July 2010 Issue: Key Points

This month we conclude our two part series on Understanding and Predicting Uncertainty Shocks. We examine the root causes of these shocks, which lie in the dynamics of both our cognitive and emotional processes, as well as the social networks in which we participate. We then examine the extent to which these dynamics are predictable. We conclude that rather than simply throwing up our hands and blaming shocks on unpredictable black swans, we can, albeit at a coarse-grained level, develop some insight as to the changing level of "shock probability." Our feature article ends with a review of how investors can gain an advantage by improving their relative ability to respond to uncertainty shocks.

This month's Economic Update reviews the complex forces that are currently at work in the world economy, including deleveraging, insufficient aggregate demand, the rising threat of deflation, and the impact of all of these on the legitimacy of both the current global system, and quite possibly a number of domestic systems as well. We analyze how these could combine into different scenarios, and take a detailed look at the likely impact on different asset class returns.

In this month's product and strategy notes, we review new research on the fundamental valuation of gold, and conclude that the gold market is likely in an increasingly fragile state, with an elevated risk of a sharp downside move in prices in the absence of new information that raises investors feelings of uncertainty and fear. In particular, we believe that perceptions of the creditworthiness of U.S. Treasury securities will have a critical impact on gold prices going forward. Our second product and strategy note is our Advisers' Corner, where we summarize a large number of new research papers that should be of interest to subscribers who manage money for high net worth clients.

| Table: Fundamental Asset Class Valuation and Recent Return Momentum | July 2010 Issue: Key Points | This Month's Letters to the Editor: Why the mix of .70 Plum Creek Timber and .30 Rayonier to Implement Your Allocation to Timber, instead of CUT ETF; How Do I Use Your Global Asset Class Valuation Analysis?; and Could you please clarify what you mean in your monthly Equity Valuation Analysis by "Low Demanded Return" and "High Demanded Return"? | Feature Article: Understanding and Predicting Uncertainty Shocks, Part 2 | July 2010 Economic Update | Investor Herding Risk Analysis | Global Asset Class Valuation Updates Detail through June 30, 2010 | Product and Strategy Notes: New Analyses on Gold as an Asset Class and Financial Advisers' Corner | Overview of Our Valuation Methodology | Uncorrelated Alpha Strategies Detail | Global Asset Class Returns | Table: Market Implied Regime Expectations and Three Year Return Forecast |