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            Transcript of                                                                             601 Moorefield Park Dr.
                                                                                                      Richmond, VA 23236
Muhlenkamp & Company, Inc. (MUHLX)                                                                    Phone: 888-301-5399
      Adviser Conference Call                                                                         Fax: 804-327-7554
                           October 16, 2008                                                 
    Ronald H. Muhlenkamp, Founder, President, and Portfolio Manager
    Anthony W. Muhlenkamp, Executive Vice President, Client Service Department

    Good day and welcome to today’s Muhlenkamp Adviser Conference Call. As a
    reminder, today’s call is being recorded. I would like to turn the call over to
    Mr. Anthony Muhlenkamp. Please go ahead, sir.

    Anthony W. Muhlenkamp – Muhlenkamp & Company, Inc – Executive Vice
    President, Client Service Department
    Thank you, James. Good afternoon, everybody. This is Tony Muhlenkamp and I
    want to thank you for joining us for our conference call this afternoon. In just a
    minute, I am going to turn it over to Ron so he can talk to us about his current take on
    things, but I wanted to mention to you that on our website we have published the most
    recent copy of the Muhlenkamp Memorandum as well as a couple of market
    commentaries dated October 10th. I mentioned these to you because Dad may be
    referencing them in his comments, and so you might need to have a hard copy later to

    So, with that being said, I’ll turn it over to Dad and I guess Dad the question we’re
    getting from folks these days is given everything that’s going on, what’s your plan and
    what are you keying on here?

    Ronald H. Muhlenkamp – Muhlenkamp & Company, Inc – Founder, President,
    and Portfolio Manager
    Okay. What we think is going on is that there is forced selling. I’ll reference it as
    hedge funds, but it goes beyond that because they’re being told to deleverage by the
    people who have been lending them money and because they are getting
    redemptions, they have to sell and, of course, in the current market, no one has to
    buy, but we do have folks who have to sell. For instance, we monitor what companies
    and industry earnings do relative to expectations and in the June quarter, the four
    industries that have the strongest earnings relative to expectations were oil, steel,
    coal, and fertilizer. And I believe you’ll find that if we had a date on this, you’ll find that
    these were heavily owned by hedge funds. What we’ve seen is they’ve collapsed in
    price as they got sold. We sold half of our energy earlier in the year; obviously, we
    wished we’ve sold it all, but the point is the very things that were strongest early this

                                                         Muhlenkamp & Company, Inc. (MUHLX)
                                                                     Adviser Conference Call
                                                                            October 16, 2008
year became the weakest after June when all the leaders started running down.                  Vcall
Actually, my best reference for what’s going on here is to work off the presentation we        601 Moorefield Park Dr.
did on recessions a little while ago. What we have said last fall, and again this spring,      Richmond, VA 23236
was that in the aggregate numbers this slowdown, (it’s probably a recession at this
                                                                                               Phone: 888-301-5399
point), looked pretty familiar to us. We named several minuses and a couple of pluses
                                                                                               Fax: 804-327-7554
and I’ll just work two those a little bit. The big minus of this year at this time of course
is a crash in financials and we’ll say more about that in the moment. But the second
minus was the price of energy, which had tripled and as you probably have noticed    
that since June the price of crude has gone from $147 a barrel to about $75. If they           www.investorcalendar.c
get follow through in gas price, as it probably will, gas prices have already come down        om
a dollar a gallon and they're probably headed another $0.50 lower, so that part has
rolled over. Grain prices which had gone up have since come down, lost half of their
gains. All through this, mortgage rates have… well, they came down when the Fed
guaranteed Fannie Mae, that jumped back up a little bit recently when the Fed
guaranteed bank debt but basically it had been pretty much flat through here. So, the
things that affect the general public directly look better than they did three months
ago. The things that affect it indirectly, the whole credit crunch, the Treasury and the
Fed are making it up as they go along; we think what’s been happening between the
forced selling, due to redemptions and deleveraging, and mark-to-market has been…
one part has been feeding on another.

So, we’ve been getting questions like what’s different this time. What’s different this
time is the credit crunch. What are the odds of Armageddon? We think they’re still
fairly low. Why they haven’t suspended the mark-to-market makes no sense to me,
but they still have that major thing to go. Now if we saw… a suspension of mark-to-
market, we’re currently 25% to 30% cash, we’d probably spend it. We’re seeing more
and better values than I’ve seen since ‘74 and ‘82. I mean, we’re clearly outside of
rational values on stocks. Well, sometimes the public sells because psychologically,
you have to, but we also had a number of people who sell because legally they have
to -- either to cover margin costs or redemptions, or to get their leverage down.

So, I’m more fearful of the things that have been owned by the quick money folks than
otherwise. We’ve started nibbling a little bit on financials. So far, every time I put my
toe in the water I got my toe chopped off. So, you become a little bit hesitant doing
that. But most of that stuff is pretty well cleared up. I mean, the Treasury has made it
clear that certainly there are nine names at the top of the financial heap that they will
keep in business. Someone asked what we saw with the deficits were likely to see. I
make a huge differentiation between spending money to buy assets and spending
money to try to put it in tax payers’ pockets. But what the Fed is doing, they’re putting
$250 billion into bank balance sheets. Their charter with the $700 billion package is to
buy assets. You’d probably noticed that Warren Buffet said that he’d like a 1% piece
of that action. We would, too -- not at 1%, but we would like a piece of that. We think
they’re buying assets at fire sale prices. They are not necessarily great assets but we
think they’re better than the prices that are being reflected. So, to the extent that
they’re successful doing this, they’ll probably make money over two or three years.
(You may have seen Andy Kessler’s article to that effect.)

But the remaining thing is the mark-to-market rules. No bank or no insurance
company in the country trust what their assets will be priced at a month or two down

                                                        Muhlenkamp & Company, Inc. (MUHLX)
                                                                    Adviser Conference Call
                                                                           October 16, 2008
the road. We think the reason of not lending to each other is because they don’t trust      Vcall
the other guy’s assets, the valuation of the assets, because they have no idea what         601 Moorefield Park Dr.
their own evaluations would be.                                                             Richmond, VA 23236

                                                                                            Phone: 888-301-5399
So, if we saw mark-to-market get suspended, we will be spending money fairly
                                                                                            Fax: 804-327-7554
quickly. If we see signs that the forced selling by whoever, I’ll say hedge fund but it’s
broader than that. If forced selling looks like it’s coming to an end, we’ll be buying.
Again, we’re seeing great companies with great prices here.                       
So, in terms of the economy, we’re not sure that it’s going to be any worse than we         om
might have feared six months ago. But we do have to clean up the credit thing and
right now the credit thing is simply having banks trust their assets and the easy way to
do that, the quick way to do that, will be go back to the kind of accounting rules that
we had for the last several decades up until November of last year.

That is just about it.

Anthony W. Muhlenkamp
You talked about the economy, Dad, you mentioned energy prices coming back down
and crude prices coming back down, what’s your assessment of the state of the
consumer? Because in this economy, the consumer has been in the driver’s seat for
a long time. Do you think that remains true? And if so, how does the consumer look
right now?

Ronald H. Muhlenkamp
Well, the consumer got scared enough that he cut back on its driving. Year over year,
the use of gasoline is down on the order of 4%, just like the second time in 50 years or
so. At our seminar, Tony, you know this very well, our shareholders have been asking
us for a couple of years of how high would the price of gasoline go and we said that
it’ll go up until you change your habits. Well, they’ve changed their habits. It’s down a
dollar since the spring.

Anthony W. Muhlenkamp
It’s amazing how cheap $3 a gallon looks after paying $4 for a while, too.

Ronald H. Muhlenkamp
Exactly. But back when it was at $3, people didn’t change their habits. My guess is
that it’s going to $2.50. There’s 42 gallons to a barrel and the processing and taxes
run about $0.50. So when it was $147 a barrel if you divide that by 42, you get $3.50
and sure enough it was price at $4. A few days ago, it was $90. If you divide that by
42, you get something over $2 and it was priced at $3. Well, today at $75, equivalent
would be a bit below $2.50. But that big tax on people due to gasoline that we feared
a couple of months ago seems to have offset itself. Meanwhile, natural gas for
heating this winter is back to where it was a year ago or a bit lower. So, those kinds
of things that we worried about coming directly out of the consumers pocket have
eased. Mortgage rates are in line with where they were a year ago. Rates on 30-year
fixed are on the order of 6%.

                                                       Muhlenkamp & Company, Inc. (MUHLX)
                                                                   Adviser Conference Call
                                                                          October 16, 2008
Anthony W. Muhlenkamp                                                                     Vcall
Are you still able to get a mortgage right now in this country?                           601 Moorefield Park Dr.
                                                                                          Richmond, VA 23236
Ronald H. Muhlenkamp
                                                                                          Phone: 888-301-5399
Sure. If you conformed to Fannie Mae standards, that is at 20% down and a FICO
                                                                                          Fax: 804-327-7554
score on the order of 720 or something like that. To get a conforming mortgage,
you’ve been able to do all the way through here. Well, let me say a little more about
that. This recent “Bailout Bill,” the media said there was a bailout in Wall Street.
Number one, there’s not enough Wall Street left to bailout. Number two, the Fed did       www.investorcalendar.c
not bailout Wall Street. What they did was when it looked like Wall Street troubles       om
would flow over into Main Street is when they stepped in. They took over Fannie
Mae. They guaranteed the bonds, which is why you and I can still get a conforming
mortgage at a reasonable rate, which is on the order of 6%. The stocks are at a buck,
so the stockholders lost their money. As preferred shareholders, Fannie Mae and
Freddie Mac has a lot of preferred outstanding much of which is owned by banks.
What surprised me was when the Fed took a senior preferred, they stepped in front of
those preferreds and that harmed the balance sheet of a whole lot of banks in the
country. The Fed’s job is to make sure the banking industry does not go out of
business. That surprised us a bit but they stepped in front of the banks. If you think
about it six months ago, the Fed was encouraging people to put up equity money for
people like Merrill Lynch and Citigroup and Washington Mutual or companies like
these. So if you did what the Fed encouraged you to do six months ago, you’ve lost
your money whether you were at sovereign wealth funds or the Mid East of the Far
East or I believe its TPG, the big hedge fund that put was it $9 billions into
Washington Mutual. But the Fed has actually killed equity investors over the last year.
What they have done is that any time it looked like it threatened Main Street they
stepped in. We’ve said some time ago that we didn’t think that Main Street would
miss Bear Stearns. We didn’t think Main Street would miss Lehman Brothers. We did
think Main Street would miss Merrill Lynch because there are so many offices
throughout the country. And of course Merrill Lynch has been bought out. The fact
that they let Lehman Brothers go bankrupt instead of being taken over by somebody
such as you know… JPMorgan took over Bear Stearns, but the counterparty risk
mandate at Lehman threw all kinds of counterparty risks into a tizzy and that is still
being cleaned up and forcing some people to make margin calls to cover with a
counterparty kind of risk. So we think letting Lehman go bankrupt was probably a
mistake even though we don’t think that directly the general public misses them very
much. Half of Wall Street had to go out of business, either they all had to cut their
business in half or half of them had to go out of business because a lot of what Wall
Street was doing three years ago is no longer working going forward. We think the
mark-to-market rule remains a huge thing, but Bernanke was in front of New York
Society of Economists yesterday. He talked about confidence in the marketplace but
it is pretty hard to be confident when you have no idea what your assets are going to
be priced at two months from now when the auditors take a hard look at them.

Anthony W. Muhlenkamp
Right. So, right now the banks are not interested in anything showing up in their
balance sheets and their capital requirements.

                                                       Muhlenkamp & Company, Inc. (MUHLX)
                                                                   Adviser Conference Call
                                                                          October 16, 2008
Ronald H. Muhlenkamp                                                                        Vcall
Well, let me give you an example. Most people are familiar with a fixed rate 30-year        601 Moorefield Park Dr.
mortgage. You take out a mortgage, you pay the same payment for 30 years and you            Richmond, VA 23236
end up owning your house. Second step, most people are familiar with an adjustable
                                                                                            Phone: 888-301-5399
rate mortgage. You know that…
                                                                                            Fax: 804-327-7554
Anthony W. Muhlenkamp
Yes, I’ve got one.                                                                
Ronald H. Muhlenkamp                                                                        om
You’ve got one. On a one, three, or five year basis, let’s say on a one year basis, you
know that the rate is an adjustable rate. The rate would be re-negotiated depending
on what the current rate is at that time. Let me posit a third set of rules. Let me posit
on a one year basis, the amount of your mortgage would be up for review, re-
statement and that the maximum amount that the bank would lend you on your
anniversary date, let’s say yearend, would be based on 80% of what the recent sale of
a similar home in your neighborhood sold for just prior to your anniversary date. So, if
your anniversary date is January 1, they will pick a similar home that’s sold in your
neighborhood in mid to late December and the maximum they will loan you on your
home is 80% of that amount. How would that change your financial planning on what
you would do on a day to day basis?

Anthony W. Muhlenkamp
What if that house got sold some low ball price because they were in a hurry to sell?

Ronald H. Muhlenkamp
Well, the point is, you may think your house is worth $200,000 but you have no idea
what would one sell for in mid December. So, you’ve got to allow for the fact that
there might be estate sale that sells for $150 and you’ve got to stockpile cash
because you’re going to have to come up with a difference when you get a mortgage
on January 1. That is exactly what every bank, every insurance company in the
country, is facing today because on a mark-to-market basis, they have to make
allowances for the fact that their assets will be marked to a low ball bid at yearend.
That’s why they won’t lend to each other. They’re doing the same thing you or I would
do under similar circumstances. And for some strange reason, the Fed hasn’t figured
this out. Well, SEC… actually in the latest bill, the SEC has the right to suspend
FASB 157. The rule came out of Financial Accounting Standards Board. It’s number
157. It said mark everything to market. They have clarified that a couple of times but
they haven’t reversed it and the SEC hasn’t explicitly said that they’re going to
suspend it. Incidentally, that rule took effect for years ending after November of 2007,
so it’s just one year old. What we did for the prior decades, 40 years to my
knowledge, there is another set of rules to go value this sort of thing, but those aren’t
the rules that currently being applied.

Anthony W. Muhlenkamp
And that’s why you say it’s so critical for that to be suspended?

                                                       Muhlenkamp & Company, Inc. (MUHLX)
                                                                   Adviser Conference Call
                                                                          October 16, 2008
Ronald H. Muhlenkamp                                                                       Vcall
Exactly. We said in November of last year that we didn’t want to own any financial         601 Moorefield Park Dr.
stocks until we saw audited financial statements. Well, the trouble is with what’s been    Richmond, VA 23236
going on this year, we almost have to see audited financial statements at the end of
                                                                                           Phone: 888-301-5399
this year to have some idea what those things are valued at – and it’s affecting the
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prices of all stocks, not just financials.
Anthony W. Muhlenkamp                                                            
Okay. Switching gears… Go ahead.                                                           www.investorcalendar.c
Ronald H. Muhlenkamp
Okay. That would be a game changer for what we’re seeing in the marketplace.

Anthony W. Muhlenkamp
Switching gears a little bit from the U.S. to abroad. The other thing of course is
apparently banks around the world are suffering similar, if not worse, problems than
the U.S. banks. How’s that impacting what you're saying?

Ronald H. Muhlenkamp
Well, actually in the last few weeks, it has gotten better because for awhile they
denied their problems. Everybody assumed that it was an American problem, it turns
out they got the same problem. What’s been interesting for folks in this country is a
lot of folks thought that they could diversify their risk by diversifying either among
countries or asset classes or whatever.

Anthony W. Muhlenkamp
Or currencies, right?

Ronald H. Muhlenkamp
Yes. And as we’ve seen… as we saw before, things in the past were correlated once
you get the same people owning them. If I'm managing a hedge fund and I’ve got
redemptions, everything that I own is up for sale because if I can't sell what I want to
sell, I’ve got sell something I can. So, the fact that I may have some stuff… I may
have stocks, I may have bonds, I may have mortgages, I may have foreign, I may
have domestic, I may have currencies, I may have commodities, the fact that I own all
these things make them all subject to the same selling pressure just because I own
them, even though the fundamentals are broadly diversified, the short term financial
impact is not. And what you’ve seen is all these things that are non-U.S. in times of
fear, sure enough, money is flowing back to the U.S. dollar. It remains a perceived
safe spot in the storm. Short-term rates on U.S. treasuries are very near zero. I
mean there have been days when we end up… somebody ends up paying the
Treasury to hold their money for them. But that flight to perceived quality still comes
back to dollars and the folks who thought they were safe, all the other things are down
more than even common stocks in the United States in many cases because it’s all
owned by a common group of people and it’s all been sold because they have to sell
something. So a lot of these things that were believed to be a gospel a year ago have
kind of blown up in people’s faces. Some of that we foresaw, a lot of these obviously
we did not. It’s my frustration that we said a year ago, we wanted to see audited and
financial statements before we buy financials and didn’t follow through to the next step

                                                       Muhlenkamp & Company, Inc. (MUHLX)
                                                                   Adviser Conference Call
                                                                          October 16, 2008
that if they pressure hedge funds to be less leveraged, what started in financials          Vcall
would be spread to a whole lot of other things as well.                                     601 Moorefield Park Dr.
                                                                                            Richmond, VA 23236
Anthony W. Muhlenkamp
                                                                                            Phone: 888-301-5399
Right. What is the idea of non-correlated asset classes, domestic and international,
                                                                                            Fax: 804-327-7554
becoming… being more correlated? Do you think that also applies to asset classes
whether it’s value versus growth or large versus small, or stocks and bonds? Are we
seeing any of that right now?                                                     
Ronald H. Muhlenkamp                                                                        om
Sure. What people look at is what is happened in treasuries. But what’s happened in
treasuries is a whole lot different from what happened to BAA bonds. If you own BAA
bonds this year, you’re down probably, I'm guessing, I'd have to look it up, in the order
of 10% or 15%. Yes, that’s been better than stocks, but it hasn’t really been a good
place to hide.

Anthony W. Muhlenkamp

Ronald H. Muhlenkamp
And everybody looks at the spreads. I would encourage them not to look at the
spreads so much as the rates themselves. We think that the AAA corporates and
probably AA corporates are roughly fairly priced. Treasuries are at a premium so that
creates its own spread. Treasury rates are unusually low based on fear and that
corporate rates below AA are unusually high based on fears so in that case, you’ve
got the spread from both ends but rather than saying the AAA spreads are so much
above treasuries, we think that really treasuries are below what would be normal.
Anytime you take a ratio or anytime you take a spread, you lose information because
you got to know whether it’s your numerator moving or your denominator and in this
case, you got to know whether corporate rates are too high or too low or whether it’s
simply treasury rates that are too high or too low. Now what we’re doing to monitor
these rates, the first mark is what’s happening on LIBOR rates in the last week. They
peaked about a week ago before the international banking community got together.

Anthony W. Muhlenkamp

Ronald H. Muhlenkamp
In the last week, they appear to be down about 20 basis points. That’s not enough to
get excited about but a whole a lot better than the trend that was going on before
then. I'm not yet willing to say 20 basis points is a trend but it has only been a week.
But if… Well, to me the easy way again is to suspend mark-to-market. But barring
that, if banks start lending to each other again, some of these rates will come down,
some of these spreads will come down. And when it looks like it’s a trend, we will
step up our buying. I have no way of predicting that. I only know how to watch it.

Anthony W. Muhlenkamp
So, what you watch is looking to see if they suspend FASB 157 or mark-to-market?

                                                         Muhlenkamp & Company, Inc. (MUHLX)
                                                                     Adviser Conference Call
                                                                            October 16, 2008
Ronald H. Muhlenkamp                                                                        Vcall
That’ll be big.                                                                             601 Moorefield Park Dr.
                                                                                            Richmond, VA 23236
Anthony W. Muhlenkamp
                                                                                            Phone: 888-301-5399
That’d be huge. If the size of the forced selling is tapering off, that would be useful.
                                                                                            Fax: 804-327-7554
And also, LIBOR spreads versus treasuries, some indication that the banks are
freeing themselves up again. Do you mind summarizing that accurately?
Ronald H. Muhlenkamp                                                                        www.investorcalendar.c
By itself, the third would probably be gradual. The second would probably be gradual.       om
The only real overnight game change would be suspension of mark to market.

Anthony W. Muhlenkamp
But if the second, too, start happening even without the first, you’re getting some
support there.

Ronald H. Muhlenkamp
Yes. Well actually since mid July, when the Treasury and the Fed said you can no
longer short financial stocks, financials as a group are up. There is huge spreads
around that group but they broke the back of the prior trend… Bernanke said at
yesterday’s meeting that there was a… I don’t think it was collusion, but everybody is
looking at the same data to doing the same thing. But what we saw early in the year
was a lot of shorts going out on Bear Sterns until it got taken over at $2 a share and
later became 10; they got pushed into JP Morgan’s arms, and then they short shifted
to Lehman Brothers, and they went out of business, and then the shorts shifted to
Merrill Lynch and it went into the hands of Bank of America, and then the shorts
shifted to Morgan Stanley. The wolf pack was picking off the weak member of the
herd and they went from one to another to another and Bernanke literally said
yesterday, they saw that happening and figured they had to stop the process.

Anthony W. Muhlenkamp

Ronald H. Muhlenkamp
But in mid July, there was a game changer on financials. But the great hedge fund
trade earlier this year was to be long commodities and short financials. And as of mid
July, they had to cover their shorts in financials. And it’s about that time that you saw
the commodities roll over all the way from crude oil to metal and the stocks are down
more than the commodities. The prices we’re seeing on energy stocks here are
superb, but as long as people are forced to sell them, I can't tell you they won’t go

Anthony W. Muhlenkamp
Right. So what are you doing with the companies that we currently hold?

Ronald H. Muhlenkamp
Well, we are of course once again right in the middle of earning season. So far,
earnings have come through pretty well, including some that we felt would be at some
risk. But as long as their balance sheets are good, their access to cash is pretty good,

                                                        Muhlenkamp & Company, Inc. (MUHLX)
                                                                    Adviser Conference Call
                                                                           October 16, 2008
and their earnings are holding up, we’re seeing great prices here. Our average stock         Vcall
is below 10 times earnings. Now, granted the other great question and all the noise          601 Moorefield Park Dr.
we’re hearing about a recession, is earnings in 2009 would be lower than they were in        Richmond, VA 23236
2008. But if you take things and you say over the course of a decade, what’s normal
                                                                                             Phone: 888-301-5399
earnings for this company and their business as they're structured and finding you
                                                                                             Fax: 804-327-7554
need… the earnings would have to drop an awful lot for some of these things not to
be pretty cheap at today’s prices.
Anthony W. Muhlenkamp                                                                        www.investorcalendar.c
Okay, so even if business slows year over year between now and a year from now,              om
that’s not the end of the world.

Ronald H. Muhlenkamp
That’s already in the prices and then some.

Anthony W. Muhlenkamp
And then some. Alright. Well before we open up for questions from the attendees, is
there anything else you want to add or should we go ahead and see who can ask a
good question up here.

Ronald H. Muhlenkamp
Something I find useful to keep in mind is that a billion dollars is $10 per family in the
U.S. We have about 110 million families. So a billion dollars is $10 per family. Which
means $700 billion would be $7000 and when I had people say, well, gee I'm paying
my mortgage why should I support someone else. Well, in my case, I had an
adjustable rate mortgage for three or four years from probably I think ’02 to ’05. And
so I benefited from rates being unusually low and now, what I'm being asked to do as
a family is put $7000 to buy some assets. What’s interesting is here the same things
that the public and the insurance companies are being forced to sell, the public wants
to sell, and others are being force to sell, the Feds are stepping in buying at low ball

Anthony W. Muhlenkamp
Andy Kessler has made a decent argument that the Treasury and Fed can make
some money out of this if they’re at all good at it.

Ronald H. Muhlenkamp
Yes, and I think he is right and what they’re doing with the banks is they're kind of
following Warren Buffet’s model. They’re just getting 5% for five years instead of
10%, and then going to 10, where as he got 10% up front.

Anthony W. Muhlenkamp
Up front. Okay.

                                                        Muhlenkamp & Company, Inc. (MUHLX)
                                                                    Adviser Conference Call
                                                                           October 16, 2008
Ronald H. Muhlenkamp                                                                         Vcall
And again we think Warren Buffet’s in the catbird seat here and so far, he’s proved          601 Moorefield Park Dr.
that on a couple of occasions.                                                               Richmond, VA 23236

                                                                                             Phone: 888-301-5399
Anthony W. Muhlenkamp
                                                                                             Fax: 804-327-7554
Well, he’s got cash and he can dictate his own terms by and large, can't he?
Ronald H. Muhlenkamp                                                               
Exactly. I can't go to Goldman Sachs or GE or anybody else and dictate terms. He             www.investorcalendar.c
can, which is why we own the stock.                                                          om

Anthony W. Muhlenkamp
James, if you’re there, why don’t we see if we have any questions from the audience
and maybe dad can address those.

Thanks. Today’s question and answer session will be conducted electronically. If you
would like to ask a question, you may do so by pressing the * key followed by the digit
1 on your touchtone telephone. If you’re using a speakerphone, please make sure
your mute function is turned off to allow someone to reach our equipment. Once
again, that’s *1 if you have a question. We will pause for a moment.

Anthony W. Muhlenkamp
Dad, while we’re making on that, also talk a little bit about the consumer and the
public savings and spending. Are they over leveraged or what evidence are you
seeing on that?

Ronald H. Muhlenkamp
Well, we think they’re probably pretty well housed up and they’re not really looking to
buy more houses, so what they spend on the mortgage will be fairly stable. Some
people are probably trying to trade the gas guzzlers in for something more efficient.
We’re told that in many cases you can't get financing for a car. It looks like food
prices are stable. It looks like gas prices are back down. The difference of a dollar a
gallon probably amounts to about $40 a week for the average family which of course
is $2,000 a year. So if they’ve gotten used to eating out a little bit less, I mean… We
all resist changing our habits, but once we do, it’s very easy to stick with the new
habits. So I suspect that people’s debts, they're starting to pay down their debt a little
bit which is the same thing as savings. The key here will become how much
unemployment goes up. So far it has gone to 6%+ which is pretty modest by any
recessionary standards. My guess is it goes to 7. Some people are saying it goes to
8, but if we go another quarter or two without the bulk of people losing their jobs, my
guess is this will start to feel a little better. What we saw after the ’90 recession was
consumer confidence staying low for a couple of years and if you recall what the
economists talked about after the ’90 recession was a half speed expansion. What
we think happened was people were rebuilding their balance sheets and frankly, if you
bought banks in 1990, you got great companies at cheap prices and you did well for
15 years. What I find fascinating here and some of our listeners are much better
equipped to gauge us than we are, but we think that there is going to be a huge
demand for financial advice coming out of this period. I just don’t know where they

                                                        Muhlenkamp & Company, Inc. (MUHLX)
                                                                    Adviser Conference Call
                                                                           October 16, 2008
are going to go… where the public is going to get it. It’s probably not to the S&L but      Vcall
do they go to their accountant, do they go their banker, do they go to their broker, do     601 Moorefield Park Dr.
they go to their financial planner. It’s probably going to be a great time to be a          Richmond, VA 23236
financial planner. I don’t know how much damage Merrill Lynch’s problems have
                                                                                            Phone: 888-301-5399
done to Merrill Lynch’s brokers’ reputation. I haven’t seen any signs of financial
                                                                                            Fax: 804-327-7554
planners as a group suffering damage to their reputation in here. I’ve seen some
signs of it occur to stockbrokers or anybody affiliated with Wall Street. The other flip
side is of course the Merrill Lynch broker can say, “Well, that was all before. Now
we’re a bank. We’re part of Bank of America.” Whether that qualifies or not, I literally    www.investorcalendar.c
don’t know. But I think there’s going to be a great demand for financial advice here.       om
What I'm looking for is the leverage place, the place that people are going to not just
where they’re coming from. But I think we have a great chance to repeat the kinds of
success you had in the ’90s where as surviving financial firms thrived, they not only
survived, but they thrive. I might point out that with all the stuff going on, Schwab is
selling about 18 or 19 times earnings at a time when the average companies are
about 12 times or so. Schwab comes through this in great shape but the P/E currently
reflects it.

Anthony W. Muhlenkamp
James, do we have questions in the queue?

Yes. We’ll take our first question from Blaine Dunn with Dunn Financial.

Blaine Dunn – Dunn Financial
Hi, Ron.

Ronald H. Muhlenkamp
Blaine, how are you?

Blaine Dunn – Dunn Financial
I'm fine. We’ve talked before. You and I have had some chats at some NAPFA
conferences and the thing that impresses me most about you is some comments that
you’ve made up in Toronto, going through your thought process, and that’s one of the
reasons why I have money with you. My questions to you are what did you not see in
what’s occurred recently. It’s not fault, it’s just an analytical question. The second
question is, is the data that you're seeing good data or not and if so, where, if not why
not, or where is it not good data? The third question is, why did you not put a put
under your total portfolio or does the play against the S&P to act as an insurance
policy in case you have it further drop. I'm really looking to pick your brains, Ron, I
have a lot of respect for you, it’s that...

Ronald H. Muhlenkamp
A couple of things.

Blaine Dunn – Dunn Financial
… the generalness of the question, I know it’s a long term holding ability for 5-6 years,
so I understand that. So that, I'm really tried to pick your brains on those questions
and your thought process.

                                                          Muhlenkamp & Company, Inc. (MUHLX)
                                                                      Adviser Conference Call
                                                                             October 16, 2008
Ronald H. Muhlenkamp                                                                        601 Moorefield Park Dr.
But what I should have done is read my own damn book.                                       Richmond, VA 23236

                                                                                            Phone: 888-301-5399
Blaine Dunn – Dunn Financial
                                                                                            Fax: 804-327-7554
Hey, listen, if we want perfect hindsight, we’d all be brilliant.
Ronald H. Muhlenkamp                                                              
Well, but bear with me for a moment. What we say in the book is if the climate              www.investorcalendar.c
doesn’t change, what drives the markets are the seasons. That is the business cycle,        om
the expansion and contraction of the business cycle. The difficulty was that for 30 or
40 years, the Fed has been a pretty good marker of what’s going on in the business
cycle. When the Fed wants to speed things up, it sped up. When they want to slow it
down, it slowed it down. The Fed in ’04 and ’05… I guess ’05, started slowing things
down but they got up to 5.25% interest rate and they stopped. And this is odd. The
Fed... Typically, the Fed would squeeze till something broke. This time it squeezed
about 2/3 and stopped and we said if this is all, they’re not going to break this time.
What I failed to recognize was that the Fed, of course, creates and money and
commercial banks create money. But this time around, it was overwhelmed by what
Wall Street was doing to create money. Anytime Wall Street securitized loans instead
of having just a straight 30-year mortgage, when they securitize, it increases the
velocity of money. When you move your money from a normal mutual fund to hedge
fund and they borrow, that ups the velocity of money. We don’t have good data on
velocity and frankly, three years ago, I wasn’t monitoring velocity. I should’ve been,
but I wasn’t. But the long and the short of it is, even though the Fed started
squeezing, the total did not. Some people have called it the phantom banking system.
If you were in Wall Street, velocity kept going up and this stuff kept going up for
another of couple of years and finally broke itself. I mean think it was Carlisle Capital
who said in order for… while the Fed raised rates, it narrowed the spreads and
Carlisle Capital said we had to go to 32:1 leverage to make the deals look good. Well,
I hate to tell you this but if you got to 30:1 leverage to make the deal look good, the
deal ain’t good.

Blaine Dunn – Dunn Financial
We agree.

Ronald H. Muhlenkamp
What they should have been doing was saying the Fed narrowed the spreads, we got
to start backing out of the business. They did the opposite. Wall Street went ahead
and broke itself. So this time around… and what the Fed is doing now, all this money
the Fed is putting in the system that is simply to make up for the fact that the velocity
has collapsed since July 2007.

Blaine Dunn – Dunn Financial

                                                       Muhlenkamp & Company, Inc. (MUHLX)
                                                                   Adviser Conference Call
                                                                          October 16, 2008
Ronald H. Muhlenkamp                                                                        Vcall
Okay. And the overriding thing that we missed was what that velocity was doing the          601 Moorefield Park Dr.
opposite of what the Fed was doing. I have taken some of my cues from the Fed               Richmond, VA 23236
which worked for 30 years but didn’t work this time around.
                                                                                            Phone: 888-301-5399
                                                                                            Fax: 804-327-7554
Blaine Dunn – Dunn Financial
Ronald H. Muhlenkamp                                                                        www.investorcalendar.c
So that’s probably the core of it. With all these going on in the credit markets, the       om
general economy is still doing fairly well. And by any objective measure, and my
guess is we can still screw this up but the odds are the general economy comes out of
this in fairly decent shape. Secondly, I probably trusted the accounting more than I
should have. I mean we thought that Merrill Lynch and Citigroup had moved the toxic
stuffs off their books. They thought they have moved it off their books. It came back
onto their books and it just… what they owned as agents was enough to put them out
of business.

Blaine Dunn – Dunn Financial
And so looking forward, I mean, do you say when you do a valuation of a company,
you're using your free cash flow and you're seeing what’s on the balance sheet, etc.
are you able to do an intellectually, not you personally, is anybody able to do an
honest valuation of a company, or was it just the financial companies that have black
holes or can you a normal… is the data a good data?

Ronald H. Muhlenkamp
It’s probably… the data is what it is. I have never known any number that you could
trust without thinking and look and see whether it made sense or not. We said six
months ago that because of what the dollar had done over the last five or six years,
that we would rather, this time around, own American producers who are selling to the
rest of the world. And my real fear six months ago was with the price of rice having
doubled that China would slow down big time and it would not help us in this whole
process. If you think about it, nearly everything that we buy from China, the Chinese
could buy from China. There are 12 billion pairs of shoes made every year. 6 billion
of them are made in China. But if you think about why it is that the U.S. buys from
China and people say, well if we quit buying what would happen. Well, that depends
on whether or not the Chinese consumer picks up on their buying and my great fear
was with the price of rice having doubled, it would short circuit that big time. Well,
since then the price or rice has come back nicely. Wheat and rice have been trading
together and they peaked last March or April. Corn and soy beans have been trading
together. They peaked I think in June and literarily… they tripled and then gave half
of that back in each of those cases. So my fear of the world economy is less than it
was six months ago, just based on food. What has happened since then is the credit
markets, it was worldwide but they’ve now admitted… Europe stepped up over the
weekend and probably it’s a little bit ahead of us at this point in terms of dealing with
it. So it’s the problems you don’t recognize that kill you; the ones you recognize and
allow for you can get through okay. So the ones you don’t recognize will kill you and
right now, between now and whenever, people… it’s necessary to be able to get a
hand on what your assets are valued at for year end. We think the simple solution is

                                                        Muhlenkamp & Company, Inc. (MUHLX)
                                                                    Adviser Conference Call
                                                                           October 16, 2008
simply to suspend mark-to-market, but if that’s not true, we’ll probably get to see how       Vcall
these things are marked near year end, or to see somebody step up and start buying            601 Moorefield Park Dr.
this stuff. See what the Fed has also done with their bailout package of now, what,           Richmond, VA 23236
two weeks ago is they become a buyer. If you go out and buy $700 billion worth of
                                                                                              Phone: 888-301-5399
distressed mortgage paper, all of a sudden you got a buyer where there was none
                                                                                              Fax: 804-327-7554
before. We had forced sellers but no buyer. I don’t know if you go to auctions, but the
Fed has just stepped up and said, we’ll make the opening bid. Up until now, anybody
even if you want to own this stuff, there is no reason to step in today because it could
be cheaper tomorrow. All of sudden you got an 800-pound gorilla whose come in with            www.investorcalendar.c
a huge wad of cash, say I'm going to start buying these stuff. So whether your name           om
is Warren Buffett or Ron Muhlenkamp or Pimco or anybody else, you say, okay, now
there’s a buyer in there, and if I were to participate, I got to participate as opposed to
waiting on this. So that rule has changed big time. They haven’t spent any money yet
but that’s just the time it takes them to get their act together and do so. It will happen.

Blaine Dunn – Dunn Financial
And is that the reason you’ve not put a put on your portfolio or is the price too high or

Ronald H. Muhlenkamp
We looked at it and yes, I didn’t appreciate the degree to which the forced sellers
would drive this stuff down.

Blaine Dunn – Dunn Financial
But looking forward, do you think that…

Ronald H. Muhlenkamp
Looking forward, no. What I can tell you today is prices are below rational ranges.
We are in, every now and then, they get above rational ranges in which case I'd say
psychology takes over. Today, they’re below rational ranges, I think it’s partly
psychology and partly forced selling. But what we now have is a buyer who’s working
his way onto the trading floor and it’s just going to take him a couple of weeks to do it.

Blaine Dunn – Dunn Financial
I appreciate your comments. Thank you.

Anthony W. Muhlenkamp
Thanks, Blaine. James do we have someone else in line?

Yes. We have a question from David Kanter with Longview Asset Management.

David Kanter – Longview SL Management
I'm fine, Ron. You mentioned a little while ago that you have stock prices are already
discounted, and I'm wondering what your assumption for corporate earnings next year
is, just what your working assumption is when you value the S&P 500?

                                                        Muhlenkamp & Company, Inc. (MUHLX)
                                                                    Adviser Conference Call
                                                                           October 16, 2008
Ronald H. Muhlenkamp                                                                          Vcall
Well, we work on a company by company basis. The other folks have done some of                601 Moorefield Park Dr.
that and they conclude if earnings do anything down to a -30 or -40%, it’s pretty much        Richmond, VA 23236
in the price. The latest thing I got from Value Line says that on current earnings were
                                                                                              Phone: 888-301-5399
12 times earnings. This is a time when interest rates on corporates are in the order of
                                                                                              Fax: 804-327-7554
5%. So, 12 times earnings means an 8% return cash on cash. We think that’s
worthwhile versus a 5% bond cash on cash. But in our case, we look at individual
companies, our average PE on current earnings is less than 10. These earnings are   
down by a third that makes it a 13. But these are companies that historically have            www.investorcalendar.c
done well over 15% returns on equity. Incidentally, you’ve given me a great chance to         om
buy a Cadillac here at cheap prices. IBM just reported earnings that were slightly
better than expectations or maybe 13 times earnings, Cisco, I mean. Take a look at
the areas where U.S. continues its leadership. We own more technology stocks than
we ever have. Because we’re seeing great companies at cheap prices and
companies that… there is no other Cisco in the world. Oracle has a huge amount of
cash. I'm not sure I want to… well, I don’t play golf, but I'm not sure I want to play golf
with Larry Ellison but in terms of what they’re doing and the price of being traded at
and the cash they’ve got, you're getting the chance to buy some very good companies
at very cheap prices here.

David Kanter – Longview SL Management
Thank you.

Anthony W. Muhlenkamp
Okay. Ladies and gentlemen, I have promised the folks here and the attendees that
we would keep this to 45 minutes. But I will suggest that if you had a question that we
didn’t get to you, please give us a call or send us an email. We will get you an answer
or if you weren’t satisfied with the answer, questions you had about anything Ron
said, please let us know. We look forward to hearing from you and we will get with
back to you with the answer one way or the other. I'll remind you that some of these
ideas are written down for you on our website. The last newsletters are out there. A
couple of updates called the Muhlenkamp Minute talk a little bit more about FASB 157
and so on.

Dad, that’s the end of our time, is there a last thought you want to share with them
before we say goodbye?

Ronald H. Muhlenkamp
It’s been tough but the U.S. didn’t go out of business. The U.S. consumer is not in
terrible shape. He is not quite as good a shape as he thought he was a year ago and
the tides we’ve seen this in the past. It’s become a stomach problem not a head
problem, but you're getting some great opportunities here if you get through the
current mess to get through them.

Anthony W. Muhlenkamp
And to that, ladies and gentlemen, I want to add my own thanks for your patience and
continued patience and confidence in us while we do work our way through this.
Thank you all very much. Have a good evening. And thank you Ron.

                       Muhlenkamp & Company, Inc. (MUHLX)
                                   Adviser Conference Call
                                          October 16, 2008
Ronald H. Muhlenkamp                            Vcall
Take care.                                      601 Moorefield Park Dr.
                                                Richmond, VA 23236

                                                Phone: 888-301-5399
                                                Fax: 804-327-7554