We are sending a message of optimism about many markets. We are optimistic about Asian stocks in Indonesia, Korea, Malaysia, Singapore, and Thailand. We are also optimistic about commodity producing stocks in countries such as Canada, Australia, and Brazil. U.S. export companies including those in technology, shipping railroads, autos, food, medical, basic materials, and other U.S. sectors are also attractive. We continue to favor European export stocks in the same areas, and we believe that U.S. bank stocks continue to be attractive as a trade. We are bullish on commodities such as gold, oil, iron ore, coal, wheat, and soybeans.


We are bearish on bonds, and we are bearish on the Euro and the U.S. dollar over the longer term.

Our friend, Larry Jeddeloh of The Institutional Strategist, in his Market Intelligence Report of April 14, 2010 brought an important point to our attention. He points out a large increase of $421 billion in the Federal Reserve’s balance sheet in the same week that the Greek Bailout took place.

The bailout for Greece was only $41 billion and the Fed balance sheet expanded by $421 billion in loans. What is going on? Obviously the Fed is lending a lot of money. Was some of it lent abroad? We do not know.

One other explanation is that the loans, the U.S. banks had kept off of their books in offshore SIV’s [Special Investment Vehicles] are coming back onto their banks’ books, and the Fed is lending against them to provide liquidity for U.S. banks. This brings us to a major question that all investors and U.S. taxpayers should consider. How did the accounting profession allow this SIV type of activity, where banks were allowed to keep liabilities off their U.S. books in the first place?

We are attaching a link to an article from the April 9, 2010 Wall street Journal entitled “Big Banks Mask Risk Levels.” The article explains in detail one of the techniques that banks employ to mask their levels of borrowing.

Big Banks Mask Risk Levels
Quarter–End Loans Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review
By: Kate Kelly, Tom Mcginity and Dan Fitzpatrick

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York…To read the article click here: http://online.wsj.com/article/SB10001424052702304830104575172280848939898.html

It is public knowledge that during the 2008 crisis many non U.S. banks benefited from the U.S. taxpayer injection of capital into AIG. As a result of the injection, foreign banks collected at least $37 billion that was owed to them by AIG. In early 2009, the list of recipients of the AIG money was published in the news media, and Fed Chairman Bernanke admitted the same on “60 Minutes” in March 2009.

We agree with Larry Jeddeloh and many others who are irritated and concerned about this pattern of events. Clearly the U.S. has enough problems at home without taking responsibility for the bad management of foreign financial institutions.

AIG is currently trying to raise capital to repay the loan. We do not know if AIG will grow enough and sell sufficient assets to repay the entire sum.


International organizations including the IEA [International Energy Agency] state that the world’s oil demand will rise to new highs in the summer 2010. In our opinion, demand for oil continues to be strong and will rise for the next few years. This is due to China, India, and many other countries’ increased demand for oil which is used for industrial and transportation purposes. U.S. and international energy shares have been a major part of our portfolios for years and we expect a continuation of this current trend.


Oil prices have risen, so have base metal and gold prices; all of which are beneficial for Russia. There are many reasons to be bullish on Russia, which may enjoy a very fast growth rate in 2010. That being said, in our opinion, there are more significant reasons to avoid Russia.

We can not ignore the dictatorship which has occurred under the leadership of Mr. Putin. In our opinion, it is dangerous to the financial health of the investors who may at any time be perceived as having goals in conflict with the goals of the power elite, and their business cronies. There are many documented cases where these parties have demonstrated that they can and will take the assets of others.

We prefer to prefer to invest in commodities, gold, and energy through other means.


We are enjoying the current market rally and we hold positions in the thematic areas mentioned in the first paragraph of our letter. We see the current juncture as being a period of low interest rates with rapidly growing corporate profits for the next several calendar quarters. In our opinion, this rally should continue until one or more of three events take place.

1. Stocks become over-valued. Based upon our historical analysis, stocks are currently fairly valued to under-valued.

2. Corporate profits begin to falter. In many of the industries we follow, this is not expected for at least a year.

3. Short term interest rates rise above the inflation rate. Raising interest rates while unemployment is high is an event which we do not think the politically sensitive Federal Reserve will have the nerve to implement.

Thanks for listening

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