Lane Asset Management Stock Market October 2010

8/8/2019 Lane Asset Management Stock Market October 2010

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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.



The S&P 500 index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.

Lane 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



The MSCI Emerging Markets index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.


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



The Dow Jones South Asia index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.


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



The Barclays Capital Bond — Global Index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.


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



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.


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



Past performance is no guarantee of future results.


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



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


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

[email protected]

Edward Lane


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.

http://www.lanefinancialmanagement.com/


mailto:[email protected]




Lane Asset Management Stock Market October 2010

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