The Wall of Worry: U.S. Economic and Market Outlook May 5, 2008 Samuel A. Wardwell, CFA Senior Vice President Director of Investment Communications Pioneer Investment Management, Inc. The views expressed in this presentation are those of the investment professional and are subject to change at any time. These views do not necessarily reflect the views of Pioneer or others in the Pioneer organization. Not FDIC insured May lose value No bank
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The Wall of Worry: U.S. Economic and Market Outlook May 5, 2008 Samuel A. Wardwell, CFA Senior Vice President Director of Investment Communications Pioneer.
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The Wall of Worry:U.S. Economic and Market OutlookMay 5, 2008
Samuel A. Wardwell, CFASenior Vice PresidentDirector of Investment CommunicationsPioneer Investment Management, Inc.
The views expressed in this presentation are those of the investment professional and are subject to change at any time. These views donot necessarily reflect the views of Pioneer or others in thePioneer organization.
Not FDIC insured May lose value No bank guarantee
19220-21-0508 | May 2008 | Page 2
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Today’s Wall of Worry (a partial list)
Recession warnings
Credit crunch
Rising energy prices
Falling home prices
Sub-prime mortgage defaults
Falling dollar
Bear market
Politics
19220-21-0508 | May 2008 | Page 3
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Year-to-Date Market Returns
Source: DataStream. Last data point: April 30, 2008
The S&P 500, MSCI EAFE, MSCI Emerging Markets, Lehman Brothers Aggregate Bond Index, and ML High Yield Master II index are commonly accepted measures of the performance of US stocks, non-US developed-market stocks, emerging market stocks, investment-grade US bonds and US high yield bonds, respectively.
Historical performance shown is provided to illustrate market trends and is not intended to represent the past or future performance of any Pioneer product. Indices are unmanaged and their returns assume reinvestment of dividends and, unlike investment products returns, do not reflect any fees or expenses. It is not possible to invest directly in an index.
Total Return in US$ (rescaled to 12/31/07)
-20%
-15%
-10%
-5%
0%
5%
12/31/07 1/31/08 2/29/08 3/31/08 4/30/08
LehmanAggregate
ML HY Bond
MSCI EmgMkts
S&P 500
MSCI EAFE
19220-21-0508 | May 2008 | Page 4
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
U.S. Economic and Market OutlookKey Themes
The economy had not entered recession at the end of 2007 and may well avoid recession in 2008
– The consumer is weakening, but aggressive fiscal stimulus is coming
– The Fed has moved aggressively
– Exports are a significant source of growth
– Falling home prices and the credit crunch are significant sources of risk
Food and energy prices are rising, but core inflation is a lesser concern
Treasuries appear overvalued, while equities and credit bond market valuations appear relatively inexpensive
19220-21-0508 | May 2008 | Page 5
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
First Quarter GDP Growth (Advance Reading) Was 0.6%Growth Has Slowed…But Is it a Recession?
Source: DataStream. Last data point: 4th quarter 2007 (Advance)
Change in U.S. Real Gross Domestic Product
-4
-2
0
2
4
6
8
Q4 1985 Q4 1990 Q4 1995 Q4 2000 Q4 2005
Quarterly (annualized) Rolling 4 Quarter
19220-21-0508 | May 2008 | Page 6
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Pioneer’s U.S. Real GDP Forecast: Recession Not Expected
Historical Data Source: DataStream. Last data point: 1st quarter 2007 (Advance)Projections by Pioneer Investments Macroeconomics Team. Last forecast: March 26, 2008
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
A Flight to Quality…And a Partial Retreat
Source: DataStream. Last data point: April 30, 2008
Fed Funds and U.S. Treasury Yields (%)
0
1
2
3
4
5
6
6/30/07 9/30/07 12/30/07 3/30/08
Fed Funds Target Rate
2 Year
5 Year
10 Year
19220-21-0508 | May 2008 | Page 15
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Inflation-Adjusted 10-Year Treasury Yields Are Near 25-Year Lows
Source: DataStream. Last data point: April 30, 2008
0%
5%
10%
15%10-Year Treasury Bond YieldRolling 12-month Core CPI
-5%
0%
5%
10%
12/31/65 12/31/75 12/31/85 12/31/95 12/31/05
Real Treasury Bond Yield
19220-21-0508 | May 2008 | Page 16
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
The Evolving Federal Reserve Outlook…And Willingness to ActExcerpts from Recent Press Releases and Speeches
September 18, 2007: “…intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets…”
February 14, 2008: “The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.”
April 30, 2008: “…will act as needed to promote sustainable economic growth and price stability.”
Source: Federal Reserve press releases and congressional testimony
19220-21-0508 | May 2008 | Page 17
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Monetary Policy Is Very AccommodativeThe Fed Funds Rate is Below Trailing 12-Month Core Inflation
Source: DataStream. Last data point: April 30, 2008
0%
5%
10%
15%
20%
Fed Funds Rate
Rolling 12-month Core CPI
-10%
-5%
0%
5%
10%
12/31/60 12/31/70 12/31/80 12/31/90 12/31/00
Real Fed Funds Rate
19220-21-0508 | May 2008 | Page 18
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Oil Prices Increases are Accelerating…And Food Prices are in the Headlines
Source: DataStream. Last data point: April 30, 2008
20%Capacity UtilizationIndustrial Production annual growth (RHS)
19220-21-0508 | May 2008 | Page 30
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Losses in the Financial Sector Have Stalled Profit GrowthProfit Growth Outside the Financial Sector Remains Solid
Source: DataStream. Last data point: 4th Quarter 2007
U.S. After-Tax Corporate Profits (log scale)
Q4 1950 Q4 1960 Q4 1970 Q4 1980 Q4 1990 Q4 2000
19220-21-0508 | May 2008 | Page 31
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
U.S. Equity Valuations Are Very Attractive Relative to Treasury Yields
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. The historical performance shown is provided to illustrate market trends and is not intended to represent the past or future performance of any Pioneer product. Indices are unmanaged and their returns assume reinvestment of dividends and, unlike investment products returns, do not reflect any fees or expenses. It is not possible to invest directly in an index. Source: DataStream. Last data point: April 30, 2008
- House prices, credit availability, systemic risk
Home prices are a key source of risk
There is elevated risk of systemic failures in the financial system
Investor psychology remains dominated by fear
Valuations appear to reflect market technical conditions more than underlying fundamentals
19220-21-0508 | May 2008 | Page 37
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Global Tactical Asset Allocation Outlook – April 24, 2008
Global Equities
– US
– Europe
– Japan
– Emerging Markets
Bonds– US Government
– European Government
– Japanese Government
– US Inv. Grade Corporate
– US High Yield Corporate
– European Corporate
US Cash/Liquidity
U.S. Dollar
Yen
Euro
Source: Pioneer Investments Global Asset Allocation Committee. Last update: April 24, 2008
19220-21-0508 | May 2008 | Page 38
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Investment Suitability Is Important
Pioneer Investment Management USA, Inc. 60 State Street
Boston, Massachusettswww.pioneerinvestments.com
2008 Pioneer Investments
There is no guarantee that forecasts discussed will be realized.
The views expressed in this presentation are those of the investment professional and are subject to change at any time. These views do not necessarily reflect the views of Pioneer or others in the Pioneer organization.
Learn MoreFor information about Pioneer Investments or Pioneer products and services, visit us at www.pioneerinvestments.com
There is no guarantee that forecasts discussed will be realized.Past performance is no guarantee of future results.
Glossary of TermsThe consumer price index (CPI) is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. The CPI measure of core inflation systematically excludes food and energy prices because they are highly volatile.
The federal funds rate is the interest rate at which depository institutions lend balances (federal funds) at the Federal Reserve to other depository institutions overnight.
The Goldman Sachs Commodity Index is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully-collateralized basis with full reinvestment. The combination of these attributes provides investors with a representative and realistic picture of realizable returns attainable in the commodities markets.
Government Bonds and Treasury Bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
A Treasury Inflation-Protected Security (TIPS) is identical to a treasury bond except that principal and coupon payments are adjusted to eliminate the effects of inflation.
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market.
Indices are unmanaged and it is not possible to invest directly in an index.