FED SURVEY

August 11, 2011

These survey results represent the opinions of 60 of the nations top money managers, investment strategists and professional economists. They responded to CNBCs invitation to participate in our online survey. Their responses were collected on August 9 and August 10, 2011, after the Federal Reserves announcement that it expects to keep interest rates exceptionally low until at least mid-2013. Results are also shown for identical questions in our July 20, 2011 survey. Except for an opportunity to write comments at the end of the survey, participants were told their answers would be reported only in the aggregate unless CNBC requested and received permission to publicly reveal specific responses. Participants were not required to answer every question. 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 80% 70% 68% 60% 50% 40% 30% 20% 19% 10% 0% 13% 17% 46% 37% August 11 Survey

Yes

No

Don't Know/Unsure

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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 $377 $300 $200 $100 $0 Average (In Billions) $628 August 11 Survey

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3. Do you approve or disapprove of the Fed's announcement that it expects to keep its target Fed Funds rate "exceptionally low" through at least mid-2013?

0%

5%

10%

15%

20%

25%

30%

35%

Strongly Approve

31%

Moderately Approve

27%

Slightly Approve

12%

Neutral

12%

Slightly Disapprove

8%

Moderately disapprove

8%

Strongly Disapprove

4%

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4. In addition to its mid-2013 statement, the Fed should also: Respondents could select more than one of the listed options, so percentages equal more than 100% 0% 10% 20% 30% 40% 50% 60%

Increase the maturity of its portfolio by buying longer-dated Treasuries

46%

Buy more Treasuries

38%

Survey respondents' write-in ideas

35%

Buy other assets besides Treasuries, such as mortgages

27%

Do nothing

12%

Peg the yield of 10-year Treasuries for a specified amount of time

8%

Survey respondents write-in ideas:

Lower or eliminate interest rate on reserves (4) Announce 4% target inflation rate (2) Buy stocks (1) Announce the purpose of QE is achieve/maintain an acceptable level of nominal GDP growth at 4 to 5 percent (1) Non-recourse loans to encourage expansion of mortgage lending (1)

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August 11, 2011

5. How would you characterize the Fed's current monetary policy? July 20 Survey 0% 10% August 11 Survey 20% 30% 40% 41% 26% 52% 52% 3% 12% 5% 10% 50% 60%

Too accommodative

Just right

Too restrictive

Dont know/Unsure

6. 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 1364 1310 1421 August 11 Survey

1252

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7. 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% 3.75% August 11 Survey

8. 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 +2.85% +2.47% August 11 Survey

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9. Where do you expect the Fed Funds target rate will be on ? July 20 Survey August 11 Survey

1.01%

December 31, 2012

0.25%

0.47%

June 30, 2012

0.13%

0.21%

December 31, 2011

0.11%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

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10. 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% 30% August 11 Survey 40% 50% 60% 70% 80% 90% 100%

52% 45% 48% 37% 24% 23% 83% 70% 28% 25% 4% 2%

Ireland

Italy

Greece

Spain

United States

Germany

2%

France

3%

United Kingdom

2%

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

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11.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%

30%

25%

20%

Average Probability of Recession: 34.0%

15%

10%

5%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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12. Using this basic Standard & Poors scale, what credit rating would you give to each of the listed countries? 1 Germany Canada United States United Kingdom France Japan China Italy Spain Greece 2 3 4 5 6 7 8 9 10

9.9 9.8 9.7 9.5 9.2 8.9 8.6 6.9 6.4 3.2

10=AAA Extremely strong capacity to meet financial commitments. Highest Rating. 9=AA Very strong capacity to meet financial commitments. 8=A Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances. 7=BBB Adequate capacity to meet financial commitments, but more subject to adverse economic conditions. 6=BB Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions. 5=B More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments. 4=CCC Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments. 3=CC Currently highly vulnerable. 2=C Currently highly vulnerable obligations and other defined circumstances. 1=D Payment default on financial commitments.

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13. Whats the bigger danger to the U.S. economy?

Reducing government spending too quickly 57%

Failure to get the government's deficit under control quickly enough 43%

14.What is your attitude toward additional government stimulus now to boost the U.S. economy

Need it now 31%

Never again 25%

Neutral 44%

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15.What is your primary area of interest?

Currencies 2%

Other 17%

Fixed Income 15% Equities 17%

Economics 48%

Comments:
Guy LeBas, Janney Montgomery Scott: The economic debate emerging in recent days and weeks has centered on whether the U.S. economy will fall back into or avoid recession. From our perspective, that debate misses the point, as either way, growth is likely to be subpar for several years to come. Hank Smith, Haverford Investments: We need fiscal stimulus now but not in the form of increased spending, but rather a more pro-growth tax code (i.e. lower marginal rates both corporate and individual) and a rollback of regulations. Monetary policy has done enough heavy lifting. It's now time for pro-growth fiscal policy! Chad Morganlander, Stifel Nicolaus: The current situation is dynamically unstable. The United States has to contend with a moderation of growth and the threat of fiscal austerity. This will feed into a slowdown in earnings. The Europeans must solve the problem of over indebt and nations and develop a release mechanism to allow troubled members to exit the European monetary union. Growth across the globe is slowing. The unified measures taken in 2009 to transfer debt from the private balance to the public balance sheet was a dreadful mistake. John Kattar, Eastern Investment Advisors: At Jackson Hole, we will either see another large scale asset purchase, or a reduction/elimination of the interest rate paid on free reserves at the Fed. Mark Vitner, Wells Fargo: I would be in favor of additional fiscal stimulus if I thought it could be done well. I do not have much confidence today, however. CNBCs Fed Survey August 11, 2011 Page 12 of 14

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Lynn Reaser, Point Loma Navarene University: The risk of deflation has returned to a focus of monetary policy as the Fed adopts the second option outlined by Chairman Bernanke at Jackson Hole a year ago. (Option 1 was QE3). The U.S. is moving towards a "tight fiscal/easy money policy" combo with questionable results as the process of consumer deleveraging continues. While the Fed concentrates on fighting the current risks of deflation and recession, it could be raising the future risks of asset price bubbles or inflation. David Goerz, Highmark Capital: The Fed's mandate of price stability will trump any ability to promise low rates until 2013. Inflation of 2-3% is already becoming entrenched and loose monetary policy risks even higher inflation that could become increasing difficult to contain. The Fed should consider lowering the interest rate it pays on bank reserves long before even contemplating QE-3. Alan Kral, Trevor Stewart Burton & Jacobsen: Fiscal policy is paralyzed, monetary out of bullets Constance Hunter, Aladdin Capital: There are four reasons why longer duration U.S. yields will stay low: 1) Slow growth and only intermittent inflation pressures on commodities, 2)pending fiscal consolidation, 3) financial repression, 4)the US is still the safe haven bond market. Chris Rupkey, Bank of Tokyo-Mitsubishi: Extended period of low rates till mid-2013 is just an empty promise. Broken promises aren't always a bad thing. Fed policy is still conditional on the economy. Payroll jobs start running 200K+ and Fed will start thinking rate hikes. They responded to the S&P500 dropping 19% from the year's high. Their action was prudent, but once the crisis passes, the economy will pick up and the Fed will alter its promise. Rob Morgan, Fulcrum Securities: I am troubled by the Fed pledge to keep rates low for two years. The risk of inflation over that period is low but the committee should retain all tools to deal with whatever the economy throws our way. Obviously the three dissenting governors had trouble with the pledge as well. Mike Deuker, Russell Investments: i) The Fed runs the risk of looking like the Bank of Japan circa 1998-2001 in holding the short-term interest rate near zero while not offering Quantitative Easing to stave off stagnation and possible deflation. Look for the Fed to initiate QE3 if the 10-year Treasury yield lingers below 2.25 percent, which is a sign of Japan disease. ii) The Feds previous plan was to claim that absent further QE by holding pat on the short rate in a gradually improving economy, policy was becoming more accommodative over time. With a current economic outlook that does not see much improvement in the economy in the near term, the Fed decided to promise that it would stand pat as the economy gradually improved in the future (through mid-2013). This promise of more accommodative policy in the future could help generate greater confidence today. iii) One could see Bernanke's willingness to push a statement in the face of three dissents as a sign of his assertiveness. On the other hand, with two vacancies on the Federal Reserve Board, the regional bank presidents almost had veto power this week. Normally there are CNBCs Fed Survey August 11, 2011 Page 13 of 14

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twelve votes, with five coming from regional bank presidents and only four possible dissents, counting the New York Fed president as an almost-sure non-dissenter. With only ten votes today five from governors and five from regional presidents the vote could have been 64 if Charles Evans of Chicago had dissented. If the roll call had gone that way, Ben Bernanke would have been forced to withdraw the 2013 date from the statement. A 6-4 vote would have created a crisis of confidence if it were made official, so the 2013 language would have been excised to get a greater majority behind the statement. If there were no vacancies, an 8-4 vote would have been acceptable, so they leave Bernanke with less room to maneuver. Subodh Kumar, Subodh Kumar & Associates: Markets are adjusting to riskier world of muddle along (neither unfettered growth not double dip) than many assumed. Risk premiums being re-established via vigilante rotation likely worldwide, not just Europe and likely to include even Japan. To calm down volatility, consensus earnings cuts needed as a penultimate before can say markets have bottomed. Hugh Johnson, Hugh Johnson Advisors: The U.S. economy has slowed; the Federal Reserve can do little more (short-term and longer-term interest rates are already low); the Federal government does not appreciate the problem and is unwilling to initiate a 1930s level employment program; the dynamics have shifted to contraction dynamics from expansion dynamics; only "silver lining" is market somewhat undervalued (given assumptions) and widespread pessimism (a good combination.) Barry Knapp, Barclays PLC: I would define stimulus as tax reform, in the neo-Keynesian sense my answer would be less favorable Joel Naroff, Naroff Economic Advisors: So much for efficient markets. Did we really know anything more on Monday morning than we did on Friday morning? As for the Fed, when I agree with Charles Plosser you know the Fed is out of control. Kevin Giddis, Morgan Keegan & Co.: The U.S. economy's ability to "turn" quickly lies closely to the clarity of policy in Washington. Especially as it centers around taxes and health care costs for small business. Tom Porcelli, RBC: With regard to the question on whether there will be another Fed QE program in the next year, the answers you provided are too black and white. From where we stand now, I dont believe QE3 is the answer. QE2 was hardly a rousing success. But while i answered No, there is no doubt that over the last week the odds of seeing another round of asset purchases has risen significantly. This doesnt mean we think it will have any more success than QE2. What this simply reflects is a Fed with few remaining options. David Kotok, Cumberland Advisors: Political morons in Washington are putting their careers ahead of the nation's interest. It is time to throw them out, Democrats and Republicans.

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