In the light of the above, Profile envisaged solutions for those problems and designed a sound strategy that gave solid base to its development into the future, as we can see today. That’s the reason why the motto that guides our professional path: «we care about your assets, but more important than that, we care about you» gathers an aggregated fundamental value nowadays.

Of course, that was not the easiest path to be taken at that time but it bore fruits afterwards because our clients’ satisfaction is the greatest reward that we can receive and the best indicator that we are working in the right way.

Fortunately, Madoff’s affaire has not touched us but the situation created has been a kind of warning in order to redouble our efforts at the time of carrying out with extreme accuracy the due diligences on the assets we work with and to be duly aware of their origin, the way in which they operate and for us not to take for granted everything agents say. We all must learn from this disappointing experience to develop even more our critical eye at the time of choosing financial products.

Hesitation is now prevailing in world's equity markets, the decline is not really there but the sideways movements are occuring with quite important daily variations amidst reduced volumes. Looking at volatility indexes, the initial impression is that markets are normalizing. However important swings are still on the cards and their direction not all that easy to forecast for we are still caught in between bad economic figures and better ones. As a consequence, we consider wiser to remain "close to home" i.e. deviate only very little from what is the natural neutral position. Trading around this neutral position is suggested to take advantage from quick markets
moves and exaggerations.

We remain highly cautious on companies related to the car industry (car makers, auto parts, finance companies notably) and airlines. As for the financial world, we remain cautious there too, picking very few banks and having a more positive bias for insurers. It seems to us that sector selection remains a major issue and we feel more at ease in these difficult markets with some more defensive and visible companies. The earnings season which is just starting should give further indications on how each sector is behaving. As for companies dependant on consumer
demand, we would tend to prefer those with an exposure to Asian markets and with regards to infrastructure, the exposure to emerging markets remains a favoured. Selectiveness remains the key factor as well as liquidity: while recognizing value in the Small and Mid capitalization segment of the markets, we do not forget last's year's liquidity squeeze and again avoid overexposure to companies where the free-float is limited. Actually, we consider that there is a lot of value in many companies which, due to the crisis have opportunities to strengthen a dominant position or improve due to weaker competition, but we still believe that equity markets are too
nervous for suggesting a strong positive view. Looking at where the economy is going, we continue to be circumspect as signals continue to show both the good and the bad. While confidence is improving overall, a number of figures are still creating the grounds for difficult days: unemployment continues to rise in the US and other developed countries and the financing of the deficits doesn't seem to be meeting an easy solution leading us to believe taxes will be on their way up all around. The commodities markets have not evolved much fundamentally. Energy saw a rebound in Oil prices which was announced by the contangoes and Natural Gas which is lagging still, is in our eyes, bound to display a nice performance as, it is its turn to have very high contangoes. We are not changing our view on agricultural commodities where the demographics fundamentals support long term demand. With doubts on economic situation, our opinion is that industrial metals have recovered enough, while precious metals will continue to play their role of real assets, protecting against possible inflation return.
Overall, the view is pretty neutral for most asset classes, seeking visibility, liquidity and simplicity, this is why we do not advocate structured products for the moment as the low interest rate environment doesn't allow for attractive structures. Similarly, and despite an improvement in the alternative management world, the liquidity issues remain a potential source of counter performance.

We also highlight that debt markets seem very overvalued in our eyes, in particular - on historical and fundamental grounds - those of the major economies (US, Europe) are offering extremely low yields, which may be acceptable as long as inflation remain contained, a thesis that may not hold for very long as the refinancing of deficits will naturally take its toll. However the continuation of credit spreads tightening in on the cards.
With equity markets now sidelined and uncertainty prevailing, here are the main investment guidelines and tactical moves that we suggest:

Oportunitiea and how to seize them:
•Continue to run the tactical long USD with a trading view (target 1.25/ possibly a little more), but keep the finger on the button to sell again as this trading position goes against our mid-term view on the USD versus EUR (amongst others).
•Overall, we view the EUR and the USD as weak currencies versus others, particularly those of developing countries with a strong budget and natural resources.
•As far as Rates are concerned, the trend is no longer positive, yield levels are historically low. The indebted governments are finding hard to place their new borrowings: Avoid directional views on government rates. We advise to carry existing Corporate bonds in position and arbitrage them actively. Shorter duration and credit (corporate) exposure are the keywords in this segment. As explained before, the additional carry gives a protection in case of rates going back up.
•We continue to advise keeping supranational bonds in BRL, but with lower exposure. Some profit faking (currency based) can still be done.
•We continue to advise to accumulate commodifies, but no more oil (as the strong contango has decreased) and slow down on food commodifies which have performed well. As per Industrial metals, direct investment in mines (see below) is our preferred manner to regain exposure. These are real assets and are an additional protection
against a revival of inflation. Similarly, Agricultural commodities show potential and could be played via an investment in ETFs.
• On the back of recent Equity markets gains and the extension of the move to levels
higher than anticipated, we suggest to take further profits on accumulated positions with a view to re-enter on the next through, keeping the overall same sector selection:
Energy, Gold mines, Mines, some Banks (very selectively), Staples, Defensives (Pharma and food), Infrastructure, selecting those with value, healthy balance-sheet and visibility of earnings and keeping a long term view, competitive positioning of each company should be an important factor for selecting investments in the equity segment.
• We continue to avoid Car, "financing" companies and Airlines. Our exposure to financials is more biased towards insurance companies than banks. We continue to advise to buy liquid non directional funds such as quantitative/statistical funds.
•We advised a couple months ago to take profit on Gold and wait for a new entry point. $860 could be retested and even broken. At a standstill for the moment.
• Key Words remain the same: Tradability, Simplicity, Diversification and Reactivity.

For further information about Banque Privée Espirito Santo please visit their web site at:
http://www.espiritosanto.com