Asset allocation update

Equity Research
13 October 2004
Global
Investment Strategy
Global equity strategy
Why we remain neutral of equities
Between late July and late-August, we lifted our equity weightings to benchmark. What would it take for
us to reduce our weightings from here? We would look for the following:
1. Bond yields rising to 4.6% (US 10-year Treasuries) – At this level, equities would no longer look
cheap against bonds. Currently, we find on our DDM model that the US equity risk premium is 3.8%
(after adjusting the 3 to 5-year forward consensus earnings growth estimate of 12% p.a. to what we see
as a more realistic expectation of 6.4% p.a.) against a long-run average of 3.4%.
2. ISM new orders rolling over to 50 – On our model, a lower level of ISM new orders requires a higher
warranted US equity risk premium. Currently, our model of the warranted equity risk premium (which
relies on three inputs: corporate credit spreads, VIX and macro momentum) suggests that the risk
premium should be 3.5%. If ISM new orders rolls over to 50, then we estimate the required risk
premium rises to 4% (we assume ISM new orders troughs at 55). Interestingly, the ratio of equity-to-
bond returns in the US coincides with the trough that we forecast in lead indicators (see page 5).
3. Corporates becoming net sellers – Currently, corporates are a small net-buyer of equities. The sell
signal is between US$2bn-4bn a week of selling.
4. Positive investor sentiment returns – Three out of six of our sentiment indicators are still pessimistic
(global risk appetite, the implied volatility skew and inflows into US aggressive growth funds). Normally,
a market peak sees five out of six sentiment indicators becoming ‘optimistic’ (for example, in March).
Fundamentally, we stick to neutral, selling into strength, since we find that if we put the same growth
assumption in the bond market as in the equity market, then fair value for the S&P 500 (on an average
equity risk premium) is 1,100 (this has been our end-2004 target since October 2003). We forecast just
2% US corporate profits growth for 2005 with the profit share of GDP now close to record highs.
The biggest risk to this view is that we hit supply-side constraints on oil and thus both oil prices and the
growth slowdown are worse than we expected.
Another reason for relative caution is that some of our tactical signals are mixed: excess liquidity is at a
three-year low; normally equities trough closer to the trough in lead indicators; there was never
capitulation at the market low in mid-August; and the technical picture is mixed (see page 8).
If we could take the US out of the global picture, we would be overweight equities. In our view, bond yields
(ex Japan) are less overvalued, the profit share of GDP is lower, and equity valuations are less demanding.
On bonds, we remain 5% underweight: capitulation has taken place (speculative net-shorts have fully
covered); bonds have completely decoupled from cyclicals and metals prices; most fair value models
point to a 4.5%+ US 10-year Treasury bond yield. Can the US consumer really stall out on zero real
short rates when the UK consumer (who has more debt) required 4% real short rates?
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research team
Andrew Garthwaite
44 20 7883 6477
andrew.garthwaite@csfb.com
Jonathan Morton
44 20 7883 8273
jonathan.morton@csfb.com
Richard Woolhouse
44 20 7883 6481
richard.woolhouse@csfb.com
Jonathan White
44 20 7883 6484
jonathan.white@csfb.com
Marina Pronina
44 20 7883 6476
marina.pronina@csfb.com

Global equity strategy 13 October 2004
2
Why we remain neutral of equities
Back at the end of August, we raised our tactical equity weightings to benchmark and
targeted a near term market rally of 5% or so but thought it unlikely that the S&P 500
would meaningfully break above 1,150 (see A tactical bounce in equities?, dated 02
September 2004).
Sentiment is highly mixed. The bears point to the chart below. The bulls point to
valuations. What do we do now?
Figure 1: The S&P 500’s trading range has seen successively lower highs and
successively lower lows
1050
1070
1090
1110
1130
1150
1170
Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04
1050
1070
1090
1110
1130
1150
1170
Source: Datatream, CSFB research
We continue with our tactical recommendation of being benchmark equities (which
means overweighting non-US equities)—and we keep a large underweight of bonds.
Below we highlight why and what circumstances would cause us to change our
weightings.
1. Equities still look clearly cheap against bonds
In very simple terms, we can see that equities still look cheap against bonds. Recall that
equities provide real returns (earnings after all are linked to inflation) and thus, the
earnings yield should be compared to the real bond yield (and if we adjust for corporate
credit risk, the real corporate bond yield). Below we can clearly see that the gap
between real corporate bond yields and equity market earnings yield is close to the
bottom end of its 20-year range.

3
Figure 2: Real corporate bond to earnings yield ratio (US market)
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
US real corporate bond yield to earnings yield ratio (fw d EPS) Average ex-bubble
Source: I/B/E/S estimates, Datastream, CSFB research
Our preference is to use our three-stage DDM for the US equity risk premium where we
calculate the risk premium as the addition to the risk free-rate required to equate the
current level of the market (in this case the S&P 500) to the net-present value of futures
earnings (for stage 1, we take the explicit consensus I/B/E/S earnings estimates for
years one and two and the 3-to-5-year growth rate estimate; for the terminal stage 3 we
use the 6 to 10-year consensus economics estimate for nominal GDP growth). Below
we show the equity risk premium in the US. Using the straight I/B/E/S estimates, we
derive an equity risk premium of 5.4%. However, if we adjust the I/B/E/S estimates to
take the 3 to 5 year forward down to 6.4% p.a. from 12% p.a. (which is the historic trend
rate of nominal earnings growth), we find that the equity risk premium falls to 3.8%.
The next question is what is the riskiness of equities. We have identified three
determinants of relative riskiness of US equities: corporate credit spreads (which are
currently at four year lows), S&P 500 implied volatility (VIX, which is at an eight year
low) and macro momentum (which we compute as an equally weighted combination of
the overall OECD lead indicator and ISM New orders index (which is deteriorating)).
Putting these three factors together gives us a required equity risk premium of 3.5%
versus 3.8% on our DDM using our earnings estimates.

4
Figure 3: US equity risk premium versus Macro momentum Figure 4: Warranted level of US equity risk premium
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04
Macromomentumindicator(invertedaxis)
0.4
1.4
2.4
3.4
4.4
5.4
6.4
Equityriskpremium
Our assumptions, ERP= 3.8%
Assumptions: 12-mth fwd EPS =$66.4(=I/B/E/Sest. adjusted for usual annual upward
forecast biasof 6%); 12-24 mthEPSgrowth =6.4%
Lead indicators*
LHS, inverted axis
USEquityRisk Premium, RHS
Long-term
average ERP
Lower risk premium,
stronger Macro
momentum
*Equally weighted combination of ISMNeworders and OECDleadindicator
* Corporate credit spread and implied volatility based on monthly averages
Inputs:
Moody's Baa rated
corporate bond spread
(bps)
Lead indicators Implied equity market
volatility (%)
ISM New orders index = 58.1
Output:
Warranted equity risk premium from model = 3.5%
225 14
Inputs:
Moody's Baa rated
(bps)
volatility (%)
OECD (ann. 3m/3m) = 0.9%
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Output:
Warranted equity risk premium from model =
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Output:
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Output:
Inputs:
Moody's Baa rated
(bps)
volatility (%)
* Corporate credit spread and implied volatility based on monthly averages
Inputs:
Moody's Baa rated
(bps)
volatility (%)
ISM New orders index = 58.1
Output:
Warranted equity risk premium from model = 3.5%
225 14
Inputs:
Moody's Baa rated
(bps)
volatility (%)
OECD (ann. 3m/3m) = 0.9%
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Output:
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Output:
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Output:
Inputs:
Moody's Baa rated
(bps)
volatility (%)
Source: I/B/E/S International, ISM, OECD, Datastream, CSFB research Source: Company data, CSFB estimates
In our view, one of two events will cause equities not to be cheap against bonds.
• ISM new orders rolling over to 50 (we forecast a trough of 55 which would lead to the
required equity risk premium rising from 3.5% to 3.7%); or
• US bond yields rising above 4.6%.
2. Investor sentiment is still quite cautious
Three out of six of our sentiment indicators are still suggesting relative caution (they are
still below average readings): inflows into US aggressive growth funds, the slope of the
volatility skew and global risk appetite.
Figure 5: Investor sentiment indicators
Date of peak Bullish sentiment
(1)
Inflows into US Agg.
Growth funds (2)
S&P100 implied vol.
(VIX)
Put/call ratio (3) CSFB Global Risk
Appetite (4)
Slope of implied
vol. Skew (5)
Current (12 October 04) 51.93 -0.02 15.05 1.12 0.04 0.222
Memo: Long-term average 43.4 0.38 21.4 1.40 0.70 0.205
No. of standard deviations current value
away from long-term average 1.0 -0.7 0.8 0.4 -0.3 -0.4
On average investor sentiment indicator are 0.1 standard deviations below average. 1- Investors Intelligence survey results: % of investors who are
fundamentally positive (four-week moving average); 2- US$bn of flows into aggressive growth funds (four-week moving average); 3- Ratio of put to call
volume on S&P 500 (weekly); 4- Based on Sharpe-ratios of 70 assets; 5- Slope of implied volatility skew measures how much extra premium is required
to buy out-of-the-money three-month S&P 500 put options versus out-of-the-money three-month S&P 500 call options. Data since end of 1997.Source:
Barrons, AMG DataServices, CME, Bloomberg, NYSE, CSFB Equity derivatives research

5
3. Equities to bond performance consistent with our forecast for lead indicators.
Normally the ratio of equity-to-bond total returns closely follows the rate of change in
lead indicators.
Figure 6: S&P 500 relative to US 10-year bond returns versus the OECD lead indicator
-50
-40
-30
-20
-10
0
10
20
30
40
50
Dec-88 Jan-91 Jan-93 Feb-95 Mar-97 Mar-99 Apr-01 May-03 May-05
Equity/bond(yoy%)
-6.000
-4.000
-2.000
0.000
2.000
4.000
6.000
8.000
OECD(yoy%)
Source: Datastream, OECD, CSFB research
Normally, equities trough a couple of months ahead of the trough in lead indicators (see
section below on page 9).
What seems to have happened this time is that equities have been more anticipatory
and anticipated the roll-over in lead indicators earlier. If our estimates are right we have
already seen the appropriate underperformance of equities vis-à-vis bonds.
Why only neutral as opposed to overweight equities:
The main issue as always is the US. There are two overriding concerns that we have:
First, that the growth assumption in the bond market is inconsistent with the growth
assumption in the equity market.
If we put bond yields back to a level consistent with our terminal growth assumption
(and that means 5%) then we estimate fair value for equities is approximately 1,100
(S&P 500) assuming an average equity risk premium.
Figure 7: Implied level of S&P 500 on normalised bond yield and earnings assumptions
Nominal bond yield = terminal growth rate = 5%
Equity risk premium reverts back to long-term average = 3.4%
2004E EPS = I/B/E/S estimate = US$71.2
Implied level of S&P 500 = 1,090
Source: CSFB estimates

6
Second, we are very concerned that most measures of profit share of GDP or margins
show both to be close to extremes. (Indeed in Appendix 1, we can find that in the US
more than half of all sectors – and six out of 11 cyclical sectors – are assumed by the
consensus to have margins in 2005 above their previous peak). It is very clear that
earnings are already way above trend. (Of course with nearly 30% of earnings coming
from financials, we find that financials earnings are largely a play on the yield curve,
which should flatten).
Figure 8: US Corporate sector profit share of GDP Figure 9: Real trailing EPS is 28% above 30-year trend and
2004e are near peak levels
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Mar-60 Mar-65 Mar-70 Mar-75 Mar-80 Mar-85 Mar-90 Mar-95 Mar-00
%
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
%
Post tax
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Oct-81
Oct-82
Oct-83
Oct-84
Oct-85
Oct-86
Oct-87
Oct-88
Oct-89
Oct-90
Oct-91
Oct-92
Oct-93
Oct-94
Oct-95
Oct-96
Oct-97
Oct-98
Oct-99
Oct-00
Oct-01
Oct-02
Oct-03
Oct-04
US
(Based on 30 year trend and MSCI earnings)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Oct-81
Oct-82
Oct-83
Oct-84
Oct-85
Oct-86
Oct-87
Oct-88
Oct-89
Oct-90
Oct-91
Oct-92
Oct-93
Oct-94
Oct-95
Oct-96
Oct-97
Oct-98
Oct-99
Oct-00
Oct-01
Oct-02
Oct-03
Oct-04
US
(Based on 30 year trend and MSCI earnings)
Source: Bureau of Economic Analysis, Federal Reserve, CSFB research Source: MSCI, CSFB research
The net result, in our view, is that corporations need to spend to sustain growth but if
they spend margins are probably going to fall. On our model, we forecast corporate
profits growth of just 2% next year.
Figure 10: US Non-financial corporate sector pre-tax profits
growth versus model estimate
Figure 11: 2005E non-financial corporate growth scenarios
based on unit labour costs and real GDP growth sensitivities
-50
-30
-10
10
30
50
70
Mar-76 Mar-79 Mar-82 Mar-85 Mar-88 Mar-91 Mar-94 Mar-97 Mar-00 Mar-03 Mar-06
yoy%
-50
-30
-10
10
30
50
70
yoy%
Non-financial corporate sector Pre-tax profits Model estimate
3.0% 3.6% 4.5%
2.5% 4.9 6.0 7.0
3.2% 1.6 2.0 3.0
3.5% -1.9 -1.0 0.0
4.0% -6.1 -4.9 -3.8
Real GDP growth
Unitlabourcosts
Base caseRisk
Source: Bureau of Economic Analysis, Federal Reserve, CSFB estimate Source: Bureau of Economic Analysis, Federal Reserve, CSFB estimate

7
We also struggle with some countervailing trends:
• Excess liquidity globally and in the US is sharply down from their peaks.
Figure 12: CSFB Global excess liquidity indicator Figure 13: US Excess M2 money supply
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
Feb-81 Feb-83 Feb-85 Feb-87 Feb-89 Feb-91 Feb-93 Feb-95 Feb-97 Feb-99 Feb-01 Feb-03
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
Calculated as the ratio of OECD broad money supply-to-output less real short term interest rates
-10
-8
-6
-4
-2
0
2
4
6
8
10
Apr-61 Apr-65 Apr-69 Apr-73 Apr-77 Apr-81 Apr-85 Apr-89 Apr-93 Apr-97 Apr-01
Differenceinyoy%
-10
-8
-6
-4
-2
0
2
4
6
8
10
Differenceinyoy%
M2moneysupply(yoy%) lessnominal GDP(yoy%)
Average
Sept. 112001
liquidityrelated
distortions
Source: Datastream, CSFB Global strategy research Source: Federal Reserve, Bureau of Economic Analysis, CSFB research
• Corporate net buying has also deteriorated recently. This has been a very important
swing factor and until this week had been highly supportive of equities (indeed the buy
signal in mid-August of almost US$6bn of net-buying was triggered at the same time
as the S&P 500 fell to 1,060).
Figure 14: US corporate net-buying of equities
Corporate Net buying (selling) - 70% of announced share buybacks plus cash-financed bids less
new issuance (4w-MA)
-8
-6
-4
-2
0
2
4
6
8
10
12
14
Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04
US$billions(4wkMA)
-8
-6
-4
-2
0
2
4
6
8
10
12
14
US$billions(4wkMA)
Long term average
Avg at market lows = US$6.0bn
Source: Trim Tabs, CSFB research

8
• Normally, a tight trading range for the S&P 500 has been followed by a break-down
rather than a break-up
Figure 15: S&P 500 index breakouts from trading ranges
have usually been to the downside
Figure 16: S&P 500 index breakouts from trading ranges
have usually been to the downside
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69
Number of weeks
%chgrel.tostartoftradingrange
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
%chgrel.tostartoftradingrange
Sept 80 to Aug 81 Apr 83 to Feb 84 Jul 89 to Aug 90
Dec 91 to Nov 92 Nov 99 to Oct 00 Dec 03 to current
Start End # of wks Direction of breakout
Sep-80 Aug-81 49 Downward
Apr-83 Feb-84 41 Downward
Jul-89 Aug-90 58 Downward
Dec-91 Nov-92 47 Upward
Nov-99 Oct-00 50 Downward
Present episode
Dec-03 Current 42.2 ?
Source: Datastream, CSFB research Source: Datastream, CSFB research
Additionally, we would note that thus far this year, the S&P 500 has achieved
successively lower highs and successively lower lows. The only slight positive has been
a general improvement in breadth.
Figure 17: The S&P 500’s trading range has seen
successively lower highs and successively lower lows
Figure 18: Market breadth (200 day moving average of
advances less declines) is still positive
1050
1070
1090
1110
1130
1150
1170
Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04
1050
1070
1090
1110
1130
1150
1170
1.9
2.1
2.3
2.5
2.7
2.9
3.1
3.3
Oct-80
Oct-81
Oct-82
Oct-83
Oct-84
Oct-85
Oct-86
Oct-87
Oct-88
Oct-89
Oct-90
Oct-91
Oct-92
Oct-93
Oct-94
Oct-95
Oct-96
Oct-97
Oct-98
Oct-99
Oct-00
Oct-01
Oct-02
Oct-03
Oct-04
90
100
110
120
130
140
150
160
S&P500 (log) S&P cummulative advance-decline 200 day moving average (rhs)
Source: Datastream, CSFB research Source: Datastream, CSFB research
• We never saw capitulation at the market low. For example, at previous market lows,
CSFB’s Global risk appetite indicator has been in sharply negative territory as
opposed to relatively neutral levels as occurred on this occasion.

9
Figure 19: Global risk appetite indicator
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Jan-81
Jan-83
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Previous market lows =
Source: Datastream, CSFB Global Strategy research
• And finally, as we stated above, normally equities have troughed a couple of months
ahead of the trough in ISM or quarterly annualised lead indicators. We suspect that
lead indicators measured on this basis may trough closer to January/February.
Figure 20: The S&P 500 troughs on average two-months
prior to a trough in the OECD lead indicator (on a quarterly
annualised basis)
Figure 21: The S&P 500 troughs on average one-month prior
to the trough in the ISM New orders index
Trough in OECD Lead
indicator (3mth/3mth%)
Trough in S&P 500
Number of months
gap
% chg in S&P
500 next 3mths
Jun-82 Jul-82 1 22%
Aug-84 Jul-84 -1 10%
Jan-88 Nov-87 -2 15%
Nov-90 Oct-90 -1 12%
Oct-92 n/a n.a n.a
Apr-95 Dec-94 -4 9%
Oct-98 Aug-98 -2 20%
Mar-01 n/a n.a n.a
Oct-02 Sep-02 -1 8%
Average -2 14%
Trough in ISM index Trough in S&P 500 Number of months
gap
% chg in S&P
500 next 3mths
Nov-81 Jul-82 9 22%
Sep-84 Jul-84 -2 10%
Jan-91 Oct-90 -3 12%
Jun-95 Dec-94 -7 9%
Nov-98 Aug-98 -3 20%
Jan-01 n.a n.a n.a
Oct-02 Sep-02 -1 8%
Apr-03 Mar-03 -1 14%
Average -1 13%
Source: OECD, Datastream, CSFB research Source: Institute of Supply Managers, Datastream, CSFB research

10
What about bonds?
We would remain 5% underweight of bonds, highlighting five important developments:
(i) Investor sentiment has clearly turned. For example, the speculative net-short
positions in CBOT Treasury bond futures (that existed since March) have now fully
reversed.
Figure 22: Speculative net-positions in CBOT 10-year Treasury futures
-250
-200
-150
-100
-50
0
50
100
150
Jan-97 Mar-94 Apr-95 Jun-96 Aug-97 Oct-98 Nov-99 Jan-01 Mar-02 May-03 Jul-04
Net-contracts(000's)
-250
-200
-150
-100
-50
0
50
100
150
Net-contracts(000's)
Source: Commodity Futures Trading Commission, CSFB research
(ii) Our models for real and nominal 10-year US Treasury bond yields continue to
suggest that at current levels, yields are clearly overvalued. (Our model for nominal
yields suggests fair-value is 4.9% assuming a 2% Fed Funds rate by year-end).
Figure 23: Real US 10-year Treasury bond yield versus
model estimate
Figure 24: Nominal US 10-year Treasury bond yield versus
Model estimate
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Jun-66 Jun-71 Jun-76 Jun-81 Jun-86 Jun-91 Jun-96 Jun-01
%
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
%
Real bond yield (based on core PCE deflator)
Model estimate
10-year TIP yield
2
3
4
5
6
7
8
9
10
Jan-88 Jul-89 Jan-91 Jul-92 Jan-94 Jul-95 Jan-97 Jul-98 Jan-00 Jul-01 Jan-03 Jul-04
%
2
3
4
5
6
7
8
9
10
%
10-year US Treasury bond yield Estimated fair value
Fair-value profile assuming core CPI rises to
2%anda Fed Funds rate of 2%byend 2004
Source: ISM, BLS, BEA, Federal Reserve, CSFB research Source: ISM, BLS, Federal Reserve, CSFB research

11
(iii) Cyclicals appear to be clearly saying something completely different about global
growth than bond yields.
Figure 25: Global cyclicals relative to defensives versus 10-year US bond yield
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
Yield(%)
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
Pricerelative
10y US Treasury bond yield (%), LHS
Cyclicals/defensives price relative, RHS
Breakdown in usual relationship
Source: Datastream, CSFB research
(iv) As are metals prices.
Figure 26: Metal prices versus 10-year US bond yield
40
60
80
100
120
140
160
Oct-86
Apr-87
Oct-87
Apr-88
Oct-88
Apr-89
Oct-89
Apr-90
Oct-90
Apr-91
Oct-91
Apr-92
Oct-92
Apr-93
Oct-93
Apr-94
Oct-94
Apr-95
Oct-95
Apr-96
Oct-96
Apr-97
Oct-97
Apr-98
Oct-98
Apr-99
Oct-99
Apr-00
Oct-00
Apr-01
Oct-01
Apr-02
Oct-02
Apr-03
Oct-03
Apr-04
Oct-04
3
4
5
6
7
8
9
10
11
12
13
Economist Commodity Inds/Metals ($ price index) - LHS US 10-year bond yield - RHS
Source: Datastream, CSFB research

12
(v) Finally, we do think that growth may undergo a mild reacceleration given the
following:
• Chinese growth is muddling along (for example, industrial production is still growing at
double-digit year on year rate and retail sales growth is at a seven-year high). We
continue to believe that growth in China will not decelerate sharply until there is either
a major current account deficit or a significant non-food inflation problem
Figure 27: Chinese industrial production growth (yoy%) Figure 28: Chinese retail sales growth (yoy%)
5
7
9
11
13
15
17
19
21
23
25
Jan-95
Jun-95
Nov-95
Apr-96
Sep-96
Feb-97
Jul-97
Dec-97
May-98
Oct-98
Mar-99
Aug-99
Jan-00
Jun-00
Nov-00
Apr-01
Sep-01
Feb-02
Jul-02
Dec-02
May-03
Oct-03
Mar-04
Aug-04
Industrial production(%yoy)
0
5
10
15
20
25
30
35
40
45
Jan-94
Sep-94
May-95
Jan-96
Sep-96
May-97
Jan-98
Sep-98
May-99
Jan-00
Sep-00
May-01
Jan-02
Sep-02
May-03
Jan-04
Sep-04
Retailsales(%yoy)
Source: National Statistics Bureau, CSFB research Source: National Statistics Bureau, CSFB research
• The best proxies we use for US nonfarm payroll growth (initial jobless claims and the
ISM employment indices) indicate that job growth should reaccelerate to around
200,000 per month from a three-month moving average of 103,000 (and a 12-month
average of 142,000).
Figure 29: US Initial jobless claims versus Change in Non-
farm payrolls
Figure 30: ISM Non-manufacturing employment index versus
Change in services payrolls
260
310
360
410
460
510
Dec-85 Sep-88 Jun-91 Mar-94 Dec-96 Aug-99 May-02 Feb-05
Joblessclaims(000s)Invertedaxis
-400
-300
-200
-100
0
100
200
300
400
Payolls(000s)
Initial jobless claims, 000s (4wk MA),
LHS inverted axis
Change in NF payrolls, 000s RHS
40
42
44
46
48
50
52
54
56
58
60
Jan-97 Oct-97 Jul-98 Apr-99 Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04
ISMindex
-300
-200
-100
0
100
200
300
400
Changeinpayrolls(000's)
ISMNon-manufacturingEmployment index (LHS)
Change in private sector Services payrolls, 3MMAV (RHS)
Source: Bureau of Labour Statistics, CSFB research Source: Bureau of Labour Statistics, CSFB research

13
• Long-cycle capital spending in the US is now recovering, after lagging short-cycle
spend (as is traditionally the case).
Figure 31: US long-cycle versus short-cycle capex (yoy%)
-20%
-10%
0%
10%
20%
30%
40%
'61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03
-20%
-10%
0%
10%
20%
30%
40%
short-life assets
(< 5 years economic life)
long-life assets
(>10 years economic life)
Source: Bureau of Economic Analysis, CSFB research
• Finally, we are seeing a tepid recovery in both the European and Japanese consumer.
Figure 32: Euro area retail sales (including autos) versus real
consumption
Figure 33: Japanese Consumer confidence has risen
strongly and should allow some re-acceleration in
household spending
-2
-1
0
1
2
3
4
5
Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03
yoy%(3MMAV)
-4
-3
-2
-1
0
1
2
3
4
5
6
yoy%(3MMAV)
Euroarearetail salesincl autos (yoy%, 3MMAV),
RHS
Real consumption(yoy%, 3MMAV), LHS
-5
-3
-1
1
3
5
7
Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04
Spending(yoy%)
35
37
39
41
43
45
47
49
51
Confidenceindex
Houshold spending yoy%3MMAV(LHS) Overall consumer confidence(RHS)
Source: Eurostat, CSFB research Source: Cabinet Office, CSFB estimates

14
Figure 34: Recommended asset allocation (%)
Benchmark weight Recommended weight
Equities 60 60
Bonds 30 25
Cash 10 15
Source: CSFB estimates

15
Appendix 1
Figure 35: Six out of 11 cyclical sectors in the US have got 2005E margins above the
previous peak and revenue above trend (no cyclical sectors in Europe satisfy both these
criteria)
US sectors 2005E net income margin 2005E margin less peak margin % 2005E revenue above/ below
trend revenue
Commercial Serv & Sup 7.5% 1.9% 5.0%
Retailing 5.1% 1.2% 4.7%
Capital Goods 7.8% 0.9% 6.1%
Consumer Dur & Apparel 6.6% 0.7% 10.5%
Metals & Mining 8.4% 0.6% 11.1%
Containers & Packaging 5.4% 0.2% 3.7%
Source: I/B/E/S International, MSCI, Factset, CSFB research

16
Appendix 2: Additional charts
Figure 36: US Bond to earnings yield ratio since 1960
(Based on trailing EPS)
Figure 37: Real corporate bond to earnings yield ratio
(European market)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Jul-59
Jul-61
Jul-63
Jul-65
Jul-67
Jul-69
Jul-71
Jul-73
Jul-75
Jul-77
Jul-79
Jul-81
Jul-83
Jul-85
Jul-87
Jul-89
Jul-91
Jul-93
Jul-95
Jul-97
Jul-99
Jul-01
Jul-03
Bond to Earnings yield ratio (Trailing EPS)
1960s average = 0.82
1960 market lows (average = 0.64)
Current = 0.72
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Jul-87
Jan-88
Jul-88
Jan-89
Jul-89
Jan-90
Jul-90
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
European real corporate bond yield to earnings yield ratio (fwd EPS) Average ex-bubble
Source: Datastram, CSFB research Source: I/B/E/S estimates, Datastream, CSFB research
Figure 38 Rule of 20 (PE + inflation) Figure 39: US market P/E since 1960 (trailing EPS)
10
15
20
25
30
35
Oct-59
Oct-63
Oct-67
Oct-71
Oct-75
Oct-79
Oct-83
Oct-87
Oct-91
Oct-95
Oct-99
Oct-03
S&P PE (trailing) + Inflation
Average = 20.0
Current = 19.9
0
5
10
15
20
25
30
Oct-50
Oct-52
Oct-54
Oct-56
Oct-58
Oct-60
Oct-62
Oct-64
Oct-66
Oct-68
Oct-70
Oct-72
Oct-74
Oct-76
Oct-78
Oct-80
Oct-82
Oct-84
Oct-86
Oct-88
Oct-90
Oct-92
Oct-94
Oct-96
Oct-98
Oct-00
Oct-02
Oct-04
USmarket : P/E(Trailing)
Source: Datastram, I/B/E/S CSFB research Source: Datastram, S&P, CSFB research

17
Figure 40 US market P/E (12m forward EPS) Figure 41: European market P/E (12m forward EPS)
0
5
10
15
20
25
30
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
S&P PE (12m fwd EPS)
0
5
10
15
20
25
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
European market P/E (12m fwd EPS)
Source: Datastram, I/B/E/S CSFB research Source: Datastram, I/B/E/S CSFB research
Disclosure Appendix
Important Global Disclosures
The analysts identified in this report each certify, with respect to the companies or securities that the
individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is or will
be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received compensation that is based upon
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banking activities.
Analysts’ stock ratings are defined as follows:
Outperform: The stock’s total return is expected to exceed the industry average* by at least 10-15% (or
more, depending on perceived risk) over the next 12 months.
Neutral: The stock’s total return is expected to be in line with the industry average* (range of ±10%) over
the next 12 months.
Underperform**: The stock’s total return is expected to underperform the industry average* by 10-15% or
more over the next 12 months.
*The industry average refers to the average total return of the analyst's industry coverage universe
(except with respect to Asia/Pacific, Latin America and Emerging Markets, where stock ratings are
relative to the relevant country index, and CSFB HOLT Small and Mid-Cap Advisor stocks, where stock
ratings are relative to the regional CSFB HOLT Small and Mid-Cap Advisor investment universe.
**In an effort to achieve a more balanced distribution of stock ratings, the Firm has requested that
analysts maintain at least 15% of their rated coverage universe as Underperform. This guideline is
subject to change depending on several factors, including general market conditions.
Restricted: In certain circumstances, CSFB policy and/or applicable law and regulations preclude certain
types of communications, including an investment recommendation, during the course of CSFB's
engagement in an investment banking transaction and in certain other circumstances.

18
Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or
more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going
forward. All CSFB HOLT Small and Mid-Cap Advisor stocks are automatically rated volatile. All IPO stocks
are automatically rated volatile within the first 12 months of trading.
Analysts’ coverage universe weightings are defined as follows*:
Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12
months.
Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the
next 12 months.
Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12
months.
*CSFB HOLT Small and Mid-Cap Advisor stocks do not have coverage universe weightings.
CSFB’s distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Outperform/Buy* 39% (56% banking clients)
Neutral/Hold* 43% (55% banking clients)
Underperform/Sell* 16% (49% banking clients)
Restricted 2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and
Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock
ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be
based on investment objectives, current holdings, and other individual factors.
Important Canadian Disclosures
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting
shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with CSFB should
be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment
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For Credit Suisse First Boston Canada Inc.'s policies and procedures regarding the dissemination of equity
research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
Important CSFB HOLT Disclosures
With respect to the analysis in this report based on the CSFB HOLT methodology, CSFB certifies that (1)
the views expressed in this report accurately reflect the CSFB HOLT methodology and (2) no part of the
Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.
The CSFB HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use
of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the CSFB
HOLT valuation model, that are consistently applied to all the companies included in its database. Third-
party data (including consensus earnings estimates) are systematically translated into a number of default
variables and incorporated into the algorithms available in the CSFB HOLT valuation model. The source
financial statement, pricing, and earnings data provided by outside data vendors are subject to quality
control and may also be adjusted to more closely measure the underlying economics of firm performance.
These adjustments provide consistency when analyzing a single company across time, or analyzing
multiple companies across industries or national borders. The default scenario that is produced by the
CSFB HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust
the default variables to produce alternative scenarios, any of which could occur. Additional information
about the CSFB HOLT methodology is available on request.
The CSFB HOLT methodology does not assign a price target to a security. The default scenario that is
produced by the CSFB HOLT valuation model establishes a warranted price for a security, and as the third-
party data are updated, the warranted price may also change. The default variables may also be adjusted
to produce alternative warranted prices, any of which could occur. Additional information about the CSFB
HOLT methodology is available on request.
Important MSCI Disclosures
The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc.
(MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property
may not be reproduced, re-disseminated or used to create any financial products, including any indices.
This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this
information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the

19
information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability
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or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital
International and the MSCI indexes are services marks of MSCI and its affiliates.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of
Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P
and has been licensed for use by CSFB.
For disclosure information on other companies mentioned in this report, please visit the website at
www.csfb.com/researchdisclosures or call +1 (877) 291-2683.
Disclaimers continue on next page.

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