It has certainly been an eventful first half of 2010. Looking at our holdings, there is considerable evidence of an improving operating environment, with earnings recovering and balance sheets becoming even more solid. Having said that, the past six months, and especially the past quarter, has been a period in which stock markets overall have felt a very large impact from broad macro-economic and country-specific risk, and other external factors.
We touched on the Greek debt problem in our last letter, and of course this has continued to be a dominant theme. From politicians and pundits to central bankers and investors, everybody has been grappling with the potential implications: would Greece’s European Union partners be willing and able to bail Greece out? Does a similar fate await other countries? Can the Euro ultimately survive in its current form? These uncertainties have, of course, put tremendous pressure on both the Euro currency and European assets in general, and it is no surprise that, so far in 2010, European stock markets have notably underperformed other major regions – although, as we discuss later in this letter, our European holdings have remained robust.