It is hard to believe that it was two years ago that Bear Stearns collapsed into the hands of JP Morgan. As many believed it to be unfathomable, we now look back at the event as a mere drop in the bucket. However, the lessons learned do not have to be carried that far into the future to be applied elsewhere- Greece.

To get a summary of the current Greek Debt fiasco, one only has to look as far as the neighborhood playground. Within a matter of minutes, the entire landscape can change from a picturesque scene of children getting along (i.e. the European Union), laughing and playing to perhaps the more familiar model of not wanting to share or being able to play nice (i.e. Greece being the fat kid in the corner). Current headlines continue to peg a bailout on the resources of the International Monetary Fund and Germany, the two most influential players. And although no one in the EU will say they want Greece to default, the rise in exports from a cheaper Euro doesn’t exactly make a case for a quick resolution.

Greece has a large amount of debt coming due in May and is finding it difficult to refinance. Greek banks are losing counterparties to trade with, just as Bear Stearns did in the months ahead of its demise. In addition the amount of outflows from Greek banks and the lack of interest in Greece’s most recent bond offering point to higher interest cost to place the bonds.

Although a Greek default wouldn’t have the same impact as Lehman Brothers did on our credit markets, it will not be without repercussions. Interest costs would rise on Euro denominated liabilities, making it harder for businesses with European exposure to grow. The spreads available to investors will get more attractive, particularly with well placed investments. Although we are not supportive of a Greek default, our feeling is a Greek bailout would allow proliferation of irresponsible risk taking, in the long run, among global investors. The only correct solution is for Greece to make some very tough decisions and solve the problems on their own. Let us hope they can do that before it’s too late.

Sincerely,

Your THOR Team

The argument about the true cost of the health care bill is not being fought in Congress or by the CBO. Instead, it is being fought in the US Treasury market. The Treasury market auction last week had long- term yields moving higher and was met with less enthusiasm than past months. The bond market’s reaction is telling us that investors – especially international investors – believe the true cost of the plan is higher than what we are being told. Investors are sending a signal to the government that they will not fund deficits forever. We hope Congress heeds this message and picks up on something the rest of America already knows – you can’t continue to spend like drunken sailors (no offense to drunken sailors intended).

The stock market has had a nice run the past seven to eight weeks as corporations have upped earnings estimates. This was reflected in higher stock prices. We are, however, seeing some short-term signs of an overbought market. If corporate earnings coming out over the next few weeks are not at the high end of expectations, we could see a short-term pull back. We believe any such pull back would be short-term, as long-term trends still look good. We continue to watch the direction of interest rates as they may impact the long-term trend. If they continue to creep higher, they will at some point compete with stocks for investor dollars. We believe we are not at that point yet, but are watching.

Many of you are concerned about inflation. We have addressed this topic in our newsletter that we are sending out today. If there is a topic that you would like to hear our thoughts on, please let us know.

Sincerely,

Your THOR Team