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Investment Strategy Monthly Slides October Outlook Investment Strategy & Advisory Team: Barbara M. Reinhard, CFA Chief Investment Strategist, Managing.

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Presentation on theme: "Investment Strategy Monthly Slides October Outlook Investment Strategy & Advisory Team: Barbara M. Reinhard, CFA Chief Investment Strategist, Managing."— Presentation transcript:

1 Investment Strategy Monthly Slides October Outlook Investment Strategy & Advisory Team: Barbara M. Reinhard, CFA Chief Investment Strategist, Managing Director Philipp E. Lisibach, CFA Director Samuel M. Baumann Assistant Vice-President Jimmy M. James Vice President Scott P. Rosenblatt Assistant Vice-President Ryan P. Sullivan Private Banking Americas As of October 19, 2011

2 This document is not complete without attached Important Legal Information. 2 Table of Contents Investment Strategy Overview Four Charts You Cant Miss Asset Allocation & Economic Outlook Valuations Fundamentals Sentiment Appendix – Rolling 10-year Rolling 10-year – Global Asset Class Returns Global Asset Class Returns – Key Forecasts Key Forecasts – Publication Round-up Publication Round-up

3 This document is not complete without attached Important Legal Information. 3 Investment Strategy Overview As of 9/13/2011 Source: PB Americas Investment Strategy & Advisory High growth equity sectors in a low economic growth environment. Increase stable over cyclical growth in equity portfolios. Position U.S. sector allocations towards stable growth sectors such as: - Health Care, Telecom, Utilities, Consumer Staples Reduce exposure to U.S. small caps. High dividend paying stocks and strategies during periods of low interest rates. Stay overweight emerging market equities. Increase municipal bond exposure, favoring 5-10 year maturities given yield curve shape. High credit quality during periods of high liquidity. Seek higher yield through different vehicles such as: - Senior Bank Loans, MLPs, REITs with good coupons and coverage ratios

4 This document is not complete without attached Important Legal Information. 4 Four Charts You Cant Miss As of 9/13/2011 Source: PB Americas Investment Strategy & Advisory Buying Equities at Lower P/Es May Have Potential Long-Term Benefits Average 10-year Compounded Annual Growth Rate For Varying P/Es As of 9/30/2011 Source: Ibbotson Associates, Bloomberg, Haver Analytics, Credit Suisse Investment Strategy Advisory 2008 Recession 1990 Recession 2001 Recession A PMI Reading Below 42 Would Signal Trouble ISM manufacturing purchasing manager index, seasonally adjusted As of 8/30/2011 Source: Bloomberg, Credit Suisse S&P 500 Index Average Monthly Returns Since 1970 As of 8/31/2011 Source: Bloomberg State & Local Government Tax Revenues Above 2007 Peak As of 6/30/2011 Source: U.S. Census USD 333 bn

5 Asset Allocation & Economic Outlook

6 This document is not complete without attached Important Legal Information. 6 Over-heatingSlowdownContraction Recovery Stocks Comm Bonds Cash Bonds Stocks Comm Cash Bonds Comm Stocks Credits Cash Comm Bonds Outperform Underperform Cycle Clock* *The Cycle Clock framework breaks the economic cycle into 4 phases (Overheating, Slowdown, Contraction & Recovery). For each of the 4 phases we examine which asset classes perform best. GDP robust Unemployment low Tighter rate policy Inflation rising GDP dropping Employment slowing Tight rate policy Inflation slowing GDP contracting Unemployment high Easier rate policy Inflation low GDP picking up Employment off Easy rate policy Inflation tame As of 9/13/2011 Source: PB Global Research Our Cycle Clock indicator has moved into Contraction territory, reflecting the weaker economic activity brought about by the Eurozone crisis. This financial market crisis, rather than the business cycle, is the chief driver of asset prices.

7 This document is not complete without attached Important Legal Information. 7 As of 10/13/2011 Source: PB Americas Investment Strategy & Advisory Positive Negative Neutral Note; Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Outlook Summary

8 This document is not complete without attached Important Legal Information. 8 Guidance Allocations Data as of 9/30/11 Source: PB Americas Investment Strategy & Advisory The proposed Benchmark and Strategic Asset Allocations for each of the risk budgets referenced above are created by the Private Banking Americas Investments Strategy & Advisory group. The Benchmark Asset Allocation (BAA), for a 3-7 year time horizon, is the neutral position reflecting the predefined risk budgets and meets investment objectives over a full market cycle. The Strategic Asset Allocation (SAA), for a month time horizon, expresses views resulting in temporary deviations from the BAA to generate expected excess returns or reduce risk. Alternative investments are typically high-risk investment vehicles which are available only to qualified individuals or entities that are willing to assume above average risk and sustain limited liquidity with a portion of their net worth. Please refer to the attached Important Legal Information for important disclosure relating to alternative investments.

9 This document is not complete without attached Important Legal Information. 9 Economics: Latest surveys tentatively support case for resumption of slow growth U.S. data and indicators (PMI, corporate investment, consumer spending) are somewhat more robust, much of Europe is moving into contraction phase. Pressure for more radical solution of the Greek debt issue, including decisive bank re-capitalization, is mounting. Emerging market growth is mixed, but still elevated inflation suggest policy easing will be cautious. German Business Sentiment Cools Off, but Better than Expectations As of 9/13/2011 Source: Credit Suisse Investment Strategy & Advisory Source: PB Americas Investment Strategy & Advisory U.S. Car Sales Accelerating As of 9/30/2011 Source: Bloomberg

10 This document is not complete without attached Important Legal Information. 10 Developed MarketsEmerging Markets U.S. Asia Asia Pacific ex-Japan Latin America Canada Europe, Mid East, Africa UK Japan Europe ex-UK Regional Outlook S&P 500 Index Net Company Revisions 2012E Note; Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. / Indicates a strong investment conviction in over/underweight position. / Indicates a modest investment conviction in over/underweight position. Indicates a neutral investment conviction, or benchmark weighting position. Equities : Negative sentiment dominates over attractive valuations Earnings season is underway, presumably shifting focus from temporary factors back to fundamentals. Analysts have cut estimates of late, and an updated outlook from company managements will add more clarity to market sentiment. Valuation remains attractive, with healthy balance sheets and strong cash flow generation, and P/Es for the next-twelve months suggest ample upside potential. Yet investors sentiment and risk appetite continue to be low, outweighing fundamentals. De-risking of portfolios has led to money outflows in emerging markets, though growth outlook remains far superior to developed markets, offering better upside potential. Source: PB Americas Investment Strategy & Advisory As of 9/15/2011 Source: Factset/IBES, Credit Suisse

11 This document is not complete without attached Important Legal Information. 11 U.S. Sector Outlook Health Care Energy Consumer Staples Industrials Telecomm Services Consumer Discretionary Utilities Financials Information Technology Materials S&P 500 Dividend & US 10-Year Treasury Yields Note; Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. / Indicates a strong investment conviction in over/underweight position. / Indicates a modest investment conviction in over/underweight position. Indicates a neutral investment conviction, or benchmark weighting position. U.S. Equities: Large cap companies with stable growth, high dividends are our focus Given the prospect of continued heightened volatility, we maintain our defensive posturing. Our focus remains stable, defensive growth and we continue to underweight cyclical growth. Large cap companies offer better value in a low- growth environment, and companies with high yet sustainable dividend yields offer an attractive alternative to low-yielding fixed income investments. Valuations are reflecting an economic scenario more dire than what is likely to occur, as implied earnings suggest a recession-like drop in earnings growth. Source: PB Americas Investment Strategy & Advisory

12 This document is not complete without attached Important Legal Information. 12 Fixed Income: European sovereign crisis still dominating; preference for high quality credits Market volatility and accommodative central banks should keep benchmark yields at low levels. Corporate credit valuations look increasingly attractive, but focus remains on stronger issuers given European sovereign crisis overhang. We increased our exposure to corporate credits to overweight from neutral favoring high-quality non- financial issuers. We reduced our overweight position in emerging markets to de-risk our fixed income asset allocation. In taxable allocations, we increase our exposure to municipal bonds to overweight from neutral due to the relative attractiveness municipal bonds yields compared to U.S. Treasuries. Fixed Income Outlook Positive Negative Neutral Note; Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Source: PB Americas Investment Strategy & Advisory As of 6/30/2011 Source: DataStream As of 10/13/2011 Source: Credit Suisse Investment Strategy & Advisory U.S. Municipal U.S. Investment Grade Corp. Emerging Markets U.S. Treasury Inflation Protected U.S. High Yield U.S. Treasuries U.S. Securitized Corporate Cash Levels At Generational Highs

13 This document is not complete without attached Important Legal Information. 13 Currencies: Short term neutral view on USD; longer term we favor emerging markets currencies vs. USD EUR: Narrowing interest rate spread and low risk appetite positive for USD in near term. Longer term neutral as negative U.S. current account weighs on USD. Commodity currencies (AUD, NZD, CAD) remain overvalued. AUD narrowing spreads vs. the USD, overvaluation and vulnerability to bouts of risk points to further weakness despite Credit Suisses positive outlook on base metals. Emerging market currencies face near-term downside risk with continued lack of risk appetite. Longer term we remain positive on emerging markets. Positive Negative Neutral Note: Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Source: PB Americas Investment Strategy & Advisory USD vs. CAD EUR vs. USD USD vs. MXN USD vs. JPY USD vs. BRL NZD vs. USD GBP vs. USD AUD vs. USD Data as of 10/04/2011 Source: Bloomberg Currency Outlook EURUSD Shorts Look Extended Data as of 10/13/11 Source: PB Americas Investment Strategy & Advisory

14 This document is not complete without attached Important Legal Information. 14 Commodities: Potential near-term volatility likely; strategic 6-12 month view remains positive Recent commodity weakness is likely the result of broad market weakness and the uncertainty resulting from indecisive policy makers in Europe. We expect a continued uptrend in commodity prices following the resolution of the Euro debt crisis and a stable pattern of economic growth. Gold experienced significant selling pressure during September, partially due to funding and liquidity needs by large institutional holders. Prices are now back within fair value ranges and are no longer expensive. Gold will likely recover and resume uptrend into Industrial metals, particularly copper and aluminum, are fairly valued. Physical demand remains robust and copper imports to China have increased over the last three months. Tight physical market may allow prices to rebound quickly when stability returns, however due to overall macro concerns we remain neutral. Positive Negative Neutral Note; Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Source: PB Americas Investment Strategy & Advisory Commodity Outlook Data as of 9/30/2011 Source: Bloomberg Precious Metals Industrial Metals Livestock Agriculture Energy Gold: -15% From Peak: Under Pressure in September +27% - 15% Data as of 10/13/11 Source: PB Americas Investment Strategy & Advisory Jul-11Aug-11Sep-11 $/Troy Ounce

15 This document is not complete without attached Important Legal Information. 15 Alternatives: Global Macro hedge funds continue to be favored strategy August 2011 resulted in the largest monthly decline in 2011 for the Dow Jones Credit Suisse Hedge Fund Index, however global macro managers were able to post a positive performance for the month. Current market dislocation likely to continue to favor tactical strategies such as global macro and managed futures. Despite difficult market environment of 2011, hedge fund launches have outpaced liquidations as investors generally believe that tactical hedge funds may be better equipped to preserve capital and take advantage of tactical trading opportunities. The 3 rd quarter of 2011 is expected to see the trend continue. Private equity outlook remains constructive for the longer term. Current activity in the space is focused around secondary funds. Source: PB Americas Investment Strategy & Advisory Data as of 8/31/2011 Source: Bloomberg Global Macro Funds Have Been Top Performers Amidst Market Volatility Investors Remain Committed to Hedge Funds Data as of 6/30/2011 Source: Bloomberg Hedge Fund Index: 0.0% YTD Global Macro Sub-Index: 5.9% YTD

16 Valuations

17 This document is not complete without attached Important Legal Information. 17 U.S. Equities - The Valuation Math Favors Investors As of 9/30/2011 Source: Bloomberg S&P Month Forward P/E Ratio Sep-91Sep-95Sep-99Sep-03Sep-07Sep-11 12Mo Fwd P/E RatioAvg +1 Std Dev-1 Std Dev

18 This document is not complete without attached Important Legal Information. 18 Emerging Market Equities – At a Discount Despite Superior Growth Outlook As of 9/30/2011 Source: DataStream MSCI Emerging Market - 12-Month Forward P/E Ratio Sep-91Sep-95Sep-99Sep-03Sep-07Sep-11 12Mo Fwd P/E RatioAvg +1 Std Dev-1 Std Dev

19 This document is not complete without attached Important Legal Information. 19 EAFE* Equities – Sovereign Debt Issues Remain an Overhang As of 9/30/2011 Source: DataStream *EAFE: Europe, Australasia, and Far East MSCI EAFE - 12-Month Forward P/E Ratio Sep-91Sep-95Sep-99Sep-03Sep-07Sep-11 12Mo Fwd P/E RatioAvg +1 Std Dev-1 Std Dev

20 This document is not complete without attached Important Legal Information. 20 Municipals – Remain Attractive Compared to U.S. Treasuries As of 9/30/2011 Source: Thomson Reuters MMD, Blommberg G.O. AAA Muni Yield as % of 10 Year US Treasury Yield 115%

21 This document is not complete without attached Important Legal Information. 21 High Yield – Relatively Cheap, Yet Macro Environment Continues to Push Spreads Up Barclays High Yield Index spread over U.S. Treasuries As of 9/30/2011 Source: DataStream 841

22 This document is not complete without attached Important Legal Information. 22 Emerging Market Debt – Tepid Macro Sentiment Suggest Continued High Volatility JP Morgan Emerging Market Bond Index spread over U.S. Treasuries As of 9/30/2011 Source: DataStream 465

23 Fundamentals

24 This document is not complete without attached Important Legal Information. 24 Global PMIs Are Down, But Not At Recession Levels As of 9/30/2011 Source: Bloomberg, PB Americas Investment Strategy & Advisory Global Purchasing Managers Index U.S. Recessionary Level: 42

25 This document is not complete without attached Important Legal Information. 25 We Are in a Downward Sloping Phase, Though Not a Contraction Phase As of 9/13/2011 Source: OECD OECD Composite Leading Indicators United StatesEurope Japan China

26 Sentiment

27 This document is not complete without attached Important Legal Information. 27 Sentiment – Market Participants are Very Nervous… As of 9/30/2011 Source: Credit Suisse Global Strategy Research Credit Suisse Daily Risk Appetite Index /8109/8609/9109/9609/0109/0609/11 Credit Suisse Daily Global Risk AppetiteAverage Sep- 81 Sep- 86 Sep- 91 Sep- 96 Sep- 01 Sep- 06 Sep- 11 Panic Euphoria

28 This document is not complete without attached Important Legal Information. 28 …And Are Becoming Increasingly More Bearish As of 10/06/2011 Source: American Association of Individual Investors AAII Bull – Bear Investor Sentiment Surveys Oct-87Oct-91Oct-95Oct-99Oct-03Oct-07Oct-11 Bullish Bearish

29 Appendix

30 This document is not complete without attached Important Legal Information. 30 Dont Let The Recent Past Predict The Future S&P 500 Index Total Return Index 10-year Rolling Returns As of 9/30/2011 Source: Standard and Poor's, Bloomberg

31 This document is not complete without attached Important Legal Information. 31 Global Asset Class Returns As of 9/30/2011 Source: Bloomberg, DataStream *EAFE: Europe, Australasia, and Far East / * U.S. Private Equity Index The Cambridge Associates only quarterly data available

32 This document is not complete without attached Important Legal Information. 32 Key Forecasts* Global Equity Indices 9/30/1112M U.S. (S&P 500)1,1311,299 Euro Area (Euro Stoxx 50)2,1802,740 UK (FTSE 100)5,1285,809 Japan (Nikkei 225)8,70010,500 Asia Ex-Japan (MSCI Asia AC ex-Japan) Brazil (Bovespa)52,32463,000 Mexico (IPC)33,50335,000 Data as of 9/30/2011 *3month, 12month, or Year-end forecasts as indicated; **Level with USD as counter currency, price change with USD as base currency Source: PB Global Research, CS Latin American Equity Strategy, Bloomberg, Thomson Reuters DataStream Real GDP (%) 2011E2012E Inflation 11E Global U.S Euro Area Japan Non-Japan Asia Latin America Interest Rates (10-yr Gov.) 9/30/113M12M U.S – 2.5%2.6 – 2.8% Euro Area – 2.0%2.2 – 2.4% UK – 2.6%2.7 – 2.9% Japan – 1.1%1.1 – 1.3% Currencies (USD vs.) 9/30/113M12M Euro** Japanese Yen British Pound** Swiss Franc Canadian Dollar Australian Dollar** New Zealand Dollar** Mexican Peso Brazilian Real Commodities 9/30/113M12M Energy WTI Crude Oil (USD/barrel) US Natural Gas (USD/mmbtu) Precious Metals (Spot, USD/ounce) Gold Silver Platinum Base Metals (Spot, USD/pound) Aluminum Copper Agriculture ($/bushel) Wheat Corn

33 Appendix Published by PB Americas Investment Strategy and Advisory Group: The Investment Committee Report U.S. Last Published: Oct Released bi-weekly, the Investment Committee Report offers consolidated and consistent opinions on the markets as well as strategic and tactical outlooks from Credit Suisses global thought leaders. Viewpoints: Risk-on/Risk- off Last Published: Oct Released at the beginning of each month, Viewpoints examines the implications of the latest economic trends and market moving events impacting the financial markets. Key Focus: Municipals Last Published: Sep Released monthly, the Key Focus publication provides an in depth review of an asset class or investment strategy that is of particular interest during a given timeframe. Change of Investment View Last Published: Sep Released as needed due as a result of changes to the Global Asset Allocation Framework.

34 Appendix Published by PB Americas Investment Strategy and Advisory Group: Research Monthly(s) Last Published: Sep-2011 Five separate reports released monthly, covering Commodities, Foreign Exchange, Alternative Investments, Real Estate, Fixed Income Strategy Investment Strategy Monthly Slides Last Published: Oct Released monthly, featuring timely commentary on current market conditions, our economic outlook, as well as our guidance allocations and latest investment strategies. Compass Last Published: Jul Released quarterly, Compass presents a convergence of portfolio strategy and global market insights, thematic investment theses and asset allocation analysis.

35 This document is not complete without attached Important Legal Information. 35 Important Legal Information This 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 Investment Strategy & Advisory Group 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 Investment Strategy & Advisory Group, 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 Investment Strategy & Advisory Group 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 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. Private equity funds, hedge funds and other alternative investments are complex instruments that are not suitable for every investor, may involve a degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Before entering into any transaction, an investor should determine if the product suits his or her particular circumstances and should independently assess (with his or her professional advisers) the specific risks and the legal, regulatory, credit, tax and accounting consequences. CSSU makes no representation as to the suitability of any alternative investment product for any particular investor nor as to the future performance of any such products. Any offering of interest in any private equity fund, hedge fund or other alternative investment product shall only be made pursuant to the offering material for each such product, which will be provided to each prospective investor before making his or her investment decision and which contains information about such product's investment objectives, the terms and conditions of an investment in such product and also contains tax information and risk disclosures that involve significant risks, such as loss of entire investment, illiquidity, restrictions or transferring of interests, volatility of performance, and currency risks. Before deciding to invest in a private equity fund, hedge fund, or other alternative investment, prospective investors should read the relevant offering material for such product and pay particular attention to the risk factors contained therein. Prospective investors should have the financial ability and willingness to accept the risk characteristics of such investment. 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. This material may be distributed in Mexico by Banco Credit Suisse (México), S.A., for information purposes only, this may not be construed as an offer or an invitation to enter into any transaction or purchase any security or investment product that may not be undertaken under Mexican applicable regulation. ©2011 Credit Suisse Securities (USA) LLC. All rights reserved


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