Investment Recap Second Quarter 2011

If you are confused and possibly frustrated given recent financial and political headlines, you are not alone. Where are the “statesmen” when the U.S. needs better representatives in Congress and the European Union needs to deal with the economic woes of Southern European nations, like Greece, Italy and Spain? The oversimplified answer to this question is that politicians and public officials tend to drop the rhetoric, the posturing and the theatrics only when there is a “gun to their head.” We sometimes get our best political results at the 11th hour when the outlook appears worst.
Our job is always to cut through the noise and find attractive values and often (this is fun) to go
against the grain and be contrarian, particularly to the emotions of the moment. From this perspective, things are actually easier. Most stocks are cheap, interest rates are astonishingly low and corporate balance sheets are the best they’ve been in 25 years.
The second quarter was flat for stocks and somewhat positive for bonds. Our year to date performance continues to exceed that of the market and most of our peers. We believe that the major clouds will lift: there will be a budget deal and entitlement savings of two to four trillion dollars, the EU will not allow Italy to fail, and Greece will be given time to solve its problems. In the coming months, it will be fascinating to see how these problems get resolved, but they will get resolved.