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February 2012
Mario Draghi became President of the European Central Bank 100 days ago, at the beginning of November 2011. He started at a dangerous point of the European financial crisis. Interest rates for long-term debt of Spain and Italy had jumped above 7%, a threshold indicating that markets had lost confidence in their ability to stay solvent. France and its banking system also encountered growing doubts. Most European banks no longer could raise public loans without collateral, putting in question their ability to roll over billions of maturing debt. To make matters worse, rating agencies threatened drastic down-ratings.
Despite immense pressure the ECB and Draghi continued to demand reductions of deficits as condition for help and financial support. To alleviate the danger of a liquidity crisis he offered the banks inexpensive loans for three years against collateral. By insisting on a reduction of deficits in times of a contraction of the economy, the danger of a recession has increased, but the ECB insists that there is no other way to correct this culture of growing deficits and to regain a healthier base for growth. Surprisingly, mood and psychology of markets and investors has changed somewhat. After pessimism, panic and total abstention, some confidence is returning and investment activity is returning on a low level. This slight change in psychology is not resolving the problems of peripheral European countries, but it could give them more time to work on solutions and reduces the danger of a collapse. In this regard Mario Draghi has done a good job in his first hundred days.
We also have good news on our own. The Jolimont Value Fund, a Swiss Fund denominated in Euro, has had in the category "Absolute Return Funds" the best performance of all funds over the last 3 years. There was a significant loss in 2008, but since that time we have recovered nicely and this is positive.
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