November 13, 2012

2012 and Beyond:Navigating the New Economy

FGFOA – Sarasota, FL

Presented byJohn B. Jung Jr.Senior Managing Director, BB&T Capital Markets

Important Disclosures

BB&T Capital Markets is a division of Scott & Stringfellow, LLC. Member FINRA/SIPC. Scott & Stringfellow, LLC, is a wholly-owned, nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold,

offered or recommended are not a deposit, not FDIC insured, not bank guaranteed, not insured by any federal government agency and may lose value.

The information contained herein, while not guaranteed by BB&T Capital Markets, has been obtained from sources which we believe to be reliable and accurate. This material is not to be

considered an offer or solicitation regarding the sale of any security.

Discussions of past performance do not imply a guarantee of future results.

Comments regarding tax implications are informational only. Scott & Stringfellow and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action

that may have tax or legal consequences.

“Never make predictions, especially about the future.”

- Casey Stengel

4

Consumer confidence has trended up since the all-time low in February 2009 and consumer spending continues to recover.

Improving Signs: Consumer Confidence & Spending

Source: FactSet, Reuters, www.MillionaireCorner.com

U.S. Consumer Spending Growth

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011

Con

sum

er S

pen

din

g G

row

th

U.S. Consumer Confidence

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2004 2005 2006 2007 2008 2009 2010 2011

Con

sum

er S

pen

din

g G

row

th

4

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Industrial Production and Capacity Utilization are key indicators of the health of the U.S. manufacturing sector. After bottoming out in mid-2009 they have continuously improved.

Improving Signs: Industrial Production & Capacity Utilization

Source: US Federal Reserve - Industrial Production and Capacity Utilization Report

U.S. Capacity UtilizationU.S. Industrial Production

5

6

Positive Trend: Long-Term GDP Growth

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Long-Term Real Growth in U.S. GDP Per Capita (1871-2009)

2011

Source: VisualizingEconomics; MorningWorth

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So, Why Doesn’t the Recovery Feel Better?

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Length of U.S. Recessions (1900-Present)

0 12 24 36 48

Dec-2007

Mar-2001

Jul-1990

Jul-1981

Jan-1980

Nov-1973

Dec-1969

Apr-1960

Aug-1957

Jul-1953

Nov-1948Feb-1945

May-1937

Aug-1929

Oct-1926

May-1923

Jan-1920

Aug-1918

Jan-1913

Jan-1910

May-1907

Sep-1902

Rece

ssio

n S

tart

Date

Months

Average length of recession – 14 months

Source: National Bureau of Economic Research

The most recent recession is technically behind us - it was only slightly above average in terms of duration.

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Why Do the Effects Continue To Be Felt?

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Percentage Change in Economic Indicators Following Recession

Average, 3 Years After The Start of Recession (1) Current Cycle (4 years from the end of 2007)

What is old normal? What we are dealing with?

27.0% 26.8% 25.0% 23.8%

21.7%

16.9%

13.0% 11.6% 11.4%

7.0%

0%

5%

10%

15%

20%

25%

30%

6.2% 0.5%

(0.2%) (4.6%) (4.7%) (4.2%) (8.6%)

(31.9%)

(73.8%)(90%)

(70%)

(50%)

(30%)

(10%)

10%

30%

“This country had a huge, huge wound…It takes time for wounds to heal, regardless of how good the care is.”

-Warren Buffet

(1) Covers eight recession cycles going back to 1950 (does not include the truncated 1980 recession)Source: Haver Analytics, Gluskin Sheff, U.S. Census, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, U.S. Treasury

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The Great DepressionThe Great Depression

?

The Great Recession?

Source: U.S. Census, U.S. Federal Reserve Flow of Funds.

U.S. Household Debt as a Percent of GDP

What Drove The Great Recession?

0%

20%

40%

60%

80%

100%

1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010Household debt / GDP

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Old Economy (1946 – 2007)Old Economy (1946 – 2007)

Strong Growth Low Unemployment – Low Inflation Aggressive Consumer Spending

Old Normal vs. New Normal

New Economy (2007 - ?)

New Economy (2007 - ?)

Limited Growth High Unemployment – Deflation? Lower Consumer Spending

2. Declining Risk Premium

3. Aggressive Investing

4. Increased Leverage

1. Rising Asset Prices

2. Increasing Risk Premium

3. Need for Liquidity

4. Reduced Leverage

1. Stabilizing Asset Prices

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“New Normal” Characteristics - Employment• The average length for an unemployed person is 40.5 weeks – the longest period ever

– 6.3 million people have been unemployed for over six months

– 7 million jobs below peak employment

• Although the U.S. has lost nearly 8 million factory jobs since manufacturing employment peaked in mid-1979, the U.S. remains the No. 1 manufacturing country in the world, out-producing No. 2 China by a staggering 25%

– U.S. Labor Productivity is up over 50% in the last two decades

Source: U.S. Department of Labor; Bureau of Labor Statistics; FactSet, Associated Press

U.S. Labor Productivity – Real Output ($ in billions)

Employment – Percent of Previous Peak

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

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Source: U.S. Census Bureau, National Association of Realtors, BBTCM Research, FactSet, Standard & Poor’s, Financial Times, NY Times

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010(25.0)%(25.0)%

(20.0)%(20.0)%

(15.0)%(15.0)%

(10.0)%(10.0)%

(5.0)%(5.0)%

0.0%0.0%

5.0%5.0%

10.0%10.0%

15.0%15.0%

20.0%20.0%

25.0%25.0%

(% 1YR) Average Real Wage Recession Periods - United States

• Foreclosures on homes amount to roughly one-quarter of existing home sales and roughly 25% of mortgage holders are underwater on their home loans

• U.S. homes are projected to have lost $681 billion in value during 2011…35% less than the $1.1 trillion lost in 2010

– Real estate experts now believe it will take 20 years to recoup the $6 trillion worth of housing value destruction seen in the last five years…after adjusting for inflation, values will never catch up

• Housing affordability below pre-recession levels – the ratio of housing prices to annual household income has fallen from 2.3x during the peak of the bubble all the way back to 1.6x (well below the average of 1.9x).

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010(25.0)%(25.0)%

(20.0)%(20.0)%

(15.0)%(15.0)%

(10.0)%(10.0)%

(5.0)%(5.0)%

0.0%0.0%

5.0%5.0%

10.0%10.0%

15.0%15.0%

20.0%20.0%

25.0%25.0%

S&P/Case-Shiller - 10 City Composite Recession Periods - United States

Home Price IndicesU.S. Real Wage Growth

“New Normal” Characteristics – Asset Re-pricing

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011600

800

1,000

1,200

1,400

1,600

1,800

S&P 500 EPS

S&P 500

“New Normal” Characteristics – De-Leveraging

Source: FactSet, data as of December, 31 2011

• The S&P 500 has been flat for the last decade; at the same time earnings have risen 75%; resulting in the price to earnings level being down 43%

• How much of the growth in earnings is tied to the growth in the international economy?

• Is it better to invest at 24 P/E or 12 P/E?

2002 2003 2004 2005 2006 2007 2008 2009 2010 20118

12

16

20

24

28

S&P

500

P/E

Rat

io

S&P 500 Price to Earnings

S&P 500 Price To EarningsHistorical Index Performance

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“New Normal” Characteristics – Global Marketplace

• Increased Economic Opportunity

– The world is our economic oyster!

• European Union– Potential for sovereign debt defaults in Europe

• China

– Headed for a hard or soft landing?

• Global Supply Chain Interruptions– Middle East - world’s oil supply– Japan earthquake– Australian floods

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Total U.S. Government Spending vs. Revenue as % of GDP

Source: Congressional Budget Office

• Since the 1950’s we have borrowed on average 2% of GDP / in the four years of the current administration we will average 10% of GDP

• Informed constituencies can disagree on the number, but everyone agrees there is a real “debt ceiling”. Current Federal borrowing is unsustainable.

“New Normal” Characteristics – Large Public Deficits and Debt

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“The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of

worry and depression.”

- Sir John Harvey-Jones

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• Does government have a responsibility to “create” jobs – are there effective policy measures or do we just need to save the money?

• Should we support housing or let prices fall where they may – why are rational housing prices bad for the economy?

• Even though there is no concrete evidence the stimulus or quantitative easing worked – do we continue to implement fiscal and monetary solutions? Are low interest rates a panacea?

• Is the current regulatory environment undermining the recovery – are regulatory costs an anchor around the neck of the economy?

• Which do we combat – deflation (asset bubbles bursting – inability to pay collective debt) or inflation (lower standard of living - the seeming ability to pay back our collective debt)?

Planning to Grow

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• The companies and organizations and governments who reacted rationally to the “New Normal” are already the winners – rationalization (re-conceptualization) is a major positive from the great recession

• Do we have the ability to control the de-leveraging; or long term will the economy find its own level? “Are we then being realistic about trying to manage the de-leveraging”?

• If the financial system is sound and the capitalist system is allowed to work we will continue to recover and grow – “get out of the way and let the process work”

Continuing to Grow

“Is the future what it used to be.” -Yogi Berra (sort of)

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“We can’t solve problems by using the same kind of thinking we used when we created them”

- Albert Einstein

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1. Regulatory Overhaul

• By any measure the regulatory burden and costs to our economy is significant. Many measures were well intentioned but the system has taken on a life of its own and the costs far outweigh the benefits. A top to bottom regulatory review is necessary to insure our global competiveness.

2. Tax Code Reform

• No matter how you feel about the level of taxes a complete reform (overhaul) of the tax code is needed. A cogent and coherent code will lead to a conviction of certainty which will allow capital to make informed decisions. Uncertainty about the present and future code is anathema to a healthy and growing economy.

3. Fiscal Restraint

• The current spending message out of Washington is on point – invest in education and technology and infrastructure to spur growth.

• In order to drive the engine of growth two things have to happen; Every program will get less and every taxpayer will pay more – and that has to include defense and entitlements.

Government’s Role in Growth

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• Focus on Growth – Focus on Growth – Focus on Growth

• Innovation is essential, especially if it’s disciplined and focused on economic outcomes (Growth!)

• Compromise is paramount – my way or the highway is not an option

• Get it right the first time – as time goes by our opportunities to be wrong diminish

A Guide to Successful Discussions in DC

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“Men (or Women) make history, and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skillful leaders seize the

opportunity to change things (for the better).”

- Harry S. Truman

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Success starts here.