Oristano Capital Management, LLC

I thought it would be helpful to explain ( but not excuse ) why 2007 has been a frustrating year for our portfolios. By my calculations what should be an average year ( 14-15% ), barring a miracle is likely to turn into a less than average year. Let me explain. Although I believe our portfolios were properly correlated and diversified, on average the market value in over ninety percent of closed-end funds went down more than the net asset value. The principal reason for this was forced liquidation of securities as a result of sub-prime woes, the liquidation of the yen carry trade, and a less than stellar market. Here are some examples of funds that we owned:

Company Name	Ticker	1 yr NAV Rtn	1 yr Mkt Rtn
Aberdeen Asia Pacific Inc.	FAX	7.47%	-0.93%
Blackrock Gl Fltg Rt Inc	BGT	0.67%	-11.14%
Central Europe & Russia	CEE	27.28%	33.90%
Gabelli Equity Trust	GAB	9.94%	10.90%
Greater China Fund	GCH	75.52%	32.46%
H&Q Healthcare Investors	HQH	18.03%	9.66%
Indonesia Fd	IF	38.02%	4.69%
Mexico Equity & Income	MXE	37.12%	22.36%
Morgan Stanley India Fd	IIF	65.16%	50.87%
Royce Value Trust	RVT	8.23%	-8.25%
Singapore Fd	SGF	29.83%	21.78%
Templeton Russia & E Eur Fd	TRF	25.00%	4.25%
Thai Fd	TTF	44.39%	26.42%
Turkish Investment Fd	TKF	61.15%	29.63%
Western Asset EM Flt Rt	EFL	1.00%	-7.62%
Western Asset Mgd Muni	MMU	3.38%	0.13%

A fair question would be, why don’t we just use open-ended or Index funds that don’t trade at a premium or discount to net-asset value? The research that I have done demonstrates that portfolio managers have done a better job in managing country funds when they don’t have to buy or sell every time a new investor buys or an existing investor sells. This is particularly true in smaller countries like Indonesia or Thailand where there are not a lot of companies to choose from. Further, in a good year like 2003, our portfolios benefit as the market values generally exceed the net-asset values. I believe there is a strong case for this happening in 2008, as volatility in World developed markets subsides.

A Happy, Healthy and Prosperous New Year to you all.

The Market Continues to Decouple - December 18, 2007

Despite the markets disappointment with the Fed’s less than aggressive move on rates last week, it is almost certain that they will remain accommodative as the economy continues to slow. Couple this with extreme negative sentiment ( a contrarian indicator ), and an earnings yield of almost seven percent, it is hard to believe that the market will not stabilize in the very near term. When this does occur, emerging markets - where capex and consumer spending continue to grow and interest rates remain low – will almost certainly turn their positive relative performance ( see chart below compliments of bca research ) into very solid absolute performance.

Sentiment - November 19, 2007

The market is now down in seven of the past nine sessions, but the bullish news is that sentiment ( normally a contrarian indicator ) is now near a low that in the past has proven to be a major turning point. Please see the chart ( source bca publications ) below.

Recession? - November 8, 2007

CNBC pundits are quick to compare the equity implosion of 2000-2002 to the current sub-prime meltdown, and how it will lead to an inevitable recession. I say not so fast, for the following reasons:

The equity losses in households back then was much more severe than the current losses in housing prices.

Profits cratered in 2001-2002 leading to corporations slashing employment; today corporate balance sheets are healthy and thus companies will be more willing to keep employees as they wait for better times.

Coupled with the last point, the consumer will continue to spend as long as he has a job, despite some deflation in his net worth.

We may yet have a recession, but I don’t think it will be a direct result of sub-prime. Further, if we do flirt or actually do go into a downturn, the good news is that the Fed will remain friendly, and you know the expression: “Never fight the Fed”

Momentum - October 10, 2007

It appears that Emerging Markets ( as suggested in the latest newsletter ) are entering into a momentum phase. Although we have preferred value over growth for the past five years, it is in this cycle when growth generally outperforms value. In light of this development, I'm recommending the following:

Emerging Market and Oil Bubble Up - September 21, 2007

If the Super Debt Cycle remains intact, ( and the odds are that it most certainly will ), the only question to be asked is: where will the easy money flow next? Given the reasonable valuations of both Emerging Markets and Natural Resources ( please see the latest newsletter at www.oristanocapital.com ), It is my belief that the article in today’s Wall Street Journal is correct in its evaluation. I think we are well positioned.

Fed Cut - August 17, 2007
The Fed just lowered the discount rate by fifty basis points to five and three quarters. This is very positive and as I suggested they lengthened the maturity from overnight to thirty days. Hopefully this should do the trick.

Market Turmoil - August 17, 2007
Global markets have been in turmoil and emerging markets have been particularly hard hit as an exodus from risk has inflicted significant damage. I suspect this will continue until the Fed comes to the rescue, but the good news is that we should hear soon and likely today of a massive infusion of capital, likely in the form of longer term repos.

The important point is that global markets are very reasonably priced and in sound financial shape. There is no need to do anything as this turbulence will pass like it always has in the past.

I will be in my Vermont office today, so please feel free to call me here: 802-824-5443.

Keep the faith.

Widening Credit Spreads - July 30, 2007
The continued widening of credit spreads caused havoc in the equity markets, and we certainly were not spared. Although there was no place to hide on Thursday, our portfolios held up quite well on Friday. Emerging Markets corrected as much as twenty percent, but on a technical basis, they retraced back into predictable and comfortable support areas established in April and May.

Merger and Acquisition activity is on a scale not seen since '89 '90. Back then, the party ended when Japan backed out of a leveraged buyout of United Airlines, and credit spreads went from three hundred to six hundred basis points over Treasury, but importantly, global stocks continued to rise well into the nineties. Today's M&A activity has also slowed dramatically as a result of rising spreads, but with our financial institutions' balance sheets stronger than ever, and with a loan delinquency rate at a relatively low two percent, global markets are likely to continue their upward momentum after a short consolidation.

July 3, 2007
As reported by Zephyr Associates, Oristano Capital captures 83.6% of the S&P 500 upside performance, but only 15.5% of its downside. I believe that proper correlation is the key to this risk adverse statistic, and the primary reason for Oristano’s consistent out performance of the S&P 500.

Oristano Capital #1 Global Balanced Account Manager - June 21, 2007
I am pleased to announce that Money Manager Review has given Oristano Capital its number one ranking for the past five year performance of Global, Balanced account managers , beating such heavy weights as Franklin Templeton, TCW Group, First Quadrant, and Calamos. Not only was Oristano number one in total performance (14.83 % annualized), more importantly, it was also ranked number one (due to its low volatility) in risk vs. return.