Post on 10-Apr-2018
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 1/8
Market Recap
Another record has been set. Following the worst
performance in 9 years for the S&P 500 in August
when the index fell 4.7%, September turned in its
best monthly performance since 1939 with the in-
dex gaining 8.7%. (You could get whiplash from
these results.) But, standing back and looking at
the chart on the next page, you will see that the
S&P has, as of October 1st, vacillated the entire
year. The index is up about 4.7% year-to-date.
On the other hand, the picture is a little rosier for
Emerging Markets (EM) and, specifically, South Asia,
as shown on pages 3 and 4. Here we see what
looks like the beginning of a breakout to the upsidefor EM and the continuation of a positive breakout
for South Asia. As shown on page 7, these indexes
are up nearly 10% and 15%, respectively, for the
year.
The picture is rosier still for gold as shown on
pages 6 and 7 with the index up over 20% for the
year.
Economic Outlook
There’s little new to report on the economic out-
look. The U.S. remains in a difficult environment
with employment, housing, manufacturing, credit,
construction, wage growth, consumer sentiment,
and virtually every other key indicator at de-
pressed levels with subpar, if any, improvement
emerging over time.
While I believe there is little that can be done to
make a meaningful dent in the employment picture
and other key factors in the short run, my biggest
concerns are about the political deadlock in Wash-
ington, the widespread lack of economic under-
standing and the role of money in politics. All sides
of the political spectrum share responsibility. Until
these problems are addressed, I’m afraid the U.S. is
in for a long slog.
Meanwhile, Emerging Markets, an area that covers
Eastern Europe, Latin America and Asia, are a dif-
ferent story. Here is an excerpt from the IMF’s
current World Economic Outlook:“Thus far, economic recovery is proceeding broadly as
expected, but downside risks remain elevated. Most ad-
vanced economies and a few emerging economies still
face large adjustments. Their recoveries are proceeding
at a sluggish pace, and high unemployment poses ma-
jor social challenges. By contrast, many emerging and
developing economies are again seeing strong growth,
because they did not experience major financial ex-
cesses just prior to the Great Recession.”
Investment Outlook
I see the investment outlook as follows:
In the U.S., economic headwinds will put a
damper on equities with a possible saving grace
coming from the fact that about 40% of profits
Stock Market Commentary
October 7, 2010 Lane Asset Management
Despite the September’s gain
in the S&P 500 of over 8%,
the equity market in the U.S.
and other developed econo-
mies remain challenged. On
the other hand, Emerging
Markets, especially Asia/
Pacific, are performing well
and appear to be in a con-
tinuing uptrend. The same
can be said for gold and
other precious metals.
This month’s Commentary
illustrates the technical sup-
port for investments in these
areas.
As always, I welcome your
comments and suggestions.
— Ed Lane
for U.S. companies comes from overseas.
Emerging Markets, especially Asia/Pacific (ex Ja-
pan) and South Asia more narrowly, are experi-
encing robust growth and their equity markets
are responding accordingly.
A continuing decline in the value of the dollar
along with imbalance in supply/demand is result-
ing in upward pressure on gold, silver and other
precious metals. I expect this to continue for
the foreseeable future.
Income-based securities — principally preferred
stock and global bonds — will continue to do
well in an environment where investors are
looking to limit risk. With the likelihood of in-
terest rate increases in the next year or so, I
would avoid longer durations on domestic
bonds.
The charts on the following pages provide selected
technica l analysis of these markets. As always, in-
vestments carry a degree of risk and often perform
in the short term according to the relative balance
between fear and greed. Technica l analysis, though
not perfect, can be very helpful in the decision-making process by showing underlying trends that
strip away popular commentary.
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 2/8
The S&P 500 index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.
Page 2Lane Asset Management
Following a disappointing August, the index bounced back in September with a nearly 9% gain, the best Sep-
tember in 79 years. On a technical basis, the 75 – and 150-day moving averages have turned slightly positive and
the MACD (another moving average-based momentum indicator) continues on the bullish move begun in July.
That said, the index has been range bound for about a year and is now approaching resistance in the range of
1150-1200. At this point, giving due regard to the economic headwinds in the U.S. and other developed econo-
mies, but also keeping in mind the stronger economies in the Emerging Markets, especially Asia, it is premature to get overly excited about
the sustainability of the current uptrend in the S&P 500. The caution light is out and any additional exposure to U.S. equities should be en-
tered into slowly and carefully with the understanding that a pullback of 10% or so would be consistent with the pattern established over the
last 12 months.
S&P 500 Index
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 3/8
The MSCI Emerging Markets index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.
Page 3Lane Asset Management
Following the mixed signals from August, the MS Emerging Market Index has moved to a clear bullish stance consis-
tent with the relative strength of the Emerging Market economies, especially Asia/Pacific (ex Japan). The 75 – and 150-
day moving averages are more clearly upward sloping with increasing separation between the 75-day average and the
longer term 150-day average. In addition, the MACD is continuing the upward move begun in June. A very positive
sign is the breakout above the resistance line at 1050. If this breakout holds, 1050 will become a line of support and
the next resistance will occur around 1200. Given the positive technical indicators and fundamental outlook, equity addi-
tions in Emerging Markets are advised. That said, no system is perfect and past performance cannot be taken as a guarantee of future results.
At this moment in time, I am prepared to put a green light on Emerging Markets keeping in mind that reversals have occurred several times
at current levels and cannot be ruled out.
Morgan Stanley Emerging Market Index
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 4/8
The Dow Jones South Asia index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.
Page 4Lane Asset Management
The Dow Jones Asia/Pacific South Asia Index differs from the MSCI Emerging Markets Index on the preceding page by
focusing on the countries of South Asia (e.g., India, Singapore, Malaysia, Indonesia, Thailand, and Vietnam, among oth-
ers) and excluding China and countries in Latin America, Eastern Europe, and the rest of Asia. Given the overlap in the
indexes, the chart below is very similar to the one for Emerging Markets. That said, the South Asia index has outper-
formed the broader Emerging Markets index since the beginning of 2008. On a technical basis, the 75 – and 150-day
moving averages and the MACD all have positive and increasing momentum since July. In addition, the breakout above
the line of resistance at about 170 is more advanced (stronger) than for Emerging Markets. While investments in Emerging Markets generally,
and South Asia specifically, can be highly volatile and should be managed carefully, the above average growth in these economies together with
the positive technical outlook make such investments appropriate for the equity portion of one’s portfolio.
Dow Jones Asia/Pacific South Asia Index
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 5/8
The Barclays Capital Bond — Global Index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.
Page 5Lane Asset Management
The Barclays Capital Global Bond Index represents the returns of a composite of domestic and international gov-
ernment and corporate bonds and similar instruments. As such, it blends bond yields available globally along with
the impact of currency fluctuations. As shown in the chart below, this index has shown a steady upward momentum
with very low volatility. It should be noted that the performance of the securities in this index has been a benefici-
ary of declining interest rates, producing capital gains. With the expectation that interest rates will be rising in the future, that com-
ponent of the total returns in this index will be harder to reproduce. On the other hand, there are other components of total return
including interest yield and currency movement. For the portion of a portfolio where capital preservation has a high degree of importance and
also to provide diversification, while at the same time outperforming CDs and similar instruments, I give a green light to a mix of global fixed in-
come investments such as those represented by this index.
Barclays Capital Global Bond Index
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 6/8
This chart shows the performance of gold and silver indexes created by st ockcharts.com that are intended to represent prices of the precious metals and is a very close approximation to the
value of exchange-traded funds that hold these metals. These unmanaged indexes cannot be invested into directly. Past performance is no guarantee of future results.
Page 6Lane Asset Management
The chart below shows the 5-year monthly performance of gold and silver indexes (see descriptive comments
below the chart), along with a comparison of the performance of a U.S. dollar index. The chart shows an in-
verse correlation in the price of the metals against the value of the dollar except for the period November
2009 through May 2010 when the dollar advanced along with the price of the metals. The inverse correlation is
understandable as the metals can be seen as an alternative currency. But other factors are clearly at play as the metal prices have advanced far
more than the value of the dollar has declined. The primary answer, I believe, has to do with supply and demand imbalances. If that’s the case,
then a good argument can be made for continuation of strong performance in these (and other) precious metals as long as governments (and
others) around the world stockpile these metals as a hedge against future inflation. That said, as shown in 2008 and as suspected by some today,
the value of the metals can be quite volatile and can contract rapidly. An interruption in the pace of price advances should not come as a sur-
prise. Therefore, caution is advised when investing in precious metals.
Gold and Silver
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 7/8
Past performance is no guarantee of future results.
Page 7Lane Asset Management
The chart below show the year-to-date performance of the indexes referenced in the preceding charts. Several observations
can be made:
As expected, performance of the S&P 500 has lagged Emerging Markets this year.
Global bonds have turned in a highly respectable performance with low volatility.
Gold has also done extremely well, although with a degree of volatility (though not as much as the equity markets).
While performing the best of equity markets in the period shown, the Emerging Markets have shown the highest degree of volatility.
Year-to-Date Index Comparisons
8/8/2019 Lane Asset Management Stock Market October 2010
http://slidepdf.com/reader/full/lane-asset-management-stock-market-october-2010 8/8
Lane Asset Management is a Registered Investment Advisor with the
States of NY, CT and NJ. Advisory services are only offered to clients
or prospective clients where Lane Asset Management and its represen-
tatives are properly licensed or exempted.
No advice may be rendered by Lane Asset Management unless a client
service agreement is in place.
Investing involves risk including loss of principal. Investing in interna-
tional and Emerging Markets may entail additional risks such as cur-
rency fluctuation and political instability. Investing in small-cap stocks
includes specific risks such as greater volatility and potentially less li-
quidity. Small-cap stocks may be subject to higher degree of risk than
more established companies’ securities. The illiquidity of the small-cap
market may adversely affect the value of these investments.
Investors should consider the investment objectives, risks, and charges
and expenses of mutual funds and exchange-traded funds carefully for a
full background on the possibility that a more suitable securities trans-
action may exist. The prospectus contains this and other information. A
prospectus for all funds is available from Lane Asset Management or
your financial advisor and should be read carefully before investing.
Note that indexes cannot be invested in directly and their performance
may or may not correspond to securities intended to represent these
sectors.
Investors should carefully review their financial situation, making sure
their cash flow needs for the next 3-5 years are secure with a margin
for error. Beyond that, the degree of risk taken in a portfolio should be
commensurate with one’s overall risk tolerance and financial objectives.
The charts and comments are only the author’s view of market activity
and aren’t recommendations to buy or sell any security. Market sectors
Page 8 Lane Asset Management
Disclosures
Periodically, I will prepare a Commentary focusing on a specific investment issue.
Please let me know if there is one of interest to you. As always, I appreciate your feed-
back and look forward to addressing any questions you may have. You can find me at:www.LaneAssetManagement.com
Edward.Lane@LaneAssetManagement.com
Edward Lane
Lane Asset Management
P.O. Box 666
Stone Ridge, NY 12484
and related exchanged-traded and closed-end funds are selected based on his opinion
as to their usefulness in providing the viewer a comprehensive summary of market
conditions for the featured period. Chart annotations aren’t predictive of any future
market action rather they only demonstrate the author’s opinion as to a range of pos-
sibilities going forward. All material presented herein is believed to be reliable but its
accuracy cannot be guaranteed. The information contained herein (including historical
prices or values) has been obtained from sources that Lane Asset Management (LAM)considers to be reliable; however, LAM makes no representation as to, or accepts any
responsibility or liability for, the accuracy or completeness of the information con-
tained herein or any decision made or action taken by you or any third party in reli-
ance upon the data. Some results are derived using historical estimations from available
data. Investment recommendations may change without notice and readers are urged
to check with tax advisors before making any investment decisions. Opinions ex-
pressed in these reports may change without prior notice. This memorandum is based
on information available to the public. No representation is made that it is accurate or
complete. This memorandum is not an offer to buy or sell or a solicitation of an offer
to buy or sell the securities mentioned. The investments discussed or recommended in
this report may be unsuitable for investors depending on their specific investment ob-
jectives and financial position. The price or value of the investments to which this re-
port relates, either directly or indirectly, may fall or rise against the interest of inves-
tors. All prices and yields contained in this report are subject to change without notice.
This information is intended for illustrative purposes only. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS.