From: Justin X Gratz To: Undisclosed recipients:; Subject: Eye on the Market, May 20, 2010 Date: Thu, 20 May 2010 18:02:05 +0000 Attachments: 5-20-10_ _ EOTM_ - _ Leaner_ Pastures.pdf Inline-Images: image006.png; image008jpg; image010jpg; image012.png; image016.jpg; image020jpg; image021.png; image023.png Eye on the Market, May 20, 2010 (the attached PDF of this email is easier to read) Topics: Market and portfolio outlook, the question of Italy, and Asian consumption Leaner Pastures. In preparing for mid-year portfolios updates, I looked back at the 2010 Outlook we published at the end of last year. At the time, there was a lot of enthusiasm for the blizzard of stimulus programs unleashed around the world. But as the Year of the Ox came to a close, we relied on bovine anatomy to convey the risks of a recovery riding on an unprecedented wave of governmental support. We believed that 2010 would be the year during which the costs would begin to come home to roost, and that equity market returns would be a shadow of their 2009 levels; single digit returns would be a great outcome. Unfortunately, it looks like our caution was on the right track, and it will take a second half recovery to get back to our forecast: global equities are down 5% YTD, and tumbling further today. 've highlighted in red the sections of our Ox that are weighing on markets, with descriptions below of how these various stimulus programs did not come without a price: * Stimulus in China in 2009, when measured by money supply or loans extended by banks, was higher than anything we have ever seen or studied. So it was not a surprise that China was forced to rein things in this year (loan quotas, bank reserve and mortgage down-payment requirements, liquidity withdrawals, restrictions on Trust companies, tighter collateral rules). But M2 growth is still on track to grow by 20%+ this year, and both goods and property prices are still EFTA00758921