FED SURVEY

September 19, 2011
These survey results represent the opinions of 59 of the nation’s top money managers, investment strategists and professional economists. They responded to CNBC’s invitation to participate in our online survey. Their responses were collected on September 14 and September 15, 2011. Participants were not required to answer every question. Results are also shown for identical questions in our July 20 and August 8, 2011 surveys. This is not intended to be a scientific poll and its results should not be extrapolated beyond those who did accept our invitation.

1. Will there be another Federal Reserve quantitative easing program in the next year (12 months)?
July 20 Survey 0% August 11 Survey 20% 40% September 19 Survey 60% 80%

19% Yes 34% 46%

68% No 37%

59%

13% Don't Know/Unsure 17%
7%

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FED SURVEY

September 19, 2011 2. For those respondents who replied ‘Yes’ to question #1: How large do you expect the new quantitative program will be over the next year (12 months)? Please do not include reinvestment of maturing securities.
July 20 Survey $700 $600 $500 $400 August 11 Survey September 19 Survey

$628 $527

$377
$300 $200 $100 $0 Average (In Billions)

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FED SURVEY

September 19, 2011 3. For those respondents who replied ‘Yes’ to question #1: At which meeting of the Federal Open Market Committee do you think the Fed is most likely to announce a new QE program?
0% September 2011 5% 10% 15% 20% 25% 30% 35%

25%

November

30%

December

15%

January 2012

5%

March

15%

April

5%

June

5%

July

0%

September 2012

0%

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FED SURVEY

September 19, 2011 4. Will the Fed conduct an "Operation Twist" in which it sells short-term securities in its portfolio and buys long-term securities?
80%

70%

69%
60%

50%

40%

30%

20%

20% 10% Yes No Don't Know/Unsure

10%

0%

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FED SURVEY

September 19, 2011 5. For those respondents who replied ‘Yes’ to question #4: At which meeting of the Federal Open Market Committee do you think the Fed is most likely to announce an "Operation Twist?"

0% September 2011

10%

20%

30%

40%

50%

60%

70%

80%

90%

78%

November

18%

December

0%

January 2012

5%

March

0%

April

0%

June

0%

July

0%

September 2012

0%

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FED SURVEY

September 19, 2011 6. How big do you think a full-scale "Operation Twist" would be?
30%

25%

Don’t Know/Unsure: 13%

Average: $391.2B

20%

15%

10%

5%

0%

$100B

$200B

$300B

$400B

$500B

$600B

$700B

$800B

$900B

$1T

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FED SURVEY

September 19, 2011 7. In which range of maturities do you expect the Fed would concentrate its purchases in an "Operation Twist?"

0%

10%

20%

30%

40%

50%

5 to 10 years

40%

10 to 15 years

33%

15 to 20 years

3%

Average: 12.6 years
20 to 25 years

5%

25 to 30 years

13%

Don't know/Unsure

8%

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FED SURVEY

September 19, 2011 8. How would you characterize the Fed's current monetary policy?
July 20 Survey 0% August 11 Survey 10% 20% September 19 Survey 30% 40% 50% 60%

41% Too accommodative 26% 39%

52% Just right 40% 52%

3% Too restrictive 12% 12%

5% Don’t know/Unsure 10% 9%

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September 19, 2011
9. Where do you expect the S&P 500 stock index will be on … ?
July 20 Survey 1,450 1,400 1,350 1,300 1,250 1,200 1,150 December 31, 2011 June 30, 2012 1421 August 11 Survey September 19 Survey

1364 1310 1252 1254 1312

10. What do you expect the yield on the 10-year Treasury note will be on … ?
July 20 Survey 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% December 31, 2011 June 30, 2012 3.41% 2.99% 2.61% 2.25% 2.59% 3.75% August 11 Survey September 19 Survey

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September 19, 2011
11. What is your forecast for the year-over-year percentage change in real U.S. GDP?
July 20 Survey 3.0% 2.5% 2.47% 2.0% 1.86% 1.5% 1.0% 0.5% 0.0% 2011 2012 1.68% 2.85% 2.47% 2.24% August 11 Survey September 19 Survey

12.Where do you expect the fed funds target rate will be on … ?

July 20 Survey 0.0%

August 11 Survey 0.2% 0.4% 0.6%

September 19 Survey 0.8% 1.0% 1.2%

Dec 31 2011

0.21% 0.11% 0.13% 0.47%

June 30 2012

0.13% 0.16%

1.01% Dec 31 2012
0.25% 0.27%

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September 19, 2011 13. What is the probability, in your opinion, that each of the following countries will default on its debt in the next three years? (0%=No chance of default, 100%=Certainty of default)
July 20 Survey 0% Portugal 10% 20% August 11 Survey 30% 40% 50% September 19 Survey 60% 70% 80% 90% 100%

52% 45% 41% 37% 34% 24% 23% 23% 70% 28% 25% 24% 4% 2% 1% 2% 2% 3% 4% 2% 2% 83% 82% 48%

Ireland

Italy

Greece

Spain

United States

Germany

France

United Kingdom

Germany, France, and United Kingdom were not included in the July 20 survey

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September 19, 2011

14. In the next 12 months, what percent probability do you place on the U.S. entering recession? (0%=No chance of recession, 100%=Certainty of recession)
35%

Average Probability of Recession
30%

August 11 Survey: 34.0% September 19 Survey: 36.1%

25%

20%

15%

10%

5%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

August 11 Survey

September 19 Survey

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September 19, 2011 15. Do you believe the American Jobs Act, if passed as proposed by President Obama, will lead to:
60%

57%
50%

40%

38%
30%

20%

10% 0%

0%

5%

0%

0%

Large Moderate No Moderate Large Don't employment employment employment employment employment know/Unsure gains gains gains losses losses

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September 19, 2011 16. Which parts of the American Jobs Act do you believe are likely to pass Congress?
0% 20% 40% 60% 80% 100%

Payroll tax cuts for employees

87.3%

Payroll tax cuts for employers

80.0%

Unemployment insurance extension

56.4%

Aid to states and local governments

29.1%

Infrastructure extension

27.3%

None

3.6%

All

1.8%

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FED SURVEY
17.

September 19, 2011 What is your primary area of interest?

Currencies 0%

Other 15%

Fixed Income 18%

Economics 45%

Equities 22%

Comments:
John Roberts, Hilliard Lyons: We are hearing from management teams that the best stimulus to allow for job growth would be a roll-back of regulations that are resulting in additional costs and uncertainty on business. David Kotok, Cumberland Advisors: Congress’s inability to put national interest above political re-election is the most serious threat to economic recovery. Richard Steinberg, Steinberg Global Asset Management: The cap in muni interest for well-healed investors is a flawed thought process in Obama's new plan. If school districts have trouble raising money, won't that negate the potential benefit of pumping federal money into schools? Can you say, ‘Zero Sum Game?’ Chad Morganlander, Stifel Nicolaus: It’s in no one’s best interest to relive 2008. The IMF will become the main actor in solving the European debt issue. Expect the Fed to announce additional quantitative easing. This action will scotch the fear trade, tighten credit spreads and send Treasury yields higher. Joseph LaVorgna, Deutsche Bank: The Fed has given the dollar short shrift, not fully accounting for the currency's effect on commodity prices; global growth concerns should be manifest in much lower energy prices, akin to what we saw in Q1 2009. Hugh Johnson, Hugh Johnson Advisors: To avoid an outcome as experienced in 19101912 or 1937-38, policymakers must not make a hard shift toward fiscal restraint. Given the

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September 19, 2011
differences on tax and spending policy that exist between the Administration and the Republican Party, it is hard to make the case that the shift to restraint will be avoided despite the continuous warnings from Bernanke, Elmendorf, and others. John Augustine, Fifth Third Asset Management: The only way Washington can impact employment between now and the election is a new version of the CCC or WPA. John Donaldson, Haverford Trust Co.: Remember that QE is a tool designed to stave off deflation. We are very far from that risk. Any further QE would serve very little purpose. Marc Pado, Cantor Fitzgerald: Recessions typically start from ‘excess.’ We do not have excess inventories, interest rates, corporate debt, employment costs, or speculation. It would require an ‘outside shock,’ and if Europe is not it, then the odds are remote. Guy LeBas, Janney Montgomery Scott: If passed as-is, the administration's jobs act (we call it stimulus v.2) has the potential to increase GDP growth by as much as 1.5% in 2012. That said, once the stimulus money runs out, any jobs created by infrastructure spending turn into pumpkins. Stuart Freeman, Wells Fargo Advisors: We continue to target a slow growth path for the U.S. economy. Our earnings estimate for next year is $106, representing a 4.4% increase. That number might be higher if borrowing demand picked up through the end of this year and into next year. Currently, consumers are still deleveraging. In our opinion, the equity markets are suggesting the odds of a recession are closer to 50% versus the actual fundamentals. The actual economic fundamentals suggest the likelihood of a U.S. recession is only roughly 25%, in our opinion. Michael Painchaud, Market Profile Theorems: Most often, simpler is better. An administration program concentrated on providing direct 3-year term loans to companies under 100 employees, who were in business for at least 5 years, tied to NEW hiring (net increase in employment at the firm), and at current fed funds interest rates, would have been much more efficient in creating new jobs, and would create less risk to the taxpayer. Put the decision making as to how funds are spent into the hands of the private sector and not the government. The government has to realize it is an enabler - not an employer who can drive long-term, healthy economic activity. Hopefully, some day that simple fact will dawn on them. David Goerz, Highmark Capital: Any bill to promote job growth will look nothing like what the president has proposed, and should include a lower tax rate on repatriation of earnings. Tax reform is looking increasing likely to be taken up by the deficit commission. Pending trade agreements should be finalized before Dec. 1st, as well. Fed policy is too accommodative as inflation becomes increasingly entrenched, extending beyond simply high commodity prices. Date certain interest rate accommodation has boxed in the Fed and was unnecessary as well as ineffective. Paying interest on excess reserves is helping no one at this point, so cutting interest rates on reserves remains a more rational option than increasing the duration of the Fed's portfolio with Treasury 10-year yields already at an exceptional low and unsustainable level near 2% and accelerating inflation above 3.5%.

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September 19, 2011
Drew Matus, UBS Investment Research: Op Twist, if conducted, would be balance sheet neutral rollovers into 7-10 year sector. We do not see an interest on reserves cut as meeting cost benefit analysis of the Fed as it may only make things worse. Mike Englund, Action Economics: The stimulus strategies now on the table have direct beneficial effects but adverse expectations effects, as small business managers are proving increasingly skeptical about fiscal and monetary policy imbalances. Both policies have been taken past the point of a net positive impact, and the problem is exacerbated by the lack of willingness of policy advocates to adequately address criticism. Policy is increasingly looking like a ‘runaway train’ to managers who make hiring decisions. Dean Baker, Center for Economic and Policy Research: There has been a hugely misplaced focus on the risks of a double-dip recession. We will only see a double-dip recession if the euro crisis leads to a Lehman-type meltdown. The real risk is the continuation of pathetic growth (e.g. 2.0-3.0 percent) rather than the robust growth (4.0-5.0 percent) that we need to bring the economy back to full employment. Alan Kral, Trevor Stewart Burton & Jacobsen: Fed will continue to do all it can to turn the economy. Rob Morgan, Fulcrum Securities: The 19% slide in the S&P 500 that culminated at the beginning of August may signal a U.S. recession, but as there are so many indicators inconsistent with recession (yield curve, corporate profits, ISM index, Labor Department job postings) it may also be pricing in a disorderly Greek default. Any outcome which is perceived by the markets as being 'better' than that could allow the S&P 500 to rally. Lou Brien, DRW Trading Group: Measures of consumer confidence already suggest that a new recession has begun, but it can also be said that for many consumers the recession never ended. The overhang of debt, some of which will never be repaid, has and will continue to be an important drag on the economy for years, until losses are realized and debt burden is removed. Constance Hunter, Aladdin Capital: Europe may have bought more time with the latest efforts of Sarkozy and Merkel but Lagarde’s four Rs - repair, rebalance, reform and rebuild create the most credible outline of any leader on either side of the Atlantic. Furthermore, until European banks mark to market all of the assets on their books (including the zombie assets) it will be nearly impossible for them to assuage market fears and the accompanying economic drag of low confidence. In the U.S. more and more analysts are now expecting unconstructive numbers on both the output and price side yet we find it hard to be contrarians here. Dennis Gartman, The Gartman Letter: The Fed has no choice but to continue to keep the overnight fed funds rate at or near zero, but twisting the yield curve will do damage to the nation's banks that are best served by a positively sloped curve. Hence I think an ‘Operation Twist’ would be detrimental to the banks and thus to the economy; but I fear it may happen anyway. Robert Brusca, Fact and Opinion Economics: The American Jobs Act is a piece of duplicitous politics. The president has put so much of his political capital into it using slanted CNBC’s Fed Survey – September 19, 2011 Page 17 of 19

FED SURVEY

September 19, 2011
rhetoric while the plan is so different from the way he has described it that I see it as damaging his credibility. This is NOT a plan Republicans can back - AND HE KNOWS IT. It has huge tax increases in it, among other things. The most ineffective 'job creating' aspects of the bill are the most likely to pass. The president has confused a JOBS SHORTAGE, which is a symptom of the lack of demand, as the problem itself. As a result he has proposed ineffective cost-cutting microeconomic solutions to what is really a macroeconomic problem which is a demand shortfall. Simply put, lower job costs will not lead to hiring if demand does not pick up. Hank Smith, Haverford Investments: I have said this before but it bears repeating. Monetary policy has been excellent. What we need now is better fiscal policy, and increased spending is off the table so that means a better pro-growth tax policy and a pro-growth regulatory environment (which means fewer regulations.) Unfortunately, it appears we will need the 2012 elections to get better fiscal policy. So absent an external shock, which would throw us into a recession, the economy will be stuck in a slow growth sluggish environment. Lynn Reaser, Point Loma Navarene University: An ‘Operation Twist’ would have little stimulative effect on the economy even if not offset by actions by the Treasury (issuance of more long-term debt). For the Fed to provide another dose of stimulus, it will need to increase the supply of money and credit. Further expansion of the Fed’s balance sheet will be required rather than a change in its composition. An ‘Operation Twist’ program would also have some adverse side effects. A flattening of the yield curve would adversely affect bank profitability and aggravate the drive to raise capital. Brian Gendreau, Financial Network: I believe the equity markets will be range-bound until there is political agreement on debt stabilization on both sides of the Atlantic. Subodh Kumar, Subodh Kumar & Associates: ‘Mantra of Finance’ needs to change back to basics, including ring fencing of so far unfettered intervention by authorities and excess consensus earnings expectations. More focus is required on restructuring. Until then, volatility is likely to remain enhanced thorough 2012. Chris Rupkey, Bank of Tokyo-Mitsubishi: It's always darkest before the dawn. Cheer up. Things are not as bad as you think. No major loss of jobs yet, and you cannot have a downturn in the economy without the unemployment rate rising. It isn't rising so not sure why the Fed is trying to get out ahead of ‘renewed’ economic weakness. They need to be careful that their communications are not adding to the pessimism. Saying they will keep rates low till mid-2013 may reinforce soft patch economic conditions until mid-2013. Kevin Ferry, Cronus Futures Management: It's always darkest before the dawn. Cheer up. Things are not as bad as you think. No major loss of jobs yet, and you cannot have a downturn in the economy without the unemployment rate rising. It isn't rising so not sure why the Fed is trying to get out ahead of ""renewed"" economic weakness. They need to be careful that their communications are not adding to the pessimism. Saying they will keep rates low till mid-2013 may reinforce soft patch economic conditions until mid-2013. Robert Shapiro, Sonecon: The great unknown, and it's a very powerful one, is whether the sovereign debt crisis will reach Italy and Spain. If it does, European banking will be

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September 19, 2011
insolvent; and we will find ourselves in the middle of another financial meltdown. This time, however, there are very few fiscal or monetary policy responses available. Tom Porcelli, RBC: We answered yes in question 1, but it’s not that black and white. As a starting point, we don’t believe the Fed has the ability to jump start economic activity. Nevertheless, they will not sit idly by while economic conditions deteriorate. We think the Fed will start with some form of ‘Operation Twist,’ and as economic conditions continue to deteriorate, the odds of QE will continue to rise. Mark Zandi, Moody’s Analytics: Whether the U.S. economy suffers a recession in the next year also critically depends on how European policymakers handle their sovereign debt and banking crisis. If Greece defaults anytime in the next few months or something worse, the European economy will suffer a severe recession and also drag our economy into the abyss.

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