L a n e A s s e t M a n age m e n t

January 1, 2012 Happy New Year
Market Recap for December 2011 (See
Welcome to my annual yearend summary and forecast. The developed economies in Europe and the U.S. face enormous challenges in the years ahead. Crushing debt on the books, to say nothing of the unrecognized future obligations from entitlement programs, seemingly intractable high unemployment and, especially for the U.S., deteriorated infrastructure and educational systems, all pose seemingly impossible challenges to policy makers. Private sector growth needs to be stimulated, the public sector needs to tighten its belt, and public investments need to be made. These are contradictory objectives giving rise to political gridlock and uncertainty. Yet, despite these headwinds, I firmly believe it is possible to prosper from investments in the years ahead with less angina if we manage expectations and avoid exposure to riskier segments of the market. All best for the New Year. — Ed Lane

2012 Forecast and Stock Market Commentary
momentum through the end of the year. December, like prior months, was a news driven market. Recap for All of 2011 (See the bottom chart on page 3.) 2011 was not a great year for forecasters or money managers. According to Barron’s, their 10 strategists and investment managers had forecast a roughly 10% increase in the S&P 500 for 2011 (with a range of +7% to +17%). Nearly all expected stocks to outperform bonds. According to Goldman Sachs, through midNovember, only 16% of large cap growth fund managers had exceeded their benchmarks and most mutual fund managers had underperformed following similarly disappointing results for 2010. In addition to underestimating the impact of the European debt crisis, analysts also overestimated the path of 10-year Treasury rates. Even PIMCO, the world’s largest bond manager, had forecast higher rates during 2011 for which they apologized to investors in October. On one level, it was understandable that the 2011 forecasts were so off base. As I mention later in my forecast for 2012, the long term trend for equity prices has been about 9.5% if you strip away the bubbles and recessions (see the chart on page 8). Likewise for the path of Treasury rates as they had reached an historic low in December of 2009, a near-historic low again in October 2010, and had bounced back strongly by the end of 2010. Who knew that the situation in Europe would reach a near breaking point and that, despite a downgrade in U.S.Treasuries by Standard and Poor’s, Treasuries would become such a safe haven that 10year rates would establish yet another new near historic low at 1.84%? Well, a few people did. The macroeconomic environment in the U.S. and, especially, in Europe was there for all to see. And Rogoff and Reinhart had made a strong case in their book This Time Is Different, published in late 2009, that credit-induced recessions take many years to unwind. So, what’s different for 2012? Not much really — but we’ll get to that in my 2012 forecast starting on page 4. First, a brief recap of 2011: Perhaps it’s an oversimplification, but as I look back, I see these factors as having borne most heavily on stock market per-

the top chart on page 3.) December was another volatile month for the market as early hopes from the European summit deal (that was the fourth or fifth this year to address the Euro crisis) met the reality of trying to reconcile parochial national interests with those of the European region as a whole. All equity markets sold off as fears of recession increased, not to mention potential European bank failures. Investors crowded into the dollar for safety, driving down gold as well as Treasury rates. Then, the tables turned. Some unexpectedly good economic news with housing starts turning in their best in 19 months, consumer confidence reaching a 7-month high and initial jobless claims remaining below 400,000 in the U.S. while yields on Spanish bonds fell sharply and the ECB increased lending to banks in a record amount. It was all the market needed following two weeks of more depressing news out of Europe as the S&P 500 gained a near daily record of 3% on December 20th and has maintained positive

L a n e A s s e t M a n age m e n t
2012 Forecast and Stock Market Commentary
formance in 2011:

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prior.

inflation fighting and knock-on effects of a slowdown in the developed markets. Oil pretty much followed the equity path as recession fears ebbed and flowed while gold held on to a 10% gain after being up more than 30% earlier in the year. While equities were highly volatile, the aggregate bond index that incorporates both investment grade corporate bonds and U.S.Treasuries turned in a steady and respectable performance, ending the year up over 7%. Though not shown on the next page, low interest rates on shorter term Treasuries held the aggregate bond index back a bit, the net effect of which was that the investment grade corporate bond index outperformed the aggregate index with a total return of over 9%. The bottom line is that the S&P 500 gained 2% on the year, including dividends (the actual index was flat for the year as it does not include dividends) despite rosier expectations at the beginning of the year. Which leads us to what we might expect for next year. ** *** ** (Performance results for exchange-traded funds (ETFs) are used as proxies to the actual indexes unless noted otherwise.)

The driving dynamic was the European debt crisis that was punctuated by partial nationalization of Dexia Bank and the ongoing saga of sovereign default in Greece and other countries in “peripheral” Europe. The debt (and political) crisis in the U.S. seems to have had a much smaller impact, relatively speaking, at least so far. The unemployment picture in the U.S. played prominently in market psychology with a strong early showing for non-farm payrolls followed by poor to mediocre results midyear and later. Through 11 months of 2011, nonfarm payrolls averaged 131,000 on a preliminary basis, at least 20,000 less than what is needed to keep pace with population growth. Corporate earnings exceeded expectations and came in strong throughout the year (according to the BLS, after-tax earnings were up 11% for 2011Q3 vs. a year prior). I believe this was critical for the 2011 market to have performed as well as it did, an important point to keep in mind for 2012. Real GDP has been increasingly positive, though anemic throughout the year, with Q3 GDP about 1.5% above the level a year

Perhaps nothing was more impactful to 2011’s volatile market performance than the role of governments and central banks stepping in when things begin to look most bleak. In the U.S., the Fed introduced “Operation Twist” in September as a follow-on from QE2 that ended in June. In Europe, there were numerous announcements—and some modest steps—to ease the debt crisis there that has been plaguing both sovereigns and banks. The ECB’s lending to banks on favorable terms at the end of December led to a significant year-end market boost.

As shown in the bottom chart on the next page, the markets had a roller-coaster year. The U.S., Europe and emerging markets retained the positive momentum that began in early 2009 all the way through April of 2011 (with a shortlived interruption in April-May 2010). Then, perhaps on account of the increasingly visible weakness in the macroeconomic factors, the market more-or-less drifted for the next couple of months before turning down and becoming quite volatile for the balance of the year as market performance was driven by daily headlines. Emerging markets, led by China and India, fared the worst for 2011 as investors adjusted their enthusiasm from prior years in the face of local

L a n e A s s e t M a n age m e n t
December and All of 2011

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As you view this chart and on the following pages, note that exchange-traded funds (ETFs) are used as proxies for the indicated market indexes since indexes cannot be invested in directly and the ETFs are chosen to be as close as possible to the performance of the indexes while representing a realistic investment opportunity. Prospectuses on these ETFs can be found with an internet search on their symbol. 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
2012 Forecast and Stock Market Commentary
I begin with a forecast of economic conditions followed by a forecast of stock market performance. My forecasts are based on extensive reading of those produced by
To quote from Bob McTeer, former head of the Dallas Fed, “The first rule of forecasting should be don’t do it. Nothing good comes from it. The second rule, is, if you give a number, don’t give a date; or, if you give a date, don’t give a number. My rule, the third rule, is, if you have to do it, do it often.“ I like that third rule best. Like others, I barely missed my 2011 S&P 500 forecast if measured as of the end of April. However, I was way off for the year. So, the lesson is: pay attention to the macroeconomic events that will drive the longer term market performance, but pay even closer attention to the immediate technical outlook if timing is important to you.

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a group of 17 countries that make up the monetary union with a common currency, the Euro. It is primarily within the EZ that the impact of the sovereign and bank debt crisis on the world’s economies is being played out. In a nutshell, as the indebted sovereign nations are less and less able to service their debt and as the bank’s private borrowers default, both entities face an increasingly likely financial collapse. And the problems are not limited to just the EZ countries as others in the EU, Great Britain being a prime example, have similar issues. Given the EU’s global interconnectedness through financing and trade, what happens in the EU has global implications. And, given the severity of the problem, every plausible solution at this stage (debt restructuring, EZ breakup, currency devaluation, fiscal austerity) has negative, potentially disastrous, implications for the European — and the world’s — economy, at least in the short run. So, while Germany and France try to save the Euro and the EZ through more coordinated and tighter fiscal management throughout the EU, this is proving difficult to do on political grounds. Whether or not they are successful (it looks like we will know more toward the middle of 2012), the implications, in the very

best of circumstances, are slower growth in the short run in Europe (many say recession) and knock-on effects throughout the world (if interested, see The Boston Consulting Group’s report for a more in-depth and sobering analysis: http://www.bcg.com/ documents/file94255.pdf ). And that, dear reader, will likely be the story of 2012 (absent a major terrorist attack, war or climatic calamity). Emerging Markets: Despite leading global GDP growth, the main story about emerging markets in 2012 will be the impact on exports they will feel from the slowdown in Europe and the U.S. On the other hand, emerging markets may adopt more accommodative monetary policy coming off successful inflation-fighting actions taken in 2011, offsetting some of the export loss with domestic development. In the long run, it is the general consensus that emerging markets will drive global equity performance. For a while, in the post-tech bubble period of 20012008, it certainly looked that way. Lately, that seems to be less the case.

others overlaid with my own estimate of things to come. Note that forecasters seem to have taken their disappointing 2011 experience to heart by avoiding definitive forecasts and producing more of the “if this...then that” type forecast for 2012. In my book, this is another way of saying “here are the macroeconomic issues to be looking out for; be aware of the big picture but be sensitive to markets as they develop throughout the year; and don’t rely on beginning-of-theyear forecasts, making adjustments accordingly.” Makes sense to me. The Economic Forecast for 2012 The three principal economies driving performance of investment markets are Europe, Emerging Markets (especially Latin America and Asia/Pacific excluding Japan) and the U.S. Europe: The 27 countries of the European Union represent the largest economic block in the world. Within the EU is the Eurozone,

L a n e A s s e t M a n age m e n t
2012 Forecast and Stock Market Commentary
And, on account of corporate globalization, it’s possible that deftness on the part of global corporations in the West may prove to be a more attractive investment opportunity than investing directly in the local EM economies. Time will tell, but it’s food for thought. The United States: In fundamental ways, the financial problems in the U.S. are very much the same as in Europe: high national debt, high unemployment, and political impediments to taking decisive action. In addition, the inevitable slow down/recession in Europe will take a toll on American businesses on account of the impact on exports as well as profits generated from overseas operations. To make matters more difficult, the sources of American business success in 2011 (imported profits from overseas operations, cost cutting through labor reductions, a declining dollar that enhanced exports as well as foreign profits, and stock buybacks) will not be available to nearly the same extent in 2012. On the other hand, the U.S. has advantages that Europe does not have: a single national government that can make sweeping fiscal and regulatory changes when the pressure gets high enough (take the recent two-month tax relief extension, for example) and a central bank that has the proven ability to take decisive and effective action to prevent,
      

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or at least mitigate, a recession or deflation. American businesses have the further advantage of having the strongest balance sheets they’ve had in years. Against that backdrop as well as the presidential election in November, here are my economic forecasts for 2012:

Though all countries will be looking to weaken their currencies to boost exports, the dollar will have a net strengthening as a result of a “flight to quality” and remain the best of a bad lot (of course, all countries can’t be successful in this relative measure).

An unemployment rate that will end the year between 8% and 8.5% Average monthly additions to non-farm payrolls of about 150,000 but generally increasing throughout the year Annual CPI increase of 2.5% measured from 2011Q3 to 2012Q3. Real GDP growth of 1.5%, less if the temporary payroll tax cut and unemployment benefits are not extended for the entire year A decline in corporate after-tax profits to under 8% as reported by the Bureau of Economic Analysis vs. 11% (including certain adjustments) reported for Q3/2011 over Q3/2010, Stabilization in home prices though no real dent in the stock of unsold houses 10-year Treasury rate remains under 2.25% No significant tax reform in 2012, but the promise of action in 2013 as a result of the election process

The preceding forecast assumes there is no financial calamity in the form of a breakup of the Euro or major bank or sovereign failures, nor is there a geopolitical event such as a major terrorist attack or military conflict. The Investment Forecast for 2012 The Equity Markets Before making predictions, let’s start with a few observations: Page 8 shows the total return of the S&P 500 index over the last 30+ years and the last 10.

The longer term chart shows that over extended periods of time, if you ignore the disruption caused by the tech bubble and the “adjustment” that came about as a result of the current recession, the index growth from peak-to-peak and trough-totrough averages roughly 9.5%. This chart also shows that the index generally stays within a range of +/- 12% around its 50week moving average.

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2012 Forecast and Stock Market Commentary

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The shorter term chart shows this pattern in a more magnified manner for the last 10 years. The 9.5% pattern continues, though this trend is shorter and, therefore, less reliable. The charts show a weakening 50-week moving average as well as weakening signals in the bottom graphs (MACD and Full STO (stochastics)).

flat reflecting, I think, anticipation of more subdued future earnings. And, it’s that lowered expectation in the face of a likely global downturn that could restrain equities again in 2012 (it’s impossible to tell how much has already been taken into account). I hate to be a pessimist, but combating the severe state of European and U.S. debt may take a larger toll on equity markets than we have seen so far. Maintaining the long-term 9.5% trend will be more difficult as long as the debt overhang remains with us. For that reason, it is critical that investors manage risk even more tightly in the years ahead. Page 9 shows the relative performance of the Dow Jones European Index and the Morgan Stanley Emerging Market Index relative to the S&P 500 Index. Both charts show relative strength for the S&P 500 and my expectation is that the S&P 500 will continue to outperform Europe and emerging markets for the year. Remember, while Europe appears to be trying to address the problem through fiscal integration and increased liquidity, as of this writing, nothing has been settled and we still seem to be a long way off from reaching a conclusion to the crisis. That said, nothing moves in a straight line and we shouldn’t be too surprised if the strong relative performance of the S&P 500 in recent months has reversals of some magnitude during

the year. My belief in the ultimate outperformance of the U.S. market in 2012/2013 is based not only on the technical analysis, but also on account of a combination of America’s global business orientation (thereby allowing investors to benefit from emerging market GDP growth without having to make riskier direct investments), and the greater concentration of power of its central government and central bank than exists in Europe or the emerging markets. This power will, I hope and believe, manifest itself in a more business friendly environment during the election year and the years that follow, regardless of who wins in November. Eventually, I do expect the international markets, led by emerging markets, to bounce back. I just don’t see it happening in the near future. In terms of domestic sectors, I believe 2012 will turn out much like 2011 in that investors will seek safety in high quality companies with strong balance sheets, growing cash flow and a history of increasing dividends. I’m not prepared to go out on a limb for many sectors, but I expect consumer staples, utilities, health care and non-financial dividend payers to perform well again in 2012 as

Based on this technical analysis and what many believe about the challenges confronting the world’s economies, specifically high debt and unemployment and a lack of consensus on how to address these issues, my forecast for the S&P 500 for 2012 is a range of a positive 4% to 7% (absent a collapse of the Euro or another major economic, geopolitical or climatic calamity, and assuming at least modestly stimulative government policy actions in Europe and the U.S.). A major policy move that floods the market with liquidity and/or a huge government stimulus boost (as unlikely that as that appears to be today) would result in a much higher outcome for the S&P though what it would do to long term debt issues could be more problematic. Ultimately, while there is usually a lot of interim noise, equity prices move on the basis of actual and anticipated corporate earnings. In fact, corporate earnings weren’t half bad in 2011 yet the S&P was

L a n e A s s e t M a n age m e n t
2012 Forecast and Stock Market Commentary
they did last year. I see these as “safe” sectors in a highly uncertain investing climate even if their performance lags the broader S&P index at times. As global growth stabilizes and recovers, technology and consumer discretionary sectors should be among those that begin to outperform. Income-based Markets With the 10-year Treasury rate at 1.9% at year-end, how much lower can interest rates go? The Fed has indicated it won’t be raising short term rates prior to mid-2013, if then. But that doesn’t keep longer term rates from dropping further as investors seek safety in high quality corporate and U.S. Treasury bonds. The charts on page 10 show total return over the last 15 years for the Dow Jones Corporate Bond and the Nuveen Municipal Closed-end Fund Total Return Indexes. Note that over the same period that these indexes had a total return of over 190% and 150%, respectively, the S&P 500 had a total return of 70% (note that these percentages are highly sensitive to their end dates). In 2011, these indexes had a total return of about 8% and 20%, respectively. My forecast for 2012 is that the 10-year Treasury rate will remain under 2.25%, though we can assume it can’t remain that low forever. In the case of the corporate bond index, with a current yield of about 4.5%, a significant portion of total return came from capital appreciation as investors moved into safer investments. Assuming demand for investment grade corporate bonds will be about the same as in 2011, I estimate that the corporate bond index will gain 7-8% in 2012. For municipal bonds, a significant portion of the total return in 2011 was on account of recovery from a negative outlook from a prominent analyst made in late 2010. Also, since the underlying securities to the closed-end fund index use leveraged funds, a portion of the gain can be attributed to current low borrowing rtes. Taking that all into account, I estimate that this index will advance about 6.5% in 2012, about half of which will come from federally tax free yields. A corner of the fixed income market that I believe will do well in 2012 as it did in 2011 is preferred stocks. Since this is a relatively thin market, diversification can be achieved through funds specializing in this area. Commodities and Precious Metals I learned a valuable (read: painful) lesson in 2011 with precious metals. It’s not only that they underperformed my (and popular) expectations (especially silver and platinum), it’s that I saw their price behavior driven by factors that changed virtually overnight (such as revisions to margin require-

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ments, military conflict, financial upheaval, sovereign purchases, speculation, and hype). As 2011 drew to a close, the strengthening of the dollar correlated with a decline in the value of precious metals (a correlation that hasn’t always held up). Assuming this relationship does continue, however, an investment in precious metals would be a hedge against a decline in the value of the dollar. With the financial crisis in Europe likely to continue for awhile longer, I would not be prepared to bet against the dollar as a safe haven at this point. Putting this all together, while I’m aware of studies that indicate gold can enhance returns without added portfolio risk, I see investments in precious metals and commodities more of a trading “play” than a long term investment and would limit investments in these categories to small portions of a portfolio, if that much. ** *** ** 2012 is likely to continue the volatility that marked 2011. I recommend investors keep an eye on technical factors that may signal a reversal in a current trend. Above all else, manage risk carefully and be careful out there.

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2012 Forecast and Stock Market Commentary

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2012 Forecast and Stock Market Commentary

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2012 Forecast and Stock Market Commentary

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L a n e A s s e t M a n age m e n t
S&P 500
Since September 2010, the S&P has been unable to get out of the trading range of roughly 1125 to 1350 (112.5 to 135 for SPY, the ETF that reflects the S&P 500). More recently, the S&P has been trading in the range of roughly 1125 to 1250/1275. Since the essence of technical analysis is to identify a trend or pattern that can be expected to perform in a reliably predictable way, what we have over the last 15 months is a range bound S&P, and an even more narrow range in the last 5 months. Since the moving averages are not now showing a clear trend, my analysis for the S&P is that trading will remain in the narrow band of 1125 to 1275 until the market feels comfortable that the economic crisis — primarily the one in Europe — has been effectively addressed (a sustained breakout above 1275) or not (a sustained breakout below 1125).

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Accordingly, I advise caution in terms of any substantial commitment to owning equities along with an awareness of the volatility that has been with us for the last 5 months and shows no sign yet of abating. For short term traders, I would consider adding risk as the S&P gets closer to the bottom of the range (1125) and shedding risk as it gets closer to the top (1275), which is not too far from where we are at today at the beginning of January. For longer term traders, I would have cautious optimism on the basis of having a likely floor to the S&P around 1125 along with the (hopefully effective) political pressure to resolve the European (and U.S.) debt crisis in coming months.

SPY is an exchange-traded fund designed to match the experience of the S&P 500 total return index. Its prospectus can be found online. 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
European Monetary Union (EMU)

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Following the strong equity recovery from mid-2010 to mid-2011, the EMU bowed to the strains of the sovereign and bank debt crisis that grips Europe. Since reaching its most recent peak at the end of April 2011, the iShares exchange-traded fund EZU has lost over 30% of its value and has been trading in a range of $25 to $33 for the last 5 months. While the moving averages are in a decidedly downward trend, it is interesting to note that both the short term and the long term MACD analyses have been maintaining a neutral stance for the last two months. One positive that can be taken from the chart below is that $25 seems to be a lower bound for the fund and the current price is much closer to that level than the upper bound of the current range at $33. This could provide some support to those who believe European equities have been fully discounted for the current crisis. Given the uncertainty in the Eurozone, the strong trend in the moving averages, and the opportunities in the U.S., I would avoid investments in European equities at the present time for all but the most aggressive portion of a portfolio allocation.

EZU is an exchange-traded fund designed to match the performance of the MSCI European Monetary Union Index. Its prospectus can be found online. 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
Emerging Markets

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The emerging market equities have followed the same path as European equities shown on the prior page and, frankly, the analysis and recommendations here are the same as for European shares. Avoid emerging markets for all but the most aggressive portions of a portfolio; consider additions close to the bottom of the $35 to $42 price channel and lighten exposure closer to the top. The main thing I am looking for in this chart over time, in addition to a sustainable reversal, is a departure from European equity performance that might justify what many analysts believe to be the greater potential of emerging markets. For now, it appears these two markets are in close alignment with very little difference in performance over the last two months and, for that matter, over the last two years.

EEM is an exchange-traded fund designed to match the performance of the MSCI Emerging Markets Index. Its prospectus can be found online. 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
U.S. Aggregate and Corporate Bonds
AGG represents the total return (capital gains and interest income) of a composite of domestic government and investment grade corporate bonds and similar instruments. LQD represents the total return for investment grade corporate bonds alone. Note the initial dip followed by flatness of the performance in late 2010 / early 2011. This corresponds to an increase in interest rates at the time. For December, LQD had another stellar performance with a gain of over 3% as in-

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vestors again sought safety. AGG had a more modest, but still respectable, 1.3% gain for December, held back relative to LQD by the low yielding short term Treasury bills in the portfolio. Last month’s trend reversal appears at this point to have been short-lived. That said, while I believe both LQD and AGG will perform well for 2012, the MACD on both charts is sending out a bit of a warning flag. Eventually, we will be seeing higher interest rates and, when that happens, these funds will likely react as they did in late 2010/early 2011. For now, I would not hesitate to maintain something like a strategic allocation to LQD but would be wary of going beyond that when good income-oriented alternatives are available.

AGG is an exchange-traded fund (ETF) designed to match the experience of the Barclays Capital U.S. Aggregate Bond Index. LQD is an ETF designed to match the experience of the iBoxx Investment Grade Corporate Bond Index. Prospectuses can be found online. 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
Asset Allocation and Relative Performance
Asset allocation is the mechanism investors use to enhance gains and reduce volatility over the long term. Commonly, investors

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choose an allocation that reflects their risk tolerance and reallocate at prescribed times, say, semi-annually or when the actual percentage allocation deviates from the longer-term strategic plan. One useful tool I’ve found for establishing and revising asset allocation comes from observing the relative performance of major asset sectors (and within sectors, as well). The charts below show the relative performance of the S&P 500 (SPY) to an investment grade corporate bond index (LQD) on the left, and SPY to a Vanguard allworld (ex U.S.) index (VEU) on the right. On the left, we can see that the S&P 500 began outperforming bonds in October, although it has been a volatile relationship. While we are still in the early stages of this relative performance, support remains to favor exposure to equities relative to bonds, though not strong enough, in my opinion, to depart far from a strategic long-term allocation. On the right, we see the S&P 500 continuing to outperform the international index, a pattern that began over a year ago, and reinforcing my view that there is no current motivation to holding significant amounts of international equities.

SPY, LQD, and VEU are exchange-traded funds designed to match the experience of the S&P 500 total return index, the iBoxx Investment Grade Corporate Bond Index, and the FTSE Allworld (ex US) index, respectively. Their prospectuses can be found online. Past performance is no guarantee of future results.

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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 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

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 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

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