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Market Insights

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Today's FOMC Meeting

08/09/2010

1. CHANGE IN LANGUAGE - TONE

From the June 23rd meeting, 1st paragraph: "Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing"

· EXPECT A MILD SHIFT IN LANGUAGE TO ACKNOWLEDGE "THE SLOWING RECOVERY" AND REVERSE THE JUNE 23RD LANGUAGE

2. ADDING LANGUAGE - INTENT

From the June 23rd meeting, 1st paragraph: "Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time."

· EXPECT DETAILED LANGUAGE TO IDENTIFY WHAT ECONOMIC CONDITIONS WILL MOTIVATE THE FOMC TO BEGIN QE2 - SIMILAR TO THE PARAGRAPH ABOVE FROM JUNE 23RD

3. POLICY TOOLS - MORE BARK THAN BITE

· DO NOT EXPECT ANY MAJOR ASSET PURCHASES
· POSSIBLE REINVESTMENT OF PAYMENTS FROM MORTGAGE BACKED SECURITIES INTO U.S. TREASURIES
· POSSIBLE REDUCTION IN THE BANK RESERVE DEPOSIT RATE FROM 0.25% CURRENTLY
· SUGGEST RATES WILL REMAIN HISTORICALLY LOW UNTIL "xyz economic conditions improves"

CONCLUSION: TODAY'S FOMC MEETING IS THE "BARK" THE SEPTEMBER 21 FOMC MEETING COULD BE "THE BITE."

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.