The last four years of credit crisis have been enmeshed with romanticism in the markets about delivery. Overdue is investment on reality. These realities revolve not just about political decisions, currently a favorite whipping horse. Within markets, romanticism has its dependence on quantitative largesse, not unlike that driven by information technology romance until 2000 or anticipation into 2007 of painless credit expansion. For corporations in a post high leverage world, the skill advantage is likely to now lie with capital budgeting as practiced back in the 1950s and certainly that before the mid-2000s. Until 2007, finance for governments also was easier partly based on higher leverage and derivative based finance. Calls now of an equity cult singularly closing do seem mythological. The reality of the S&P 500 having peaked over a decade ago, the NASDAQ at a fraction of its 2000 peak and similarly for the Nikkei versus 1990 levels stand as counterpoints. Current Treasury and other similar sovereign yields at a fraction of levels of the late 1970s equally represent end of cult equivalents. In earlier extending minimal rates to 2015 and now using unemployment as cover, the Federal Reserve is in fact stubborn in sticking to an orthodoxy no longer new. Investment standard changes loom about assumed rates of return. Few pension plans have reportedly transitioned to 5.5% versus the more general 7.5% returns per annum for planning unchanged from pre-crisis times. We reiterate quality of delivery as a core investment theme for this cycle.

For the markets to break free, it is crucial that worldwide, the fiscal cliff, clef or cleft not deteriorate into a myriad and inconclusive series of tic-tac-toe. So far on clef after over four years into crisis, salient high points remain scarce. The fiscal cliff that is engrossing the United States has yet to transition beyond opening negotiating positions. It also has counterparts elsewhere, including Japan. Emerging countries like India are not immune. Political cleft appears most closely to be a risk in Europe where budget talks broke into an impasse to be reconsidered only in early 2013. Diversification appears to be taking place even by central banks into bullion as quantitative ease becomes controversial in buttressing sovereign fixed income. For equities and indeed credit, ongoing asset write-downs and leadership changes at top companies indicate pressures beyond government policy. In ongoing restructuring, investment risks can be considerable on an individual company basis. We are overweight in information technology and the financials most subject to intrinsic change but balance the risks by recognizing the early mover advantages that favor the leaders in a quality tilt within a growth and value blend. More broadly, this aspect is likely in place through 2013.