Dave Warrington; Lapeer County Bank & Trust Presentation

Topic: Economic and Financial Market Indicators and their impact on the past and present. The focus of the indicators presented is to forecast coming economic recessions and market downturns. The first indicator I use is the Treasury bond market yield curve. Normally the curve is upward sloping with longer maturity bonds having higher yields than shorter maturity bonds. In some instances the curve becomes inverted, causing banks and other businesses short term borrowing costs to increase relative to the return they can get on longer term investments. This puts pressure on margins, eventually causing economic slowdown. Most recessions since the 1970's have been preceded by an inverted yield curve. The second economic indicator I use is the price of oil. The U.S. is a net importer of oil. The end dollar spent on oil ends up in another country, especially since we have large trade deficits in products other than oil. When the price of oil goes up, it acts like an increased tax on consumers, which leaves them less money to spend on other goods and services locally. Most recessions since the 1970's have been preceded by a sharp increase in the price of oil. We have seen oil price increase pretty significantly over the last year. The yield curve is as steep as it's ever been. I am moderately optimistic about the economy over the next year. I think we may have problems beyond that, with large debt burdens saddled on consumers and the U.S. government. Since the 1950's, we have not had year over year contraction in the financial liabilities of households and non profit organizations until 2008. This is a new dynamic for our economy. I believe future economic cycles will be shorter and more volatile than we have been used to, causing growth to be slower than we have seen over the last sixty years.