Hall Capital “Market Views” Newsletter July 2011

This is the 5th edition of Market Views from HALL CAPITAL. Our aim is to provide concise views of where we see risk and opportunity for investors.

Pressures Build on Government Action
- therein lies the risk

"It's the economy stupid", was a phrase James Carvel, Bill Clinton's campaign strategist, used successfully to defeat George H.W. Bush in 1992. The progress of the U.S. economy can never be dismissed as unimportant.However, there are natural undulations to the economy -- growth spurts and soft patches. The current anemic growth is a function of the broad scale deleveraging of both consumers and corporations that started in 2008, offset partially by additional leveraging by the government sector. The stubbornly high unemployment could very well initiate QE3, which will likely produce the politically palatable result of better employment in the short run, or at least better than without it. The long run implications are unclear to investors, and depending on the scale of QE3, could very well excite inflationary pressures. So we say, "It's NOT the economy, stupid, it's the government's response."

Astute Investors Hedge Uncertainty
- but keep the cost of such insurance low

Though so straightforward as to escape the commentary of investment professionals, cash is an effective hedge against numerous uncertainties. The problem currently, of course, is that there is no return on holding cash. A forgone return is akin to an insurance premium. We try to seek out hedges that pay, making the cost of insurance low or even negative. This would include some cash but also other instruments that have an expected return. For example, in the case of QE3 and an adverse inflationary effect, interest rates would rise and bonds would decline. Stocks would struggle, but companies with pricing power drawing their revenues from a large basket of foreign currencies would be more stable. Companies with crude oil reserves would hold up relatively well. Metals would appreciate. We are particularly comfortable with our list below of large global companies for reason of hedge properties, but also their low valuations suggest one is receiving the hedge for free.

A Conservative Stock Portfolio Can Perform as Well as the Market
- while offering hedge properties

Updating the data on these examples of attractive stocks we see the list provides an average dividend yield of 2.4%; the average Earnings Yield is 9%.For the first half of this year, this list returned 8% vs 6% for the S&P 500. The nature of a conservative portfolio, however, is that it will likely lag if the market surges.

For individual stocks as well as selection strategies, past performance is not necessarily indicative of the future.

Hall Capital Focus List

Follow Up
- Here are excerpts for our letter one year ago

Below are some comments taken from our 7/10 letter and the subsequent outcomes.

"Stock Values Improving -- at least relative to bonds"
- Stocks were up some 30% over the last 12 months while bonds eked out their coupon return.

"The recovery this cycle is likely to be less robust than past recoveries"
- to the chagrin of our politicians and deep disappointment to those out of work, this has certainly been the case.

NOTE: Now in addition to ALL our quarterly letters, on our website is a tab with just the Follow Ups.

About HALL CAPITAL

HALL CAPITAL, LLC is a registered investment advisor and was formed by Principals from Arcturus Capital in 2010.
For more information, contact Donald Hall 626 578 5700 x101 dhall@hallcapitalmanagement.com