Ben Pace, Deutsche Bank

1 Deutsche Bank Private Wealth Management

Contents

1 Global economy

2 Fixed income

3 Equities

4 FX and commodities

5 Investment forecasts

6 Important notes

Deutsche Bank Private Wealth Management

Global economy


The global economy A tenuous and uneven recovery

―  The outlook for the world economy has deteriorated and we now expect 2.9% growth this year and 3.1% in 2013, down almost half a percent from previous estimates. Our 2014 global growth estimate is 3.8%.

―  A slow recovery in the U.S., and the prospect of the “fiscal cliff” at the end of 2012, brings our GDP growth estimates 2.1% for this year and 1.9% for next year.

―  We expect the Eurozone to bottom out in the fourth quarter, but the outlook remains poor.

―  Most emerging markets are likely to slow because of weaker exports to developed economies.

―  With central banks redoubling their efforts to support growth, we do not expect any interest rate rises in the U.S. or Europe until 2015 at the earliest.

World growth slowing Contribution to growth, selected countries, % % change year over year

Estimates based on 52 countries representing 90% of world GDP. Weighted by GDP at purchasing power parity

Source: Haver Analytics; IMP; The Economist As of 10/9/2012


U.S. growth intact, but fragile

―  The U.S. is in a stronger position than other developed economies, but the looming fiscal cliff could stop the economy dead in its tracks. Our expectation is that Congress will find a way to avoid this scenario, but not without some near-term turmoil.

―  While unemployment remains stubbornly high, the 7.9% number in the November 6 report was at least psychologically important and may support already rising consumer confidence.

―  The housing market continues to improve and we are seeing the end of consumer deleveraging.

Data surprise indicator: The downward trend has reverted

DB Macro Pulse Indicator (MPI) measures data surprises positive (negative) readings indicate data has been better (worse) than expected. Source: BLS, Deutsche Bank CIB Research.

Jan 10 Sep 10 May 11 Jan 12 Sep 12

0.4

0.2

0.0

-0.2

-0.6

-0.4


The fiscal cliff remains a key uncertainty

We expect a compromise to reduce the impact of the fiscal cliff to 1.5% of GDP

―  If nothing is done to avert this crisis, the fiscal adjustment in 2013 would be approximately 750 billion, or around 5% of GDP.

―  We do expect that there will be a deal after the election that reduces the impact to 1.5% of GDP.

―  Risks include a recession in the first half of 2013 if a deal does not materialize and a potential credit downgrade if the spending cuts are not put into place.


The Eurozone should resume modest growth in 2013

―  The economic outlook remains very weak in the Eurozone with limited signs of a meaningful recovery.

―  PMIs surprised to the downside in September with a substantial drop in services, but a moderate rise in manufacturing.

―  There is considerable divergence between countries:

–  Germany PMIs rose to the highest level in five months

–  France weakened sharply

–  The periphery weakened further

Source: Haver Analytics, Deutsche Bank Research

% qoq

We expect Eurozone GDP to bottom out in Q4 with a modest rebound beginning Q1 2013


Economic cycles in developed and emerging markets becoming increasingly coupled

Correlation of growth cycles in the developed and emerging markets

―  Weakness in Europe and the U.S. has spilled over to emerging markets during 2012, leading us to mark down our growth forecasts for 2012 and 2013.

―  Over the last decade emerging and developed market economic cycles have become increasingly coupled.

―  Globalization, and the opening up of several emerging countries to international trade, has seen increased interdependence.

―  Going forward, we expect growth in the emerging markets to continue to outpace that of developed markets. However, we expect growth rates lower than those experienced in the previous decade.


Fixed income


Credit should continue to outperform Treasuries

―  Treasury yields are likely to remain capped, while credit should continue to outperform as yield-oriented investors are increasingly willing to assume more credit risk.

―  As the Fed absorbs an increasing share of the mortgage and Treasury markets, investors will be effectively forced to move into higher-yielding spread product.

―  Additionally, we believe they will continue to migrate into foreign markets, both developed and emerging, looking for foreign currency gains and higher-yielding bond markets.

Real yields on Treasuries are negative

*Implied yield calculated by adding the index option-adjusted spread to d-month LIBOR rate. Source: Barclays Capital, FactSet, Credit Suisse and JPMorgan 8/31/12. CPI as of 7/31/12.

10-Year U.S.

Treasury

Barclays Capital

U.S. Aggregate Bond Index

Barclays Capital U.S. Credit/ Corporate Investment

Grade Bond Index

Merrill Lynch BBB

Municipal Bond Index

Credit Suisse Leveraged

Loan Index*

JP Morgan Domestic

High Yield Index


Are high yield bonds compensating investors for the additional risk?

―  Investors have been large buyers of high yield bonds, driving prices up and yields below 7%.

―  The spread between the yield on junk bonds and those on Treasuries is currently 5.61 percentage points, below its 15-year average.1

―  However, with the Federal Reserve buying bonds and pushing down yields on all fixed income investments, high yield might continue to do well, even if the opportunity for price appreciation is limited.

Spreads on high yield bonds have come down to more normal levels

1Bloomberg Finance LP 10/11/2012. Chart source: Factset as of 10/16/12.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Sep-97 Mar-00 Sep-02 Mar-05 Sep-07 Mar-10 Sep-12

U.S. High Yield Spreads (OAS) (15 YR Avg) U.S. High Yield Spreads (OAS)


―  Emerging market bond markets remain attractive, even after strong performance year-to-date.

―  The major driver of EM local bond markets in the first half of this year, declining interest rates, is gradually fading. We expect currency appreciation versus the USD to be the larger contributor to returns for the remainder of the year.

―  However, even with no further interest rate cuts, EM local bonds offer yields 4% higher than U.S. Treasuries, with improving credit quality.

Emerging market bonds remain attractive

USD denominated versus local currency denominated emerging market bonds

Source: Thomson Reuters Datastream, JP Morgan Indices. Data as of 10/3/12.


Equities


U.S. equities: what is the appropriate P/E multiple

―  Historically, growth in the range of 0-2% suggests a P/E of 14x. Using this multiple, we have set out year-end target for the S&P at 1425. In order to see meaningful P/E expansion, growth would have to be between 2-6%.

Footnotes: Time period reflects 1Q48 to 2Q12. Data Source: FactSet, Bureau of Economic Analysis

13.412.3

13.9

16.0 16.2

13.1

0

2

4

6

8

10

12

14

16

18

Less than -2%

-2% to 0% 0% to 2% 2% to 4% 4% - 6% 6% or More

Aver

age

P/E

Real GDP (YoY)

Average P/E Given GDP Scenario

10.912.9

14.5

17.0

19.918.4

12.0

0

5

10

15

20

25

Less than 0%

0-1% 1-2% 2-3% 3-4% 4-5% 5% or More

Aver

age

P/E

Real 10 Year Treasury Yield

Average P/E Given Real 10 Year Treasury Yields

Economic growth and the impact on P/Es P/E versus “real” interest rates

―  With 10-year Treasury yields hovering near negative territory, history would suggest that there is limited room for P/E expansion.

Footnotes: Time period reflects 1Q62 to 3Q12 using PCE Deflator. Data Source: Bloomberg Finance LP, FactSet


An improved outlook for European equities

―  The outlook for European equities is improving as Eurozone fears are receding and risks appear largely priced in.

―  Government bonds of core countries offer negative real yields so the impetus to rotate into stocks in Europe, as the outlook stabilizes, should be supportive.

―  Doubts over issues such as a slowdown in economic growth in China and the political situation in the United States would prompt investors to stay cautious on Europe near term, but the longer-term outlook remains somewhat positive.

.

European equity valuations

MSCI Europe ex-UK P/E (NTM)

Source: FactSet 10/23/12


Chinese equities becoming more attractive

―  The Chinese economy appears to be heading toward a soft landing. With the possibility for additional monetary policy easing and further stimulus, we expect a rebound as we head into 2013.

―  Inflation levels remained above 2% since February 2010 and peaked in July 2011 at 6.5%.

―  China’s equity markets lagged broad emerging and developed markets through 3Q12. Improved growth and policy easing have made China more attractive from an investment perspective.

Inflation pressure in China remains in check

Source: FactSet

CPI YoY%


FX and Commodities


Is China a currency manipulator?

―  A number of economists have questioned whether China's exchange rate policies versus the U.S. and its use of U.S. dollar reserves can be considered "predatory"—designed to depress the value of the Yuan and push cheap Chinese goods into U.S. markets.

―  Many U.S. policymakers have called for China to wean itself off export dependence and build up domestic consumption to correct the global imbalances that drew so many U.S. dollars to China in the first place.

Source: Deutsche Bank Global Markets

U.S. dollar / Yuan 2004-2012

5.5

6

6.5

7

7.5

8

8.5

Oct-04 Oct-06 Oct-08 Oct-10 Oct-12

Yuan is pegged at 8.3

per dollar

Yuan depegged /

+/- 0.3% trading band

Trading band widened to +/-

0.5%

Trading band widened to +/-

1.0%


Precious metals should continue to perform well

―  We expect gold prices to strengthen further. Extreme monetary ease in the developed economies should provide strong support.

―  In addition, we expect inflows into physically backed ETFs to accelerate again as the U.S. dollar tends to display seasonal weakness in December.

―  Supply constraints are becoming a larger issue for the gold mining industry, particularly given the labor disruptions which have been growing in South Africa. As of the end of Q3 2012, the country had closed down approximately 39% of its gold mines.

Global gold mine supply by country (2011)

Source: Deutsche Bank Global Markets


Economic and asset class forecasts

20

Global Investment Committee Forecasts as of December 2012*

Data Source: FactSet, Bloomberg Finance LP, Deutsche Bank Global Investment Committee forecasts as of GIC meeting on November 26, 2012. *Current as of November 26, 2012. **LTM stands for last 12 months.

GDP Growth Key Interest Rates Current*in %World 2.9% 3.1% 3.8% USA (Fed funds) 0.25% 0.25% 0.25%USA 2.1% 1.9% 3.1% Euroland (Refi rate) 0.75% 0.50% 0.50%Euroland -0.4% -0.2% 1.1% UK (Repo rate) 0.50% 0.50% 0.50%UK -0.3% 1.0% 1.8% Japan (Money market rate) 0.10% 0.10% 0.10%Japan 1.6% 0.2% 0.3%Asia ex Japan 6.1% 6.7% 6.9%Latin America 2.9% 3.9% 4.0% Currencies Current*EMEA 3.0% 3.6% 4.0%

EUR/USD 1.30 1.32 1.25Inflation (CPI) USD/JPY 82.12 83.00 86.00in % EUR/CHF 1.20 1.20 1.20USA 2.1% 2.4% 2.6% GBP/USD 1.60 1.60 1.57Euroland 2.5% 1.8% 1.7% EUR/GBP 0.81 0.83 0.80UK 2.8% 2.3% 1.9%Japan -0.1% -0.6% 1.7%Asia ex Japan 3.9% 4.0% 4.0% Commodities Current*Latin America 7.8% 7.8% 8.2%EMEA 5.2% 5.7% 5.2% Oil (WTI) in USD 88 100 100

Gold in USD 1750 1800 1900Current Account Balancein % of GDPUSA -3.2% -3.5% -3.6% Equities Current*Euroland 0.4% 0.5% 0.7%UK -2.3% -2.1% -1.8% USA (S&P 500) 1406 2.2% 13.0 1445 1500Japan 1.0% 1.2% 1.6% Euroland (Euro Stoxx 50) 2543 4.4% 10.1 2550 2700Asia ex Japan 1.7% 1.1% 0.7% Germany (DAX) 7292 3.5% 10.3 7350 8050Latin America -1.1% -1.3% -1.4% UK (FTSE 100) 5787 3.8% 10.7 5930 6060EMEA 1.8% 1.4% 0.4% Japan (Nikkei) 9389 2.0% 16.0 9400 10000

Asia ex Japan (MSCI in USD) 522 2.6% 11.0 535 595Latin America (MSCI in USD) 3582 3.3% 11.8 3810 3960

Fiscal Balancein % of GDP Sovereign RatesUSA -7.2% -6.3% -5.3%Euroland -3.2% -2.6% -2.0% USA 1.67% 38.9 1.75% 2.25%UK -7.1% -7.2% -5.4% Euroland (German Bund) 1.41% 54.7 1.60% 2.00%Japan -10.0% -9.8% -7.8% UK 1.84% 51.7 1.75% 2.40%Asia ex Japan -2.9% -2.8% -2.3% Japan 0.74% 79.5 0.75% 1.25%Latin America -2.2% -1.9% -1.9%EMEA -0.7% -0.7% -0.7%

3-Month Forecast

12-Month Forecast

2012 2013 2014Current*

Country CDS

Dividend Yield

P/E (LTM)**

3-Month Forecast

12-Month Forecast

12-Month Forecast

2012 2013 2014

2012 2013 2014

3-Month Forecast

3-Month Forecast

12-Month Forecast

3-Month Forecast

12-Month Forecast

2012 2013 2014


Benjamin A. Pace III Managing Director

Benjamin Pace is Chief Investment Officer and Head of Global Investment Solutions for Deutsche Bank Private Wealth Management in the U.S. In his role as CIO, he sits on the PWM Global Investment Committee, providing input on the U.S. economy and capital markets. He oversees the investment strategy and asset allocation for PWM clients in the U.S. As Head of Global Investment Solutions, he brings together PWM’s capital markets and investment capabilities in an effort to provide an effective and consistent experience for clients. Mr. Pace is a member of the PWM – U.S. Executive Committee.

Mr. Pace has more than 25 years of experience in investment management. Prior to joining Deutsche Bank in 1994, he managed equity income funds for two investment organizations. During his tenure with those institutions, he also served as a securities analyst with particular emphasis on the financial services and healthcare industries.

Mr. Pace earned his B.A. in economics from Columbia University and M.B.A. in finance from New York University.

He can be reached at (212) 454-7815 or e-mailed at [email protected].


Important notes This document has been prepared for informational purposes only and is not an offer, or solicitation of an offer, to buy or sell any security, or a recommendation to enter into any transaction relating to the products and services described herein. Before entering into any transaction, you should take steps to ensure that you understand and have made an independent assessment of the appropriateness of the transaction in light of your own particular financial, legal and tax situation, investment objectives and level of risk tolerance, and you should consult your legal and tax advisers to determine how these products and/or services may affect you. Investments in Foreign Countries - Such investments may be in countries that prove to be politically or economically unstable. Furthermore, in the case of investments in foreign securities or other assets, any fluctuations in currency exchange rates will affect the value of the investments and any restrictions imposed to prevent capital flight may make it difficult or impossible to exchange or repatriate foreign currency. Emerging Markets - Such markets may be in transitional or formative stages and thus may be significantly less stable than developed markets. Changes in emerging markets government structures or other political instability may result in nationalization, expropriation, ad hoc regulation, or foreign investment restrictions. Emerging market investments are at risk for currency devaluation, as well as convertibility, liquidity and transparency constraints. The high volatility and speculative nature of emerging market investments may result in both significant losses or profits.

Foreign Exchange/Currency - Such transactions involve multiple risks, including currency risk and settlement risk. Economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments may substantially and permanently alter the conditions, terms, marketability or price of a foreign currency. Profits and losses in transactions in foreign exchange will also be affected by fluctuations in currency where there is a need to convert the product's denomination(s) to another currency. Time zone differences may cause several hours to elapse between a payment being made in one currency and an offsetting payment in another currency. Relevant movements in currencies during the settlement period may seriously erode potential profits or significantly increase any losses.

High Yield Fixed Income Securities - Investing in high yield bonds, which tend to be more volatile than investment grade fixed income securities, is speculative. These bonds are affected by interest rate changes and the creditworthiness of the issuers, and investing in high yield bonds poses additional credit risk, as well as greater risk of default. Commodities - The risk of loss in trading commodities can be substantial. The price of commodities (e.g., raw industrial materials such as gold, copper and aluminum) may be subject to substantial fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. Additionally, valuations of commodities may be susceptible to such adverse global economic, political or regulatory developments. Prospective investors must independently assess the appropriateness of an investment in commodities in light of their own financial condition and objectives. Not all affiliates or subsidiaries of Deutsche Bank Group offer commodities or commodities-related products and services. This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address expected future business and financial performance, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Particular uncertainties that could adversely or positively affect future results include: the behavior of financial markets, including fluctuations in interest and exchange rates, commodity and equity prices and the value of financial assets; continued volatility and further deterioration of the capital markets; the commercial and consumer credit environment; the impact of regulation and regulatory, investigative and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause actual future results to be materially different than those expressed in our forward-looking statements. Although this document has been carefully prepared and is based on information from sources believed to be reliable, no representation is made that it is accurate and complete. We have no obligation to update or amend the information provided herein, and information is subject to change without notice. Unless you are notified to the contrary, the products and services mentioned are not guaranteed by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of Deutsche Bank. These products are subject to investment risk, including possible loss of principal. The past performance of a product or service does not guarantee or predict its future performance. Deutsche Bank AG, including its subsidiaries and affiliates, does not provide legal, tax, or accounting advice. This communication was prepared solely in connection with the promotion or marketing, to the extent permitted by applicable law, of the transaction or matter addressed herein, and was not intended or written to be used, and cannot be used or relied upon, by any taxpayer for purposes of avoiding any U.S. federal tax penalties. The recipient of this communication should seek advice from an independent tax advisor regarding any tax matters addressed herein based on its particular circumstances. “Deutsche Bank” means Deutsche Bank AG and its affiliated companies, as the context requires. Deutsche Bank Private Wealth Management refers to Deutsche Bank’s wealth management activities for high-net-worth clients around the world. 013345.11.08.12

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