1. March 3, 2009
US: Stock Market Bottom
Ryan Renicker, CFA
NewEdge USA, LLC
1
BLOOMBERG CHAT:
March 3, 2009
3/3/09: 12:05:08 RYAN RENICKER : I think the SPX reached its lows for 2009 yesterday.
12:06:59 RYAN RENICKER : 1) holdings of money market funds relative to equities
extraordinary high levels (ICI)
12:08:24 RYAN RENICKER : 2) extreme pessimism in markets overall (likely surprises to the
upside)
12:09:33 RYAN RENICKER : 3) market discounts the future, and economic indicators such
as ISM Non-Mfg. and Mfg. as well as PPI are beginning to either stall or trend slightly
higher...
12:10:11 RYAN RENICKER : 4) yield curve steep
12:12:27 RYAN RENICKER : rally likely to be led by Financials
12:15:35 RYAN RENICKER : Bullish: US Equities, Bearish: Ruble, Argentina, Mexico
12:15:46 RYAN RENICKER : and bearish on GLD
BLOOMBERG E-MAIL TO CLIENTS:
From a sector perspective, rotation out of the winners of '08 and into the laggards should limit
upside on Health Care and Consumer Staples (and Utilities).
In addition, debate from Washington regarding Health Care Reform as well as Global
Climate Change legislation likely to weigh on Health Care sector to some extent, given the
uncertainty surrounding the extent to which these policies would impact the companies within
these sectors if these policies are passed by Congress (goal of Congress is to pass Health
Care and Energy reform this year, with ongoing debates in the meantime - and the additional
uncertainty regarding whether or not the bills would pass in the first place).
Energy and Commodities - particularly oil and the base metals - likely to continue their
upside momentum as economy recovers and various stimulus measures continue to flood the
globe with cash. Natural Gas a different animal, with upside limited owing to supply glut
(caused by many factors, but largely a result of Liquefied Natural Gas (LNG) new production
infrastructure coming on line in 2009).
Energy Companies (ETF: XLE) likely to be supported by rising demand for gasoline and
crude oil. However, if the debate in Washington again focuses on such value-destructive
policies as "excess profit taxes" (recall 2008?), then performance of "Big Oil" (Integrated Oil
companies such as XOM, CVX) likely to under perform the smaller E&P names.

2. March 3, 2009
US: Stock Market Bottom
Ryan Renicker, CFA
NewEdge USA, LLC
2
Industrials? Well, it depends on which type of industrial. In general, however, debate in
Washington on how to fund the fiscal deficits will prompt investors to again focus on tax
policies (depreciation expenses, dividend tax policy, etc.) in general and also the possibility of
additional taxes on other "usual suspects" Washington tends to target when running low on
funds, including "Big Tobacco". In fact, there is already the following proposition floating
around in DC: H.R. 1256, FDA REGULATION OF TOBACCO PRODUCTS.
The net result from the above forecast is as follows:
1) Underperformers of '08 to continue the '09 rally in the markets: Financials, Tech,
Consumer Discretionary to continue out performance.
2) Outperformers of '08 to under perform - in general - owing to sector rotation and
industry-specific policy measures coming out of DC.
3) Since the weighting of the SPX is market cap weighted - the weighting of Financials
will continue to rise (current weight ~ 11%, #5), as will Discretionary stocks (current
weight ~ 9%, #7). Tech is the most heavily weighted sector in the SPX - at 18% - so it’s
weighting change to the upside somewhat limited.
4) Thus, strong performance from these (increasingly more-heavily-weighted sectors)
likely to support the overall market on the upside.
5) However, very strong upside performance in the SPX will likely be limited owing to
concerns / sector rotation out of the highly weighted Health Care sector (weight ~ 15%,
#2), Consumer Staples (weight ~ 13%, #4).
6) As mentioned above, Energy companies likely to have upside as well as the
economic conditions (and more important, the perception of nominal improvement in
economic forecasts) improve. Energy's weight in the SPX is about 13% (#3), so
strength this sector would counter weakness in Health Care.

3. March 3, 2009
US: Stock Market Bottom
Ryan Renicker, CFA
NewEdge USA, LLC
3
Side Note on Energy:
However, as mentioned above, chatter regarding "excess profit taxes" and the Climate
Change policy debates could weigh on Big Oil companies' stock prices (vs. the commodity
itself).
In addition, the structural shift from larger vehicles (gas guzzlers) to smaller cars in the US
which began in earnest during last year's "Crude Awakening" will likely continue - this time,
not necessarily because of sky-rocketing gasoline prices per se: rather, because the
producers of such autos are no longer producers of any autos really (e.g. GM) and going
forward are going to be shifting their platform to produce smaller and thus "greener" vehicles.
The net impact on the shift toward such fuel-efficient autos, combined with continued job
losses (despite nominal recovery in GDP expected this year), likely to limit upside on gasoline
prices (relative to the price of oil). In economic terms, the long term demand curve for
gasoline consumers has shifted and consumers are now better-equipped and prepared to
protect themselves against spiking gasoline prices (purchasing smaller cars, take the
subway, stay at home and learn economics, etc.).
In essence, the change in quantity demanded given the change in gasoline prices for
consumers has become much more "elastic". (Of course, local governments are aware of this
structural shift and are exploiting it by raising other "taxes" such as increasing subway fares,
etc.)
Since integrated oil companies are price takers in the oil market (buying crude oil on global
markets), yet are becoming on a relative basis less such for the gasoline they sell after
refining the oil, their ability to pass rising input costs (crude oil) onto the customer by raising
the price of the corresponding outputs (gasoline), their margins are likely to come under
pressure. Thus, from a relative value perspective within the Energy sector in general and
given the above scenario, rising crude oil prices likely to benefit E&P, Oil Service firms
relatively more the integrated oil companies.
In other words, if crude rises, long E&P, Oil Services / short Integrated. Additional rationale
for underperformance oil Integrated companies includes the possibility "excess profit tax"
chatter out of DC, as mentioned above which tend to involve companies such as XOM, CVX
and the other "usual oil suspects" appearing in congress during the summer.
Stay tuned….
Ryan Renicker, CFA