We believe that the U.S. economy hit bottom this summer and an economic recovery is underway. The economy is still weak and is vulnerable to a setback if there are any unexpected shocks. But if the economy has time to heal, then economic growth is likely expand at a modest pace during the next few years. The housing market appears to be turning upward but a housing recovery is likely to be uneven. Foreclosures are likely to increase along with the unemployment rate during the next year. Fortunately, housing is very affordable and reluctant buyers appear to be taking advantage of current opportunities.

1. Transition to Recovery Gary Thayer Chief Macro Strategist October 22, 2009

2. 1 Boom-Bust-Recovery 1 The economic boom earlier this decade set the stage for a deep recession. There was even talk of depression last winter. The worst case scenario did not happen. Signs of stabilization surfaced this spring. Signs of recovery are beginning now.

3. Low inflation created economic boom CONSUMER PRICE INFLATION % Change Year-to-Year cpi.EMF (USECON) PCUN 6601-11012

4. Savings rate declined as wealth grew PERSONAL SAVINGS RATE Percent savrate.EMF (USECON) YPSVR 661-1104

5. Housing boomed then dropped EXISTING SINGLE-FAMILY HOME SALES Seasonally adjusted annual rate existing.EMF (REALTOR) USMNSAU 9901-10912

6. Home prices declined sharply S&P/CASE-SHILLER HOME PRICE INDEX, Composite 20 Jan-00 = 100 HOMEPRICE.EMF (USECON) CASC20XR 9901-10912

7. Unemployment at 26 year high UNEMPLOYMENT RATE Percent LR.EMF (USECON) LR 6601-11012

8. 7 Good news 7 Home purchases are more affordable. Cash-for-clunkers program shows consumers willing to take advantage of bargains. Manufacturing orders are growing again. Freight shipping may be turning up. Job losses are diminishing.

9. Payment rates have dropped HOUSING AFFORDABILITY Payment as a percent of income afford.EMF (REALTOR) USMNPPI 9901-10912

10. Ratio: median home price to per capita income 9 Source: Haver Analytics, Wells Fargo Advisors

11. Vehicle sales spike temporarily TOTAL LIGHT WEIGHT VEHICLE SALES Seasonally adjusted annual rate, millions vehicles.EMF (USECON) TLVAR 9801-11012

12. Orders increase broadly ISM MANUFACTURING: NEW ORDERS INDEX 50+ = Expansion ismorders.EMF (USECON) NAPMNI 9901-10912

13. Freight transport may be turning up TRANSPORTATION SERVICES INDEX: FREIGHT 2000=100 FREIGHT.EMF (USECON) ITRSF 9001-11012

14. Fewer job cuts MONTHLY CHANGE IN NONFARM PAYROLLS Thousands LANAGRA.EMF (USECON) LANAGRA 8701-11012

15. 14 Sentiment is still depressed 14 History suggests business sentiment turns before consumer sentiment. We need to see business sentiment rise relative to consumer sentiment. This has not happened yet.

16. In a recovery business confidence tends to rise relative to consumer confidence 15 Source: Haver Analytics, Wells Fargo Advisors

17. Fed lending has jumped sharply 16

18. Non-Fed lending has dropped even more FED LENDING, $ Billions, seasonally adjusted annual rate FA71CRN5.EMF (FFUNDS) FA71CRN5 951-1094

19. 18 Conclusions 18 The recession appears to have ended in June. Deep recessions are usually followed by strong recoveries. This recovery is more likely to be modest. Greatest risk is from an unexpected event.

20. 19 Past performance is not an indication of future results. Wells Fargo Advisors is the trade name under which Wells Fargo & Company provides brokerage services through two registered broker-dealers: Wells Fargo Advisors, LLC, Member SIPC, and Wells Fargo Advisors Financial Network, LLC, Member SIPC. Each broker-dealer is a separate non-bank affiliate of Wells Fargo & Company. © 2009 Wells Fargo Advisors, LLC. All rights reserved. 0509-1794 [74566-v1] 5/09 19