Attachments: 08-04-11 - EOTM - Market update.pdf This is a little unorthodox, but here is the text of an internal note that I just sent to our integrated Private Bank client coverage teams a few moments ago. Mary thought it would be a good idea to share this with our clients given the events of the day. “Here is what I plan to say at our Aspen Insights conference tomorrow about today’s events. The last two weeks have been a severe setback for financial markets and the global recovery. [1] Today, Italian equity markets sold off sharply and were eventually shut down after the ECB (for now) rejected being the buyer of last resort for Italian government bonds, as the markets were hoping. The Bundesbank apparently has objections to the idea. This is a problem: Italy has issued around as much public debt as Germany, but is a considerably smaller country with almost twice the debt load as a percentage of its GDP. Absent a decision by Germany to move to Federalism or a lot more debt monetization by the ECB, the European Monetary Union (as it is currently configured) could be facing its final stretch. Today’s reported move by Italian regulators to seize documents at Moody’s regarding declines in Italian bank stocks is an indication of the pressure the system is under, and the possible search for scapegoats. I don’t think you will find a firm that has written more often and more direly about the structural inconsistencies of the EMU than we have (I have a 2-year bibliography of what we said and when, if anyone wants it). The “Sick Men of Europe” paper from February 2010 and “Don Quixote Thanksgiving” from November 2010 go into the greatest detail on why. Our concerns sky-rocketed upon Greece’s financial disclosures in November 2009, after which we took portfolio decisions to back that up, purging exposures to the GIPSI countries from our credit, government bond and equity portfolios. Since early 2010, our underweight positions in Europe represent the largest regional underweights we have ever held.