clover asset management strategy 2011

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Forward Thinking...

Strategy2011

Friday, January 21, 2011



Strategy2011OutlookUSEconomy

Index of Leading Economic Indicators

Index120

110

90

100

80

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Recession Leading Index (Dec 17 release, Nov = 112.4)

Source: The Conference Board http://www.dallasfed.org

-USMacroIndicatorslookingbe=ersincefall2010,

theriskofadoublediprapidlydisappearing




U.S. Imports and Exports

Billions of Dollars

240

180

200

120

140

160

60

80

100

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Recession Exports (Jan 13 release, Nov = 159.6) Imports (Jan 13 release, Nov = 198)

Source: Bureau of the Census http://www.dallasfed.org

-ImportandExportaregrowing





-Non-Manufacturinggrowingrapidly

ISM Non-Manufacturing Activity Index

IndexJan 05 release, Dec = 63.5

50

40

30

Source : Institute for Supply Management ™ http://www.dallasfed.org

2007 2008 2009 2010





-asaredurablegoods

New Orders for Durable Goods

Billions of Dollars

235

250

190

205

220

130

145

160

70

85

100

115

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Durable Goods (Jan 04 release, Nov = 195.7) Excl. Transportation (Jan 04 release, Nov = 149.7)

Source: Bureau of the Census http://www.dallasfed.org

Recession





-RiskofdeflaGonmelGngaway

Producer Price Index

1-month % change Jan 13 release, Dec = 1.1

2

2.5

3

.3-year average

0.5

1

1.5

-1.5

-1

-0.5

-3

-2.5

-2

2007 2008 2009 2010

Source: Bureau of Labor Statistics http://www.dallasfed.org





Consumer Price Index

1-month % change Jan 14 release, Dec = 0.5

1

. -

0

.

-1

- .

-2

- .

2007 2008 2009 2010

Source: Bureau of Labor Statistics http://www.dallasfed.org

-RiskofdeflaGonmelGngaway





Commodity Prices

1967=100, EOP1,100

700

800

900

,

400

500

600

100

200

300

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

KR-CRB Spot Commodity Price Index: Metals (Jan 02 release, Dec=1006.2)

KR-CRB Spot Commodity Price Index: Raw Industrials (Jan 02 release, Dec=583.8)

Source: Commodity Research Bureau http://www.dallasfed.org

Recession

-andCommodiGeshavebeenabigdriver





-Jobsarecoming





-Jobsarecoming...

butitwilltakeGmetonormalize





-theUSDisweakbutshouldstrengthen

astheEconomygetsbe=er

Real Value of the Dollar

120

March 1973 = 100

100

110

90

70

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exchange Value of the US$ (Jan 10 release, Dec=84.4)

US$ vs Major Currencies* (Jan 10 release, Dec=82)

Source: Federal Reserve Board http://www.dallasfed.org

* Euro Area, Canada, Japan, UK, Switzerland, Australia, and Sweden





-RealEstatemarketshowssignof

“bo=oming”





-WeforecastaRealDProwth

between3.5to4%”


Real GDP

1-quarter % change,

annualized6

Dec 22 release, Q3 = 2.6

3-year average

2

4

-2

0

-6

-4

-8

2007 2008 2009 2010

Source: Bureau of Economic Analysis http://www.dallasfed.org




Strategy2011EquiGestoOutperformBonds

RaGonal

-P/EMulGplesarerelaGvelylow,belowthehistoricalaverageand

reallylowwhencomparedtobondyields

-JobcreaGonandconsumerconfidenceshouldpickupinthecoming

monthsandcreateaposiGvemomentum(watchthe400kWeeklyClaimsmark)

-RetailInvestorsaregraduallyreturningtoequityandincreased

volumeshouldtranslateinhigherpriceandP/EmulGpleexpansion.

-EveryoneiswaiGngonthesidelineforthecorrecGon,before

jumpingin,thiswillbesupporGveofthemarketfortheyear

-StrengtheningoftheeconomywillbringanexpectaGonofgradual

normalizaGonfromtheFedandsend10YrTreasuriesover4%by

yearend.LongBondholderswillgethurt.




Risk-ChineseGghteningbringsahardlandinginAsiaand

contaminatesothermarkets

-FearsofdefaultfromSpain

-InflaGonand/orOilpricegetsoutofcontrol

-RapidriseintheUSD

-MarketrealizaGonthatthefiscalsituaGoninJapaniscatastrophic

(moreindebtthananyEuropeanorCaribbeancountry!)

-ConGnueddeterioraGonoftheRealEstateandJobmarket.

-LowVIXillustratescomplacencyinthemarket

Note:IfanyshockisexperiencedweexpecttheFed

tomovetowardQ3,thiswouldbeposiGveforbonds

andEquiGes.

Strategy2011EquiGestoOutperformBonds




Strategy2011AfewPicksfor2011

1)PowerShares DB Agriculture Fund (DBA): The rise in oil pricewill continue to send the price of food commodities much higher and demand from China and India will fuel the rally.

2)ProShares UltraShort 20+ Year Treasury ETF (TBT): Thissecurity will blossom as long term yield goes up

3)WisdomTree Japan Total Dividend Fund (DXJ): As the Yenweakens, exporters will do well in the country of the rising sun. It isone of the only equity indexes that has not really participated in therally so far. This ETF hedges against the depreciation of the Yen.

4)SPDR S&P MidCap 400 ETF and Lazard Ltd (MDY & Laz): 2011will be the year of Merger and Acquisition, the action will take placein the mid-cap sector (which is also more resilient to a stronger $)and Lazard Inc. gets 45% of its revenue from M&A 5) and of course our favorite long term plays: AAPL, XLK, BUD etc.

clover asset management strategy 2011

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