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See page 61 for Analyst Certification and Important Disclosures



E Q U I T Y


R E S E A R C H :


G L O B A L


Equity Strategy


September 29, 2006
Ajay Kapur, CFA

Global Strategist
212-816-4813
The Global Investigator
ajay.kapur@citigroup.com
United States
The Plutonomy Symposium — Rising Tides
Niall MacLeod
l
obal
Lifting Yachts
44-207-986-4449
niall.j.macleod@citigroup.com
G
➤ Time to re-commit to plutonomy stocks – Binge on Bling.
United Kingdom
Equity multiples appear too low, the profit share of GDP is high and likely going higher,
Tobias M. Levkovich
stocks look likely to beat housing, and we are bullish on equities. The Uber-rich, the
U.S. Strategist
plutonomists, are likely to see net worth-income ratios surge, driving luxury consumption.
Robert Buckland
Buy plutonomy stocks (list inside).
Jonathan Stubbs
Europe Strategists
➤ Plutonomy stocks at a premium, but relative pricing
Tsutomu Fujita
power is key.
Patrick Mohr
➤ Our Plutonomy Symposium take-aways.
Japan Strategists
The key challenge for corporates in this space is to maintain the mystique of prestige
Markus Rösgen
Asia-Pacific (ex-Japan) Strategist
while trying to grow revenue and hit the mass-affluent market. Finding pure-plays on the
plutonomy theme, however, is tricky.
Geoffrey Dennis
Latin America/CEEMEA Strategist
➤ Plutonomy and the Great Conundrums of our age.
Adrian Blundell-Wignall
We think the balance sheets of the rich are in great shape, and are likely to continue to
Alison Tarditi
improve. Don’t be shocked if the savings rate worsens as equities do well.
Australia Strategists
➤ What could go wrong?
Manolis Liodakis
Beyond war, inflation, the end of the technology/productivity wave, and financial collapse,
Keith L. Miller
Global Quantitative Research
we think the most potent and short-term threat would be societies demanding a more
‘equitable’ share of wealth.

Global — The Plutonomy Symposium — Rising Tides Lifting Yachts........................ 7

U.S. — Calibrating 2007 Targets ......................................................................... 21
Europe — Avoiding the Mega-traps..................................................................... 27
Japan — Birth of the Abe Administration ............................................................. 31
Asia-Pacific — If It's Due to Speculation=Bullish;
If Due to Weaker Growth=Bearish................................................ 37

Latin America — Think Small............................................................................. 43
Citigroup Research is a division of Citigroup Global Markets Inc. (the “Firm”), which does and seeks to do business with companies covered in its research reports. As a
result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision. Non-US research analysts who have prepared this report, and who may be associated persons of the member or
member organization, are not registered/qualified as research analysts with the NYSE and/or NASD, but instead have satisfied the registration/qualification requirements or
other research-related standards of a non-US jurisdiction.
Customers of the Firm in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where
such research is available. Customers can access this independent research at http://www.smithbarney.com (for retail clients) or http://www.citigroupgeo.com (for
institutional clients) or can call (866) 836-9542 to request a copy of this research.


The Global Investigator – September 29, 2006
Global Model Portfolio by Sector

U$ Perf U$ YTD
FY1
FY1
FY1
FY1
FY1
FY0
Date
Price
Since
Perf
EPSG
P/E
P/B
ROE Div Yld
FCF
Wght
Company
RIC
Mkt
Added Price Added
28Sep06 Added (%)
(%) Rating
(%)
(x)
(x)
(%)
(%) Yld (%)
(%)
Energy (MSCI AC World Weight: 9.5%)
11.0
Devon
DVN
USA
20 Sep 04
$35.545
$61.7
73.6
-1.3
1H
-0.7
9.2
1.6
19.6
0.7
5.0
3.0
Valero
VLO
USA
29 Sep 05
$57.495
$51.28
-10.8
-0.6
1H
26.8
6.0
1.8
31.3
0.5
8.1
3.0
Grant Prideco
GRP
USA
6 Apr 06
$45.49
$37.01
-18.6
-16.1
1H
85.4
11.5
4.2
35.9
0.0
4.4
3.0
TENARIS
TS
Argentina 21 Jun 06
$35.25
$35.9
1.8
56.8
1H
43.7
11.5
4.3
43.1
1.5
5.5
2.0
Materials (MSCI AC World Weight: 6.1%)
0.0
Capital Goods (MSCI AC World Weight: 7.4%)
6.0
Caterpillar Inc
CAT
USA
20 Sep 04
$37.94
$66.59
75.5
15.3
1M
36.4
12.1
4.6
42.6
1.6
2.7
2.0
MAN
MANG.DE Germany 28 Nov 05
€42.23
€65.68
67.3
56.7
NR
2.0
Kubota
6326
Japan
29 Sep 05
¥800
¥955
14.6
-3.5
1H
1.4
15.2
1.8
12.6
1.0
4.7
2.0
Comm Serv & Supp (MSCI AC World Weight: 0.7%)
0.0
Transportation (MSCI AC World Weight: 1.9%)
0.0
Autos & Comps (MSCI AC World Weight: 2.0%)
2.0
Isuzu Motors Ltd
7202
Japan
18 Aug 06
¥403
¥377
-8.1
-16.1
1H
14.8
6.7
1.4
24.0
1.1
12.2
1.0
Suzuki Motor
7269
Japan
18 Aug 06
¥2920
¥2980
0.2
36.6
1M
26.5
18.8
2.0
10.8
0.4
1.7
1.0
Consumer Durables (MSCI AC World Weight: 2.1%)
4.0
LVMH
LVMH.PA
France
23 Feb 06
€77.2
€80.8
11.4
15.8
1M
27.7
20.7
3.6
18.2
1.7
2.7
1.5
Richemont
CFR.VX
Switzerland 23 Feb 06
SwF58.1
SwF60.3
8.8
11.3
1M
17.3
16.4
2.8
17.8
2.4
1.3
1.5
Meritage Homes
MTH
USA
28 Nov 05
$65.64
$42.58
-35.1
-32.3
1H
-0.9
4.5
1.0
27.8
0.0
20.8
1.0
Consumer Services (MSCI AC World Weight: 1.4%)
1.0
Marriott Intl
MAR
USA
28 Apr 05
$31.685
$38.48
21.4
14.9
1M
-3.0
24.6
6.0
21.7
0.6
0.1
0.5
McDonald's
MCD
USA
18 Aug 06
$36.18
$39.59
9.4
17.4
1L
15.0
16.9
3.1
18.0
2.3
2.9
0.5
Media (MSCI AC World Weight: 2.7%)
2.0
Mediaset
MS.MI
Italy
28 Oct 05
€9.03
€8.455
-1.8
1.6
1M
-0.2
16.0
3.4
21.7
5.3
7.8
2.0
Retailing (MSCI AC World Weight: 2.5%)
0.0
Food & Staples Retailing (MSCI AC World Weight: 2.1%)
2.0
Colruyt
COLRt.BR Belgium
21 Jun 06
€121.5
€135.1
11.6
24.6
1L
10.5
17.8
5.2
30.8
2.0
1.4
2.0
Food Bev & Tobacco (MSCI AC World Weight: 4.4%)
4.0
Reynolds Amricn
RAI
USA
23 Feb 06
$53.325
$62.76
17.7
31.7
2M
5.3
15.3
3.0
17.8
4.2
1.9
2.0
Archer Daniels
ADM
USA
28 Nov 05
$24.26
$37.66
55.2
52.7
1M
26.1
14.9
2.2
18.7
0.8
3.1
2.0
Household Products (MSCI AC World Weight: 1.4%)
2.0
Kobayashi Pharma
4967
Japan
21 Jun 06
¥4610
¥4430
-6.3
25.7
1M
18.6
20.8
2.5
12.4
0.9
6.4
2.0
Health Care Equip & Svc (MSCI AC World Weight: 2.4%)
0.0
Pharma & Biotech (MSCI AC World Weight: 6.7%)
10.0
Tanabe Seiyaku
4508
Japan
10 Mar 05
¥1170
¥1455
9.9
27.2
2M
12.7
20.7
1.6
7.7
1.6
3.3
3.0
Biotech Basket*
29 Sep 05
-10.0
-12.4
7.0
Banks (MSCI AC World Weight: 11.3%)
11.0
BNP Paribas
BNPP.PA
France
29 Oct 04
€52.76044
€84.75
60.2
34.9
1M
10.5
11.0
1.8
17.6
3.4
NA
2.0
Societe Generale
SOGN.PA
France
20 Jan 05
€76.5
€126.3
61.7
30.8
1M
9.2
10.6
2.2
21.6
4.1
NA
1.0
Golden West Fin
GDW
USA
9 Mar 06
$68.67
$77.07
12.2
16.8
2M
7.3
15.1
2.4
17.0
0.4
NA
3.0
TCF Financial
TCB
USA
9 Mar 06
$25.05
$26.53
5.9
-2.2
2M
-1.0
13.4
3.4
26.0
3.5
NA
3.0
Commerzbank
CBKG.DE
Germany
21 Jun 06
€27.54
€26.63
-2.9
10.1
1H
29.9
11.6
1.3
12.0
2.8
NA
2.0
Diversified Financials (MSCI AC World Weight: 7.0%)
11.0
Deutsche Bank
DBKGn.DE Germany
2 Dec 04
€65.65
€95.01
38.4
24.8
1M
25.4
9.9
1.6
16.7
3.5
NA
2.0
UBS
UBSN.VX
Switzerland20 Sep 04
SwF44.55
SwF73.6
68.8
24.2
1M
13.5
13.3
3.1
24.9
2.6
NA
2.0
SLM
SLM
USA
9 Mar 06
$55.97
$51.98
-7.1
-5.6
1L
12.9
18.3
5.3
33.5
1.9
NA
2.0
Broker/Dealer Basket*
29 Sep 05
23.9
15.5
5.0
Insurance (MSCI AC World Weight: 4.7%)
6.0
Allianz
ALVG.DE
Germany 10 Mar 05
€96.4
€136.55
34.0
14.8
1M
22.3
9.9
1.3
13.8
1.9
NA
2.0
Axa SA
AXAF.PA
France
20 Sep 04
€16.78346
€29.29
82.3
17.8
1M
9.2
12.5
1.7
12.8
3.4
NA
2.0
Zurich
ZURN.VX
Switzerland20 Sep 04
SwF183 SwF306.25
71.0
15.5
1M
16.1
9.6
1.5
15.4
2.8
NA
2.0
Real Estate (MSCI AC World Weight: 2.2%)
2.0
iStar Financial
SFI
USA
9 Mar 06
$38.8
$41.88
7.9
17.5
1M
5.7
11.8
2.1
18.9
7.3
0.9
2.0
Software & Services (MSCI AC World Weight: 3.4%)
4.0
Internet Basket*
25 May 06
9.5
0.9
4.0
Tech Hardware & Equip (MSCI AC World Weight: 5.1%)

8.0
Tech Networking Basket*
29 Sep 05
3.8
4.4
8.0
Semi & Semi Equip (MSCI AC World Weight: 2.2%)
4.0
Semis Basket*
25 May 06
-2.0
9.2
4.0
Telecom (MSCI AC World Weight: 4.6%)
5.0
Chunghwa Telecom
2412.TW
Taiwan
10 May 05 NT$59.80392
NT$53.7
-15.1
-4.0
1L
-4.7
11.6
1.5
12.9
7.2
6.2
1.0
BT Group
BT.L
UK
23 Aug 05
£2.21
£2.635
24.2
29.1
1M
16.1
12.3
11.1
98.0
5.2
2.2
2.0
Telenor
TEL.OL
Norway
10 Mar 05
NOK57.5
NOK83.7
37.0
32.1
1H
45.9
14.1
2.7
21.7
3.0
3.1
2.0
Utilities (MSCI AC World Weight: 4.2%)
3.0
FPL Group Inc
FPL
USA
9 Mar 06
$39.02
$45.36
16.2
9.1
1M
11.3
15.8
1.9
12.9
3.3
-5.0
3.0
Total
17.0
13.9
2.5
17.7
1.1
0.6
98.0
Cash
2.0
Note: Valuations, earnings, and ROE (return on equity) are based on I/B/E/S consensus data. FY1 refers to next fiscal year-end, which for most firms is 12/2006. FY1 = 3/2006 for
Japanese companies. P/E, P/B for the Portfolio is stock-weighted average of E/P (earnings to price) and B/P (book to price) and then inverted. D/P (dividend to price) and FCF (free cash
flow). Yield is simple stock-weighted average of stock D/P and FCF yield. Aggregate EPS growth is the median growth for Portfolio stocks. Portfolio ROE = Portfolio P/B divided by Portfolio
P/E. * MSCI Benchmark weights, as of September 28, are scaled to add up to 98%. Neutral Cash weight is assumed to be 4%. To get the official MSCI weights, divide the shown weights by
0.98.
Source: Citigroup Investment Research and Global Equity Strategy
2


The Global Investigator – September 29, 2006
Constituents of the SubSector Baskets in the Global Model Portfolio

U$ Perf
Since U$ YTD
FY1
FY1
FY1
FY1
FY1
Free
Date
Price
Price
Added
Perf
EPSG
P/E
P/B
ROE Div Yld CF Yld Wght
Company
RIC
Mkt
Added
Added
28Sep06
(%)
(%) Rating
(%)
(x)
(x)
(%)
(%)
(%)
(%)
Broker/Dealer Basket (6 companies)
23.9
15.5
5.0
Morgan Stanley MS
USA
29 Sep 05
$53.85
$72.89
35.4
28.5
1M
34.0
11.0
2.2
22.1
1.5
NA
0.8
Goldman Sachs GS
USA
29 Sep 05 $121.22
$170
40.2
33.1
2H
55.7
9.7
2.4
28.4
0.8
NA
0.8
Merrill Lynch
MER
USA
29 Sep 05
$61.31
$79.09
29.0
16.8
1M
0.0
15.0
2.0
15.9
1.3
NA
0.8
Lehman Bros
LEH
USA
29 Sep 05 $58.465
$73.35
25.5
14.5
2H
23.4
10.9
2.2
23.4
0.7
NA
0.8
Charles Schwab SCH
USA
29 Sep 05
$14.25
$17.85
25.3
21.7
1M
42.0
22.5
4.5
22.1
0.6
NA
0.8
Ameritrade
AMTD
USA
29 Sep 05
$21.41
$18.81
-12.1
-21.6
1M
10.2
21.1
6.6
33.4
0.0
NA
0.8
Tech Networking Basket (9 companies)
3.8
4.4
8.0
Cisco Systems
CSCO
USA
29 Sep 05
$17.86
$23.48
31.5
37.1
1H
15.0
18.6
5.1
28.0
0.0
4.5
0.9
Qualcomm Inc
QCOM
USA
29 Sep 05
$44.99
$37.02
-17.7
-14.1
1H
39.6
22.7
4.6
20.0
1.2
2.5
0.9
Motorola Inc
MOT
USA
29 Sep 05
$22.21
$24.89
12.1
10.2
1H
17.3
18.8
3.3
19.2
0.7
5.7
0.9
Corning Inc
GLW
USA
29 Sep 05
$18.7
$24.73
32.2
25.8
2S
23.3
23.6
5.2
23.9
0.0
0.8
0.9
Lucent Tech
LU
USA
29 Sep 05
$3.22
$2.33
-27.6
-12.4
1H
-22.9
17.8
11.1
74.4
0.0
5.0
0.9
Juniper Netwrks JNPR
USA
29 Sep 05
$23.68
$17.34
-26.8
-22.2
2H
2.9
23.4
1.5
5.6
0.0
5.4
0.9
Harris
HRS
USA
29 Sep 05
$41.05
$44.8
9.1
4.2
2M
21.0
16.7
3.1
20.8
1.0
3.0
0.9
Avaya
AV
USA
29 Sep 05
$10.1
$11.64
15.2
9.1
2S
-20.0
25.1
2.7
11.1
0.0
7.3
0.9
Tel abs Inc
TLAB
USA
29 Sep 05
$10.51
$11.13
5.9
2.1
2H
-1.5
20.5
1.6
8.3
0.0
5.3
0.9
Semis Basket (12 companies)
-2.0
9.3
4.0
Advanced Micro DAMD
USA
25 May 06
$30.97
$25.07
-19.1
-18.1
1H
80.2
22.4
2.3
13.0
0.0
-2.3
0.3
MEMC Electronic WFR
USA
25 May 06
$34.41
$38
10.4
71.4
2H
73.1
20.3
7.8
44.4
0.0
1.7
0.3
Intersil
ISIL
USA
25 May 06
$27.24
$24.59
-9.7
-1.2
1H
64.8
19.9
1.5
6.7
0.7
2.9
0.3
Silicon Labs
SLAB
USA
25 May 06
$38.61
$31.01
-19.7
-15.4
1S
3.9
25.1
2.9
10.5
0.0
4.1
0.3
Micron TechnologMU
USA
25 May 06
$16.17
$17.44
7.9
31.0
2S
0.7
59.7
1.7
4.9
0.0
3.0
0.3
Veeco Instrum
VECO
USA
25 May 06
$24.69
$20.27
-17.9
17.0
2S
102.4
21.8
2.3
9.0
0.0
3.1
0.3
Freescale Semi FSL.B
USA
25 May 06
$30.53
$37.96
24.3
50.8
1H
58.1
18.1
3.0
16.9
0.0
5.1
0.3
National Semicon NSM
USA
25 May 06
$25.29
$23.76
-6.0
-8.5
1H
-3.4
18.4
4.1
37.8
0.6
6.8
0.3
Skyworks SolutnsSWKS
USA
25 May 06
$5.73
$5.37
-6.3
5.5
1S
-26.3
27.0
1.0
3.9
0.0
6.9
0.3
KLA Tencor
KLAC
USA
25 May 06
$40.01
$44.74
11.8
-9.3
2H
0.2
24.3
2.6
13.0
1.1
4.9
0.3
ATMI Inc
ATMI
USA
25 May 06
$26.33
$29.36
11.5
5.0
2H
20.6
28.6
2.4
8.2
0.0
2.8
0.3
Analog Devices ADI
USA
25 May 06
$33.53
$29.7
-11.4
-17.2
2S
28.5
18.2
2.9
15.9
1.9
3.8
0.3
Biotech Basket (13 companies)
-10.0
-12.4
7.0
Amgen Inc
AMGN
USA
29 Sep 05
$79.77
$71.55
-10.3
-9.3
1M
19.8
18.7
3.3
22.0
0.0
4.5
0.6
Celgene Corp
CELG
USA
29 Sep 05
$26.8
$43.37
61.8
33.9
1H
165.8
85.9
17.8
22.2
0.0
-0.1
0.6
Genentech Inc
DNA
USA
29 Sep 05
$83.55
$82.2
-1.6
-11.1
1H
59.3
40.3
10.4
26.3
0.0
0.9
0.6
DOV Pharma
DOVP
USA
29 Sep 05
$17.06
$0.88
-94.8
-94.0
2S
NA
-0.3
-6.1
NM
0.0 -252.2
0.6
Gilead Sciences GILD
USA
29 Sep 05
$47.5
$68.63
44.5
30.5
1H
36.3
30.3
8.1
31.3
0.0
2.9
0.6
Martek Biosci
MATK
USA
29 Sep 05
$34.82
$21.32
-38.8
-13.3
2S
30.4
34.1
1.5
5.6
0.0
-2.0
0.6
NPS Pharmaceut NPSP
USA
29 Sep 05
$10.46
$3.84
-63.3
-67.6
2S
NA
-1.4
-1.0
69.0
0.0 -109.9
0.6
PDL BioPharma PDLI
USA
29 Sep 05
$27.87
$19.41
-30.4
-31.7
1S
NM
115.5
6.5
4.2
0.0
-1.9
0.6
Biogen Idec
BIIB
USA
29 Sep 05
$38.6
$44.74
15.9
-1.2
2H
33.2
21.4
1.9
9.0
0.0
3.0
0.6
Genzyme Corp
GENZ
USA
29 Sep 05
$71.7
$68.09
-5.0
-3.8
1M
19.7
25.0
3.8
16.3
0.0
3.7
0.6
Millennium PharmMLNM
USA
29 Sep 05
$9.26
$9.78
5.6
0.8
2S
NA
NM
1.7
0.5
0.0
-4.3
0.6
Pharmion
PHRM
USA
29 Sep 05
$21.77
$21.04
-3.4
18.4
2S
NM
-42.6
2.2
-11.7
0.0
1.2
0.6
Internet Basket (7 companies)
-12.6
-19.9
4.0
Bankrate Inc
RATE
USA
25 May 06
$43.64
$26.6
-39.0
-9.9
2H
60.9
29.0
2.9
15.4
0.0
3.5
0.5
Amazon Com Inc AMZN
USA
25 May 06
$35.63
$31.84
-10.6
-32.5
2H
-49.6
75.3
26.5
62.4
0.0
2.8
0.5
Google
GOOG
USA
25 May 06 $382.99
$403.58
5.4
-2.7
1H
74.2
40.6
8.5
24.2
0.0
1.3
0.5
Yahoo
YHOO
USA
25 May 06
$32.92
$25.33
-23.1
-35.3
1H
-18.1
53.3
4.1
8.3
0.0
3.5
0.5
eBay Inc
EBAY
USA
25 May 06
$33.88
$28.41
-16.1
-34.3
1H
16.7
28.3
3.4
12.6
0.0
4.2
0.5
Monster Wrldwd MNST
USA
25 May 06
$51.44
$36.29
-29.5
-11.1
1H
37.3
29.1
4.2
16.5
0.0
3.4
0.5
CNET Networks CNET
USA
25 May 06
$9.44
$9.67
2.4
-34.2
1S
-16.5
44.6
5.0
18.8
0.0
3.0
0.5
ValueClick
VCLK
USA
25 May 06
$16.69
$18.28
9.5
0.9
1H
16.4
34.8
3.1
8.9
0.0
3.9
0.5
We recommend a basket of Buy or Hold rated stocks in five sub-sectors we believe will outperform when the U.S. Risk-Love is low, as is the case now. The stocks are covered by our
colleagues in Citigroup Investment Research and provide diversification by covering roughly 80%–90% of the total capitalization sub-sectors. Our goal is to reduce the risk to the model
portfolio from stock-specific risks without hopefully sacrificing too much performance.
Source: Citigroup Investment Research and Global Equity Strategy

3

The Global Investigator – September 29, 2006
Global Model Portfolio Total Return (US$) Since Inception (September 20, 2004) to September 28, 2006

Year-to-Date
Since Sep 20, 2004


Global Model Portfolio
12.72%
46.19%
Sharpe Ratio*
1.36
Benchmark: MSCI AC World (US$)
9.46%
33.28%
Tracking Error**
4.06%
Relative Return
3.26%
12.91%


20%
20%
Portfolio Performance Relative to MSCI AC World
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
2005
2006
0%
0%
Sep20 Nov15
Jan10
Mar07 May02 Jun27
Aug22
Oct17
Dec12 Feb06
Apr03 May29
Jul24
Sep18

Model portfolio total return based on daily index calculations by Abacus Analytics. Assumes stocks are held in the fixed weights assigned in the
model portfolio. The U.S. Dollar is the currency used to express performance. A complete list of changes to the Global Model Portfolio is available
upon request. Returns are GROSS of Management and Transaction Fees. Past Performance is Not Indicative of Future Results.
*Sharpe Ratio (Portfolio Performance adjusted for Total Risk) = Annualized Excess Return / Portfolio Volatility since inception.
**Annualized Tracking Error versus the MSCI AC World Index since inception.
Source: Abacus Analytics
Recommended Global Industry Overweights/Underweights
Recommended Global Regional Overweights/Underweights
Based on Top-Down Sector Selection*
Based on Top-Down Regional Allocation**
Tech Hardware
MSCI Neutral Weight in Parenthesis
Consumer Svc
North America
Semis
9% to 13%
Transport
(49.5)
Overweight
Household Prod
Energy
Div Financials
Europe (29.5)
Insurance
9% to 13%
Pharma &
Food Retail
Comm Svc
Telecom
Japan (10.1)
3% to 5%
Autos
Neutral
Banks
Media
Capital Gds
EM/Rest (8.6)
0% to 4%
Cons Durables
Real Estate
Health Care
Food Beverages
Australia/NZ
-2% to -7%
Software
Underweight
(2.3)
Materials
Retailing
Utilities
-150
-100
-50
0
50
100
150
-2.0 -1.5 -1.0 -0.5 0.0% 0.5% 1.0% 1.5% 2.0%

%
%
%
%

**The top-down regional returns for North America, Europe, Japan and Emerging
Markets are based on “Market Expected Return Indicator” (MERI) models. For
*The bar charts reflect our top-down view of industry allocations. The size of the
methodology, please see The Global Investigator, July 12, 2004, “Global Asset
underweight/overweight positions in the model stock portfolio are broadly consistent
Allocation: Overweight Equities, US/Europe Bonds, Trash Cash”. Australia forecast
with these sector views. However, the absolute sizes of the underweight/overweight
based on Australian strategy team’s latest published outlook.
positions are influenced by other factors such as industry size, the macroeconomic
Source: Citigroup Investment Research and Global Equity Strategy
cycle and the desired tracking error versus the benchmark.
Source: Citigroup Investment Research and Global Equity Strategy
4


The Global Investigator – September 29, 2006
Table of Contents
Strategy by Region
Global — The Plutonomy Symposium — Rising Tides Lifting Yachts ............................................. 7
U.S. — Calibrating 2007 Targets.................................................................................................. 21
Europe — Avoiding the Mega-traps ............................................................................................. 27
Japan — Birth of the Abe Administration ..................................................................................... 31
Asia-Pacific — If It's Due to Speculation=Bullish; If Due to Weaker Growth=Bearish .................. 37
Latin America — Think Small ..................................................................................................... 43
Model Portfolio, Fund Flows, Market Intelligence, Analytics
Global Quantitative Angles......................................................................................................... 49
Weekly U.S. Mutual Fund Flows
(All-Equity: up US$835 million, All-Taxable Bonds: down US$215 million,
All-Money-Market: down US$7,715 million)................................................................................. 51
Investor “Risk-Love” (Investor Sentiment) and Asset-Price-Based Global Growth Indicators
U.S. Risk-Love is slowly climbing in the valley of distress. In Japan, Risk-love is neutral but in
Europe it stays close to euphoria. Sentiment in the Emerging Markets also remains elevated
near the euphoria zone. The asset-price-based global growth indicator is near its long-term
average, suggesting moderate global growth ahead. .................................................................... 54
Global Market Intelligence ......................................................................................................... 56
Global Stock Model Portfolio — Summary Matrix.................................................................... 58
The Least Preferred Stocks Portfolio ........................................................................................ 59



Correction: Forbes’ Cost of Living Extremely Well Index Updated (Figures 10 and 12, page 14)

5

The Global Investigator – September 29, 2006
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6


The Global Investigator – September 29, 2006
GLOBAL
Global Equity Strategy
Ajay Kapur, CFA
The Plutonomy Symposium — Rising Tides
1-212-816-4813
Lifting Yachts
ajay.kapur@citigroup.com
New York
Time to re-commit to plutonomy stocks – Binge on Bling1
Niall MacLeod
Equity multiples appear too low, the profit share of GDP is high and likely
44-20-7986-4449
going higher, stocks look likely to beat housing, and we are bullish on equities.
niall.j.macleod@citigroup.com
London
Uber-rich, the plutonomists, are likely to see net worth-income ratios surge,
driving luxury consumption. Buy plutonomy stocks (list inside).
Narendra Singh

1-212-816-2807
Plutonomy stocks at a premium, but relative pricing power is key
narendra.singh@citigroup.com
While trading at a ‘worrying’ 30% P/B premium to the market, this has no
New York
predictive power. Relative pricing power of luxury goods versus CPI is key for
Priscilla Luk
plutonomy stock performance. With stronger equities, higher profit share, bling
Hong Kong
pricing power is likely to rise.
Hao Hong, CFA
Our Plutonomy conference take-aways
1-212-816-1180

The key challenge for corporates in this space is to maintain the mystique of
hao.hong@citigroup.com
New York
prestige while trying to grow revenue and hit the mass-affluent market. Finding
pure-plays on the plutonomy theme, however, is tricky.
Audrey Seybert
New York
Plutonomy and the Great Conundrums of our age
We think the balance sheets of the rich are in great shape, and will get much
better. Their behavior overwhelms that of the “average” consumer. A -10%
savings rate for the rich has a trivial impact on even the growth in their net
worth – don’t be shocked if the savings rate worsens as equities do well.
What could go wrong?
Globalization, productivity, a rising profit share and dis-inflation have helped
plutonomy. Beyond war, inflation, the end of the technology/productivity wave
and/or financial collapse, which have killed previous plutonomies, we think the
most potent and short-term threat would be societies demanding a more
‘equitable’ share of wealth.


1 Bling – the imaginary sound that light makes when it hits a diamond
according to the rap artist B.G. (2005). Source: Wikipedia.



7

The Global Investigator – September 29, 2006
The Plutonomy Symposium — Rising Tides Lifting
Yachts
Plutonomy update
overwhelms that of the “average” or median
It’s almost a year since we made up the word
consumer. Last year, for example, we suggested
Plutonomy. From time to time, in the strategy
that in the US, the top 20% of consumers might
world at Citigroup, we have a tendency to make up
account for nearly 60% of income and spending.
words, to describe some of our more out of the box
The bottom 20% by contrast account, on our data,
thoughts. Our European colleagues three years
for about 3% of income and spending. We have no
back first referred to de-equitization to describe the
moral opinion on whether this income inequality is
wave of private equity and cash funded bids for
good or bad, just that it matters a great deal, when
equities they expected to see over the coming years
we think about the mystical ‘consumer’ in the US
with free cash flow yields very high, and corporate
or other plutonomy countries such as the UK,
bond yields very low. Not only do they appear to
Australia or Canada.
have been spot on in their prediction but the word
A second conclusion of our analysis was that the
is now heard around the world (this year we’ve
forces which had driven the recent 20 year rise in
heard it back to us in meetings from Melbourne to
income inequality were likely to continue over the
Tokyo, Cape-Town to Helsinki, Moscow to Dublin
next few years.
and from New York to San Fran) in the press, and
And a third conclusion was that Plutonomy would
on TV. Robert, Jonathan and Hasan, our European
likely drive a positive operating environment for
colleagues, tell us they wish they’d trademarked
companies selling to or servicing the rich.
this ugly word when they made it up.
Last week Citigroup hosted a Plutonomy
So back to Plutonomy. Another neologism and
Symposium in London, where a number of
one we in the global team made up. Like de-
companies and commentators discussed the
equitization, it’s not the word that’s important, but
outlook for the Plutonomists. These were mainly
what it describes.
luxury goods companies, or companies servicing
About a year ago, we started doing work on
the ultra-high net worth community. We had a
segmenting the so-called consumer, into different
number of industry experts also share their views.
types of consumers – rich through poor. We were
Plutonomy – the story so far...
fascinated by how, when we did this, we found
Over the last 20 years or so, in certain countries,
possible explanations for why the world hadn’t
the rich have been getting substantially richer. As
spun off its axis in response to some of the
problems that many commentators seem to
Figure 1 shows, the share of the top 1% of the
population of income has grown substantially in
endlessly worry about, such as global imbalances
countries such as the US, UK and Canada. The
or high oil prices.
countries, which apparently tolerate income
To us there are certain economies, driven by
inequality, are what we call plutonomy countries –
massive income and wealth inequality –
economies powered by a relatively small number
plutonomies – where the rich are so rich that their
of rich people.
behavior – be it negative savings, or just very low
consumption of oil as a % of their income –
8


The Global Investigator – September 29, 2006
Figure 1. The share of top income groups in the Plutonomies -
happen to this wealth) and secondly what are the
US, UK and Canada: high and rising. The income share of the
economic implications of this?
top 1% in the US in 2004 = 16.2% of total income; The top 5% =
31.0% of total income

Firstly, why have the rich become richer? We only
have data for the US on this subject.
17
%
%
17
Income Share of the Top 1%
Figure 3 shows the net worth to income ratios for
15
15
the top 10% of US households. Since 1989, this
USA
13
13
ratio is up roughly 50%, from 5.8 to 8.4, as the
UK
11
11
wealth of the rich in the US has risen substantially.
Canada
9
9
Figure 3. The Net Worth to Income Ratio of the Top 10% of US
households has risen to 8.4 in 2004 from 5.8 in 1989

7
7
9.0
(X)
(X)
9.0
5
5
Net Worth to Income Ratio of the
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02
8.0
8.0
Top 10% Income Group

7.0
7.0
Source: Emmanuel Saez (website: elsa.berkeley.edu/~saez); “ Top Incomes in the
Netherlands and the United Kingdom over the Twentieth Century”, A B Atkinson and
6.0
6.0
Wiemer Salverda; “The Evolution of High Incomes in Northern America: Lessons from
Canadian Evidence” Emmanuel Saez and Michael Veall; Citigroup Investment Research.
5.0
5.0
The rise of this inequality is not universal. In a
4.0
4.0
number of other countries – the non-plutonomies –
3.0
3.0
income inequality has remained around the levels
1989
1992
1995
1998
2001
2004
of the mid 1970s. Egalitarianism rules. See Figure

2.
Source: Survey of Consumer Finances, US Federal Reserve Board and Citigroup
Investment Research
Figure 2. The Egalitarian Bunch: Japan, France, Switzerland,
the Netherlands. The Income Share of the Top 1% Is Relatively

This has not been an economy-wide benefit. Figure 4
Small Compared to Plutonomies
shows the net worth to income ratio of the “lower”
90% of Americans. Their wealth to income ratio has
17
17
%
%
Income Share of the Top 1%
not risen much, particularly since 1995.
15
15
Switzerland
Figure 4. The Net Worth to Income ratio of the “lower” 90% of
France
13
13
Americans has not risen as much as the top 10%
Japan
Netherlands
11
11
9
Net Worth to Income Ratio
9
8
8
1989
1992
1995
9
9
7
7
1998
2001
2004
6
6
7
7
5
5
5
5
4
4
3
3
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02

2
2
1
1
Source: Dell, Fabian; Piketty, Thomas; Saez, Emmanuel; “Income and Wealth
0
0
Concentration in the Switzerland Over the 20th Century”. Moriguchi, Chiaki & Saez,
Emmanuel. “The Evolution of Income Concentration in Japan, 1885 – 2002: Evidence
Top 80-90%
Next 20%
Next 20%
Bottom 40%
from Income Tax Statistics”. Piketty, Thomas “Income Inequality in France 1901 –
2nd Highes t Income Group to Lowest Income Groups
1998”. Atkinson, A.B. and Salverda, Wiemer “Top Incomes in the Netherlands and the

United Kingdom over the Twentieth Century”; Citigroup Investment Research.
Source: Survey of Consumer Finances, US Federal Reserve Board and Citigroup
Investment Research
To us, two things matter about this. Firstly, how
have the rich become richer (and shortly, what will
What has driven this? We see three drivers. Firstly,
the bull market in financial assets – particularly
equities – as inflation has fallen, has benefited those

9

The Global Investigator – September 29, 2006
whose assets have been invested, particularly in
Every three years or so, the Fed publishes the
equities as the disinflation was also accompanied by
Survey of Consumer Finances (SCF) which allows
strong earnings growth as margins rose.
us to peer into the fortunes of various segments of
US households. The balance sheets of the rich are
Secondly, the rise of managerial capitalism, with
very heavily exposed to business equity and
CEO remuneration increasingly tied into EPS
equities, while for the next 80% of Americans,
growth and equity performance. Finally, as with
housing tends to be their biggest asset, with
previous waves of plutonomy – such as sixteenth
equities amounting to a small fraction of their net
century Spain, seventeenth century Holland,
worth. The rich have benefited immensely from
Industrial Revolution Britain, the Gilded Age and
owning equities during the bull market.
the Roaring Twenties in the US – the ongoing
technological revolution has generated a new wave
of ultra-high net worth individuals.
Figure 5. Non-Financial and Any Asset holdings by income group: Only 18% of assets of the top 10% income group invested in primary
residence; for other income groups the percentage is around 40%-45%

Family characteristic
Vehicles
Primary
Other
Equity in
Business
Other
Any
Any asset
Residence
residential
nonresidential
equity
nonfinancial
property
property
asset

PERCENTAGE of families holding assets)
All Families
84.1 64.7 11.8 9.2 11.1 9.0 90.9 96.4
Percentiles of income
Less
than
20
58.2
39.7 4.0 3.7 4.5 3.7
70.0
84.4
20-39.9
85.3
55.4 7.7 5.6 6.6 6.4
91.4
97.9
40-59.9
91.1
62.6 9.1 7.3 8.8 7.2
95.9
99.9
60-79.9
92.8 77.3 12.6 11.0 12.9 12.2 97.7 99.7
80-89.9
93.8 85.9 16.7 15.5 16.5 10.0 99.2
100.0
90-100
92.3 91.3 34.5 22.0 28.8 21.1 99.6
100.0

MEAN VALUE of holdings for families holding assets (thousands of 2004 dollars)
All families
16.4 141.8 130.6 165.6 474.2 49.5 212.7 316.9
Percentiles of income
Less
than
20
6.8 69.2 69.5 90.7
230.0 15.2 69.3 73.7
20-39.9
9.7 96.3 53.6 61.2
111.4 12.6 84.6
116.3
40-59.9
13.8
108.7 85.0 66.1
127.9 16.3
110.2
156.7
60-79.9
19.0 133.4 106.5 100.5 179.1 30.3 176.0 255.8
80-89.9
24.3 170.8 126.9 99.8 241.1 49.3 253.0 400.3
90-100
32.8 292.0 222.9 421.2
1328.3 128.9 878.7
1478.6

Value of the asset holding as % of Any asset holding*
Less
than
20
6.4%
44.2% 4.5% 5.4%
16.6% 0.9%
78.0%
100.0%
20-39.9
7.3%
46.9% 3.6% 3.0% 6.5% 0.7%
67.9%
100.0%
40-59.9
8.0%
43.5% 4.9% 3.1% 7.2% 0.7%
67.5%
100.0%
60-79.9
6.9%
40.4% 5.3% 4.3% 9.1% 1.4%
67.4%
100.0%
80-89.9
5.7%
36.7% 5.3% 3.9% 9.9% 1.2%
62.7%
100.0%
90-100
2.0%
18.0% 5.2% 6.3%
25.9% 1.8%
59.2%
100.0%
*Percentage share are calculated over only those holding assets in the category. The mean values have not been adjusted for outliers.
Source: 2004 Survey of Consumer Finance, http://www.federalreserve.gov/pubs/oss/oss2/2004/scf2004home.html and Citigroup Investment Research

10


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