N ed D avis R esearch G roup
Equities, Commodities & Asset Allocation – Trends Intact Or In Trouble?
November 8, 2006 Schroders
Tim Hayes, CMT Chief Investment Strategist
About NDR Ned Davis Research (NDR) is an independent, institutional research company with global reach. Since 1980, NDR has provided institutional investors with unbiased, "one-stop" investment research. Over the years, NDR’s professional staff has developed a reputation for espousing a disciplined approach to in–depth financial analysis which is supported by the firm’s sophisticated analytic tools, commitment to data integrity, and unsurpassed customer support. With more than 10 commentary publications, clients receive some of the broadest and most unbiased historical market perspectives on the Street. From asset allocation to sector and group work, individual stocks, economic, or quantitative research projects, NDR offers its clients unparalleled access to over 10,000 charts, reports, models and studies, many of which are illustrated by the firm’s hallmark-rich graphics. NDR’s underlying database is one of the largest, most consistent and accurate in the industry since the firm dedicates an entire department to scouring and scrubbing data from over 175 different data vendors. Using services from the Custom Research division, clients are able to work with analysts to design and build proprietary indicators, studies, models, custom screens, analytic testing, or various other sophisticated projects. With clients in over 30 countries, NDR serves more than 5,000 users worldwide at investment firms, banks, insurance companies, mutual funds, hedge funds, pension and endowment funds, registered investment advisors, equity research departments, and other major financial institutions. Ned Davis Research Group is comprised of Ned Davis Research, Inc. (NDR) located in Venice, Florida, and Davis, Mendel & Regenstein, Inc. (DMR), an NASD institutional brokerage firm, located in Atlanta, Georgia. DMR is the exclusive provider of NDR’s products and services. The two closely integrated firms presently employ over 70 people ranging from market strategists, economists, quantitative and market analysts, and other market professionals.
TABLE OF CONTENTS Position Summary Global Economy Reflation Theme Interest Rate Cycle Economic Cycle Asset Allocation Models U.S. Stock Market Outlook Composite Assessment Market Internals/Sentiment Election Influences Last Rate Hike Effects Earnings/Valuation Relative Strength Commodity Demand Theme Correlating Uptrends Commodity Demand Energy Gold U.S. Dollar China Addendum Europe Japan More U.S. Perspectives Housing Styles Sectors Currencies and Commodities Ned Davis Research Group
1 2 3-4 5-6 7 8 9 - 12 13 14 - 16 17 - 20 21 - 22 23 - 24 25 26 - 25 27 28 29 - 30 A1 - A4 A5 - A10 A11 - A14 A15 - A19 A20 - A25 A26 - A28 A29 - A36
Position Summary • Economic Growth
No better than 3%, working assumption of 2.5% for 2007
• Inflation
Neutral, headline rate and core rate convergence around 3%
• Fed
On hold for rest of 2006, first cut in Q2
• 10-year Treasury
Trading range of 4.55% to 4.95% - 5%
• Bond duration
105% of benchmark
• Domestic Allocation
50% stocks (underweight), 30% bonds (marketweight), 15% cash (overweight)
• Global Allocation
62% stocks (overweight), 38% bonds (overweight), 1% cash (underweight)
• Style Allocation
Neutral on Value vs. Growth, Large vs. Small
• Sector Allocation
Modest Overweight to Telecom, Industrials, Materials. Underweight to Health Care, Consumer Staples
• Regional Allocation Emerging over Developed, selectively in commodity-producing markets. Pacific favored long-term. Watching for peak in European relative strength. • Commodities
Long-term bullish
• Gold
Long-term bullish
• U.S. Dollar
Long term bearish
Ned Davis Research Group
• Reflation continues ...
591 480 391 318 258 210 171 139 113 92 75 61 49 40
Quarterly Data 3/31/1968 - 9/30/2006 (Log Scale)
Gold vs Nominal GDP Minus Long-Term Bond Yields
Gold Spot Price Gold Gain/Annum When: GDP Minus Bond Yield Spread:
Gain/ Annum
* Above 0
18. 9
39. 6
0. 3
60. 4
0 and Below
% of Time
9/30/2006 = 598.6
14 13 12 11 10 9 8 7 6 5 4 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 (AA404)
Nominal GDP Year-to-Year Change (Bars) 9/30/2006 = 5.8%
Long-Term T-Bond Yields ( ) 9/30/2006 = 4.9%
Nominal GDP Minus Long-Term Bond Yield
9/30/2006 = 1.0%
Concept Courtesy: Comstock Partners 1970
Ned Davis Research Group
1975
1980
1985
1990
1995
2000
2005
Please see important disclosures at the end of this document.
591 480 391 318 258 210 171 139 113 92 75 61 49 40 14 13 12 11 10 9 8 7 6 5 4 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8
• ... as does the tightening cycle, which is global in scope.
Daily Data 7/01/1948 - 11/02/2006 (Log Scale)
Central Bank Policy Changes
12
Discount Rate Before 1/2/1989
10
U.S. Fed Funds Rate 11/02/2006 = 5.25% (scale right)
8 6 4 2
8 7 6 5 4 3 2 1
Dashed Vertical Lines Mark Start Of Easing Cycles Solid Vertical Lines Mark Start Of Tightening Cycles
Quantitative Easing 3/19/2001 to 3/9/2006
Bank Of Japan Target Uncollateralized Overnight Call Rate 11/02/2006 = 0.25% (scale left)
European Central Bank Target Discount Rate 11/02/2006 = 3.25% (scale right)
8
Discount Rate Before 1/16/1998
7 6 5 4 3
16 14 12 10 8 6 4
Target Repo Rate Before 6/8/2006
Ned Davis Research Group
2003
1998
1993
1988
1983
1978
1973
1968
1963
1958
Minimum Lending Rate Before 8/25/1981 Bank Rate Before 10/16/1972 Minimum Band Dealing Rate Before 5/6/1997
1953
(IE510)
German Data Before 1/1/1999
Bank of England Official Bank Rate 11/02/2006 = 4.75% (scale left)
Please see important disclosures at the end of this document.
• Composite global yield curve has flattened, which is negative for stocks versus bonds ...
10/31/2006 = 456.1 Global Stock/Bond Total Return Ratio
Ratio GPA
When Global Yield Curve: Above 1.75% * Between 0.5% And 1.75% 0.5% And Below Buy/Hold
MS World TR GPA
-5. 3
6. 3
% of Time
12. 3
Stock Returns Based on MSCI World Total Return Index
24. 9
7. 7
16. 9
8. 6
49. 8
-7. 9
-0. 5
8. 0
25. 3
0. 2
9. 6
9. 3
100. 0
3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0.0 -0.3 -0.6 -0.9 -1.2 -1.5 -1.8
Bond Returns Based on Lehman Global Long-Term Government Bond Total Return Index (NDR Estimates Prior to 5/31/1987)
Global Yield Curve Composite (10-Year Minus Three-Month) Favors Bonds
Favors Stocks
Favors Bonds
Ned Davis Research Group
Please see important disclosures at the end of this document.
2007
2006
2005
2004
2003
2002
2000
1999
1998
1997
1996
1995
1994
1993
1991
1990
1989
1988
1987
1986
*German data used prior to Euro-Zone data
2001
Yield Curve Moved Ahead Six Months 10/31/2006 = 0.80% 4/30/2007 = 0.19%
*Equal-Weighted Composite of Gov't Interest Rates from U.S., Japan, Euro-Zone, U.K., Switzerland, and Canada
1985
(I 4 0 3 2 )
LT Bonds GPA
1992
721 689 657 628 599 572 546 522 498 476 454 434 414 395 377 360 344 329 314 299
Monthly Data 1/31/1985 - 4/30/2007 (Log Scale)
Global Stock/Bond Ratio vs. Global Yield Curve Composite
721 689 657 628 599 572 546 522 498 476 454 434 414 395 377 360 344 329 314 299 3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0.0 -0.3 -0.6 -0.9 -1.2 -1.5 -1.8
• ... and global economic outlook is worsening. Chart reflects data revisions
Monthly Data 1/31/1985 - 10/31/2006 (Log Scale)
Stock/Bond Ratio vs. OECD G7 Composite Leading Indicator Index Momentum
When G7 Leading Index Momentum:
Ratio GPA
MS World TR GPA
LT Bonds GPA
% of Time
Favors Stocks
5. 4
12. 0
6. 3
54. 9
* Favors Bonds
-5. 8
6. 7
13. 2
45. 1
0. 2
9. 6
9. 3
100. 0
Buy/Hold
104 100 96 92 88 84 80 76 72 68
Stock Returns Based on MSCI World Total Return Index Bond Returns Based on Lehman Global Long-Term Government Bond Total Return Index (NDR Estimates Prior to 5/31/1987)
OECD G7 Composite Leading Indicator (CLI) Index (Moved Ahead Two Months)
10/31/2006 = 104.8 CLI Six-Month Point Momentum
Ned Davis Research Group
Please see important disclosures at the end of this document.
2006
2005
10/31/2006 = -0.3% 2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1991
1990
1989
1988
1987
1986
1985
Rises One Percentage Point From Trough = Favors Stocks Falls One Percentage Point From Peak = Favors Bonds
2004
5 4 3 2 1 0 -1 -2 -3 -4 (I 4 0 3 4 )
10/31/2006 = 456.1
Global Stock/Bond Total Return Ratio
1992
715 669 626 586 549 514 481 450 421 394 369 346 324 303
715 669 626 586 549 514 481 450 421 394 369 346 324 303
104 100 96 92 88 84 80 76 72 68 5 4 3 2 1 0 -1 -2 -3 -4
• Business confidence has peaked.
Chart reflects data revisions.
Monthly Data 1/31/1985 - 10/31/2006 (Log Scale)
712 663 617 574 534 497 462 430 400 373 347 323 300 279
Global Stock/Bond Ratio vs. NDR Global Business Sentiment Composite
10/31/2006 = 456.1
Global Stock/Bond Total Return Ratio
When Business Confidence Indicators:
Ratio GPA
Favor Stocks (+1 to +2) * Mixed (0) Favor Bonds (-2 to -1) Buy/Hold
150 145 140 135 130 125 120 115 110 105
MS World TR GPA
LT Bonds GPA
% of Time 26. 1
6. 0
7. 8
1. 6
1. 6
11. 6
9. 8
51. 7
-9. 2
7. 3
18. 1
22. 2
0. 2
9. 6
9. 3
100. 0
Stock Returns Based on MSCI World Total Return Index Bond Returns Based on Lehman Global Long-Term Government Bond Total Return Index (NDR Estimates Prior to 5/31/1987)
Composite Rises 1% = Favors Stocks
10/31/2006 = 148.2 (-1)
NDR Business Sentiment Composite is EqualWeighted Average of: U.S. ISM Index German Ifo Index Japan Tankan Survey of Large Manufacturers (Three-Month Smoothing)
20 16
Sentiment Rises Above 4% Stocks Overbought, Bonds Oversold
12
Composite Falls 0.5% = Favors Bonds
Six-Month Momentum of Business Sentiment Composite
20 16 8 4
0 -4
0 -4
Ned Davis Research Group
Please see important disclosures at the end of this document.
2006
2005
2004
2002
2001
2000
1999
1998
1997
1996
1995
1994
10/31/2006 = -3.4% (1)
1993
1992
1991
1990
1989
1988
1987
1986
1985
Sentiment Falls -3% And Below Stocks Oversold, Bonds Overbought
2003
-8 -12
4030)
150 145 140 135 130 125 120 115 110 105
12
8 4
(I
712 663 617 574 534 497 462 430 400 373 347 323 300 279
-8 -12
• Our global and domestic asset allocation models are indecisive toward equities ...
60
80
80
60
60
40
40
75 45 30
Please see important disclosures at the end of this document.
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
11/03/2006 = 16.7%
1996
Model Cash %
1995
32 28 24 20 16 12 8 4
1994
50 45 40 35 30 25 20 15 10 5
1993
11/03/2006 = 28.8%
1992
Model Bond %
1991
70 60 50 40 30 20 10
(AA500)
3118 2237 1605 1151 826 592 425 305 219 157 113 100
20
Dashed Lines Indicate Benchmark Weights
80 70 60 50 40 30 20 10
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
10/31/2006 = 0.9%
1991
Model Cash %
1990
50 45 40 35 30 25 20 15 10 5 1989
10/31/2006 = 37.6%
1988
Model Bond %
1987
80 70 60 50 40 30 20 10
Ned Davis Research Group
20
15
Dashed Lines Indicate Benchmark Weights
1990
15
1989
30
1988
45
11/03/2006 = 54.5%
Model Equity %
1987
60
(I 4000)
100
11/03/2006 = 3663.0 11/03/2006 = 1724.1
1986
75
90
Model Equity Line 2/06/1981 - 11/03/2006 GPA = 15.01% Std. Dev. of 52-Week Returns = 11.83% Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash) 2/06/1981 - 11/03/2006 GPA = 11.69% Std. Dev. of 52-Week Returns = 11.29%
1985
10/31/2006 = 61.5%
Model Equity %
90
3118 2237 1605 1151 826 592 425 305 219 157 113
1984
10/31/2006 = 884.2 10/31/2006 = 532.4
802 659 541 445 365 300 247 203 167 137 112
1983
Model Equity Line 3/31/1986 - 10/31/2006 GPA = 11.16% Std. Dev. of 12-Month Returns = 8.23% Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash) 3/31/1986 - 10/31/2006 GPA = 8.46% Std. Dev. of 12-Month Returns = 9.26%
Weekly Data 2/06/1981 - 11/03/2006 (Log Scale)
NDR Balanced Account Model
1982
802 659 541 445 365 300 247 203 167 137 112
Monthly Data 3/31/1986 - 10/31/2006 (Log Scale)
NDR Global Balanced Account Model
70 60 50 40 30 20 10 32 28 24 20 16 12 8 4
• ... and Big Mo is still neutral.
1330 1017 777 594 454 347 266 203 155 119
Weekly Data 1/04/1980 - 10/27/2006 (Log Scale)
S&P 500 Index vs. Big Mo Composite Model S&P 500 Index
S&P 500 Gain/Annum When: Big Mo Composite Model: Above 75%
Gain/ Annum
% of Time
28.8
40.5
3.9
39.9
-10.7
19.6
* Between 55% and 75% 55% and Below
1330 1017 777 594 454 347 266 203 155 119
90
90
60
60
75
Big Mo Composite* Tape Composite (50%) External Composite (50%) External Composite Indicators Indicator Monetary: Yield Curve Three-Month T-Bill Yield Momentum Three-Year T-Note Yield Momentum 10-Year Treasury Yield Deviation from Trend Long-Term Bond Yield Economic: Real Monetary Fiscal & Exchange Rate Index NDR ISM Leading Index Real M2 Minus Industrial Production Commodity Price Momentum Dollar-Adjusted Oil Momentum Sentiment: NDR Crowd Sentiment Composite*** II Bull/Bear Sentiment + Monetary VIX Deviation from Trend*** Total Put/Call Deviation from Trend*** CBOE Five-Day Put/Call*** Valuation: Median S&P 500 Earnings Yield Real Earnings Yield BAA Yield Minus Earnings Yield Earnings Yield Minus T-Bill Yield Real Bond Yield/Dividend Yield
75
45
45
30 15
30
Big Mo Tape Composite 10/27/2006 = 78.1%
15
90
90
60
60
75
75
45
45
30
30
Big Mo External Composite
15
10/27/2006 = 68.8% 10/27/2006 = 73.4%
90 80 70 60 50 40 30 20 10
Ned Davis Research Group
15 90 80 70 60 50 40 30 20 10
Unsmoothed External Composite Reading External Composite Reading (Five-Week Moving Average)
Chart Number S38 S035 S37
Current Mode** Neutral Neutral Mildly Bullish
11/03/2006 74.0 77.3 70.6
Chart Number
11/03/2006
AA47 S945 S950 S876 S947
Bearish Bearish Neutral Bullish Bullish
AA530 S1101A AA528 S972 S992
Bullish Bullish Neutral Bullish Bullish
DAVIS65 S502 S0235 S586 S0584A
Neutral Neutral Bearish Bearish Bullish
S782 S698A AA526 S790A S788
Neutral Bullish Bullish Neutral Bullish
S37
71.9 70.6
*Big Mo Composite Model consists of 50% Big Mo Tape Composite and 50% Big Mo External Composite. **Current Mode based on performance box shown in chart regardless of direction. ***Indicator reading updated weekly with Big Mo Composite. Chart reading is updated daily, so intra-week readings on this report may differ from chart. Ned Davis Research, Inc. SMS_8.RPT
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
Big Mo Composite Model (50% Tape, 50% External) 1981
(S38)
NDR Big Mo Composite Model
Please see important disclosures at the end of this document.
• Breadth remains divergent ...
900 625 400 225 100 25 0 -25 -100 -225 -400 -625 -900 -1225 -1600 (S128)
1040 516
654
645
857
405
428
470
590 390
566
1516
398 213
663
211
324
209
237
763
2005
164 326
336
475
1116
1034
1132
539 997
1607
New Highs and New Lows
Ned Davis Research Group
12615 10855 9340 8037 6916 5951 5121 4406 3792 3263 2808 2416 2079 1789 1539 1325 1140 981 844
2006 668
300
606
Source: Barrons
834
614
83
122
2004
2003
2002
2001
2000
1999
1997
1996
1998
1129 731
402
923
Weekly New Lows
10/27/2006 = 12090.26
1008 747
224
706
1995
1994
1993
1992
1991
596
243
232
272
1990
Weekly New Highs 421
356
1989
1988
1987
1986
1985
1984
1983
1982
In the past 12 NDR-defined bull markets (last 7 shown) weekly new highs peaked out prior to each major market top by a median lead time of 32.5 weeks (We have also signalled current cycle's peak on 1/09/2004)
1981
12615 10855 9340 8037 6916 5951 5121 4406 3792 3263 2808 2416 2079 1789 1539 1325 1140 981 844
Weekly Data 7/03/1980 - 10/27/2006 (Log Scale)
Dow Jones Industrial Average
Please see important disclosures at the end of this document.
900 625 400 225 100 25 0 -25 -100 -225 -400 -625 -900 -1225 -1600
• ... as does volume ...
Daily Data 9/30/1981 - 11/02/2006 (Log Scale)
Volume
S&P 500 Gain/Annum When: Volume Deviation from Trend Is:
Gain/ Annum
Above 105.5
19. 4
45. 4
3. 3
54. 6
* 105.5 and Below
S&P 500
% of Time
11/02/2006 = 1367.3 11/02/2006 = 3477.9
Daily Volume (millions)
132 128 124 120 116 112 108 104 100 96 92
Ned Davis Research Group
1986
(NDRII11)
11/02/2006 = 101.8
SM
NDR II Volume Deviation from Trend 90-Day Smoothing/252-day Smoothing
10
2006
SM
2001
NDR II
1996
6303 4122 2695 1762 1152 754 493 322 211 138 90 59 39
SM
1991
1500 1212 979 791 639 517 418 337 273 220 178 144 116
NDR Institutional Index
Please see important disclosures at the end of this document.
1500 1212 979 791 639 517 418 337 273 220 178 144 116
6303 4122 2695 1762 1152 754 493 322 211 138 90 59 39 132 128 124 120 116 112 108 104 100 96 92
• ... and we may have been in a "blow-off" in the DJIA.
Blow Offs From Selected NDR Bull Markets 05/09/1901 - 10/11/2006 DJIA % Gain
Trading Days
05/09/1901 - 06/17/1901
16.1
32
11/13/1905 - 01/19/1906
27.4
56
09/01/1916 - 11/21/1916
20.8
67
08/20/1919 - 11/03/1919
21.5
61
11/27/1922 - 03/20/1923
14.5
92
05/27/1929 - 09/03/1929
29.9
82
02/26/1946 - 05/29/1946
14.2
78
03/16/1948 - 06/15/1948
16.8
74
01/23/1956 - 04/06/1956
12.7
53
09/22/1959 - 01/05/1960
11.2
72
08/09/1968 - 12/03/1968
13.3
67
10/16/1972 - 01/11/1973
14.1
59
07/05/1978 - 09/08/1978
12.7
47
02/13/1981 - 04/27/1981
9.9
50
08/08/1983 - 11/29/1983
10.7
80
05/20/1987 - 08/25/1987
22.9
68
04/27/1990 - 07/16/1990
13.4
55
11/05/1993 - 01/31/1994
9.2
60
03/05/1998 - 07/17/1998
10.6
94
10/15/1999 - 01/14/2000
17.0
64
01/29/2002 - 03/19/2002
10.6
35
07/14/2006 - 10/26/2006?
13.3
73
Median
14.1
64
Blow Off
Current case not included in summary statistics. T_245.RPT
Ned Davis Research, Inc.
Ned Davis Research Group
11
Please see important disclosures at the end of this document.
• Complacency evident in low VIX, narrow credit spreads.
High Complacency
5.1 4.8 4.5 4.2 3.9 3.6 3.3 3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
1998
1999
2000
Ned Davis Research Group
2001
2002
2003
2004
2005
(Q2500)
2006
12
57.4 42.6
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
44.0 40.8 37.7 34.9 32.4 30.0 27.7 25.7 23.8 22.0 20.4 18.9 17.5 16.2 15.0 13.9 12.9 11.9 11.0 10.2
1995
11/03/2006 = 11.2
1994
Implied Volatility Index
1993
High Fear
1992
55.0
0.7 -2.0
Current Proxy Direction is: FALLING
1991
-1.2
% of Time
Direction of Proxy Determined by Current Value versus Eight Weeks Ago
1990
31.3
* 1.9 and Below
All Periods When Proxy is FALLING = 2.2% GPA
1989
13.7
-0.3
Above 1.9
All Periods When Proxy is RISING = -3.5% GPA
1988
66.2
Gain/ Annum
Risk Premium is
1987
Above 28.5 Between 21.5 and 28.5
All Periods = -0.5% GPA
1986
% of Time
50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14
NASDAQ/DJIA Ratio Gain/Annum When:
1985
Gain/ Annum
* 21.5 and Below
44.0 40.8 37.7 34.9 32.4 30.0 27.7 25.7 23.8 22.0 20.4 18.9 17.5 16.2 15.0 13.9 12.9 11.9 11.0 10.2 (DAVIS72)
VIX Index Is:
50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14
1984
S&P 500 Gain/Annum When:
1498.8 1442.7 1388.6 1336.6 1286.6 1238.4 1192.0 1147.4 1104.4 1063.0 1023.2 984.9 948.0 912.5 878.3 845.4 813.8 783.3 754.0
1983
11/03/2006 = 1364.30
Weekly Data 5/01/1981 - 11/03/2006
Ratio of NASDAQ Composite / Dow Jones Industrial Average
1982
1498.8 1442.7 1388.6 1336.6 1286.6 1238.4 1192.0 1147.4 1104.4 1063.0 1023.2 984.9 948.0 912.5 878.3 845.4 813.8 783.3 754.0
Daily Data 12/31/1996 - 11/03/2006 (Log Scale)
Standard & Poor's 500 Stock Index vs VIX Index
Moody Baa-Rated Bond Yield minus 10-Year Treasury Yield NASDAQ/DJIA Ratio Gain/Annum When: Risk Premium is Rising and
Gain/ % Annum of Time
Above 1.9
-3.0
30.4
1.9 and Below
-4.0
16.8
NASDAQ/DJIA Ratio Gain/Annum When: Risk Premium is Falling and Above 1.9 * 1.9 and Below
Gain/ % Annum of Time 5.4
27.1
-1.1
25.9
11/03/2006 = 1.67%
Equity Risk Premium Proxy Please see important disclosures at the end of this document.
5.1 4.8 4.5 4.2 3.9 3.6 3.3 3.0 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6
• The market has usually had trouble after a mid-term election when control of Congress has changed hands.
Dow Jones Industrial Average Percent CHANGE Around Mid-Term Elections DJIA Percent Gain Mid-Term Year
Election Day
Change in Congress*
YTD Through Election Day
1902 11/4/1902 No -0.01 1906 11/6/1906 No -2.36 1910 11/8/1910 No -14.90 1914 11/3/1914 No ** 1918 11/5/1918 Yes 16.46 1922 11/7/1922 No 22.73 1926 11/2/1926 No -3.47 1930 11/4/1930 Yes -27.64 1934 11/6/1934 No -2.35 1938 11/8/1938 No 30.81 1942 11/3/1942 No 3.24 1946 11/5/1946 Yes -12.46 1950 11/7/1950 No 12.05 1954 11/2/1954 Yes 28.69 1958 11/4/1958 No 26.39 1962 11/6/1962 No -15.78 1966 11/8/1966 No -16.44 1970 11/3/1970 No -4.03 1974 11/5/1974 No -20.70 1978 11/7/1978 No -3.74 1982 11/2/1982 No 16.81 1986 11/4/1986 Yes 22.36 1990 11/6/1990 No -9.74 1994 11/8/1994 Yes 2.04 1998 11/3/1998 No 10.09 2002 11/5/2002 No -13.40 Median, All Periods: -2.35 9.25 Median, Change in Congress: Median, No Change in Congress: -2.36 *Change in Congress defined as majority party changing in either the Senate or House of Representatives. **NYSE closed from 7/31/1914 to 12/11/1914 due to World War I.
-0.40 0.45 -3.48 ** -5.10 -0.80 3.95 -8.47 6.65 -2.10 4.22 4.93 4.98 11.86 5.99 5.90 -2.99 9.22 -8.67 0.62 2.39 0.18 5.98 0.10 5.46 -3.88 0.62 0.14 2.39
Following Year -23.61 -37.73 0.39 81.66 30.45 -3.25 28.75 -52.67 38.53 -2.92 13.81 2.23 14.37 20.77 16.40 17.00 15.20 6.11 38.32 4.19 20.27 2.26 20.32 33.45 25.22 25.32 15.80 11.52 15.80
T_SMF0634
Ned Davis Research, Inc.
Ned Davis Research Group
Election Day to End of Year
13
Please see important disclosures at the end of this document.
• Final rate hike of a tightening cycle has usually been followed by weakness. Will oil prices remain low enough, and the housing market strong enough, for a soft landing and 1995 repeat? Dow Jones Industrial Average Around Last Federal Reserve Interest Rate Hikes 102.6 102.3 102.0 101.7 101.4 101.1 100.8 100.5 100.2 99.9 99.6 99.3 99.0 98.7 98.4 98.1 97.8 97.5 97.2 96.9 96.6 96.3 96.0 95.7 95.4 95.1 94.8 94.5 94.2 93.9 93.6 93.3 93.0 92.7 92.4 92.1 91.8 91.5 91.2 90.9 (S01722)
Fed Tightening End Dates* 6/1/1920 1/8/1926 8/9/1929 10/16/1931 1/16/1953 8/23/1957 9/11/1959 12/6/1965 4/3/1969 4/25/1974 2/15/1980 5/5/1981 2/24/1989 2/1/1995 5/16/2000 Mean
DJIA Change 126 Days Later
DJIA Change 252 Days Later
-5. 23 -8. 07 -26. 83 -23. 81 -6. 18 -8. 10 -4. 80 -6. 16 -12. 82 -22. 07 9. 24 -10. 86 21. 78 21. 90 -3. 82
-15. 57 -2. 58 -35. 03 -33. 72 0. 38 6. 84 -4. 39 -15. 75 -14. 68 -2. 90 6. 18 -12. 13 14. 19 40. 23 2. 57
-5. 72
-4. 42
Last Interest Rate Hike By Federal Reserve
Daily Data Starting in 1920 12 Months = 252 Market Days -12
-11
-10
Ned Davis Research Group
-9
-8 -7 -6 -5 -4
-3
-2
-1
0
14
*At least two consecutive rate increases before a decrease. +1
+2
+3
+4 +5 +6 +7
+8
+9
+10
+11
Please see important disclosures at the end of this document.
+12
102.6 102.3 102.0 101.7 101.4 101.1 100.8 100.5 100.2 99.9 99.6 99.3 99.0 98.7 98.4 98.1 97.8 97.5 97.2 96.9 96.6 96.3 96.0 95.7 95.4 95.1 94.8 94.5 94.2 93.9 93.6 93.3 93.0 92.7 92.4 92.1 91.8 91.5 91.2 90.9
• Also after final hike, bonds and Value have outperformed, small-caps and NASDAQ have underperformed ...
Index Percent Gain between Last Federal Reserve Interest Rate Hike and First Cut1 Last Hike Date8
First Cut Date
Number of Months2
DJIA6
DJTA6
S&P 5007
Large-Cap Growth4
6/1/20
5/5/21
11.1
-11.3
2.4
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1/8/26
4/23/26
3.5
-10.2
-3.0
n/a
n/a
-15.0
n/a
n/a
n/a
n/a
n/a
8/9/29
11/4/29
2.9
-23.8
-7.9
-27.2
n/a
-44.2
-18.8
n/a
n/a
n/a
n/a
10/16/31
2/26/32
4.4
-19.9
-35.5
-17.9
n/a
-20.4
-16.7
n/a
n/a
n/a
n/a
1/16/53
2/5/54
12.7
2.4
-4.9
4.7
n/a
-2.5
7.4
n/a
n/a
n/a
n/a
8/23/57
11/15/57
2.8
-7.7
-22.8
-2.4
n/a
-11.5
-8.4
n/a
n/a
-0.1
n/a
9/11/59
6/10/60
9.0
2.8
-6.7
3.0
n/a
5.4
3.5
n/a
n/a
-2.2
n/a
12/6/65
4/7/67
16.0
-9.2
-5.6
-8.8
n/a
25.4
3.1
n/a
n/a
-4.0
n/a
4/3/69
11/13/70
19.4
-18.1
-38.9
-14.1
n/a
-39.8
-12.2
n/a
n/a
3.8
n/a
4/25/74
12/9/74
7.5
-29.9
-20.1
-16.4
-32.7
-24.7
-24.6
n/a
n/a
1.4
n/a
2/15/80
5/30/80
3.5
-3.9
-6.3
-0.8
-7.5
-8.0
-2.1
-1.6
0.2
-7.7
16.3
5/5/81
11/2/81
6.0
-10.9
-8.0
3.9
-6.8
-5.9
-2.3
-2.4
-1.7
-5.2
-0.5
2/24/89
6/6/89
3.4
11.2
6.5
12.6
12.0
12.2
14.0
11.4
11.2
-4.2
7.4
2/1/95
7/6/95
5.1
21.2
19.7
5.6
25.7
16.7
19.1
19.1
16.4
-0.2
13.0
5/16/00
1/3/01
7.6
0.1
5.2
13.7
-29.6
-3.5
-7.4
-19.9
5.1
2.2
9.6
Mean
7.6
-7.1
-8.4
-3.4
-6.5
-8.3
-3.5
1.3
6.2
-1.6
9.2
Median
6.0
-9.2
-6.3
-0.8
-7.1
-6.9
-2.3
-1.6
5.1
-1.2
9.6
DJUA6
NASDAQ6
Small Caps3
Large-Cap Value5
Reuters-CRB CCI Index
Lehman LT Gov’t Bonds6
1. Tightening cycle requires at least two consecutive rate increases without an intervening decrease. 2. Number of calendar days multiplied by 12/365. 3. Ibbotson Small Company Total Return Index (monthly) until 1979. Russell 2000 Total Return Index thereafter. 4. S&P/BARRA 500 Growth Total Return Index (monthly) until 1993. S&P/BARRA 500 Growth Price Index (daily) thereafter. 5. S&P/BARRA 500 Valued Total Return Index (monthly) until 1993. S&P/BARRA 500 Value Price Index (daily) thereafter. 6. Price only. 7. Total return. 8. Boldface = NDR-defined bear market in progress. Bold and italics = bear market started within four months. Ned Davis Research, Inc.
Ned Davis Research Group
T_SMF0629.1
15
Please see important disclosures at the end of this document.
• ... and earnings growth has tended to slow.
S&P 500 Price/Earnings Ratio Around Last Federal Reserve Interest Rate Hike and First Cut1 Earnings Y/Y % Change3 As of As of Last Hike First Cut
Price/Earnings Ratio As of As of Last Hike First Cut % Change
Last Hike Date
First Cut Date
Number of Months2
S&P 500 % Change
08/09/1929
11/04/1929
2.9
-19.4
25.0
22.0
18.9
14.8
-22.0
10/16/1931
02/26/1932
4.4
-19.5
-39.1
-37.1
14.8
13.7
-7.6
01/16/1953
02/05/1954
12.7
1.1
-1.6
4.6
10.8
10.5
-3.4
08/23/1957
11/15/1957
2.8
-9.3
-5.0
0.3
13.0
11.6
-10.6
09/11/1959
06/10/1960
9.0
1.0
19.1
-4.1
16.9
17.1
1.3
12/06/1965
04/07/1967
16.0
-1.4
14.1
2.1
18.2
16.4
-9.9
04/03/1969
11/13/1970
19.4
-17.2
7.0
-9.0
17.3
15.6
-10.1
04/25/1974
12/09/1974
7.5
-26.8
22.9
8.9
10.7
7.2
-32.8
02/15/1980
05/30/1980
3.5
-3.6
20.5
15.0
7.8
7.3
-6.3
05/05/1981
11/02/1981
6.0
-4.7
-4.6
4.3
8.9
8.1
-9.0
02/24/1989
06/06/1989
3.4
12.9
35.7
16.4
12.1
13.0
7.5
02/01/1995
07/06/1995
5.1
17.8
39.8
36.6
15.4
16.1
4.7
05/16/2000
01/03/1901
7.6
-8.1
32.8
3.8
28.8
27.0
-6.3
06/29/2006?
?
?
?
17.9?
?
17.5?
?
?
7.7 6.0
-5.9 -4.7
12.8 19.1
4.9 4.3
14.9 14.8
13.7 13.7
-8.0 -7.6 77%
6.6 5.1
4.7 1.1
17.6 19.1
10.8 4.6
13.6 13.0
13.7 13.0
-0.1 1.3 40%
8.4 6.7
-12.6 -12.6
9.8 17.3
1.3 4.1
15.7 16.0
13.7 14.2
-13.0 -9.4 100%
All Periods: Mean Median % P/E Compression Secular Bulls: Mean Median % P/E Compression Secular Bears: Mean Median % P/E Compression
1. Tightening cycle requires at least two consecutive rate increases without an intervening decrease. 2. Number of calendar days multiplied by 12/365. 3. Earnings based on four-quarter trailing reported (GAAP) earnings per share. Current case not included in summary statistics. Shaded areas = NDR-defined secular bear markets. T_IS0603.2
Ned Davis Research, Inc.
Ned Davis Research Group
16
Please see important disclosures at the end of this document.
• Earnings growth is mean reverting ...
1218 780 499 319 205 131 84 54 34 22 14 9 6
Monthly Data 3/31/1927 - 12/31/2006 (Log Scale)
S&P 500 GAAP Earnings Growth
1218 780 499 319 205 131 84 54 34 22 14 9 6
S&P 500 Gain/Annum When: Y/Y Earnings Growth Is:
Gain/ Annum
Above 20% * Between 5% & 20% Between -20% & 5% -20% and Below
Earnings x 15.9 10/31/2006 = 1254.5 ( )
% of Time
2. 0
23. 7
5. 5
30. 3
13. 1
38. 8
-14. 8
7. 3
S&P 500 10/31/2006 = 1377.9 ( )
70 60 50 40 30 20 10 0 -10 -20 -30 -40
70 60 50 40 30 20 10 0 -10 -20 -30 -40
Y/Y S&P 500 GAAP Earnings Growth (%) Earnings Growth High
6/30/2006(A) = 17.6% 12/31/2006(E) = 15.7%
Earnings Growth Low
59
59 25
25
Average P/E at Earnings Peaks (Down Arrows) = 12.60 Average P/E at Earnings Troughs (Up Arrows) = 18.82 Based on Earnings Reversals of 10%
10
10
um er Ann G a in P % .9 5 ne = T re n d li 6/30/2006(A) = $74.49
4 2
4 2
12/31/2006(E) = $80.90
1
1
Shaded Area Indicates Estimated Earnings Used
0
Ned Davis Research Group
17
Please see important disclosures at the end of this document.
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
(S663)
1930
0
• ... with negative implications for the stock market. New Chart
S&P 500 Index Earnings Growth Higher Than It Was 12 Months Ago S&P 500 Gain/Annum When:
* Above 15%
% of Time
8. 7
24. 6
Between 5% & 15%
-1. 9
14. 1
Between -20% & 5%
14. 1
10. 9
6. 0
2. 2
-20% and Below
Earnings Growth Lower Than It Was 12 Months Ago S&P 500 Gain/Annum When: Y/Y Earnings Growth Is Falling And: Above 15%
Gain/ Annum -3. 7
6. 7
6. 4
9. 3
11. 7
27. 2
-22. 6
5. 1
Between -20% & 5%
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1995
Between 5% & 15% -20% and Below
% of Time
70
1295 938 679 492 356 258 187 135 98 71 51 37 27 19 14 10 7 5
2005
Gain/ Annum
2000
Y/Y Earnings Growth Is Rising And:
1930
1295 938 679 492 356 258 187 135 98 71 51 37 27 19 14 10 7 5
Monthly Data 3/31/1927 - 9/30/2006 (Log Scale)
70
60
60
50
50
Earnings Growth High
40
40
30
30
20
20
10
10
0
0
-10
-10
-30
-30
-20
-20
-40 (SMF0635_C)
6/30/2006 (A) = 17.6% 9/30/2006 (E) = 18.5%
Earnings Growth Low
S&P 500 GAAP Earnings Growth (Year-Over-Year Percent Change)
Ned Davis Research Group
18
Please see important disclosures at the end of this document.
-40
• Profit margins are also extreme, and threatened by rising unit labor costs.
1697 1350 1074 854 679 541 430 342 272 216 172 137 109 87 69 55 44 35 28
S&P Gain/Annum When: 9/30/1954 - 9/30/2006 Profit Margin:
Gain/ Annum
% of Time
* Above 6.2
(S658)
17.8
7.3
29.8
Between 3.3 and 5.4
12.2
45.7
3.3 and Below
-2.5
6.7
9/30/2006 = 1485.3 1955
7.25 6.80 6.39 6.00 5.63 5.29 4.96 4.66 4.38 4.11 3.86 3.62 3.40 3.19 3.00 2.82 2.64 2.48 2.33
1.1
Between 5.4 and 6.2
1960
1965
1970
Chart reflects data revisions.
Quarterly Data 9/30/1954 - 9/30/2006 (Log Scale)
Standard & Poor's Industrial Average
1975
1980
1985
Earnings & Sales Based on Four-Quarter Totals
1990
1995
2000
9/30/2006 Est. = 7.5%
1697 1350 1074 854 679 541 430 342 272 216 172 137 109 87 69 55 44 35 28
1328 1040 815 638 500 392 307 240 188 147 116 90 71 56 43 34 27 21 16
2005
12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3
Standard & Poor's Industrial Average Profit Margin (Earnings/Sales)
Ned Davis Research Group
Standard & Poor's 500 Stock Index S&P 500 Gain/Annum When: Unit Labor Costs (Y/Y Change) Are: Above 6
(S1108)
19
Gain/ Annum
3.5 and Below
% of Time
-2.2
17.9
5.3
22.6
12.3
59.4
* Between 3.5 and 6
9/30/2006 = 1335.85 1950
7.25 6.80 6.39 6.00 5.63 5.29 4.96 4.66 4.38 4.11 3.86 3.62 3.40 3.19 3.00 2.82 2.64 2.48 2.33
Quarterly Data 3/31/1948 - 9/30/2006
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
9/30/2006 = 5.3%
Labor Costs Rising
Labor Costs Falling
Non-Farm Unit Labor Costs (Year-to-Year Change) Please see important disclosures at the end of this document.
1328 1040 815 638 500 392 307 240 188 147 116 90 71 56 43 34 27 21 16
12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3
• S&P 500 not cheap from long-term perspective.
Weekly Data 3/27/1926 - 10/27/2006
S&P 500 Index Price/Earnings Ratio 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8
P/E Ratio Based on S&P 500 GAAP EPS Average from 3/27/1926 - 10/27/2006 = 15.9 (heavy dashed line) Average from 1/2/1980 - 10/27/2006 = 19.5 (narrow dashed line)
10/27/2006 = 18.5 1930
6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 (S797)
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Average from 3/27/1926 - 10/27/2006 = -0.17% (heavy dashed line) Average from 1/2/1980 - 10/27/2006 = 3.60% (narrow dashed line)
Monthly Moody's Baa yield data used prior to 1/8/1965, weekly thereafter
As of 10/27/2006: Baa Yield = 6.42% S&P Earnings Yield = 5.41% Spread = 1.01%
Moody's Baa Bond Yield Minus S&P 500 Earnings Yield
Ned Davis Research Group
20
Please see important disclosures at the end of this document.
46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8
6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13
• S&P 500 maintaining long-term downtrend versus the EAFE Index ...
S&P 500 Total Return Index Log Scale Right ( )
2004
1999
1994
1989
Source: MSCI
190 180 170 160 150 140 130 120 110 100 90 80 70 60 (I 1 1 9 A )
2853 2364 1959 1624 1346 1115 924 766 635 526 436 361 299 248 206 170 141 117
MSCI EAFE Total Return Index (U.S. Dollars) Log Scale Left ( )
1984
3485 2926 2457 2063 1732 1454 1221 1025 861 722 607 509 428 359 301 253 212 178
Daily Data 12/31/1979 - 11/02/2006
S&P 500 Total Return Index vs EAFE Total Return Index
Ratio moving up = S&P 500 Strength
Ratio moving down = EAFE Strength
Relative Strength -- Ratio of S&P 500 to EAFE
Ned Davis Research Group
21
Please see important disclosures at the end of this document.
190 180 170 160 150 140 130 120 110 100 90 80 70 60
• ... and it continues to rank low in Global Market Ranking, which shows continuing relative strength in most commodity-related emerging markets.
NDR Global Market Index Ranking
Four Position Current Previous Weeks Composite Entry Entry Current Gain/ Rank Week Ago Market Reading Date Price Price Loss (%) OVERWEIGHT Ranked 1-3 — Buy/Overweight: 1 1 1 Lima Exchange Index 190.97 2 2 2 Indice D.C. Bursatil 88.82 3 3 4 Manila Exchange Index 63.92 Ranked 4-13 After Reaching Ranks 1-3 — Hold/Continue to Overweight: 4 6 3 Jakarta Exchange Index 59.26 5 5 9 Warsaw WIG Index 51.50 6 7 5 BSE 100 50.24 8 9 7 I.P.C. 47.65 10 10 10 Johannesburg All-Shares Index 41.16 UNDERWEIGHT Ranked 30-39 After Reaching Ranks 40-42 — Continue to Underweight: 35 35 41 Prague PX-50 Index 8.38 39 42 40 Bangkok SET Index 3.13 Ranked 40-42 — Sell/Underweight: 40 41 37 Budapest Exchange Index -2.38 41 40 42 IBB General Index -3.94 42 39 36 TOPIX Index -7.87
02/05/2006 03/12/2006 10/29/2006
6314.38 29520.70 2702.37
10879.64 37992.02 2766.86
72.30 28.70 2.39
I5064 I5092 I5066
08/13/2006 07/09/2006 11/27/2005 11/27/2005 06/04/2006
1402.19 42875.60 4663.97 16879.37 20874.86
1612.92 47833.42 6682.47 23169.87 23590.57
15.03 11.56 43.28 37.27 13.01
I5044 I5068 I5042 I5056 I5072
06/04/2006 06/11/2006
1370.40 670.41
1542.10 732.30
12.53 9.23
I5028 I5086
10/22/2006 09/10/2006 08/06/2006
22318.67 9052.87 1571.70
22123.20 10328.81 1619.02
-0.88 14.09 3.01
I5040 I5026 I5052
Full Rank Four Developed Previous Weeks Market Rank Week Ago (**) Market Country Composite ↑
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42
1 2 3 6 5 7 4 9 11 10 8 12 13 15 14 26 21 19 24 18 25 17 36 29 23 16 27 31 20 28 37 22 32 30 35 34 33 38 42 41 40 39
1 2 4 3 9 5 8 7 11 10 6 32 12 13 14 19 28 20 25 22 18 15 34 27 16 17 29 26 21 24 33 23 30 38 41 35 31 39 40 37 42 36
** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** **
Chart
Lima Exchange Index Indice D.C. Bursatil Manila Exchange Index Jakarta Exchange Index Warsaw WIG Index BSE 100 Madrid General Index I.P.C. Hong Kong Hang Seng Johannesburg All-Shares Index Colombo Exchange Index OBX Stock Index IGPA Index Swiss Performance Index Straits Times Taiwan Trade-Weighted Index Bovespa Index All Ordinaries NZSX 50 FF Gross Index ISEQ Overall Index Mishtanim 100 Stockholm All-Share Index Merval Index Kuala Lumpur Composite Brussels Bel-20 Index Frankfurt Xetra DAX KFX Copenhagen Milan MIBtel Index Amsterdam AEX All-Share S&P 500 Index Athens Exchange Index Paris CAC 40 London FTSE 100 Austrian Traded Index Prague PX-50 Index S&P/TSX Composite Helsinki HEX General Seoul Exchange Index Bangkok SET Index Budapest Exchange Index IBB General Index TOPIX Index
Peru Venezuela Philippines Indonesia Poland India Spain Mexico China South Africa Sri Lanka Norway Chile Switzerland Singapore Taiwan Brazil Australia New Zealand Ireland Israel Sweden Argentina Malaysia Belgium Germany Denmark Italy Netherlands U.S. Greece France U.K. Austria Czech Republic Canada Finland South Korea Thailand Hungary Colombia Japan
190.97 88.82 63.92 59.26 51.50 50.24 49.64 47.65 45.20 41.16 37.82 31.29 29.17 28.73 27.84 25.99 25.45 24.34 23.88 22.73 22.68 21.79 21.04 20.11 19.01 18.94 18.78 17.84 16.36 13.12 12.23 11.56 11.24 9.83 8.38 8.34 7.30 5.60 3.13 -2.38 -3.94 -7.87
Current Price 10879.64 37992.02 2766.86 1612.92 47833.42 6682.47 1505.62 23169.87 18749.69 23590.57 2516.00 342.57 10971.42 6796.92 2722.31 7161.61 40435.18 5396.90 3778.41 8544.15 919.02 349.41 1841.96 998.02 4180.68 6241.15 424.31 30624.00 733.25 1364.30 4177.04 5336.30 6148.10 4093.19 1542.10 12239.04 9067.78 1383.88 732.30 22123.20 10328.81 1619.02
Chart
I5064 I5092 I5066 I5044 I5068 I5042 I5076 I5056 I5024 I5072 I5078 I5062 I5022 I5082 I5070 I5084 I5018 I5012 I5060 I5046 I5048 I5080 I5010 I5054 I5016 I5036 I5030 I5050 I5058 I5090 I5038 I5034 I5088 I5014 I5028 I5020 I5032 I5074 I5086 I5040 I5026 I5052
↑ = Change from Underweight to Marketweight ** = Developed Market Out-Of-Sample Performance Results 2/9/1996 - 11/05/2006 (Weekly Rebalancing); Top Category Has Gained 26.5% Per Annum; Equal-Weighted Universe Has Gained 10.6% Per Annum; Bottom Category Has Gained 9.2% Per Annum. Ned Davis Research, Inc.
Ned Davis Research Group ↑
ICS_1
22
Please see important disclosures at the end of this document.
• China-driven commodity demand theme still well intact ...
Daily Data 7/01/1996 - 11/02/2006 (Log Scale)
Global Reflation Theme (II)
81 72 65 58 52 47 42 38 34 30 27 24
NDR Global Oil & Gas Sector / NDR Global Composite (Equal-Weighted) Scale Right 11/02/2006 = 69.91
188 171 155 140 127 115 104 95 86 78 70 64 58 52
Dow Jones Latin America Index / Dow Jones Developed Markets Index Scale Left 11/02/2006 = 188.18
695 632 575 523 475 432 393 358 325 296 269 (I 0105A)
10 7 MSCI China Index / MSCI World Index Scale Right 11/02/2006 = 2.96
Comex Gold Futures Index Scale Left 11/02/2006 = 633.30
1998
1999
Ned Davis Research Group
2000
2001
2002
2003
2004
2005
4
2
Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index Scale Left 11/02/2006 = 86.73
43 39 36 33 30 27 25 23 21 19 17
NDR Global Basic Resources Sector/ NDR Global Composite Scale Right 11/02/2006 = 42.18
385 359 335 312 291 271 253 236 220 205 191
S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
5
3 117 107 97 89 81 74 67 61 56 51 46 42
70 63 58 53 48 44 40 36 33 30 27
NDR Australia Composite / NDR Global Composite Scale Right 11/02/2006 = 72.87
Daily Data 7/01/1996 - 11/02/2006 (Log Scale)
Global Reflation Theme (I)
2006
(I 0105)
23
Reuters-CRB Continuous Commodity Index Scale Left 11/02/2006 = 391.69
S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
1998
1999
2000
2001
2002
2003
2004
2005
Please see important disclosures at the end of this document.
2006
• ... with several base metals and agricultural commodities back at new highs.
Daily Data 7/01/1996 - 11/03/2006 (Log Scale)
London Metals Index and Select Components
3818 3307 2864 2481 2149 1861 1612 1396 1209 1047
London Metals Index Scale Right 11/03/2006 = 3906.1
1605 1407 1234 1082 948 831 729 639 560 491 430
9868 8974 8160 7421 6748 6136 5580 5074 4614 4196 3815
Tin Scale Right 11/03/2006 = 10190
Nickel Scale Left 11/03/2006 = 32690
Zinc Scale Right 11/03/2006 = 4340
(STH0618A_C)
S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
1998
1999
Ned Davis Research Group
2000
2001
2002
2003
2004
2005
292 272 253 235 219 204 189 176 164 153
Reuters-CRB Grains and Oilseeds Index Scale Right 11/03/2006 = 264.88
398 370 344 319 297 276 256 238 221 205 191
Lead Scale Left 11/03/2006 = 1710
31545 25775 21060 17207 14060 11488 9387 7670 6267 5120 4184
Daily Data 7/01/1996 - 11/03/2006 (Log Scale)
Agricultural Commodity Perspectives
Corn Futures* Scale Left 11/03/2006 = 351.38
521 480 443 408 376 347 320 295 272 250
Wheat Futures* Scale Right 11/03/2006 = 505.75
251 229 209 190 174 158 144 131 120 109
4016 3416 2906 2472 2102 1788 1521 1294 1101 936 796
Oats Futures* Scale Left 11/03/2006 = 263.62
Orange Juice Futures* Scale Right 11/03/2006 = 197.89
*91-Day Perpetual Futures Contract
2006
(STH0618B_C)
24
S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
1998
1999
2000
2001
2002
2003
2004
2005
Please see important disclosures at the end of this document.
2006
188 168 150 134 119 106 95 85 76 68 60
• When freight index has reflected rising demand, commodities and emerging markets have benefited.
Chart title has been changed.
Monthly Data 11/30/1992 - 9/30/2006 (Log Scale)
Monthly Data 3/31/1991 - 9/30/2006 (Log Scale)
381 361 342 324 307 291 276 261 248 235 222 211 200 189
Reuters-CRB Continuous Commodity Index vs Cass Freight Index For Expenditures Momentum Reuters-CRB Index Gain/Annum When: 12-Month % Change Of Cass Freight Index * Above 7%
Gain/ Annum
% of Time
11.4
36.5
Between -3% and 7%
0.5
45.2
-3% and Below
-4.0
18.2
Reuters-CRB Continuous Commodity Index
9/30/2006 = 370.1
2.1
2.1
Cass Freight Index For Expenditures
1.9
1.9
1.7
1.7
1.5
1.5
1.3
1.3
1.2
1.2
1.1
1.1
1.0
9/30/2006 = 2.1 Cass Freight Index 12-Month Rate of Change (Three-Month Smoothing)
25 16 9 4 1 0 -1 -4 -9
Ned Davis Research Group
Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index
Emerging/Developed Gain/Annum When: Cass Freight Index Indicator:
2.1 2.0 1.9
1.0
1.8
25 16 9 4 1 0 -1 -4 -9
1.7
Favors Developed
% of Time
5.2
44.6
-6.9
55.4
9/30/2006 = 85.0 1994
1995
1996
1997
1998
9/30/2006: Cass Freight Index For Expenditures ( 9/30/2006 = 2.11 Five-Month Smoothing ( ) 9/30/2006 = 2.10
1999
2000
2001
2002
2003
2004
)
Five-Month Smoothing Rises 2.7% from Trough = Favors Emerging Markets Five-Month Smoothing Falls 0.2% from Peak = Favors Developed Markets
2005
157 146 135 125 116 108 100 93 86 80 74 68 63 59 55 51 47 43
2006
2.1 2.0 1.9 1.8 1.7
1.6
1.6
1.5
1.5
1.4
1.4
1.3
1.3
1.2
1.2
1.1
1.1
1.0
1.0
(I 3161)
25
Gain/ Annum
* Favors Emerging
1993
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
9/30/2006 = 18.8% 1992
(I 187)
157 146 135 125 116 108 100 93 86 80 74 68 63 59 55 51 47 43
381 361 342 324 307 291 276 261 248 235 222 211 200 189
Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index
Cass Freight Index For Expenditures Please see important disclosures at the end of this document.
• Energy has lagged, but futures sentiment is extremely pessimistic.
719 650 588 532 482 436 394 357 323 292 264 239 216 195 177 160 145 131 118
Daily Data 10/11/1988 - 11/03/2006 (Log Scale)
Reuters-CRB Energy Index
704.5
671.0
Reuters-CRB Energy Index Gain/Annum When: Energy Sentiment Seven-Day Smoothing: Above 63 Between 45 and 63 * 45 and Below
Gain/ Annum
% of Time
-3. 5
19. 8
4. 9
44. 7
20. 9
35. 5
482.5
511.1 445.4
367.8
322.1
313.7
227.5
164.8
11/03/2006 = 533.17
719 650 588 532 482 436 394 357 323 292 264 239 216 195 177 160 145 131 118
DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24 20 (DAVIS60)
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Extreme Optimism
2003
2004
2005
83.9
2006
79.5
77.5
74.0
36.8
38.0
71.3 68.5
39.2
29.7
27.0
Extreme Pessimism
23.0
11/03/2006 = 33.04
NDR Crowd Sentiment Poll for Energy Futures (Seven-Day Smoothing)
Ned Davis Research Group
26
Please see important disclosures at the end of this document.
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24 20
• Resource stocks still supported by commodity momentum, dollar weakness and gold strength. Chart title has been changed.
Weekly Data 1/06/1985 - 10/29/2006 (Log Scale)
-10 -20
30
30
30
10
20
20
0
10
10
-10
0
0
-20
-10
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
Ned Davis Research Group
10/29/2006 = 26.3%
-20
10/29/2006 = 18.0% (I 8011)
40
(I 8010)
27
Please see important disclosures at the end of this document.
2006
0
50
2005
10
20
60
40
2004
20
50
10/29/2006 = 598.2
680 640 600 560 520 480 440 400 360 320 280
Gold 52-Week Rate of Change (Three-Week Smoothing)
2003
30
60
40
10/29/2006 = 42.1 Comex Gold
2002
40
10.6
680 640 600 560 520 480 440 400 360 320 280
50
Reuters-CRB Continuous Commodity Index / Dollar Ratio 52-Week Rate of Change (Four-Week Smoothing)
65.8
-11.8
2001
50
23.6
-2.8
2000
10/29/2006 = 453.4
450 420 390 360 330 300 270 240 210 180
-12 and Below
10.0
1999
Reuters-CRB Continuous Commodity Index / Trade-Weighted U.S. Dollar Ratio
Between -12 and 12
1998
10/29/2006 = 42.1
* Above 12
1997
26.9
1996
32.9
-7.7
% of Time
1995
-3.0
-8 and Below
Gain/ Annum
1994
Between -8 and 10
Smoothed 52-Week % Change of Gold:
1993
40.2
1992
5.2
* Above 10
Relative Strength Gain/Annum When:
1991
% of Time
71 63 56 50 45 40 36 32 28 25 22 20 18
NDR Global Basic Resources Sector/ NDR Global Composite (Equal-Weighted)
1990
Gain/ Annum
71 63 56 50 45 40 36 32 28 25 22 20 18
1989
Basic Resources Sector RS Line Gain/Annum When CRB/Dollar Ratio Momentum Is:
71 63 56 50 45 40 36 32 28 25 22 20 18
1988
450 420 390 360 330 300 270 240 210 180
NDR Global Basic Resources Sector/ NDR Global Composite (Equal-Weighted)
Weekly Data 1/05/1986 - 10/29/2006 (Log Scale)
NDR Global Basic Resources Sector Relative Strength vs Comex Gold Momentum
1987
71 63 56 50 45 40 36 32 28 25 22 20 18
NDR Global Basic Resources Sector RS Line vs Reuters-CRB/Trade-Weighted U.S. Dollar
-10 -20
• Inverse correlation evident in opposite trends and dropping dollar/gold ratio.
104.5
11/02/2006: U.S. Dollar Index (Solid Line) = 85.34 200-Day MA (Dashed Line) = 86.93 200-Day MA is Falling
102.4 100.3
98.2
106.7
U.S. Dollar Index Gain/Annum When: 5/08/1980 - 11/02/2006 200-Day Moving Average:
96.2
104.5
Gain/ Annum
% of Time
Is Rising
2.2
55.8
* Is Falling
-2.9
44.2
100.3
Dollar GPA
Gold GPA
% of Time
Rising
8.8
2.9
-5.5
47.4
* Falling
-7.4
-2.9
4.9
52.6
-1.7
-0.1
1.6
100.0
U.S. Dollar Index Scale Right 11/02/2006 = 85.3
96.2 94.2 92.3
90.4
90.4
819 746 680 620 565 515 469 427 389 355 323 295 269
85.0
83.2
83.2
81.5
81.5 N
J
2003
M
M
J
S
N
J
2004
Gold Futures Gain/Annum When: 11/03/1980 - 11/02/2006 200-Day Moving Average:
Gain/ Annum
% of Time
* Is Rising
4.7
52.2
Is Falling
-5.2
47.8
M
M
J
S
N
J
2005
M
M
J
S
N
11/02/2006: Comex Gold Perpetual Futures (Solid Line) = 633.30 200-Day MA (Dashed Line) = 608.54 200-Day MA is Rising
Moving average direction based on reversals of 0.5% or greater.
J
2006
M
M
J
S
N
706 676 647 619 593 567 543 520 497 476 456 436 418 400 383 366 350 335 321
56 52 48 44 40 36 32 28 24 20 16 12
Gold Futures vs. 200-Day Moving Average
Ned Davis Research Group
(I 242)
28
160 151 143 135 128 121 114 108 102 96 91 86 81
Comex Gold Scale Left 11/02/2006 = 633.3
56 52 48 44 40 36 32 28 24 20 16 12
11/02/2006: U.S. Dollar / Gold (Solid Line) = 13.48 200-Day MA (Dashed Line) = 14.36 200-Day MA is Falling Moving Average direction based on reversals of 0.5% or greater.
Please see important disclosures at the end of this document.
2004
85.0
1994
86.8
1999
88.6
86.8
1989
88.6
(I 241)
Ratio GPA
Buy/Hold
98.2
92.3
706 676 647 619 593 567 543 520 497 476 456 436 418 400 383 366 350 335 321
When Dollar/Gold 200-Day Moving Average:
102.4
Moving average direction based on reversals of 0.5% or greater.
94.2
Daily Data 10/15/1979 - 11/02/2006 (Log Scale)
U.S. Dollar and Gold vs. Dollar / Gold 200-Day Moving Average
1984
106.7
Daily Data 11/01/2002 - 11/02/2006 (Log Scale)
U.S. Dollar Index vs. 200-Day Moving Average
• China's expansion continuing at manageable pace ...
1 2003
2
3
4
Ned Davis Research Group
1 2004
2
3
4
1 2005
2
3
4
1 2006
2
3
(IE15000)
29
Prime Lending Rate 9/30/2006 = 6.12% ( )
Source: Haver Analytics
Please see important disclosures at the end of this document.
2006
4
9/30/2006 = 4.7
16 14 12 10 8 6 4 2 0 -2 -4 -6 -8
2005
Year-to-Year Point Change
2004
9/30/2006 = 0.8
Source: Haver Analytics, China National Bureau of Statistics
2003
Business Climate Weakening
2001
Business Climate Improving
2000
15 12 9 6 3 0 -3 -6 -9 -12
Quarterly Point Change
1999
(IE15202)
118
9/30/2006 = 136.7
1998
15 12 9 6 3 0 -3 -6 -9 -12 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8
120
Not Seasonally Adjusted
1997
118
1996
122
120
1995
124
122
1994
124
Industrial Production Value Added Smoothed Year-to-Year Change 9/30/2006 = 16.17% ( )
Consumer Price Index Year-to-Year Change 9/30/2006 = 1.5% ( )
1993
126
1992
128
126
1991
128
1990
130
1989
132
130
28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2
%
1988
132
28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2
134
Mean = 132.5
1987
134
1986
136
1985
136
Monthly Data 1/31/1985 - 9/30/2006
Chinese Economic Factors
2002
Quarterly Data 12/31/2002 - 9/30/2006
Chinese Business Climate Index
• ... and for China and commodities alike, the bubble stage has yet to be reached.
369
(Log Scale)
Commodities & China Market vs. Bubbles
369
Reuters-CRB Continuous Commodity Index (2000 - 2006)
326
326
Reuters-CRB Percent Gain Ending 10/31/2006:
288
Time Period:
255 225
288
% Gain
One-Year Prior
17.5%
Six-Years Prior
75.1%
255 225
199
199 D
M J
S
2001
37
D
M J
S
2002
D
M J
S
2003
D
M J
S
2004
D
M J
S
2005
D
M J
S
2006
D
M J
S
2007
MSCI China Index (2000 - 2006)
31
D
M J
S
2008
D
M J
S
2009
37 31
MSCI China Index Percent Gain Ending 10/31/2006:
26
Time Period:
22 18
26
% Gain
One-Year Prior
54.9%
Six-Years Prior
58.3%
22 18
15
15 D
2158 1588
S
2001
3985 2933
M J
D
M J
S
2002
D
M J
2003
NASDAQ Percent Gain Ending 2/29/2000: Time Period:
S
D
M J
S
2004
D
M J
S
2005
D
M J
S
2006
D
M J
S
2007
D
M J
S
2008
D
M J
S
2009
3985
NASDAQ Composite Index (1994 - 2003)
% Gain
One-Year Prior
105.3%
Six-Years Prior
492.6%
2933 2158 1588
1168
1168
860
860
M J
310
S
D
M J
S
1995
D
M J
S
1996
D
M J
S
1997
D
M J
S
1998
D
M J
S
1999
D
M J
S
2000
D
M J
S
2001
D
M J
S
2002
D
2003 310
Dow Jones Industrial Average (1923 - 1932)
212
212
145
145
99 68
Time Period:
47 S 35520 29234
D
M J
S
1924
D
M J
S
1925
Time Period:
% Gain
19802
One-Year Prior
29.0%
Six-Years Prior
293.3%
58.2%
Six-Years Prior
306.9%
D
M J
S
1926
241
S
D
47
M J
S
1928
D
M J
S
1929
D
M J
S
1930
D
M J
S
1931
D
M J
1932
35520
19802 16298
Nikkei 225 Average (1983 - 1992)
M J
324
M J
1927
24060
11039
435
D
29234
13413
583
68
% Gain
One-Year Prior
Nikkei Percent Gain Ending 12/31/1989:
24060 16298
99
DJIA Percent Gain Ending 8/31/1929:
1984
S
D
M J
S
1985
D
M J
1986
S
D
M J
1987
S
D
M J
1988
S
13413 11039
D
M J
1989
S
D
M J
1990
S
D
M J
1991
S
D
M J
1992
S
D
583
Gold Percent Gain Ending 1/31/1980: Time Period:
435
% Gain
One-Year Prior
189.7%
Six-Years Prior
426.6%
324 241
Comex Gold (1974 - 1983)
180
180
134 (I 0 1 8 1 A )
Ned Davis Research Group
134 M J
S
D
M J
1975
S
D
M J
1976
S
D
M J
1977
S
D
M J
1978
30
S
D
M J
1979
S
D
M J
1980
S
D
M J
1981
S
D
M J
1982
S
D
1983
Please see important disclosures at the end of this document.
ADDENDUM
Ned Davis Research Group
Europe
39 38 37
36.67
Composite Advance-Decline Line 11/03/2006 = 53.63
50-Day Smoothing (---)
53.6
53.6
53.34
53.2
53.2
53.01
52.8 52.36
52.39
52.0
52.87
52.70
52.65
52.4
52.8
52.81
52.4
52.29
52.0
51.96
51.6
51.6
% Issues at 30-Day New Highs & New Lows
50
38
25
48
36
50
36
25
0
0
-25
-25
-50
50
-75 N
(IGB4000)
D
J
F
M
A
M
J
2005 Performance Analysis Dates: (9/11/1985 - 11/03/2006)
Current Mode Entry Date: 7/25/2006
Ned Davis Research Group
-50
51
J
A
S
O
NDR Europe Composite / NDR Global Composite 11/05/2006 = 84.9
N
D
J
F
2006
M
A
M
80
-75 J
Performance When Price & A/D Lines are: * Both Above Smoothings At Least One Below
1987
37.00
J
A
S
O
N
% Gain/Annum
% of Time
33. 3
51. 1
-6. 7
48. 9
60 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30
(IGR4000)
A1
90 85 80 75 70 65 60 55
40-Week Smoothings (---)
60 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30
Scale = % Points
37.53
1907 1495 1172 919 721 565 443 347 272 214 167
2006
38.70
+4
37.34
38.25
+3
38.06
37
40 39.32
+2
38
38.71
+1
38.98
38.45
M
39
41
39.88
39.55
Dashed Lines = Std Dev
40
2005
42
40.97
41
2004
43
2002
42
2001
44
43.05
43
2000
44
90 85 80 75 70 65 60 55
45
50-Day Smoothing (---)
-1
45
Relative Strength Line 11/03/2006 = 44.17
1999
960
Current = 400 Issues
1998
1020
1997
1080
1075.5
1048.1
1020
1140
-2
1080 960
1200
1168.7
1148.2
1140
1996
1260
1239.2
1200
40-Week Smoothings (---)
1995
1320
1260
1994
1320
1993
1380
NDR Europe Composite (Log Scale) 11/05/2006 = 1489.5
1992
1380
1907 1495 1172 919 721 565 443 347 272 214 167
1991
1440
1990
1500
1455.0
1440
1989
50-Day Smoothing (---)
1988
Composite Price Line 11/03/2006 = 1489.48
1500
Weekly Data 1/05/1986 - 11/05/2006
NDR Equal-Weighted Europe Composite and Relative Strength
2003
Daily Data 11/03/2004 - 11/03/2006
NDR Europe Composite vs. Breadth Indicators
Europe Composite (Y/Y) minus Global Composite (Y/Y) -- NDR Equal-Weighted Indices
Weekly Data 11/09/2003 - 11/05/2006 (Log Scale)
1510
NDR Europe Composite Stock Participation Indicators
11/05/2006 = 1489.48 1510
NDR Europe Composite
1447
1447
1386
1386
1328
1328
1273
1273
1220
1220
1169
1169
1120
1120
1073
Composite Performance Analysis Dates: (10/06/1985 - 11/05/2006)
1029 986
Composite Performance When Participation Indicators are:
944
* Both in Upper Modes
% Gain/ Annum 32. 8
Mixed
905 867 100
Weekly Data 4/12/1992 - 11/05/2006
% of Time 29. 1
5. 2
53. 9
Both in Lower Modes
-1. 2
17. 0
Buy/Hold
11. 4
100. 0
Percentage of Composite's Stocks Above Their 10-Week Moving Averages
Upside Participation
1073 1029 986 944 905 867 100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10 100 95 90 85 80 75 70 65 60 55 50 45 40 35 (IGP4000)
Downside Participation
11/05/2006 = 85.32 Percentage of Composite's Stocks Above Their 40-Week Moving Averages
11/05/2006 = 87.50 D J F
2004
M A M
Upside Participation
Downside Participation J J A
Ned Davis Research Group
S O N D J
F M A M
2005
J J
A S O N D J
F M A M J J
2006
A S O N
10 100 95 90 85 80 75 70 65 60 55 50 45 40 35
175 170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65
Ratio of Dow Jones Stoxx Index to JP Morgan European Monetary Union Bond Index vs Momentum Indicator When Momentum Indicator is:
STOXX TR GPA
Bonds TR GPA
Ratio GPA
% of Time
Between-4% and 6%
12.5
8.8
3.4
55.3
Buy/Hold
11.5
* Above 6%
-4% and Below
A2
-2.9
3.0
11.1 7.7
18.3
-12.6 3.5
25.1
19.6
100.0
Based on Total Return Indices
JP Morgan European Bond Index used prior to 1/3/1995.
27 24 21 18 15 12 9 6 3 0 -3 -6 -9 -12 -15 -18 -21 -24 -27 -30 (I 2104)
21.8
175 170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65
Favors Stocks
Six-Week Smoothing of Six-Week Rate of Change of STOXX Index Minus Six-Week Rate of Change of Bond Index
Favors Bonds
11/05/2006 = 6.9%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
27 24 21 18 15 12 9 6 3 0 -3 -6 -9 -12 -15 -18 -21 -24 -27 -30
108
108
103
103
98
98
94
94
90
90
86
86
Ned Davis Research Group
2006
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
(IE4230)
10/31/2006 = 111.8 2005
82
Source: Haver Analytics, Ifo Institute For Economic Research, www.ifo.de
82
30 25 20 15 10 5 0 -5 -10 -15 -20
(IE1200A)
A3
10/31/2006 = 1.0
Sentiment Improving
EUCOM Index Year-to-Year Point Change
10/31/2006 = 9.9
Sentiment Deteriorating
Source: Haver Analytics, European Commission
2006
113
Current Situation
EUCOM Index Monthly Point Change
2005
113
4 3 2 1 0 -1 -2 -3 -4 -5
2004
10/31/2006 = 99.2
105 102 100 98 96 94 92 90 88 86 84
Expectations
10/31/2006 = 110.3
2003
85
2001
105 102 100 98 96 94 92 90 88 86 84
10/31/2006 = 105.3
2000
85
1999
88
1998
88
1997
91
1996
91
1995
94
1994
94
1993
97
1992
97
1991
100
1990
100
1989
103
1988
103
European Commission Euro-Zone Economic Sentiment Index
116 112 108 104 100 96 92 88 84 80 76
1987
107
Business Climate
1986
107
Monthly Data 1/31/1986 - 10/31/2006
European Commission Euro-Zone Economic Sentiment Indicator
2002
Monthly Data 1/31/1991 - 10/31/2006 (Log Scale)
Ifo Institute's Survey of Pan-German Business Sentiment
116 112 108 104 100 96 92 88 84 80 76 4 3 2 1 0 -1 -2 -3 -4 -5 30 25 20 15 10 5 0 -5 -10 -15 -20
5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 (IE7203)
Source: Haver Analytics
ISAE Business Confidence Survey (Monthly Point Change)
Ned Davis Research Group
120 117 114 111 108 105 102 99 96 93 90 87 84 81 78 75
10/31/2006 = -0.2
Above Normal
Mean = 100.0
Below Normal
5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9
5
120 117 114 111 108 105 102 99 96 93 90 87 84 81 78 75
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
10/31/2006 = 2
Business Climate Improving
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
Business Climate Weakening
-5 Source: Haver Analytics (IE6202)
A4
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1977
10/31/2006 = 108 1978
102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72
Monthly Data 4/30/1976 - 10/31/2006
INSEE French Composite Business Climate Indicator
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
10/31/2006 = 97.1 1991
102 100 98 96 94 92 90 88 86 84 82 80 78 76 74 72
Monthly Data 1/31/1991 - 10/31/2006
ISAE Italian Business Confidence Survey
French Business Climate Indicator (Monthly Point Change)
-4 -5
JAPAN Monthly Data 1/31/1966 - 9/30/2006
Japanese Economic Factors 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 -14 -15 -16 (IE3000)
%
Three-Month Interest Rate 9/30/2006 = 0.34 ( )
Consumer Price Index Year-to-Year Change 9/30/2006 = 0.60 ( )
Industrial Production Mining and Manufacturing Smoothed Year-to-Year Change 9/30/2006 = 4.48 ( )
Source: Economist Magazine, Haver Analytics
1970
1975
Ned Davis Research Group
1980
1985
1990
1995
2000
2005
24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 -14 -15 -16
2.6 2.5 2.4 2.3 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9 -1.0 -1.1 -1.2 -1.3 -1.4 -1.5 (IE3702)
A5
Monthly Data 1/31/1996 - 9/30/2006
Japanese Consumer Price Measures (Year-to-Year Changes) Consumer Price Index ( ) Core Consumer Price Index (
2.6 2.5 2.4 2.3 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9 -1.0 -1.1 -1.2 -1.3 -1.4 -1.5
0.6% ) 0.2%
Seasonally Adjusted
Source: Haver Analytics
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Monthly Data 3/31/1978 - 9/30/2006
Japanese Consumer Price Index (Year-to-Year Change)
CPI Points/Annum When:
8 7
Operating Rate Is:
6
* Between 97.7 and 109.5
Points/ Annum
% of Time
0.3
21.1
0.0
59.5
-0.6
19.3
Above 109.5
5
Below 97.7
8 7 6 5
4
4
3
9/30/2006 = 0.6%
3
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
Tight Capacity - Inflationary
110 108 106 104
114 112 110 108 106 104
102 100
102 100
98 96
Excess Capacity - Disinflationary
94 92
(IE3753)
1993
8/31/2006 = 106.3%
114 112
90 88
1992
1991
1990
1989
1988
1987
1986
-1
1985
-1
1984
0
1983
0
1982
1
1981
1
1980
2
1979
2
Source: Haver Analytics
Japanese Manufacturing Operating Rate
Ned Davis Research Group
98 96 94 92 90 88
65 60 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30
(IE3214)
A6
Tankan Survey of Large Manufacturing Enterprises 9/30/2006 = 24 Scale Right ( )
Tankan Survey of Large Non-Manufacturing Enterprises 9/30/2006 = 20 Scale Left ( )
More Businesses Confident
*
*
*Survey methodology changed 3/31/2004 Data adjusted historically
More Businesses Pessimistic
Large Manufacturer Sentiment Quarterly Index Change
15 10 5 0 -5 -10 -15 -20 9 6 3 0 -3 -6 -9 -12
Quarterly Data 6/30/1983 - 9/30/2006
Tankan Survey of Large Enterprises
9/30/2006 = 3
Large Non-Manufacturer Sentiment Quarterly Index Change
9/30/2006 = 0
Source: Bank of Japan
1985
1990
1995
2000
2005
45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 -50 15 10 5 0 -5 -10 -15 -20 9 6 3 0 -3 -6 -9 -12
0.70
0.7074
0.7096 0.6969
0.68
0.6892
8.11 7.98
Chinese Yuan Scale Left 11/01/2006 = 6.73
7.92
7.62 7.39
7.29 7.23
7.07
6.76
6.68
N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N
(STH0618F_C)
2004
Ned Davis Research Group
2005
2006
0
-1
-1
2006
2005
2004
2003
0.72
2002
0.76
-2
German data used prior to 1999, Euro-Zone data used thereafter. 2001
-2
2000
0.7219
0.7131
0
1999
0.7211
1
0.74
0.7272
0.72
1
1998
0.74
2
1997
0.7505
2
1996
0.76
0.78
%
9
0.70
8
0.68
Canada U.S. Japan
7
8.1 8.0 7.9 7.8 7.7 7.6 7.5 7.4 7.3 7.2 7.1 7.0 6.9 6.8 6.7 6.6
3.47 ( 3.05 ( -0.23 (
) ) )
9 8 7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
(IE911)
A7
6
3
1995
0.7638
0.80
7
3
1994
Euro Scale Left 11/02/2006 = 0.6683
8
4
1993
0.7928
) ) )
4
1992
0.8033
( ( (
5
1991
0.8402 0.8267
2.17 1.54 1.17
5
1990
0.8734
6
1989
0.8762
7
1988
0.8869
% Euro-Zone Switzerland U.K.
1987
0.9111
8
1986
0.8923
0.78
8.1 8.0 7.9 7.8 7.7 7.6 7.5 7.4 7.3 7.2 7.1 7.0 6.9 6.8 6.7 6.6
0.9155
0.9205
0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.85 0.84 0.83 0.82
1985
U.S. Dollar Scale Right 11/02/2006 = 0.8539
1984
0.80
0.9800
0.9638
Weekly Data 7/09/1982 - 10/27/2006
Three-Month Real Interest Rates (U.K., Euro-Zone, Switzerland)
1983
0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 0.89 0.88 0.87 0.86 0.85 0.84 0.83 0.82
Daily Data 11/03/2003 - 11/02/2006
Foreign Currencies per 100 Japanese Yen
Three-Month Real Interest Rates (U.S., Canada, Japan)
-10 -20 -30 -40 (IGR999)
2006
2005
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
+2 SD
30 20
+1 SD
Scale = % Points
0
40
10 0
Mean
10
-10 -20 -30 -40
Japan Composite (Y/Y) minus Global Composite (Y/Y) -- NDR Equal-Weighted Indices
Ned Davis Research Group
S
S
S
B B
B S
S
B B
B
S B
S B
B
B
S
S
S
S S
S
S
S
S
S
B
S
S
S
S
S
B B
S B S
B B B B
B
B
B
B
B
B
Cyclical Turning Points Based on NDR Criteria
B B
Dow Jones Industrial Average Bull and Bear Markets - Cyclical and Secular
S
B
49918 34748 24188 16837 11720 8158 5679 3953 2752 1915 1333 928 646 450 313 218 152 106
2004
1999
1994
1989
1974
1969
B
1984
Shaded Areas - Secular Bear Markets Up Arrows - Start of Cyclical Bull Markets Down Arrows - Start of Cyclical Bear Markets
B
1979
S
14342 10863 8227 6231 4720 3575 2707 2051 1553 1176 891 675 511 387 293 222 168 127
A8
S
S
B
(I 364)
S
S
1964
49918 34748 24188 16837 11720 8158 5679 3953 2752 1915 1333 928 646 450 313 218 152 106
1959
90 80 70 60 50 40 30 20
50
-1 SD
40
641 547 468 399 341 292 249 213 182 155 133
60
-2 SD
50
20
40-Week Smoothing (---)
+3 SD
60
1988
1987
NDR Japan Composite / NDR Global Composite 10/29/2006 = 24.6
2004
90 80 70 60 50 40 30 20
40-Week Smoothings (---)
Daily Data 5/16/1949 - 11/02/2006 (Log Scale)
Nikkei 225 Average Bull and Bear Markets - Cyclical and Secular
1954
NDR Japan Composite (Log Scale) 10/29/2006 = 434.5
2003
641 547 468 399 341 292 249 213 182 155 133
30
Weekly Data 1/05/1986 - 10/29/2006
NDR Equal-Weighted Japan Composite and Relative Strength
B
14342 10863 8227 6231 4720 3575 2707 2051 1553 1176 891 675 511 387 293 222 168 127
New Chart
3
10/29/2006 = 0.28%
2 1
4
3 2
3
1
Stock Earnings Yield Rising Relative To 10-Year Gov. Bond Yield
1591 1472 1362 1261 1166 1079 999 924 855 791 732 677 627 580 537 497 459 425 393
2006
2005
2004
4
2003
5
CD Rate
10/31/2006 = 1010.6 2002
4
38.6
2001
5
61.4
-6.3
2000
6
11.6
Below 0
1999
6
* Above 0
1998
7
1997
7
% of Time
1996
8
Gain/ Annum
1995
8
When Yield Spread Momentum:
1994
10/29/2006 = 16669.07
MSCI Japan Index Gain/Annum When:
1993
26.5
1992
50.3
8.2
-0.3 and Below
1991
23.3
4.3
1990
-8.5
1989
Above 0.1 * Between -0.3 & 0.1
1988
Gain/ % Annum of Time
Monthly Data 6/30/1983 - 10/31/2006 (Log Scale)
MSCI Japan Index
1987
CD Rate Point Change Is:
1591 1472 1362 1261 1166 1079 999 924 855 791 732 677 627 580 537 497 459 425 393
1986
42072 37448 33333 29670 26410 23507 20924 18625 16578 14756 13135 11691 10407 9263 8245
Nikkei 225 Gain/Annum When:
1984
42072 37448 33333 29670 26410 23507 20924 18625 16578 14756 13135 11691 10407 9263 8245
Nikkei 225 Average vs. Japan's Three-Month CD Interest Rate (26-Week Point Change)
1985
Weekly Data 6/10/1984 - 10/29/2006 (Log Scale)
10/31/2006 = 0.21% Points
4 3
2
2
1
1
1
0
0
0
0
-1
-1
-1
-1
-2
-2
-3
-3
Two-Week Smoothing
26-Week Point Change
Bearish
1
-2
-2
Bullish
-4
Ned Davis Research Group
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
(I 379)
1985
10/29/2006 = 0.10% Points
-5 (I 382)
A9
Stock Earnings Yield Falling Relative To 10-Year Gov. Bond Yield
MSCI Japan Earnings Yield Minus Japan 10-Year Gov't Bond Yield (12-Month % Point Change)
-4 -5
Earnings Yield Percent From Rolling Moving Averages MSCI Index
Five-Year Mean
10-Year Mean
25-Year Mean
Chart
World
22.5
38.6
13.5
IV100
North America
16.7
29.2
-6.3
IV140
World ex. U.S.
27.8
47.4
35.3
IV130
U.S.
16.3
28.9
-7.6
IV200
EAFE
28.4
48.6
37.9
IV110
EAFE ex. Japan
20.5
34.6
8.2
IV120
Europe
21.6
37.9
9.7
IV2000
Europe ex. U.K.
27.5
42.9
11.9
IV2010
Pacific Basin
59.3
92.7
73.0
IV14000
Far East
76.3
114.1
84.3
IV14020
U.K.
14.4
30.2
7.1
IV400
Japan
95.6
171.1
111.6
IV300
France
58.7
78.8
37.0
IV700
Pacific ex. Japan
10.6
5.6
N/A
IV14010
Canada
18.9
29.3
16.6
IV500
Germany
45.7
59.5
25.4
IV600
Australia
13.7
16.9
-7.2
IV900
Italy
32.1
47.1
N/A
IV800
Emerging
-2.5
9.3
N/A
IV3000
All Countries World
21.3
37.1
N/A
IV3010 ICS_25.RPT
Ned Davis Research, Inc.
Ned Davis Research Group
A10
more u.s. perspectives
8.76 8.05 7.74 7.06 6.79
6.95
5.44
5.53
5.25
5.19
4.89 4.61 4.16
4.22 3.70
Ned Davis Research Group
2003
1998
1993
3.13
3.89
4
LT Bonds TR GPA 10.6 9.3 4.5 8.4
Cash GPA 4.8 5.9 8.0 6.2
Gold GPA 3.6 5.6 14.9 7.4
5605 4464 3555 2832 2255 1796 1430 1139 907 723 575 458 365 291 231 184 147 117 93
% of Time 26.7 47.4 25.9 100.0
Steep Yield Curve
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
9.09
1975
9.47
1974
10.12
S&P 500 TR GPA 7.6 19.6 -1.5 10.8
Stock Returns Based on S&P 500 Total Return (Thin Solid Line) Bond Returns Based on Long-Term Government Bond Total Return (Heavy Solid Line) Cash Returns Based on 91-Day Treasury Bill Total Return (Thin Dashed Line) Gold Returns Based on New York Spot Gold Prices (Heavy Dashed Line) 1973
10.23
When 10-Yr/T-Bill Yield Spread is: Above 2.6 Between 0.6 and 2.6 * 0.6 and Below Buy/Hold
1972
11/02/2006 = 4.60%
5605 4464 3555 2832 2255 1796 1430 1139 907 723 575 458 365 291 231 184 147 117 93
1971
13.99 13.65
15.6 15.2 14.8 14.4 14.0 13.6 13.2 12.8 12.4 12.0 11.6 11.2 10.8 10.4 10.0 9.6 9.2 8.8 8.4 8.0 7.6 7.2 6.8 6.4 6.0 5.6 5.2 4.8 4.4 4.0 3.6 3.2
1969
%
1988
(B151)
15.84
1983
15.6 15.2 14.8 14.4 14.0 13.6 13.2 12.8 12.4 12.0 11.6 11.2 10.8 10.4 10.0 9.6 9.2 8.8 8.4 8.0 7.6 7.2 6.8 6.4 6.0 5.6 5.2 4.8 4.4 4.0 3.6 3.2
Weekly Data 1/05/1968 - 11/03/2006 (Log Scale)
Stocks/Bonds/Cash/Gold Returns
1970
Daily Data 1/02/1979 - 11/02/2006
10-Year Constant Maturity Treasury Note Yields
4
3
3
2
2
1
1
0
0
-1
11/03/2006 10-Year Yield = 4.64%
-2 -3 (AA408)
A11
Flat or Inverted Yield Curve
Yield Curve - 10-Year Minus Three-Month Treasury Yield
Three-Month Yield = 4.95% Spread = -0.31%
-1 -2 -3
NDR-Defined Secular & Cyclical Bull & Bear Markets NDR-Defined Cyclical Bear Markets Days Date DJIA Date DJIA %Gain Secular Bull Market 3/31/1900 - 1/19/1906 9/24/00 38.80 6/17/01 57.33 47.8 266 6/17/01 57.33 11/9/03 30.88 -46.1 11/9/03 30.88 1/19/06 75.45 144.4 802 Secular Bear Market 1/19/1906 - 8/24/1921 1/19/06 75.45 11/15/07 38.83 -48.5 11/15/07 38.83 11/19/09 73.64 89.7 735 11/19/09 73.64 9/25/11 53.43 -27.4 9/25/11 53.43 9/30/12 68.97 29.1 371 9/30/12 68.97 7/30/14 52.32 -24.1 12/24/14 53.17 11/21/16 110.15 107.2 698 11/21/16 110.15 12/19/17 65.95 -40.1 12/19/17 65.95 11/3/19 119.62 81.4 684 11/3/19 119.62 8/24/21 63.90 -46.6 Secular Bull Market 8/24/1921 - 9/3/1929 8/24/21 63.90 3/20/23 105.38 64.9 573 3/20/23 105.38 10/27/23 85.76 -18.6 10/27/23 85.76 9/3/29 381.17 344.5 2138 Secular Bear Market 9/3/1929 - 4/28/1942 9/3/29 381.17 11/13/29 198.69 -47.9 11/13/29 198.69 4/17/30 294.07 48.0 155 4/17/30 294.07 7/8/32 41.22 -86.0 7/8/32 41.22 9/7/32 79.93 93.9 61 9/7/32 79.93 2/27/33 50.16 -37.2 2/27/33 50.16 2/5/34 110.74 120.8 343 2/5/34 110.74 7/26/34 85.51 -22.8 7/26/34 85.51 3/10/37 194.40 127.3 958 3/10/37 194.40 3/31/38 98.95 -49.1 3/31/38 98.95 11/12/38 158.41 60.1 226 11/12/38 158.41 4/8/39 121.44 -23.3 4/8/39 121.44 9/12/39 155.92 28.4 157 9/12/39 155.92 4/28/42 92.92 -40.4 Secular Bull Market 4/28/1942 - 2/9/1966 4/28/42 92.92 5/29/46 212.50 128.7 1492 5/29/46 212.50 5/17/47 163.21 -23.2 5/17/47 163.21 6/15/48 193.16 18.4 395 6/15/48 193.16 6/13/49 161.60 -16.3 6/13/49 161.60 1/5/53 293.79 81.8 1302 1/5/53 293.79 9/14/53 255.49 -13.0 9/14/53 255.49 4/6/56 521.05 103.9 935 4/6/56 521.05 10/22/57 419.79 -19.4 10/22/57 419.79 1/5/60 685.47 63.3 805 1/5/60 685.47 10/25/60 566.05 -17.4 10/25/60 566.05 12/13/61 734.91 29.8 414 12/13/61 734.91 6/26/62 535.76 -27.1 6/26/62 535.76 2/9/66 995.15 85.7 1324 Secular Bear Market 2/9/1966 - 8/12/1982 2/9/66 995.15 10/7/66 744.32 -25.2 10/7/66 744.32 12/3/68 985.21 32.4 788 12/3/68 985.21 5/26/70 631.16 -35.9 5/26/70 631.16 4/28/71 950.82 50.6 337 4/28/71 950.82 11/23/71 797.97 -16.1 11/23/71 797.97 1/11/73 1051.70 31.8 415 1/11/73 1051.70 12/6/74 577.60 -45.1 12/6/74 577.60 9/21/76 1014.79 75.7 655 9/21/76 1014.79 2/28/78 742.12 -26.9 2/28/78 742.12 9/8/78 907.74 22.3 192 9/8/78 907.74 4/21/80 759.13 -16.4 4/21/80 759.13 4/27/81 1024.05 34.9 371 4/27/81 1024.05 8/12/82 776.92 -24.1 Secular Bull Market 8/12/1982 - 1/14/2000 8/12/82 776.92 11/29/83 1287.20 65.7 474 11/29/83 1287.20 7/24/84 1086.57 -15.6 7/24/84 1086.57 8/25/87 2722.42 150.6 1127 8/25/87 2722.42 10/19/87 1738.74 -36.1 10/19/87 1738.74 7/16/90 2999.75 72.5 1001 7/16/90 2999.75 10/11/90 2365.10 -21.2 10/11/90 2365.10 7/17/98 9337.97 294.8 2836 7/17/98 9337.97 8/31/98 7539.07 -19.3 8/31/98 7539.07 1/14/00 11722.98 55.5 501 Secular Bear Market 1/14/2000 - ? 1/14/00 11722.98 9/21/01 8235.81 -29.7 9/21/01 8235.81 3/19/02 11727.34 29.1 179 3/19/02 10635.25 10/9/02 7286.27 -31.5 10/9/02 7286.27 10/26/2006 (?) 12163.66 66.9 1478 # Cases % Gain # Days Cyclical Bear Markets # Cases % Gain Cyclical Bull Markets All Cyclical Bulls All Cyclical Bears 33 85.3 718 Mean 33 -30.8 Mean 33 65.7 573 Median 33 -26.9 Median Cyclical Bulls within Secular Bulls Cyclical Bears within Secular Bulls 16 109.5 1024 Mean 12 -22.8 Mean 16 77.2 870 Median 12 -19.4 Median Cyclical Bulls within Secular Bears Cyclical Bears within Secular Bears 17 62.5 431 Mean 21 -35.4 Mean 17 50.6 371 Median 21 -31.5 Median Data begins 3/31/1900. Current cyclical bull market not included in summary statistics. Days are calendar days Ned Davis Reserch, Inc. Date
Ned Davis Research Group
NDR-Defined Cyclical Bull Markets DJIA Date DJIA
%Gain
A12
Days 875 665 675 668 393 660 221 71 813 173 171 386 147 959 353 363 252 564 294 195 240 539 209 694 525 591 472 238 55 87 45 616 204 # Days 406 363 295 245 470 525 T_STH0617
14.6 12.5 10.7 9.2 7.8 6.7 5.7 4.9 4.2 3.6 3.1 2.6 2.2 1.9 1.6 1.4 1.2 1.0 (S620)
1945
1950
1955
1960
1965
1970
1975
1980
1985
Shaded Areas Indicate NDR-Defined Secular Bear Markets
Percent GPA During Secular Bull Markets Dates
Percent GPA During Secular Bear Markets
S&P 500
Dividend Yield
3/31/1942 - 12/31/1965
10.8
-4.4
9/30/1929 - 3/31/1942
-10.1
8.7
6/30/1982 - 12/31/1999
16.0
-9.2
12/31/1965 - 6/30/1982
1.0
4.6
12/31/1999 - 9/30/2006?
-1.4
7.1
S&P 500 Dividend Yield vs. Secular Trends
Ned Davis Research Group
Dates
S&P 500
Dividend Yield
1990
1995
2000
14.6 12.5 10.7 9.2 7.8 6.7 5.7 4.9 4.2 3.6 3.1 2.6 2.2 1.9 1.6 1.4 1.2 1.0
733 612 510 426 355 297 247 207 172 144 120 100 84 70 58 49 41 34 28
2005
9/30/2006 = 1.8%
(S0202)
A13
Secular Bull Markets DJIA Real Annualized Gain (GPA) Dates
GPA
Secular Bear Markets DJIA Real Annualized Gain (GPA) Dates
GPA
3/31/1900 - 1/19/1906
6.5
1/19/1906 - 8/24/1921
-5.4
8/24/1921 - 9/3/1929
26.1
9/3/1929 - 4/28/1942
-10.1
4/28/1942 - 2/9/1966
7.3
2/9/1966 - 8/12/1982
-7.9
8/12/1982 - 1/14/2000
13.2
1/14/2000 - 11/02/2006?
-2.4
DJIA Adjusted Using Quarterly Consumer Price Index 11/02/2006 = 512.15
Inflation-Adjusted Dow Jones Industrial Average vs. Secular Trends
10298 7404 5323 3827 2751 1978 1422 1022 735 528 380 273 196 141 101 73 52 38
2005
1940
2000
1935
11/02/2006 = 12018.54 1995
9.1
Shaded Areas Indicate Secular Bear Markets
1990
-1.4
0.4
1985
12/31/1999 - 9/30/2006?
-1.5
1/14/2000 - 11/02/2006?
1980
5.2
2/9/1966 - 8/12/1982
16.8
1975
1.0
10.5
8/12/1982 - 1/14/2000
1970
12/31/1965 - 6/30/1982
4/28/1942 - 2/9/1966
1965
-7.5
-10.6
1960
16.0
9/3/1929 - 4/28/1942
1955
6/30/1982 - 12/31/1999
24.9
1950
7.7
-1.1
8/24/1921 - 9/3/1929
1945
-10.1
1930
Dates
GPA
1/19/1906 - 8/24/1921
1940
Earnings Yield
9/30/1929 - 3/31/1942
Dates
8.0
1935
S&P 500
-3.5
GPA
3/31/1900 - 1/19/1906
1930
Earnings Yield
10.8
Dates
Secular Bear Markets DJIA Nominal Annualized Gain (GPA)
1925
S&P 500
3/31/1942 - 12/31/1965
Secular Bull Markets DJIA Nominal Annualized Gain (GPA)
1920
Dates
Percent GPA During Secular Bear Markets
10298 7404 5323 3827 2751 1978 1422 1022 735 528 380 273 196 141 101 73 52 38
1915
Percent GPA During Secular Bull Markets
16.7 14.7 13.0 11.5 10.2 9.0 7.9 7.0 6.2 5.4 4.8 4.2 3.7 3.3 2.9 2.6 2.3 2.0
1910
9/30/2006 = 5.9%
Daily Data 3/31/1900 - 11/02/2006 (Log Scale)
Dow Jones Industrial Average vs. Secular Trends
1905
16.7 14.7 13.0 11.5 10.2 9.0 7.9 7.0 6.2 5.4 4.8 4.2 3.7 3.3 2.9 2.6 2.3 2.0
Quarterly Data 3/31/1926 - 9/30/2006
S&P 500 Earnings Yield vs. Secular Trends
733 612 510 426 355 297 247 207 172 144 120 100 84 70 58 49 41 34 28
1451 1313 1187 1074 971 878 795 719 650 588 532 481 435 393 356 322 291 263 238
Daily Data 6/30/1987 - 11/03/2006 (Log Scale)
Standard & Poor's 500 Stock Index S&P 500 Index Gain/Annum When: Composite Sentiment is Above 61
Gain/ Annum
% of Time
-10.7
21.2
47 - 61 from Above
0.1
25.5
* 47 - 61 from Below
14.4
30.9
30.4
22.4
Below 47
11/03/2006 = 1364.30
1451 1313 1187 1074 971 878 795 719 650 588 532 481 435 393 356 322 291 263 238
1500 1440 1380 1320 1260 1200 1140 1080 1020 960 900 840 780 720 660 600
S D M J S DM J S DM J S DM J S D M J S DM J S D M J S DM J S D M J S D M J S DM J S DM J S D M J S DM J S DM J S DM J S DM J S DM J S DM J S
80 76 72 68 64 60 56 52 48 44 40 36 32 28 24 (DAVIS65)
Extreme Pessimism
NDR Daily Crowd Sentiment Composite -- Transitional Mode Basis
Ned Davis Research Group
11/03/2006 = 54.0
Extremes Generated when Sentiment Reading: Rises above 61.5% = Extreme Optimism Declines below 55.5% = Extreme Pessimism
1500 1440 1380 1320 1260 1200 1140 1080 1020 960 900 840 780 720 660 600
Arrows represent extremes in optimism and pessimism. They do not represent buy and sell signals and can only be known for certain (and added to the chart) in hindsight.
Sentiment must reverse by 10 percentage points to signal an extreme in addition to the above extreme levels being reached.
SP500 Gain/Annum When: NDR Crowd Sentiment Poll is:
Gain/ Annum
% of Time
-2.9
33.6
8.0
35.3
20.5
31.1
* Above 62 Between 53 and 62 53 and Below
Average Value Of Indicator At: Optimistic Extremes (down arrows)= 67.7 Pessimistic Extremes (up arrows)= 46.9 Average Spread Between Extremes = 20.8
D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Excessive Optimism
Daily Data 12/01/1995 - 10/31/2006 (updated weekly on Wednesday mornings)
S&P 500 Composite Index
1996
80 76 72 68 64 60 56 52 48 44 40 36 32 28 24
75 72 69 66 63 60 57 54 51 48 45 42 39 36 33 (S574)
A14
1997
1998
1999
2000
2001
2002
2003
Extreme Optimism (Bearish) 68.8
66.7 63.0
65.1
71.8
71.1
70.4
70.5 69.6
67.3 66.8 65.3
67.2
64.8
69.2
66.8 66.4 67.2
67.1
2004
2005
75.7
73.5
68.1 66.6
66.1
2006
69.6
67.1
71.9
63.1
62.0 61.9
59.4 54.7 55.3 51.7
51.7 51.8
51.6
51.8 47.9
45.2
44.6
42.3
Extreme Pessimism (Bullish)
51.9
51.5 48.7
48.7 46.0 42.4
39.0
54.8 55.4
53.5
54.5
47.3
46.5
45.7
43.8
40.4
49.7 46.6 42.5
37.6 33.5
NDR Crowd Sentiment Poll
33.9 33.9
10/31/2006 = 69.0
75 72 69 66 63 60 57 54 51 48 45 42 39 36 33
HOUSING Monthly Data 3/31/1969 - 9/30/2006
Monthly Data 1/31/1948 - 9/30/2006 (Log Scale)
116 103 91 81 72 64 56 50 44 39 35 31 27
The Economy (The Index of Coincident Economic Indicators) vs. Housing Starts Correct Signals: Expansion Mode GPA: Contraction Mode GPA: Buy-HoldGain/Annum:
Signal Dates: 12/31/1948 - 8/31/2006
Signals Generated When Middle Clip: Rises Above 3.44 = Expansion Falls Below -7.85 = Contraction
Source: The Conference Board
20 16 12 8 4 0 -4 -8 -12 -16 -20
116 103 91 81 72 64 56 50 44 39 35 31 27
85% 3.5% -0.9% 2.7%
Housing Starts (Three-Month Rate of Change)
Shaded areas represent National Bureau of Economic Research recessions dates.
2400
9/30/2006 = -9.4%
2400
New Housing Units Started (SAAR, in thousands) 9/30/2006 = 1772
2200 2000
20 16 12 8 4 0 -4 -8 -12 -16 -20 2200 2000
1800
1800
1600
1600
1400
1400
1200
1200
1000
1000
(E240)
1950
1955
1960
1965
Ned Davis Research Group
1970
1975
1980
1985
1990
1995
2000
2005
45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 (E876E)
A15
Existing Single-Family Home Sales and Prices (Smoothed Year-to-Year Changes) Unit Sales 9/30/2006 = -12.5% Scale Left ( )
Source:
National Association of Realtors/ Haver Analytics
1970
1975
1980
1985
1990 Unit Sales 9/30/2006 = -20.6% Scale Left ( )
New Home Sales and Prices (Smoothed Year-to-Year Changes)
17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1
Median Sale Price 9/30/2006 = -1.2% Scale Right ( )
1995
2000 Median Sale Price 9/30/2006 = -2.3% Scale Right ( )
2005
20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10
150
Monthly Data 1/31/1971 - 9/30/2006
Housing Affordability by Mortgage Type
150
Housing Affordability Composite Index
Higher-Risk Mortgage Delinquency Rates
Quarterly Data 3/31/1995 - 6/30/2006
Federal Housing Administration (The typical FHA borrower is a first-time home buyer with limited funds.)
140
12
130
130
11
120
120
110
110
10
10
100
100
9
9
90
90
8
8
80
80
140
70
9/30/2006 = 107.1
135 130 125 120 115 110 105 100 95 90 85 80 75 70
Housing Affordability Index for Fixed Rate Mortgages
160 150 140 130 120 110 100 90 80 70
Housing Affordability Index for Adjustable Rate Mortgages
Ned Davis Research Group
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
9/30/2006 = 109.8 1981
1980
1979
1978
1977
1976
1975
National Association of Realtors, Haver Analytics 1974
1973
1972
Source:
1971
(B659B)
9/30/2006 = 106.7
70 135 130 125 120 115 110 105 100 95 90 85 80 75 70 160 150 140 130 120 110 100 90 80 70
14 13 12 11 10 9 8 7 6 14
12 11
14 13 12 11 10 9 8 7 6
FHA Adjustable Rate
Subprime (Borrowers with impaired credit)
14
13
13
12
12
11
11 Series Break Before 2002
15
Subprime Adjustable Rate
15
14
14
13
13
12
12
11
(E0187)
A16
Source: Mortgage Bankers Association Washington, D.C. 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
11
Total Home Sales (SAAR, Smoothed) 9/30/2006 = 6.5 million Scale Right ( )
Conventional 30-Year Fixed Mortgage Rate 10/31/2006 = 6.4% Scale Left Inverted ( )
Total Home Sales 9/30/2006 = -13.9% Scale Right ( )
Conventional 30-Year Fixed Mortgage Rate 10/31/2006 = 29 basis points Scale Left Inverted ( )
Total Home Sales vs Conventional 30-Year Fixed Mortgage Rate (Year-to-Year Changes)
Ned Davis Research Group
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
-420 -360 -300 -240 -180 -120 -60 0 60 120 180 240 300 360 420 480 540 (E876A)
Correlation Coefficient = -0.67
Source: National Association of Realtors, Haver Analytics 1973
5.5 5.9 6.3 6.7 7.2 7.7 8.3 8.9 9.5 10.2 10.9 11.7 12.6 13.5 14.5 15.5 16.6 17.8
Monthly Data 4/30/1972 - 10/31/2006 (Log Scale)
Total Home Sales vs Conventional 30-Year Fixed Mortgage Rate
7.3 6.8 6.4 6.0 5.6 5.2 4.9 4.6 4.3 4.0 3.7 3.5 3.3 3.1 2.9 2.7 2.5 2.3
227 217 208 199 191 183 175 168 161 154 147 141 135 129 124 119 114 109
$ Thousands
20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 (E0758A)
A17
Single-Family Homes 9/30/2006 = 219.8 ( )
227 217 208 199 191 183 175 168 161 154 147 141 135 129 124 119 114 109
Total Existing Homes 9/30/2006 = 220.0 ( )
Condos and Co-ops 9/30/2006 = 219.8 ( )
Source:
M J
50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35
Monthly Data 1/31/1999 - 9/30/2006 (Log Scale)
Median Existing Home Prices
S D M J
2000
S D M J
2001
S D M J
2002
S D M J
2003
S D M J
2004
National Association of Realtors, Haver Analytics
S D M J
2005
Condos and Co-ops 9/30/2006 = -2.8% ( )
Total Existing Homes 9/30/2006 = -2.2% ( )
Median Existing Home Prices (Year-to-Year Changes)
Single-Family Homes 9/30/2006 = -2.5% ( )
S D M J
2006
S
20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3
10.4 10.0 9.6 9.2 8.8 8.4 8.0 7.6 7.2 6.8 6.4 6.0 5.6 5.2 4.8 4.4 4.0 3.6
8168 5526 3738 2529 1711 1157 783 530 358 242 164 111 75 520 480 440 400 360 320 280 240 200 160 120 80 (B566)
Mortgage Bankers Association's Refinance and Purchase Indexes Conventional Mortgage Rate 10/27/2006 = 6.40% ( )
Mortgage Bankers Association Refinance Index (SA)
Weekly Data 1/05/1990 - 10/27/2006 Adjustable Mortgage Rate 10/27/2006 = 5.60% ( )
High Number of Refinancing Applications High Prepayment Risk
4-Week Smoothing 10/27/2006 = 1778.7 ( )
Mortgage Bankers Association Purchase Index (SA)
4-Week Smoothing 10/27/2006 = 381.5 ( )
Low Number of Purchase Applications - Housing Market Soft
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
10.4 10.0 9.6 9.2 8.8 8.4 8.0 7.6 7.2 6.8 6.4 6.0 5.6 5.2 4.8 4.4 4.0 3.6
8168 5526 3738 2529 1711 1157 783 530 358 242 164 111 75 520 480 440 400 360 320 280 240 200 160 120 80
1297 1165 1047 941 846 760 683 614 552 496 446 401 360
SAAR, in Thousands
9/30/2006 = 1075
24 20 16 12 8 4 0 -4 -8 -12 -16 -20
One-Month % Change
80 70 60 50 40 30 20 10 0 -10 -20 -30 -40
Year-to-Year Change
(E246)
Monthly Data 1/31/1964 - 9/30/2006 (Log Scale)
New Home Sales
Shaded areas represent National Bureau of Economic Research recessions.
9/30/2006 = 5.3% Strong Sales
9/30/2006 = -14.2%
Weak Sales 1965
1970
1975
1980
1985
1990
1995
2000
1297 1165 1047 941 846 760 683 614 552 496 446 401 360 24 20 16 12 8 4 0 -4 -8 -12 -16 -20 80 70 60 50 40 30 20 10 0 -10 -20 -30 -40
2005
Copyright 2006 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/
Ned Davis Research Group
A18
Ned Davis Research Group
4
Too Few Homes Available
Measured as Months' Available Supply
Existing Single-Family Homes
9/30/2006 = 7.1
13 12 11 10 9 8 7 6 5 4
9/30/2006 = 6.4
9
Source: Haver Analytics, National Association of Realtors
9
New Homes
A19
2006
(E246I)
2005
4 2004
4 2003
5
2002
5
2001
6
2000
6
1999
7
1998
7
1997
8
1996
8
1995
New Home Prices (Smoothed Year-to-Year Changes)
5
1994
Median Sales Price Year-to-Year Change 9/30/2006 = -2.3% ( )
20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10
6
5
1993
Mean Sales Price Year-to-Year Change 9/30/2006 = 3.8% ( )
2005
6
1992
2000
7
Balanced Market
1991
1995
8
7
1990
1990
8
13 12 11 10 9 8 7 6 5 4
11 9
Too Many Homes Available
1989
1985
9
4
12 10
1988
20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10
1980
9/30/2006 = 7.0
10
1987
1975
11
1986
1970
Total
1985
Median Sales Price 9/30/2006 = 217.1 ( )
12
1984
Mean Sales Price 9/30/2006 = 293.2 ( )
$ thousands
1965
(E0759)
291 250 215 184 158 136 117 100 86 74 64 55 47 40 35 30 26 22 19
Monthly Data 6/30/1982 - 9/30/2006
Housing Inventory-to-Sales Ratios
1983
291 250 215 184 158 136 117 100 86 74 64 55 47 40 35 30 26 22 19
Monthly Data 1/31/1963 - 9/30/2006 (Log Scale)
New Home Prices
styles Related Chart Six-Way Style Allocation Model AA600
Favors: 10/31/2006 Mid-Cap Growth
9/30/2006 Large-Cap Value
8/31/2006 Large-Cap Growth
Large/Mid/Small-Cap Model Indicator Related Chart
Favors: 10/31/2006
9/30/2006
8/31/2006
Large Small Large Small Large Large Small Large Large Small
Large Small Large Small Large Large Small Large Large Large
Large Small Large Small Large Large Large Large Large Neutral
40.4 Mid-Cap
32.7 Large-Cap
22.1 Large-Cap
Favors: 10/31/2006
9/30/2006
8/31/2006
Growth Value Growth Growth Growth Value Growth Value Growth
Growth Value Growth Growth Value Value Growth Value Value
Growth Value Growth Growth Value Value Growth Growth Value
50.0 Growth
41.7 Value
45.8 Growth
Equity Risk Premium Proxy Advisory Service Sentiment Yield Curve Momentum NYSE Breadth Relative Forward P/E Consumer Confidence Bond Momentum U.S. Dollar Coincident Indicators Trend Indicators
AA144A AA145 AA121A AA143A AA0115A AA0122A AA115A AA116A AA118 AA0127A
Composite Model AA605 Model Reading Favored Asset Class Growth/Value Model Indicator Related Chart Equity Risk Premium Proxy Yield Curve Relative Forward P/E Consumer/Cyclical Ratio Advisory Service Sentiment Insider Activity U.S. Dollar Coincident Indicators Trend Indicators Composite Model
AA90A AA71 AA084A AA74A AA85 NA AA68 AA73A AA065A AA610
Model Reading Favored Asset Class
- Large/Mid/Small-Cap Model reading is a combination of individual indicator readings, scaled from 0% to 100%: Above 55% = Favors Small-Caps (Russell 2000 Index) Between 35% and 55% = Favors Mid-Caps (Russell MidCap Index) Below 35% = Favors Large-Caps (Russell Top 200 Index) - Growth/Value Model reading is a combination of individual indicator readings, scaled from 0% to 100%: Above 45% = Favors Growth (Russell 3000 Growth Index) Below 45% = Favors Value (Russell 3000 Value Index) Ned Davis Research, Inc.
Ned Davis Research Group
SMS_6.HTML
A20
Ned Davis Research Group
112
112
103
103
95
95
87
87
80
80 When Model Reading Is:
Ratio GPA
Growth TR GPA
Value TR GPA
68
* Above 45%
4.9
24.7
18.9
40.0
45% and Below
-7.7
2.6
11.2
60.0
62
Buy/Hold
-2.9
11.0
14.2
100.0
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5
A21
68 62
10/31/2006 = 50.0%
Growth/Value Model Favors Growth
2006
2005
2004
2003
Favors Value 2002
(AA610)
74
% of Time
2001
74
2000
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
121
1999
NDR Large/Mid/Small-Cap Model
121
1998
(AA605)
10/31/2006 = 40.4%
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5
132
1997
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5
1989
1988
1987
1986
1985
1984
1983
1982
1981
Model Reading: Above 55%: Favors Small Caps Between 35% and 55%: Favors Mid-Caps Below 35%: Favors Large Caps
Russell 3000 Value Total Return Index
1996
Large-Caps = Russell Top 200 Index (Heavy Solid Line) Mid-Caps = Russell MidCap Index (Narrow Solid Line) Small-Caps = Russell 2000 Index (Dashed Line)
132
1995
40.7 100.0
1994
7.7 13.1
1993
13.3 15.2
143
1992
18.0 12.8
Russell 3000 Growth Total Return Index /
1991
35% and Below Buy/Hold
143
1990
33.4
1989
25.8
9.3
1988
27.9
14.5
156
1987
19.2
9.8
156
1986
8.9
Above 55% * Between 35% and 55%
4683 3765 3027 2434 1957 1573 1265 1017 818 657 528 425 342 275 221 178 143 115
1985
% of Time
1984
Small-Cap TR GPA
1983
Mid-Cap TR GPA
1982
Large-Cap TR GPA
Monthly Data 2/29/1980 - 10/31/2006 (Log Scale)
NDR Growth/Value Model
1981
When Model Reading Is:
1980
4683 3765 3027 2434 1957 1573 1265 1017 818 657 528 425 342 275 221 178 143 115
Monthly Data 2/28/1979 - 10/31/2006 (Log Scale)
Russell Indices
90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5
Ned Davis Research Group
A22
0.78
3.97
8.76
* Real-time since 10/31/1998
For 11/30/2006 Recommended Weights (%)
45
0
45
2000 Value
0
5
2000 Growth
0
5
2005
100
1000 Growth
2004
1000 Value
Benchmark Weights (%)
2006
Russell Index
2003
(AA54)
4.02
2002
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
(AA600)
1986
Small Cap Growth
0.94
S&P500 ( )
2001
Small Cap Value
4.13
2000
Mid Cap Growth
1.16
1999
Mid Cap Value
13.66
Benchmark ( ) 10.83
1998
Large Cap Growth
S.D. of Monthly Return
1997
Large Cap Value
Mean % Monthly Gain
1996
Returns Based on Growth & Value Indices For: Russell Top 200 Index = Large-Cap Russell MidCap Index = Mid-Cap Russell 2000 Index = Small-Cap
Model ( )
% GPA
1995
Bars Below Indicate Model's Favored Style Each Month Model Equity Line Assumes 100% Invested In Favored Style Index Each Month Benchmark Equity Line Assumes Equal Weighting In All Six Style Indices
Model Out-of-Sample Performance*
1994
Six-Way Model Combines Readings of Large/Mid/Small-Cap Model and Growth/Value Model
672 635 601 568 537 508 480 454 429 406 384 363 343 324 307 290 274 259 245 232 219 207 196 185 175 165 156 148 140 132 125 118 112 106 100
1993
6837 5201 3956 3009 2289 1741 1325 1008 767 583 444 As of 10/31/2006: 337 Model Equity Line ( ) = $7041 257 Gain Per Annum = 22.6% Benchmark Equity Line ( ) = $1039 195 Gain Per Annum = 11.9% 149 (12/31/1985 = $100) 113 Model real-time since May 2003 86
For November 2006 Model Favors: Mid-Cap Growth
Monthly Data 9/30/1991 - 10/31/2006 (Log Scale)
Russell Index Regression Model Performance
1992
6837 5201 3956 3009 2289 1741 1325 1008 767 583 444 337 257 195 149 113 86
Monthly Data 12/31/1985 - 11/30/2006 (Log Scale)
NDR Six-Way Equity Style Allocation Model
672 635 601 568 537 508 480 454 429 406 384 363 343 324 307 290 274 259 245 232 219 207 196 185 175 165 156 148 140 132 125 118 112 106 100
Weekly Data 6/26/1981 - 10/27/2006
Ratio of Russell 2000 / Russell 1000 Index All Periods = -0.3% GPA
1.6
All Periods When Proxy is RISING = -4.3% GPA
Weekly Data 12/29/1978 - 10/27/2006
Russell 2000 Index / Russell 1000 Index 1.6
1.6
1.6
1.5
All Periods When Proxy is FALLING = 3.3% GPA
1.5
1.5
1.4
Direction of Proxy Determined by Current Value versus 8 Weeks Ago
1.4
1.4
1.3
1.3
1.3
1.2
1.2
1.2
1.1
1.1
1.0
1.0
5.7 5.4 5.1 4.8 4.5 4.2 3.9 3.6 3.3 3.0 2.7 2.4 2.1 1.8 1.5 1.2 (AA144)
Moody Baa Bond Yield minus 10-Year Treasury Bond Yield Russell 2000/ Russell 1000 Ratio Gain/Annum When: Risk Premium Proxy is Rising and
Russell 2000/ Russell 1000 Ratio Gain/Annum When:
Gain/ Annum
% of Time
Above 2.2
5.2
19.8
Above 2.2
Between 1.7 and 2.2
-8.2
19.8
Between 1.7 and 2.2
-16.9
7.6
Below 1.7
Risk Premium Proxy is Falling and
* Below 1.7
Gain/ Annum
% of Time
13.6
15.6
5.6
19.9
-7.5
17.3
10/27/2006 = 1.56%
Equity Risk Premium Proxy
Ned Davis Research Group
1.1
0.9
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.8 1991
1989
1988
1987
1986
52.2 47.8
1985
4.6 -2.7
1984
Favors Small-Caps * Favors Large-Caps
1983
0.8
1.0
% of Time
1990
Gain/ Annum
Yield Curve
1979
5.7 5.4 5.1 4.8 4.5 4.2 3.9 3.6 3.3 3.0 2.7 2.4 2.1 1.8 1.5 1.2
1.4
Russell 2000/ Russell 1000 Ratio Gain/Annum When:
0.9
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.8 1990
24.9
0.9
1989
-10.4
* Below 1.7
1987
39.7
1986
35.5
-1.5
1985
8.8
Between 1.7 and 2.2
1982
0.8
Above 2.2
1984
0.9
Risk Premium Proxy is
1983
1.0
Gain/ % Annum of Time
1988
1.1
1982
Russell 2000/ Russell 1000 Ratio Gain/Annum When:
1981
1.2
1980
1.3
1.5
Up Arrow = Favors Small-Caps Down Arrow = Favors Large-Caps
4
4
3
3
2
2
1
1
0
0
10-Year Minus Three-Month Treasury Yield
-1 -2 -3 (AA121)
A23
-1
Crosses Above 2.0% = Favors Small-Caps Crosses Below 1.2% = Favors Large-Caps
-2
10/27/2006 = -0.22%
Yield Curve
-3
A24
2006
(AA0114)
-1 Standard Deviation 2005
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0.2 1992
1991
1990
1989
1988
1986
1985
1984
1983
1982
1981
1980
1979
Ned Davis Research Group
1987
-2 Standard Deviations
0.2
27.8-Year Mean = 0.67
2004
0.3
2003
-1 Standard Deviation
0.3
+1 Standard Deviation
2002
0.4
2001
27.8-Year Mean = 0.46
0.4
+2 Standard Deviations
2000
0.5
1999
0.5
1998
+1 Standard Deviation
9/30/2006 = 0.68
Russell 2000 Index Yield / Russell 1000 Index Yield
1997
0.6
1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5
1996
0.6
(AA095)
9/30/2006 = 0.47
Russell 1000 Growth Index Yield / Russell 1000 Value Index Yield
1993
1
2
1992
1
2
1991
2
3
1990
2
4
3
1989
3
1988
3
1987
4
1986
4
4
1985
5
151 139 128 118 109 100 92 85 78 72 66 61
5
Russell 1000 Index Dividend Yield (dashed line) 9/30/2006 = 1.8%
1984
5
5
1983
6
Russell 1000 Value Index Dividend Yield (dashed line) 9/30/2006 = 2.5%
Russell 2000 Index Dividend Yield (solid line) 9/30/2006 = 1.2%
1982
7
1981
6
27.8-Year Mean = 101.1
8
Russell 1000 Growth Index Dividend Yield (solid line) 9/30/2006 = 1.1%
7
9/30/2006 = 95.3 Russell 2000 Total Return Index / Russell 1000 Total Return Index
1980
8
151 139 128 118 109 100 92 85 78 72 66 61
1995
27.8-Year Mean = 95.6
148 137 127 118 110 102 94 87 81 75 70 65 60
1994
9/30/2006 = 58.6 Russell 1000 Growth Index / Russell 1000 Value Index
Monthly Data 12/31/1978 - 9/30/2006 (Log Scale)
Russell 2000 & Russell 1000 Index Relative Dividend Yields
1979
148 137 127 118 110 102 94 87 81 75 70 65 60
Monthly Data 12/31/1978 - 9/30/2006 (Log Scale)
Russell 1000 Growth & Value Index Relative Dividend Yields
1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5
Monthly Data 12/31/1985 - 9/30/2006 (Log Scale)
NASDAQ Composite / S&P 500 Index
333 313 293 275 258 242 227 213 200 188 176 165 155 145 136 128 120 113
NASDAQ / S&P 500 Gain/Annum When: NASDAQ / S&P P/E: * Above 108
Gain/ Annum
% of Time
-9.2
26.6
Between 78 and 108
1.9
47.7
78 and Below
8.7
25.7
210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 (STH0618C_C)
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
9/30/2006 = 169.1
9/30/2006 = 140.8 NASDAQ P/E excludes negative earnings. NDR calculated values used from 9/30/2001 onward due to the discontinuation of data released by NASDAQ.
NASDAQ P/E and S&P 500 P/E (GAAP)
Ned Davis Research Group
S&P P/E will reflect estimate for latest completed quarter until actual earnings are released
333 313 293 275 258 242 227 213 200 188 176 165 155 145 136 128 120 113
210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50
32.80
Daily Data 10/23/2001 - 10/26/2006 (Log Scale)
NASDAQ Relative Strength Model
32.80
Ratio of NASDAQ Composite Index to NYSE Composite Index
31.63
31.63
30.50
30.50
29.41
29.41
28.35
28.35
27.34
27.34 NASDAQ/NYSE:
26.36
NASDAQ Relative Strength Model:
25.42
* Above 55% Between 40% and 55%
24.51
40% and Below
NASDAQ Relative Strength Model
100
26.36
Gain/ % Annum of Time 14.3
51.2
-4.6
14.9
-15.1
33.9
25.42 Model Above 55% = Buy NASDAQ Model 40% or Below = Buy NYSE
24.51
10/26/2006 = 61.9
Favors NASDAQ
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0 N J M M J
(STH0618D_C)
A25
2002
S N J M M J
2003
S
Favors NYSE
N J M M J
2004
0 S N
J M M J
2005
S N J M M J
2006
S
sectors
Sector Recommendations S&P 500 Sector Telecommunication Services
Modest overweight.
Wireless (New) now favored vs. Integrated.
Materials
Modest overweight.
CRB/U.S. $ ratio rising. Diversified Metals overweighted. Gold Mining on emerging list (long-term favorable).
Industrials
Modest overweight.
Breadth weakening. Transports approaching marketweight. Construction & Farm Machinery, Environmental Services and Railroads overweighted.
Energy
Marketweight.
Rank, breadth and crowd sentiment improved, but waiting on improvement from oil prices.
Financials
Maketweight (New).
Fed cycle favorable, but rank weakening. Investment Banking & Brokerage overweighted. Diversified Banks > Regional Banks.
Information Technology
Marketweight.
Software favored vs. Hardware. IT Consulting & Services and Computer Storage & Peripherals favored.
Utilities
Marketweight.
Rank improved. Relative valuation negative/neutral. Fed cycle favorable.
Consumer Discretionary
Marketweight.
Short-term breadth mixed. We advise marketweighting Casinos & Gaming (New) ahead of our ranks.
Consumer Staples
Modest underweight.
Tobacco ranked highest.
Health Care
Modest underweight.
Small-cap / large-cap performance turning mixed. Marketweight Pharma - Major for now.
Ned Davis Research Group
A26
S&P 500 Sector Percent Gain between Last Federal Reserve Interest Rate Hike and First Cut1 Last Hike Date
First Cut Date
Number of Months2
Financials
Consumer Staples
4/25/74
12/9/74
7.5
-26.1
-25.5
2/15/80
5/30/80
3.5
2.9
5/5/81
11/2/81
6.0
2/24/89
6/6/89
2/1/95 5/16/00
Utilities
Telecommunications Services
-19.1
-21.6
-19.4
-16.8
-34.4
-39.4
-29.9
-26.3
4.4
5.5
7.1
3.1
-4.1
-8.1
-3.8
-10.2
-15.8
5.7
1.9
-3.7
8.5
13.0
-2.4
-14.9
-6.8
-15.4
-8.2
3.4
18.3
21.8
16.0
12.0
22.5
9.1
13.0
12.9
5.1
-0.8
7/6/95
5.1
19.7
15.9
13.6
6.7
8.4
12.4
20.1
14.1
23.8
42.7
1/3/01
7.6
21.9
19.1
13.3
17.3
-25.3
1.6
1.1
-9.6
-8.1
-34.4
Mean
5.5
7.1
6.3
4.3
5.0
0.4
-0.1
-3.9
-5.4
-5.8
-7.1
Median
5.5
12.0
10.2
9.4
7.8
5.7
-0.4
-3.5
-5.3
-9.2
-12.0
Health Care
Energy
Industrials
Consumer Discretionary
Materials
Information Technology
1. Tightening cycle requires at least two consecutive rate increases without an intervening decrease. Sector data is market-capitalization weighted and price only. Sectors are sorted left to right by median percent gain. 2. Number of calendar days multiplied 12/365. T_SMF0629.2
Ned Davis Research, Inc.
Ned Davis Research Group
A27
NDR DOMESTIC Sector Ranks Sector Telecommunications Services Materials Energy Industrials Utilities Information Technology Financials Consumer Discretionary Consumer Staples Health Care
Short-Term Breadth Breadth Intermediate-Term Rank Mode Chart 11/03 10/27 10/20 10/13 10/06 9/29
9/22
9/15
9/08
9/01
Favorable ESB50 Favorable ESB15 Favorable ESB10 Mixed ESB20 Favorable ESB55 Unfavorable ESB45 Unfavorable ESB40 Mixed ESB25 Mixed ESB30 Unfavorable ESB35
100 80 30 70 10 60 90 40 50 20
100 70 80 40 10 60 90 30 50 20
100 90 70 40 10 80 60 30 50 20
100 90 80 50 20 70 30 10 60 40
9/08
9/01
8/25
8/18
45.9 27.2 49.2 54.0 59.8 66.8 65.5 64.8 56.2 62.4 44.9 45.0 40.5 55.6 56.6 37.2 44.1 5.8
36.7 38.2 39.0 51.6 55.2 68.7 65.6 64.8 59.7 70.2 44.4 36.5 35.8 63.9 59.4 37.6 43.4 6.8
45.3 58.6 43.2 49.5 45.5 68.2 57.1 59.7 55.2 70.7 50.9 38.8 41.4 65.4 57.1 35.4 36.8 8.9
41.0 67.2 43.3 53.8 43.7 57.9 60.5 61.4 42.4 70.1 44.7 49.1 40.8 63.0 58.0 38.3 32.4 35.0
100 90 80 70 60 50 40 30 20 10
90 100 70 80 40 60 50 30 20 10
90 100 70 80 40 50 60 20 30 10
90 100 50 80 20 60 70 40 30 10
100 60 20 80 10 70 90 50 30 40
100 60 20 80 10 70 90 40 50 30
Based on NDR’s domestic universe. For more details see Industry Focus.
Mean Global Sector Ranks Sector
Short-Term Breadth Breadth Intermediate-Term Rank Mode Chart 10/20 10/13 10/06 9/29 9/22 9/15
Automobiles & Parts Favorable IGB2001 Basic Resources Favorable IGB2010 Chemicals Favorable IGB2015 Telecom Favorable IGB2080 Personal & Household Goods Unfavorable IGB2065 Financial Services Favorable IGB2035 Banks Mixed IGB2005 Insurance Mixed IGB2055 Travel & Leisure Favorable IGB2025 Utilities Favorable IGB2085 Industrial Goods & Services Favorable IGB2050 Health Care Unfavorable IGB2045 Construction & Materials Favorable IGB2020 Food & Beverage Mixed IGB2040 Retail Mixed IGB2070 Media Favorable IGB2060 Technology Mixed IGB2075 Oil & Gas Mixed IGB2030
67.5 66.3 60.0 59.2 56.8 56.0 55.5 55.3 55.2 52.8 50.4 50.3 49.7 44.4 44.1 38.7 27.6 20.7
71.8 75.4 60.0 57.8 52.6 61.4 47.7 47.8 55.7 56.6 57.7 48.5 36.2 33.4 48.0 45.7 29.4 31.6
55.6 67.6 47.5 51.6 45.8 65.4 48.4 58.4 51.9 58.4 53.0 53.2 49.5 40.8 44.5 36.0 40.0 39.6
Based on NDR’s global universe. For more details see Global Focus. Ned Davis Research, Inc.
Ned Davis Research Group
46.6 51.1 44.5 60.5 58.7 64.4 63.2 63.6 55.2 49.6 44.2 43.4 43.5 50.5 57.4 36.6 44.3 13.5
51.1 35.9 52.7 60.5 58.0 68.3 61.5 64.8 54.0 57.9 42.6 48.4 49.5 45.1 57.2 38.6 35.6 12.9
56.8 37.4 57.8 61.5 56.8 68.8 58.1 58.5 53.9 59.1 45.1 51.9 48.8 47.5 50.7 36.1 33.3 19.0
ICS_44A.RPT
A28
currencies and commodities
Currency Market Relative Strength Ranking
Rank
One Week Ago
Four Weeks Ago
1
2
4
2
4
3
Currency Market
Total Composite
Short-Term Model
Intermediate-Term Model
Long-Term Model
Canadian Dollar
68.75
90.00
60.00
56.25
6
British Pound
63.33
90.00
50.00
50.00
3
7
Australian Dollar
62.50
83.33
66.67
37.50
4
1
2
Swedish Krona
60.97
66.67
60.00
56.25
5
5
5
Euro
52.78
33.33
50.00
75.00
6
6
3
Japanese Yen
51.39
75.00
16.67
62.50
7
8
8
Swiss Franc
41.67
50.00
25.00
50.00
8
7
1
U.S. Dollar
39.26
0.00
77.78
40.00
* Model readings represent the percentage of indicators in the model that are positive scaled from 0% to 100% * (100% = all indicators positive); Total Composite is an arithmetic mean of the Short-Term, IntermediateTerm and Long-Term model readings; * Model readings are linked to corresponding charts. For example, to access the Daily Euro Short-Term Model chart, click on the “Short-Term Model” reading for Euro. Ned Davis Research,Inc.
Ned Davis Research Group
ICS_2.RPT
A29
0.7
High Volatility
0.6
0.8
2.8 2.6 2.4
Upper = 15% Above Avg. (0.43%)
0.7
Lower = 15% Below Avg. (0.32%)
0.6
11/02/2006 = 0.26%
0.5
0.5
0.4
0.4
0.3
0.3
0.2 (I 224)
75-Day Average of Dollar's Absolute Change
75-Day U.S. Dollar Volatility Index
Ned Davis Research Group
Low Volatility
150-Day Index Is: * >15% Above 1-Yr Avg.
0.2
A30
20.4
29.0
Between Bands
11.6
43.4
>15% Below 1-Yr Avg.
-10.2
27.6
Upper = 15% Above Avg. (1.12%) Lower = 15% Below Avg. (0.82%) 11/02/2006 = 1.29%
1.4 1.2 1.0 0.8
(AA411)
% of Time
Bands vs. One-Year Moving Average of 150-Day Gold Volatility Index:
2.2 2.0 1.8 1.6
0.6 0.4 0.2
Gain/ Annum
High Volatility
150-Day Average of Gold's Absolute Change
150-Day Gold Volatility Index
812 676 563 469 391 325 271 226 188 156 130 108 90 75 63 52 43 36
2003
1993
1988
Bands vs. One-Year Moving Average of 75-Day Dollar Volatility Index:
Gold Gain/Annum When:
1998
20.6
1993
-4.7
1988
23.0 56.4
1983
7.3 -1.2
1998
>15% Above 1-Yr Avg. Between Bands * >15% Below 1-Yr Avg.
0.8
% of Time
1973
Gain/ Annum
812 676 563 469 391 325 271 226 188 156 130 108 90 75 63 52 43 36
2003
75-Day Index Is:
164 157 150 143 137 131 125 119 114 109 104 99 95 91 87 83 79
Daily Data 3/20/1968 - 11/02/2006 (Log Scale)
Gold Bullion
1978
Dollar Gain/Annum When:
1983
164 157 150 143 137 131 125 119 114 109 104 99 95 91 87 83 79
Daily Data 1/02/1979 - 11/02/2006 (Log Scale)
U.S. Dollar Index
Low Volatility
2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2
1071 923 795 685 590 508 438 377 325 280 241
18 15 12 9 6 3 0 -3 -6 -9 (I 258)
Foreign Holdings of U.S. Government Securities At The Fed ($Billions, Log Scale) 10/27/2006 = 1142.93
Foreign Central Bank Holdings 26-Week Rate of Change Holdings Increasing
Holdings Decreasing 10/27/2006 = 2.3%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ned Davis Research Group
18 15 12 9 6 3 0 -3 -6 -9
25 20 15 10 5 0 -5 -10 80 70 60 50 40 30 20 10 0 -10
(I 336)
A31
46.2
U.S. Dollar / Japanese Yen 8/31/2006 = 85.19
Japanese Net Purchases of U.S. Treasurys
113 103 94 86 78 71 65 59 54 49 45 41 25 20 15 10 5 0 -5 -10
8/31/2006 = $10.64 billion Japanese Net Purchases of U.S. Treasurys (Three-Month Total)
80 70 60 50 40 30 20 10 0 -10
8/31/2006 = $11.16 billion 2006
1071 923 795 685 590 508 438 377 325 280 241
6.5
2005
81
31.6
3 And Below
2004
81
22.2
2.3
2003
85
-2.0
Between 3 And 9
2002
85
* Above 9
2001
89
% of Time
2000
89
Gain/ Annum
1999
93
1998
93
Yen Gain/Annum When: Net Purchases Three-Month Total (bottom clip):
1997
97
1996
102
1995
21.4
1994
59.0
0 and Below
1993
-0.9 -3.7
* Between 0 and 10
107
1992
19.6
1991
3.1
112
1990
Above 10
U.S. Dollar Index
1989
97
% of Time
1988
102
Gain/ Annum
113 103 94 86 78 71 65 59 54 49 45 41
117
1987
107
Indicator in Bottom Clip is:
10/27/2006 = 85.6
Monthly Data 6/30/1984 - 8/31/2006 (Log Scale)
Japanese Yen vs. Japanese Net Purchases of U.S. Treasurys
1986
112
U.S. Dollar Index Gain/Annum When: 12/01/1989 - 10/27/2006
Weekly Data 12/01/1989 - 10/27/2006 (Log Scale)
1985
117
U.S. Dollar Index vs. Foreign Central Bank Holdings
MAJOR FOREIGN HOLDERS OF U.S. TREASURY SECURITIES * as of 6/30/2006 Current Holdings $ Billions
$ Change from Prior Month
As a Percent Of Foreign Holdings
As a Percent Of Marketable Treasury Securities
Japan
635.3
-2.6
30.4
14.9
Mainland China
327.7
3.1
15.7
7.7
United Kingdom
201.4
26.4
9.6
4.7
Caribbean Banking Ctr
60.3
1.8
2.9
1.4
Hong Kong
48.8
0.4
2.3
1.1
Taiwan
67.1
-0.4
3.2
1.6
Germany
48.3
1.1
2.3
1.1
OPEC
101.5
-1.1
4.9
2.4
Korea
68.9
0.1
3.3
1.6
Switzerland
30.6
0.1
1.5
0.7
Mexico
46.0
2.6
2.2
1.1
Luxembourg
37.4
-1.1
1.8
0.9
Canada
41.3
0.4
2.0
1.0
Singapore
34.6
-1.1
1.7
0.8
Australia
9.3
0.0
0.4
0.2
Brazil
33.4
0.5
1.6
0.8
India
12.5
0.3
0.6
0.3
Belgium
16.9
-0.6
0.8
0.4
Turkey
19.1
-2.4
0.9
0.4
Italy
15.2
1.0
0.7
0.4
Netherlands
16.9
1.5
0.8
0.4
Israel
11.4
-2.0
0.5
0.3
Sweden
18.2
0.1
0.9
0.4
France
28.9
-1.8
1.4
0.7
Ireland
20.0
1.0
1.0
0.5
Thailand
15.8
0.3
0.8
0.4
Spain
11.9
0.0
0.6
0.3
120.8
-5.5
5.8
2.8
Grand Total
2089.7
20.2
100.0
49.1
Foreign Official Instit.
1273.0
-11.5
60.9
29.9
188.0
-7.1
9.0
4.4
1085.0
-4.4
51.9
25.5
Country
All Others
Bills Bonds and Notes
BMS_30.RPT
Ned Davis Research, Inc.
Ned Davis Research Group
A32
115.1 113.2 111.4 109.6 107.8 106.0 104.3 102.6 100.9 99.3 97.7 96.1 94.5 91.5
1980
(DAVIS43)
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1996
1997
1998
1999
Ned Davis Research Group
2000
2001
2002
2003
2004
2005
2006
2007
2008
1.3
25.2
-2.1 - 1.3 from Above
-11.5
37.5
-2.1 - 1.3 from Below
8.6
27.9
Below -2.1
-5.3
9.0
S
S
S
S S
S
B
B
B
S
S B
B S
B
S B
B
B
B
S S
S
S
S
S
S
B B
% of Time
B
B
B
B
Signals are Generated When Sentiment Indicator Falls Below Upper Bracket = Sell Rises Above Lower Bracket = Buy
B
S
B
Excessive Optimism
B
11/02/2006 = 1.7
3
0
0
-1
-1
-2
-2
-3
-3
M J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S D DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S
* Above 1.3
B
Gain/ Annum
163 155 148 141 134 127 121 115 110 105 100 95 90 86 82 78 74 71
1
85.7
80.2
NDR Crowd Sentiment Poll for US Dollar:
11/02/2006 = 85.34
1
87.1
81.5
U.S. Dollar Index Gain/Annum When: (9/04/1984 - 11/02/2006)
2
88.5
82.9
Profitable Trades: 82% Gain/Annum: 8.9% Buy-HoldGain/Annum: -2.3% Latest Signal 6/19/2006 = 86.31
2
90.0
1995-Present Dollar Scale Right ( ) 1979-1992 Dollar Scale Left ( )
S
3
93.0
84.3
S
2004
117.0
163 155 148 141 134 127 121 115 110 105 100 95 90 86 82 78 74 71
1999
118.9
1989
161.4 157.8 154.2 150.8 147.4 144.1 140.9 137.8 134.7 131.7 128.7 125.9 123.1 120.3 117.6 115.0 112.4 109.9 107.5 105.1 102.7 100.4 98.2 96.0 93.8 91.7 89.7 87.7 85.7 83.8 81.9
Daily Data 9/04/1984 - 11/02/2006 (Log Scale)
U.S. Dollar Index
1994
Weekly Data (Log Scale)
1995 - Present U.S. Dollar Index vs. 1979 - 1992 U.S. Dollar Index
1992
Extreme Pessimism (DAVIS62)
A33
NDR Crowd Sentiment Poll for U.S. Dollar -- Transitional Mode
Daily Data 6/02/1987 - 11/02/2006
U.S. Dollar in Terms of Euro and Yen
1.21
1.19 1.16
Euro Per U.S. Dollar Scale Right 11/02/2006 = 0.78
1.12
1.08 1.04 0.99
0.98 0.95 0.92
0.90
0.91
0.89
0.89
0.84
0.82
0.80 0.75 159.64
155 150 145 140 135 130 125 120 115 110 105 100 95 90 85 80 (I 202)
152.95
0.93 0.92
0.86
0.83
0.93
0.83
0.86 0.82
0.84
0.82
0.78
0.74
0.78 0.73
0.69
149.37
Japanese Yen Per U.S. Dollar Scale Left 11/02/2006 = 117.11
147.25 141.64 134.83 127.10
121.01 121.11
123.35
119.32
111.20
118.8 116.2 113.7
112.10
111.2
111.75
108.8
108.40 104.17
102.60
101.39
98.64
97.31
123 93.26
96.83
125.55
97.06
111
95.3
110.33
109.45
107.73
91.1
90.43
89.1
112.78 108.35
93.2
92.33
91.99
118.16
85.90
84.97
85.11
87.2
86.30
85.3 83.89
107.95
111.23
81.6
103.06 101.42
99.61
99
98.36
96
Unweighted U.S. Dollar Scale Left 11/02/2006 = 89.81
97.84
95.84
98.18
97.51
96.71 94.81
89.66
89.20
89.85
90.57 88.28
85.47 728.6
115.69
571 527 429.1
102.04
393.7 383.6
380.3
366.9 337.4 320.3
317.5
280.4
80.63
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
730 620
Comex Gold Log Scale Right 11/02/2006 = 633.3
109.76
J S D M J S DM J S DM J S DM J S D M J S DM J S D M J S DM J S D M J S D M J S DM J S DM J S D M J S DM J S DM J S DM J S DM J S DM J S DM J S
793 673
114.50
108.72
83.4
80.53
102
87
97.4
92.29 115.53
105
90
99.6
124.94
92.20
108
101.8
122.77
117 114
104.1
101.98 99.07
95.17
120
106.4
106.02
104.58
343.0
Ned Davis Research Group
121.5
120.22
120.96
101.60
101.13
120.88 118.61
U.S. Dollar Index - Trade Weighted Log Scale Right 11/02/2006 = 85.34
126.68
124.33
112.85
1.20 1.17 1.14 1.11 1.08 1.05 1.02 0.99 0.96 0.93 0.90 0.87 0.84 0.81 0.78 0.75 0.72 0.69
93
134.79 126.09
124.75
0.84
0.74
0.70
136.50
0.86
Daily Data 4/30/1996 - 11/02/2006
Dollar & Gold
303.6
296.7
(I 205)
A34
294.9
279.0 257.1
254.1
447 412
415.4
379
376.0
350
329.2
326.3 320.0
277.3
485
458.6
303.9
273.2
322
322.5
297
Source: = Commodity System, Inc. (CSI) www.csidata.com
J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
274 252
700 663 628 594 563 533 504 477 452 428 405 384 363 344 326 308 292 276 262
Daily Data 6/02/1989 - 11/03/2006 (Log Scale)
Gold Bullion Gold Bullion Gain/Annum When: Gold Sentiment Index Is:
Gain/ % Annum of Time
Above 66.4
-5.8
25.6
Neutral moving down
-0.4
21.4
Neutral moving up * 37.9 and Below
3.6
19.2
12.5
33.8
Composite's Direction is Determined By Whether it is Higher or Lower Than it Was 3 Days Ago
11/03/2006 = 626.90
700 663 628 594 563 533 504 477 452 428 405 384 363 344 326 308 292 276 262
369 335 304 276 251 228 207 188 170 155 140 127 116 105 95 87 79 71 65
(DAVIS63)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Excessive Optimism
Extreme Pessimism
NDR Crowd Sentiment Poll for Gold Bullion -- Directional Mode Basis
Ned Davis Research Group
Composite Direction = UP
S&P 500 Index Gain/Annum When: Market Sentiment is
% of Time
Above 61.5
-7.6
28.1
Between 31 and 61.5
12.7
49.9
14.6
22.1
* Below 31
Source: Commodity System, Inc. (CSI) www.csidata.com
Gain/ Annum
11/02/2006 = 329.75
369 335 304 276 251 228 207 188 170 155 140 127 116 105 95 87 79 71 65
M J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S
J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S DM J S
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24 20 16
Daily Data 12/13/1989 - 11/02/2006 (Log Scale)
Copper (HG)
84 80 76 72 68 64 60 56 52 48 44 40 36 32 28 24 20 16
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 (DAVIS66)
A35
Excessive Optimism
Extreme Pessimism
NDR Crowd Sentiment Poll for Copper -- Mode Basis
11/02/2006 = 21.5
95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0
New Chart
Yearly Data 12/31/1970 - 12/31/2004
Ned Davis Research Group
15 14 13 12 11 10 9 8 7 6 5 4 3 2
Chinese Real GDP Growth 12/31/2005 = 10.2% (Scale Right) ( )
1 0 -1 -2 -3
A36
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
1992
1991
1990
1989
1988
(ESX1084A)
1994
Sources: Energy Information Administration and Haver Analytics, China National Bureau of Statistics
Correlation Coefficient = 0.42 1987
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
ESX1083A
1972
1970
Sources: Energy Information Administration and U.S. Census Bureau
16
1986
2004 2004 2004 2004 2004 2004
1985
25.8 15.3 6.6 4.2 1.8 0.8
1984
) ) ) ) ) )
15.0 14.7 14.4 14.1 13.8 13.5 13.2 12.9 12.6 12.3 12.0 11.7 11.4 11.1 10.8 10.5 10.2 9.9 9.6 9.3 9.0 8.7 8.4 8.1 7.8 7.5 7.2 6.9 6.6 6.3 6.0 5.7 5.4 5.1 4.8 4.5 4.2 3.9
Chinese Oil Demand (Year-to-Year Change) 12/31/2005 = 10.3% (Scale Left) ( )
1983
( ( ( ( ( (
17
1982
United States Japan Russia Brazil China India
31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
1981
Consumption per Capita Year
Country
1980
In Barrels per Person per Year
31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
Yearly Data 12/31/1979 - 12/31/2005
Chinese Oil Demand vs Real GDP Growth
1979
Petroleum Consumption per Capita for Selected Countries
Biographical Sketch Timothy W. Hayes, CMT, is NDR’s Chief Investment Strategist. Tim joined the firm in 1986 and currently heads up the firm’s global and U.S. asset allocation services. He serves as Research Council coordinator and oversees NDR’s quarterly Investment Strategy, writing sections on strategy, asset allocation, U.S. stock market and style allocation, and global allocation. Tim writes the Stock Market Focus, which features top-down stock market perspective, quantitatively-based analyses, asset allocation recommendations, and sector rankings. Tim also writes Global Focus, which focuses on the most significant global themes in addressing global asset allocation and the outlook for the world’s various stock markets and global sectors. His team also produces a complementary Global Chart of the Day. Tim is featured regularly on CNBC and Bloomberg TV, and his market commentary is often quoted in The Wall Street Journal and other financial media in the U.S. and globally. Timothy W. Hayes, CMT Chief Investment Strategist
He has written a book, The Research-Driven Investor, published in November 2000. He has contributed to several other books, and his research articles have appeared in the Journal of Technical Analysis, Technical Analysis of Stocks and Commodities, and other publications. In 1996, Tim won the Charles H. Dow Award for groundbreaking research in technical analysis. Sponsored by Dow Jones Telerate, the Market Technicians Association, and Barron’s, the award recognizes an outstanding original work that best expounds on the principles of technical analysis.
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