July 7, 2011

L a n e A s s e t M a n age m e n t
Stock Market Commentary
Market Recap Most of June was marked by increasing concern over the Greek debt crisis and broadly weak economic news (unemployment claims remained high, subdued small business opti

other 9.5% but is showing a great deal of volatility. Bonds ended the month flat.

trend awaiting Junes unemployment data and upcoming 2nd quarter corporate results. If the news is good, there will be time to add risk exposure. If the news is bad, last weeks recovery could disappear quickly. In the end of the day, stock prices move in strong correlation to actual corporate earnings and earnings reports relative to expectations. While the worst of the recession may be behind us, the real question is whether corporate earnings can continue to surprise to the upside in the face of continuing economic headwinds. On account of the weak technical outlook as discussed on the next two pages and the economic outlook just discussed, I would be highly selective in adding equity exposure at this point in time. Here are my suggestions as we sit at the beginning of July:

Economic Outlook The economic outlook is basically unchanged. Employment is weak, manufacturing indices are weak, housing is weak, sovereign debt crises are unresolved, and political pressures call for greater austerity which bodes not too well for jobs and the economy (at least in the short run). These things dont turn around on a dime although something dramatic out of the Europe or Washington (one can hope) could make a heck of a difference in the market. Investment Outlook Last week I suggested taking risk off the table. Despite the bounce last week, I remain cautious. Equity markets remain in a sideways

Last month, I opined that a correction had begun at the beginning of May, triggered by the Greek debt crisis, but waiting to happen. I also indicated that the correction appeared like others over the last 12 months where the market soon recovered, but I had less confidence that the recovery would happen so soon this time. Well, based on the market action in the last week of June (when the Greek problem got resolved, at least temporarily), my timing for the rebound may have been off. But Im not ready to throw in the towel just yet. We still face tremendous economic headwinds and the latest bounce may have just been a technical reaction. 2nd quarter corporate results and the June unemployment report are due out soon. Lets see what they bring. Comments and suggestions are welcome. Ed Lane

mism, declining home sales, weak chain store sales) and continuing deadlock in the U.S. debt discussion. Then, in the final week of the month, the Greek crisis abated (for how long is anyones guess), chain store sales picked up and durable goods orders rebounded. Bottom line was a volatile month for the market:

The S&P rebounded from a 6% earlier loss to close out the month down about 1.8%. Emerging markets recovered half their 6% decline, closing out down 3%. Oil stocks also bounced back while gold sold off at the end of the month on the strengthening dollar. Silver extended its loss an-

High quality, dividend paying common or preferred stocks High grade corporate and government bond funds, both domestic and global; also select high yield bond funds Gold (and silver for the bold among us) For sectors, I like technology and small and mid cap; for regions outside the U.S., I like Malaysia and South Korea. For taxable accounts, municipal bond funds have both attractive yields and the opportunity for capital appreciation. Leveraged closed-end muni funds are worth a special look.

L a n e A s s e t M a n age m e n t
S&P 500 Index
The S&P 500 index is now stuck in a sideways trend around the support/resistance line at 1300. On a technical basis, the 75 and 150-day moving averages have turned slightly negative as they lost momentum from prior months. On the other hand, the MACD (another moving average-based momentum indicator) after weakening through May and most of June is now showing at least a short term reversal. At this point, giving due regard to the economic and political challenges in the U.S. and other developed economies, it is difficult to be enthusiastic about the near term prospects for the S&P 500. I remain with the red light from last month but investors should note that,

Page 2

with our lack of clear trend, a breakout in either direction is certainly possible. If the 75-day moving average crosses over the slower 150-day average, I would become decidedly more negative. Frankly, if we saw a pullback close to 1200, I would consider that a solid line of support and a potential buying opportunity.

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

L a n e A s s e t M a n age m e n t
Morgan Stanley Emerging Market Index
Similar to the S&P 500, the MSCI Emerging Market Index continues to be range bound between 1050 and 1200, unable to bust through the upper bound resistance. Meanwhile, the 75 and 150-day moving averages, which became positive during April, flat-lined again in May with a small downward tilt in June. The top MACD graph below came off the flat line in April and moved decidedly bearish in May while the longer term MACD in the bottom graph has also moved south. Given the generally positive fundamental long term outlook for emerging markets, this may be an opportunity to add to a position for more aggressive investors. On

Page 3

the other hand, the EM customer base in Europe and America is becoming increasingly strained suggesting more cautious investors may want to wait a bit longer for a confirmed move upwards. At this time, I think there are more better places to invest and would not chase emerging markets unless combined with a covered call strategy.

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

L a n e A s s e t M a n age m e n t
Barclays Capital Global Bond Index
The Barclays Capital Global Bond Index represents the total return (capital gains and interest income) of a composite of domestic and international government 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 a steady upward momentum with very low volatility. It should be noted that the performance of the securities in this index have been a beneficiary of declining interest rates and decline in the value of the dollar,

Page 4

producing capital gains along with interest income. Even though todays evidence is to the contrary, with the expectation that interest rates will be rising in the future, that component of the total returns in this index will be harder to achieve in the future. On the other hand, there are other components of total return including higher interest rates abroad and currency movement that can prove beneficial. For the portion of a portfolio where capital preservation has a high degree of importance and also to provide diversification, an allocation to a global bond portfolio may be appropriate. On a technical basis, the 75-day moving average continues to be very positive (and effective as a line of support over the charted period) while the MACD shorter term indicator is showing a little weakness. As it is, this could be a good place to park money peeled off the developed market sector. In that case, I would keep a sharp eye on interest rate movements from here.

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

L a n e A s s e t M a n age m e n t
Gold and Silver
The chart below shows the 5-year monthly performance of gold and silver indexes, along with a comparison of the performance of a U.S. dollar index. The chart shows a generally inverse 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 as did the price of the precious metals. The inverse correlation is understandable as the metals can be

Page 5

seen as an alternative to fiat 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 caused by market and geopolitical uncertainty. If thats 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 or as an alternative to holding dollars. That said, as shown in 2008 and again last month, the value of the metals can be quite volatile and can contract rapidly. In fact, that did occur in silver during May and June. Meanwhile, gold continues its more measured track upward. To me, gold continues to be an attractive investment.

This chart shows the performance of gold and silver indexes created by stockcharts.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.

L a n e A s s e t M a n age m e n t
12-month Index Comparisons
The chart below shows the 12-month performance of selected indexes. Several observations can be made:

Page 6

A high degree of correlation continues to be seen among the equity indices in the U.S., Europe and emerging markets. It remains surprising to me that European stocks continue to perform well given the debt crisis in Greece and other periphery countries. I think hope springs eternal with respect to solving Greeces (and Portugals and Irelands and Italys) debt problems. After an initial spurt, emerging markets have gone essentially nowhere in the last 9 months and have shown greater volatility than either the S&P 500 or European stocks. While oil still out ranks the other indexes for the period shown, it is also more volatile. Given its performance since last November and the stresses in the developed markets, I would be cautious about making a commitment to the oil sector. Global bonds have turned in a respectable performance with low volatility.

Past performance is no guarantee of future results.

L a n e A s s e t M a n age m e n t
Technical Indicators
The following chart from stockcharts.com as of July 6th shows a variety of technical indicators of bullish and bearish outlook on a relatively short term basis. In brief, this chart shows the number of stocks on each exchange and the number of mutual funds that achieve a bullish or bearish signal according to the rule of the specific indicator. Stocks and funds can appear under more than one technical indicator. (Note that exchange-traded and closed-end funds are characterized as equities and are traded mainly on the NYSE, though some trade elsewhere.) Red bars in the bullish scans and green bars in the bearish scans imply the market is moving lower and vice versa. The main takeaway from this chart today is the preponderance of

Page 7

equities and funds that are showing bullish technical signals, a sharp reversal from the picture last month but probably a reflection of the activity in the last week of June (keep in mind this is a short-term observation).

Past performance is no guarantee of future results.

Page 8

L an e A ss et M an ag em ent
Disclosures 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 representatives 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 international and emerging markets may entail additional risks such as currency fluctuation and political instability. 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 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 transaction 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 ones overall risk tolerance and financial objectives. The charts and comments are only the authors view of market activity and arent recommendations to buy or sell any security. Market sectors

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 arent predictive of any future market action rather they only demonstrate the authors opinion as to a range of possibilities 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 contained herein or any decision made or action taken by you or any third party in reliance 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 expressed 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 objectives and financial position. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. 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. 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 feedback 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