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Tim Hayes, CMT, Chief Investment Strategist
GLOBAL STRATEGY AND OUTLOOK…WITH 11 QUESTIONS FOR '11
Kathrein & Co. Private Bankers Lunch | January 2011
Ned DavisResearch
Group
Please see important disclosures at the end of this document.Ned Davis Research Group
CURRENT POSITIONS AND OUTLOOK
� Overweight stocks, underweight bonds.
� Overweight U.S. and emerging markets … for now.
� Mid-year peak likely, watch for: » Divergences. » Interest rate pressures. » Worsening valuations.
� Cyclical bear to develop in second half.
� Secular trends to persist. » Bears in western developed markets.
» Bulls in emerging markets, commodities.
� Objective models and rankings to drive allocation recommendations.
Please see important disclosures at the end of this document.Ned Davis Research Group
1
Monthly Data 7/31/1998 - 12/31/2010
(IE255)
12/31/2010 = 57.3
Seasonally Adjusted
JPMorgan Global Services Business Activity Index
Activity Expanding
Activity Contracting37
40
43
46
49
52
56
60
64
37
40
43
46
49
52
56
60
64
Monthly Point Change
12/31/2010 = 2.7-6-5-4-3-2-10123456
-6-5-4-3-2-10123456
Year-to-Year Point Change
12/31/2010 = 5.4Source: Haver Analytics/JPMorgan and Markit-18-15-12-9-6-30369
1215
-18-15-12-9-6-30369
1215
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
JPMorgan Global Services PMITM Monthly Data 1/31/1972 - 11/30/2010 (Log Scale)
(IE460)
Goods Exports as of 11/30/2010Country ExportsChina 145.30 ( )Germany 114.13 ( )U.S. 112.30 ( )Japan 66.64 ( )France 47.79 ( )
1.82.02.22.52.93.33.74.24.75.46.16.97.88.8
10.011.312.814.516.518.621.123.927.130.734.739.344.650.557.264.773.383.094.0
106.5120.6136.6
1.82.02.22.52.93.33.74.24.75.46.16.97.88.8
10.011.312.814.516.518.621.123.927.130.734.739.344.650.557.264.773.383.094.0
106.5120.6136.6In $ Billions
Seasonally AdjustedSource: Haver Analytics1.8
2.02.22.52.93.33.74.24.75.46.16.97.88.8
10.011.312.814.516.518.621.123.927.130.734.739.344.650.557.264.773.383.094.0
106.5120.6136.6
1.82.02.22.52.93.33.74.24.75.46.16.97.88.8
10.011.312.814.516.518.621.123.927.130.734.739.344.650.557.264.773.383.094.0
106.5120.6136.6
1975 1980 1985 1990 1995 2000 2005 2010
Goods Exports for Selected Countries I
WILL GLOBAL EXPANSION PERSIST?Yes, moderating later.1
global trade expanding
Please see important disclosures at the end of this document.Ned Davis Research Group
2
Monthly Data 6/30/1928 - 12/31/2010 (Log Scale)
(S0237A)
Standard & Poor's 500 Stock Index
Dashed lines = NDR-defined bearmarket bottoms after ten biggestDJIA percent declines.
Shaded AreasRepresent SecularBear Markets
69
1422355485
132207323505789
1233
69
1422355485
132207323505789
1233
S&P 500 Volatility Index100-Day Average of Absolute Change in
S&P 500 Index (Monthly Average)
0.40.60.81.01.21.41.61.82.02.22.42.62.8
0.40.60.81.01.21.41.61.82.02.22.42.62.8
Equity Risk Premium Proxy(Moody Baa Bond Yield minus
Long-Term Treasury Yield)
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
S&P 500, Volatility, & Credit Spread
RISK OF '08 - '09 RE-RUN?Low.2
Mean
Mean
Please see important disclosures at the end of this document.Ned Davis Research Group
3
(S01800)
Yearly Data 12/31/1900 - 12/31/2010 (Log Scale)
4774
116182286450706
11101743273843016756
10613
4774
116182286450706
11101743273843016756
10613
*
Mean (dashed line) = 0.97%
DJIA Annual Standard Deviation of Daily Returns* Latest Bar Reflects Data as of 12/31/2010
1
2
3
1
2
3
Mean (dashed line) = 6.8
*
Number of 5% DJIA Reversals per Year* Latest Bar Reflects Data as of 12/31/2010
2468
101214161820222426
2468
101214161820222426
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Average Volatility Per Year
Copyright 2010 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved..www.ndr.com/vendorinfo/. For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at
(S0239)
Daily Data 2/20/1928 - 1/14/2011 (Log Scale)
69
132029436393
135198288421613893
1302
69
132029436393
135198288421613893
1302S&P 500 Index Mean Days Without Corrections
5% 10% 20%(Clip 2) (Clip 3) (Clip 4)
Secular Bulls 84 330 1105Secular Bears 32 94 485All Periods 50 160 628Current Case 99 137 470
Shaded Areas = Secular Bear MarketsNumber of Days Without a 5% Correction
60120180240300360
60120180240300360
1/14/2011 = 99 Days
500
1000
1500
500
1000
1500Number of Days Without a 10% Correction 1/14/2011 = 137 Days
50010001500200025003000
50010001500200025003000
Number of Days Without a 20% Correction 1/14/2011 = 470 Days1933
1938
1943
1948
1953
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
2008
S&P 500: Number of Days Without 5%, 10%, and 20% CorrectionsNew Chart
A MORE NORMAL '11?Yes.3
past due now
past due in
2h
Please see important disclosures at the end of this document.Ned Davis Research Group
4
(S094)
Daily Data 1/14/2009 - 1/14/2011 (Log Scale)
946.21
1150.23
1217.28
1117.511127.79
1225.85
805.22
676.53
879.13
1025.21
1056.74 1050.47
1022.58
1047.22
1178.34
882.88
S&P 500 Gain/Annum When:11/11/1929 - 1/14/2011
200-Day Moving Gain/ %Average: Annum of Time* Is Rising 7. 8 67. 5
Is Falling 0. 2 32. 5
Moving average directionbased on reversalsof 0.5% or greater.
S&P 500 (Solid Line) = 1293.24
200-Day MA (Dashed Line) = 1151.63
200-Day MA is Rising
680695711728745762780798816835854874894915936958980
100310261050107410991125115111771205123312611290
680695711728745762780798816835854874894915936958980
100310261050107410991125115111771205123312611290
F M A M J J A S O N D J2010
F M A M J J A S O N D J2011
S&P 500 vs. 200-Day Moving Average
(SSF10_11A_C)
2011-2012 Cycle CompositeEqually-Weighted:
One-Year Seasonal CycleFour-Year Presidential Cycle
10-Year Decennial Cycle
Based On Daily Data1/3/1928 - 11/18/2010 Line represents cumulative percent gain.
Trend is more important than level.100.2100.5100.8101.1101.4101.7102.0102.3102.6102.9103.2103.5103.8104.1104.4104.7105.0105.3105.6105.9106.2106.5106.8107.1107.4107.7108.0108.3108.6108.9109.2109.5109.8
100.2100.5100.8101.1101.4101.7102.0102.3102.6102.9103.2103.5103.8104.1104.4104.7105.0105.3105.6105.9106.2106.5106.8107.1107.4107.7108.0108.3108.6108.9109.2109.5109.8
J2011
F M A M J J A S O N D J2012
F M A M J J A S O N D
S&P 500 Cycle Composite For 2011 And 2012
CYCLICAL BULL MARKET PEAK?Overdue.4
201120102009 2012
cyclical bear market?
cycl
ical
Bul
l mar
ket
Please see important disclosures at the end of this document.Ned Davis Research Group
5
Weekly Data 1/05/1990 - 1/14/2011
(B480)
Real Bond Yields 1/14/2011Country Yields (%)U.S. 1.85 ( )Germany 1.33 ( )Canada 1.27 ( )Japan 1.10 ( )U.K. 0.31 ( )
-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.82.12.42.73.03.33.63.94.24.54.85.15.45.76.06.36.66.97.27.57.88.18.48.79.09.3
-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.82.12.42.73.03.33.63.94.24.54.85.15.45.76.06.36.66.97.27.57.88.18.48.79.09.3
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
10-Year Government Bellwether Real Bond Yields
(S0947)
Daily Data 1/02/1963 - 1/14/2011 (Log Scale)
S&P 500 Index
6685
111144187243316411534695903
11741526
6685
111144187243316411534695903
11741526
10-Year Treasury Note Yield (%)
3456789
101112131415
3456789
101112131415
1/14/2011 = 0.47
Rolling One-Year (252-Day) Correlation Coefficient:S&P 500 Daily % Change vs. 10-Year T-Note Yield Daily % Change
Stock Prices And Bond Yields Move In Opposite Directions
Stock Prices And Bond YieldsMove In Same Direction
-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.6
-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.6
1967
1972
1977
1982
1987
1992
1997
2002
2007
Stock/Bond Rolling One-Year Correlation
GROWTH-DRIVEN ADVANCE LEADING TO RATE-DRIVEN DESCENT?
Likely.5
problem area?
Please see important disclosures at the end of this document.Ned Davis Research Group
6
Monthly Data 1/31/1991 - 12/31/2010
(IE703)
Brazil 12/31/2010 = 5.9%
HyperinflationFrom 1/31/1991 to 5/31/1995
Gain/Annum = 833.6%
48
121620242832
48
121620242832
Russia 12/31/2010 = 8.8%
20
40
60
80
100
120
20
40
60
80
100
120
India* 12/31/2010 = 8.4%*Wholesale Price Index
02468
10121416
02468
10121416
China 11/30/2010 = 5.1%Source: Haver Analytics
048
1216202428
048
1216202428
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
CPI For BRIC Economies (Year-to-Year Changes)
(IE15000)
Monthly Data 1/31/1985 - 11/30/2010
Industrial ProductionValue Added
Smoothed Year-to-Year Change11/30/2010 = 13.23%
( )
Prime Lending Rate11/30/2010 = 5.56%
( )
Consumer Price IndexYear-to-Year Change11/30/2010 = 5.1%
( )
%
Source: Haver Analytics-2-10123456789
10111213141516171819202122232425262728
-2-10123456789
10111213141516171819202122232425262728
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Chinese Economic Factors
WILL BRICS WITHSTAND INFLATION?Cyclical threat, not secular.6
Please see important disclosures at the end of this document.Ned Davis Research Group
7
WHICH MARKETS WILL BE FIRST TO DIVERGE?Watch emerging markets.7
NDR RANKS & BULL MARKET PERFORMANCE (AS OF JANUARY 14, 2011)
Region
NDR Equity Allocation Model Ranking (40%
Internal, 60% External) Trough Date High DateBull Market
% Gain CountryNDR Global Market Ranking
(Momentum-Based) Trough Date High DateBull Market
% Gain
Emerging Markets 2 10/27/08 1/4/11 116.5 South Korea 6 10/24/08 1/14/11 124.6
United States 1 3/9/09 New High 91.4 Denmark 12 3/6/09 1/11/11 121.8
United Kingdom 4 3/3/09 1/12/11 72.4 Taiwan 17 11/20/08 1/3/11 120.7
Pacific ex. Japan 3 3/9/09 11/8/10 71.6 Sweden 14 11/21/08 1/3/11 112.9
Europe ex. U.K. 6 3/9/09 4/15/10 67.2 Czech Republic 31 2/18/09 4/26/10 109.2
Japan 5 3/12/09 4/15/10 45.0 Austria 22 3/9/09 1/3/11 109.1
NDR Global Market Ranking Trough High Bull Market Venezuela 32 12/16/08 11/3/10 99.8
Country (Momentum-Based) Date Date % Gain Greece 42 3/9/09 10/14/09 97.1
Sri Lanka 1 12/30/08 10/1/10 380.5 Germany 21 3/6/09 New High 93.1
Argentina 2 11/21/08 1/3/11 337.7 Finland 19 3/6/09 1/12/11 92.1
Peru 3 10/27/08 1/3/11 291.6 U.S. 20 3/9/09 New High 91.2
Indonesia 9 10/28/08 12/9/10 240.7 Malaysia 11 10/29/08 1/17/11 89.8
Thailand 4 10/29/08 1/6/11 173.6 Italy 33 3/9/09 10/19/09 88.2
China N/A 10/27/08 11/8/10 169.3 South Africa 13 11/20/08 1/14/11 83.3
India 35 3/9/09 11/5/10 167.8 Ireland 41 3/9/09 4/26/10 82.5
Hungary 40 3/12/09 4/6/10 167.6 Netherlands 27 3/5/09 1/12/11 81.6
Russia N/A 10/24/08 1/12/11 166.0 Canada 23 3/9/09 1/14/11 77.9
Philippines 7 10/28/08 11/4/10 158.0 Belgium 37 3/6/09 4/14/10 77.9
Colombia 10 10/27/08 11/5/10 152.0 Spain 36 3/9/09 1/6/10 77.7
Norway 8 11/21/08 1/12/11 150.5 U.K. 26 3/3/09 1/12/11 72.3
Brazil 28 10/27/08 11/4/10 148.0 Switzerland 38 3/9/09 4/15/10 69.1
Israel 16 11/23/08 1/16/11 141.0 Australia 34 3/6/09 4/15/10 61.5
Mexico 18 10/27/08 1/5/11 129.1 France 29 3/9/09 4/15/10 61.4
Singapore 24 3/9/09 11/9/10 127.4 Portugal N/A 3/3/09 1/8/10 50.4
Hong Kong 15 10/27/08 11/8/10 126.6 Japan 39 3/12/09 4/15/10 42.5
Chile 5 10/10/08 1/5/11 126.6 New Zealand 30 3/3/09 1/13/11 39.5
Poland 25 2/17/09 1/3/11 125.6
Regional and China, Russia, and Portugal indices are MSCI local price index. All other indices are priced in local currency and can be found in report ICS_1. N/A = not included in ranking. Bold = emerging market.
Ned Davis Research, Inc. T_STH11_01.1
overw
eig
ht
underw
eig
ht
Please see important disclosures at the end of this document.Ned Davis Research Group
8
Monthly Data 2/28/1966 - 12/31/2010
(STH11_01A_C)
Bear Bull BearUnemployment Rate
4
5
6
7
8
9
10
4
5
6
7
8
9
10
Consumer Confidence
Source: Conference Board30405060708090
100110120130140
30405060708090
100110120130140
Federal Budget Deficit/Surplusas a % of Nominal GDP
-10-9-8-7-6-5-4-3-2-10123
-10-9-8-7-6-5-4-3-2-10123
1970 1975 1980 1985 1990 1995 2000 2005 2010
Secular ComparisonDaily Data 1/14/1982 - 1/14/2011
(I 119A)
S&P 500 Total Return IndexLog Scale Right
( )
138166200241291350422508612737888
1070128915531871225327153270
MSCI EAFE Total Return Index(U.S. Dollars)Log Scale Left
( )
Source: MSCI194233280336403484580697836
100412051446173520832500300136024323
Ratio moving up =S&P 500 Relative Strength
Ratio moving down =EAFE Relative Strength
S&P 500/EAFE Ratio ( )200-Day MA ( )
60708090
100110120130140150160170180190
60708090
100110120130140150160170180190
1987
1992
1997
2002
2007
Ratio of S&P 500 to EAFE Gain/Annum When:
200-Day Moving Gain/ %Average: Annum of Time* Is Rising 6. 9 51. 0
Is Falling -4. 9 49. 0
Moving average direction based on reversalsof 0.5% or greater.
S&P 500 Total Return Index vs. EAFE Total Return Index
Relative Strength -- Ratio of S&P 500 to EAFE
WILL U.S. OUTPERFORM ALL YEAR?Not with secular bear persisting.8
Please see important disclosures at the end of this document.Ned Davis Research Group
9
STH11_01B_C
Monthly Data 1/31/1998 - 12/31/2010 (Log Scale)
2.372.502.632.772.913.063.213.373.543.713.894.074.264.464.674.885.115.345.585.836.086.356.636.927.227.537.858.188.538.899.269.65
10.0510.4710.9111.3611.82
2.372.502.632.772.913.063.213.373.543.713.894.074.264.464.674.885.115.345.585.836.086.356.636.927.227.537.858.188.538.899.269.65
10.0510.4710.9111.3611.82Italy ( )
Spain ( )Greece ( )Portugal ( )Ireland ( )Germany ( )
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10-Year Government Bond Yields in the Euro-Zone
(IE1435B)
Monthly Data 1/31/1989 - 12/31/2010 (Log Scale)
11/30/2010 = 133.5
Euro-Zone Goods Exports Gain/Annum When:
Gain/ %Euro Momentum Is: Annum of Time
Above 10.6 -0. 1 16. 0Between -3 and 10.6 6. 3 64. 9
* -3 and Below 13. 3 19. 1
3538414448525661667177839097
105114123133
3538414448525661667177839097
105114123133
Euro Strengthening vs Other Currencies
Euro Weakening vs Other Currencies 12/31/2010 = -9.7%Source: Haver Analytics-12-10-8-6-4-202468
1012141618202224
-12-10-8-6-4-202468
1012141618202224
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Euro-Zone Goods Exports
Broad Trade-Weighted Foreign Exchange Value of the Euro (Year-to-Year Change)
IS EURO-ZONE CRISIS INEVITABLE?No.9
2008 divergences
start
2008 Weakening
starts
Please see important disclosures at the end of this document.Ned Davis Research Group
10
S620 © Copyright 2011 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
S620
1930 1940 1950 1960 1970 1980 1990 2000 2010
2
4
6
8
10
12
14
16
18
20
Yie
ld (%
)
Percent GPA During Secular Bull Markets
Dates S&P 500 EarningsYield
DividendYield
03/31/1942 - 12/31/1965 10.8 -3.5 -4.406/30/1982 - 12/31/1999 16.0 -7.5 -9.2
Percent GPA During Secular Bear Markets
Dates S&P 500 EarningsYield
DividendYield
09/30/1929 - 03/31/1942 -10.1 7.7 8.712/31/1965 - 06/30/1982 1.0 5.2 4.612/31/1999 - 12/31/2010? -1.4 5.6 4.3
S&P 500 Earnings Yield( 12/31/2010 = 6.0% )
S&P 500 Dividend Yield( 12/31/2010 = 1.8% )
Shaded Areas Indicate NDR-De ned Secular Bear Markets
S0202 © Copyright 2011 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/
S0202
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
263343557090
116148191245314403518665854
1,0971,4081,8082,3222,9813,8284,9156,3118,103
10,40513,360Percent GPA During Secular Bull Markets
Dates Nominal DJIA Real DJIA03/31/1900 - 01/19/1906 8.0 6.508/24/1921 - 09/03/1929 24.9 26.104/28/1942 - 02/09/1966 10.5 7.308/12/1982 - 01/14/2000 16.8 13.2
Percent GPA During Secular Bear MarketsDates Nominal DJIA Real DJIA01/19/1906 - 08/24/1921 -1.1 -5.409/03/1929 - 04/28/1942 -10.6 -10.102/09/1966 - 08/12/1982 -1.5 -7.901/14/2000 - 01/13/2011? 0.0 -2.4
Nominal DJIA( 01/13/2011 = 11731.9 )
Real DJIA( 01/13/2011 = 448.6 )
Shaded Areas Indicate NDR-De ned Secular Bear Markets
ARE SECULAR BEARS CLOSE TO BOTTOMS?Probably not.10
current
current
Please see important disclosures at the end of this document.Ned Davis Research Group
11
(I 0105)
Daily Data 7/01/1996 - 1/14/2011 (Log Scale)
MSCI China Index / MSCI World IndexScale Right
1/14/2011 = 5.27
2
3
4
5
7
10
MSCI Emerging Markets Index /MSCI World Index
Scale Left1/14/2011 = 88.62
26293235394348535965728088
NDR Global Basic Resources Sector/NDR Global Composite
Scale Right1/14/2011 = 52.44
182022242730333741465157
Reuters Continuous Commodity IndexScale Left
Source: Commodity Research Bureauwww.crbtrader.com196
219245274306343383429480537601
S D1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S D
2007M J S D
2008M J S D
2009M J S D
2010M J S D
2011
Global Reflation Theme (I)
( INF10_09B_C)
Monthly Data 4/30/2003 - 12/31/2010 (Log Scale)
12/31/2010 = 14.4%
0.60.81.11.41.82.22.73.23.94.65.46.47.58.8
10.312.014.016.3
0.60.81.11.41.82.22.73.23.94.65.46.47.58.8
10.312.014.016.3Market Cap of Emerging Market Equity ETFs as a % of Market Cap of All ETFs
12/31/2010 = 54.7%
5457606366697275788184879093
5457606366697275788184879093
Market Cap of Developed Market Equity ETFs as a % of Market Cap of All ETFs
J S D2004
M J S D2005
M J S D2006
M J S D2007
M J S D2008
M J S D2009
M J S D2010
M J S D
Relative Market Cap of Emerging Market & Developed Market Equity ETFs
ARE SECULAR BULLS CLOSE TO TOPS?Probably not.11
Watch for:
overexposure
overconfidence
overvaluation
Please see important disclosures at the end of this document.Ned Davis Research Group
12(INF10_08_C)
World Market Cap as of 12/31/2010
World Market Cap as of 12/31/2003
Numbers may not add to 100% due to rounding
Source: MSCI
Secular Bulls 20.6%
Secular Bears 67.3%Other 12.2%
Secular Bulls 8.5%Secular Bears 80.0%
Other 11.5%
Countries in Secular Bull Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeCanada 2. 54 4. 60 2. 06China 0. 36 2. 39 2. 04Brazil 0. 42 2. 20 1. 78Australia 2. 05 3. 44 1. 40South Korea 0. 83 1. 91 1. 09Taiwan 0. 55 1. 59 1. 04India 0. 26 1. 11 0. 85Russia 0. 22 0. 89 0. 67Hong Kong 0. 65 1. 12 0. 47Singapore 0. 33 0. 67 0. 34Mexico 0. 29 0. 63 0. 33Total 8. 49 20. 55 12. 06
Countries in Secular Bear Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeU.S. 52. 47 42. 28 -10. 19U.K. 10. 45 8.36 -2. 09Italy 1. 56 1.02 -0. 55France 3. 99 3.73 -0. 26Japan 8. 64 8.67 0. 03Germany 2. 91 3.23 0. 32Total 80. 02 67. 28 -12. 74
(INF10_08_C)
World Market Cap as of 12/31/2010
World Market Cap as of 12/31/2003
Numbers may not add to 100% due to rounding
Source: MSCI
Secular Bulls 20.6%
Secular Bears 67.3%Other 12.2%
Secular Bulls 8.5%Secular Bears 80.0%
Other 11.5%
Countries in Secular Bull Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeCanada 2. 54 4. 60 2. 06China 0. 36 2. 39 2. 04Brazil 0. 42 2. 20 1. 78Australia 2. 05 3. 44 1. 40South Korea 0. 83 1. 91 1. 09Taiwan 0. 55 1. 59 1. 04India 0. 26 1. 11 0. 85Russia 0. 22 0. 89 0. 67Hong Kong 0. 65 1. 12 0. 47Singapore 0. 33 0. 67 0. 34Mexico 0. 29 0. 63 0. 33Total 8. 49 20. 55 12. 06
Countries in Secular Bear Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeU.S. 52. 47 42. 28 -10. 19U.K. 10. 45 8.36 -2. 09Italy 1. 56 1.02 -0. 55France 3. 99 3.73 -0. 26Japan 8. 64 8.67 0. 03Germany 2. 91 3.23 0. 32Total 80. 02 67. 28 -12. 74
(INF10_08_C)
World Market Cap as of 12/31/2010
World Market Cap as of 12/31/2003
Numbers may not add to 100% due to rounding
Source: MSCI
Secular Bulls 20.6%
Secular Bears 67.3%Other 12.2%
Secular Bulls 8.5%Secular Bears 80.0%
Other 11.5%
Countries in Secular Bull Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeCanada 2. 54 4. 60 2. 06China 0. 36 2. 39 2. 04Brazil 0. 42 2. 20 1. 78Australia 2. 05 3. 44 1. 40South Korea 0. 83 1. 91 1. 09Taiwan 0. 55 1. 59 1. 04India 0. 26 1. 11 0. 85Russia 0. 22 0. 89 0. 67Hong Kong 0. 65 1. 12 0. 47Singapore 0. 33 0. 67 0. 34Mexico 0. 29 0. 63 0. 33Total 8. 49 20. 55 12. 06
Countries in Secular Bear Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeU.S. 52. 47 42. 28 -10. 19U.K. 10. 45 8.36 -2. 09Italy 1. 56 1.02 -0. 55France 3. 99 3.73 -0. 26Japan 8. 64 8.67 0. 03Germany 2. 91 3.23 0. 32Total 80. 02 67. 28 -12. 74
(INF10_08_C)
World Market Cap as of 12/31/2010
World Market Cap as of 12/31/2003
Numbers may not add to 100% due to rounding
Source: MSCI
Secular Bulls 20.6%
Secular Bears 67.3%Other 12.2%
Secular Bulls 8.5%Secular Bears 80.0%
Other 11.5%
Countries in Secular Bull Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeCanada 2. 54 4. 60 2. 06China 0. 36 2. 39 2. 04Brazil 0. 42 2. 20 1. 78Australia 2. 05 3. 44 1. 40South Korea 0. 83 1. 91 1. 09Taiwan 0. 55 1. 59 1. 04India 0. 26 1. 11 0. 85Russia 0. 22 0. 89 0. 67Hong Kong 0. 65 1. 12 0. 47Singapore 0. 33 0. 67 0. 34Mexico 0. 29 0. 63 0. 33Total 8. 49 20. 55 12. 06
Countries in Secular Bear Markets
Market Cap as a % Market Cap as a %of World Market Cap of World Market Cap Point
Country in 2003 in 2010 ChangeU.S. 52. 47 42. 28 -10. 19U.K. 10. 45 8. 36 -2. 09Italy 1. 56 1. 02 -0. 55France 3. 99 3. 73 -0. 26Japan 8. 64 8. 67 0. 03Germany 2. 91 3. 23 0. 32Total 80. 02 67. 28 -12. 74
Numbers may not add to 100% due to rounding. Source: MSCI.INF10_08_C
World Market Capas of 12/31/2003
Countries in Secular Bull Markets
Countries in Secular Bear Markets
World Market Capas of 12/31/2010
Growing
Shrinking
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13
SECULAR BULL MARKETS
MarketStartDate
NominalPrice
RealPrice
RelativeStrength
DividendYield
Book ValueYield
Cash FlowYield
IndustrialProduction
Russia 10/05/1998 37.3 18.3 23.7 3.3 -10.4 -2.4 5.9
India 4/25/2003 28.1 20.8 22.0 -11.0 -7.6 -6.9 8.2
Mexico 2/12/2003 26.9 21.6 17.8 -5.0 -6.9 -7.5 1.5
Brazil 9/10/1998 24.4 16.7 18.4 -8.5 -10.0 -8.1 2.9
China 4/24/2003 24.0 20.3 17.6 -6.1 -8.0 -4.9 14.4
South Korea 6/16/1998 17.3 14.0 19.2 -5.8 -9.4 -7.7 8.8
Singapore 9/04/1998 11.6 10.0 7.8 1.6 -5.8 -2.7 6.6
Taiwan 10/03/2001 10.9 9.7 4.8 5.2 -4.3 0.6 6.7
Hong Kong 8/13/1998 10.9 11.2 8.0 -7.8 -6.3 -4.7 -3.2
Canada 10/09/2002 10.9 8.9 5.8 1.2 -3.2 -3.9 -1.1
Australia 3/13/2003 8.0 5.2 1.3 0.2 -1.7 -3.2 1.6SECULAR BEAR MARKETS
MarketStartDate
NominalPrice
RealPrice
RelativeStrength
DividendYield
Book ValueYield
Cash FlowYield
IndustrialProduction
Italy 3/06/2000 -6.7 -8.7 -4.2 8.2 14.8 10.1 -1.4
France 9/04/2000 -5.2 -6.8 -2.4 7.9 12.4 8.1 -0.6
Japan 12/18/1989 -5.2 -5.6 -7.9 7.8 7.0 5.4 -0.2
U.K. 12/30/1999 -1.3 -3.3 0.9 2.7 7.1 6.3 -1.2
Germany 3/07/2000 -1.2 -2.7 -1.3 3.9 10.1 4.1 1.3
United States 1/14/2000 0.0 -2.3 0.4 4.1 8.5 5.5 0.4
All data in the table represents annualized gain from the secular start date to present. Nominal and real price is daily and represents country index. (ICS_1)China stock data is MSCI price index, Russia data is Russian Trading System Exchange Index. Relative strength is monthly MSCI country index / MSCI World Index. Dividend, book value, and cash flow yields source: MSCINed Davis Research, Inc. ICS_4.RPT
Please see important disclosures at the end of this document.Ned Davis Research Group
14
BOTTOM LINE
� Stay exposed to ongoing global bull market …
� … but recognize the risk of a peak as year progresses.
� Watch tape conditions, interest rates and valuations.
� Allocate defensively if cyclical bear develops in second half.
� Cyclical bear would occur within ongoing secular bears in western developed markets, secular bulls in emerging markets and commodities.
Please see important disclosures at the end of this document.Ned Davis Research Group
15
STOCK MARKET TREND TREND1H 1H2H 2H
GLOBAL Uptrend to mid-year, then down
Uptrend to mid-year,then down
Small to large asmarket turns down
Watch earnings and economy
Dividend Payersreassert relative strength
Mostly cyclicals,then defensive
Best: Coal & Metals
Combo of high beta/low beta,
then defensive
Employment sensitive,then Staples
Emerging markets outperform
Reward 1540-1580
Small-caps
Growth
Neutral
OverweightTech, Materials, Financials
OverweightCoal & Metals
OverweightSemis
Overweight Auto Parts, Broadcasting & Cable TV,
Advertising
Broad-based weakness
Risk 1215-1275
Large-caps
Mixed
Payers & Growers
OverweightUtilities, Energy, Staples
OverweightRefiners & Gold Mining
OverweightSoftware & Services
Overweight Restaurants,Tobacco, Food Products
S&P 500
MARKET CAP
THEMES
SECTORS
Commodity
Consumer
Technology
STYLES
Please see important disclosures at the end of this document.NED DAVIS RESEARCH GROUP
ECONOMY
FIXED INCOME
CURRENCIES & COMMODITIES
Please see important disclosures at the end of this document.NED DAVIS RESEARCH GROUP
Moderate growth 3.3% 3.0%GDP
Low 1.3% 1.7%INFLATION
Modest yield uptrend 3.00% to 4.00% 3.50% to 4.50%10-YEAR TREASURY
Moderate Growth8.5%
Y/Y four quarter total ending 12/31/2011 PROFITS
Spread product Corporates, CMBS Corporates, CMBSSELECTION
Rate differentialsgain importance
USD, commodity currencystrength
Trading rangesCURRENCIES
Short-term stalled,Long-term intact
Range bound Neutral to higherGOLD
StrongHigher but
risks increasingMostly lowerCOMMODITIES
NDR EXPECTATIONS FOR 2011
TIMOTHY W. HAYES, CMTChief Investment Strategist
Timothy W. Hayes, CMT, is NDR’s Chief Investment Strategist and Managing Director, Global Asset Allocation. He has been with the firm since 1986. Tim directs NDR’s global and U.S. asset allocation services, develops strategy and major investment themes, and establishes NDR’s weightings for domestic and global asset allocation, presenting his views on the cyclical and secular outlook globally.
Tim oversees NDR’s monthly Investment Strategy, covering global strategy and allo-cation, and his timely market commentaries and studies are featured in Chart of the Day publications. He also writes Stock Market Focus, which features top-down stock market perspective, and Global Focus, which focuses on global allocation and the most significant global developments.
Tim has been featured many times on CNBC and Bloomberg TV, and his market views are
Ned DavisResearch
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often quoted in The Wall Street Journal and other financial media in the U.S. and interna-tionally. He is author of The Research-Driven Investor, published in November 2000, and he has contributed to several other books. His research articles have appeared in the Journal of Technical Analysis, Technical Analysis of Stocks and Commodities, and other publica-tions.
Tim received his Bachelor of Arts degree from Kenyon College and is a Chartered Market Technician. In 2008, the Investorside Research Association honored Tim with its Research Excellence Award for “Exiting Equities in ‘07.” In 1996, the Market Technicians Association awarded Tim the Charles H. Dow Award for groundbreaking research, recognizing an out-standing original work that best expounds on the principles of technical analysis.
Biographical Sketch
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