Brett Hammond, Ph.D.

Managing Director and Chief Investment Strategist, TIAA-CREF

ARE WE THERE YET?THE “NEW NORMAL” ECONOMY AND WHAT IT MEANS FOR INVESTORS

Brett Hammond, Ph.D.

Managing Director and Chief Investment Strategist, TIAA-CREF

January 26, 2011

22

3

2010HOW NORMAL?

4

U.S. REAL GDP

Source: Bureau of Economic Analysis

-0.7

0.6

-4.0

-6.8

-4.9

-0.7

1.6

5.0

3.7

1.7

2.6 2.8*

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410

Long-term potential growth ~ 3%

Annualized growth rate (%) by quarter, 2008-2010

Source: Bureau of Economic Analysis

*Our estimate.

ANNUALIZED GROWTH RATE (%) BY QUARTER

5

Source: Global Insight

REAL GDP FOR SELECT COUNTRIES

QUARTERLY GROWTH RATES

6

U.S. TREASURY YIELDS

Source: U.S. Treasury Department

1 yr

5 yr

10 yr

30 yr

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

12/31/09 3/31/10 6/30/10 9/30/10 12/31/10

Source: U.S. Treasury Dept.

%, QUARTER-ENDS, 12/31/09 – 12/31/10

7

CREDIT SPREADS

Sources: Merrill Lynch, Bloomberg. Option-adjusted spreads measure the relative value of fixed-income securities that contain an embedded option (such as a call provision in a corporate bond); they are quoted as a spread, or differential, over a benchmark security. The wider the option-adjusted spread, the higher the implied return and risk of the bond, compared with the benchmark.

OPTION-ADJUSTED, BASIS POINTS OVER 10-YEAR U.S. TREASURY YIELD

0

200

400

600

800

1000

1200

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

AAA

BBB

EMERGING MARKETS

8

INFLATION

Source: Bureau of Labor Statistics

CONSUMER PRICE INDEX (CPI-U), % CHANGE FROM YEAR AGO

9

EQUITIES

Source: Global Insight

U.S. EQUITY MARKET TOTAL RETURNS, 2008-2010

INDEX 2008 2009 2010

Russell 3000® Index -37.31% 28.34% 16.93%

Russell Midcap® Index -41.46% 40.48% 25.47%

Russell 2000® Index -33.79% 27.17% 26.85%

S&P 500® Index -37.00% 26.46% 15.06%

Dow Jones Industrial Average -31.93% 22.68% 14.06%

NASDAQ Composite -42.21% 45.32% 18.02%

FTSE NAREIT Equity REIT -39.83% 27.99% 27.95%Past performance is no guarantee of future results. You cannot invest directly in any index.

10

FIXED INCOME

Source: Barclays Capital

BARCLAYS CAPITAL FIXED-INCOME INDEX TOTAL RETURNS, 2008-2010

INDEX 2008 2009 2010

U.S. Aggregate 5.24% 5.93% 6.54%

U.S. Government 12.39% -2.20% 5.52%

U.S. Credit -3.08% 16.04% 8.47%

Municipal Bond 10-Year 1.52% 9.85% 4.05%

U.S. TIPS -2.35% 11.41% 6.31%

Global Emerging Markets -16.16% 35.61% 10.93%

Past performance is no guarantee of future results. You cannot invest directly in any index.

1111

12

CONSUMER CONFIDENCE IN 2010

MONTHLY CONSUMER CONFIDENCE INDEX, % CHANGE FROM YEAR-AGO LEVELS

Source: The Conference Board

13

NOTWHAT’S

NORMAL?

14

CORPORATE PROFITS

Source: Bureau of Economic Analysis

$ BILLIONS, BEFORE TAXES

15

LONG-TERM UNEMPLOYMENT

Source: Bureau of Labor Statistics

NUMBER OF FULL-TIME WORKERS UNEMPLOYED 52 WEEKS OR MORE

16

SHRINKING PARTICIPATION IN THE WORKFORCE

Source: Bureau of Labor Statistics. Civilian population age 16 and over.

EMPLOYMENT-POPULATION RATIO, 2001-2010

17

UNEMPLOYMENT BY GENDER

MONTHLY UNEMPLOYMENT RATE (%), AGES 16 AND OLDER

Source: Bureau of Labor Statistics

0

2

4

6

8

10

12

Ja

n-0

0

Ju

l-0

0

Ja

n-0

1

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

WOMEN

MEN

18

A LOST DECADE FOR JOBS?

Source: Bureau of Labor Statistics

NONFARM PAYROLLS (IN THOUSANDS)

Number of jobs has retreated to decade-ago levels

19

HOUSING

Sources: Global Insight

Housing starts Case-Shiller Home Price Index

NUMBER OF HOUSING STARTS AND RATE OF CHANGE IN HOME PRICES

20

HOME SALES: HAVES AND HAVE NOTS

Source: National Association of Realtors. Reflects year-ago % change in sales of existing homes nationwide, by price range, through 11/2010.

$0-100K

$100-250K

$250-500K

$500-750K

$750K-1M

$1M+

HOME SALES IN THESE PRICE RANGES DECLINED

HOME SALES IN THIS PRICE RANGE INCREASED

EXISTING HOME SALES HAVE DECLINED, WITH ONE EXCEPTION

21

Source: Bureau of Labor Statistics. Earnings growth defined as change in mean real total money earnings by educational cohort of workers of all races and genders, age 25 and older, 2001 through 2008 (most recent data available)

INCOME GROWTH: HAVES AND HAVE NOTS

REAL INCOMES HAVE DECLINED, WITH ONE EXCEPTION

High School Graduate

Some College

College Graduate

Master’sPh.D.

MBA, JD, MD

Not High School Graduate

NEGATIVE INCOME GROWTH

POSITIVE INCOME GROWTH

22

LEADING ECONOMIC INDICATORS – UNITED STATES

Source: The Conference Board

INDEX VALUE

23

LEADING ECONOMIC INDICATORS – G7 COUNTRIES*

Source: OECD

INDEX LEVEL

24

Source: Bureau of Labor Statistics

24

2525

2626

27

ASSET CLASS OUTLOOK

• Equities

• Fixed Income

• Real Estate

• Commodities

28

FORECASTERS’ BATTING AVERAGE: .000?

ECONOMISTS HAVE MISSED EVERY RECESSION IN THE LAST 40 YEARS

Sources: Federal Reserve Bank of Philadelphia; GMO. Based on 4-quarter moving averages of median forecasts vs. reported GDP. Actual data used through Jun 2010; projections through Sep 2011.

-6

-4

-2

0

2

4

6

8

10

19

72

:01

19

75

:01

19

78

:01

19

81

:01

19

84

:01

19

87

:01

19

90

:01

19

93

:01

19

96

:01

19

99

:01

20

02

:01

20

05

:01

20

08

:01

20

11

:01

Per

cent

REAL GDP YOY%

CONSENSUS FORECAST GDP

29

This material has been prepared by and represents the views of Brett Hammond, and does not reflect the views of any TIAA-CREF affiliate. These views may change in response to changing economic and market conditions. The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service.

TIAA-CREF personnel in its investment management area provide investment advice and portfolio management services through the following entities: Teachers Advisors, Inc., TIAA-CREF Investment Management, LLC, and Teachers Insurance and Annuity Association.

TIAA, TIAA-CREF, Teachers Insurance and Annuity Association, TIAA-CREF Asset Management and FINANCIAL SERVICES FOR THE GREATER GOOD are registered trademarks of Teachers Insurance and Annuity Association.

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© 2011 Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017