April – June 2009

July 29, 2009

Three months is a long time in the stock markets. The pendulum has swung from fear to greed, from pricing too much risk to pricing too little. Junk usually ends a rally, but in this case junk has led it.

The misbehavior is not confined to the stock market alone. Central bankers, not satisfied with the asset bubbles and the misallocations they created, have gone on another monstrous money-creation mission and governments have abetted them. The global monetary and fiscal stimulus is unprecedented in the history of human civilization and to assume that it is a success in six months is self-deception at its very worst. It is difficult to put odds on something that has never been tried before, but to assume low odds for failure could be akin to hallucinating that hell is heaven.

The valuations for the broad market are getting into stretched territory and we are uncomfortable in increasing our equity allocations any further. Should Mr. Market get into a merrier mood, we would be inclined to reduce our equity exposure.

Our gold position remains unchanged as we continue to believe that the chances of significant inflation down the line are high.