Positioning SEI- Marketing Pieces

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Combining

advanced thinking

in managing

money with world

class

manager-of-managers

execution

to access

differentiated

sources of

return for your

investments.

Our disciplined and

comprehensive approach

SEI investment professionals are responsible for analysing financial markets and money managers. We specialise in research and development in the area of asset allocation and portfolio construction, global equity and fixed income strategies and portfolio technology. This disciplined and comprehensive approach makes SEI an organisation with an in-depth understanding of global markets, the investment process, and the factors designed to achieve investment goals. The goal is an investment solution that is designed to offer investors diversification, lower risk and more control. It is SEI’s aim to free you from investment worries and choices, leaving you to concentrate on your business or personal priorities - taking comfort in the knowledge that, in investment terms, you have access to leading asset management providers.

Innovation is our history

Formed in 1968, SEI is a market leader in selecting independent money managers for private banks, independent money managers, wealthy families and pension funds. Any investment recommendation made by SEI is backed by extensive research and is conducted by experienced, highly educated, investment professionals. In 1986 (updated in 1993), Gary Brinson, Brian Singer and SEI employee, Gil Beebower produced a ground breaking study on asset allocation using data gathered from pension plans across the United States. This research is now considered the industry standard on the subject and it is the foundation for much of SEI’s work in asset allocation and portfolio construction.

The benefits to you

• Designed to maximise returns, limit volatility, and manage investment risk with rigorous objectivity.

• Aims to deliver consistent returns and a level of predictability unavailable through a single fund manager.

• Give access to leading investment managers around the world. • Regular and continuous manager monitoring.

• Reduce the cost of continuing poor predictability in investment performance by changing drifting managers effectively when required.

• Bring sophisticated investment solutions, previously only available to the largest institutions.

• Provide an efficient and cost effective investment solution.

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Difference

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Benelux

• Equens, St. Psf

Canada

• Lafarge Canada

• Mercedes Benz Canada Inc.

Germany • Commerzbank

Hong Kong

• Hong Kong Jockey Club • Shui On Investment Company • Hong Kong Electric Holdings Limited

Ireland

• Canada Life Ireland

Italy

• Bipiemme Gestioni • GWM

South Africa • Transnet

• Old Mutual Symmetry

United Kingdom • BOC Group

• Diamond Trading Company • University of Bristol

USA • AT&T Inc

• Intelsat Global Services Corp • Panasonic Corporation • SAP America Inc. • Valero Energy Inc.

This information is issued by SEI Investments (Europe) Limited, 4th Floor, Time & Life Building 1 Bruton Street , London W1J 6TL which is authorised and regulated by the Financial Services Authority.

No offer of any security is made hereby. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such application may be made solely on the basis of the information contained in the Prospectus.

• SEI was founded in 1968 by the company’s Chairman and CEO, Al West.

• Is a publicly quoted company listed on NASDAQ, with approximately 40% owned by employees, directors and officers with over 2000 employees worldwide.

• Has 9 of the 20 largest North American banks as clients.

SEI in Research*

• SEI is the #2 Largest Manager of Managers by AUM Market share.

• SEI is the #1 Advisory Managed Account Provider.

SEI in the Media

• SEI placed second in the Efficiencies category of SourceMedia’s 5th Annual Fund Operations Awards, as presented by Money Management Executive (2007).

• In the May 26, 2008 issue of Pensions and Investments, SEI was ranked # 39 out of 758 in its ranking of the Largest Money Managers (ranked by U.S. institutional tax- exempt assets).

• SEI was named to the 2007 & 2006 Global Outsourcing 100 by the International Association of Outsourcing Professionals (IAOP).

The company’s

innovative solutions

help corporations,

financial

institutions,

financial advisers,

and affluent

families create and

manage wealth.

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R

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se

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ta

tiv

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C

lie

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t*

*

SEI (NASDAQ:SEIC) is a leading global provider of outsourced asset management, investment processing and investment operations solutions. The company’s innovative solutions help corporations, financial institutions, financial advisers, and affluent families create and manage wealth. As of December 31, 2008, through its subsidiaries and partnerships in which the company has a significant interest, SEI administers $380 billion in mutual fund and pooled assets and manages $134 billion in assets. SEI serves clients, conducts or is registered to conduct business and/or operations, from more than 20 offices in over a dozen countries. For more information, visit www.seic.com.

**Representative clients are selected by SEI to illustrate a sampling of SEI’s client base. * Source: Cerulli Associates, as at 31st December 2007.

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What is the

difference between

a

manager-of-managers

approach and the

traditional system

of specialist

management?

By definition, a manager-of-managers programme is one in which a single, asset management firm is responsible for the portfolio structure, manager selection, manager evaluation and manager replacements within a certain asset class or across an entire investment portfolio. Relying on one fund manager to have skill in every asset class has traditionally been the choice of many. Now, manager-of-managers programme have developed solutions that provide access to some of the best specialist fund managers regardless of size of end clients.

Unlike a traditional process in which the adviser must ultimately pick the managers, the manager-of-managers programme chooses the actual fund managers, determines the proportion of the portfolio that each manager will manage and makes ongoing hiring and firing decisions through time.

The programme believes it is better to appoint managers that manage assets in particular or distinct ways in order to diversify risk and add depth to a portfolio. By using managers with differing styles, the manager-of-managers’ process is designed to provide a portfolio with diversity across styles while minimising the total risk to the fund. An additional benefit of the manager-of-managers programme versus a traditional specialist management system is that the manager-of-managers deals with all of the relationships with the underlying managers — monitoring trading activity on a regular basis, managing cash flows and re-balancing across asset classes, ensuring operational efficiency and proactively making manager changes and additions where appropriate.

What key benefits

should you expect

with a

manager-of-managers

programme?

A manager-of-managers programme takes on the responsibility of the selection, and on-going monitoring and management of a manager — as well as the replacement of the individual fund managers when it is needed. Access to a wider range of managers — many of whom have in-depth market knowledge being domiciled in the regions where they manage assets. This may have been previously ruled out due to higher cost. Using more than one manager is designed to lower risk and deliver more consistent returns.

Recognition that the star manager you hire today may not be a star manager tomorrow. With a manager-of-managers programme, the managers can be changed effectively. These programmes have the ability to monitor fund managers continuously with the aim of ensuring organisational change, such as key staff turnover, does transpire into performance issues.

Advisers can get access to manager upgrades without a wholesale change to a fund.

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Investment Process

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How do the

advisers benefit?

It is SEI’s aim to free you from investment worries and choices, leaving you to concentrate on business priorities.

• There can be time and cost savings in the manager search process.

• It can offer a more diverse method of portfolio management with a greater potential for lowering risk

• There are higher levels of transparency within the portfolio.

• There is simpler, consolidated reporting.

In summary, advisers cannot always have the necessary resource to select and manage investment managers and can end up spending too much time on this at the expense of more crucial business and client issues.

This information is issued by SEI Investments (Europe) Limited, 4th Floor, Time & Life Building 1 Bruton Street , London W1J 6TL which is authorised and regulated by the Financial Services Authority.

No offer of any security is made hereby. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such application may be made solely on the basis of the information contained in the Prospectus.

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For Professional Client Use Only – Not for Distribution to Retail Clients

SEI Flash Commentary

Listen again or for the first time

SEI’s Flash Commentary for December 2008 was launched on the 13th January at 9.30am (GMT) when Mark McCarron (Managing Director, Client Portfolio Management) provided a review of the month. Should you wish to listen to the call again or if you missed the launch, you have until the 27th of January to dial-in and replay the commentary.

Please use the free phone dial-in numbers listed below along with the access code.

International Free phone Dial-in numbers

Country Free phone dial-in numbers

France 0800 900 228 Germany 0800 181 6174 Hong Kong 800 901 878 Ireland 1800 625 161 Israel 1809 216 310 Italy 800 870 069 Switzerland 0800 561 052 United Kingdom 0800 633 8453

‘Sound bites’ from December’s review

Below are a number of ‘sound bites’ taken from December’s review. As mentioned, if you would like to listen to the call in full, please use the dial-in details above.

Review of 2008

• The performance of the equity and bond markets in 2008 will be remembered as one of the worst years on record. And by association, the performance of actively managed portfolios that seek to exploit specific relationships in an effort to generate excess return fell well below expectations in 2008.

• Many of the rules that active managers depend on seem to have broken down in 2008. This not only happened in the equity markets but also in the fixed income markets where the flight to quality caused a dramatic fall in investor demand for corporate bonds. This in turn made it more costly or even impossible for companies to issue new debt. Equity markets recorded their worst fall since the 1930’s and the fixed income markets seized up, especially within short term lending markets which caused a severe flight to safety and a mass exodus from the riskier sectors of the market. Even at the end of the year markets were still suffering from the impact of the continued forced

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selling and little liquidity.

Impact on SEI’s manager of manager approach

• SEI’s manager of manager approach is built on the principles of diversification where SEI balances the return and risk characteristics of a number of active managers in an effort to generate more consistent results for clients within each Fund. The average active manager doesn’t beat the market in normal times, but this year saw the market averages ranking near the top of the peer groups. In many cases, even the top quartile managers failed to keep pace and as a result there were very few investment strategies that worked.

• A key driver of the underperformance of active managers was the general narrowness of the markets in 2008, with a very limited number of areas managing to avoid the widespread sell-off. Many of SEI’s Funds benefited from some exposure to managers who follow a quality-based security selection approach. However, like the market, it was a relatively narrow sub-set and the majority of managers and investment strategies overall were not successful in beating their benchmarks within the building blocks. As such, SEI was not able to capture the full diversification benefits normally available to help mitigate the impact of this financial crisis on the majority of other manager styles. This was most evident in Fixed Income Funds, where only the most conservative approaches were rewarded, but the results were felt broadly in both the equity and bond Funds throughout the year.

Outlook for 2009

• It is SEI’s view that the narrowness of the market cannot last and with the help of the aggressive fiscal and monetary policies implemented by the US in the fourth quarter of 2008, investment strategies that seek to exploit risk premiums will again be rewarded relative to those whose focus is safety. With Government Bond yields at such low levels, investors will soon look to re-enter the markets and when this occurs, SEI believes that the benefits of SEI’s diversified approach will become evident.

Strategy Performance Overview

• In December, the dynamics in the fixed income markets continued with credit and securitised debt sectors underperforming government debt in general, but both the fixed income market and the equity market posted positive absolute returns for the month

• As a result, a standard global balanced strategy made up of 50% global equity and 50% global fixed income rose by 4.77% in December (in USD, gross of fees) versus a strategically weighted (50/50) benchmark return of 5.00%.

The Equity Component

• The Equity Component, which is market capitalisation weighted and globally diversified, rebounded strongly, posting a 4.82% return in USD (gross of fees) versus the global equity market return of 3.62% as measured by the MSCI AC World Index in USD. Six out of the nine SEI equity funds outperformed their respective benchmarks in the month, with strong performance from the Global Developed Markets Equity, US Large Companies, Japan Equity and Pacific Basin Ex-Japan Equity, which make up a large part of the total strategy. The small capitalisation funds in both US and European markets outperformed their respective benchmarks as well, suggesting that risk appetite has returned to some degree in the equity markets.

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• Within the Global Developed Markets Equity Fund, newly added Janus Capital provided some strong relative performance in December, benefiting from their stock selection within the beaten down consumer discretionary and industrial sectors. QMA, a manager who takes a quantitative approach to security selection and one of SEI’s larger allocations in the fund, benefited from security selection within the troubled financials sector. What this suggests is that despite the poor outlook and negative sentiment, security selection within these sectors can still yield positive results.

• Within the US Large Companies Fund SEI saw the benefits of diversification again, with the majority of managers outperforming the benchmark during the month. Newly appointed Legg Mason Core was the best performing manager in the fund, benefiting from stock selection across the board, but particularly within the health insurance sector. Interestingly, the only two managers in the fund who did not meet or exceed the benchmark in the month were Goldman Sachs Asset Management and Montag & Caldwell. However, it was these managers who were among the few who followed an investment strategy that was rewarded relative to the index in 2008 and their relative underperformance in December was thus not surprising.

• The UK Equity Fund fell below benchmark in December largely due to its position relative to the defensive sectors such as healthcare and consumer staples, both of which generated positive returns relative to the index. SEI has made many changes to the underlying manager line-up over the course of 2008 in an effort to mitigate the risks associated with key managers. One of the most recent additions, Mirabaud, proved to be a positive impact on the fund given their strong security selection within the troubled banking sector and their overweight to the utilities sector during December.

The Fixed Income Component

• The Fixed Income Component, which is a combination of global investment grade bonds, high yield bonds and emerging market debt, posted a positive 4.72% return in December, but it trailed its strategic benchmark due to the underperformance in the Global Fixed Income, Global

Opportunistic Fixed Income and High Yield Fixed Income Funds. While there was some indication at the end of the month that US based securitised sectors were marginally improving, the trends in the global fixed income markets continued to negatively impact the relative performance.

• December saw some significant rebounds in higher risk areas of the fixed income market, including High Yield bonds and Emerging Market Debt, which outperformed global investment grade debt as measured by the Barclays Capital Global Aggregate Index.

• The underperformance of SEI’s fixed income funds throughout 2008 has been driven primarily by the underlying managers’ decisions to move into and maintain exposure to investment grade securities offering an attractive yield to duration-equivalent treasury bonds proved to be too early and very painful. The move away from the benchmark allocation in Treasuries to overweight high quality corporate and securitised bonds was largely based on the underlying managers medium term view on the relative attractiveness of these bonds and particular securities given their yield. When the crisis deepened, their attempt to increase the average quality of their holdings to mitigate the market risk did not improve results since most of the selling in the market was indiscriminate and the flight to safety was so severe. While there were pockets of the market where conditions improved from the extremes in November, the general trends continued.

• One area which improved from the extremes in November was the US Commercial Mortgage Backed Securities market. The reversal did not come about because of any change in fundamental outlook specifically, but seemed to be a function of liquidity, correcting a price move that went too far in the prior month. This helped the US Core Fixed Income Fund recoup some of the relative performance it lost in November and contributed to its positive relative return for the month of

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December.

• The Emerging Market Debt Fund generated a strong positive return in December benefiting from a sudden interest in higher risk assets. It marginally outperformed its benchmark (gross of fees, in USD) but its contribution to the Fixed Income Strategy came primarily from its absolute return.

• The High Yield Bond Fund, which invests in a diversified portfolio of high yield bonds rose by 2.04% in December, but trailed its benchmark by 5.18% (in USD gross of fees) in December. The Fund’s allocation to CLOs and other structured investments saw further price deterioration during the quarter. Higher default rates and rapidly increasing exposure to CCC/Caa rated assets within the collateral pools have been the two main drivers of underperformance. Exacerbating the pressure on prices was the rating agencies’ decision to place the ratings of a large subset of CLO debt tranches on negative outlook/watch and continued investor aversion to what are perceived to be complex financial instruments.

Summary

• Although not all equity funds outperformed their benchmarks in December, SEI is encouraged by the positive link between a broader equity market and our relative returns. In December we

witnessed one of the few months in 2008 where the markets were up and the breadth of return was inclusive of a wide variety of sectors and stocks. In this environment SEI sees the benefits of their diversified approach.

• The environment in the fixed income markets is not as positive and 2008 ended with government bond yields at very low levels and corporate and securitized yields at all time highs. While the yield opportunity for those investors who venture into non-government bonds is significant, (whether it is in investment grade corporate debt, high quality asset backed securities or high yield bonds for the more adventurous), the continued bad news in the economy means that there will be rising

defaults throughout 2009. Our fixed income managers have taken a security selection approach to managing these assets and have focused their credit research on understanding the likelihood of default.

Important Information

This document and its contents are directed only at persons who have been classified by SEI Investments (Europe) Limited as a Professional Client, or an Eligible Counterparty, for the purposes of the FSA New Conduct of Business Sourcebook.

This information is issued by SEI Investments (Europe) Limited, 4th Floor, Time & Life Building 1 Bruton Street, London W1J 6TL which is authorised and regulated by the Financial Services Authority. No offer of any security is made hereby. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such application may be made solely on the basis of the information contained in the Prospectus.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any stock in particular, nor should it be construed as a

recommendation to purchase or sell a security, including futures contracts.

The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. If the investment is withdrawn in the early years, it may not return the full amount invested.

In addition to the normal risks associated with equity investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Products of companies in which technology funds invest may be subject to severe competition and rapid obsolescence.

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Whilst considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.

The opinions and views contained in this document are solely those of SEI and are subject to change; descriptions relating to organizational structure, teams, and investment processes herein may differ significantly from those prescribed by underlying managers regarding their own investment houses and investments.

Past performance is not a guarantee of future performance.

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1

Commentary

A Brief History of US Economic Crises: 1929-Present

Introduction

Invariably, during times of severe economic crisis, comparisons to other gloomy periods are made in order to give investors, consumers, prognosticators et al. a baseline with which to measure the latest downturn. It is only natural to speculate as to when a given economic crisis or recession will end, and wonder how severe it will ultimately become.

Economic crises are not a new phenomenon; they occur with regularity. While they vary in size and scope, they also vary in cause, length, and magnitude. While no two have been alike, one factor that they share is that they have all ultimately ushered in a new age of economic growth and prosperity of varying length—hopefully with many lessons learned.

The credit and housing crises the US economy has been mired in since 2007, and the resulting market fallout, is arguably the most serious the US has faced in decades. While recent recessions and market pullbacks have usually been compared to either the oil crisis/bear market of 1973-1975, or the stagflation/high unemployment of 1980-1982, the current recession (which the National Bureau of Economic Research recently determined began in December, 2007) has evoked images of perhaps the darkest economic period in US history—The Great Depression. This Commentary will briefly compare and contrast those 3 crises with the current one. An appendix will give a brief history of US recessions dating back to 1929.

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The Depression -- Overview

The Great Depression is the ultimate benchmark for US economic crises; it is a benchmark primarily because of its length and the magnitude of its destruction, in terms of wealth, employment, and confidence. What officially began in 1929 (following the great stock market crash) spanned a total of nine years and two deep recessions (1929-1933 and 1937-1938).

The causes of the Depression have been debated for years. While there are differing schools of thought, many now agree that what began as a mild recession prior to the stock market crash of 1929 was exacerbated following the crash. Initially, the US Federal Reserve (Fed) lowered interest rates, customarily seen as the proper course of action during a recession. But when the situation did not improve, the Fed changed course, and began raising rates and constricting the money supply. There were also no efforts toward fiscal stimulus, and the combination ultimately led to a run on the banks, bank failures, deflation, and the lack of a functioning credit market.

The situation became so dire that check writing became a thing of the past, and most transactions that were not bartered were executed in cash. As conditions deteriorated, unemployment soared to nearly 25%, a figure that would have arguably been significantly higher if measured in the same manner it is today. Deflation ran rampant, and prices of nearly everything plummeted. The icing on the cake - the Smoot-Hawley Tariff Act of 1930 - significantly raised tariffs on US imports, and foreign governments retaliated with high tariffs on exported US goods. This brought free trade to a halt, and in all likelihood, extended the ultimate length of the Depression.

The Depression vs. Today – Market Comparison and Contrast

There are very few parallels between the current economic crisis and the Great Depression, despite what some talking heads and pundits suggest. While the modern-day stock markets have fallen dramatically and quickly, they still have a long way to go in order to rival the 91% drop in the Dow Jones Industrial Average (Dow) that occurred over a three-year period through 1932. Nor are there any meaningful similarities between the incredible pre-crash run-up in stock prices from 1921 until 1929 (during which the Dow rose nearly 500%), and the most recent run-up (from 2002 until October 2007) when the Dow rose 94%.

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The Depression vs. Today – Unemployment and Banking Comparison and Contrast

While recent surveys have shown a rapid increase in US unemployment, the current rate of 6.7% is a far cry from the 24.9% seen at the height of the Depression. And while, according to the FDIC there have been 23 bank failures so far in 2008, there were 659 in 1929, 1350 in 1930, and more than 9800 from 1929 through 1934. Runs on banks, common during the Depression, are all but a thing of the past, primarily due to the backstop provided by the Federal Deposit Insurance Corp (FDIC). Although there was a brief run on money market funds following the collapse of Lehman Brothers in September, the US government acted quickly to restore confidence by providing a guarantee program for these funds.

The Depression vs. Today – Government Action Comparison and Contrast

Perhaps the biggest difference between the Great Depression and the current crisis is the active role that the US government and Fed play today, versus a much more hands-off approach taken by the Hoover Administration at the onset of the Great Depression. Countless bailouts, loans, interventions, and rate cuts carried out by the Treasury or Fed demonstrate the vastly more active approach taken by policymakers today. None of these actions guarantee a swift end to the crisis, nor do they come without potential fallout in the future, but they do demonstrate an effort to avoid monetary and fiscal mistakes made in the past.

The Depression vs. Today -- Similarity

One potential similarity between the 1930s and now is that both crises were fueled—and perhaps exacerbated—by a lack of confidence among investors and bank depositors. While this problem is difficult to rectify, the communication tools available today greatly exceed those of the 1930s, which should help restore confidence more easily today.

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The 1970s – Vietnam, Watergate, and the Energy Crisis

The early 1970s (primarily 1973-1975) were arguably one of the bleakest periods the US experienced during the second half of the 20th_{century. Mired in the Vietnam War, which had already spanned}

more than10 years, the nation endured a confluence of several crises, the likes of which we’d not previously experienced. The Watergate Conspiracy ultimately brought down a US President in 1974. Meanwhile, a full-scale energy crisis gripped the nation beginning in 1973, and not only did oil prices rise —oil quadrupled from $3 per barrel to $12—there were also shortages. Long lines were common at gas stations, gasoline was rationed, and the government made matters worse by putting price controls in place. While oil prices spiked close to $150/barrel during our current crisis, shortages and rationing were never an issue, and oil prices have since pulled back dramatically.

The 1970s vs. Today – Market Comparison and Contrast

The bear market of 1973-1974 saw the Dow Jones Industrial average lose 45 percent of its value in less than 23 months. While the magnitude of this drop is similar to what we’ve recently experienced, the recent fall occurred in a much tighter timeframe as the Dow plunged 42% in a six-month period— from May until November 2008. This experience has left modern investors shaken, and is much more severe than what occurred in 1973 and 1974.

The 1970s vs. Today – Inflation Comparison and Contrast

After averaging about 3.3% annually during the previous 10 years, inflation spiked to 6.2% in 1973, 11% in 1974, and 9.1% in 1975. The US had not experienced rising inflation to this extent since the post-war years of 1946-1948, but unemployment during those years was typically under 4%, whereas in 1973-75 it ranged up to 9% (see below). All these factors presented a quadruple whammy to 1970s America: high unemployment, rising prices, an energy crisis, and turmoil at the highest levels of our government.

While rising inflation was a concern during 2007 and early 2008, much of it was caused by rising commodity prices, namely fallout from skyrocketing oil prices. Since then, as our economy has weakened, nearly all commodity prices have fallen sharply. The fear of inflation has, in the near term, given way to fear of deflation—something US consumers have not experienced since the Depression.

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The 1970 vs. Today – Unemployment Comparison and Contrast

In November of 1973, the unemployment rate stood at a rather benign 4.8%, very close to the 5.0% recorded in December 2008 (the official beginning of the current recession). One year later, in November 1974, unemployment had risen to 6.6%, also very close to the 6.7% rate recently announced in November 2008. The rate continued to rise until May 1975’s 9.0% (two months following the end of that recession) before slowly falling below 8% by January, 1976. While it is impossible to accurately predict what the height of unemployment will be during the current recession, there are certainly eerie similarities between the ‘73-‘75 recession and the current period—at least in terms of unemployment.

1980-1982 -- Stagflation

By late 1979, unemployment had fallen below 6% once again, but a short recession from January through July 1980 saw the jobless rate creep back up toward 8%. And another old enemy had also resurfaced: inflation. By 1978 it had hit 7.6%. The next year, it jumped to 11.3%, on the road to a 33-year high of 13.5% in 1980. But this was not just any garden variety of inflation, it was “stagflation”. Stagflation occurs when high inflation and economic stagnation occur simultaneously, and it began in the wake of the energy crisis of 1979.

Although not as severe as the 1973 energy crisis, the 1979 version came amid a revolution in Iran and major tensions in the Middle East, including the taking of American hostages in Iran and a war between Iran and Iraq.

As the economy worsened, unemployment breached the 8% mark by late 1981, and hit 10.8% by November of 1982. In fact, from November 1982 until June 1983, there were 10 consecutive months of 10%-plus unemployment—including 7 months after the recession “officially” ended in November, 1982.

1980-1982 vs. Today -- Banking Comparison and Contrast

The 1980-1982 period was also marked by a banking crisis, although not as severe as the current version. Following a wave of deregulation, banks were able to lend money more broadly beginning in

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1980. As the economy worsened and defaults mounted, banks began to fail at alarming rates. Meanwhile, the Savings and Loan industry was also suffering at the hands of the worsening economy, leading to hundreds of failed S&Ls. One major difference between that period and now is the credit crisis we currently face—which was not much of an issue in the early 1980s. Credit was available, but interest rates were extremely high. Today, credit is seemingly not available, but interest rates are extremely low.

1980-1982 -- Government Action Comparison and Contrast

The Fed played a huge role in the early 1980s economic crisis as Fed Chairman Paul Volcker raised interest rates substantially in order to put the brakes on rampant inflation. Volcker raised the Fed Funds rate to as high as 20% in 1980, a move which ultimately helped to tame inflation, but was also probably a major contributor to the recession that followed. Today’s Federal Reserve has also been very active, arguably even more active than Volcker’s Fed. One of the major differences, however, is that current Fed Chairman Bernanke has been lowering interest rates—all the way down to 1%--in order to encourage lending.

1980-1982 vs. Today -- Market Comparison and Contrast

Peak to trough, the Dow fell 24% during the 81-82 recession, and recovered substantially from mid-1982 on. This represented a much more benign stock market environment than what we’ve experienced so far in 2008, with a six-month Dow drop of 42% through November.

Conclusion

The “this time it’s different” sentiment that has permeated opinions on the current economic crisis may indeed be valid. However, the same statement could have applied to many other such periods that we have faced. Each, as evidenced by the circumstances surrounding the Great Depression, the 1973-1975 bear market, and the 1980-1982 stagflation era, has brought with it a unique set of challenges that have combined to create very difficult economic circumstances. No two of these have been alike.

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Despite a rather gloomy near-term outlook, 2008 does not seem to be the start of the next Great Depression. The similarities between the two periods are far outweighed by the differences. The same appears to be true about 2008 as compared to 1980-1982 and 1973-1975. If you combined the fear and uncertainty of the Depression with the unemployment and equity market situation of ‘73-‘75 and the banking crises of the early 1980s, you might come closer to describing the current recession, rather than to compare it outright to any of the other 3 periods. But even that is a stretch. The recession of 2007-2008 is unique; but though no one can predict when, just like all others before—it

will end.

Appendix:

Stocks and Recession: A Historical Perspective

The textbook definition of a recession is two consecutive quarters of negative growth in the gross domestic product (GDP). Often a recession is declared well past the point at which it started—the current recession is no different. The National Bureau of Economic Research the organization that makes the final call, determined in late November that the US economy entered a recession in December of 2007.

This appendix will briefly examine some past recessions in order to put the current one into context.

The History

Since 1929, there have been 13 recessions, not including the current period. These times of negative economic growth have lasted an average of about 13 months (including the two that occurred from August 1929 through March 1933, and May 1937 through June 1938 during the period we refer to as the Great Depression). Excluding those periods, the average length of the 11 recessions we’ve experienced since 1945 has been about 10 months.

The longest recessions we’ve experienced since 1945 were both 16 months in duration—from November 1973 through March 1975, and July 1981 through November 1982. The earlier occurrence was a particularly bleak period with an all-out energy crisis, lines at the gas pumps, war in Vietnam, and the Watergate scandal (which resulted in the resignation of a US President). During that time, the

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Dow Jones Industrial Average fell 45% from January 1973 (9 months prior to the “official” recession start) to December 1974 (3 months prior to the recession’s end).

Our most recent previous recession lasted just 8 months—from March 2001 through November 2001. Then, the DJIA peaked in January 2000 (14 months prior to the beginning of the recession) and bottomed in September 2001 (two months prior to the end of the recession). The DJIA was down 30% during that time.

Chart 1

Recession Starts Recession Ends Recession Length (Months) DJIA Change

Recession Ends after Stocks Bottom (Months)

August 1929 March 1933 43 -89% 7

May 1937 June 1938 13 -49% 3

February 1945 October 1945 8 18% N/A

November 1948 October 1949 11 -16% 4 July 1953 May 1954 10 -13% 8 August 1957 April 1958 8 -19% 6 April 1960 February 1961 10 -17% 4 December 1969 November 1970 11 -36% 6 November 1973 March 1975 16 -46% 3 January, 1980 July 1980 6 -16% 3 July 1981 November 1982 16 -24% 3 July 1990 March 1991 8 -21% 5 March 2001 November 2001 8 -30% 2 Average 13 -28% 4 Average since 1945 10 -20% 4

Source: Barron’s,Bespoke Investment Group, Bloomberg, Stock Trader’s Almanac

Only once has the Dow Jones Industrial Average actually risen during any of the recessions dating back to 1929. That happened in the 1945 recession during which World War II officially ended.

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Otherwise, recessions have weighed heavily on the stock market, and the DJIA has declined an average of about 28% over those periods.

At the time this article was written, the DJIA had fallen as much as 47%, after reaching an all-time high of 14,164 in October, 2007. Given that drop, the current recession immediately draws comparisons to the 1973-1975 period when the DJIA fell 46%.

Perhaps most interesting regarding recession history has been the market’s propensity to begin rebounding by an average of about 4 months prior to recession end.

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