The document discusses market performance in 2012, noting that despite fears over issues like the European debt crisis, the U.S. stock market gained 16% last year. It was surprised by the magnitude of gains given headwinds. U.S. interest rates also declined contrary to expectations. Most European markets gained in 2012, with some significantly outperforming the U.S. The document provides a report card on economic and market data from 2010-2012, noting improvements in areas like corporate earnings, unemployment, and housing while commodity prices have cooled. Valuation metrics imply stocks remain relatively attractive versus bonds.

1. 2012: The Shoe
4th Quarter 2012 Never Dropped
Last year was marked by continuous and
pervasive fears of the “next shoe to drop.”
Worries included (but were by no means
limited to) the European debt crisis, slower-
than-expected economic growth in China,
another fun-filled edition of the quadrennial
U.S. Presidential elections, and weeks of
year-end handwringing over the Fiscal Cliff.
In spite of it all, and against most odds, the
U.S. stock market clawed upward in 2012.
Including reinvested dividends, the S&P 500
returned 16% last year, leaving the index
within 11% of its all-time high of 1576.
As we noted in our 4th Quarter 2011 Quar-
terly Comments (“Flabbergasting Flat-
ness”), we expected the markets to pro-
Market Index Update duce positive returns in 2012. Mission ac-
complished, but we were definitely sur-
prised by the magnitude of the gain in U.S.
-0.38%
S&P 500 TR stocks in the face of so many well-
16.00%
publicized headwinds.
RUSSELL 1000 -1.32%
Our assessment of the multi-year European
GROWTH
15.26%
debt crisis was also on-target. In last
year’s Comments, we opined that “…the
resolution is very likely to follow the path
NASDAQ
-3.10% the U.S. followed after the financial crisis in
15.91% 2008: a combination of central bank action,
political maneuvering, and market forces
will coalesce to allow the European econo-
BARCLAYS 0.22%
AGGREGATE my and banking systems to ‘muddle
4.22%
through.’” This turned out to be a decent
approximation of what actually occurred in
BARCLAYS
0.35% the EU this past year, but financial markets
INTERMEDIATE
3.89% responded much more positively than we
GOV./ CREDIT
thought possible. In fact, most eurozone
-10% -5% 0% 5% 10% 15% 20% 25% markets not only gained ground in 2012,
some actually outperformed the US market
4th Quarter Trailing Year by a wide margin.
(Continued on next page)
Nothing in this document is intended as an offer or a recommendation to purchase or sell securities. Please see the last page for additional disclosures.

2. YTD Thru 12/31/2012 Performance for the U.S. and
Selected European Markets
45%
40.50%
40%
35%
31.72% 31.92%
30%
26.87%
25% 23.28%
22.70%
21.10% 21.36%
19.59% 19.83%
20%
16.05% 16.41%
15.22%
15% 13.39%
10%
5.71% 6.26%
4.95% 4.71%
5%
0%
USA
DENMARK
AUSTRIA
FRANCE
IRELAND
ITALY
PORTUGAL
UNITED KINGDOM
NORWAY
NETHERLANDS
FINLAND
SWEDEN
SPAIN
GERMANY
GREECE
EUROPE
BELGIUM
SWITZERLAND
Source: MSCI, JAG Advisors
Lest anyone assumes that we are patting ourselves on the back, we must admit that we
were dead wrong about the direction of interest rates in 2012. Referring back to last
year’s Comments, we wrote: “…While the Fed will probably continue to anchor short-term
rates near zero, we think sub-2% yields on U.S. 10-year Treasury bonds are the very defi-
nition of unsustainable. Therefore, in our view, the probabilities favor modestly higher 10
-year and longer rates in 2012, especially if conditions in Europe improve and/or the U.S.
economy continues its modest recovery.” While that statement sounded logical at the
time (at least to us), the bond market had other plans in mind. The yield on 10-year
Treasuries began 2012 at 1.87%, fell as low as 1.4% during the tumultuous summer, and
ended the year at 1.76% - modestly lower than where it started.
Nothing in this document is intended as an offer or a recommendation to purchase or sell securities. Please see the last page for additional disclosures.

3. Year End Report Card 2012 on the Markets
and the Economy
Back by popular demand, we have once again included our internal report card on the
markets and the economy. It provides a snapshot of market and economic data as they
stood as of the years ending 2010, 2011, and 2012, along with some brief commentary
on each category.
As we can see in the S&P 500 Earnings part of the table, Operating Earnings have in-
creased from $83.76 to $99.37 over the past three years – an increase of roughly 19%.
Over the same time period, the S&P 500 Index has risen from 1,258 to 1,467, which
equates to an increase of approximately 17%. Since corporate operating earnings
growth has outstripped the price performance of the S&P 500, the index’s trailing P/E
ratio based upon reported earnings has actually decreased. By taking the inverse of
this P/E ratio, we can see that the Earnings Yield on the S&P 500 stands at over 6%.
Nothing in this document is intended as an offer or a recommendation to purchase or sell securities. Please see the last page for additional disclosures.

4. Category Item Dec-10 Dec-11 Dec-12* Comments
S&P 500 1,257.64 1,257.60 1,426.19
Nasdaq Composite 2,652.87 2,605.15 3,019.51 As economies heal and central banks flood the
Russell 1000 Growth 495.30 508.39 585.96 world with liquidity, global equity markets have
Russell 1000 Value 681.82 684.49 804.33 continued to grind higher over the past three
Russell 2000 Growth 2,942.70 2,857.13 3,273.92 years. Of the major indices tracked here, only the
Russell 2000 Value 5,635.60 5,325.60 6,286.93 Hang Seng Index and the Shanghai Composite
Equity Indices MSCI EAFE 5,225.89 4,612.71 5,438.30 ended 2012 lower than they were at the end of
MSCI Europe 6,390.61 5,719.40 6,859.25 2010 - but both produced gains between 2011 and
MSCI Emerging Markets Far East 653.32 562.21 678.51 2012. Over the past year, the MSCI Europe, MSCI
Nikkei 10,228.92 8,455.35 10,395.18 Emerging Markets Far East, and Nikkei indices
Hang Seng Index 23,035.45 18,434.39 22,656.92 were standout performers.
Shanghai Composite 2,808.08 2,199.42 2,269.13
5 Year U.S. Treasury Note Yield (%) 2.02 0.83 0.73 U.S. Treasury and Corporate bond yields have
10 Year U.S. Treasury Bond Yield (%) 3.31 1.87 1.76 fallen to multi-generational lows thanks to Fed
30 Year U.S. Treasury Bond Yield (%) 4.36 2.89 2.95 policy and high global demand for "safe" assets.
Moody's Baa Corporate Bond Yield (%) 6.10 5.25 4.63 The spreads between German and Spanish/Italian
Interest Rates Baa / 10 year Treasury Yield Ratio 1.81 2.73 2.65 bonds remain wide, but much tighter than their
Spain 10 year Govt. Bond Yield (%) 5.45 5.09 5.31 highest levels of the past several years as
Italy 10 year Govt. Bond Yield (%) 4.82 7.11 4.53 Eurozone leaders "muddle" their way to a
Germany 10 year Govt. Bond Yield (%) 2.96 1.83 1.32 resolution of the three-year debt crisis.
Federal Debt Total Federal Debt (millions of $) 14,025,215 15,222,940 16,335,939 * Total U.S. Debt continues to rise.
CPI - YoY percent change 1.50 2.96 1.76 * Inflation remains contained, despite record-low
Inflation Core CPI YoY percent change 0.80 2.23 1.94 * interest rates.
Bank Loans (millions of $) 6,753,742.1 6,915,535.3 7,200,785.4 *
Total Bank Loans have increased by almost $500
Bank Loans - Commercial and Industrial (millions of $) 1,210,960.7 1,338,788.0 1,498,751.2 *
Bank Loans Bank Loans - Real Estate (millions of $) 3,602,170.6 3,495,619.1 3,549,247.1 *
billion since December 2010. Commercial and
Industrial lending has been particularly strong.
Bank Loans - Consumer (millions of $) 1,114,733.2 1,092,208.2 1,115,061.4 *
S&P 500 TTM Reported EPS 77.35 86.95 87.10 * Corporate earnings grown have been
S&P 500 Earnings S&P 500 TTM Operating EPS 83.76 96.44 99.37 * exceptionally strong in the U.S.
S&P 500 P/E Ratio using TTM Reported EPS 17.50 14.46 16.49 * Traditional P/E ratios have risen only modestly
S&P 500 P/E Ratios S&P 500 P/E Ratio using Normalized Reported EPS 19.57 18.49 19.81 * since 2010. The Shiller CAPE has contracted
Shiller Cyclically Adjusted P/E Ratio (Shiller CAPE) 22.39 20.52 21.18 * slightly over the same time period.
S&P 500 Earnings Yield using TTM Reported EPS (%) 5.71 6.92 6.07 *
Earnings yields imply stocks are favorably valued
S&P 500 Earnings Yields S&P 500 Earnings Yield using Normalized Reported EPS (%) 5.11 5.41 5.05 *
when compared to most classes of bonds.
S&P 500 Earnings Yield using Shiller CAPE (%) 4.47 4.87 4.72 *
Initial Claims for Unemployment (4wk MA) 420,000 377,000 350,000 *
Non farm payrolls (thousands) 130,346 132,186 133,852 * The U.S. employment market is showing
Employment Data Unemployment Rate (%) 9.4 8.5 7.7 * consistent (albeit slow-paced) recovery.
Unemployment Rate U-6 (%) 16.6 15.2 14.4 *
ECRI Weekly Leading Index 128.6 120.0 128.3 The economic data is mixed. There were some
ISM Purchasing Manager's Index (PMI) 57.3 53.1 50.7 signs of deceleration in the US in the summer/fall
Economic Indicators ISM New Orders 59.0 54.8 50.3 2012 period, but more recent data has been more
Philadelphia Fed Mfg Survey 18.1 6.8 8.1 positive.
New Home Starts (thousands) 539 697 861 *
The residential real estate market is now in a
Housing Indicators New Home Sales (thousands) 326 339 377 *
firmly-established recovery.
Case-Shiller 20 City House Price Index 142.57 136.83 144.12 *
Total U.S. Rail Car Loadings (4 wk MA) 264,255 283,749 295,194 Total U.S. Rail Car loadings increasing, with most
U.S. Rail Car Loadings Cyclical Sectors (4 wk MA) 100,575 113,877 132,249 of the increase centered in cyclical sectors. This
Transportation Indicators U.S. Rail Car Loadings Baseline Sectors (4 wk MA) 160,095 166,131 158,492 may imply underlying strength in the U.S.
Baltic Dry Index 1,773 1,738 699 economy looking to 2013.
DJ-UBS Commodity Index 326.29 282.83 279.84
DJ-UBS Copper Price Index 962.47 727.56 763.98 In part due to slower growth in China and Europe,
Journal of Commerce - ECRI Commodity Price Index 134.39 117.34 125.64 commodity price action has generally cooled off
Commodity Prices Brent Crude ($ per barrel) 93.23 108.09 110.04 since 2010. Oil and gold prices are (so far)
Gold 1,410.25 1,574.50 1,664.00 exceptions.
Silver 30.63 28.18 29.95
*or most recent available as of 12/31/2012
Equity Indexes - Yahoo Finance, MSCI, Interest Rates - Fed H.15 Release, Bloomberg, Federal Debt - U.S. Treasury, Inflation - Bureau of Labor Statistics,
Bank Loans - Fed H.8 Release, S&P 500 Earnings - Standard & Poor's, S&P 500 Valuation - S&P, JAG Advisors, Employment Data - Bureau of Labor Statistics,
Sources Dept. of Labor, Economic Indicators - ECRI, ISM, Philadelphia Fed, Housing Indicators - U.S. Census Bureau, Standard & Poor's, Transportation Indicators -
American Association of Railroads, Commodity Prices - Dow Jones, Bloomberg, Kitco
Nothing in this document is intended as an offer or a recommendation to purchase or sell securities. Please see the last page for additional disclosures.

5. In our opinion, these valuation metrics imply that stocks are relatively cheap when com-
pared to Treasury bonds (10-year Treasury yields were at 1.76% at year-end 2012) and
corporate bonds (Baa-rated corporates yielded 4.63%). Furthermore, to echo a point we
originally made last summer, the S&P 500’s current dividend yield of 2.1% still exceeds
the yield offered by 10-year Treasuries. This means that capital invested in the S&P 500
is very likely to earn higher total returns than capital invested in U.S. Treasuries over the
next 10 years, even if stock prices were to remain pancake-flat for the next decade.
We remain encouraged by a variety of other data in the table, most notably the Housing
and Transportation indicators. As most of us are aware, the genesis of the Great Reces-
sion of 2008-2009 was a broad collapse in the residential real estate market. Because of
its importance to the American economy, we have long thought that an improvement in
housing would be an important component of a sustained and durable economic recov-
ery. After several years of falling housing prices, real estate markets bottomed in mid-
2011. Since then, the U.S. housing market has steadily improved, as evidenced by the
increases in New Home Starts, New Home Sales, and the Case-Shiller 20 City House
Price Index since the end of 2010.
Despite huge changes in our economy over the last century, railroads remain the main
arteries of commercial activity in the U.S., so we review Rail Car Loading data weekly
during our research meetings. Note from the table that total rail car loadings have risen
significantly over the past several years, driven by a big increase in economically-
sensitive Cyclical Sector car loads.
Looking at the totality of the data contained the report card, we give the economy a
grade of “B,” with some evidence that it could improve to a “B+” in 2013. A lackadaisi-
cal job market, mixed signals in the ECRI Weekly Leading Index, and softness in the ISM
Purchasing Managers Index restrain our enthusiasm. But it could be much worse! At
various points during the last three years, the recovery has appeared to be in serious
jeopardy. With a resolution to the Fiscal Cliff now behind us, and assuming that our poli-
ticians in Washington (more on them later) do not screw up the upcoming debate over
the debt ceiling early in 2013, we think it is possible that the economy could strengthen
modestly throughout the coming year.
2013 Market Outlook
Nothing in this document is intended as an offer or a recommendation to purchase or sell securities. Please see the last page for additional disclosures.

6. In any given calendar year, stock market for stocks continues to be weak, and we
returns fall into four broad categories: face more political uncertainty in the U.S.
they can be up a lot (10% or more), up a and Europe over the next several months.
little (up between 0% and 10%), down a
little (down between 0% and -10%), or So while we expect that stocks will pro-
down a lot (-10% or more). Investors duce positive returns in 2013, we would be
have always been obsessed with avoiding quite surprised (pleasantly we might add)
the “down a lot” years, but over the full if this year’s market returns exceed last
year’s.
span of history they are relatively rare:
the S&P 500 has declined by more than We expect bond investing to be challeng-
10% in only eleven calendar years since ing this year. Barring an external shock to
1926. Unfortunately, since three of those the U.S. economy (i.e. unexpected war,
eleven truly bad years have occurred since terror attack, return to crisis in Europe,
2000 (2001, 2002, and the dreadful etc.), we think that interest rates could
2008), investors today are as circumspect move up modestly in 2013. We think high
about stocks as they have ever been. We -quality and below investment-grade
can see this attitude most clearly in the bonds should outperform Treasuries, and
mutual fund flow data, which show that we expect longer-term bond returns could
investors redeemed over $149.190 billion be pressured by a steepening yield curve.
from domestic equity mutual funds in Therefore, we plan to maintain our portfo-
2012, continuing a trend that has been in lios’ historical focus on shorter-term and
place for years. Since January 2008, mu- intermediate-maturity bonds. We will
tual fund investors have redeemed over seek to generate competitive yields, but
$538.851 billion from stock funds. not at the expense of assuming excess in-
Our baseline expectation for 2013 is that terest rate risk.
the market will be “up a little.” On the In closing, we leave you with an old Irish
positive side of the ledger, we believe holiday toast:
stock valuations are undemanding
(especially compared with zero-yielding “In the New Year, may your right
cash, CD’s, and Treasury bonds), corpora- hand always be stretched out in
tions are financially strong and poised to friendship and never in want.”
grow earnings again in 2013, our domestic
All of us at JAG wish you and yours a
economy is showing underlying signs of
happy, healthy, and prosperous 2013.
strength, and global central banks are in-
jecting liquidity into financial systems Norm Conley
around the world. On the negative side,
CEO & CIO
corporate profit margins are likely to con-
tract this year after huge expansion since
2009, history shows that stock market re-
turns during the first year of Presidential
terms tend to be muted, investor demand
Nothing in this document is intended as an offer or a recommendation to purchase or sell securities. Please see the last page for additional disclosures.

7. Bonus: A New Year’s Pop Quiz
Please circle the best answer from the choices provided.
The phrase Les Miserables best refers to:
a. A French historical novel by Victor Hugo, first published in 1862 and widely
considered to be one of the greatest novels of the 19th Century.
b. The stage musical adaptation of the novel, popularly known as “Les Miz,”
which won eight Tony Awards during a 17-year run on Broadway which began
in 1987.
c. The 2012 film adaptation of the musical, starring Hugh Jackman, Russell
Crowe, and Anne Hathaway.
d. The pathetic collection of politicians in the U.S. Congress, who (once again)
successfully created a manufactured crisis out of whole cloth, this time result-
ing in the several weeks of nonstop media coverage of the brinksmanship
surrounding a deal to resolve the so-called “Fiscal Cliff.”
e. All of the above.
We will not keep you in suspense. Obviously, but unfortunately, the correct answer is
“e.”
The good news is that late on New Year’s Day, Congress and the President finally end-
ed two months of brinksmanship and came to a deal that prevents the nation from ca-
reening over the Fiscal Cliff. Global stock markets cheered the news as they opened
for trading on January 2, and politicians from both sides made the media rounds to
trumpet a deal which will result in modestly higher taxes for most individuals and
some very minor federal spending cuts.

8. The bad news is not only the fact that we were forced to endure this sordid spectacle
at all, but that this much-ballyhooed deal on the Cliff does nothing to address a central
long-term problem: unbridled growth in government spending. While the government
spends our money on all sorts of things – some good, some bad, depending upon your
perspective – the growth in transfer payments over the past several decades has been
particularly breathtaking. As the chart below shows in grim detail, transfer payments
now consume almost 90% of all federal government tax receipts – despite comprising
only 56% of the total federal budget.
Put another way, almost 90 cents of every single dollar of federal tax revenue is com-
mitted to fund programs like Medicare, Medicaid, Food Stamps, Social Security, and Un-
employment insurance – among others. This leaves only approximately 10 cents of
every dollar of tax receipts available to fund everything else in the budget– including
huge line items like the Defense Department (24% of the budget), Interest Expense
(6% of the budget), Education (4% of the budget), and Transportation (3% of the
budget). Since it is impossible to square this circle, the Treasury borrows money
through the Treasury market to fund the deficit – leading to an ever-larger mountain of
government debt, expanding yearly budget deficits, and never-ending infighting in Con-
gress.

9. Understand that we are not offering commentary on the worthiness of any particular
form of transfer payments. The question is not about the quality of the spending so
much as it is the mind-boggling quantity. We are also not proffering any opinion on
tax policy. The simple fact is that this problem is just too big to be solved entirely
through tax increases, even if tax rates were to rise dramatically from current levels.
Note also that this is not a Democrat versus Republican issue: both parties have had a
hand in creating and growing entitlement programs without accounting for their long-
term costs. As the chart clearly shows, the percentage of tax revenue spent on trans-
fer payments has grown consistently since the early 1960’s – through the Kennedy,
LBJ, Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II, and Obama administra-
tions. Otherwise known as “kicking the can down the road,” this is a long-term issue
that has grown in importance over the past several decades and is coming into sharp-
er focus as the Baby Boomer generation moves into retirement age. It will not be
solved overnight, and it certainly cannot be addressed in the pressure-cooker environ-
ment of a manufactured Fiscal Cliff deadline.
In the long run, voters of all political persuasions will have to force their representa-
tives to craft sensible spending and tax policies that get us closer to a balanced
budget.
Norm Conley Mike Buck, CFA
CEO & CIO Quantitative Analyst
PAST PERFORMANCE SHOULD NOT BE CONSIDERED INDICATIVE OF FUTURE PERFORMANCE. Please refer to
our Q4 ’12 full performance disclosure for additional information.
This report was prepared by J.A. Glynn & Co., a registered broker-dealer and member FINRA/SIPC, and JAG
Advisors, an investment adviser registered under the Investment Advisers Act of 1940, as amended. The
information herein was obtained from various sources; we do not guarantee its accuracy or completeness.
The information in this report is given as of the date indicated. We assume no obligation to update this in-
formation, or to advise on further developments relating to issuer(s) discussed in this report. Additional in-
formation is available upon request.
The information contained in this document is prepared for general circulation and is circulated for general
information only. It does not address specific investment objectives, or the financial situation and the par-
ticular needs of any recipient. These materials do not contain, and are not intended to provide, information
reasonably sufficient upon which to base an investment decision and should not be used for such purposes.
Investors should seek financial advice regarding the appropriateness of investing in any securities discussed
in this document. This document does not constitute an offer, or an invitation to make an offer, to buy or
sell any securities discussed herein. J.A. Glynn & Co., its affiliates, directors, officers, employees, employee
benefit programs and discretionary client accounts may have a long position in any securities listed herein.
Past performance is not necessarily indicative of future performance.
The views expressed are those of the adviser as of 1/7/13. Opinions expressed in this newsletter are those
of the CIO, are subject to change without notice, and are not guarantees of future performance.