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Lane Asset Management Economic and Stock Market Commentary March 2011

Lane Asset Management Economic and Stock Market Commentary March 2011

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Published by eclane
Economic review and stock market commentary
Economic review and stock market commentary

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Published by: eclane on Apr 07, 2011
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Market RecapApologies for being a little late this month with
my commentary. I’ll try to keep this brief.
If it’s not too late to go over the market ex-
perience in February, here is a brief recap(also, see the chart below):
The S&P 500 continued its march upwardbegun last September until it hit a speedbump with the crisis in Libya in the lastweek of the month. The index ended up3.2% for the month.
Emerging markets basically tread water ending down 1% for the month. Weaknesscontinues as many emerging market coun-tries are fighting inflation with fiscal andmonetary tightening.
The global bond index was unchanged for the month reflecting the fact that 10-year 
Treasury bond rates were also unchanged(rising then falling with a renewal of moneyflow into bonds).
It was a strong month for precious metalsand commodities as gold and oil increasedover 5% and silver put in another spectacu-lar performance, gaining over 20% for themonth.Economic Outlook Despite improving consumer confidence andmanufacturing indices, the economic outlook in the U.S. continues to look challenged on thelarger issues of unemployment and housing. Ifear an even larger train coming down thetrack with layoffs at state and local levels,budget reductions at the federal level, increas-ing gas prices and the wind down of QE2, notto mention austerity measures in Europe andinflation in Latin America and Asia.
Stock Market Commentary
March 9, 2011
Lane Asset Management
While I would not sug-gest we are about to ex-perience a second reces-sion, and while I do rec-ognize the improvementthat has been occurringin corporate profits andrevenues, I believe therisks to the market areoverwhelmingly to thedownside.This would be a goodtime to avoid taking onadditional investmentrisk. More conservativeinvestors should consider raising cash levels,though I would do so in ameasured way as long asthe underlying perform-ance trend remains posi-tive.As always, I welcomeyour comments and sug-gestions.
Ed Lane
Investment Outlook Following almost straight up performance sincelast September, not only is the market due for a correction, but economic headwinds and geo-political challenges in the Mideast and else-where present a difficult outlook for most in-vestment sectors. Accordingly, I recommendheightened caution for risk-taking.On the plus side, I would focus on the highestquality dividend-paying equities and sectorsthat will benefit from global tensions, flight toquality, and weakening currencies, such as en-ergy and other commodities, precious metalsand securities that benefit from rising interestrates. Even here, I would be mindful of the po-tential for profit-taking as many of these areashave run up in price.For the more conservative investor, I would beraising cash and examining option strategiesthat will help control downside risk.For taxable portfolios, I would also give consid-eration to a well-diversified municipal bondportfolio. State and local governments are inthe midst of dealing with large budgetary is-sues. Unlike the Federal government, however,
they can’t print money or operate at a deficit.
While defaults may increase, I suspect this issueis overblown and the local governments willwork their way out of the problem over timeeven if they have to do painful cuts along theway. With current tax free yields at 4% or more, and with bond prices depressed, an allo-cation to municipal bonds may prove timely.
The S&P 500 index is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.Page 2
Lane Asset Management
The S&P 500 index experienced a minor correction in November at its previous line of resistance, butbounced back strongly since partly as a result of a reallocation of funds from emerging to the developed mar-kets. On a technical basis, the 75
and 150-day moving averages remain strongly positive although the MACD(another moving average-based momentum indicator) is showing signs of fatigue. The index is now hoveringaround its new technical line of resistance at about 1300 which gives some reason for caution. At this point,giving due regard to the economic headwinds in the U.S. and other developed economies, but also keeping in mind the stronger, but overheat-ing, economies in the emerging markets, it is difficult to be convinced about the sustainability of the current uptrend in the S&P 500. Thecaution light is out and any additional exposure to U.S. equities should be entered into slowly and carefully with the understanding that a pull-back of 10-20% or so would be consistent with the pattern established over the last 18 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.Page 3
Lane Asset Management
The MSCI Emerging Market Index had a setback in November and again in January as a result of concerns of overheating economies and government policy actions to control rising inflation. Large withdrawals fromemerging market funds in January has brought down prices while the infusion to domestic markets had theopposite effect. The 75
and 150-day moving averages have now flattened out while the MACD, a shorter term indicator, began to weaken in mid-October and is yet to turn positive for long (with about the same re-sult for the index). A positive sign is the retention of the breakout above the last support line at 1050 while, on the other hand, 1200 is proving to be a difficult line to break through. Given the generally positive fundamental outlook, this may be an opportunity to
―buy on the dip‖ for more aggressive investors. Others may want to wait a bit longer for a confirmed move upwards. I think 
performance over 
the next couple of weeks will be telling for a longer term commitment and we may now be looking at a ―basing period‖ for the
next move up.
At this time, I suggest investors be cautious of the ―risk 
on‖ trade in emerging markets.
Morgan Stanley Emerging Market Index

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