Four Pillars to the
Investment Process

I. Valuation

II. Monetary Policy

III. Sentiment

IV. Momentum

A great example of deteriorating credit conditions was in September of 2008. The Fed was pumping liquidity into the system at an extraordinary pace. Interest rates were collapsing and therefore General Electric went to the market and sold paper at a 10% yield, while treasuries were less than three percent. It is no coincidence that equities collapsed shortly thereafter. Our assessment of deteriorating credit conditions was one of the major factors that kept us out of the market and at times short the market in the fall of 2008.

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II. Monetary Policy:  The second pillar of our investment process is an assessment of monetary policy and credit conditions which is extremely important to our overall investment process. Every bear market in the last 100 years has been preceded by tightening monetary policy and deteriorating credit conditions. Negative credit conditions have historically been lethal to stock prices and therefore we are particularly mindful of monetary conditions. We assess monetary policy and its impact on the general level of interest rates.

We also review credit conditions in terms of evaluating and analyzing credit spreads and their directions.