From: [email protected] To: Undisclosed recipients:; Subject: Eye on the Market, June 14, 2011 Sent: 6/14/2011 11:54:12 AM Attachments: 06-14-11 - EOTM - The Stratford Inn.pdf Eye on the Market, June 14, 2011 (attached PDF is easier to read) Market update: for better or worse, this is the kind of year we were expecting. We were surprised at the market’s unbridled optimism in April*, since the tug-of-war between private sector profits and public sector problems has a long way to go. We chose the charts on the front page of our 2011 Outlook carefully; they were designed to show that equity markets were priced inexpensively, but were likely to stay that way, given too much stimulus in the East, and ineffective stimulus in the West **. We expect a modest second half recovery, based primarily on US capital spending increases, easy credit conditions everywhere, and a pick-up in industrial production in Japan. But the world’s structural problems are weighing on the private sector, and our portfolios are positioned for a single-digit year in credit, equities and hedge funds. * The Osama Bin Laden episode marked the equity market peak. Some commentators saw this event as a basis for further optimism, but unsurprisingly, the positive glow lasted for only around 2.5 hours the subsequent Monday. According to the Congressional Research Service, over the last decade, the US has spent at least $1.1 trillion in war funding operations, surpassing the constant-dollar cost of the Korean and Vietnam Wars combined. This highlights the disproportionately large pain that small, non-sovereign entities can inflict in the modern era. ** So far, the large growth and employment multipliers from deficit spending estimated by Christina Romer (former Chair of the President’s Council of Economic Advisers) have not materialized. John Taylor and John Cogan from Stanford have been closer to the mark: an initial boost, but then a rapidly fading benefit Something different