An Extremely Frustrating Year Comes To An End
2011 will go down as one where macro events trumped many fundamentals and the bifurcation was probably the most extreme since I have managed money. Let us highlight some of our observations and frustrations.

Commodity Process Versus Underlying Equities

Once again, a disappointing month and an even worse quarter for capital markets, and particularly our funds, as macro events trumped any semblance of sanity. What was already a tough year, especially for mid to small cap, just got worse as our policy makers and politicians bumbled their way into ineptitude, starting with a budget impasse in the U.S. and to a Euro crisis by the end of September. As such, this correction has called into question the global economy and the bull market we have been experiencing since February 2009.

Not a great month or quarter, especially for risk securities and mid-to-small cap equities. This, despite the underlying commodities remaining reasonably firm. Macro events have weighed heavily on the risk trade.

A global economic slow down and European contagion are the latest concerns in the market. We can also add the debt ceiling impasse in the U.S. as well. Although something we must stay on top of, we think it may be somewhat overblown.

All things considered, the markets are taking a number of events in stride. Although we may see some further near-term weakness, we do not anticipate a substantive correction.

Review
A strong December capped off a solid 2010 for North American stocks. Despite all the negative prognostications, equities outperformed fixed-income markets for the year and will continue to do so as the global economies begin to recover. The signs point to better economic growth and low real interest rates in the medium term.

The best month since 1939 and it occurred in the most unlikely month of the year. Historically, the month of September exhibits more downs than up and, although most attribute October as the worst month, that is not true. In any case, the market finally broke out of its mid-cycle slowdown. This is not unusual, and economically, we may see some further weakness, but the markets seem to want to look beyond near-term data.