Second Quarter 2011 Performance Report Cover Letter

Dear Investor:

Changing of sentiment might be the theme of the last ninety days from an investment standpoint. Early in the quarter it was business as usual for the capital markets as participants pushed index levels to their highs for the year (so far) in early May.

Unfortunately May proved to be the sentiment changer, as high oil prices, Japanese productivity losses (delayed reaction), failing economic numbers, and finally our old friend from about his time last year, Greece, turned the sentiment arrows from up, to down.

Interestingly we had a last minute positive dash to the finish line as we neared the end of the quarter. We account much of the movement to be window dressing (big managers pushing markets around near the end of the quarter) and some realization that many may have become too pessimistic.

No matter the reasons, indexes turned from near double digit positives for the year in early May, all the way back to flat, and even negative in some cases, with just a few days left in the quarter, which then ushered in our afore mentioned dash to the finish line. Bottom line, we had a very flat
sideways quarter. This from our Q1 Performance Cover letter

“We are sticking to our thoughts of this year being a good, but not great year. If our expectations are met, we would expect our next quarterly cover letter to be of a more conservative sideways update.”

We continue to stick to our “good, but not great” year thesis but have the following items that are particularly interesting to us occurring soon.

  • With Quantitative Easing Part 2 finished, we look forward to capital markets regaining control of interest rates.
  • Election campaigning season kicks off in full force soon, bringing possible changes and promises, which are very interesting to decipher.
  • Public Corporations have been extremely profitable as of late and we look forward to their continued progress and reports (90 day treadmill.)

Have a Great Summer!

John Kvale

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