February 5, 2011
L a n e A s s e t M a n age m e n t
Equity markets have been on
a tear for the last five
months with only one minor
correction last November.
It is unlikely that this pace
can be maintained for much
longer without interruption.
Although overly simplified,
the question for investors is
whether to ride out a likely
but not certain storm or to
take money off the table and
wait for a more attractive
entry point.
For my part, I lean toward
hedging my “bets” by nar-
rowing the focus of equity
investments, increasing sensi-
tivity to changing market
trends, and adopting conser-
vative option strategies.
As always, I welcome your
comments and suggestions.
— Ed Lane
Stock Market Commentary
Market Recap
January’s stock market was a bit of a roller-coaster,
but ended up well for the U.S. and Europe (of all
places) while emerging markets and gold lost
ground. For the month, the S&P 500 gained about
2.25% while Europe gained over 3.5%. The emerg-
ing markets index lost 2.8% and the gold index lost
over 6%.
The S&P continues to surprise many analysts as it
has tacked on over 22% since the beginning of last
September in an almost uninterrupted advance.
The way I see it, the tailwinds of strong corporate
earnings and revenue gains is overwhelming the
headwinds of a credit crisis in Europe, inflation
fears in emerging markets, the turmoil in the Mid-
dle East, not to mention the struggling housing
market and persistent unemployment in the U.S.
The weakness in emerging markets is more under-
standable as rising inflation is resulting in policy ac-
tions to slow the pace of growth. Likewise with
Europe, despite the views of my favorite econo-
mists and market analysts that Europe has hardly
solved its debt problems, strong growth from Ger-
many has overwhelmed the credit concerns — for
now.
Gold’s decline was probably more a result of con-
tinued profit-taking as the dollar also declined in
January. Of all these indices, gold had the most to
lose on the heels of its outperformance over the
preceding 12 months.
Economic Outlook
From my lens, the economic outlook (not to be
confused with the investment outlook) is still trou-
bled. Yes, corporate profits are up along with vari-
ous manufacturing and nonmanufacturing indices.
That said, employment and housing remain de-
pressed, state and local governments are in terrible
financial shape and will be cutting expenditures
(read: employment), and the federal government
will be facing stronger headwinds in any attempt to
further stimulate the economy.
Despite relative stability in the dollar over the last
4 months, oil has been on a steady climb and is
now hovering around $100/barrel. This acts as a
tax on consumers and businesses alike and shows
little sign of abating in the near future.
Outside of the U.S., Europe has a long way to go to
address its banking and sovereign debt crisis. Fur-
thermore, its approach for doing so by reducing
spending may be the right answer in the long term,
but will depress the economies in the short term (I
think that’s why we are avoiding these actions in
the States). As for emerging markets, rising infla-
tion has resulted in policy actions to put a damper
on growth.
Investment Outlook
I see the investment outlook as follows:
 I am concerned about the sustainability of the
advance in U.S. equities. In January, the increase
in the S&P 500 was over 2%.; the 2-month in-
crease was over 8%; and the 5-month increase
over 22%. While the technical trend remains
positive, I don’t see how this can continue for
much longer without either a profit-taking moti-
vated correction or an adjustment to a newly
recognized reality of slower growth in the
world’s economies. That said, momentum re-
mains strong, especially for the large industrial,
technology and energy sectors.
 Emerging markets are under a great deal of pres-
sure as inflation fighting policy actions threaten
to curtail high rates of growth. The Financial
Times reports that investors withdrew from
emerging market funds at the fastest weekly
pace in 3 years resulting in a decline in share val-
ues by nearly 3% (11% for India). (Interestingly,
the money seems to have gone to the U.S. mar-
kets, contributing to high relative growth). As
happened before, once emerging markets get in-
flation under control, above average equity re-
turns can be expected. While the short term
looks shaky, the longer term outlook remains
good.
 In the income-oriented space, the outlook for
the bond markets looks challenged as interest
rates are creeping up. On the other hand, pre-
ferred and high quality dividend-paying stocks
and variable rate loan funds look to benefit from
the current environment.
The charts on the following pages provide selected
technical analysis of these and other markets.
 Page 2
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 experienced a minor correction in November at its previous line of resistance, but
bounced back strongly since partly as a result of a reallocation of funds from emerging to the developed mar-
kets. On a technical basis, the 75– and 150-day moving averages remain positive although the MACD (another
moving average-based momentum indicator) is showing signs of fatigue. The index is now hovering around its
new technical line of resistance at about 1300 which gives some reason for caution. At this point, giving due
regard to the economic headwinds in the U.S. and other developed economies, but also keeping in mind the stronger, but overheating, econo-
mies in the emerging markets, it is premature to get overly excited about the sustainability of the current uptrend in the S&P 500. The cau-
tion light is out and any additional exposure to U.S. equities should be entered into slowly and carefully with the understanding that a pullback
of 10-20% or so would be consistent with the pattern established over the last 12 months.

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 Page 3
Morgan Stanley Emerging Market Index
The MSCI Emerging Market Index had a setback in November and again in January as a result of concerns of
overheating economies and government policy actions to control rising inflation. Large withdrawals from
emerging market funds in January has brought down prices while the infusion to domestic markets had the
opposite effect. The 75– and 150-day moving averages are slowly grinding upwards while the MACD, a shorter
term indicator, began to weaken in mid-October and is yet to turn positive for long (with about the same re-
sult for the index). A positive sign is the retention of the breakout above the last support line at 1050 while, on the other
hand, 1200 is proving to be a difficult line to break through. Given the generally positive fundamental outlook, this may be an opportunity to
“buy on the dip” for more aggressive investors. Others may want to wait a bit longer for a confirmed move upwards. At this time, I suggest
investors be cautious of the “risk-on” trade in emerging markets.

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 Page 4
Barclays Capital Global Bond Index
The Barclays Capital Global Bond Index represents the returns 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
has been a beneficiary of declining interest rates and decline in the value of the dollar, producing capital gains along with interest
income. 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 move-
ment 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. While a stable or declining interest rate environment would be
positive for this index, the current upward pressure on rates in both developed and emerging markets does not bode well for this index at the
current time.

The Barclays Capital Bond—Global 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 Page 5
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 an 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 ad-
vanced as did the price of the precious metals. The inverse correlation is understandable as the metals can be
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 that’s 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 as suspected by some today, the value of the metals can be quite volatile and can contract rapidly. An interrup-
tion in the pace of price advances should not come as a surprise and might be taken as a buying opportunity. Therefore, caution is advised when
investing in precious metals.

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 Page 6
Year-to-Date Index Comparisons
The chart below shows the 12-month performance of selected indexes. Several observations can be made:
 A high degree of correlation can be seen among the equity markets.
 While performance of the S&P 500 has lagged emerging markets for the last 12 months, the gap is closing.
 European equities lagged all equity markets, but is catching up as of late.
 After suffering the largest decline in the first 5 months of the period shown, oil has rebounded the most strongly and now
shows the highest total return over the entire period as well as the strongest current momentum..
 Global bonds have turned in a highly respectable performance with low volatility but incremental improvement is evaporating.
 Gold performed extremely well for the first 11 months but began a sharp decline in late December. If this is as a result of profit-taking, as I
suspect, this reversal will not be long-lived.

Past performance is no guarantee of future results.

Page 7 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 represen-
tatives 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 interna-
tional 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 es-
tablished 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 trans-
action 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 pos-
sibilities 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 con-
tained herein or any decision made or action taken by you or any third party in reli-
ance 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 ex-
pressed 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 ob-
jectives and financial position. The price or value of the investments to which this re-
port relates, either directly or indirectly, may fall or rise against the interest of inves-
tors. 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 feed-
back 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