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TO SUMMARIZE OUR THOUGHTS 12/31/2011 One thing seems reasonably certain. The global economy is going to continue enduring a significant deleveraging cycle throughout 2012 that affects most if not all parts of the developed world. EU interventions up to this point have been effective at calming markets in the short-term, yet Europe remains at a tipping point.Interventions for the sovereign debt crisis cannot remain haphazard. Unless the ECB ultimately decides to backstop “periphery” country debt, Greece and Italy will both default in 2012, and core European banks will be left holding the bag. In the meantime, imposed austerity is crushing periphery countries’ economies and Europe is sliding into a recession. In order to get out of this vicious cycle, any solution for deleveraging will be accomplished by some combination of default and write-downs, debt repayment and rising savings rates. We anticipate additional market volatility while the issues or the solutions run their respective courses. With failed stimulus spending and all the regulatory chaos that has been created in the U.S., it has been reassuring to see just how resilient corporate America has been. Notwithstanding the wild ride stocks had in 2011, the underlying companies of the S&P 500 have never looked better. Good companies exhibit fiscal discipline while governments do not. Over time, the best investing results are achieved largely by purchasing strong companies at attractive prices. Regardless of what the world throws at investors in the short-run, or how it impacts a company’s stock price, great businesses still grow value even in a tepid economy. In a world where safety, predictability and income are at a premium, quality matters. We will continue to invest in companies we believe will deliver healthy returns, with reasonable risk, in the face of current macroeconomic challenges. |
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