Wall Street saw significant declines in January as concerns about the fragility of economic recovery, bank reforms, China's tightening of lending standards, and Greece's debt crisis rattled investors. The Dow fell 3.2% for its first loss since June, while Treasury yields dipped as investors fled to safe haven government assets. Though fourth quarter GDP grew at a 5.7% rate, gains were attributed to temporary inventory adjustments rather than sustainable growth.

1. markEt ovErviEW
Policy concerns wracked Wall Street in January, enlivening bears and beating bulls into
retreat. At a fifteen-month high on January 19, the Dow Jones Industrial Average closed
down 3.2%, its first loss since June. President Obama unveiled bank reforms, China tight-
ened lending standards and Greece edged closer to a sovereign debt default. Treasury
yields dipped into negative territory, as investors fled to U.S. government assets.
Media reports underscored the fragility of America’s economic recovery. November payrolls
were revised up to show 4,000 jobs added, but employers slashed another 85,000 positions
in December, the twenty-third decline in twenty-four months. The Commerce Department
published an early look into fourth quarter GDP: Economic activity accelerated at a 5.7%
annual pace, the best reading in six years. However, gains were linked to inventory adjust-
ments, which provided a significant, but ultimately unsustainable boost. For the year, the U.S.
economy contracted 2.4%, its worst performance since 1946.
Freezing December weather kept consumers at home, increasing demand for utilities. Retail
sales fell 0.3% from November, while electricity and natural gas output surged 5.9%.
Central bankers convened in Washington.
In a nine-one vote, the Federal Open
Market Committee kept interest rates near
zero and committed to winding down
emergency programs launched in the heat
of the financial crisis. An inflation hawk,
Kansas City Federal Reserve President
Thomas Hoenig dissented, arguing “the
expectation of exceptionally low levels of
the federal funds rate for an extended
period was no longer warranted.”
Investors sold stocks despite solid fourth
quarter corporate earnings. As of month-
end, 220 S&P 500 companies had
announced results. More than three-
quarters of those firms beat Wall Street
expectations, according to Thomson
Reuters. Compared against deeply
depressed year-ago levels, profits are set
to more than triple. Regardless, on the
day they reported, companies fell nearly
1%, on average.
by Greg Meier
J A N U A R Y 2 0 1 0
At the MArgin
January
S&P 500 -3.6
NASDAQ Composite -5.4
Dow Jones Industrials -3.2
MSCI EAFE -4.4
MSCI EAFE Growth -4.2
MSCI EAFE Value -4.6
MSCI EM -5.6
MSCI ACWI xUS -4.9
MSCI Europe -5.9
MSCI Japan 1.9
Russell 1000 -3.6
Russell 1000 Growth -4.4
Russell 1000 Value -2.8
Russell Midcap -3.3
Russell Midcap Growth -4.0
Russell Midcap Value -2.7
Russell 2000 -3.7
Russell 2000 Growth -4.5
Russell 2000 Value -2.9
BOA ML High Yield Master II 1.5
As of 31-Jan-10
Market Performance (USD)
in thiS iSSuE
market overview . . . . . . . . .1
perspective . . . . . . . . . . . . .2
Equity update . . . . . . . . . . .2
chartbook . . . . . . . . . . . . . .3
Economic Scoreboard . . . .4
V O L . 1 4 N O . 1

2. pErSpEctivE
It is with mixed feelings that I write this last
Perspective column. At the Margin has been
published by Nicholas-Applegate for our
clients since 1999. Each month, for more
than ten years, our employees have devel-
oped charts analyzing key economic indica-
tors that they believed were particularly per-
tinent at the time. They have written
thoughtful columns about the economy and
the markets, our investment strategies, and
occasionally, about ourselves and our com-
mitment to our surrounding community. Our
portfolio managers have shared their per-
spectives on asset classes and how they
endeavor to achieve your goals. Our people
have taken pride in producing a publication
which has been shaped by your feedback.
As you know, in June 2008 Nicholas-
Applegate announced a closer working rela-
tionship with two Allianz Global Investors
affiliates. While our portfolio teams and
investment processes will remain
unchanged, the affiliation will allow us to
continue to make the significant investments
required to maintain a best-in-class infra-
structure to support our teams.
Functions such as operations, technology,
legal and compliance are critical to our deliv-
ering the quality of investment results you
expect from us, and our combined efforts
will provide a strong platform for delivery.
So while we are a bit sorry that this is the
final issue of At the Margin, we are excited
by the prospect of designing and producing
a new publication that reflects the entirety of
our capabilities, as well as the interests of
our increasingly global client base.
As always, we value your feedback and we
look forward to offering you something new
in the coming months.
Equity updatE
StylE and markEt
capitalization
Last month’s sell-off showed little regard for
market cap or investment style. Stocks re-
treated across the board on concern over the
health of the global economy. Growth firms,
which tend to perform best as economic
activity accelerates, were January’s worst
performers. The Russell 1000 Growth Index, a
large-cap benchmark with a 33% weighting in
technology companies, tumbled 4.4%, its worst
month in eleven. The Russell Midcap Value
Index, the best-performing market segment,
fell 2.7%.
S&p 500 SEctorS and induStriES
Materials companies led the S&P 500 lower, as
investors bet policy tightening in China would
undermine global demand. Of the sector’s
twenty-eight companies, twenty-six fell, down
an average 8.6%. Technology stocks turned in
their worst month since November 2008, down
8.4%, on average. The sector’s largest names –
Microsoft and Apple – ceded more than 7.5%
each, despite reporting solid earnings. The only
sector to post gains, health care shares rose
0.5%. Democrats lost a sixty-seat majority in
the Senate in January, darkening prospects for
health reform.
intErnational Equity
Sovereign risk collided with policy tightening to
unsettle foreign investors in January. The MSCI
All Country World ex-USA Index ceded 4.9%.
Greek stocks plunged on skepticism the Athens
government can effectively manage debt obli-
gations and a budget deficit above 12.7% of
GDP. Bailout talk weighed on shares and senti-
ments regionally, and the euro traded lower.
Policymakers in China, India and Taiwan began
unwinding emergency stimuli, draining surplus
cash from banks. The moves could tamp down
regional economic growth in addition to local
asset bubbles and inflation.
At thE MArgIn is a
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3. 3
chartbook — rESEarch From thE FiEld
as budget deficits mushroom in the wake
of the financial crisis, the credibility of
major sovereigns is coming under fire. in
the past nine months, Japan and the u.k.
joined a collection of other developed
nations on 'negative' credit watch, a con-
dition more frequently reserved for the
developing world. With public debt fore-
cast to top 120% of gdp in 2010 and a
budget deficit equal to 12.7% of gdp,
greece is in deep water. if a regional
bailout isn’t approved, the country's
socialist government may succumb to
debt default.
as a nation, america spends far more than
it receives in income, a trend that has
exploded in recent years. the obama
administration projects federal deficit
spending will top $1.6 trillion in 2010. that's
on top of the record $1.4 trillion in 2009.
While the u.S. current account deficit has
improved recently, it is also far from
balanced. these gaps are not sustainable,
and they pose a risk to america’s economic
health. last month, the credit rating agency,
Fitch, warned the u.S. faces "difficult
decisions" ahead.
government stimulus has been lauded as
vital to reviving u.S. economic growth. but
the sustainability of stimulus-driven gains is
questionable. Four months after "cash for
clunkers" ended, vehicle receipts are still
mired at 1998 levels. home resales fell 17%
in december, the fastest pace in more than
forty years, as buyers anticipated an end to
the federal homebuyer tax credit (since
extended and broadened).
Diminished Credibility: Sovereign Debt
country outlook last update rating agency
Japan Negative 26-Jan-10 S&P
Greece Negative 22-Dec-09 Moody's
Russia Stable 21-Dec-09 S&P
Spain Negative 9-Dec-09 S&P
Portugal Negative 7-Dec-09 S&P
Indonesia Positive 23-Oct-09 S&P
Ireland Negative 8-Jun-09 S&P
United Kingdom Negative 21-May-09 S&P
Source: Standard & Poor's; Moody's; Fitch; Bloomberg
As of 2-Feb-10

4. 4
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Economic ScorEboard
COMMENTS
POSiTivE Monetary Policy Rates to stay low for "extended period"; emergency facilities winding down
Business Inventories Inventory re-build underway; stocks increased for a second month in Nov.
Industrial Production Output up 0.6% in Dec. amid cold weather and a spike in utilities demand
Corporate Earnings 4Q09 profits are forecast to more than triple from depressed 4Q08 levels
Valuations S&P 500 was valued at 14.6X estimated earnings in Jan. (IBES; 12-month)
Consumer Confidence Optimism reached a post-Lehman Brothers bankruptcy high in Jan.
GDP Based primarily on inventory changes, output rose 5.7% in 4Q09
NEuTral Inflation Headline prices jumped 2.7% in 2009; core costs increased 1.8%
Oil Prices Oil slipped 8.2% in Jan. to $73/bbl; first monthly decrease since July
NEgaTivE Investor Sentiment Wall Street's fear gauge (VIX) posted sharpest rise in near 3 years in Jan.
Retail Sales Sales slipped in Dec., down 0.3%. For 2009, sales fell a record 6.2%
Housing Sector remains dependent on federal aid; 349k foreclosure filings in Dec.
Geopolitical Debt-wracked Greece may default on loans without regional assistance
Employment 85k jobs cut in Dec.; Nov. revised to 4k jobs added, first rise since 2007
As of 31-Jan-10
Assessment of Current Economic Indicators