The great classical economist D. Ricardo is regarded as the father of the Equivalence Principle: When the Government borrows in order to spend, the citizens will reduce private consumption since they can be certain that they will be taxed in the future. Therefore, we have an equivalent reduction in private spending, irrespective of whether government spending is financed by present taxation or issuance of bonds (future taxation). Consumers are either perfectly rational or care about the future generation.

As contemporary Greeks we presented our own version of the Equivalence Principle: We will consume today together with the Government and the equivalent payment will come from our children, grandchildren and European partners. Was it lack of rationality, lack of concern about the future generations or …something worse ? Unfortunately for the present generation, the long term party, where of course some had greater appetite than others, was abruptly interrupted by the markets.

Strategic and Tactical Allocation for 2011

We all know that in financial Investments : “The rear view window is much clearer than the front view” and

“Hindsight is always 20/20 (perfect)”

Moreover, we would like to state emphatically that :

"Strategy (not Tactics) will determine long- lasting success", and

"Investments should be approached with the planning involved in a marathon race and not as sprint event".

Year 2010 ended on a very positive note. December provided an excellent Santa Claus rally of about 8%. Since the July lows the US market appreciated by about 28 %. Moreover, since the March 2009 lows the recovery in the US indices has now surpassed 85%. Patient strategic investors were happy to enjoy the spectacular rallies!

September 2010 Report

"Park Avenue apartments belong to the optimists"

We would like to repeat our longer term view :

Valuations relative to bonds and cash are compelling.

Following the worst decade since the 1920's (all possible decades are included) we believe that the future of business is brighter and that equities will outperform alternative assets.

Our view about the financial system and the western world was emphatically presented in December 2008 in an environment of maximum pessimism. Indeed year 2009 proved to be one of the best in history. The courageous risk-takers took advantage. Year 2010 to-date has generated a correction amid concerns about the strength of the recovery and sovereign bond issues.

The early September recovery from the August correction underlines the conflicting views and the interesting crossroads ahead. Will a double dip recession or attractive stock valuations carry the day? The short term answer is not clear. Several other fears and dreams will intervene and financial assets will fluctuate.

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Strategic and Tactical Allocation for 2011