ned davis global strategy and outlook … hayes, cmt, chief investment strategist global strategy...

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.


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


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


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


4

(S094)


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


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

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


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)


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?


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


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


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


9

STH11_01B_C


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)


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


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


11

(I 0105)


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)


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


12(INF10_08_C)

World Market Cap as of 12/31/2010


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


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)




Source: MSCI

Secular Bulls 20.6%



Other 11.5%







(INF10_08_C)




Source: MSCI

Secular Bulls 20.6%



Other 11.5%







(INF10_08_C)




Source: MSCI

Secular Bulls 20.6%



Other 11.5%






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



World Market Capas of 12/31/2010

Growing

Shrinking


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

http://www.ndr.com/clients/products/ICS_1.html


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.


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

Inc.

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

(800) [email protected]

The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Ned Davis Research, Inc. (NDR), any NDR affi liates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any NDR publication. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before trading. NDR, accounts that NDR or its affi liated companies manage, or their respective shareholders, directors, offi cers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. NDR uses and has historically used various methods to evaluate investments which may, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior NDR recommendations or NDR performance rankings, one should also consider that NDR may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse eff ect of transaction costs or management fees or refl ect actual investment results, that other less successful recommendations made by NDR are not included with these model performance reports, that some model results do not refl ect actual historical recommendations, and that investment models are necessarily constructed with the benefi t of hindsight. For this and for many other reasons, the performance of NDR's past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fl uctuate and/or be adversely aff ected by exchange rates, interest rates or other factors. All of the views expressed in NDR research reports accurately refl ect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of any analyst compensation was, is, or will be, directly or indirectly, related to the specifi c recommendations or views expressed in a research report. For data vendor disclaimers refer to www.ndr.com/vendorinfo. Further distribution prohibited without prior permission. Copyright 2011 (c) Ned Davis Research, Inc. All rights reserved.

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