December 2011

"Investors lack patience...and holding a portfolio of different assets may be the best strategy"- Dr. Marc Faber

With corporate profits and pristine balance sheets balancing out the deleveraging and deflationary worries stemming from Europe, the S&P 500, remarkably, closed this extremely volatile year (minus dividends) statistically flat. Our yearly results are posted on our performance page. With so many cross currents, what can investors expect over the coming year. Here are some views from the experts:

• Equity valuations are cheap despite a weak growth environment. The debt super cycle (borrowing to spend) has not ended because the markets haven't yet rebelled against the enormous buildup in government debt. This could change after 2015 (most of the entitlements start to kick in then) unless the next administration gets serious in talks about reforms to spending and taxes. (BCA). 
• The Chinese economy is set for a soft landing. Unlike the developed countries, China is in great shape to apply more fiscal and monetary stimulus to offset potential problems stemming from their real estate and banking sectors. (BCA). As a matter of interest, China's better than expected manufacturing numbers have contributed largely to the surge in stock prices on the first day of trading for 2012. 
• Heinz Blasnik on gold: "Now, fundamentals look great: negative real interest rates...money supply growing at 15.4%, credit spreads widening, inflation expectations turning up,euro money supply poised to grow faster...federal deficit still growing by leaps and bounds and 'QE3" waiting in the wings".
• Given that emerging markets came close to hitting their lows set in 2008 and yet continue to shame developed markets in terms of growth, Mark Faber believes that investors should consider increasing their holdings in the first quarter of 2012.

It was a tough year for many investors including ourselves and so I am very much looking forward to the new year. I expect continued volatility in the first half of the year with a gradual tapering off in the second half. If the fundamentals above prove close to being correct, the positive themes that have driven our performance over the past ten years (with the exception of 2008 caused by our own financial woes) will likely reward our patience and once again come to the forefront.

-Joe