Bubble-ologist extraordinaire

Cassandra was given the gift of prophecy, but was also cursed so that no one would believe her. Robert Rodriguez, in June, 2007:

HOUSING

... after many years of an excessively easy monetary Fed policy, a bubble of massive proportions has been created in the housing market.

FIXED INCOME MARKET

...As loan underwriting standards deteriorated, more potential home buyers were then able to qualify for a loan. We are seeing the initial effects of this erosion in underwriting standards by the collapse in the prices of sub-prime mortgage securities

EQUITY MARKET

...do not realize the extent of the risks they may be taking.

CURRENT STRATEGY

FPA Capital Fund has over 40% allocated to cash (short-term investment securities) and our largest sector investment is in energy. Preservation of capital is paramount to us in this risky investment environment.

SUMMARY

We see most investment sectors as providing little in the way of a margin of safety. The potential risks that we see do not appear to be well considered in the valuations within these sectors.