2010 Q4 letter

2010 Q4 letter

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Dear Client,

We hope you enjoyed a restful holiday season and have had a good start to the New Year.

We’ve attached two documents to this quarterly letter, one reviewing our economic themes for 2010, and another outlining our themes for 2011.

In the fourth quarter of 2010, risky assets (stocks, commodities) recovered sharply from mid-year lows, while safe-haven treasuries sold off dramatically in the last few weeks (the 10 Yr yield went from 2.81% to 3.30% in December).  The Federal Reserve continued to keep short-term interest rates at 0.00-0.25% and began a second round of extraordinary monetary easing (QE2). Unemployment continued to remain high and over 15 million Americans (9.7% of the labor force) were unemployed over the holiday season.  The mid-term election cycle was an expression of the electorate’s frustration with the lackluster recovery and increasing concerns about the national debt burden.

Our view remains that high levels of unemployment, household debt-reduction and relatively tight credit standards will continue to dampen growth in 2011. We believe stock market prices are higher than sustainable levels, and down-side risk has increased materially.  We continue to recommend holding substantial cash allocations while waiting for more attractive values to deploy cash.

We look forward to speaking with you during our quarterly review and wish you the best over the coming year.

Regards,

Subir Grewal                                                                           Louis Berger

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