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					                                                                        Mike Ryan, CFA, Head WMR Americas, mike.ryan@ubs.com




Wealth Management Research                                                                                                                     31 July 2010




UBS Weekly Guide

The Case for a Sustainable Expansion
Thomas Berner and David Lefkowitz build our case for a                    Contents                                                                        Page
sustainable US expansion and do not expect a double-dip
                                                                          Feature article                                                                     1
recession. Growth moderation is normal at this stage of the cycle.
                                                                          Preview/Review of the Financial Markets                                             4
Discretionary spending, as a share of Gross Domestic Product
(GDP), is historically still very low. The self-reinforcing positive      Economic Indicators                                                                 5
feedback loop between final demand, employment and labor                  Earnings Calendar                                                                   6
income has been reignited. In this environment, we favor a                Strategy & Performance                                                              8
neutral (full) allocation to equities in our tactical asset allocation    Reports of Note Published in the Last Week                                          9
and have a moderate defensive tilt in our sector strategy.


The case for a double-dip recession
As US growth indicators have shown signs of slowing in the past
few months, they have spurned fears of a double-dip recession.
The case builds mainly on the idea that, as the monetary and fiscal
stimulus package fades, private domestic demand (which includes
                                                                          Fig. 1: ISM Manufacturing PMI recoveries are
personal consumption and business domestic investment) will not
                                                                          followed by setbacks
be able to stand on its own feet. Thus, the US economy will dip
                                                                          ISM Manufacturing PMI recoveries and setbacks after
back into recession. It is true that the monetary and fiscal boost is     recessions
fading. Monetary policy typically impacts growth the strongest
after six months. The last massive monetary action was in late                                          0
                                                                              Post-recovery setback




2008, when the Fed lowered the fed funds rate to zero and                                                                  1990/91
                                                                                                                                       1980
                                                                                                                  2001                         1973/75
announced its mortgage backed securities (MBS) purchase                                               (10)
program. Moreover, the fiscal package of early 2009 impacted                                                                                        1970
growth the most in late 2009 and early 2010, in our view. In 2011,                                                        1960/61
                                                                                                                                     2008/09
if not already in 2H10, fiscal policy will likely become a drag on                                    (20)                                               1981/82
growth as the provisions of the package expire and taxes will                                                                            1953/54
possibly be raised in 2011.                                                                                                                              1957/58
                                                                                                      (30)
The case for a sustainable expansion                                                                         0     10          20              30             40
We see several strong reasons that argue for a sustainable                                                       Recovery after recessions
expansion and thus do not expect a double-dip recession.                  Note: The horizontal axis measures the ISM Manufacturing
                                                                          PMI's increase from the trough reached during the recession
First, it is normal for growth to moderate after an initial burst         to the next peak. The vertical axis measures the decrease
                                                                          from that peak to the next trough.
coming out of recession. Since 1950, this has always been the case.       Source: Thomson Datastream, UBS WMR
The Institute for Supply Management (ISM) Manufacturing
Purchasing Managers’ Index (PMI), which measures business
confidence among manufacturers and swings closely with real
GDP, has always experienced a setback after an initial bounce
coming out of recessions. Since 1950, the average initial recovery
after recessions has been 27.2 index points. The average setback
that followed has been 15.2 index points (see Figure 1). The
average duration of the setback has been 10 months and the range
has been between four and 18 months. In this cycle, the ISM index
popped 27.9 points to 60.4 in April. Since then, it has fallen to
56.2 in June.

This report has been prepared by UBS Financial Services Inc. (UBS FS).
Please see important disclaimer and disclosures at the end of the document.
Wealth Management Research                                                                                          31 July 2010


UBS Weekly Guide


Blindly applying the historical precedent, the ISM index could fall to
about 45.2 in February 2011. Since the cyclical peak in the ISM          Fig. 2: Discretionary spending is still historically
index in this cycle was rather low in historical comparison, there is    very low
good reason to believe that the setback will be less than the            Discretionary spending as a share of GDP
historical average of 15.2. But it is still likely and normal that the
ISM index might continue to drop for a few months to the low 50s.        0.325
It is important to note that, historically, these setbacks—even when     0.300
they resulted in a decline in the ISM index to below 50—did not          0.275
lead to a renewed recession. There was only one instance that            0.250
bucked this trend, when the economy slipped back into recession          0.225
in 1960/61, just after recovering from the 1957/58 recession.            0.200
                                                                          0.175
Second, discretionary spending—which includes personal spending                 Q1     Q1      Q1     Q1     Q1      Q1    Q1
on durable goods and gross private domestic investment—is still at             1950 1960 1970 1980 1990 2000 2010
historically low levels as a share of GDP (see Figure 2). Given that              Discretionary spending as a share to GDP
discretionary spending drives the business cycle (see Figure 3), this
                                                                         Note: Discretionary spending includes personal
low level suggests that there is still ample room for further growth.    consumption of durable goods and gross private domestic
                                                                         investment.
Third, the positive feedback loop between growth, employment             Source: Thomson Datastream, UBS WMR
and labor income has already been reignited. Real GDP recoveries
tend to lead to employment recoveries with a short lag (see Figure
4). Businesses have to start hiring workers again to raise production
                                                                         Fig. 3: Discretionary spending drives the
to keep up with rising final demand. Real GDP has been growing
                                                                         business cycle
for four quarters now through 2Q10 and private payrolls growth
has been positive since January 2010. The employment recovery            Discretionary and non-discretionary spending growth
goes hand in hand with a recovery in labor income growth (see             45
Figure 5). Real wages and salaries growth has been improving since        35
November 2009, although it was still negative in May. However, as         25
employment continues to growth, the trend in labor income                 15
growth will eventually turn positive. On a sequential basis, real          5
wages and salaries growth has already picked up recently,                 -5
providing tentative evidence that the positive feedback loop             -15
between consumption, employment and labor income is becoming             -25
self-reinforcing.                                                         Q1 1951 Q3 1963 Q1 1976 Q3 1988 Q1 2001
                                                                                   Discretionary spending
We continue to expect real GDP growth close to its 2Q10 rate of                    Non-discretionary spending
2.4% q/q annualized in 2H10. We expect 3.0% in 3Q10 and 2.5%             Note: Discretionary spending includes personal
in 4Q10, as final demand growth remains steady. We also reiterate        consumption of durable goods and gross private domestic
                                                                         investment. Non-discretionary spending government
our 2011 real GDP growth forecast of 3%.                                 spending, personal consumption of nondurable goods and
                                                                         services and net exports.
Don’t abandon equities—normal returns ahead                              Source: Thomson Datastream, UBS WMR
In this environment, we believe history can still be a guide. We
looked back to 1973 and found all instances when the ISM
Manufacturing Index declined from a peak (similar to the
                                                                         Fig. 4: US real GDP growth recovery heralds
environment we are in now). The bottom line is that investors            labor market recovery
should expect “normal” equity returns—about 8% annually. This is         Real GDP and nonfarm payroll growth
part of the reason we upgraded equities from underweight to
                                                                               % y/y
neutral in our tactical asset allocation models (see Investment           10
Strategy Guide: From “Tail Risk” to “Trail Risk,” 28 July 2010).
                                                                           5
However, this recovery is unlike all others since the end of World
War II and unlike the previous episodes since 1973 that we studied.
The economy still faces substantial consumer deleveraging                  0
headwinds. In addition, concerns about sovereign credit are likely
to linger and could again shake confidence not only European
                                                                          (5)
government debt markets, but could ultimately impact US
government securities. Lastly, with the fed funds rate at zero and        Q1 1951      Q1 1966 Q1 1981 Q1 1996
US mortgage rates low relative to treasuries, monetary policy                          Real GDP   Nonfarm payrolls
options to further stimulate the economy are also more limited           Source: Thomson Datastream, UBS WMR
than during any other recovery in modern US history. It is,

                                                                                                           UBS Weekly Guide 2
Wealth Management Research                                                                                                                    31 July 2010


UBS Weekly Guide


therefore, understandable that equities have sold off a bit more
than they typically do after a peak in leading economic indicators.     Fig. 5: The employment recovery goes hand in
However, we believe investors should take advantage of the 10%          hand with the labor income recovery
decline in equities from the peak in April and maintain a full (i.e.,   Employment and labor income growth
neutral) allocation to equity markets.
                                                                                % y/y
                                                                         10
D-E-F-E-N-S-E                                                             8
                                                                          6
In our view, this should be a good environment for defensive              4
sectors of the equity market. Again, looking at history since 1973        2
                                                                          0
(when S&P began segmenting the market into sectors), defensive           (2)
market sectors typically outperform economically sensitive cyclical      (4)
                                                                         (6)
sectors when leading economic indicators peak and decline (Figure        (8)
7). So far, this cycle has held true to form and defensive sectors        Jan-61 Jan-71 Jan-81 Jan-91 Jan-01
have, in fact, outperformed. We expect this trend to continue. As a            Nonfarm payrolls
result, our sector recommendations have a generally defensive bias,            Real wages and salary disbursements
                                                                               Real personal disposable income
with Technology our only overweight cyclical sector.
                                                                        Source: Thomson Datastream, UBS WMR
Focus on Technology, Staples and Utilities
We believe Information Technology can perform well in this              Fig. 6: Sector strategy—moderate defensive tilt
environment due to a strong corporate upgrade cycle driven by                Consumer Staples
aging corporate infrastructure and new products from industry                             Tech
bellwethers, such as Microsoft. The sector also has higher than                         Utilities
average exposure to faster-growing emerging markets and rock-                           Energy
solid balance sheets. Rounding out our thoughts on our preferred                     Financials
sectors, we believe investors will value the Consumer Staples                       HealthCare
sector’s durable, steady growth and emerging market exposure.                         Telecom
The Utility sector should benefit from improving earnings revision                   Industrials

trends, a rebound in power consumption, the earnings boost from         Consumer Discretionary

warmer-than-normal weather and dividend yields that are low                          Materials

relative to other assets.                                                                           –––    ––     –           n       +          ++    +++
                                                                                                      underweight                             overweight

                                               Thomas Berner, CFA       Labels: + = moderate overweight, ++ = overweight, +++ =
                                                Chief US Economist      strong overweight, n = neutral, - = moderate underweight, -
                                                                        - = underweight, --- = strong underweight. The overweight
                                                                        and underweight recommendations represent tactical
                                                  David Lefkowitz       deviations that can be applied to any appropriate
                                           Senior Equity Strategist     benchmark portfolio allocation. They reflect WMR’s short–
                                                                        to medium–term assessment of market opportunities and
                                                                        risks in the respective asset classes and market segments.
                                                                        The benchmark allocation is not specified here. It should be
                                                                        chosen in line with the risk profile of the investor. For more
                                                                        information, please read the most recent US Investment
                                                                        Strategy Guide. Source: Bloomberg, UBS WMR


                                                                        Fig. 7: Defensive sectors have more room to run
                                                                        Performance of defensive versus cyclical sectors; historical
                                                                        average and the current cycle

                                                                          115


                                                                          110


                                                                          105


                                                                          100


                                                                           95
                                                                                0     1       2      3   4      5    6    7       8       9     10   11   12
                                                                                                             months after ISM peak
                                                                                        Defensives vs cyclicals      Current cycle, since 30 April 2010

                                                                        Source: Thomson Datastream, UBS WMR




                                                                                                                           UBS Weekly Guide 3
Wealth Management Research                                                                                            31 July 2010


UBS Weekly Guide



Preview/Review of the Financial Markets
Preview        In the week ahead, the ISM              growth, but at a moderate clip.          likely, reinstating the moderate
2 August –     Manufacturing PMI for July, the         The trend in employment growth           uptrend.
6 August       July labor market report and a          has not kept up with the trend in
               heavy corporate earnings calendar       real GDP growth. Thus, further           Next week is the last big week for
               will be the highlights of the week.     gains seem very likely. Moreover,        the current earnings season, with
                                                       as final demand continues to             99 S&P 500 companies scheduled
               Regional manufacturing climate          expand, it will likely continue to       to report, highlighted by Media,
               indexes released thus far for July      spur employment and labor                Utilities and Consumer Staples
               have painted a mixed picture. The       income growth which, in turn, will       companies.
               Empire and Philly Fed indexes fell      likely support final demand. We
               sharply      but     remained      in   estimate that the private payroll
               expansionary territory. The Dallas      increase will average 130,000 per                    Thomas Berner, CFA
               index fell deeper into contraction      month in the remainder of the                                Economics
               territory, while the Richmond,          year. This is a moderate pace
               Chicago and Milwaukee indexes           compared with past recoveries and                           Joseph Sawe,
               rose and point to sturdy growth.        will barely push the unemployment                        Equity Strategist
               The upshot for the national ISM         rate lower. However, we deem it
               Manufacturing PMI is that it will       enough to continue to support
               likely slide further in July from its   spending. Furthermore, it will also
               June level of 56.2. Manufacturing       suffice, in our view, to stabilize the
               growth moderation is normal at          trend in average hourly earnings.
               this stage of the cycle, as the         On a sequential growth basis,
               inventory boost to production           growth in average hourly earnings
               fades, and it is not indicative of a    showed signs of acceleration in
               double-dip recession.                   May, but June posted a decrease.
                                                       Thus, we think that this item of
               The July labor market report will       the report will get heightened
               likely show ongoing private payroll     attention. A slight increase is very



Review         US economic data was mixed last         growth slowed to 1.6% from               estimate rose from USD 19.61 to
26 July – 30   week.                                   1.9% in 1Q10, but fixed                  USD 21.07, or by 7%.
July                                                   investment surged. In our view,
               Real GDP growth moderated in            growth will stay around the 2Q10         While 2Q10 numbers have looked
               2Q10, but practically met the           pace, and we continue to forecast        strong, the consensus estimate for
               consensus expectation. It grew          3% q/q annualized in 3Q10 and            the S&P 500 earnings per share in
               2.4% quarter-over-quarter (q/q)         2.5% in 4Q10.                            2011 has moved down mildly,
               annualized. Benchmark revisions                                                  from USD 96.36 to USD 96.11.
               revealed a deeper recession but         New home sales surged by 23.6%           The 2011 estimate has fallen
               stronger growth of 3.7% q/q             month-over-month (m/m) in June,          most in Financials (due to new
               annualized in 1Q10. The details of      suggesting that the negative             federal regulation) and Energy
               the release were encouraging            payback after the housing tax            (due to the Gulf of Mexico drilling
               regarding a sustainable expansion.      credit-induced surge through April       moratorium). The strongest rise in
               Final private demand growth,            is fading. Weekly purchase               the 2011 consensus estimate is in
               which Bernanke has emphasized           mortgage applications rose for the       Technology benefiting, in part,
               as    a     gauge    of   recovery      second week in a row in the 23           from increased business spending
               momentum, slowed to 0.6% q/q            July week, after a 10-week streak        prospects. Our 2011earnings per
               annualized from 1.7% in 1Q10.           of declines. This is also suggestive     share estimate for the S&P 500 is
               But that masks a surge in imports       of a bottom in housing demand.           USD 88. We believe that
               matched by stronger inventory                                                    consensus estimates are overly
               building. A likely moderation in        So far, 72% of companies in the          aggressive with regard to margin
               both components suggests that           S&P 500 index that reported              assumptions.
               private final demand growth might       earnings have beaten second
               pick up going forward, as this          quarter consensus estimates. These       Thomas Berner, CFA, Economist
               component includes imports but          companies represent 75% of the            Joseph Sawe, Equity Strategist
               excludes inventories. Consumption       index’s market value. Quarterly



                                                                                                              UBS Weekly Guide 4
Wealth Management Research                                                                                       31 July 2010


UBS Weekly Guide



Key Economic Indicators
                  Indicator                               Time (EST)        Unit      Consensus      UBS Est.      Previous
Mon, 02 August Construction Spending (Jun)                 10:00 AM         m/m          -0.5%        -1.0%         -0.2%
                  Manufacturing ISM (Jul)                  10:00 AM        Index          54.2         55.5          56.2
                  Manufacturing ISM Prices Paid (Jul)      10:00 AM        Index          55.0         55.0          57.0
Tue, 03 August Personal Income (Jun)                       8:30 AM          m/m          0.2%          0.2%         0.4%
                  Personal Spending (Jun)                  8:30 AM          m/m          0.1%          0.1%         0.2%
                  Core PCE (ex food and energy, Jun)       8:30 AM          m/m          0.2%          0.1%         0.2%
                  Pending Home Sales (Jun)                 10:00 AM         m/m          -1.5%         5.0%        -30.0%
                  Factory Orders (Jun)                     10:00 AM         m/m          0.0%         -0.5%         -1.4%
                  Light Vehicle Sales (Jul)                                 Level       11.6 mil      12.0 mil     11.1 mil
Wed, 04 August ADP Employment Report (Jul)                 8:15 AM          Level         35 k          n.a.         13 k
                  Non-Manufacturing ISM (Jul)              10:00 AM        Index          53.0         53.5          53.8
Thu, 05 August Jobless Claims (Jul 31)                     8:30 AM          Level        455 k         450 k        457 k
Fri, 06 August    Nonfarm Payrolls (Jul)                   8:30 AM          m/m          -60 k         -55 k        -125 k
                  Private Payrolls (Jul)                   8:30 AM          m/m          100 k         100 k         83 k
                  Unemployment Rate (Jul)                  8:30 AM                       9.6%          9.6%         9.5%
                  Average Hourly Earnings (Jul)            8:30 AM          m/m          0.1%          0.1%         -0.1%
                  Average Weekly Hours (Jul)               8:30 AM          Level         34.1         34.1          34.1
                  Consumer Credit (Jun)                    3:00 PM          m/m         -$6.0 bil    -$5.0 bil     -$9.1 bil

Source: Bloomberg & UBS estimates, as of 30 July 2010. These forecasts were developed by economists employed by UBS
Investment Research (INV). INV is published by UBS Investment Bank. Forecasts and estimates are current only as of the date of
this publication and may change without notice.




UBS Forecasts
                    Wednesday…
Join us onWMR Forecast Tables.
Please refer to the
At 1PM ET on 4 August, our UBS Monthly Market Outlook Call features Mike Ryan, Head- Wealth Management
Research Americas, discussing the latest Investment Strategy Guide: From “tail risk” to “trail risk.”
  Shifting focus from event-driven “tail risks” toward economic-centered “trail risks"
  Considerations for range-bound markets (e.g., valuations, profits, interest rates and policy)
  Tactical changes to equity and fixed income allocations



Conference Call Information:
U.S. Phone: 1 866 288 0542
International Phone: +1 913 312 6669
Verbal Passcode: MARKET

To access the replay dial:
U.S. Phone: 1 888 203 1112
International Phone: +1 719 457 0820




                                                                                                         UBS Weekly Guide 5
Wealth Management Research                                                                                 31 July 2010


UBS Weekly Guide


Earnings Calendar
The Earnings Calendar provides publicly announced reporting dates and times of companies covered by Wealth Management
Research Americas. Reporting dates and times are subject to change by the reporting companies.



                                                                                                         Analyst
                                                        Reporting                WMR-A Covering          Contact
               Ticker    Company                        Period    Time (EST)     Analyst                 Information
                                                                   After
Mon, 2 Aug    PPS       Post Properties, Inc.           Q2 2010    Market        Jonathan Woloshin      212-713-3635
                                                                   After
              SBAC      SBA Communications Corp.        Q2 2010    Market        George Lambertson      212-713-9035
                                                                   After
              UDR       UDR, Inc.                       Q2 2010    Market        Jonathan Woloshin      212-713-3635
              HUM       Humana, Inc.                    Q2 2010    6:00 AM       Jerry Brimeyer         212-713-9698
              AB        AllianceBernstein Holding LP    Q2 2010    7:00 AM       Michael Dion           212-713-3825
                                                                   After
Tues, 3 Aug   APC       Anadarko Petroleum Corp.        Q2 2010    Market        Nicole Decker          212-713-4743
                                                                   After
              AVB       AvalonBay Communities, Inc. Q2 2010        Market        Jonathan Woloshin      212-713-3635
                        CBL & Associates Properties,               After
              CBL       Inc.                            Q2 2010    Market        Jonathan Woloshin      212-713-3635
                                                                   Before
              CLX       The Clorox Co.                  Q4 2010    Market        Sally Dessloch         212-713-9667
                                                                   Before
              COH       Coach, Inc.                     Q4 2010    Market        Alexandra Mahoney      212-713-2825
                                                                   After
              DEI       Douglas Emmett, Inc.            Q2 2010    Market        Jonathan Woloshin      212-713-3635
                                                                   Before
              DHI       D.R. Horton, Inc.               Q3 2010    Market        Jonathan Woloshin      212-713-3635
                                                                   Before
              EMR       Emerson Electric Co.            Q3 2010    Market        Andrew Sutphin         212-713-3646
              ETR       Entergy Corp.                   Q2 2010    Unspecified   David Lefkowitz        212-713-3739
                                                                   Before
              LEA       Lear Corp.                      Q2 2010    Market        George Lambertson      212-713-9035
                                                                   Before
              MMC       Marsh & McLennan Cos., Inc. Q2 2010        Market        Michael Dion           212-713-3825
              MRO       Marathon Oil Corp.              Q2 2010    Unspecified   Nicole Decker          212-713-4743
              PFE       Pfizer, Inc.                    Q2 2010    Unspecified   Jerry Brimeyer         212-713-9698
                                                                   Before
              PG        Procter & Gamble Co.            Q4 2010    Market        Sally Dessloch         212-713-9667
              RDC       Rowan Cos., Inc.                Q2 2010    Unspecified   Nicole Decker          212-713-4743
              DOW       The Dow Chemical Co.            Q2 2010    6:30 AM       Andrew Sutphin         212-713-3646
              AMT       American Tower Corp.            Q2 2010    7:00 AM       George Lambertson      212-713-9035
              DUK       Duke Energy Corp.               Q2 2010    7:00 AM       David Lefkowitz        212-713-3739
                                                                   Before
Wed, 4 Aug    CTL       CenturyLink, Inc.               Q2 2010    Market        George Lambertson      212-713-9035
              DVN       Devon Energy Corp.              Q2 2010    Unspecified   Nicole Decker          212-713-4743
                                                                   After
              ESS       Essex Property Trust, Inc.      Q2 2010    Market        Jonathan Woloshin      212-713-3635
              FRT       Federal Realty Investment Trust Q2 2010    Unspecified   Jonathan Woloshin      212-713-3635
                                                                   Before
              FTR       Frontier Communications Co. Q2 2010        Market        George Lambertson      212-713-9035
              MUR       Murphy Oil Corp.                Q2 2010    Unspecified   Nicole Decker          212-713-4743
              NU        Northeast Utilities             Q2 2010    Unspecified   David Lefkowitz        212-713-3739
              PCG       PG&E Corp.                      Q2 2010    Unspecified   David Lefkowitz        212-713-3739
                                                                   Before
              PHM       Pulte Homes, Inc.               Q2 2010    Market        Jonathan Woloshin      212-713-3635
                                                                   After
              PRU       Prudential Financial, Inc.      Q2 2010    Market        Michael Dion           212-713-3825
                                                                   Before
              TWX       Time Warner, Inc.               Q2 2010    Market        George Lambertson      212-713-9035


                                                                                                     UBS Weekly Guide 6
Wealth Management Research                                                                                                            31 July 2010


UBS Weekly Guide


                                                                                                                                 Analyst
                                                                  Reporting                      WMR-A Covering                  Contact
                   Ticker     Company                             Period    Time (EST)           Analyst                         Information
                             Qwest Communications
             Q               International, Inc.                  Q2 2010        7:00 AM        George Lambertson               212-713-9035
             ICE             IntercontinentalExchange, Inc.       Q2 2010        8:30 AM        Michael Dion                    212-713-3825
             KFT             Kraft Foods, Inc.                    Q2 2010        4:00 PM        Sally Dessloch                  212-713-9667
             ALL             The Allstate Corp.                   Q2 2010        4:05 PM        Michael Dion                    212-713-3825
Thurs, 5 Aug ED              Consolidated Edison, Inc.            Q2 2010        Unspecified    David Lefkowitz                 212-713-3739
             EIX             Edison International                 Q2 2010        Unspecified    David Lefkowitz                 212-713-3739
                                                                                 Before
                  H          Hyatt Hotels Corp.                   Q2 2010        Market         Jonathan Woloshin               212-713-3635
                                                                                 Before
                  PPL        PPL Corp.                            Q2 2010        Market         David Lefkowitz                 212-713-3739
                                                                                 Before
                  TDS        Telephone & Data Systems, Inc. Q2 2010              Market         George Lambertson               212-713-9035
                  WIN        Windstream Corp.               Q2 2010              Unspecified    George Lambertson               212-713-9035
                                                                                 After
                  WRI        Weingarten Realty Investors          Q2 2010        Market         Jonathan Woloshin               212-713-3635
                  CI         CIGNA Corp.                          Q2 2010        6:30 AM        Jerry Brimeyer                  212-713-9698
                  VIA.B      Viacom, Inc.                         Q2 2010        8:00 AM        George Lambertson               212-713-9035
                                                                  Q2 2010
Fri, 6 Aug        BRK.B      Berkshire Hathaway, Inc.             (Projected)    Unspecified Michael Dion                       212-713-3825
                  EOG        EOG Resources, Inc.                  Q2 2010        Unspecified Nicole Decker                      212-713-4743
                                                                                 Before
                  POM        Pepco Holdings, Inc.                 Q2 2010        Market      David Lefkowitz                    212-713-3739




Scale for tactical deviation charts – Performance and Strategy tables on page 8
Symbol Description/Definition
        moderate overweight vs.
   +                                             –     moderate underweight vs. benchmark          n     Neutral, i.e. on benchmark
        benchmark
  ++ overweight vs. benchmark                   ––     underweight vs. benchmark                  n/a    not applicable
  +++    strong overweight vs. benchmark       – – – strong underweight vs. benchmark
The overweight and underweight recommendations represent tactical deviations that can be applied to any appropriate benchmark
portfolio allocation. They reflect WMR’s short- to medium-term assessment of market opportunities and risks in the respective asset classes
and market segments. The benchmark allocation is not specified here. Please see the most recent Investment Strategy Guide for
definitions/explanations of benchmark allocation. They should be chosen in line with the risk profile of the investor. Note that the Regional
Equity and Bond Strategy is provided on an unhedged basis (i.e., it is assumed that investors carry the underlying currency risk of such
investments). Thus, the deviations from the benchmark reflect our views of the underlying equity and bond markets in combination with
our assessment of the associated currencies.
Source: UBS WMR, All market performance data is from Bloomberg data as of date listed on top of this document, using representative indices
and is provided for information only.


                                                                                                                           UBS Weekly Guide 7
Wealth Management Research                                                                                                          31 July 2010


UBS Weekly Guide


Asset Class Strategy & Performance                                         Equity Region Strategy & Performance
                    Extended Asset                Market Returns                                  Strategy*              Market Returns
                      Allocation                                                                                  MTD         YTD            2009
                       Strategy*          MTD          YTD          2009
                                                                           US Equity                  n           6.9%       0.4%        28.3%
US Equity                   n            6.9%      0.4%     28.3%
Non-US Developed                                                             S&P 500                 n.a.         7.0%       -0.1%       26.5%
                            —           10.0%     -3.4%     34.4%
Equity                                                                       DJIA                    n.a.         7.2%       1.9%        22.7%
Emerging Market
                            +            8.7%      2.1%     79.0%            Nasdaq                  n.a.         6.9%       -0.2%       45.3%
Equity
US Fixed                                                                   EMU**                     —            13.1%      -11.0%      32.8%
                            n            0.7%      6.1%      5.9%
Income                                                                     UK                         n           12.1%      -4.0%       43.4%
Non-US Fixed
                            n            4.9%      0.6%      7.5%          Japan                     —            3.6%       0.8%            6.4%
Income
Cash (USD)                  n            0.0%      0.1%      0.2%          Emerging Markets          ++           8.7%       2.1%        79.0%
Commodities                 n            6.8%     -3.5%     18.9%          Total return indices in USD: S&P 500, DJIA, Russell 3500, MSCI for
Total return indices in USD: Russell 3500, MSCI EAFE & Canada, MSCI        non-US. Price return indices in USD: Nasdaq
Emerging Markets, BarCap US Aggregate, BarCap Global Aggregate ex-
USD, Citigroup 3-month T-bill, DJ UBS

US Equity Sector Strategy & Performance                                    Equity Size, Style Strategy & Performance
                   Sector  Weekly                  Market Returns                                   Style                Market Returns
                 Strategy*                                                                        Strategy*
                                          MTD           YTD         2009                                          MTD         YTD            2009
Cons. Discr.           —       -0.4%      7.8%         6.1%        41.3%
                                                                           Large-Cap Value            +           6.7%       1.3%        19.7%
Cons. Staples         ++       -0.6%      6.0%         3.1%        14.9%
Energy                 n        0.3%      8.1%         -5.1%       13.8%
                                                                           Large-Cap Growth          ++           7.0%       -1.1%       37.2%
Financials             n        1.0%      6.7%         2.8%        17.2%
Health Care            n        0.3%      1.3%         -7.6%       19.7%
                                                                           Mid-Cap                    n           6.9%       4.7%        40.5%
Industrials            —        0.7%     10.4%         9.4%        20.9%
IT                    ++       -1.6%      7.2%         -4.1%       61.7%
                                                                           Small-Cap                ——            6.8%       4.7%        27.2%
Materials            ——        -0.1%     12.3%         -2.1%       48.6%
Telecom                —        1.6%      9.4%         0.2%         8.9%
                                                                           REITs                     —            9.0%       15.1%       28.0%
Utilities              +       -0.4%      7.6%         -0.1%       11.9%
Total return indices in USD: S&P 500 sector indices                        Total return indices in USD: Russell

US Dollar Fixed Income Strategy & Performance                              Regional Indicators
                         Strategy*                Market Returns           2010 Consensus S&P 500 EPS                               USD 83
                                          MTD          YTD          2009
                                                                           2010 UBS WMR S&P 500 EPS                                 USD 80
Treasuries                     —           0.7%        6.6%     -3.7%
TIPS                           —           -0.1%       4.4%     10.0%
                                                                           2011 Consensus S&P 500 EPS                               USD 96
Agencies                       —           0.8%        4.7%     0.9%
Inv. Grade                                                                 2011 UBS WMR S&P 500 EPS                                 USD 88
                               +           2.0%        8.3%     19.8%
Corporates
High Yield                                                                 Price to earnings+                                        11.9x
                               +           3.4%        8.3%     58.1%
Corporates
Preferred Securities           +           4.1%        9.0%     20.1%      Normalized price to earnings (operating)+                 15.3x
Mortgages                      —           0.8%        5.5%     5.8%
Emerging                                                                   Price to book value+                                       2.1x
                               n           4.1%        9.9%     27.2%
Markets                                                                    +Consensus 12-month forward estimates, as of 30 July 2010
Municipals                    n.a.         1.3%        4.7%     14.5%
Total return indices in USD: BAS / Merrill Lynch

Bond Regions Strategy & Performance
                         Strategy*                Market Returns           Please note these important color designations:
                                           MTD          YTD      2009                                               Indicates +/- change in most
                                                                                       +                    –
US                             n          0.7%          6.1%     5.9%                                               recent update
EMU**                          n          7.4%         -5.7%    10.4%
UK                             n          3.7%          1.9%    16.0%      *Please see page 7 and the most recent Investment Strategy Guide
Japan                         —           1.9%         9.4%     -1.5%      for an interpretation of the tactical deviations and an explanation of
Other                          +           n.a.          n.a.     n.a.     the corresponding benchmark allocation. **EMU = European
Total return indices in USD: Barclays Capital                              Monetary Union and is comprised of European countries that have
                                                                           adopted the Euro as their currency.

                                                                                                                          UBS Weekly Guide 8
Wealth Management Research                                                                                  31 July 2010


UBS Weekly Guide



Reports of Note Published in the Last Week
Emerging Market Bonds        Latin American Sovereign Credit Outlook
Friday, 30 July              We expect the credit quality of most Latin American sovereign bond issuers to remain
                             stable over the coming twelve months. Our outlook is more benign for countries that
                             enjoy a robust recovery in domestic consumption and healthy public and private sector
                             balance sheets. Chile and Peru, and to a lesser extent also Brazil, belong to this group. At
                             the other extreme, we see Argentina and Venezuela where structural weaknesses, due to
                             years of inconsistent fiscal and monetary policy frameworks, will likely weigh on
                             economic growth prospects going forward. We think Colombia and Mexico are in
                             between these two groups. In Colombia, we wait for confirmation of announced fiscal
                             reforms by the newly elected government. In Mexico, political uncertainty might weigh
                             on asset price volatility in the short-term.
US Fixed Income              August Update: Where has the Yield Gone?
Friday, 30 July              Instead of signaling something more dire, we believe that the current low level of
                             Treasury yields provides confirmation that the US recovery will be a modest one, marked
                             by low inflation and heightened risk aversion. Within this sluggish growth environment,
                             we believe the total returns of credit sectors are likely to hold up due to range-bound
                             Treasury yields and the potential for modest spread tightening in the investment grade,
                             high yield, and preferred security segments of the market.
US Equities                  Monthly – Stronger Wireline and Wireless Margins
Telecommunication Services   Business demand, in general, for telecom services is lagging GDP growth due to sluggish
Friday, 30 July              hiring by businesses. We expect to see a return to modest year-over-year revenue growth
                             in the Enterprise and Wholesale business sub-segments by 4Q2010 or 1Q2011 as hiring
                             improves and the secular trend toward increased demand for Internet Protocol data
                             networks and managed services by large enterprises.
Technical ETF Performance    Domestic Exchange-Treaded Funds Technical Review
Table                        We review the technical conditions of the more actively traded domestic Exchange-
Friday, 30 July              Traded Funds (ETFs). We then correlate them with our broader macro market and sector
                             analyses. We provide updates on various technical indicators, including 10-week and 30-
                             week moving averages, intermediate-term trends and important technical support and
                             resistance levels. We try to identify potential trading/investment opportunities and
                             downside risks in various key domestic markets.
US Equities Information      Monthly – Take Note of the Investment Wave
Technology                   Although concerns about Europe and a slowing US economy make investor apprehension
Thursday, 29 July            understandable, the early indications from the technology earnings season are that
                             demand from Europe is fine. More importantly, demand from US enterprise customers is
                             excellent for those companies with the right products. Valuation (based on a 24-month
                             forward P/E multiple) and near par valuations vs. the S&P 500 are unjustified, in our view.
                             We now allocate the sector with an Overweight stance with a preference for the
                             Software and IT Services and Technology Hardware Industry Groups.
Investment Strategy Guide    From “Tail Risk” to “Trail Risk”
Wednesday, 28 July           Having highlighted near-term “tail risks” two months ago as a reason to position
                             portfolios more cautiously, we now believe that some of these risks have abated, in
                             particular those arising from the European sovereign crisis. We are therefore adopting a
                             more neutral tactical stance across asset classes. At the same time, we stress that the soft
                             patch witnessed in recent economic data may well last for some time, thereby limiting
                             the upside potential for equities and other cyclical assets.
Banks                        European Stress Test - A Missed Opportunity
Tuesday, 27 July             The European stress test results were published on 23 July 2010, and clearly missed
                             expectations about the number of failing banks as well as the capital shortfall. However,
                             we regard the banks' additional disclosures as a very positive factor.
US Equities Materials        Monthly - Initial Earnings Fizzle, Stocks Sizzle
Tuesday, 27 July             Shares in the S&P Materials sector have rallied, posting a total return of 3.7% versus a
                             0.1% decline in the S&P 500. However, year-to-date, the total return for the Materials
                             sector of -1.5% continues to trail the S&P 500 appreciation of -0.1%. In our view,
                             concerns of the euro falling to parity with the US dollar, the waning view of a double-dip
                             recession in the US, and the appearance that China's economic tightening to slow the
                             economy may be abating, all have helped provide a near-term lift to the prices of
                             commodities produced by the S&P Materials sector.

                                                                                                   UBS Weekly Guide 9
Wealth Management Research                                                                                         31 July 2010


UBS Weekly Guide


Currency Markets                    Tides Shifting Towards Gradual Dollar Weakness
Monday, 26 July                     We roll forward our forecasts for EURUSD and GBPUSD, generally looking for the dollar
                                    to gradually weaken, especially going into the late fall. Increasing confidence in Europe
                                    after the bank stress tests and the Greek crisis, coupled with a slower US recovery than
                                    anticipated, shift our focus. While we still look for eventual yen weakness, we think it will
                                    materialize more slowly, as Japan faces deflation and interest rates remain low across the
                                    big currencies.
UBS On                              Aftershocks: Strategies for Rebuilding Wealth in an Uncertain World
Monday, 26 July                     The global financial crisis and its aftershocks fundamentally altered the investment
                                    landscape, and investors will need to cope with the results for years to come. We expect
                                    that investors who are in the midst of repairing their personal balance sheets and net
                                    worth positions will do so against a backdrop of more moderate economic growth and
                                    investment returns, heightened risk aversion, and concern that other low-probability,
                                    high-impact events will inevitably surface.



To access these reports please contact your Financial Advisor or access the reports via online services.




                                                                                                          UBS Weekly Guide 10
Wealth Management Research                                                                                                              31 July 2010


UBS Weekly Guide




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                                                                                                                             UBS Weekly Guide 11

				
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