FED SURVEY

October 31, 2011

These survey results represent the opinions of 61 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 October 27 and October 28, 2011. Participants were not required to answer every question. Results are also shown for identical questions in earlier 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 10% 20% September 19 Survey 30% 40% 50% October 31 Survey 60% 70% 80%

19%
Yes

46% 34% 48% 68%

No

37% 59% 46% 13% 17%

Don't know/unsure

7% 7%

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October 31, 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 September 19 Survey August 11 Survey October 31 Survey

$700

$600

$628 $527 $457

$500

$400

$377
$300

$200

$100

$0 Average (In Billions)

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October 31, 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?
September 19 Survey 0% September 2011 5% 10% October 31 Survey 15% 20% 25% 30% 35%

25% 30% 15% 5% 15% 19% 5% 7% 5% 4% 0% 0%

November

7% 22% 26%

December

January 2012

March

April

June

July

4%
11%

September 2012

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October 31, 2011 4. Should the Fed change its guidance for how long it will keep interest rates low from a calendar date to economic targets, such as inflation, unemployment, or nominal GDP?
70%

60%

57%
50%

40%

30%

36%

20%

10%

7%
0% Yes No Don't Know/Unsure

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October 31, 2011 5. What target or targets should the Fed use?
100%

90%

80%

86%

70%

60%

50%

50% 41%

40%

30%

20%

10%

0%
Inflation Unemployment Nominal GDP

5%
Other

Respondents were able to select more than one response, so percentages total more than 100%

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October 31, 2011 6. What inflation target should the Fed use to trigger a change in its interest rate policy?
30%

25%

Average: 2.68%

20%

15%

10%

5%

0%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

More than 7.0%

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October 31, 2011 7. What unemployment target should the Fed use to trigger a change in its interest rate policy?
35%

30%

Average: 6.50%

25%

20%

15%

10%

5%

0%

9.0%

8.5%

8.0%

7.5%

7.0%

6.5%

6.0%

5.5%

5.0%

4.5%

4.0%

Less than 4%

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October 31, 2011 8. What nominal GDP target should the Fed use to trigger a change in its interest rate policy?
30%

25%

Average: 5.45%

20%

15%

10%

5%

0%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

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October 31, 2011 9. Which statement best characterizes your opinion of the Fed's recently announced "Operation Twist?"
60%

56%
50%

40%

30%

20%

21%

23%

10%

0% Large enough to Too small to have Regardless of size, have a meaningful a meaningful it will have no effect on interest effect on interest meaningful effect rates and the rates and the on interest rates economy economy and the economy

0%
Don't know/unsure

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October 31, 2011 10. Will the change in FOMC voting members in 2012 result in easier policy?

Don't know 31%

Yes 20%

No 49%

11. Should regional Federal Reserve Bank presidents be appointed by the President and approved by Congress?
Don't know 10% Yes 5%

No 85%

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October 31, 2011 12. How would you characterize the Fed's current monetary policy?
July 20 Survey September 19 Survey August 11 Survey October 31 Survey

0%

10%

20%

30%

40%
41%

50%

60%

Too accommodative

26% 39% 34%

52% Just right 52% 40% 48%

3% Too restrictive 12% 12% 10%

5% Dont know/Unsure 10% 9% 8%

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October 31, 2011 13. What grade would you give Fed Chairman Ben Bernanke?
December 22, 2010 Survey 0% 10% July 21 Survey 20% 30% October 31 Survey 40% 50% 60%

26% 22% 21% 42%

48% 46%

22% 19% 20%

5% 5% 11% 5% 3% 0%

Average for Oct 31 Survey:

2.78

Don't know/unsure

4% 2%

Numerical average based on A=4, B=3, C=2, D=1, F=0

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October 31, 2011 14. Where do you expect the S&P 500 stock index will be on ?
July 20 Survey 1,150 August 11 Survey 1,200 1,250 Sept 19 Survey 1,300 1,350 Oct 31 Survey 1,400 1,450

1364 1252
Dec 31, 2011

1254 1316

1421 1310
June 30, 2012

1312 1358

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October 31, 2011 15. What do you expect the yield on the 10-year Treasury note will be on ?
July 20 Survey
0.0%

August 11 Survey
1.0%

Sept 19 Survey
2.0%

Oct 31 Survey
3.0% 4.0%

3.41% 2.61%
Dec 31, 2011

2.25% 2.45%

3.75%
2.99%
June 30, 2012

2.59%
2.77%

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October 31, 2011 16. What is your forecast for the year-over-year percentage change in real U.S. GDP?
July 20 Survey 0.0% August 11 Survey 0.5% 1.0% September 19 Survey 1.5% 2.0% October 31 Survey 2.5% 3.0%

2.47%

1.86%
2011

1.68% 1.89%

2.85% 2.47%
2012

2.24% 2.37%

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October 31, 2011 17. Where do you expect the fed funds target rate will be on ?
July 20 Survey August 11 Survey Sept 19 Survey October 31 Survey

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

0.21%
Dec 31 2011

0.11% 0.13%

0.12%

0.47%
June 30 2012

0.13% 0.16% 0.22%

1.01%
Dec 31 2012

0.25% 0.27% 0.35%

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October 31, 2011 18. 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%

25%

Aug 11 Survey: 34.0% Sept 19 Survey: 36.1% Oct 31 Survey: 25.5%

20%

15%

10%

5%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug 11 Survey

Sept 19 Survey

Oct 31 Survey

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October 31, 2011 19. 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 100% Aug 11 Survey Sept 19 Survey Oct 31 Survey

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Portugal July 20 Survey Aug 11 Survey 52% 45% 41% 47% Ireland 48% 37% 34% 33% Italy 24% 23% 23% 28% Greece 83% 70% 82% 84% Spain 28% 25% 24% 26% 2% 2% 2% 3% 4% 4% Germany France

United States 4% 2% 1% 2%

United Kingdom 2% 2% 3%

Sept 19 Survey
Oct 31 Survey

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

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October 31, 2011 20. What grade would you give outgoing ECB President Jean-Claude Trichet?
Trichet
0% 5% 10% 15%

Bernanke
20% 25% 30% 35% 40% 45% 50%

12%
21%

27%
46%

33%
20%

18%
11%

5%
0%

Don't know/unsure

5%
2%

Trichet Average: 2.23 Bernanke Average: 2.78

Numerical average based on A=4, B=3, C=2, D=1, F=0 All data from October 31 survey

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October 31, 2011

21. Given what you've heard so far of the comprehensive European plan to solve its financial crisis, which statement best characterizes your opinion of the overall plan and its components?
80%

70%

60%

50%

40%

30%

20%

10%

0%

Goes far enough to resolve crisis

Doesn't go far enough, but Europe on right track 72% 71% 59% 50%

Overall

2% 10% 9% 10%

Falls well short, Europe won't be able to resolve crisis 23% 14% 28% 36%

Don't know/unsure

4% 5% 5% 3%

Banking recapitalization
Leveraging the EFSF Greece

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October 31, 2011 22. What is your outlook for the European Monetary Union five years from now
July 21 Survey 0% Oct 31 Survey 10% 20% 30% 40% 50% 60%

42%
No countries will be ejected or leave

47%

53%
Some countries will be ejected or leave

52%

It will be largely dissolved and most European countries will have their own currency

0% 2%

5%
Don't know/unsure

0%

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October 31, 2011 23. What is your primary area of interest?

Currencies 3%

Other 14%

Fixed Income 12%

Economics 46%

Equities 25%

Comments:
Ward McCarthy, Jefferies: The healing process in the U.S. and Europe is on the right track, but will take years before it is completed. David Kotok, Cumberland Advisors: Europe does not have a "death wish." That is why they will preserve both the Eurozone and banking system functionality. Brian Wesbury, First Trust Advisors: The biggest surprise we will get in the next year is that the Fed will be forced to tighten its policy stance. The economy is not on the brink of recession and inflation will become a serious and visible problem. Guy LeBas, Janney Montgomery Scott: The concept of sovereign insurance in the EFSF's agreement should be enough to prevent liquidity concerns from affecting the ability of the Spanish and Italian sovereign debt markets to function, ultimately calming down the risk of contagion among EU sovereigns. John Roberts, Hilliard Lyons: We are looking for a slight improvement in the economy going forward, with an investing emphasis on the financials and technology sectors as best performing market sectors. We would underweight the consumer staples, defensive sectors and retailers at this point. We also expect that the multi-national companies will underperform more domestically-focused companies, so our investment focus has moved away from the multinationals to more domestically focused investments.

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October 31, 2011

John Augustine, Fifth Third Asset Management: The easing of the financial stress in Europe is perceived as a positive for the time-being, while the economic issues still linger for the future. Rob Morgan, Fulcrum Securities: The haircut on Greek bonds and additional leveraging of the European bailout fund should be adequate to cover the crisis. I think we need to hear more specifics on plans to recapitalize European banks. Lee Hoskins, Pacific Research Institute: Fed and ECB have engaged in actions that are contrary to sound central banking. The result will prove harmful because of increased moral hazard, misallocation of capital, and political backlash. Subodh Kumar, Subodh Kumar & Associates: On political, central bank, and earnings events, a reality check still beckons not just for Europe with its deep sovereign debt crisis but globally. For investment risk to decline, the focus needs to be to favor quality of delivery not the momentum tilt still so evident in markets. Hugh Johnson, Hugh Johnson Advisors: Although it appears as though the April-August decline in stock prices was simply a correction in an on-going cyclical bull market and the slowdown in the economy not likely to deteriorate into a recession, the risks remain high. The principal risk is fiscal restraint at a time when the economy is still attempting to eliminate the excesses of the 2004-05 housing mania. Policymakers have little appreciation for the length of time it takes to reduce or eliminate the excesses. Until they are eliminated, economic growth will remain quite subdued and the risks associated with fiscal restraint very high. At best, we will muddle through. Lynn Reaser, Point Loma Nazarene University: Europe's problems are not over. Countries such as Greece, Portugal, and Italy need to address fundamental issues regarding their competitiveness and ability to grow. For now, however, Europe's sovereign debt issue may fade a little from the limelight while the U.S. debt issue and the proposals of the "Super Committee" capture the spotlight. Dean Baker, Center for Economic and Policy Research: This whole crisis is a tragic farce. Hundreds of millions of people are suffering around the globe because the people charged with managing economic policy do not have a clue as to what they are doing. The worst part is that they are so clueless they don't even realize how disastrous their performance has been. Jean-Claude Trichet should be slipping out of his job in humiliation for having one of the most disastrous tenures of any central bank president in history. Instead, he will be treated as an accomplished public servant moving into retirement. Hank Smith, Haverford Investments: What is occurring now is a good first step but if there is not structural reform (i.e. less public sector, more private sector ala the UK in the mid-eighties) that will revive growth then the Euro Zone will still have intermediate to long term problems. In other words, European socialism needs to be reversed toward more free market capitalism. Mike Dueker, Russell Investments: One awkward feature of Operation Twist is that one has to claim that the aim is to lower long-term interest rates, so the definition of success can be problematic. With Quantitative Easing, in contrast, it is entirely fair to say that the CNBCs Fed Survey October 31, 2011 Page 23 of 25

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October 31, 2011

objective of the policy is to avoid Japan-style economic stagnation, so a rise in long-term rates would be a sign of success. Ahead of the September meeting, many observers thought, myself included, that Ben Bernanke would opt for Operation Twist, rather than another round of Quantitative Easing, in order to reduce the number of dissents from the three in August. Since the number of dissents remained the same (the attempt at compromise failed), I see less point in choosing Operation Twist over another round of QE. Moreover, Operation Twist is a one-off step limited by holdings of short-term securities. Operation Twist from the early 1960s was widely derided within the Fed in subsequent decades as a weak attempt to influence bond yields by altering the relative market supplies of long-term and short-term securities. I see no reason to alter that conclusion regarding todays attempt at Operation Twist. Peter Tanous, Lynx Investment Advisory: The long awaited interest rate rise is about to happen. Inflation is working itself through the system in commodity and food prices. Stay tuned. Ethan Harris, BofA Merrill Lynch Global Research: The economy will be subject to two shocks over the next year. The first will be a fiscal shock with a credit downgrade. The second will be an uncertainty shock that comes with the run-up to the 2012 election. Mark Vitner, Wells Fargo: On the European crisis, the policy moves have gone far enough to avert an immediate crisis but we will likely revisit the same problems in two or three years. The Fed may opt to do a mini QE3 to provide the economy an extra boost and provide them with some cover that they are doing their part to reduce unemployment. Such a move, however, would likely produce dubious results. Stuart Freeman, Wells Fargo Advisors: We believe the economy is likely to grow at a modest pace next year (with a 35% odds of recession). Signs of continuing efforts to deal with Greece and protecting European banks, and a continuation of modestly stronger fundamentals, here than during the summer, are likely to allow the S&P to finish in the 12501300 range at year-end. We continue to believe that the hand-wringing is greater than the underlying fundamentals suggest. We target $101.50 in operating earnings this year for the S&P 500 Composite Index and $106 for calendar 2012. Diane Swonk, Mesirow Financial: The Fed is still closer to the beginning than the end of a new era in its use of unconventional monetary policy tools Chris Rupkey, Bank of Tokyo-Mitsubishi: QE expected for November 1-2 meeting is for Agency MBS, $500 billion. Like the original $500 billion MBS in November 2008 "to help the mortgage and housing markets." Mortgage market is stressed again and limited QE will help lower 30-yr mortgage money. While it will expand the Fed's balance sheet, not sure it can be considered full-on quantitative easing. Barry Knapp, Barclays PLC: The 'pledge' to provide a bank unsecured debt support scheme should be sufficient to prevent a disorderly deleveraging of Euro banks, however the asset side of the balance sheet will not be stabilized implying there will be another risk flare in 1H12.

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October 31, 2011

John Kattar, Eastern Investment Advisors: We may be in an environment late this year or early next year where most of the world's central banks are aggressively easing. This is potentially very positive for risk assets. Alan Kral, Trevor Stewart Burton & Jacobsen: Fed remains accommodative focusing on 2012 elections. Chad Morganlander, Stifel Nicolaus (Washington Crossing Advisors): This weeks European plan is directionally positive. Equity markets will continue to grind higher into the New Year. Joel Naroff, Naroff Economic Advisors: 1. The fears of a double-dip were overblown and it is time the real economy is separated from the financial markets as you get misleading messages from the markets. 2. No matter what the Fed does it will have little impact on the economy so too much easing really isn't a major risk right now. It will make the Fed's job exceedingly difficult two years from now. Robert Tipp, Prudential Fixed Income: Why the pop in the markets this week? It's not that the news is so great; it's that the bar's been placed so low. Outlook for interest rates: The Fed hasn't had this kind of presence in the long-term Treasury market for over 50 years. Market participants' compasses are still spinning. Signals from the Fed suggest they're going to be involved for some time pushing down long rates. The markets should not underestimate the Fed's staying power. The Fed clearly wants more growth. Their next step may be to boost mortgage purchases to try and get the housing market off the mat. Robert Brusca, Fact and Opinion Economics: Euro-area is fundamentally NOT ONE UNIT. Mediterranean countries run high and persisting current account deficits, higher than average inflation, have high debt to GDP ratios and are DIFFERENT in terms of their priorities from other EMU members. Ireland and Belgium are also largely in this category. Meds need their own 'meds.' a currency different from Germany, France, Austria, and the Netherlands, etc. Euro can't last the way it is constructed. High inflation countries like Greece in particular are doomed. EFSF is waste of money. Deal with China for funding is a bad trade. Bad all around. Give Europe an 'E' for euro!!

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