The General Market Remains Expensive....

Dear Reader and Fellow Investors,

We believe that equity markets in general remain expensive and macroeconomic conditions remain precarious due to the heavy debt load that continues to exist, and indeed is growing due to government borrowing.

We are happy to see that select individual securities are starting to become attractively priced, but this is still the exception as opposed to the norm.

Though we see it probable that central banks will keep rates low for as long as the markets allow (i.e. until government bond yields rise because the market becomes sick of new debt being issued), this can assist the upward rise of risk assets, as can the potential re kindeling of inflationary fears due to the large volumes of printed money being introduced into the financial system.

These two latter factors could well have been the principal drivers behind the increased pricing of real assets (commodities and equities) over the last 12 months. Can they be in the future? Sure they can, but recall that trees don´t grow to the sky.

We have also seen earning results consistently be better than analyst estimates, which were already assuming stong increases relative to previous quarters. There strength overall has impressed me as well as surprised me. I still believe that operating margins will be under pressure over the next few years (due to restricted private credit expansion, which will reduce demand), hence those that don´t increase revenue will generate less profit.

As assets become cheaper, we will be buying more. If they become more expensive, we are likely to hold until they pass our objective value for them, in which case we will be increasing further our cash allocation.

I would like to add that we have no interest in buying 5 year bonds offering 2.5% yields, and have not been buyers of gold. Hence we are principally buying equities, some of which are starting to offer sustainable dividend yields twice the yield of 5 year corporate bonds.


We look forward to receiving your questions.


Yours sincerely,

Alessandro Sajwani