But Unlikely to Derail Global Economic Recovery

Recent tragedies in Japan compound an already difficult economic situation for Japanese citizens. As the world mourns the loss of so many lives caused by these natural disasters, one can begin to grasp the impact that these events will have on the Japanese economy…none of which are positive in the short to medium term.

For over 10 years, the Japanese economy has been suffering from little or no growth. The central bank has reduced interest rates to almost zero for much of the last decade with little effect on strengthening the economy.

Moreover, the population has been unable to gain enough confidence to “spend” their way to a better economic situation. Basically, the country’s economy has been stagnate and its citizens have suffered.

Recent events make a bad situation worse. The devastation of lives and property is only rivaled by the potentially lethal nuclear radiation leaks that as of yet cannot be quantified. These events have a negative effect on consumer and corporate confidence in Japan which has - and we believe will continue to - effect negatively on stock prices in the region.

You may have noticed that we have already reduced any Japanese companies and/or non- Japanese companies that do significant business in the region. Ultimately, we believe that having no investment exposure to Japan is prudent and we will be working towards completing that goal over the next week or so as we try to get the best prices possible for our shares. Fortunately, given our overall outlook, we were not significantly invested in the country aside from a handful of great export companies like Canon or Honda Motors, both of which we believe will continue to be negatively effected by these tragic events. We are fortunate to manage individual securities which allow us to specifically carve out certain sectors, industries or countries as opposed to stock mutual or exchange traded funds (ETFs) which typically own a broad array of stock, many of which do significant business in Japan or happen to be Japanese companies.

Assuming that the events in Japan do not escalate significantly, the global economic recovery, “ex-Japan”, should remain intact. Corporate profit growth remains strong and global equity markets are reasonably priced. The recent decline of global stock markets should be viewed as nothing more than an overdue, healthy correction in share prices. We will be watching these events closely. If the situation in Japan or the Mid East for that matter, escalates further we are prepared to further reduce stock exposure.

To assist the citizens of Japan, our firm has made a generous contribution to the American Red Cross (american.redcross.org), who is actively involved in helping in the area. We encourage you to consider a donation. You can also text 'REDCROSS' to 90999 to automatically donate $10 to this cause -- this will automatically be charged to your cell phone bill.

We hope this note finds you well. If you have any questions, please feel free to contact us at your earliest convenience.

Sincerely,

James E. Demmert
Managing Partner