Just like in 1998 when Asian markets and currencies collapsed, Europe might be the next best investment once the Euro falls – if it doesn’t drag on in such a way that it destroys the social structure of Europe. There is, in our opinion, another investment idea that might be more potent. This idea is to short long-term – 10-20 year – Treasuries. Treasuries will appreciate if interest rates rise, thus causing bond prices to fall. We believe this idea will work regardless of who is elected President in November; however, the timing of this investment is crucial.

If Romney is elected President, we believe business spending will increase because of perceived certainty in policy. The Federal Reserve has printed a lot of money over the past few years with very little impact on inflation. This is because people and businesses are hoarding cash like they did in the 1930’s. This in turn has caused the velocity of money – how fast money moves through the economy – to fall. If people and businesses stop hoarding cash causing money velocity to get back to normal, the risk of inflation and an overheated economy increase. In this scenario, the Federal Reserve will be forced to raise interest rates to cool down the economy.

If Obama is reelected in November, we believe interest rates will increase due to no budgetary discipline. For the past 12 years, there has been a lack of leadership in controlling government spending. We have consistently berated both administrations during this time on this point. If we don’t start to get serious about our borrowing, interest rates will have nowhere to go but up – as they have in Spain, Portugal, Italy and Greece – because investors will demand a higher rate of return for the risk they will be taking.

The timing of this investment is important. One of the reasons US interest rates have fallen is because of buying from central banks, businesses and individuals in Europe. We have heard from some European central bankers and our international fund managers that this has been occurring for the past 6 months. Europeans are trying to protect themselves from a possible collapse of the Euro. A better time to make this trade is when the Euro crisis comes to a head and the additional fear drives Europeans to purchase more US Treasuries than they presently are.

Sincerely,

Your THOR Team