January 21st at 11.00 am
 

        Day 1 of the new Obama presidency:
 
        Last year was, as you know, an extraordinary year and the worst year in the markets since 1931 in this country and, in some countries, the worst year ever.  We finished the year down 5.1%. What has been obscured by all of the excitement is that the market has quietly declined an additional 10% in the first three weeks of 2009.
 
        I had hoped that we would have some relief from the ongoing chaos, but the financial sector is, once again, suffering significant stress and the entire World banking system is decidedly fragile. It now looks probable that many of the World's major banks face the very real possibility of de facto nationalization in the coming months. I cannot emphasize enough that these are, indeed, precarious times.

        The only wise thing to do in these circumstances is to do exactly what we are doing- buying superb, financially secure and dominant corporations, defensive positions in precious metals and a huge position in short-term Treasury bills. My current thoughts are:
 

a. We can expect more banking troubles and they will probably be serious.

b. It seems inevitable that we will, at least initially, experience deflation (i.e. prices will decline).

c. The Commercial real estate debacle will be a big story in 2009 with damage to many of the previously unscathed banks.

d. The news from the economy will range between bad and downright awful.

e. The last remaining bubble (longer term Treasury securities) will exist until it doesn't. When this bubble bursts, I suspect we will experience some serious inflation and scary inflation expectations.

f. This will be a worldwide phenomenon.

g. I have considerably more faith in the survivability of large and well-financed multinational corporations than I do in many national and state governments. I am quite pessimistic about the prospects for the U.K., Spain, Ireland and many of the new republics in Eastern Europe.

h. The debacle in the pension sector will also be significant in 2009. States will, of necessity, experience significant financial overhauls.

i. Much of what will happen in 2009 is unknowable at this juncture so the appropriate response is to maintain a flexible (with great emphasis on the flexible) and conservative portfolio. It is certainly not a time to be aggressive and to make bold bets and nor is it a time for the "mattress" approach to investment.

             
        We are always risk averse and nothing has changed in our approach in the last 12 months. We are value investors and we seek value wherever it occurs and in whatever form. We expect to be very active in the coming year as we work to protect your assets.
 
        We will continue to work diligently on your behalf. Please write or call with any questions.