August 4, 2010
L a n e A s s e t M a n age m e n t
Many investment profes-
sionals and economists,
not to mention the Fed-
eral Reserve, are predict-
ing slow growth for the
next 6-36 months, if not a
downright double-dip re-
cession. Leading econo-
mists are now discussing
an increasing potential for
deflation. Yet, the S&P
had its best month in a
year during July.
Investing in such an envi-
ronment can be nerve
racking, to say the least.
In this Commentary, I of-
fer one way to try to meet
this challenge.
As always, I welcome your
comments and sugges-
tions.
— Ed Lane
Stock Market Commentary
The Ability to React vs.The Abil-
ity to Predict
Following steep declines of about 8% and 5% in
May and June, respectively, July was a stellar
month for the S&P 500, posting about a 7% re-
turn, the best monthly result in a year. Yet, de-
spite being up over 8% in mid-April, the S&P was
basically flat for the first seven months of the
year, Since it is not likely that the “true” econ-
omy, valued on a discounted basis by the stock
market, really gyrated in value to this extent,
what explains this volatility? Even more impor-
tant, how does one invest in this environment?
In a nutshell, the market is driven by two primary
forces: publication of corporate earnings and
economic reports, and fear/greed as markets be-
come (seemingly) overbought/oversold, respec-
tively.
On the economic front, at the risk of oversimpli-
fying, there have been two competing messages:
 A deteriorating economy in the U.S. with per-
sistently high unemployment and a growing
fear of deflation (which would exacerbate un-
employment if it were to occur); and
 Corporate earnings and revenue reports that,
on average, have been beating expectations
along with pronouncements by the Fed that
they will aggressively address further setbacks
in the economy, especially deflation.
What’s important to remember here is that the
stock market and the U.S. economy, while related,
are two different things. First, although the im-
pact of the U.S. economy is felt throughout the
world, it represents only about 25% of the
world’s economy. Second, some 40% of profits of
S&P 500 companies derives from overseas.
So, from an equity investing standpoint, a focus on
market segments that are expected to benefit
from above average growth are going to be the
most successful. Geographically speaking, there is
wide-spread agreement at the moment that that
means the emerging markets of Latin America
and Asia/Pacific (excluding Japan).
Second, it’s hard to say exactly when fear or
greed will take control of the market and to what
extent. The degree with which it takes control is
usually a function of the length of time the oppo-
site influence was in control (see page 3 for visual
evidence).
Let’s back up a few steps. The world’s economy is
a big ship. It takes a lot to change its pace of
growth and the rate of change in the underlying
economy is usually slow. So, when the market
moves faster than the underlying economy, fear
and greed take over. At that point, the market
becomes less rational (that is, less based on the
fundamentals) and is brought back to its longer
term trend or, more likely, overshoots that trend
by emotional forces triggered by fear or greed.
So, where does this leave us with regard to in-
vestment strategy. Here are my thoughts:
It is important to have a perspective on the

fundamental direction of the world’s major
economies in order to have a framework to
inform investment decisions. While analysts
can disagree on what that direction is. My
own view is that the U.S. economy is going to
struggle as long as the political environment
remains so deadlocked. Emerging economies
in Latin America and Asia/Pacific (ex Japan) will
drive global growth. Candidly, I am less clear
about the relative contribution from Europe.
 Technical analysis of markets, expressed
through momentum indicators, offers one of
the best opportunities to obtain relative out-
performance by reacting. Technical analysis
must be considered within the context of an
investor’s risk tolerance and investment time
frame. Assuming an allocation to large cap eq-
uities represented by the S&P 500, the charts
on pages 2 and 3 suggest the potential for
short term gains and a more clouded picture
for the longer term. The “flat lining” of the
moving averages in each chart present a more
difficult picture to interpret.
 Technical analysis is not perfect and provides
no guarantee of performance. Nor does one
who follows this investment strategy as, in all
honesty, I can attest.
 Page 2
L a n e A s s e t M a n age m e n t
S&P 500 Index
With both the 75– and 150-day moving averages flattening out from a downward direction, the “hint” is to the upside. This is
confirmed by the MACD which has been positive since early July. At this point, the index has been basically flat for the year
and within a 20% trading range for 10 months. With the moving averages showing a lack of direction and a positive tilt from
the MACD (which has done a good job exposing short term investing opportunities), those with risk asset exposure should
remain invested but be sensitive to a potential pull-back. The yellow flag is out.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes 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
S&P 500 Index
Contrary to the short term daily chart of the S&P index on the preceding page, the longer term moving averages in this 15-
year weekly chart show both a loss of upward momentum and a confirming signal by the MACD. Investors that rely on the
longer term chart should see this as a yellow flag. In light of the somewhat more positive short term momentum, the longer
term chart should not be seen as a signal to exit the market. Rather, new risk positions should be avoided or entered into on
a selective basis. While no “system” is perfect, from a technical perspective, the longer term view of the S&P is in a precari-
ous position. Couple that with wide spread opinion about a slowing U.S. economy in the second half of 2010 and aggressive
risk management is advised.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes 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
Morgan Stanley Emerging Market Index
Like the comparable daily chart of the S&P 500 index, moving averages for the emerging markets (EM) index have flattened
out from a (slight) downward direction, while the MACD continues the upward momentum begun in mid-June. Here again,
the index has been traveling in a relatively narrow band for almost a year. As with the S&P 500, the weakness of the moving
averages mixed with the positive tilt from the MACD, should leave investors comfortable holding current investments but
prepared for a downdraft as the index gets closer to the resistance line at 1000. Selectivity with EM investments is advised
and the yellow flag is out.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes 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
Morgan Stanley Emerging Market Index
This 15-year chart for the EM index shows a pattern similar to the comparable chart for the S&P 500 on page 3, and the inter-
pretation is basically the same. In this case, the moving averages are slightly positive while the MACD is clearly negative.
One notable difference between the two is the economic environment in emerging markets which also informs the invest-
ment decision. In the case of EM, the economic outlook is considerably more positive than for the U.S. As a consequence,
while the short term outlook remains neutral to positive, I would suggest treating the message of this chart as a cautionary
note to hold status quo until a more clear signal emerges.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes 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 6
Gold
For the last 20 years, the price of gold has been closely inversely correlated with the value of the dollar (measured in this in-
dex against currencies of selected developed economies). In 2010, that pattern seemed to break as both gold and the dollar
have advanced. Since March 2009, the dollar has been quite volatile and has now resumed a downward trajectory while gold
has resumed advancing after a recent short term decline. Investors in gold should be prepared for pullbacks, such as oc-
curred in 2008, if for no other reason than profit-taking. Depending on conditions at the time, any pullback over 10% could
represent a wonderful buying opportunity, especially if gold resumes its positive momentum while the dollar continues to
fall.

The gold and U.S. dollar indexes are unmanaged indexes 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 7
7-10 Year Treasury Bond
Reflecting the “flight to safety” as investors seek the safety of U.S.Treasury bonds, and also reflecting the corresponding de-
cline in U.S.Treasury bond rates over, at least, the last 20 years, this exchange-traded fund holding 7-10 year Treasury bonds
has been on a slow but steady upward climb as indicated by both the moving average and the MACD. Recent Fed announce-
ments support the prospect of low or lower interest rates for at least the balance of the year.
Funds of this type appear to be a safe haven for now, but will be damaged if and when U.S.Treasury rates reverse their down-
ward trend as they did sharply in the first half of 2009 (and are expected to do so again when the U.S. embarks on a path of
monetary tightening).

The iShares Barclays 7-10 Year Treasury bond ETF prospectus can be found at www.us.ishares.com.
Page 8
L an e A ss et M an ag em ent
Disclosures
Lane Asset Management is a Registered Investment Advisor with the
States of NY, CT and NJ. Advisory services are only offered to clients
or prospective clients where Lane Asset Management and its 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 cur-
rency fluctuation and political instability. Investing in small-cap stocks
includes specific risks such as greater volatility and potentially less li-
quidity. 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 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