11/02/2006

%

11/02/2006 = 4.60%13.65

15.84

13.99

10.23

9.09

8.05

7.066.79

5.44

4.614.89

5.25

8.76

9.47

10.12

6.95

7.74

5.19

5.53

4.16 4.22

3.13

3.703.89

3.23.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6

10.010.410.811.211.612.012.412.813.213.614.014.414.815.215.6

3.23.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6

10.010.410.811.211.612.012.412.813.213.614.014.414.815.215.6

19

83

19

88

19

93

19

98

20

03

10-Year Constant Maturity Treasury Note YieldsWeekly Data 1/05/1968 - 11/03/2006 (Log Scale)

(AA408)

93117147184231291365458575723907

11391430179622552832355544645605

93117147184231291365458575723907

11391430179622552832355544645605When 10-Yr/T-Bill S&P 500 LT Bonds Cash Gold %

Yield Spread is: TR GPA TR GPA GPA GPA of TimeAbove 2.6 7. 6 10. 6 4. 8 3. 6 26. 7Between 0.6 and 2.6 19. 6 9. 3 5. 9 5. 6 47. 4

* 0.6 and Below -1. 5 4. 5 8. 0 14. 9 25. 9Buy/Hold 10. 8 8. 4 6. 2 7. 4 100. 0

Stock Returns Based on S&P 500 Total Return (Thin Solid Line)Bond Returns Based on Long-Term Government Bond Total Return (Heavy Solid Line)

Cash Returns Based on 91-Day Treasury Bill Total Return (Thin Dashed Line)Gold Returns Based on New York Spot Gold Prices (Heavy Dashed Line)

Flat or Inverted Yield Curve

Steep Yield Curve

11/03/200610-Year Yield = 4.64%

Three-Month Yield = 4.95%Spread = -0.31%-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

19

69

19

70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Stocks/Bonds/Cash/Gold Returns

Yield Curve - 10-Year Minus Three-Month Treasury Yield

morE u.s. PErsPECtiVEs


ndr-dEFinEd sECulAr & CyCliCAl bull & bEAr mArkEtsndr-defined Cyclical bull markets ndr-defined Cyclical bear markets

date dJiA date dJiA %Gain days date dJiA date dJiA %Gain dayssecular bull market 3/31/1900 - 1/19/1906

9/24/00 38.80 6/17/01 57.33 47.8 266 6/17/01 57.33 11/9/03 30.88 -46.1 87511/9/03 30.88 1/19/06 75.45 144.4 802

secular bear market 1/19/1906 - 8/24/19211/19/06 75.45 11/15/07 38.83 -48.5 665

11/15/07 38.83 11/19/09 73.64 89.7 735 11/19/09 73.64 9/25/11 53.43 -27.4 6759/25/11 53.43 9/30/12 68.97 29.1 371 9/30/12 68.97 7/30/14 52.32 -24.1 668

12/24/14 53.17 11/21/16 110.15 107.2 698 11/21/16 110.15 12/19/17 65.95 -40.1 39312/19/17 65.95 11/3/19 119.62 81.4 684 11/3/19 119.62 8/24/21 63.90 -46.6 660

secular bull market 8/24/1921 - 9/3/19298/24/21 63.90 3/20/23 105.38 64.9 573 3/20/23 105.38 10/27/23 85.76 -18.6 221

10/27/23 85.76 9/3/29 381.17 344.5 2138secular bear market 9/3/1929 - 4/28/1942

9/3/29 381.17 11/13/29 198.69 -47.9 7111/13/29 198.69 4/17/30 294.07 48.0 155 4/17/30 294.07 7/8/32 41.22 -86.0 8137/8/32 41.22 9/7/32 79.93 93.9 61 9/7/32 79.93 2/27/33 50.16 -37.2 1732/27/33 50.16 2/5/34 110.74 120.8 343 2/5/34 110.74 7/26/34 85.51 -22.8 1717/26/34 85.51 3/10/37 194.40 127.3 958 3/10/37 194.40 3/31/38 98.95 -49.1 3863/31/38 98.95 11/12/38 158.41 60.1 226 11/12/38 158.41 4/8/39 121.44 -23.3 1474/8/39 121.44 9/12/39 155.92 28.4 157 9/12/39 155.92 4/28/42 92.92 -40.4 959

secular bull market 4/28/1942 - 2/9/19664/28/42 92.92 5/29/46 212.50 128.7 1492 5/29/46 212.50 5/17/47 163.21 -23.2 3535/17/47 163.21 6/15/48 193.16 18.4 395 6/15/48 193.16 6/13/49 161.60 -16.3 3636/13/49 161.60 1/5/53 293.79 81.8 1302 1/5/53 293.79 9/14/53 255.49 -13.0 2529/14/53 255.49 4/6/56 521.05 103.9 935 4/6/56 521.05 10/22/57 419.79 -19.4 564

10/22/57 419.79 1/5/60 685.47 63.3 805 1/5/60 685.47 10/25/60 566.05 -17.4 29410/25/60 566.05 12/13/61 734.91 29.8 414 12/13/61 734.91 6/26/62 535.76 -27.1 1956/26/62 535.76 2/9/66 995.15 85.7 1324

secular bear market 2/9/1966 - 8/12/19822/9/66 995.15 10/7/66 744.32 -25.2 240

10/7/66 744.32 12/3/68 985.21 32.4 788 12/3/68 985.21 5/26/70 631.16 -35.9 5395/26/70 631.16 4/28/71 950.82 50.6 337 4/28/71 950.82 11/23/71 797.97 -16.1 209

11/23/71 797.97 1/11/73 1051.70 31.8 415 1/11/73 1051.70 12/6/74 577.60 -45.1 69412/6/74 577.60 9/21/76 1014.79 75.7 655 9/21/76 1014.79 2/28/78 742.12 -26.9 5252/28/78 742.12 9/8/78 907.74 22.3 192 9/8/78 907.74 4/21/80 759.13 -16.4 5914/21/80 759.13 4/27/81 1024.05 34.9 371 4/27/81 1024.05 8/12/82 776.92 -24.1 472

secular bull market 8/12/1982 - 1/14/20008/12/82 776.92 11/29/83 1287.20 65.7 474 11/29/83 1287.20 7/24/84 1086.57 -15.6 2387/24/84 1086.57 8/25/87 2722.42 150.6 1127 8/25/87 2722.42 10/19/87 1738.74 -36.1 55

10/19/87 1738.74 7/16/90 2999.75 72.5 1001 7/16/90 2999.75 10/11/90 2365.10 -21.2 8710/11/90 2365.10 7/17/98 9337.97 294.8 2836 7/17/98 9337.97 8/31/98 7539.07 -19.3 458/31/98 7539.07 1/14/00 11722.98 55.5 501

secular bear market 1/14/2000 - ?1/14/00 11722.98 9/21/01 8235.81 -29.7 616

9/21/01 8235.81 3/19/02 11727.34 29.1 179 3/19/02 10635.25 10/9/02 7286.27 -31.5 20410/9/02 7286.27 10/26/2006(?) 12163.66 66.9 1478

Cyclical bull markets # Cases % Gain # days Cyclical bear markets # Cases % Gain # daysAll Cyclical bulls All Cyclical bearsmean 33 85.3 718 mean 33 -30.8 406median 33 65.7 573 median 33 -26.9 363Cyclical bulls within secular bulls Cyclical bears within secular bullsmean 16 109.5 1024 mean 12 -22.8 295median 16 77.2 870 median 12 -19.4 245Cyclical bulls within secular bears Cyclical bears within secular bearsmean 17 62.5 431 mean 21 -35.4 470median 17 50.6 371 median 21 -31.5 525Databegins3/31/1900.Currentcyclicalbullmarketnotincludedinsummarystatistics.DaysarecalendardaysNedDavisReserch,Inc. T_STH0617


(S0202)


Secular Bull MarketsDJIA Nominal Annualized Gain (GPA)

Dates GPA3/31/1900 - 1/19/1906 8. 08/24/1921 - 9/3/1929 24. 94/28/1942 - 2/9/1966 10. 58/12/1982 - 1/14/2000 16. 8

Secular Bear MarketsDJIA Nominal Annualized Gain (GPA)

Dates GPA1/19/1906 - 8/24/1921 -1. 19/3/1929 - 4/28/1942 -10. 62/9/1966 - 8/12/1982 -1. 51/14/2000 - 11/02/2006? 0. 4

Shaded Areas Indicate Secular Bear Markets

11/02/2006 = 12018.54385273

101141196273380528735

1022142219782751382753237404

10298

385273

101141196273380528735

1022142219782751382753237404

10298

Secular Bull MarketsDJIA Real Annualized Gain (GPA)

Dates GPA3/31/1900 - 1/19/1906 6. 58/24/1921 - 9/3/1929 26. 14/28/1942 - 2/9/1966 7. 38/12/1982 - 1/14/2000 13. 2

Secular Bear MarketsDJIA Real Annualized Gain (GPA)

Dates GPA1/19/1906 - 8/24/1921 -5. 49/3/1929 - 4/28/1942 -10. 12/9/1966 - 8/12/1982 -7. 91/14/2000 - 11/02/2006? -2. 4

DJIA Adjusted Using Quarterly Consumer Price Index

11/02/2006 = 512.1528344149587084

100120144172207247297355426510612733

28344149587084

100120144172207247297355426510612733

19

05

19

10

19

15

19

20

19

25

19

30

19

35

19

40

19

45

19

50

19

55

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

Dow Jones Industrial Average vs. Secular Trends

Inflation-Adjusted Dow Jones Industrial Average vs. Secular Trends(S620)

Quarterly Data 3/31/1926 - 9/30/2006

9/30/2006 = 5.9%

Percent GPA During Secular Bull Markets

Dates S&P 500 Earnings Yield3/31/1942 - 12/31/1965 10. 8 -3. 56/30/1982 - 12/31/1999 16. 0 -7. 5

Percent GPA During Secular Bear Markets

Dates S&P 500 Earnings Yield9/30/1929 - 3/31/1942 -10. 1 7. 712/31/1965 - 6/30/1982 1. 0 5. 212/31/1999 - 9/30/2006? -1. 4 9. 12.0

2.32.62.93.33.74.24.85.46.27.07.99.0

10.211.513.014.716.7

2.02.32.62.93.33.74.24.85.46.27.07.99.0

10.211.513.014.716.7

9/30/2006 = 1.8%

Percent GPA During Secular Bull Markets

Dates S&P 500 Dividend Yield3/31/1942 - 12/31/1965 10. 8 -4. 46/30/1982 - 12/31/1999 16. 0 -9. 2

Percent GPA During Secular Bear Markets

Dates S&P 500 Dividend Yield9/30/1929 - 3/31/1942 -10. 1 8. 712/31/1965 - 6/30/1982 1. 0 4. 612/31/1999 - 9/30/2006? -1. 4 7. 1

Shaded Areas Indicate NDR-Defined Secular Bear Markets

1.01.21.41.61.92.22.63.13.64.24.95.76.77.89.2

10.712.514.6

1.01.21.41.61.92.22.63.13.64.24.95.76.77.89.2

10.712.514.6

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

S&P 500 Earnings Yield vs. Secular Trends

S&P 500 Dividend Yield vs. Secular Trends


Daily Data 12/01/1995 - 10/31/2006(updated weekly on Wednesday mornings)

(S574)

SP500 Gain/Annum When:

NDR Crowd Gain/ %Sentiment Poll is: Annum of Time* Above 62 -2. 9 33. 6

Between 53 and 62 8. 0 35. 353 and Below 20. 5 31. 1

Extremes Generated when Sentiment Reading:Rises above 61.5% = Extreme OptimismDeclines below 55.5% = Extreme Pessimism

Sentiment must reverse by 10percentage points to signal anextreme in addition to the aboveextreme levels being reached.

Arrows represent extremes in optimism andpessimism. They do not represent buy andsell signals and can only be known forcertain (and added to the chart) in hindsight.

Average Value Of Indicator At:Optimistic Extremes (down arrows)= 67.7Pessimistic Extremes (up arrows)= 46.9

Average Spread Between Extremes = 20.8600660720780840900960

102010801140120012601320138014401500

600660720780840900960

102010801140120012601320138014401500

51.7

66.7

45.2

63.0

42.3

65.1

51.6

68.8

39.0

71.1

51.7

67.2

44.6

64.8

51.8

71.8

47.9

70.4

33.5

51.8

55.3

48.7

65.3

42.4

69.2

51.5

66.8

46.0

48.7

62.0

45.7

40.4

67.1

37.6

66.1

46.5

63.1

33.9

75.7

47.3

66.6

43.8

73.5

55.4

46.6

69.6

49.7

71.9

42.5

54.7

67.3 66.8

69.670.5

66.4

54.5

67.2

61.9

51.9

68.167.1

42.5

53.5

33.9

59.4

33.9

73.5

54.8

49.7

71.9

10/31/2006 = 69.0Extreme Pessimism (Bullish)

Extreme Optimism (Bearish)

333639424548515457606366697275

333639424548515457606366697275

D1996

M J S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

S&P 500 Composite Index

NDR Crowd Sentiment Poll(DAVIS65)


S&P 500 IndexGain/Annum When:

Gain/ %Composite Sentiment is Annum of Time

Above 61 -10. 7 21. 247 - 61 from Above 0. 1 25. 5

* 47 - 61 from Below 14. 4 30. 9Below 47 30. 4 22. 4

11/03/2006 = 1364.30238263291322356393435481532588650719795878971

1074118713131451

238263291322356393435481532588650719795878971

1074118713131451

Excessive Optimism

Extreme Pessimism11/03/2006 = 54.024

2832364044485256606468727680

242832364044485256606468727680

S D1988M J S D

1989M J S D

1990M J S D

1991M J S D

1992M J S D

1993M J S D

1994M J S D

1995M J S D

1996M J S D

1997M J S D

1998M J S D

1999M J S D

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S

Standard & Poor's 500 Stock Index

NDR Daily Crowd Sentiment Composite -- Transitional Mode Basis


HousinG

Monthly Data 3/31/1969 - 9/30/2006

(E876E)

Unit Sales9/30/2006 = -12.5%

Scale Left( )

-35-30-25-20-15-10

-505

1015202530354045 Median Sale Price

9/30/2006 = -1.2%Scale Right

( )

Source: National Association of Realtors/Haver Analytics -1

0123456789

1011121314151617

Unit Sales9/30/2006 = -20.6%

Scale Left( )

-40-35-30-25-20-15-10

-505

1015202530354045505560657075

Median Sale Price9/30/2006 = -2.3%

Scale Right( )

-10-8-6-4-202468

101214161820

1970 1975 1980 1985 1990 1995 2000 2005

Existing Single-Family Home Sales and Prices (Smoothed Year-to-Year Changes)

New Home Sales and Prices (Smoothed Year-to-Year Changes)(E240)


Correct Signals: 85%Expansion Mode GPA: 3.5%Contraction Mode GPA: -0.9%Buy-Hold Gain/Annum: 2.7%Signal Dates: 12/31/1948 - 8/31/2006

Signals Generated When Middle Clip:Rises Above 3.44 = ExpansionFalls Below -7.85 = ContractionSource: The Conference Board27

31353944505664728191

103116

2731353944505664728191

103116

Housing Starts(Three-Month Rate of Change)

Shaded areas representNational Bureau of

Economic Research recessions dates. 9/30/2006 = -9.4%-20-16-12

-8-4048

121620

-20-16-12

-8-4048

121620

New Housing Units Started(SAAR, in thousands)

9/30/2006 = 1772

1000

1200

1400

1600

1800

2000

2200

2400

1000

1200

1400

1600

1800

2000

2200

2400

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

The Economy (The Index of Coincident Economic Indicators) vs. Housing Starts


Quarterly Data 3/31/1995 - 6/30/2006

(E0187)

Federal Housing Administration(The typical FHA borrower is a first-time

home buyer with limited funds.)

8

9

10

11

12

8

9

10

11

12

FHA Adjustable Rate

6789

1011121314

6789

1011121314

Subprime (Borrowers with impaired credit)

Series Break Before 200211

12

13

14

11

12

13

14

Subprime Adjustable Rate

Source: Mortgage Bankers AssociationWashington, D.C.

11

12

13

14

15

11

12

13

14

15

11995

2 3 4 11996

2 3 4 11997

2 3 4 11998

2 3 4 11999

2 3 4 12000

2 3 4 12001

2 3 4 12002

2 3 4 12003

2 3 4 12004

2 3 4 12005

2 3 4 12006

2

Higher-Risk Mortgage Delinquency RatesMonthly Data 1/31/1971 - 9/30/2006

(B659B)

Housing Affordability Composite Index

9/30/2006 = 107.170

80

90

100

110

120

130

140

150

70

80

90

100

110

120

130

140

150

Housing Affordability Index for Fixed Rate Mortgages

9/30/2006 = 106.7707580859095

100105110115120125130135

707580859095

100105110115120125130135

Housing Affordability Index for Adjustable Rate Mortgages

9/30/2006 = 109.8Source: National Association of Realtors,

Haver Analytics708090

100110120130140150160

708090

100110120130140150160

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Housing Affordability by Mortgage Type



(E0758A)

$ ThousandsTotal Existing Homes9/30/2006 = 220.0

( )

Single-Family Homes9/30/2006 = 219.8

( )

Condos and Co-ops9/30/2006 = 219.8

( )

Source: National Association of Realtors,Haver Analytics

109114119124129135141147154161168175183191199208217227

109114119124129135141147154161168175183191199208217227

Total Existing Homes9/30/2006 = -2.2%

( )

Single-Family Homes9/30/2006 = -2.5%

( )

Condos and Co-ops9/30/2006 = -2.8%

( )

-3-2-10123456789

1011121314151617181920

-3-2-10123456789

1011121314151617181920

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

Median Existing Home Prices

Median Existing Home Prices (Year-to-Year Changes)


(E876A)

Total Home Sales(SAAR, Smoothed)

9/30/2006 = 6.5 millionScale Right

( )

2.32.52.72.93.13.33.53.74.04.34.64.95.25.66.06.46.87.3

Conventional 30-YearFixed Mortgage Rate10/31/2006 = 6.4%Scale Left Inverted

( )

Correlation Coefficient = -0.67Source: National Association of Realtors, Haver Analytics

5.55.96.36.77.27.78.38.99.5

10.210.911.712.613.514.515.516.617.8

Total Home Sales9/30/2006 = -13.9%

Scale Right( )

-35-30-25-20-15-10

-505

101520253035404550

Conventional 30-YearFixed Mortgage Rate

10/31/2006 = 29 basis pointsScale Left Inverted

( )

-420-360-300-240-180-120

-600

60120180240300360420480540

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Total Home Sales vs Conventional 30-Year Fixed Mortgage Rate

Total Home Sales vs Conventional 30-Year Fixed Mortgage Rate (Year-to-Year Changes)



(E246)

9/30/2006 = 1075

SAAR, in Thousands

360401446496552614683760846941

104711651297

360401446496552614683760846941

104711651297

One-Month % Change

9/30/2006 = 5.3%

Shaded areas representNational Bureau of

Economic Research recessions.-20-16-12

-8-4048

12162024

-20-16-12

-8-4048

12162024

Year-to-Year Change

9/30/2006 = -14.2%

Strong Sales

Weak Sales-40-30-20-10

01020304050607080

-40-30-20-10

01020304050607080

1965 1970 1975 1980 1985 1990 1995 2000 2005

New Home Sales

Copyright 2006 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/

Weekly Data 1/05/1990 - 10/27/2006

(B566)

Conventional Mortgage Rate10/27/2006 = 6.40%

( )

Adjustable Mortgage Rate10/27/2006 = 5.60%

( )

3.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6

10.010.4

3.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6

10.010.4

Mortgage Bankers AssociationRefinance Index (SA)

High Number of Refinancing ApplicationsHigh Prepayment Risk

4-Week Smoothing10/27/2006 = 1778.7

( )75111164242358530783

115717112529373855268168

75111164242358530783

115717112529373855268168

Mortgage Bankers AssociationPurchase Index (SA)

Low Number of Purchase Applications - Housing Market Soft

4-Week Smoothing10/27/2006 = 381.5

( )

80120160200240280320360400440480520

80120160200240280320360400440480520

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mortgage Bankers Association's Refinance and Purchase Indexes


Monthly Data 6/30/1982 - 9/30/2006

(E246I)

Total 9/30/2006 = 7.0

Balanced Market

Too Few Homes Available

Too Many Homes Available

Measured as Months' Available Supply4

5

6

7

8

9

10

11

12

4

5

6

7

8

9

10

11

12

Existing Single-Family Homes 9/30/2006 = 7.1

Source: Haver Analytics, National Association of Realtors456789

10111213

456789

10111213

New Homes 9/30/2006 = 6.4

4

5

6

7

8

9

4

5

6

7

8

9

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Housing Inventory-to-Sales RatiosMonthly Data 1/31/1963 - 9/30/2006 (Log Scale)

(E0759)

$ thousands

Median Sales Price9/30/2006 = 217.1

( )

Mean Sales Price9/30/2006 = 293.2

( )

1922263035404755647486

100117136158184215250291

1922263035404755647486

100117136158184215250291

Median Sales PriceYear-to-Year Change9/30/2006 = -2.3%

( )

Mean Sales PriceYear-to-Year Change

9/30/2006 = 3.8%( )

-10-8-6-4-202468

101214161820

-10-8-6-4-202468

101214161820

1965 1970 1975 1980 1985 1990 1995 2000 2005

New Home Prices

New Home Prices (Smoothed Year-to-Year Changes)


stylEs

Favors: related Chart 10/31/2006 9/30/2006 8/31/2006six-way style Allocation model AA600 Mid-Cap Large-Cap Large-Cap Growth Value Growth

large/mid/small-Cap model Favors:indicator related Chart 10/31/2006 9/30/2006 8/31/2006

Equity Risk Premium Proxy AA144A Large Large Large Advisory Service Sentiment AA145 Small Small Small Yield Curve Momentum AA121A Large Large Large NYSE Breadth AA143A Small Small Small Relative Forward P/E AA0115A Large Large Large Consumer Confidence AA0122A Large Large Large Bond Momentum AA115A Small Small Large U.S. Dollar AA116A Large Large Large Coincident Indicators AA118 Large Large Large Trend Indicators AA0127A Small Large Neutral

Composite model AA605 Model Reading 40.4 32.7 22.1 Favored Asset Class Mid-Cap Large-Cap Large-Cap

Growth/Value model Favors:indicator related Chart 10/31/2006 9/30/2006 8/31/2006

Equity Risk Premium Proxy AA90A Growth Growth Growth Yield Curve AA71 Value Value Value Relative Forward P/E AA084A Growth Growth Growth Consumer/Cyclical Ratio AA74A Growth Growth Growth Advisory Service Sentiment AA85 Growth Value Value Insider Activity NA Value Value Value U.S. Dollar AA68 Growth Growth Growth Coincident Indicators AA73A Value Value Growth Trend Indicators AA065A Growth Value Value

Composite model AA610

Model Reading 50.0 41.7 45.8 Favored Asset Class Growth Value Growth

-Large/Mid/Small-CapModelreadingisacombinationofindividualindicatorreadings,scaledfrom0%to100%:Above55%=FavorsSmall-Caps(Russell2000Index)Between35%and55%=FavorsMid-Caps(RussellMidCapIndex)Below35%=FavorsLarge-Caps(RussellTop200Index)

-Growth/ValueModelreadingisacombinationofindividualindicatorreadings,scaledfrom0%to100%:Above45%=FavorsGrowth(Russell3000GrowthIndex)Below45%=FavorsValue(Russell3000ValueIndex)

NedDavisResearch,Inc. SMS_6.HTML


(AA605)


Large-Caps = Russell Top 200 Index (Heavy Solid Line)Mid-Caps = Russell MidCap Index (Narrow Solid Line)

Small-Caps = Russell 2000 Index (Dashed Line)

Model Reading:Above 55%: Favors Small Caps

Between 35% and 55%: Favors Mid-CapsBelow 35%: Favors Large Caps

When Model Large-Cap Mid-Cap Small-Cap %Reading Is: TR GPA TR GPA TR GPA of Time

Above 55% 8. 9 19. 2 27. 9 25. 8* Between 35% and 55% 9. 8 14. 5 9. 3 33. 4

35% and Below 18. 0 13. 3 7. 7 40. 7Buy/Hold 12. 8 15. 2 13. 1 100. 0

115143178221275342425528657818

10171265157319572434302737654683

115143178221275342425528657818

10171265157319572434302737654683

10/31/2006 = 40.4%51015202530354045505560657075808590

51015202530354045505560657075808590

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Russell Indices

NDR Large/Mid/Small-Cap Model


(AA610)

Russell 3000 Growth Total Return Index /

Russell 3000 Value Total Return Index

When Model Ratio Growth Value %Reading Is: GPA TR GPA TR GPA of Time* Above 45% 4. 9 24. 7 18. 9 40. 0

45% and Below -7. 7 2. 6 11. 2 60. 0Buy/Hold -2. 9 11. 0 14. 2 100. 0

62

68

74

80

87

95

103

112

121

132

143

156

62

68

74

80

87

95

103

112

121

132

143

156

Growth/Value Model

Favors Growth

Favors Value

10/31/2006 = 50.0%

51015202530354045505560657075808590

51015202530354045505560657075808590

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Growth/Value Model


(AA600)


As of 10/31/2006:Model Equity Line ( ) = $7041Gain Per Annum = 22.6%Benchmark Equity Line ( ) = $1039Gain Per Annum = 11.9%(12/31/1985 = $100)Model real-time since May 2003

Six-Way Model Combines Readings ofLarge/Mid/Small-Cap Model and Growth/Value Model

Bars Below Indicate Model'sFavored Style Each Month

Model Equity Line Assumes 100% InvestedIn Favored Style Index Each Month

Benchmark Equity Line Assumes Equal WeightingIn All Six Style Indices

Returns Based on Growth & Value Indices For:Russell Top 200 Index = Large-Cap

Russell MidCap Index = Mid-CapRussell 2000 Index = Small-Cap

For November 2006 Model Favors: Mid-Cap Growth

86113149195257337444583767

10081325174122893009395652016837

86113149195257337444583767

10081325174122893009395652016837

SmallCap

Growth

SmallCap

Value

MidCap

Growth

MidCap

Value

LargeCap

Growth

LargeCap

Value

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

NDR Six-Way Equity Style Allocation Model Monthly Data 9/30/1991 - 10/31/2006 (Log Scale)

(AA54)

Model Out-of-Sample Performance*

% Mean % S.D. ofGPA Monthly Gain Monthly Return

Model( ) 13. 66 1. 16 4. 13Benchmark( ) 10. 83 0. 94 4. 02S&P500( ) 8. 76 0. 78 3. 97

* Real-time since 10/31/1998

For 11/30/2006

Russell Recommended BenchmarkIndex Weights (%) Weights (%)1000 Value 100 451000 Growth 0 452000 Value 0 52000 Growth 0 5

100106112118125132140148156165175185196207219232245259274290307324343363384406429454480508537568601635672

100106112118125132140148156165175185196207219232245259274290307324343363384406429454480508537568601635672

Russell Index Regression Model Performance

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06


Weekly Data 6/26/1981 - 10/27/2006

(AA144)

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Russell 2000/ Russell 1000 RatioGain/Annum When:

Gain/ %Risk Premium Proxy is Annum of Time

Above 2.2 8. 8 35. 5Between 1.7 and 2.2 -1. 5 39. 7

* Below 1.7 -10. 4 24. 9

Russell 2000/ Russell 1000 Ratio Gain/Annum When:

Risk Premium Proxy is Gain/ %Rising and Annum of Time

Above 2.2 5. 2 19. 8Between 1.7 and 2.2 -8. 2 19. 8Below 1.7 -16. 9 7. 6


Risk Premium Proxy is Gain/ %Falling and Annum of Time

Above 2.2 13. 6 15. 6Between 1.7 and 2.2 5. 6 19. 9

* Below 1.7 -7. 5 17. 3

All Periods = -0.3% GPA

All Periods When Proxy is RISING = -4.3% GPAAll Periods When Proxy is FALLING = 3.3% GPA

Direction of Proxy Determined by Current Value versus 8 Weeks Ago

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Moody Baa Bond Yield minus 10-Year Treasury Bond Yield

10/27/2006 = 1.56%1.21.51.82.12.42.73.03.33.63.94.24.54.85.15.45.7

1.21.51.82.12.42.73.03.33.63.94.24.54.85.15.45.7

Ratio of Russell 2000 / Russell 1000 Index

Equity Risk Premium Proxy

Weekly Data 12/29/1978 - 10/27/2006

(AA121)

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Up Arrow = Favors Small-CapsDown Arrow = Favors Large-Caps


Gain/ %Yield Curve Annum of Time

Favors Small-Caps 4. 6 52. 2* Favors Large-Caps -2. 7 47. 8

10-Year Minus Three-Month Treasury YieldCrosses Above 2.0% = Favors Small-CapsCrosses Below 1.2% = Favors Large-Caps

10/27/2006 = -0.22%-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Russell 2000 Index / Russell 1000 Index

Yield Curve


(AA095)


27.8-Year Mean = 95.6

Russell 1000 Growth Index / Russell 1000 Value Index9/30/2006 = 58.6

60657075818794

102110118127137148

60657075818794

102110118127137148

Russell 1000 Growth Index Dividend Yield (solid line)9/30/2006 = 1.1%

Russell 1000 Value Index Dividend Yield (dashed line)9/30/2006 = 2.5%

1

2

3

4

5

6

7

8

1

2

3

4

5

6

7

8

27.8-Year Mean = 0.46

+1 Standard Deviation

-1 Standard Deviation

-2 Standard Deviations

Russell 1000 Growth Index Yield / Russell 1000 Value Index Yield9/30/2006 = 0.47

0.2

0.3

0.4

0.5

0.6

0.2

0.3

0.4

0.5

0.6

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Russell 1000 Growth & Value Index Relative Dividend Yields

(AA0114)


27.8-Year Mean = 101.1

Russell 2000 Total Return Index / Russell 1000 Total Return Index9/30/2006 = 95.3

616672788592

100109118128139151

616672788592

100109118128139151

Russell 2000 Index Dividend Yield (solid line)9/30/2006 = 1.2%

Russell 1000 Index Dividend Yield (dashed line)9/30/2006 = 1.8%

2

3

4

5

2

3

4

5

27.8-Year Mean = 0.67

+1 Standard Deviation

+2 Standard Deviations

-1 Standard Deviation

Russell 2000 Index Yield / Russell 1000 Index Yield9/30/2006 = 0.68

0.50.60.70.80.91.01.11.21.3

0.50.60.70.80.91.01.11.21.3

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

Russell 2000 & Russell 1000 Index Relative Dividend Yields


(STH0618D_C)


Ratio of NASDAQ Composite Index to NYSE Composite Index

Model Above 55% = Buy NASDAQModel 40% or Below = Buy NYSE

NASDAQ/NYSE:

NASDAQ Relative Gain/ %Strength Model: Annum of Time* Above 55% 14. 3 51. 2

Between 40% and 55% -4. 6 14. 940% and Below -15. 1 33. 924.51

25.42

26.36

27.34

28.35

29.41

30.50

31.63

32.80

24.51

25.42

26.36

27.34

28.35

29.41

30.50

31.63

32.80

NASDAQ Relative Strength Model 10/26/2006 = 61.9Favors NASDAQ

Favors NYSE0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

N J2002

M M J S N J2003

M M J S N J2004

M M J S N J2005

M M J S N J2006

M M J S

NASDAQ Relative Strength ModelMonthly Data 12/31/1985 - 9/30/2006 (Log Scale)

(STH0618C_C)

9/30/2006 = 169.1

NASDAQ / S&P 500 Gain/Annum When:

Gain/ %NASDAQ / S&P P/E: Annum of Time* Above 108 -9. 2 26. 6

Between 78 and 108 1. 9 47. 778 and Below 8. 7 25. 7

113120128136145155165176188200213227242258275293313333

113120128136145155165176188200213227242258275293313333

9/30/2006 = 140.8NASDAQ P/E excludes negative earnings.

NDR calculated values used from 9/30/2001 onwarddue to the discontinuation of data released by NASDAQ.

S&P P/E will reflectestimate for latest

completed quarter untilactual earnings are released

5060708090

100110120130140150160170180190200210

5060708090

100110120130140150160170180190200210

NASDAQ Composite / S&P 500 Index

NASDAQ P/E and S&P 500 P/E (GAAP)

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06


sECtor rECommEndAtions

s&P 500 sector

Telecommunication Services Modest overweight. Wireless (New) now favored vs. Integrated.

Materials Modest overweight. CRB/U.S. $ ratio rising. Diversified Metals overweighted. Gold Mining on emerging list (long-term favorable).

Industrials Modest overweight. Breadth weakening. Transports approaching marketweight. Construction & Farm Machinery, Environmental Services and Railroads overweighted.

Energy Marketweight. Rank, breadth and crowd sentiment improved, but waiting on improvement from oil prices.

Financials Maketweight (New). Fed cycle favorable, but rank weakening. Investment Banking & Brokerage overweighted. Diversified Banks > Regional Banks.

Information Technology Marketweight. Software favored vs. Hardware. IT Consulting & Services and Computer Storage & Peripherals favored.

Utilities Marketweight. Rank improved. Relative valuation negative/neutral. Fed cycle favorable.

Consumer Discretionary Marketweight. Short-term breadth mixed. We advise marketweighting Casinos & Gaming (New) ahead of our ranks.

Consumer Staples Modest underweight. Tobacco ranked highest.

Health Care Modest underweight. Small-cap / large-cap performance turning mixed. Marketweight Pharma - Major for now.

sECtors


s&P 500 sECtor PErCEnt GAin bEtwEEn lAst FEdErAl rEsErVE intErEst rAtE HikE And First Cut1

last Hikedate

First Cutdate

numberof

months2 FinancialsConsumer

staplesHealthCare utilities

telecommunicationsservices Energy industrials

Consumerdiscretionary materials

informationtechnology

4/25/74 12/9/74 7.5 -26.1 -25.5 -19.1 -21.6 -19.4 -16.8 -34.4 -39.4 -29.9 -26.3

2/15/80 5/30/80 3.5 2.9 4.4 5.5 7.1 3.1 -4.1 -8.1 -3.8 -10.2 -15.8

5/5/81 11/2/81 6.0 5.7 1.9 -3.7 8.5 13.0 -2.4 -14.9 -6.8 -15.4 -8.2

2/24/89 6/6/89 3.4 18.3 21.8 16.0 12.0 22.5 9.1 13.0 12.9 5.1 -0.8

2/1/95 7/6/95 5.1 19.7 15.9 13.6 6.7 8.4 12.4 20.1 14.1 23.8 42.7

5/16/00 1/3/01 7.6 21.9 19.1 13.3 17.3 -25.3 1.6 1.1 -9.6 -8.1 -34.4

mean 5.5 7.1 6.3 4.3 5.0 0.4 -0.1 -3.9 -5.4 -5.8 -7.1

median 5.5 12.0 10.2 9.4 7.8 5.7 -0.4 -3.5 -5.3 -9.2 -12.0

1.Tighteningcyclerequiresatleasttwoconsecutiverateincreaseswithoutaninterveningdecrease.Sectordataismarket-capitalizationweightedandpriceonly.Sectorsaresortedlefttorightbymedianpercentgain.2.Numberofcalendardaysmultiplied12/365.

NedDavisResearch,Inc. T_SMF0629.2


mEAn GlobAl sECtor rAnks

short-term breadth breadth intermediate-term rank sector mode Chart 10/20 10/13 10/06 9/29 9/22 9/15 9/08 9/01 8/25 8/18

Automobiles & Parts Favorable IGB2001 67.5 71.8 55.6 46.6 51.1 56.8 45.9 36.7 45.3 41.0Basic Resources Favorable IGB2010 66.3 75.4 67.6 51.1 35.9 37.4 27.2 38.2 58.6 67.2Chemicals Favorable IGB2015 60.0 60.0 47.5 44.5 52.7 57.8 49.2 39.0 43.2 43.3Telecom Favorable IGB2080 59.2 57.8 51.6 60.5 60.5 61.5 54.0 51.6 49.5 53.8Personal & Household Goods Unfavorable IGB2065 56.8 52.6 45.8 58.7 58.0 56.8 59.8 55.2 45.5 43.7Financial Services Favorable IGB2035 56.0 61.4 65.4 64.4 68.3 68.8 66.8 68.7 68.2 57.9Banks Mixed IGB2005 55.5 47.7 48.4 63.2 61.5 58.1 65.5 65.6 57.1 60.5Insurance Mixed IGB2055 55.3 47.8 58.4 63.6 64.8 58.5 64.8 64.8 59.7 61.4Travel & Leisure Favorable IGB2025 55.2 55.7 51.9 55.2 54.0 53.9 56.2 59.7 55.2 42.4Utilities Favorable IGB2085 52.8 56.6 58.4 49.6 57.9 59.1 62.4 70.2 70.7 70.1Industrial Goods & Services Favorable IGB2050 50.4 57.7 53.0 44.2 42.6 45.1 44.9 44.4 50.9 44.7Health Care Unfavorable IGB2045 50.3 48.5 53.2 43.4 48.4 51.9 45.0 36.5 38.8 49.1Construction & Materials Favorable IGB2020 49.7 36.2 49.5 43.5 49.5 48.8 40.5 35.8 41.4 40.8Food & Beverage Mixed IGB2040 44.4 33.4 40.8 50.5 45.1 47.5 55.6 63.9 65.4 63.0Retail Mixed IGB2070 44.1 48.0 44.5 57.4 57.2 50.7 56.6 59.4 57.1 58.0Media Favorable IGB2060 38.7 45.7 36.0 36.6 38.6 36.1 37.2 37.6 35.4 38.3Technology Mixed IGB2075 27.6 29.4 40.0 44.3 35.6 33.3 44.1 43.4 36.8 32.4Oil & Gas Mixed IGB2030 20.7 31.6 39.6 13.5 12.9 19.0 5.8 6.8 8.9 35.0

BasedonNDR’sglobaluniverse.FormoredetailsseeGlobalFocus.NedDavisResearch,Inc. ICS_44A.RPT

ndr domEstiC sECtor rAnks

short-term breadth breadth intermediate-term rank sector mode Chart 11/03 10/27 10/20 10/13 10/06 9/29 9/22 9/15 9/08 9/01

Telecommunications Services Favorable ESB50 100 90 90 90 100 100 100 100 100 100Materials Favorable ESB15 90 100 100 100 60 60 80 70 90 90Energy Favorable ESB10 80 70 70 50 20 20 30 80 70 80Industrials Mixed ESB20 70 80 80 80 80 80 70 40 40 50Utilities Favorable ESB55 60 40 40 20 10 10 10 10 10 20Information Technology Unfavorable ESB45 50 60 50 60 70 70 60 60 80 70Financials Unfavorable ESB40 40 50 60 70 90 90 90 90 60 30Consumer Discretionary Mixed ESB25 30 30 20 40 50 40 40 30 30 10Consumer Staples Mixed ESB30 20 20 30 30 30 50 50 50 50 60Health Care Unfavorable ESB35 10 10 10 10 40 30 20 20 20 40

BasedonNDR’sdomesticuniverse.FormoredetailsseeIndustryFocus.


CurrEnCiEs And CommoditiEs

CurrEnCy mArkEt rElAtiVE strEnGtH rAnkinG

Rank

OneWeek Ago

FourWeeks Ago

CurrencyMarket

TotalComposite

Short-TermModel

Intermediate-Term Model

Long-TermModel

1 2 4 Canadian Dollar

68.75 90.00 60.00 56.25

2 4 6 British Pound 63.33 90.00 50.00 50.00

3 3 7 Australian Dollar

62.50 83.33 66.67 37.50

4 1 2 Swedish Krona

60.97 66.67 60.00 56.25

5 5 5 Euro 52.78 33.33 50.00 75.00

6 6 3 Japanese Yen 51.39 75.00 16.67 62.50

7 8 8 Swiss Franc 41.67 50.00 25.00 50.00

8 7 1 U.S. Dollar 39.26 0.00 77.78 40.00

*Modelreadingsrepresentthepercentageofindicatorsinthemodelthatarepositivescaledfrom0%to100%*(100%=allindicatorspositive);TotalCompositeisanarithmeticmeanoftheShort-Term,Intermediate-TermandLong-Termmodelreadings;*Modelreadingsarelinkedtocorrespondingcharts.Forexample,toaccesstheDailyEuroShort-TermModelchart,clickonthe“Short-TermModel”readingforEuro.

Ned Davis Research,Inc. ICS_2.RPT


(AA411)


Gold Gain/Annum When:

150-Day Gain/ %Index Is: Annum of Time* >15% Above 1-Yr Avg. 20. 4 29. 0

Between Bands 11. 6 43. 4>15% Below 1-Yr Avg. -10. 2 27. 6

364352637590

108130156188226271325391469563676812

364352637590

108130156188226271325391469563676812

150-Day Average of Gold's Absolute Change

High Volatility

Low Volatility

Bands vs. One-Year Moving Average of 150-Day Gold Volatility Index:

Upper = 15% Above Avg. (1.12%)

Lower = 15% Below Avg. (0.82%)

11/02/2006 = 1.29%

0.20.40.60.81.01.21.41.61.82.02.22.42.62.8

0.20.40.60.81.01.21.41.61.82.02.22.42.62.8

19

73

19

78

19

83

19

88

19

93

19

98

20

03

Gold Bullion

150-Day Gold Volatility Index(I 224)


Dollar Gain/Annum When:

75-Day Gain/ %Index Is: Annum of Time

>15% Above 1-Yr Avg. 7. 3 23. 0Between Bands -1. 2 56. 4

* >15% Below 1-Yr Avg. -4. 7 20. 6

798387919599

104109114119125131137143150157164

798387919599

104109114119125131137143150157164

75-Day Average of Dollar's Absolute Change

High Volatility

Low Volatility

Bands vs. One-Year Moving Average of 75-Day Dollar Volatility Index:

Upper = 15% Above Avg. (0.43%)

Lower = 15% Below Avg. (0.32%)

11/02/2006 = 0.26%

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.2

0.3

0.4

0.5

0.6

0.7

0.8

19

83

19

88

19

93

19

98

20

03

U.S. Dollar Index

75-Day U.S. Dollar Volatility Index



(I 336)

U.S. Dollar / Japanese Yen8/31/2006 = 85.19

Yen Gain/Annum When:

Net PurchasesThree-Month Total Gain/ %(bottom clip): Annum of Time* Above 9 -2. 0 22. 2

Between 3 And 9 2. 3 31. 63 And Below 6. 5 46. 2

41454954596571788694

103113

41454954596571788694

103113

8/31/2006 = $10.64 billion

Japanese Net Purchases of U.S. Treasurys

-10-505

10152025

-10-505

10152025

8/31/2006 = $11.16 billion

Japanese Net Purchases of U.S. Treasurys (Three-Month Total)

-100

1020304050607080

-100

1020304050607080

Japanese Yen vs. Japanese Net Purchases of U.S. Treasurys

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06


(I 258)

U.S. Dollar Index Gain/Annum When:12/01/1989 - 10/27/2006

Indicator in Gain/ %Bottom Clip is: Annum of Time

Above 10 3. 1 19. 6* Between 0 and 10 -0. 9 59. 0

0 and Below -3. 7 21. 4

U.S. Dollar Index

10/27/2006 = 85.6

81

85

89

93

97

102

107

112

117

81

85

89

93

97

102

107

112

117

Foreign Holdings of U.S. Government Securities At The Fed($Billions, Log Scale)

10/27/2006 = 1142.93

241280325377438508590685795923

1071

241280325377438508590685795923

1071

Foreign Central Bank Holdings26-Week Rate of Change

Holdings Increasing

Holdings Decreasing10/27/2006 = 2.3%-9

-6-30369

121518

-9-6-30369

121518

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

U.S. Dollar Index vs. Foreign Central Bank Holdings


mAJor ForEiGn HoldErs oF u.s. trEAsury sECuritiEs* As oF 6/30/2006

Country

CurrentHoldings$ billions

$ Change fromPrior month

As a Percent ofForeign

Holdings

As a Percent ofmarketable

treasury securities

Japan 635.3 -2.6 30.4 14.9

Mainland China 327.7 3.1 15.7 7.7

United Kingdom 201.4 26.4 9.6 4.7

Caribbean Banking Ctr 60.3 1.8 2.9 1.4

Hong Kong 48.8 0.4 2.3 1.1

Taiwan 67.1 -0.4 3.2 1.6

Germany 48.3 1.1 2.3 1.1

OPEC 101.5 -1.1 4.9 2.4

Korea 68.9 0.1 3.3 1.6

Switzerland 30.6 0.1 1.5 0.7

Mexico 46.0 2.6 2.2 1.1

Luxembourg 37.4 -1.1 1.8 0.9

Canada 41.3 0.4 2.0 1.0

Singapore 34.6 -1.1 1.7 0.8

Australia 9.3 0.0 0.4 0.2

Brazil 33.4 0.5 1.6 0.8

India 12.5 0.3 0.6 0.3

Belgium 16.9 -0.6 0.8 0.4

Turkey 19.1 -2.4 0.9 0.4

Italy 15.2 1.0 0.7 0.4

Netherlands 16.9 1.5 0.8 0.4

Israel 11.4 -2.0 0.5 0.3

Sweden 18.2 0.1 0.9 0.4

France 28.9 -1.8 1.4 0.7

Ireland 20.0 1.0 1.0 0.5

Thailand 15.8 0.3 0.8 0.4

Spain 11.9 0.0 0.6 0.3

All Others 120.8 -5.5 5.8 2.8

Grand Total 2089.7 20.2 100.0 49.1

Foreign Official Instit. 1273.0 -11.5 60.9 29.9

Bills 188.0 -7.1 9.0 4.4

Bonds and Notes 1085.0 -4.4 51.9 25.5

NedDavisResearch,Inc. BMS_30.RPT


(DAVIS62)


S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

S

B

Profitable Trades: 82%Gain/Annum: 8.9%Buy-Hold Gain/Annum: -2.3%Latest Signal 6/19/2006 = 86.31

11/02/2006 = 85.34U.S. Dollar Index Gain/Annum When:

(9/04/1984 - 11/02/2006)

NDR Crowd Sentiment Gain/ %Poll for US Dollar: Annum of Time* Above 1.3 1. 3 25. 2

-2.1 - 1.3 from Above -11. 5 37. 5-2.1 - 1.3 from Below 8. 6 27. 9Below -2.1 -5. 3 9. 0

Signals are Generated When Sentiment IndicatorFalls Below Upper Bracket = Sell

Rises Above Lower Bracket = Buy71747882869095

100105110115121127134141148155163

71747882869095

100105110115121127134141148155163

Excessive Optimism

Extreme Pessimism

11/02/2006 = 1.7

-3

-2

-1

0

1

2

3

-3

-2

-1

0

1

2

3

19

89

19

94

19

99

20

04

U.S. Dollar Index

NDR Crowd Sentiment Poll for U.S. Dollar -- Transitional Mode(DAVIS43)

81.983.885.787.789.791.793.896.098.2

100.4102.7105.1107.5109.9112.4115.0117.6120.3123.1125.9128.7131.7134.7137.8140.9144.1147.4150.8154.2157.8161.4

M J S D1980

M J S D1981

M J S D1982

M J S D1983

M J S D1984

M J S D1985

M J S D1986

M J S D1987

M J S D1988

M J S D1989

M J S D1990

M J S D1991

M J S D1992

80.2

81.5

82.9

84.3

85.7

87.1

88.5

90.0

91.5

93.0

94.5

96.1

97.7

99.3

100.9

102.6

104.3

106.0

107.8

109.6

111.4

113.2

115.1

117.0

118.9

D1996

M J S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S D2007

M J S D2008

M J S

1995-Present Dollar Scale Right ( )1979-1992 Dollar Scale Left ( )

1995 - Present U.S. Dollar Index vs. 1979 - 1992 U.S. Dollar Index Weekly Data (Log Scale)


Daily Data 4/30/1996 - 11/02/2006

(I 205)

U.S. Dollar Index - Trade WeightedLog Scale Right

11/02/2006 = 85.34

97.31

101.39102.60

96.83

104.58

112.10

118.61

120.88 120.22

99.07

91.99

85.11

90.43

92.33

101.98

85.90

93.26

95.17

98.64

92.20

97.06

108.40

111.75

104.17

92.29

84.97

80.53

86.30

83.89

106.02

81.6

83.4

85.3

87.2

89.1

91.1

93.2

95.3

97.4

99.6

101.8

104.1

106.4

108.8

111.2

113.7

116.2

118.8

121.5

Unweighted U.S. DollarScale Left

11/02/2006 = 89.81

99.61

103.06

108.35 107.73

115.53

122.77

125.55 124.94

97.51

89.85

94.81

96.71

107.95

89.20

95.84

98.36 97.84

101.42

112.78

118.16

110.33

98.18

89.66

85.47

90.57

88.28

109.45

87

90

93

96

99

102

105

108

111

114

117

120

123

Comex GoldLog Scale Right

11/02/2006 = 633.3

393.7

337.4317.5

303.6 296.7 294.9

329.2

380.3

429.1

458.6

728.6

366.9

326.3 320.0

383.6

343.0

320.3

280.4 277.3

254.1

279.0

257.1273.2

303.9322.5

376.0

415.4

Source: = Commodity System, Inc. (CSI)www.csidata.com

252274297322350379412447485527571620673730793

J S D1997

M J S D1998

M J S D1999

M J S D2000

M J S D2001

M J S D2002

M J S D2003

M J S D2004

M J S D2005

M J S D2006

M J S

Dollar & Gold

(I 202)

Daily Data 6/02/1987 - 11/02/2006

Euro Per U.S. DollarScale Right

11/02/2006 = 0.78

0.900.92

0.98

0.89

0.82

0.86

0.91

0.830.82

0.950.93

0.99

1.12

1.211.19

1.16

0.93

0.840.86

0.75

0.83

0.89

0.70

0.74

0.69

0.800.78

0.74

0.86

0.82

0.92

1.04

1.08

0.84

0.78

0.73

0.84

0.690.720.750.780.810.840.870.900.930.960.991.021.051.081.111.141.171.20

Japanese Yen Per U.S. DollarScale Left

11/02/2006 = 117.11

152.95

136.50

149.37

159.64

141.64

134.83

126.09

112.85

127.10

147.25

124.33

111.23

126.68

134.79

114.50

120.96121.01 121.11

124.75 123.35119.32

101.13

80.63

111.20108.72

101.60

115.69

102.04

109.76

80859095

100105110115120125130135140145150155

J S D1988M J S D

1989M J S D

1990M J S D

1991M J S D

1992M J S D

1993M J S D

1994M J S D

1995M J S D

1996M J S D

1997M J S D

1998M J S D

1999M J S D

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S

U.S. Dollar in Terms of Euro and Yen


(DAVIS66)


S&P 500 IndexGain/Annum When:

Gain/ %Market Sentiment is Annum of Time

Above 61.5 -7. 6 28. 1Between 31 and 61.5 12. 7 49. 9

* Below 31 14. 6 22. 1

11/02/2006 = 329.75Source: Commodity System, Inc. (CSI)

www.csidata.com6571798795

105116127140155170188207228251276304335369

6571798795

105116127140155170188207228251276304335369

Excessive Optimism

Extreme Pessimism

11/02/2006 = 21.5

05

101520253035404550556065707580859095

05

101520253035404550556065707580859095

1990M J S D

1991M J S D

1992M J S D

1993M J S D

1994M J S D

1995M J S D

1996M J S D

1997M J S D

1998M J S D

1999M J S D

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S

Copper (HG)

NDR Crowd Sentiment Poll for Copper -- Mode Basis(DAVIS63)


Gold Bullion Gain/Annum When:

Gain/ %Gold Sentiment Index Is: Annum of Time

Above 66.4 -5. 8 25. 6Neutral moving down -0. 4 21. 4Neutral moving up 3. 6 19. 2

* 37.9 and Below 12. 5 33. 8

Composite's Direction is DeterminedBy Whether it is Higher or Lower

Than it Was 3 Days Ago 11/03/2006 = 626.90262276292308326344363384405428452477504533563594628663700

262276292308326344363384405428452477504533563594628663700

Excessive Optimism

Extreme Pessimism Composite Direction = UP162024283236404448525660646872768084

162024283236404448525660646872768084

J S D1990

M J S D1991

M J S D1992

M J S D1993M J S D

1994M J S D

1995M J S D

1996M J S D

1997M J S D

1998M J S D

1999M J S D

2000M J S D

2001M J S D

2002M J S D

2003M J S D

2004M J S D

2005M J S D

2006M J S

Gold Bullion

NDR Crowd Sentiment Poll for Gold Bullion -- Directional Mode Basis


Yearly Data 12/31/1979 - 12/31/2005

(ESX1084A)

Chinese Oil Demand(Year-to-Year Change)12/31/2005 = 10.3%

(Scale Left)( )

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Chinese Real GDP Growth12/31/2005 = 10.2%

(Scale Right)( )

Correlation Coefficient = 0.42Sources: Energy Information Administration and

Haver Analytics, China National Bureau of Statistics 3.94.24.54.85.15.45.76.06.36.66.97.27.57.88.18.48.79.09.39.69.9

10.210.510.811.111.411.712.012.312.612.913.213.513.814.114.414.715.0

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Chinese Oil Demand vs Real GDP GrowthYearly Data 12/31/1970 - 12/31/2004

ESX1083A

ConsumptionCountry per Capita Year

United States ( ) 25.8 2004Japan ( ) 15.3 2004Russia ( ) 6.6 2004Brazil ( ) 4.2 2004China ( ) 1.8 2004India ( ) 0.8 2004

Sources: Energy Information Administration and U.S. Census Bureau

In Barrels per Person per Year

123456789

10111213141516171819202122232425262728293031

123456789

10111213141516171819202122232425262728293031

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

Petroleum Consumption per Capita for Selected CountriesNew Chart

timothy w. Hayes, CMT, is NDR’s Chief Investment Strategist. Tim joined the firm in 1986 and currently heads up the firm’s global and U.S. asset allocation services. He serves as Research Council coordinator and oversees NDR’s quarterly InvestmentStrategy, writing sections on strategy, asset allocation, U.S. stock market and style allocation, and global allocation.

Tim writes the StockMarketFocus, which features top-down stock market perspective, quantitatively-based analyses, asset allocation recommendations, and sector rankings. Tim also writes GlobalFocus, which focuses on the most significant global themes in addressing global asset allocation and the outlook for the world’s various stock markets and global sectors. His team also produces a complementary GlobalChartoftheDay.

Tim is featured regularly on CNBC and Bloomberg TV, and his market commentary is often quoted in TheWallStreetJournaland other financial media in the U.S. and globally.

He has written a book, The Research-Driven Investor, published in November 2000. He has contributed to several other books, and his research articles have appeared in the Journal of Technical Analysis, TechnicalAnalysisof StocksandCommodities, and other publications.

In 1996, Tim won the Charles H. Dow Award for groundbreaking research in technical analysis. Sponsored by Dow Jones Telerate, the Market Technicians Association, and Barron’s, the award recognizes an outstanding original work that best expounds on the principles of technical analysis.

timothy w. Hayes, CmtChiefInvestmentStrategist

Biographical Sketch


nEd dAVis rEsEArCH GrouPnEd dAVis rEsEArCH, inC. dAVis, mEndEl & rEGEnstEin, inC.

For information call your client representative at (800) 241-0621 or (770) 850-3838 FAX (770) 850-3830Thedataandanalysiscontainedhereinisprovided“asis”,withoutwarrantyofanykind,eitherexpressedorimplied.NedDavisResearch,Inc.(NDR),noranyofitsaffiliatesoremployees,noranythirdpartydataprovider,shallhaveanyliabilityforanylosssustainedbyanyonewhohasreliedontheinformationcontainedinanyNDRpublication.Allopinionsexpressedhereinaresubjecttochangewithoutnotice,andyoushouldalwaysobtaincurrentinformationandperformduediligencebeforetrading.NDR,accountsthatNDRoritsaffiliatedcompaniesmanage,ortheirrespectiveshareholders,directors,officersand/oremployees,mayhavelongorshortpositionsinthesecuritiesdiscussedhereinandmaypurchaseorsellsuchsecuritieswithoutnotice.Thesecuritiesmentionedinthisdocumentmaynotbeeligibleforsaleinsomestatesorcountries,norbesuitableforalltypesofinvestors;theirvalueandincometheyproducemayfluctuateand/orbeadverselyaffectedbyexchangerates,interestratesorotherfactors.Fordatavendordisclaimersrefertowww.ndr.com/vendorinfo.Furtherdistributionprohibitedwithoutpriorpermission.Copyright2006©NedDavisResearch,Inc.Allrightsreserved.

(800) 241-06212100 RiverEdge Parkway, Suite 750

Atlanta, GA 30328 (770) 850-3838

Fax (770) [email protected]

nEd dAVis rEsEArCH GrouP

ned davis research group - · pdf filened davis research group is comprised of ned davis...

Documents