pb americas the investment landscape – february 2011 private banking americas investment strategy...

PB Americas

The Investment Landscape – February 2011

Private Banking AmericasInvestment Strategy & Advisory Group

The Investment Landscape

February 2011


This document is not complete without attached “Important Legal Information.”

Table of Contents

Executive Summary

Guideline Allocations

CIO Webcast

Key Focus:

– 2011 Watchlist - Payrolls

– Earnings

Global Markets Recap

Market and Economic Outlook



Executive Summary

PB Americas


Guideline Allocations & Tactical Overweights



Guideline Allocations

Source: Credit Suisse Investment Strategy & Advisory

Asset Class 1 2 3 4 5 Focus

US Large Cap 11% 17% 22% 25% 26%Quality Growth, High Div, Technology, Consumer Staples, Materials

US Sm/Mid Cap 3% 3% 4% 4% 4%

Non-US Developed 5% 6% 9% 12% 14%Germany, Scandinavia, Asia Pacific ex-Japan

Emerging Markets 0% 6% 9% 14% 18% Asia (esp. China, Korea), Brazil

Fixed Income 49% 34% 20% 8% 0%Expect credit-related to outperform gov't; credit selection important

Short-term/FX 27% 17% 6% 0% 0%USD neutral, constructive on EM and commodity-related currencies

Private Equity 0% 4% 10% 14% 18%Sm/Mid LBOs, Infrastructure, Secondary, EM, Clean Tech

Hedge Funds 0% 8% 12% 13% 8%Event Driven, Global Macro, Convertible Arb

Commodities 5% 5% 8% 10% 12%Base Metals (esp. Copper), Oil and Agriculture

Volatility Budget



CIO Webcast – Key Focus: Payrolls & Earnings

CLICK TO PLAY

PB Americas


Key Focus:2011 Watchlist - Payrolls



Payrolls The recession technically ended over a year ago, GDP growth

has resumed in earnest, job growth remains sluggish 1.2 million private sector jobs added since Mar-10, a constructive

sign, but still a long way from the 8 million+ lost due to the recession

As innovation transforms economies, some of the jobs lost will never be replaced, but new sources of jobs are emerging

Policy Investors remain concerned about municipal bonds, but fears are

likely overdone

Population With innovation and improvement in healthcare, people are

living longer – this impacts spending patterns

Key Focus: 2011 Watchlist - Payrolls




US growth has returned to pre-recession levels, jobs have not

Real GDP (In Trillions) vs. Nonfarm Payrolls (In Millions)

Source: Bloomberg

2011 Watchlist - PAYROLLS

12.6

12.8

13.0

13.2

13.4

13.6

Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10

128

130

132

134

136

138

140

GDP Payrolls (rt-axis)



-800

-600

-400

-200

0

200

400

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Improvement in jobs is key to sustainable improvement. Private sector jobs have grown 11 straight months, more are needed. Monthly Change In Private Nonfarm Payrolls (In Thousands)

Source: Bloomberg




Source: Bureau of Labor Statistics

Innovation and digitalization have devastated some industries US Music & Book Store Employees (Annual Avg In Thousands)


75100125150

175200225250

1990 1995 2000 2005 2010

Books Music



0

5000

10000

15000

20000

25000

30000

35000

Yahoo eBay Google Amazon(1994) (1995) (1998) (1994)

0

5000

10000

15000

20000

25000

30000

35000

Yahoo eBay Google Amazon(1994) (1995) (1998) (1994)


Innovation has also created new industries, with new companies creating new types of jobs. # of Employees (Founding Year in Parentheses)




The healthcare sector is the 3rd-largest employer in the US, up from 5th largest in 2006.Healthcare Jobs As % of Total Nonfarm Payrolls


9%

10%

11%

12%

13%

Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10




Corporate cash is at record levels – new hiring is one potential use S&P 500 Co. Cash Levels (In $ Billions)

Source: Standard & Poor’s

0

200

400

600

800

1000

1200

1990 1994 1998 2002 2006 2010*

*S&P 500 ex-Financials, through Q3, latest data available




Sales Tax33%

Personal Income Tax

34%

Other Taxes & Fees*28%

Corporate Tax5%

As the economy gains steam, growth in hiring and consumer spending should bolster state financesShare of State Revenues (In %)

Source: US Census

*Includes: tobacco, gas, & property taxes,

etc.

2011 Watchlist - POLICY



Source: Census.gov

7071

7475

7778

8081

1960 1970 1980 1990 2000 2010E 2020E 2030E

Life expectancy has been increasing over the past several decades; impact ranges from consumption patterns to social policy needsUS Life Expectancy (In Years)

2011 Watchlist - POPULATION

PB Americas


Key Focus: Earnings



Regional differentiation shows earnings expectations in US and Emerging Asia rising, Europe is under stress

Q4-10 is the 8th consecutive quarter of above average earnings upside surprises in the US

The technology and healthcare sectors have seen the largest share of companies beat earnings forecasts, utilities had the most disappointments

Earnings positive surprises have not just come from difficult to sustain cost cuts, 70% of companies have beaten sales forecasts as well

Key Focus: Earnings




Source: Credit Suisse Quantitative Research, IBES

Q4 earnings forecasts rising steadily as more companies reportS&P 500 Q4-10 EPS Forecast (Y-o-Y % Growth a/o date listed)

Key Focus - EARNINGS

20.9%

23.1%24.8% 24.4%

26.4%

30.0%31.4%

34.0%

Jan-1 Apr-1 Jul-1 Sep-1 Nov-1 Jan-1 Feb-1 Feb-7




35%

45%

55%

65%

75%

85%

Q4-95 Q4-98 Q4-01 Q4-04 Q4-07 Q4-10

The last 8 quarters have seen strong upside earnings surprisesS&P 500 Quarterly EPS Reports (% of Co’s Beating Forecast)


Avg: 60%




Earnings strength is broad based; technology leads upside surprisesS&P 500 Q4-10 Earnings Reports vs. Forecast


Sector Above Below MatchConsumer Discretionary 76% 16% 8%Consumer Staples 65% 15% 20%Energy 71% 25% 4%Financials 66% 26% 8%Health Care 79% 9% 12%Industrials 70% 16% 14%Information Technology 82% 11% 7%Materials 73% 23% 4%Telecomm Services 50% 50% 0%Utilities 25% 67% 8%S&P 500 71% 20% 9%




Sector Above BelowConsumer Discretionary 76% 24%Consumer Staples 60% 40%Energy 67% 33%Financials 70% 30%Health Care 76% 24%Industrials 74% 26%Information Technology 79% 21%Materials 59% 41%Telecomm Services 0% 100%Utilities 25% 75%S&P 500 70% 30%

Earnings beats not just due to cost cutting, sales are impressive alsoS&P 500 Q4-10 Revenue Reports vs. Forecast





Analysts raising 2011 EPS forecast, now $96 (+15% vs. 2010)S&P 500 2011 EPS Forecast (as of date listed)


$94.5 $94.7

$95.3

$96.2 $96.1

Oct-1 Dec-1 Jan-1 Feb-1 Feb-7



Source: Datastream, IBES

On top of a strong 2010, expected EPS in ’11 is rising in Emerging AsiaMSCI EM ASIA 2011 EPS Forecast (In $)


25

27

29

31

33

35

37

39

Feb-09 Jul-09 Nov-09 Apr-10 Sep-10 Feb-11



Source: Datastream, IBES

Earnings growth expectations in Europe have fallen steadilyDJ EuroStoxx 2011 EPS Forecast (Year-over-Year % Growth)


14

16

18

20

22

24

26

Feb-10 May-10 Aug-10 Nov-10 Feb-11

PB Americas





Equities Despite regional unrest across the Middle East led by Egypt and Tunisia Jan saw

gains in developed markets (S&P 500 + 2.4%, MSCI EAFE +1.6% MTD) in large part due to positive beginning of Q42010 earnings season. Continued upside earnings revisions provided further evidence of a sustained recovery with more surprises expected. EM struggled under the burden of regional unrest, withdrawals of capital in the wake of profit taking (MSCI EM -2.1%).

S&P 500 sectors were mixed in Jan. Energy (+7.3% MTD) due to market fears of potential shortages due to Middle East unrest. Industrials and IT (+4.2% respectively) Telecomm (-3.8% MTD) saw losses due margin and pricing pressure.

Size saw large cap outperform small cap while style mixed. Russell 1000 Growth (+2.5% MTD); Russell 2000 Value (+0.1% MTD).

Currency Dollar strength in first month of the year with exception EUR (+2.3%), GBP

(2.6%) and Mexican peso (1.8%) in light of stronger US economic data.




Global Markets Recap Interest Rates & Fixed Income

Steepening of US yield curve tapered off slightly in January (+10 bps vs. +36 bps in prior month) as positive economic data continues to lift longer yields. 10Yr: US Tsy +8bps, Eurozone +20bps, UK +26bps, Japan +9bps.

US indices performance mixed in January. Longer term bonds and IG posted negative returns. US HY continued to benefit from improving economic data and still relatively anchored rates on the shorter end of curve. Euro inflation-linked saw positive returns as inflation remained over the 2% benchmark

Commodities Oil (+0.9% MTD) remained in focus at month-end as concern that civil uprising

contagion could significantly affect the oil supply from producing nations in the event of a populist revolt. Gold safety trade seeming to unwind. (-6.0% MTD).

Volatility VIX Volatility Index remains subdued, closing at 19.53 at end of Jan, despite unrest

in the Middle East and record Euro Debt maturities.



GLOBAL MARKETSTotal Return Through 1/31/11

Source: Thomson Reuters DataStream

Level Jan-11 2010

EQUITIES (TR)S&P 500 1,286 2.4% 15.1%

MSCI EAFE (Local) 813 1.6% 5.3%

MSCI EM (Local) 47,105 -2.1% 14.4%

US DOLLARVS. EURO 1.37 -2.3% 6.9%

VS. YEN 82.04 1.1% -12.9%

COMMODITIESOIL ($ / barrel) 92.19 0.9% 15.1%

GOLD ($ / ounce) 1,332.16 -6.0% 29.3%



GLOBAL EQUITY MARKETS YTD Price change in local currency (MTD through 1/31/11)

Source: Thomson Reuters Datastream

2.1%

1.8%

0.9%

0.8%

0.1%

-0.6%

-0.6%

-3.9%

4.4%

2.3%

-10.6%

-4.1%

DJ Euro Stoxx (Euro Area)

S&P 500 (USA)

MICEX (Russia)

Hang Seng (Hong Kong)

Kospi (S Korea)

S&P TSX Comp (Toronto)

Nikkei 225 (Japan)

Shanghai SE Comp (China)

FTSE 100 (UK)

Bovespa (Brazil)

Bolsa (Mexico)

BSE Sensex (India)



GLOBAL SECTORS (S&P 1200 Global)Price change in USD (YTD Through 1/31/2011)


Sector Jan-11 2010

Energy 6.2% 8.7%Financials 3.9% 1.3%Information Technology 3.9% 10.4%Industrials 3.5% 21.8%Utilities 2.8% -5.5%Telecomm Services 1.6% 6.1%Consumer Discretionary 0.4% 21.6%Health Care 0.3% 0.2%Basic Materials -2.0% 18.7%Consumer Staples -2.4% 10.4%

S&P Global 1200 2.2% 9.2%



US EQUITY RETURNS (Size & Style)Total Return Through 1/31/2011

Source: Thomson Reuters Datastream, Bloomberg

Jan-11 YTD

Russell 1000 (Lg Cap) 2.4% 16.1%

Russell 1000 Value 2.3% 15.5%

Russell 1000 Growth 2.5% 16.7%

Russell 2000 (Sm Cap) -0.3% 26.9%

Russell 2000 Value 0.1% 24.5%

Russell 2000 Growth -0.6% 29.1%

DJIA 2.9% 14.1%

NASDAQ 1.9% 14.9%



US SECTORS (S&P 500)Price Change Through 1/31/2011


S&P Sector Jan-11 2010

Energy 7.3% 17.9%Industrials 4.2% 23.9%Information Technology 4.2% 9.1%Financials 2.8% 10.8%Utilities 1.1% 0.9%Health Care 0.4% 0.7%Basic Materials -0.1% 19.9%Consumer Discretionary -0.7% 25.7%Consumer Staples -1.8% 10.7%Telecomm Services -3.8% 12.3%

S&P 500 2.3% 12.8%



CURRENCY% Change As of 1/31/2011


Level Jan-11 2010MAJORS

USD vs. Euro 1.37 -2.3% 6.9%

USD vs. Japanese Yen 82.04 1.1% -12.9%

USD vs. British Pound 1.60 -2.6% 3.1%

USD vs. Swiss Franc 0.94 0.9% -9.8%

AMERICASUSD vs. Canadian Dollar 1.00 0.3% -5.2%

USD vs. Mexican Peso 12.12 -1.8% -5.5%

USD vs. Brazilian Real 1.67 0.3% -4.8%



GLOBAL INTEREST RATES10Y Gov’t Bond Yield (12/31/10& 1/31/11)


3.3

3.0

3.5

1.1

3.1

1.6

3.43.1

3.8

1.2

3.3

1.8

USA Euro area UK Japan Canada Switzerland

Dec-10 Jan-11



US FIXED INCOME & RATESAs of 1/31/2011


Barclays US Aggregate (TR) 105 0.16% 7.12%

US TREASURY

5 Yr Treasury Yield 1.92% -7 bps -77 bps

10 Yr Treasury Yield 3.37% 7 bps -45 bps

Yield Curve (10Y - 2Y) 284 bps 12 bps 14 bps

LENDING RATES

Fed Funds 0.25% Unch Unch

3 Mo LIBOR 0.30% Unch 5 bps

1 Yr LIBOR 0.78% Unch -20 bps

Prime 3.25% Unch Unch



CREDITSpread to 10-Yr Treasury As of 1/31/11(Basis Points)


Current Chg (Bps) Chg (Bps)Spread Jan-11 YTD

Barclays US Muni Bond 55 6 76

Barclays US Inv Grade Corp 150 -6 -220Barclays US High Yield 364 -56 -159

Barclays Global Aggregate Credit 37 -1 9

Barclays Global High Yield 375 -42 -181

JPM Emerging Market Bond 298 10 4



US FIXED INCOME YTDTotal Return YTD through 1/31/11

Source: Bloomberg, Thomson Reuters Datastream

-1.1%

-0.7%

0.0%

0.1%

0.1%

0.1%

0.3%

0.6%

0.7%

1.9%

2.2%

-2.2%US Treasury Long

US Inv. Grade Long

US Munis

US Cash

US MBS

US Agencies

US Inflation Linked (TIPS)

US Treasury Med

US ABS

US Inv. Grade Med

US CMBS

US High Yield



NON-US FIXED INCOME YTDTotal Return YTD through 1/31/2011(In Local Currency)

Source: Bloomberg, Thomson Reuters Datastream

-1.9%

-0.7%

-0.6%

-0.6%

-0.4%

-0.4%

0.4%

2.6%

UK Government

Europe Govt Med

Japan Government

EM

Euro Inv. Grade

Europe Govt Long

Euro Govt InflationLinked

Pan European HighYield



COMMODITIES% Change As of 1/31/2011 (Spot Price)


Level Jan-11 YTD

WTI Crude Oil ($/bbl) 92.19 0.9% 15.1%

Natural Gas (Henry Hub, $/MMBtu)

4.44 5.0% -27.2%

Gold ($/oz) 1,332 -6.0% 29.3%

Silver ($/oz) 27.75 -9.4% 80.3%

Platinum ($/oz) 1,818 5.7% 5.5%

Copper ($/lb) 4.45 0.3% 33.4%

LME Metals Index 4,321 2.6% 24.0%

Corn ($/Bushel) 6.35 7.5% 57.0%

Wheat (Soft Red, $/Bushel)

8.37 7.2% 90.1%



HEDGE FUNDS & PRIVATE EQUITY

Source: Dow Jones Credit Suisse Hedge Fund Index, Cambridge Associates, Thomson Reuters Datastream

Dec.-10* YTD**

BEST PERFORMING HF STRATEGIES DJ CS Managed Futures 5.4% 12.2%0.4%DJ CS Event Driven 3.9% 12.6%

DJ CS Long / Short Equity 3.4% 9.3%

WORST PERFORMING HF STRATEGIES DJ CS Dedicated Short Bias -5.9% -22.5%

DJ CS Fixed Income Arbitrage 0.6% 12.5%

DJ CS Convertible Arbitrage 1.2% 11.0%

Dow Jones/CS HF Index 2.9% 11.0%

S&P 500 Total Return 6.7% 15.1%*Dec 2010: most recent data available**as of Dec 2010

Private Equity Q3-10*

Cambridge Associates US PE Index 5.1%

Cambridge Associates US VC Index 3.8%

S&P 500 Total Return 11.3%*Q3 2010: most recent data available



CBOE Volatility Index (VIX)


0

10

20

30

40

50

Sep-09 Jan-10 May-10 Sep-10 Jan-11

PB Americas


Looking Ahead – 2010Market & Economic Outlook



Market & Economic Outlook Summary Global markets remain mixed, with developed nations showing

positive performance likely driven by strong corporate earnings and further upside surprises in economic data. Inflation in emerging markets amidst global food shortages will continue to be a focal point as investors weigh relative valuations against developed nations. All eyes remain on the Middle East, particularly Egypt, as more regional turmoil is expected and possible contagion of regional uprisings exist.

Q4 earnings season has aided domestic equity markets, with approx. 70% of S&P 500 companies reporting to the upside. EU, particularly Spain and Portugal, expected to be preoccupied with large debt burdens coming due during 1H11, potentially resulting in near-term volatility for the region. EM focus shifting towards Brazil and Latam as Chinese market investment becoming more specialized.

In US, remain focused on larger companies and their ability to deploy record amounts of cash from balance sheets. Maintain overweights in technology (corporate IT upgrade cycle – servers, software), consumer staples (focus on global, esp. EM exposure) and materials (commodity exposure).




Market & Economic Outlook Summary Some rise in yields still expected in 2011, yet valuations have become

more reasonable. Short/medium term bonds still preferred to longer ones. Possibility of tightening in UK (Q2) and Euro Area (Q4) remain. Preference for fixed income with low duration & some credit risk. Selective EM exposure (high carry and currency appreciation). Middle East tension likely to be contained on region as linkages to EM Asia and EM Latam limited. Credit selection remains key.

USD could benefit from flare ups in Euro Area as member economies work out details of the European stability fund. EM Asian currencies expected to benefit from rising interest rates.

Commodity space continues to have upside, though selection is crucial. Agriculture, especially corn, has room to grow due to continued demand from ethanol producers. Base metals, namely copper, will remain in demand from emerging markets as infrastructure building remains a key focus . Precious metals will remain volatile as rates begin to rise. Opportunity cost of gold safety trade beginning to be more pronounced in light of rising rates and other opportunities.




GLOBAL ECONOMIC OUTLOOKReal GDP Growth

Source: Credit Suisse Investment Strategy & Advisory, Credit Suisse Economics

2010E 2011E Comments

Global 4.9% 4.5%Survey data suggests services sector uptick likely ahead along with slowly improving labor markets. Inflation remains focus in EM economies.

USA 2.9% 3.2%J an manufacturing PMI (60.8 - highest mark since mid '04) data foreshadows momentum acceleration. Growth expected to become more self-sustaining.

Euro Area 1.7% 2.0%Germany expected to remain growth engine of Euro Area. Contrast between periphery & core Europe to persist. Gradual growth acceleration anticipated in '11.

UK 1.6% 2.5%Growth momentum projected to pick up. Fiscal tightening outweighed by rising consumption & business investment. Q4 '10 contraction due to weather conditions (Q4 '10: -2.0% q-o-q annualized)

J apan 4.3% 1.1%J apan likely to exit soft patch as of Q2 positive with consumption and exports lifting GDP growth. Exports showed first signs of revival in Dec. '11E 8.5% m-o-m

Non-J apan Asia

9.1% 7.6%As anticipated China's growth appears to slow somewhat (J an. PMI 52.9 from 53.9 in Dec.). Higher interest rates in India likely to temper growth in H2 '11. GDP '11E: China 9.2%, India 7.7%

EEMEA* 4.4% 4.5%Russia's commodity exposure and increased investment demand projected to push GDP growth to 4.7% ('10E 3.6%). Turkey 4.8% ('10E 8.0%)

Latin America

6.2% 4.6%Brazil's growth deceleration as of Q2 '10 looks to have come to end in Q4 (est. 1.2% q-o-q, 0.5% q-o-q in Q3). In '11domestic demand expected to moderate somewhat but remain at robust level. '11E: Brazil 5.0%, Mexico 4.0%

* EEMEA = Emerging Europe, Middle East, Africa



GLOBAL EQUITIES OUTLOOK


Weight (Local) Comments

USA OverEPS estimates moving higher with strong Q4 earnings report, underscoring attractive equity valuation (EPS 2011E $96, P/E 2011E 13.6x). Risk for US growth to upside.

Asia ex-J apan

OverHigh share for food and energy in emerging countries' consumer spending baskets drives inflationary pressure, maintains high growth despite measures to cool eco.

Latin America

NeutralInternational fund flows seeking high yields flood Brazil, keeping currency pressure upward. High industrial metals and agricultural commodities exposure drives growth.

UK NeutralQ4/2010 GDP reporting disappointed, though earnings momentum continues to be positive. Valuation remains attractive with discount to own history and relative to world.

J apan NeutralPerforms well in more advanced stage of economic cycle. Heavy export exposure to rest of Asia, profiting from regional growth, though heavy deficit/debt burden.

Euro Area NeutralNeed to renegotiate outstanding sovereign debt of peripheral Europe remains, keeping pressure on Euro. Germany reports highest GDP/ lowest unemployment in 20 years.

EEMEA* UnderSituation in Middle East/Africa remains unstable with upheaval in Tunisia and Egypt, South Africa preferred. Russia's growth, valuation and oil exposure attractive.

* Emerging Europe, Middle East, Africa



Global Equities Snapshot (As of 1/31/11)

Source: I/B/E/S, Thomson Reuters Datastream, Bloomberg

Index

12 Mo. Relative % Change vs. MSCI AC World

Estimated 2011 Y-o-Y Engs

Growth

P/E (Current Price /

2011 Engs) Sample ETFs

S&P 500 (USA) 2.6% 14.6% 13.3 SPY, IVV

MSCI Canada 3.2% 22.4% 14.9 EWC

MSCI Europe ex-UK -30.9% 14.5% 10.9 EZU, IEV, FEZ

MSCI UK -4.5% 18.8% 10.6 EWU

MSCI Japan -16.5% 84.6% 13.7 EWJ, ITF

MSCI Australia -14.2% 19.0% 12.1 EWA

MSCI China -5.4% 15.4% 12.0 GXC, FXI

MSCI Brazil -5.7% 16.7% 10.8 EWZ

MSCI India -8.2% 22.6% 14.9 PIN

MSCI Russia 1.9% 14.7% 7.1 RSX

MSCI All Country World 17.2% 15.3% 12.8 ACWI, VT



EQUITY INDEX FORECASTS

Source: Credit Suisse estimates

Jan-11 End-11E

S&P 500 1,286 1,450 - 1,500

DJ EURO STOXX 286 290 - 300

FTSE 100 (UK) 5,863 6,400 - 6,600

NIKKEI 225 (Japan) 10,238 11,000 - 12,000

BOVESPA (Brazil) 66,575 83,000 - 86,000

BOLSA (Mexico) 36,982 40,000 - 42,000



S&P 500 SECTOR OUTLOOK


Sector Weight Comment

Information Technology

OverIncreased business spending in software and hardware expected; additionally trends in consumer electronics (tablets, smartphones, TVs) driving demand.

Consumer Staples

OverCommodity input prices & packaging costs are rising, meeting a price sensitive consumer domestically - pricing power/ international exposure important

Materials OverCopper prices reach multi decade high above $9,900/metric ton, as supply/ inventory situation remains tight. Valuation remains attractive.

Financials NeutralNew regulatory environment challenging as need for increased capital basis meets limited business opportunities, reducing earnings/ROE potential.

Health Care NeutralInvestor sentiment is improving as valuation is attractive and likely reflecting upcoming patent cliff, earnings though growth estimates muted.

Industrials NeutralExpansion of the Fed's balance sheet, commitment to large asset purchases stimulates economy, improved environment for capital investments.

Energy NeutralEnergy companies managed to translate spending of previous years into increased margins, driving earnings momentum and cash flow expectations.

Consumer Discretionary

NeutralSpending for durable goods in Q4/2010 was above household's disposable income, expect slowdown as long as unemployment remains elevated.

Telecomm Svcs

UnderNeed for broader/ faster mobile networks satisfying vastly growing number of devices requires significant investments; pricing and margins under pressure.

Utilities UnderAbove average valuation, investments in clean power technology necessary. Spread between dividend yield and treasury not compelling anymore.



S&P 500 Sector Snapshot (As of 1/31/11)

Source: I/B/E/S, Thomson Reuters Datastream

Sector

12 Mo. Relative % Change vs.

S&P 500

Estimated 2011 Y-o-Y EPS Growth

P/E (Current Price /

2011 Engs) Sample ETFs

Consumer Discretionary 8.9% 15.6% 15.5 XLY, VCR

Consumer Staples -9.7% 7.5% 14.3 XLP, VDC

Energy 12.7% 18.1% 13.7 XLE, IYE

Financials -4.2% 22.8% 12.9 XLF, IYF, IYG

Health Care -19.1% 6.8% 11.3 XLV, IYH

Industrials 11.0% 17.6% 16.1 XLI, IYJ

Materials 11.3% 33.9% 14.6 XLB, IYM

Technology 4.4% 13.3% 14.3 XLK, IGM, IYW

Telecomm Services -0.7% 12.5% 15.9 IYZ, VOX

Utilities -12.4% -1.0% 12.6 XLU, IDU

S&P 500 19.8% 14.6% 13.9 SPY, IVV



HEDGE FUND & PRIVATE EQUITY OUTLOOKThrough December 2010 (most recent data available)


Hedge Fund Strategy Weight Comments

Event Driven OverStrong Dec as the space responded well to global recovery effort. Should continue to outperform in 1H11 due to positive momentum from record amount of ready to deploy cash and cheap financing amidst economic recovery

Convertible Arb OverPositive Dec moved in tandem with strong equity markets. Continued positive performance expected as investors seeking equity exposure may use the convertible structure to take advantage of current income and spread tightening

Global Macro OverDec was strongest month of the year as markets reacted favorably to positive consumer confidence numbers and extension of Bush Tax Cuts. Expectations are positive going forward as the global economic recovery continues to develop.

Fixed Income Arb NeutralDec saw an interest rate sell-off due to the extension of the Bush Tax Cuts, still posting a positive return for the month. Going forward maintain neutral as macro events and numerous credit-related issues can sway the sector significantly.

Equity Market Neutral UnderIndex posted a postiive month in the wake of a very strong market. Expecations remain muted as managers seem unable to locate specific opportunities within the space to capitalize on.

Private Equity NeutralFocus on small LBO funds, infrastructure funds, secondary market funds, distressed real estate, and EM funds that offer exposure to sectors that are underrepresented by publicly-traded equities.



POLICY RATE OUTLOOKGovernment Policy Rates (%)


Jan-11 2011E Comments

USA 0-0.25 0.25 - 0.50Chairman Bernanke emphasized that recovery not "truly established" as long as there's no sustained period of job growth. Rates likely anchored for '11.

Euro Area 1.00 1.50Euro area inflation advancing above 2% over past two months. Trichet reiterates that risk balanced, yet inflation risk could move to upside. Tightening expected towards end of '11.

UK 0.50 1.00Risk of inflation has shifted upwards and minutes revealed more hawkish tone as members grow more wary of inflationary pressure. Rate rise as early as May possible by +25 bps.

J apan 0-0.10 0-0.10BoJ likely to leave broad liquidity in tact in contrast to other major economies. Policy rate likely on hold in '11.

Canada 1.00 2.00Economy expected to pick up momentum as retail and wholesale sectors show strength. Gradual tightening anticipated as of Q2 through year end.

Mexico 4.50 4.50Central bank unlikely to change policy rate as growth momentum slows somewhat, inflation projected to fall to 3.7% in '11 (from 4.4% in '10E).

Brazil 11.25 13.50Brazil increased Selic rate by 50 bps at J anuary meeting. Given rising inflation driven by food price increase, further tightening anticipated throughout '11.



INTEREST RATE OUTLOOK10-Yr Government Bond Yield

Source: Bloomberg, Credit Suisse estimates

Jan-11 2011E Comments

USA 3.37% 3.75% - 4.00%Recent rise in yields point to more reasonable valuation. Further increase anticipated with economy gaining momentum.

Euro Area

3.16% 3.10% - 3.30%Inflation concerns in Euro Area emerge and ECB rate hike remains possibility at end of '11. Yet, yields closer to fair value.

UK 3.66% 3.70% - 3.90%

Inflation remains above BOE target, growth relatively healthy. Market implied probability of May '11 rate hike by 25 bps increased from 46% (late J anuary) to above 90%. Further upward move of yields expected.

J apan 1.22% 1.20% - 1.40%Growth acceleration positive for yield increase, yet offset by large output gap and BOJ easing.



FIXED INCOME OUTLOOK


Weight Comments

Emerging Markets OverExposure to emerging consumer, infrastructure and commodity themes favored. Gain exposure to high carry and currency exposure. Credit selection remains key.

US High Yield NeutralSpread compression limited. Improving economic sentiment expected to support riskier credit as default rates decrease further. Short end of curve exposure and credit selection key.

Treasury Inflation Protected (TIPS)

NeutralWith inflation expectation moving up in major markets adding inflation linked bonds beneficial for long term purchasing power protection and diversification purposes.

US Municipal NeutralQ4 '10 issuance frontloading left market in J anuary with modest supply. Revenues at state and local government level to improve gradually as economic growth accelerates. Credit selection and diversification remains important.

Mortgage-Related NeutralInitial housing financial reform proposal points to orderly wind down of agencies and some stabilization in housing market positive for sector.

US Investment Grade Corp.

UnderSpreads remain tight. Improving economic environment positive for credit, yet rising yields, risk of overleveraging and low yields (low carry) make space less attractive.

US Treasuries UnderGradual yield rise over course of year likely as economic environment improves and quantitative easing headline risk remains. Limited upside for Treasuries.



FIXED INCOME OUTLOOKPreferred Maturities (In Years)


0 1 2 3 4 5 6

A/BBB

GBP AAA/AA

A/BBB

EUR AAA/AA

A/BBB

USD AAA/AA



CURRENCY OUTLOOK


US Dollar Jan-11 2011E Comments

vs. Euro* 1.37 1.35 - 1.40Volatility in near term to persists as Euro Area governments work out details of rescue mechanism. In H2 '11 Euro Area headline risk expected to dissipate as resolution mechanism falls into place.

vs. J apanese Yen

82.0 80 - 85Front end yields in other major economies started to move up and increase of risk appetite put pressure on yen. Current account surplus projected to benefit currency. Yen neutral

vs. British Pound*

1.60 1.67 - 1.72Likelihood of rate hike by BOE increased. Positive growth outlook and Euro sovereign stress make pound alternative to Euro for reserve managers. Pound bullish.

vs. Canadian Dollar

1.00 0.95 - 1.00Periphery currency to US expected to benefit from US acceleration. Policy rate anticipated to rise, yet currency overvalued. Neutral CAD.

vs. Mexican Peso

12.12 12.00 - 12.20US momentum acceleration positive and continued inflows into local bond market after addition to global bond index positive for peso. Peso bullish.

vs. Brazilian Real

1.67 1.65 - 1.70Monetary policy tightening and still healthy growth expected to underpin appreciation pressure. Authorities intervention still possible capping downside. Real marginally bullish



CURRENCY FORECASTS


Jan -11 2011EINTEREST RATE DRIVEN CURRENCIES

Euro / US Dollar 1.37 1.35 - 1.40=US Dollar / Japanese Yen 82.0 80 - 85

British Pound / US Dollar 1.60 1.67 - 1.72

US Dollar / Swiss Franc 0.94 0.95 -1.00

US Dollar / Mexican Peso 12.12 12.00 - 12.20

COMMODITY CURRENCIESUS Dollar / Canadian Dollar 1.00 0.95 - 1.00

US Dollar / Brazilian Real 1.67 1.65 - 1.70

Australian Dollar / US Dollar 1.00 0.96 - 1.00

NZ Dollar / US Dollar 0.77 0.74 - 0.78



COMMODITIES OUTLOOK

Source: Credit Suisse

Weight Comments

Base Metals

OverBase metals began 2011 on a positive note. Copper remains a key focus as demand continues to be driven by further infrastructure build-out in many emerging economies amidst supply constraints.

Energy Over

Concerns over supply route disruption due to Middle East protests fueled late month rally in oil. Expect further volatility as situation in Egypt remains unresolved. Natural Gas could see further gains if temperatures remain at historic lows for the remainder of winter.

Agriculture Neutral

J anuary saw corn prices +7.2% due to global tightening and supply downgrades. Expect further support as ethanol industry maintains strong demand. Wheat will most likely see little upside potential as current global supply is sufficient to meet demand.

Precious Metals

Under

Healthy supply/demand and continued low interest rates will most likely support precious metals safety trade for 1H2011, despite recent volatility. As rates begin to increase, expectation is that safety trade will unwind as opportunity cost to carry grows.



COMMODITIES FORECASTS

Source: Thomson Reuters Datastream, Credit Suisse estimates

Jan-11 2011E

ENERGY

WTI Crude Oil (USD/ barrel) 91.4 90 - 100

US Natural Gas (USD/mmbtu) 4.23 4.5 - 5.0

PRECIOUS METALS (Spot, USD/ounce)Gold 1,418 1,000 - 1,100

Silver 30.6 27 - 28

Platinum 1,720 1,800 - 1,900

BASE METALS (Spot, USD/Pound)Aluminum 1.12 1.12 - 1.18Copper 4.44 4.50 - 4.70Zinc 1.11 1.00 - 1.11

AGRICULTURE (USD/bushel)Wheat 7.81 7.70 - 7.90Corn 5.91 6.00 - 6.25



Important Legal InformationThis information is not intended to be a recommendation or opinion regarding the equity securities of the referenced companies. This material may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse Securities (USA) LLC (CSSU). This material has been prepared by the Chief Investment Officer of the Private Banking USA business of CSSU and not by the CSSU research department. It is provided for informational purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The material is not intended to provide a sufficient basis on which to make an investment decision. It is intended only to provide observations and views of the Chief Investment Officer, which may be different from, or inconsistent with, the observations and views of CSSU research department analysts, CSSU traders or sales personnel, or the proprietary positions of CSSU. Observations and views expressed herein may be changed by the Chief Investment Officer at any time without notice. Past performance is not an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance. The material set forth above has been obtained from or based upon sources believed to be reliable but CSSU does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes in market factors. This material does not purport to contain all of the information that an interested party may desire and, in fact, provides only a limited view of a particular market. CSSU may, from time to time, participate or invest in transactions with issuers of securities that participate in the markets referred to herein, perform services for or solicit business from such issuers, and/or have a position or effect transactions in the securities or derivatives thereof. The material does not constitute objective research under FSA rules. The most recent CSSU research on any company mentioned is available to online subscribers at www.credit-suisse.com/pbclientview. CSSU does not provide legal or tax advice. Consult your personal accounting, legal, and tax advisor with respect to any legal or tax implications.

The Private Banking USA business in CSSU is a regulated broker dealer and investment advisor. It is not a chartered bank, trust company or depository institution. It is not authorized to accept deposits or provide corporate trust services and it is not licensed or regulated by any state or federal banking authority. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

©2010 Credit Suisse Securities (USA) LLC. All rights reserved.

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