UNCERTAINTY BRINGS OPPORTUNITY

THE MATERIAL COVERED IN THIS

PRESENTATION IS THE OPINION OF THE

PRESENTER AND SHOULD NOT BE

CONSTRUED AS A RECOMMENDATION TO

BUY OR SELL ANY OF THE SECURITIES

MENTIONED. INVESTORS SHOULD SEEK

THE COUNSEL OF THEIR FINANCIAL

ADVISOR BEFORE MAKING ANY KIND OF

INVESTMENT. THE PRESENTER MAY OR

MAY NOT HOLD LONG OR SHORT

POSITIONS IN ANY OF THE SECURITIES

MENTIONED.

The Facts• We are not entering another Great Depression. In the 1930’s government raised taxes and increased interest rates. We’re now doing just the opposite.

• Valuations appear especially attractive today. The markets are down to 1997 levels and a large number of companies are selling at significant discounts to their true worth.

• $9 Trillion in cash ready to invest.

A Typical Recession• Averages 14 months in length

• Economic activity declines by 2.5%

• Unemployment rises by 2%

• - If unemployed, the average tenure is six weeks.

• We’ve had two recessions in the last 25 years (early 1990’s and 2000 – 2001).

• They always end and the economy always rises to a higher plateau.

Stimulating Enough?

Spring 2008

$170 BillionTax Rebates

Fall 2008

$350 BillionDrop in gas prices

Proposed 2009

$790 BillionEconomic Stimulus Plan

Changes Afoot?•“Repealing” the Repeal of Glass – Steagall

•Reinstate Trust Laws; an end to “too big to fail.”

•Re-instatement of the Uptick Rule

Solving the Financial Crisis

We’re doing all the right things.

• Stronger firms buying out weaker firms.

• Firms are “’fessing up” to valuations and losses.

• Fed cutting interest rates.

The Fed’s Game of “Whack- A-Mole”*

The Fed bailed out the mortgage mess, but…..

This “easy money” created other bubbles

-Commodities -Currencies

What will further easing create? *Quote from Yardeni & Associates

Since World War II

We’ve had 10 Recessions•24 stock declines of 10% or greater

•13 stock declines of 20% or greater

What Counts is Corporate Earnings

Since WW II•Corporate profits up 63 fold•Stock prices have risen 71 fold

Darts vs. Professional Stock Pickers

Oil

Often Overlooked Oil

Oil Wells

Dreco Energy Services Price Graph

31 May 26June 26th July 23rd Aug 20th Sept. 19th Oct. 15th Nov 29Nov

Hang In ThereOver the past 30 years the stock market has produced an average annual rate of return around 8%.

If you were out of the market during the best 30 months your return would drop to just 2%.

Sources of Long-Term Performance

Stock, Fund or Money Manager

Selection5-10%

Asset Allocation90-95%

Portfolio Rebalancing Makes a Big Difference

The Root of the Problem

•It all started with the housing bubble

•We have about 1.5 million too many homes

•This is about 12 months worth of sales

•Much of the problem is regionally based

•A dramatic slowdown in building and an increase in housing affordability is what eventually will solve the problem.

Lou Dobbs Hosts Moneyline From Window Ledge

Source: www.theonion.com

HEADLINE:

Relevant Economic/Financial

Issues1.Energy Issues

2.Interest Rates

3.Domestic Politics

4.Valuation Levels

5.Investing Demographics

Gulf Coast Wetlands

Of Critical Importance:

•1/3 of the nation’s energy production

•Bulk of Country’s refining capacity

•30% of America’s Seafood

•South Louisiana is the Nation’s largest port

•Wetlands are a buffer against storms

The Yield Curve As Prophet

Fall 20003 month 6.00% 10 year 5.70%

Slope -30 basis pointsPredicting a sharp decline in corporate earnings.

Summer 20033 month 0.95% 10 year 4.35%

Slope +340 basis pointsPredicting a huge increase in corporate earnings

growth.

Summer 20063 month 5.10% 10 year 4.50%

Slope -60 basis points Projected an end to double digit EPS growth.

Important Yield Curve Spreads

Current Slope +310 Basis Points

Ten year treasury note (3.30%) minus 3-month treasury bill (0.20%)

Consumer Confidence Vs. Reality

The 1982 recession was the worst since the Great Depression. Consumer confidence is now 20% below the level it was back then.

1982 NowUnemployment 11.0% 8.9%Inflation +10.0% + 2.0%Ten-yr. USTN 14.0% 3.3%

Typical Recovery

• Painful Layoffs

• Credit Markets Gradually Thaw

• Merger and Acquisition Activity Heats Up

• Newly Streamline Companies. Small Improvement in Business Brings Much Larger Improvement in Profits

Stock Market and Business CycleMany stocks are cyclical in nature.

They tend to perform better in specific stages of business cycles. Forecasting these

cycles can help to put you in the right stocks at the right time.

Source: Fortune Magazine: 3/21/94

Consumer Staples Excel

HEADLINE:‘Wheel of Fortune’

Contestants Hit Hard as Vowel Prices Skyrocket

Federal Reserve Valuation

Model=

=

*Forecasted 12 month EPS. 5/11/09

$50.00

* 900.00

EPS for S&P 500Price of S&P 500

Yield on 10 Year Treasury Note

5.55%

The 10 yr. Treasury Currently Yields 3.30%

Federal Reserve Model

Source: Yardeni & Associates

Fear Index In February of 2009 Gold sold at $1000 an ounce and could then be exchanged for some pretty useful stuff.

-150 shares of General Electric or 25 barrels of oil

-Today Gold prices have dropped to $911 an ounce and could only buy 63 shares of General Electric or 15 barrels of oil.

Mason-Dixon Line Renamed IHOP-Waffle House Line

Source: www.theonion.com

HEADLINE:

“Tis Double Death To Drown In Ken of Shore”

-Shakespeare

-Twelve other Bear Markets since 1955

-Average decline was 22.5% and lasted 11 months

-These were followed by recoveries averaging 12-month in length and producing 35.0% returns.

-This is about 1.5 times the decline

Investing Demographics

• “The Pig and the Python”

• Very high birth rates from 1946 – 1964

• Investing Concepts- Financial Services- Healthcare- Leisure

Important Issues

• Favorable Demographics

• Troubles in the Housing Market

• Changes to Pension Plans

Source: Standard & Poors

What Drives A Stock?

Price Earnings Per Share = P/E ratio

Using Home Depot for Example:

$22.00 $1.85 = 12.0x

12/02/08

Wal-Mart 2001-2006

Wal-Mart StockP/E’s vs. Earnings Per

Share 2007 $43.00 = A PE of 13.0x

$ 3.30

2001 $43.00 = A PE of 29.0x

$ 1.50

The stock has remained flat as EPS growth has mirrored the decline in its PE ratio.

In 2001 Wal-Mart shares were “ahead of themselves”.

Three Stages of a Bear Market

Stage Characteristics

1. DENIAL Economy shows signs of slowing and stocks fall from their highs, sometimes sharply. Investors shrug it off and act as though the bull market will last forever.

2. REALITY Stocks continue to decline. Investors start to realize how weak the economy really is.

3. SURRENDER

Fear of deeper losses and a recession become so worrisome that investors give up on stocks, setting the stage for a rebound.

Started In Economic Downturns

• Procter & Gamble: The Panic of 1837• IBM: The Long Depression

1873 - 1896• General Electric: The Panic of 1837• General Motors: the Panic of 1907• United Technologies: The Great

Depression 1929

• Fed Ex: The Oil Crisis of 1973

GNP vs. Stock Market Valuation

The Future Has Not Been Cancelled

• Our economic problems are not insurmountable.

• Have patience, this turnaround will not happen overnight.

• The stock market is about 6-9 months ahead of the economy.

• Capitalism Works. The human drive to succeed is very powerful.

Great Reading/Sources

Popular BooksOne Up On Wall Street, Peter Lynch (Simon & Schuster)A Zebra in Lion Country, Ralph Wanger (Simon & Schuster)The Money Masters, John Train (Harper & Row)The Little Book That Beats The Market, Joel Greenblatt

 Analytical BooksThe Intelligent Investor, Benjamin Graham (Harper & Row)Security Analysis, Benjamin Graham (McGraw-Hill)

Sophisticated and Well WrittenCommon Stocks and Uncommon Profits, Phillip A. Fisher (Harper & Row)The Contrarian Investment Strategy, David Dremen (Random House)Great Investment WebsitesBloomberg.com Investopedia.com NPR.orgMotleyFool.com Seekingalpha.com YahooFinance.com

www.burkenroad.org