February 25, 2021

End 2010 Report

We all know that in financial Investments : “The rear view window is much clearer than the front view” and

“Hindsight is always 20/20 (perfect)”

Moreover, we would like to state emphatically that :

“Strategy (not Tactics) will determine long- lasting success”, and

“Investments should be approached with the planning involved in a marathon race and not as sprint event”. Year 2010 ended on a very positive note. December provided an excellent Santa Claus rally of about 8%. Since the July lows the US market appreciated by about 28 %. Moreover, since the March 2009 lows the recovery in the US indices has now surpassed 85%. Patient strategic investors were happy to enjoy the spectacular rallies!

At the start of year 2011, Emerging Markets continue as the world’s engine of growth and the US consumer has again assumed a leadership role in aggregate demand. Europe is fighting its most serious existential crisis. Major problems are rippling the old continent : the level of sovereign debts, possible failures and debt haircuts, the needed creation of a major supranational fund (EFSF) and special funds for national bailouts, the possibility of fiscal federalism, the survival of the euro and the issues of ultimate cohesion of the EU. These problems are formidable and a potential source of major disturbances. They should be seriously considered in the allocation process and in the investment strategies.

On previous reports we have dealt among other issues with the following major topics :

a) The possible end of the free market system and the need for governments in extreme situations to engage in Stabilizing intervention.

b) The creative and dynamic aspect of business reflected in the higher long-term returns of the stock markets over fixed Income returns reserved for lenders.

c) The relative valuations of various asset classes at different points in time. Our last presentation was in the September 2010 bullish report.

Regarding the above mentioned topics, we are happy to acknowledge:

a) The stabilization rather than the destruction of the capitalistic system ( even the TARP program proved profitable for taxpayers).

b) The extremely strong stock market recovery (as forecasted in the end 2008 Report of the regression of stock market returns to their mean).

c) The continuing rally following our September report on relative valuations.

Historically, we enjoy the higher relative performance of the of NR & Cie SA all Equity Model Portfolio over the indices by a wide margin for a period of twelve years. In an attempt to self evaluate our efforts we can identify some positive and negative periods,

On the one hand, we have to accept that we did not predict the 2008 catastrophe due to the real estate collapse, excessive leveraging and the tremendous policy mistakes .The latter have to include government sponsored financing of real estate (Fannie Mae ,Freddie Mac etc), lack of regulations, a protracted period of low interest rates, the Lehman bankruptcy and the initial political rejection of TARP. During this period the western financial system almost collapsed and markets moved away from the widest trading range. The professional pessimists that monopolized the media had finally their day under the sun but paid their dues during the spectacular recovery by remaining stubbornly short.

On the other hand, we remain proud of being able to predict and protect ourselves during the years following the 1999-