1. 2010
April
Risks & Opportunities
Duncan
Morton
III,
CFA
The
following
document
is
a
compendium
of
quotes
from
last
month
from
individuals
or
institutions
whom,
we
believe,
are
providing
the
proper
perspective
on
current
global,
economic,
and
fiscal
matters.
At
the
bottom
of
each
section,
Risks
and
Opportunities,
SummitVIEW
will
offer
our
interpretation
of
the
quotes
or
our
perspective
on
the
themes
of
the
quotes.
Disclaimer:
All
material
presented
herein
is
believed
to
be
reliable
but
we
cannot
attest
to
its
accuracy.
Neither
the
information
nor
any
opinion
expressed
constitutes
a
solicitation
by
us
for
the
purchase
or
sale
of
any
securities.
Please
do
not
forward

2. SummitVIEW
9
Risks
&
Opportunities
SummitVIEW:
What
explains
the
human
condition
to
ignore
changing
forces
until
one
is
forced
to
respond
to
those
changing
forces?
Those
who
profess
to
be
forward
thinkers
by
nature
of
their
job
title
(investment
strategist)
or
vocation
(economist)
that
continue
to
rely
on
near
sighted
analysis
of
the
current
economic
conditions
are
many.
For
an
investor,
objective
thinking
requires
removal
of
emotion
and
individual
expectation
so
that
cogent
analysis
of
current
conditions
can
occur.
Our
country
is
run
primarily
by
baby
boomers
and
their
progenitors.
Regarding
the
decisions
the
country
needs
to
make
on
healthcare
and
government
entitlements
such
as
retirement
benefits
and
Medicare,
how
are
the
"leaders"
of
our
country
going
to
make
the
right
decisions
for
the
country's
future
when
the
baby
boomers
and
their
elders
believe
their
retirement
includes
access
to
the
very
services
that
need
reformation?
With
Congress
unwilling
to
make
few
(adjusted
from
'any'
as
Obamacare
recently
came
to
fruition)
decisions
on
the
aforementioned
social
and
economic
issues
to
ensure
a
future
sustained
by
increasing
productivity
and
economic
growth,
how
does
an
investor
position
assets
for
what
will
be
a
tough
transition
to
a
new
economic
and
social
regime?
One
does
not
have
to
think
too
long
to
begin
to
develop
theories
as
to
the
"what"
to
solve
the
countries
structural
deficiencies.
What
if
we
became
an
export
country?
Due
to
the
high
debt
levels
in
the
public
and
private
sectors
the
US
dollar
is
weak
and
expectantly,
over
the
long
term,
should
continue
to
weaken.
Like
Japan,
couldn’t
the
country
start
to
export
goods
to
other
countries
that
are
growing,
those
countries
where
development
of
a
middle
class
is
only
beginning?
What
about
easing
immigration
restrictions
so
skilled
labor
can
emigrate
to
the
US
to
stimulate
the
development
of
export
companies?
The
newly
formed
companies
could
sell
goods
to
the
founders'
home
lands,
in
turn
increasing
employment,
and
ultimately
raising
productivity
levels.
Since
housing
was
the
recipient
of
billions
of
US
dollars
over
the
last
10
years,
aren't
there
a
lot
of
vacant
homes,
whether
multi-­‐family
or
single
family,
waiting
to
be
filled
by
productive
individuals?
(Thomas
Friedman
makes
this
same
appeal
in
his
New
York
Times
column
from March 21, 2010.)
What
if
tax
laws
governing
the
transfer
of
wealth
from
one
generation
to
the
next
were
structured
to
incent
employee
ownership?
Would
our
country
benefit
from
an
increase
in
productivity
and
a
reduction
of
long
term
government
entitlement
programs
if
company
owners
were
incentivized
to
sell
their
companies'
shares
to
their
employees?
Would
employees
who
are
company
owners
work
more
productively,
thereby
mitigating
the
increasing
demands
on
the
country's
resources
by
an
aging,
entitled
population?
Please do not forward

3. SummitVIEW
10
Risks
&
Opportunities
Certainly,
company
owners
would
welcome
a
means
to
build
succession
plans
with
tax
advantages,
and
employees
would
welcome
an
opportunity
to
fund
personal
retirement
plans
with
shares
of
the
company
funding
their
livelihoods.
Tax
deferral
options
for
closely-­‐held
security
sales
exist
currently
in
the
form
of
employee
stock
ownership
plans
(ESOP's).
However,
restrictions
on
reinvestment
for
sellers
prevent
more
from
utilizing
ESOP's
as
an
option
for
succession
and
asset
diversification
planning.
How
does
the
country
go
about
solving
our
fundamental,
structural
deficiencies?
It
is
an
important
question
to
ask.
Considering
the
age
of
those
running
our
country,
whether
political
or
business
leaders,
is
immigration
reform
possible?
Are
the
leaders
of
our
country
subject
to
jingoistic
views
that
cloud
their
willingness
to
address
our
social
realities?
With
an
aging
population,
a
labor
force
that
supports
more
and
more
non-­‐
workers,
and
government
bureaucracy
that
continues
to
burgeon,
what
measures
are
being
taken
to
address,
fundamentally,
the
long
term
structural
reforms
that
are
required?
With
healthcare's
emphasis
on
longevity
will
the
country's
structural
problems
perpetuate
longer?
Can
those
who
expect
to
reap
the
"benefits"
to
which
they
believe
they
are
entitled
make
choices
that
benefit
their
successors
more
than
themselves?
The
debate
about
healthcare
lacked
essential
economic
discussion.
The
debate
centered
on
the
right
of
individuals
to
healthcare.
What
was
lacking
in
the
debate
was
how
the
country
meets
increased
demand
on
the
healthcare
system
without
driving
up
all
costs.
From
an
economists
perspective,
the
debate
lacks
a
discussion
on
supply.
Without
a
commensurate
increase
in
supply
of
healthcare
practitioners,
the
cost
of
healthcare
likely
increases.
Perhaps
so
called
'preventive
modalities'
offer
some
relief
for
the
increased
demand.
Legislators
could
force
insurance
companies
to
cover
preventive
modalities.
The
immediate
effect
would
be
an
increase
in
the
supply
of
practitioners.
Where
was
that
discussion?
The
willingness
of
the
many
to
ignore
history
boggles
the
mind.
If
one
knew
nothing
of
history,
assuming
a
quick
return
1)
to
full
employment,
2)
to
high
consumer
spending,
3)
to
increased
demand
for
housing,
and
4)
to
continued
United
States
global
hegemony
would
appear
logical
if
not
inevitable.
Not
surprisingly,
humanity
as
a
culture,
as
a
collective
body,
has
a
history
of
exceeding
the
economic
boundaries
of
its
time.
In
the
development
of
western
civilization,
there
is
more
than
one
example
of
hegemonic
domination
and
collapse.
In
each
of
the
historical
examples,
be
it
the
Romans
or
the
British
most
recently,
the
expansion
of
credit
to
an
economically
infeasible
level
played
a
part
in
the
culture's
hegemonic
collapse.
For
the
United
States
its
moment
in
time
to
deal
with
an
economically
infeasible
level
of
debt
has
arrived.
How
the
country
decides
to
handle
the
credit
contraction
will
fill
history,
economic,
and
finance
books
henceforth.
Please do not forward

4. SummitVIEW
11
Risks
&
Opportunities
Until
now,
the
credit
contraction
has
been
offset
by
an
increase
in
governmental
obligations.
Increasing
governmental
obligations
likely
prevented
a
major
collapse
in
the
socio-­‐economic
framework
that
defined
the
recent
past.
As
a
result
of
the
Federal
government's
fiscal
policy
and
the
Federal
Reserve
Bank's
monetary
activity,
the
labor
force
experienced
a
contraction
of
only
6
percentage
points,
approximately,
on
an
absolute
basis
and
a
150
percent
contraction
in
percentage
terms.
Credit
contractions
occur
over
many
years
not
many
months.
Many
have
views
that
the
US
will
recover
from
its
credit
bubble
in
due
course
and
return
to
the
normal
we
all
remember.
As
cycles
in
history
take
many
years
to
unfold,
acceptance
of
a
new
reality
is
not
easily
achieved.
Human
nature
tends
to
glorify
the
past
("the
good
ol'
days")
while
ignoring
current
events
that
will
be
upon
reflection
viewed
as
seminal
turning
points.
What
is
the
probability
of
our
returning
to
the
normal
of
the
last
twenty
years?
The
answer
to
the
question
certainly
rests
in
the
timeline
one
is
willing
to
wait
for
the
prior
normal
to
return.
Achieving
investment
outperformance
requires
an
ability
to
remove
oneself
from
the
day
to
day
flow
of
news
to
establish
perspective,
enabling
objective
thinking.
SummitVIEW
finds
few
voices
in
the
media
mainstream
that
speak
to
the
structural
deficiencies
prevalent
in
the
US
economy.
Most
voices,
or
talking
heads
in
a
pejorative
sense,
see
only
what
they
want
to
see,
the
cyclical
fantasy,
while
ignoring
underlying
structural
stresses.
For
example,
how
many
are
discussing
the
manipulation
of
accounting
standards
occurring
in
banks
that
hold
debt
collateralized
by
commercial
real
estate?
Since
Fannie
Mae
and
Freddie
Mac
are
the
buyers
of
last
resort
in
the
residential
mortgage
industry,
one
has
to
look
no
further
than
these
institutions'
balance
sheets
to
find
where
generally
accepted
accounting
standards
(GAAP)
have
been
loosened.
For
the
loans
on
commercial
real
estate
properties,
one
has
to
look
to
the
regional
banks
(see
quote
on
page
5
by
Elizabeth
Warren).
Another
reason
banks
are
not
lending
money
(besides
consumers
not
seeking
new
loans)
is
to
prevent
an
immediate
markdown
and
potential
collapse
of
the
banks'
equity
once
loan
values
are
reflected
accurately
on
their
books.
Cash
on
hand,
thanks
to
the
Troubled
Asset
Relief
Program
(TARP),
cushions
the
potential
equity
valuation
adjustment.
Which
brings
me
back
to
a
Muppet
like
conversation
referenced
in
the
February
SummitVIEW
(then
known
as
Headlines),
which
captures
the
spirit
of
the
Capitol
Hill
debate
on
how
to
handle
the
country's
structural
deficiencies
:
Patient:
Doctor,
Doctor,
it
hurts
when
I
do
this.
Doctor:
Well,
then
don't
do
it.
Next
month
SummitVIEW
will
lay
the
framework
for
the
US
based
investor
to
begin
to
develop
asset
allocation
strategies,
based
on
his
or
her
risk
tolerances
and
future
liabilities,
with
a
view
towards
systematic
and
sovereign
risks
and
future,
global
growth.
Please do not forward

5. SummitVIEW
2
Risks
&
Opportunities
Risks: Systematic
Market Musings & Data Deciphering
In
one
month,
the
U.S.
government
turned
in
a
deficit
that
in
other
times
in
the
not-­‐too-­‐distant
past,
was
what
was
incurred
in
a
full
year
(1990,
1991,
1992,
1993,
2002,
2003,
2004,
2005
all
come
to
mind).
The
fiscal
year
is
a
mere
five
months’
old
and
already
we
have
seen
Washington
rack
up
$652
billion
of
red
ink.
The
chamber
voted
62-­‐36
for
the
legislation,
which
would
also
extend
dozens
of
expiring
tax
cuts,
ease
corporate-­‐pension
requirements
and
heads
off
cuts
in
Medicare
reimbursements
to
doctors.
It
begs
the
question,
if
things
are
so
great,
why
the
need
for
this
additional
stimulus?
Oh
yes,
and
in
a
green
shoot
of
epic
proportions,
the
media
today
is
treating
the
news
that
there
were
“only”
30
States
with
rising
unemployment
in
January
as
a
really
good
thing
because
it
was
down
from
43
the
month
before
(never
mind
that
five
states,
including
some
biggies
like
Florida
and
California,
reported
new
highs
for
their
jobless
rates);
and
that
home
foreclosures
(as
per
RealtyTrac)
were
“just”
6%
above
year-­‐ago
levels,
which
was
the
slowest
pace
in
four
years.
(You
know,
you
can
reach
a
level
of
obesity
where
the
percent
increase
in
your
weight
from
a
year
ago
can
go
down
rather
dramatically
while
at
the
same
time
your
health
continues
to
deteriorate.)
David
A.
Rosenberg,
Chief
Economist
&
Strategist,
Gluskin-Sheff,
March
11,
2010
How to Handle the Sovereign Debt Explosion
We
should
expect
(rather
than
be
surprised
by)
damaging
recognition
lags
in
both
the
public
and
private
sectors.
Playbooks
are
not
readily
available
when
it
comes
to
new
systemic
themes.
This
leads
many
to
revert
to
backward-­‐looking
analytical
models,
the
thrust
of
which
is
essentially
to
assume
away
the
relevance
of
the
new
systemic
phenomena.
There
is
a
further
complication.
Timely
recognition
is
necessary
but
not
sufficient.
It
must
be
followed
by
the
correct
response.
Here,
history
suggests
that
it
is
not
easy
for
companies
and
governments
to
overcome
the
tyranny
of
backward-­‐looking
internal
commitments.
Where
does
all
this
leave
us?
Our
sense
is
that
the
importance
of
the
shock
to
public
finances
in
advanced
economies
is
not
yet
sufficiently
appreciated
and
understood.
Yet,
with
time,
it
will
prove
to
be
highly
consequential.
The
sooner
this
is
recognized,
the
greater
the
probability
of
being
able
to
stay
ahead
of
the
disruptions
rather
than
be
hurt
by
them.
Entire
article
found
here.
It's
worth
a
read
-­‐
Mohammed
El-­‐Erian,
CEO
and
Co-­‐CIO,
PIMCO
Please do not forward

6. SummitVIEW
3
Risks
&
Opportunities
The Defining Moment of the Year Coming Up...
...A Peak in Leading Economic Indicators!
At
the
heart
of
the
double-­‐dip
recession
vs.
sustainable
recovery
debate
is
the
consumer
and
whether
or
not
job
growth
will
come
back
strongly
enough
to
offset
consumer
deleveraging
in
the
years
ahead.
At
this
point
in
the
recovery
we
should
expect
to
see
the
yield
curve
begin
to
decline
as
short-­‐rates
rise.
We
do
not
suspect
this
will
happen
given
the
strong
disinflationary
trend
from
core,
and
the
Fed’s
outright
statement
to
keep
rates
low.
What
is
more
likely
is
to
occur
is
a
flatter
yield
curve
on
the
back
of
lower
long-­‐rates,
which
is
a
recipe
for
a
weak,
not
strong
equity
market
(&
and
economy
in
2011).
Francois
Trahan,
Wolfe Trahan & Co.,
March
19,
2010
Primary Trends
The
primary
trend
towards
consumer
frugality,
liquidity
preference
and
deflation
has
not
vanished
just
because
of
the
impressive
bear
market
rally
in
risk
assets
that
has
occurred
over
the
course
of
the
past
year.
Japan
lost
its
AAA
rating
in
February
2001
and
over
the
next
three
years,
the
10-­‐
year
JGB
yield
still
ended
up
declining
almost
100bps
to
the
lows
two
years
later
and
the
yield
is
still
lower
today
than
it
was
at
the
time
of
the
downgrade.
Just
goes
to
show
that
not
even
the
rating
agencies
or
the
fiscal
largesse
is
a
match
for
sustained
below-­‐trend
economic
growth
in
a
post-­‐credit-­‐bubble-­‐collapse
economy
and
all
of
the
lingering
deflation
pressure
that
comes
with
it.
David
Rosenberg,
Gluskin-Sheff,
March
17,
2010
Another Leg Down
We
are
not
the
only
ones
who
see
the
prospect
of
another
leg
down
in
home
prices.
The
banks
seem
to
have
given
up
any
hope
that
we
would
see
a
rebound
at
any
time
on
the
horizon,
which
explains
for
example
why
it
is
that
BoA
is
now
more
fully
engaged
in
principal
write
downs
and
expect
to
see
other
lenders
follow
suit.
It
is
the
right
thing
to
do.
It
will
speed
up
the
process
of
price
discovery
at
the
expense
of
revealing
just
how
much
more
downward
price
pressure
there
is
going
to
be
in
the
market
for
residential
real
estate.
Never
before
have
new
home
sales
gone
on
to
make
a
new
cycle
low
after
a
recession
ends
—
until
now.
In
fact,
in
practically
every
other
cycle,
housing
is
the
first
sector
to
bottom
and
lead
the
economy
out
of
the
downturn.
Please do not forward

7. SummitVIEW
4
Risks
&
Opportunities
That
said,
without
the
traditional
credit-­‐sensitive
sectors
leading
the
economy
into
the
upturn,
as
has
traditionally
been
the
case,
then
it
is
hard
to
believe
we
are
going
to
see
a
sustainable
recovery.
Already
we
are
seeing
capital
spending
slowdown
as
companies
opt
for
cash
and
liquidity
as
opposed
to
new
investments
and
the
export
story
is
going
to
grow
old
very
soon
with
Europe
moving
back
into
recession
and
equity
markets
in
Asia
pointing
to
a
moderation
in
growth
there
as
well.
Not
to
mention
what
the
stronger
U.S.
dollar
is
going
to
do
in
terms
of
a
competitive
roadblock
for
U.S.
producers.
David
Rosenberg,
Gluskin-Sheff,
March
25,
2010
What Does Greece Mean to You? (in letter addressed to his kids)
It's
all
connected.
We
built
a
very
unstable
sand
pile
and
it
came
crashing
down
and
now
we
have
to
dig
out
from
the
problem.
And
the
problem
was
too
much
debt.
It
will
take
years,
as
banks
write
off
home
loans
and
commercial
real
estate
and
more,
and
we
get
down
to
a
more
reasonable
level
of
debt
as
a
country
and
as
a
world.
And
here's
where
I
have
to
deliver
the
bad
news.
It
seems
we
did
not
learn
the
lessons
of
this
crisis
very
well.
First,
we
have
not
fixed
the
problems
that
made
the
crisis
so
severe.
We
have
not
regulated
credit
default
swaps,
for
instance.
And
European
banks
are
still
highly
leveraged.
Why
is
Greece
important?
Because
so
much
of
their
debt
is
on
the
books
of
European
banks.
Hundreds
of
billions
of
dollars
worth.
And
just
a
few
years
ago
this
seemed
like
a
good
thing.
The
rating
agencies
made
Greek
debt
AAA,
and
banks
could
use
massive
leverage
(almost
40
times
in
some
European
banks)
and
buy
these
bonds
and
make
good
money
in
the
process.
(Don't
ask
Dad
why
people
still
trust
rating
agencies.
Some
things
just
can't
be
explained.)
John Mauldin,
Millennium
Wave
Advisors,
March
26,
2010
Warren Issues Warning on Commercial
Mortgages
Elizabeth
Warren,
head
of
the
Congressional
Oversight
Panel
for
the
Troubled
Asset
Relief
Program,
said
that
by
the
end
of
the
year,
about
half
of
commercial-­‐property
mortgages
in
the
U.S.
will
be
underwater.
"They
are
[mostly]
concentrated
in
the
midsized
banks,"
Warren
said.
"We
now
have
2,988
banks
-­‐-­‐
mostly
midsized
-­‐-­‐
that
have
these
dangerous
concentrations
in
commercial
real
estate
lending."
She
added
that
the
economy
likely
will
not
return
to
normal
for
several
years
as
it
strives
to
resolve
this
issue.
CNBC,
March
29,
2010
Please do not forward

8. SummitVIEW
5
Risks
&
Opportunities
U.S. adds $600 million to foreclosure-crisis fund
A
special
fund
that
helps
U.S.
states
prevent
residential
foreclosures
will
get
an
extra
$600
million,
the
Obama
administration
said.
The
funding
will
go
to
North
Carolina,
South
Carolina,
Ohio,
Oregon
and
Rhode
Island.
The
money
is
on
top
of
$1.5
billion
previously
allocated
to
California,
Nevada,
Arizona,
Michigan
and
Florida.
The
Washington
Post,
March
30,
2010
China warned of growing "land loan" threat
The
Guanyinxia
forest
stretches
up
to
the
mountains
north-­‐west
of
the
big
central
Chinese
city
of
Chongqing.
Most
is
protected
land.
“Our
purpose
is
mainly
preservation
–
not
to
make
money,”
says
Liu
Siyang,
Communist
party
secretary
of
the
government
bureau
that
manages
the
forest.
Yet
the
same
forest
has
a
double
life
in
the
commercial
world.
It
has
been
used
as
collateral
by
a
company
controlled
by
the
local
government
forestry
bureau
to
help
secure
a
Rmb300m
loan
it
took
out
last
year
from
a
state-­‐owned
bank,
which
was
then
spent
on
infrastructure
projects
in
Chongqing.
Finally,
the
local
governments
can
make
up
for
losses
at
their
investment
companies
by
selling
land.
Yet,
as
the
Guanyinxia
forest
indicates,
not
all
of
the
land
used
as
collateral
is
commercially
viable.
And
the
volumes
could
become
huge.
Stephen
Green,
an
economist
at
Standard
Chartered
in
Shanghai,
estimates
that
the
collateral
used
to
back
loans
issued
to
these
investment
companies
is
equivalent
to
three
times
all
the
land
sold
over
the
past
five
years.
“It
is
hard
to
see
how
this
game
can
continue
without
an
unhappy
ending,”
says
Mr.
Green.
“If
land
values
fall
or
the
market
stagnates
.
.
.
this
game
can
never
be
brought
to
a
successful
close.”
Geoff
Dyer
in
Chongqing,
China,
Financial
Times,
March
28,
2010
Art
Cashin
of
UBS
summarized
the
above
best
by
saying,
"Kind
of
like
borrowing
against
Yosemite
or
Mount
Rushmore."
Please do not forward

9. SummitVIEW
6
Risks
&
Opportunities
Opportunities: New Normal Investments
U.S. Apparel Retailers Map an Expansion to the
North
The
border
crossings
underline
a
wider
dilemma
facing
CEOs
in
many
industries.
Many
feel
the
economy
is
still
too
fragile
to
take
big
ambitious
risks,
but
they
still
need
to
restart
growth.
Canada
offers
a
baby
step:
a
way
to
expand
internationally,
but
in
a
market
that's
closer
and
more
familiar
than
Europe
or
Asia.
The
Wall
Street
Journal,
March
29,
2010
Yield!
The
complex,
multi-­‐layer
system
of
government
in
America
is
slowly
shifting
from
extreme
“free
spending”
to
austerity.
And
American
households
are
in
the
early
in
the
process
of
“right
sizing”
their
debt
levels
to
their
modestly
growing
income
streams.
We
believe
these
fundamental
shifts
in
government
and
household
behavior
will
dampen
economic
growth,
and
constrain
private
fixed
capital
formation
in
the
United
States.
We
expect
US
corporations
will
increasingly
allocate
cash
flow
to
dividends
and
share
repurchases.
And
we
are
also
likely
to
see
elevated
M
&
A.
activity.
We
believe
a
high
–
perhaps
an
uncomfortably
high
–
percentage
of
future
total
returns
from
large
cap
US
equity
portfolios
will
come
from
current
yield
rather
than
price
appreciation.
(emphasis
added)
US
households
are
not
just
sitting
still
and
wringing
their
collective
hands
about
their
often
stressed
financial
situation.
They
have
slowly
changed
their
behavior
and
are
now
working
to
lower
their
debt
service
payments
by
chipping
away
at
the
amount
of
debt
outstanding.
But
it
is
a
very
slow
process.
Household
debt
peaked
at
$13.85
trillion
in
mid
2008,
and
was
down
to
$13.54
trillion
at
year-­‐end
2009.
This
translates
into
an
average
pay
down
of
roughly
$18
billion
per
month
over
the
past
18
months.
Americans
have
paid
down
debt
by
lowering
their
monthly
cash
outlays
to
96%
of
their
disposable
personal
income
–
this
“spend
rate”
is
even
with
that
of
1999
on
the
way
up
and
1947
on
the
way
down.
Our
guess
is
this
ratio
trends
“flat–to-­‐down”
for
the
foreseeable
future.
Douglas
Cliggott,
US
Equity
Strategist,
Credit
Suisse,
March
19,
2010
Please do not forward

10. SummitVIEW
7
Risks
&
Opportunities
Rocking-Horse Winner
Even
though
the
government’s
fist
has
been
successful
to
date
in
steadying
the
destabilizing
forces
of
a
delivering
private
market,
investors
are
now
questioning
the
staying
power
of
public
monetary
and
fiscal
policies.
2010
promises
to
be
the
year
of
choosing
“which
government”
can
most
successfully
substitute
the
governments’
fist
for
Adam
Smith’s
invisible
hand
and
for
how
long?
Can
individual
countries
escape
a
debt
crisis
by
creating
even
more
debt
and
riding
another
rocking
horse
winner?
Can
the
global
economy?
The
answer,
from
a
vigilante’s
viewpoint
is
“yes,”
but
a
conditional
“yes.”
There
are
many
conditions
and
they
vary
from
country
to
country,
but
basically
it
comes
down
to
these:
1. Can
a
country
issue
its
own
currency
and
is
it
acceptable
in
global
commerce?
2. Are
a
country’s
initial
conditions
(outstanding
debt,
structural
deficit,
growth
rate,
demographic
balance)
moderate
and
can
it
issue
future
public
debt
as
a
substitute
for
private
credit?
3. Can
a
country’s
central
bank
be
allowed
to
reflate
via
low
or
negative
real
interest
rates
without
creating
a
currency
crisis?
In
today’s
marketplace,
prudent
lending
must
be
directed
not
only
towards
sovereigns
that
can
escape
a
debt
trap,
but
ones
that
can
do
so
with
a
minimum
of
reflationary
consequences
and
currency
devaluation
–
whether
it
be
against
other
sovereigns
or
hard
assets
such
as
gold.
Investment
strategies
should
begin
to
reflect
this
preservation
of
capital
principal
by
positioning
bond
portfolios
on
front-­‐ends
of
selected
sovereign
yield
curves
subject
to
successful
reflation
(U.S.,
Brazil)
and
longer
ends
of
yield
curves
that
can
withstand
potential
debt
deflation
(Germany,
Core
Europe)
(emphasis
added).
(Editor's
note:
Gross
added
Canada
to
this
mix
in
a
follow-­‐up
to
this
piece
while
on
Bloomberg
Radio.)
William
Gross,
PIMCO
Co-­‐Chief
Investment
Officer,
Investment
Outlook,
April
2010
For Brazil, It's Finally Tomorrow
How the country of the future has at last made it—and what
remains to be done
For
the
past
century,
Brazil
has
been
a
land
of
great
potential—but
few
results.
With
runaway
inflation
and
stratospheric
national
debt,
the
country
was
too
much
of
a
mess
for
anyone
to
take
it
seriously
on
the
world
stage.
How
times
have
changed.
Consider
this:
In
the
face
of
the
worst
global
economic
crisis
since
the
Great
Depression,
Brazil's
economic
output
dipped
a
tiny
0.2%
last
year,
and
is
expected
to
grow
as
much
as
6%
this
year.
Please do not forward

11. SummitVIEW
8
Risks
&
Opportunities
Everyday
Brazilians
have
been
too
busy
buying
washing
machines,
cars
and
flat-­‐screen
televisions
to
even
notice
the
downturn.
Brazil
is
already
the
biggest
economy
in
Latin
America
and
the
10th-­‐biggest
in
the
world.
By
2050,
it
will
likely
move
into
fourth
place,
leapfrogging
countries
including
Germany,
Japan
and
the
U.K.,
according
to
a
study
by
Goldman
Sachs.
(The
entire
article
is
available
here.)
Paulo
Prada,
The
Wall
Street
Journal,
March
29,
2010
Please do not forward