December 2009
L a n e F i n a n c i a l M a n ag e m e n t
Special points of interest:
 The market continued
its upward trajectory in
November following
October’s breather
 The economic mes-
sages are generally
positive, but major long
-term issues remain
unresolved
 Investing opportunities
are limited. Caution is
advised.
Inside this issue:
The Trend Is Your 1 proof that this investment
Friend
At-a-Glance
2
Economic Recap 3 sion began (or longer, if you
Market Recap 4-5
Technical Analysis 6-8
My Bottom Line 9
Disclosures 10
Stock Market Commentary by Ed Lane
The Trend Is Your Friend
Perhaps you’ve heard this
investing expression before.
In layman’s terms, it means
“go with the flow” and old
hands will remember the
meaning behind “don’t fight
the tape.”
In essence, the implication is
to ignore the “facts” (in
quotes since my facts may
not be your facts) and in-
vest in the direction of ex-
isting momentum — the
theory being that over a
given period of time, secu-
rity prices continue in a sin-
gle direction until the
weight of forces driving the
market changes sufficiently
and the direction reverses.
There may be no better
concept holds water today
than what has happened in
the markets since the reces-
care to look).
But I get ahead of myself.
I’ll explore this topic more
on page 6 and even more in
a special Focus to be distrib-
uted separately.
Here, I’ll briefly remark on
the concept of technical
momentum and relate that
to the market during No-
vember.
Momentum has meaning to
those (like myself) who use
technical analysis to inform
sively oversold, exception-
investment decisions by
ally low interest rates, in-
measuring the rate of
vestors jumping on the
change in closing prices to
bandwagon, geopolitical
detect trend strength and
events, etc., etc.
potential reversal points (it
must be the actuary in me). Taking all that into account,
my momentum indicators
Leaving aside for the time
remained positive in No-
being how momentum is
vember and so went the
expressed and measured
market (even taking into
(there are many ways), the
account the Dubai-related
rationale (at least my ration-
market shock that occurred
ale) for using it to assist in
at the end of the month).
making investment decisions
is that it strips away the Now, be careful. While the
causes of market movement trend in the market contin-
and leaves behind a pictorial ues to be positive, there are
representation of the net many indications that equi-
effect of all forces working ties are reaching an over-
bought condition (yes, I
together. I find that particu-
larly apropos today as there know I’ve said that before)
are so many competing and some of these will be
theories about what is driv- discussed in the pages that
ing the market: excess li- follow. As much as ever,
quidity (one of my favor- investment posture should
ites), corporate earnings, be guided by one’s risk tol-
unemployment, inflation, erance and investment time-
recovery from being exces- frame.
Page 2
L an e F in anc i a l M ana ge me nt
At-a-Glance
Here is a one page summary of this month’s
market commentary:
The Economy
The economy has had its ups and downs:
 The unemployment rate rose to 10.2%
while new initial claims for jobless insur-
ance continued to decline
 Consumer confidence, which is strongly
Nothing succeeds like
correlated with consumer spending, has
the appearance of suc-
moved sideways since Spring and remains
cess.
well below pre-recession levels
— Christopher Lasch,
 The Federal Reserve indicated it would
author
hold interest rates low with no foresee-
able plans for an increase while the 3rd
quarter GDP was restated downwards
from 3.5% to 2.8% (recall even that gain
was largely a result of stimulus payments
of one kind or another in the first place)
 The Conference Board’s Index of Leading
Indicators continues to show improve-
ment with a strong showing from the
stock market and money supply compo-
nents (the former is fragile and depend-
ent on the latter, which itself may lack
sustainability given that a primary source
is government stimulus).
The Market
Here the news is mostly positive, if shaky:
 After October’s pause, November con-
tinued the upward trajectory begun last
March
 While technical momentum indicators
are still positive, they also give the ap-
pearance of running out of steam
 The reaction to Dubai’s plan to delay
debt repayment shook the market at
the end of November illustrating, I be-
lieve, the knife’s edge on which the eq-
uity markets rest
 Emerging market equities reacted even
more negatively to the Dubai announce-
ment than did developed markets
(following an correspondingly sharper
rise in preceding months)
 Gold, other precious metals, and do-
mestic and foreign fixed income funds
continue to show strength, possibly as
safe havens for those looking to protect
2009 equity gains.
The Current Opportunities
 Opportunities depend on risk tolerance
and investment horizon
 Over the next year, income-producing
investments appear most secure
 Longer term, best bets are Asia (ex Ja-
pan), emerging markets, building materi-
als and technology.
My Bottom Line
I remain concerned about the prospects for
the U.S. economy over the next several
years but cautiously optimistic about the
market as long as positive momentum holds.
That said, there seems to be a growing con-
sensus that the market has gotten ahead of
itself. The sharp impact of Dubai’s recent
announcement illustrates the market’s fragil-
ity — whether or not it portends more
negative surprises to come.
Page 3
L an e F in anc i a l M ana ge me nt
Economic Recap
In general, the economic news for the month early-September of last year and are
was positive, but the end of the month down sharply from the peak reached in
brought a shocker. March.

The good news:

 The recession in U.S. factory sector ac-

tivity is over (at least for now), according
to the data from the National Associa-
tion of Purchasing Management which
rose to 55.7, its highest level since April
2006.

 The Chicago Purchasing Managers' Asso-

Statistics: The only sci-
ence that enables dif-
ferent experts using the
same figures to draw
different conclusions.
— Evan Esar,
American Humorist
 The gain in U.S. labor productivity im-
 According to the Organization of Eco-
 The Labor Department reported during
ciation reported that its November Busi-
ness Barometer improved to the highest ...and the not so good:
level since August of last year. According
 The second estimate of 3Q U.S. eco-
to Haver Analytics, during the last ten
nomic growth was lowered from the
years there has been a 72% correlation
advance report due to slower growth in
between the Business Barometer and the
domestic demand and greater deteriora-
three-month change in factory sector
tion in the foreign trade deficit.
industrial production.
 Consumer sentiment declined again in
early November, falling from October's
provement in the 3rd quarter was its
70.6 to 66.0, measured by the Reuters/
strongest showing in six years.
University of Michigan Index of Con-
sumer Sentiment.
nomic Cooperation and Development
 The November event with the greatest
(OECD), composite leading indicators
potential impact on markets was Dubai’s
for September 2009 point strongly to
announcement of its plan to request a
growth in Italy, France, United Kingdom
standstill in its debt repayment. The
and China, while tentative signals of ex-
action called into question not only the
pansion have emerged in Canada and
financial stability of Dubai, but of emerg-
Germany. A recovery is clearly visible in
ing markets generally (a reaction that I
the United States, Japan and all other
believe is overblown in most, but not
OECD economies and major non-OECD
necessarily all, cases). What’s not clear
economies.
is whether this is the proverbial “canary
in the coal mine,” or no more than an
the month that claims for unemployment isolated and temporary shock as it ap-
insurance fell to their lowest level since pears to be as we enter December.
Page 4
L an e F in anc i a l M ana ge me nt
Market Recap
In the chart below, we see the year-to-date
performance of several exchange-traded and
closed-end funds representing selected in-
vestment sectors.
In June, August and again in October, there
were relatively short-lived corrections on
the continued advance upward. Since I ad-
mit to my reservations about the substance
and potential extent of the economic recov-
Be thankful we're not
ery in the U.S., I see these minor correc-
getting all the govern-
tions as warning signals of a fragile market.
ment we're paying for.
In November, upward momentum contin-
— Will Rogers
ued until the Dubai announcement the day
after Thanksgiving. Notice the sharper de-
cline in Asia (ex Japan) and Emerging Mar-
kets compared to the developed markets in
the U.S. and Europe which I believe is due
A prospectus for the above funds can be obtained through this website:
http://moneycentral.msn.com/investor/research/etfs.aspx
more to profit-taking than as an indication of
fundamental weakness in these markets.
Notice also, the essential lack of reaction to
the Dubai Announcement in the fixed income
space — corporate and high-yield bonds —
where there is some evidence of a flight to
safety. In fact, I would not be surprised to
see this transition continue through the bal-
ance of the year as 2009 gains are locked in
by investors and fund managers.
Though it is too early to see hard evidence of
this in the equity performance below, David
Rosenberg of Gluskin Scheff reports that
“over the past six months, U.S. investors
have put a net $26 billion into equity funds
while plowing $254 billion into bond/hybrid
funds.”
Page 5
L an e F in anc i a l M ana ge me nt
Market Recap (cont.)

Looking at selected bellwethers in the chart  The Consumer Discretionary sector is

below:
 Gold, global building materials and tech-
nology continue to demonstrate strong
momentum and, at least so far, are unaf-
fected by the Dubai announcement
 Financials and real estate seem the most
precarious where both have trended
I think we agree, the sideways for the last four months
past is over.
showing surprising (at first blush) steady
upward momentum. A look behind the
scenes, however, shows that companies
the likes of McDonald’s, Walt Disney,
Comcast, Amazon and Target are
among the top holdings — not really
high-priced product companies — mak-
ing the sector’s performance more un-
derstandable.

— George W. Bush

A prospectus for the above funds can be obtained through this website:
http://moneycentral.msn.com/investor/research/etfs.aspx
Page 6
L an e F in anc i a l M ana ge me nt
Technical Analysis
Quoting from the Journal of Indexes regard-
ing investment in currencies but applicable
to other investments: “Fundamental analysis
explains currency movement in terms of
macroeconomic variables such as growth,
inflation, monetary policy, etc. One of the
weaknesses of fundamental analysis is that it
says very little about the timing of moves
and risk management.
Timing is an important part of risk manage-
ment. Even rudimentary technical analysis
can help investors fine-tune their entrance
into an investment and help quantify the
Experience is a hard
risk. Monitoring the price action itself will
teacher because she
likely reveal a higher probability of success-
gives the test first, the
ful opportunities….”
lesson afterwards.
I agree. Here is a brief technical analysis for
— Vernon Sanders
December:
Law, retired Major
League Baseball pitcher On the chart of the S&P 500 index on the
top of the next page:
 Momentum, as measured by 75- and
150-day exponential moving averages
(EMA), remains positive.
 The spread between the daily price and
the 75-day EMA is narrowing such that a
relatively small correction would begin
to violate that indicator. This would not
be too difficult a feat and the narrow
spread begins to raise a warning flag.
 The MACD (another indicator used to
measure direction and strength of mo-
mentum) accurately showed an extreme
oversold situation last November and
again in March. In June, MACD showed
the beginnings of a market reversal but
turned back north in July. At the begin-
ning of October, the indicator began to
change course and appears to be weak-
ening once again.
 The resistance line at 1000 has been
handily exceeded and now forms a sup-
port to a potential correction.
The second chart shows comparable infor-
mation for the MSCI Emerging Markets in-
dex. Notice the even more positive indica-
tions of the EMAs on this chart. The resis-
tance line at 950 was broken twice in No-
vember as the index struggles to get by.
On the top of page 8, another chart shows a
nearly 30-year weekly measure of the per-
centage change in the S&P 500 index along
with a 45-week EMA. Notice how well the
percentage change continues its progress in
a given direction as long as the slope of the
EMA does not change. While past perform-
ance is not a guarantee of future results,
buying and selling at the inflection points
would have produced returns much better
than a buy-and-hold.
On page 8, we have a chart illustrating the
performance of the S&P 500 index (in black)
compared to the percentage of stocks
within the index that are above their 150-
day moving average (in red). Being above
90% has been a warning signal of potential
correction. This past month, the percent-
age has dropped to about 85%, letting some
steam off. If past is prologue, and it is not
necessarily so, we can expect a further de-
cline in the not-too-distant future.
Page 7
L an e F in anc i a l M ana ge me nt
Technical Analysis (cont.)

The secret to creativ-

ity is knowing how to
hide your sources.

— Albert Einstein

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes which cannot be invested into
directly. Past performance is no guarantee of future results.
Page 8
L an e F in anc i a l M ana ge me nt
Technical Analysis (cont.)

Don't gamble; take all

your savings and buy
some good stock and
hold it till it goes up,
then sell it. If it don't
go up, don't buy it.

— Will Rogers

The S&P 500 is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of
future results.
Page 9
L an e F in anc i a l M ana ge me nt
My Bottom Line
I remain concerned about the U.S. economy
and cautiously optimistic about the market.
Here’s why I’m concerned about the econ-
omy:
 The employment situation remains bleak
and there does not appear to be forth-
coming the structural industrial changes
needed to absorb the unemployment
overhang on a long term basis. Current
My dog is worried about
government stimulus, and fiscal and
the economy because
monetary policies generally, while help-
Alpo is up to 99 cents a
ful to many, will not cause the “escape
can. That's almost $7.00
velocity” for sustained economic
in dog money.
growth. In other words, domestic
— Joe Weinstein, author growth seems to be built on a combina-
tion of government stimulus, a weak
dollar, and cost cutting, none of which
are sustainable over the long term.
 While the period since March was char-
acterized as a return to risk as a flood
of cash flowed into equities and lower
grade fixed income securities, that pat-
tern may now be reversing (for exam-
ple, PIMCO increased holdings of gov-
ernment bonds in its very successful
Total Return Fund to 63%, its highest
proportion since mid-2004).
 Technical indicators, still showing posi-
tive momentum, seem to be running out
of steam. Admittedly, we have seen this
pattern several times since March.
 The Fed’s recent announcement to keep
interest rates low for the foreseeable
future suggests a low opinion of self-
sustaining economic growth. In fact, as
reported by the investment manage-
ment firm Gluskin Sheff, “just go to the
Federal Open Market Committee
(FOMC) minutes and see the wide di-
vergence of views over the macro out-
look, and this is coming from 17 of the
nation’s top policymakers who also os-
tensibly keep in touch with each other.
The range on 2010 GDP estimates is:
2.0% to 4.0%; for 2011, 2.5% to 4.6%,
and 2.8% to 5.0% for 2012. These two
percentage points are huge…”.
And here’s why I’m cautiously optimistic
about the market:
 The stock market is much broader than
the U.S. economy and there are many
opportunities for diversification.
 Continuing dollar weakness enhances
certain international markets as well as
reportable profits for U.S. companies
with overseas operations.
 The flood of cash from stimulus pro-
grams worldwide not only stimulates
economic activity, but demonstrates the
commitment that exists to avoid further
catastrophe.
 Emerging economies are beginning to
reduce dependencies on export led
growth.
Conservative investors and that portion of
portfolios that represents shorter-term in-
vestment should consider higher grade do-
mestic and foreign income producing secu-
rities. While a longer term or more risky
focus might look to emerging markets, tech-
nology, and infrastructure/building materials,
immediate caution is advised as these mar-
kets may be in the process of “catching their
breath.”
Page 10
L an e F in anc i a l M ana ge me nt
Disclosures
Lane Financial Management is a Registered Investment Adviser with the States of NY, CT
and NJ. Advisory services are only offered to clients or prospective clients where Lane
Financial Management and its representatives are properly licensed or exempted.

No advice may be rendered by Lane Financial Management unless a client service agree-
ment is in place.

Stock investing involves risk including loss of principal. Investing in international and
emerging markets may entail additional risks such as currency fluctuation and political in-
stability. Investing in small-cap stocks includes specific risks such as greater volatility and
potentially less liquidity. Small-cap stocks may be subject to higher degree of risk than
more established companies’ securities. The illiquidity of the small-cap market may ad-
versely affect the value of these investments.
In the eyes of public
opinion, the contrarian Investors should consider the investment objectives, risks, and charges and expenses of
investor faces a lose- mutual funds and exchange-traded funds carefully for a full background on the possibility
lose proposition. When that a more suitable securities transaction may exist. The prospectus contains this and
contrarian approaches other information. A prospectus for all funds is available from Lane Financial Management
fail to keep pace with or your financial advisor and should be read carefully before investing.
the current market
darling, more- Note that indexes cannot be invested in directly and their performance may or may not
fashionable players correspond to securities intended to represent these sectors.
mock the out-of-step
thinker. When con- Investors should carefully review their financial situation, making sure their cash flow needs
trarian approaches sur- for the next 3-5 years are secure with a margin for error. Beyond that, the degree of risk
pass the alternatives, taken in a portfolio should be commensurate with one’s overall risk tolerance and financial
consensus-oriented objectives.
players decry the irre-
sponsibility of the un-
conventional inves- Periodically, I will prepare a Commentary focusing on a specific investment issue. Please
tor.
let me know if there is one of interest to you. As always, I appreciate your feedback and
— David Swenson, look forward to addressing any questions you may have. You can find me at::
Yale University Endow- www.LaneFinancialManagement.com
ment Fund Portfolio Edward.Lane@LaneFinancialManagement.com
Manager

Lane Financial Management

P.O. Box 666
Stone Ridge, NY 12484
917-575-0299

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