illusory wealth has been eliminated, there are fewoptions to restore domestic economic growth.Those depending on the extension of the tax cutswill be disappointed, I believe, since no additionalwealth creation will occur upon passage (perhaps
avoidance of some wealth “destruction” if the
wealthy participate in the extension might help, butI doubt it). If Washington avoids making bold in-vestments (such as those being by our competitorsin Asia and Latin America), as I regret they probablywill given the outcome of the election, organicgrowth in the U.S. will, at best, continue to be of the green shoot variety. that is, modest best.On the other hand, and this is important for inves-tors, the Emerging Market world in Eastern Europe,Latin America and, especially, Asia (excluding Japan)are not hamstrung by the same political and eco-nomic issues that affect the U.S. As a result, invest-ments in those countries are being made, buildingnational income in the doing as well as laying thegroundwork for economic strength in the future.
I see the investment outlook as follows:
For U.S. equities, the picture is not as bleak asthe economy since domestic companies are tak-ing advantage of foreign, especially emerging,markets. I recently heard that now nearly 50%of profits of large and medium U.S. companies,up from 40%, come from overseas. The growthin those economies and the decline in the dollarboth contribute to higher profits for domestic
Stock Market Commentary
November 4, 2010
Lane Asset Management
Bubbles. Are we in one?The S&P had a another goodmonth in October and isnow over 6% up for the yeardespite gloom and doom re-ports about the U.S. econ-omy. The gold index is upover 23% for the year andnearly 80% over the last twoyears. While there are mar-ket analysts that say we arein a bubble and this cannot
last, they’ve been saying that
for a while. While I do takeheed of these comments, abetter approach for invest-ing, I think, puts greater em-phasis on technical analysis.As always, I welcome yourcomments and suggestions.
companies. Ultra low interest rates in the U.S.also enable companies to borrow to repurchaseshares, thus boosting per share earnings at lowcost.
As strong as U.S. companies are, growth inEmerging Markets, especially Asia (ex Japan) con-
tinues unabated. From PIMCO, “Many corpora-
tions in emerging Asia are global market leadersand have demonstrated a strong track record of withstanding economic cycles. In addition, manyoffer attractive yields and risk-
The QE2 announcement strengthens the casefor a continuing decline in the value of the dollar(as if one was needed). Therefore, commodities,especially precious metals, will continue to dowell though there is the potential for periodicpullback as investors take profits.
I am turning cautious for investments in the in-come-oriented space as bond yields move closerto lower bound. Better opportunities can befound in global preferred stocks and master lim-ited partnerships.All in all, I am a little cautious if only because themarket has had such a strong advance since the be-ginning of September wiping out the May-Juneswoon. The charts on the following pages provideselected technical analysis of these markets. As al-ways, investments carry a degree of risk. Technicalanalysis, though not perfect, can be very helpful inthe decision-making process by showing underlyingtrends irrespective of market commentary.