Fair Market Value Update

Scenario No. 3 -- Below-Consensus Economic Growth (probability goes from 35% to 20%): The U.S. experiences a disappointing sub-1.5% real GDP growth rate, Europe experiences a medium-scale recession, and China's economic growth disappoints modestly relative to expectations. QE3 is initiated and has a modestly favorable impact on aggregate growth. Obama regains the presidency, and the Republicans control Congress. The fiscal cliff is reduced by less than half (to $275 billion-$350 billion). The S&P 500 profit forecasts for 2013 are reduced to levels slightly below 2012's results as corporations' pricing power is limited and profit margins are pressured, so S&P profit forecasts are cut back to below consensus of $98 to $100 per share. Stocks, valued at 13.0x under this outcome, have 8% downside risk over the next nine months. S&P target is 1290.

Scenario No. 4 -- Muddle Through (probability goes from 65% to 60%): The U.S. muddles through, with 1.5%-2.25% real GDP growth, and the European economies suffer a modest (but contained) business downturn. China's and India's economies grow in line relative to consensus forecasts. There is no further quantitative easing. Obama regains the White House, and the Republicans control Congress. The fiscal cliff is reduced by half (to $275 billion). S&P 500 profits for 2013 trend toward a range of $107-$109 per share as some modest margin slippage occurs (coincident with escalating inflationary pressures). Stocks, valued at 14.25x under this outcome, have 10% upside over the next nine months. S&P target is 1540.