M&A volumes are expected to surge in 2010 and drive the markets as economic activity rebounds and confidence returns. Lower bond yields and corporate free cash flow are often cited as the drivers for the next, M&A led, rally in the equity markets. But, is it really sensible to count on a strong revival of mergers and acquisitions in the months ahead?

While the immediate risk of systemic collapse was eradicated early in 2009, a series of issues remain, primarily in the United States.

In a recently-published book entitled From Experience to Expertise – Reflections of a Private Banker on the Lessons of Great 20th Century Investors, Lombard Odier reveals its management philosophy in light of the reflections of famous investors.

Governments can, and have, run large budget deficits and experience sharply rising debt stock burdens without recourse to default or experiencing funding crises. At a time when excitement surrounds the risk of default in, amongst others, Greece, we think a calming look at the precise conditions that imply sovereign failure is warranted.

The current financial crisis has its root in the mortgage issuance boom that began in 2001 and peaked, with the net issuance of USD 1.1 trillion of household mortgages, in the first half of 2006.

The US economy is hanging on a drip.

Emerging economies are often said to be growing faster than developed countries.

The evidence suggests that the US economy cannot recover vigorously without an increase in private sector leverage.

A number of commentators suggest that it does not matter that the economy in the US - and abroad - continues to de-leverage, arguing that previous cyclical recoveries took root whilst debt was still being reduced. Even more, they argue that the deeper the decline in GDP, peak-to-trough, the more rapid the post recession rebound.

Listed property stocks had their biggest rally in 35 years since their trough reached
in March, yet despite deteriorating fundamentals. The opposite trends in direct
property and property shares listed on the stock market led us to have a closer look
at the drivers of both markets within the commercial real estate investment world.

The United States has begun to report data showing signs of an economic recovery
and without a pause, analysts have been adjusting their outlook upward for
Corporate America – the IBES 12-month forward operating earnings for the S&P 500
is now up 10% from three months ago at USD 69.4 per share.

The US Q2 2009 earnings season is ending, apparently on a good note as 73% of
corporates have beaten consensus expectations. Taking a closer look at corporate
earnings, we feel that we should qualify the current optimism surrounding the health
of Corporate America.

The crisis which began in 2007 is still far from complete and we have positioned our portfolios comparatively defensively in recent weeks to reflect this observation.

For long-run investors, we believe that current valuations and risk premia offer attractive risk-return prospects.