Valuations Matter

The table below summarizes very nicely why we continue to view the U.S. stock market as high risk and low return. We have been projecting since the beginning of the year that a 10% to 20% pullback was likely sometime in the first two quarters of 2010 . We think the events in Japan are now serving as a catalyst and believe the correction has begun. The S&P 500 is down 6.2% peak to trough currently and we expect it to fall to at least 1200 before the current pullback is over. A correction to the 200-day moving average would result in a decline of about 12% and is the minimum we expect at the moment. A deeper correction back to 1100 is certainly possible. Biechele Royce will continue to buy good companies at great prices as they come available.

TABLE

10-year S&P 500 total returns by P/E level

***Shiller P/E is currently 24***

Shiller Avg Annual Return

Below 12 16.0%

12 to 16 14.3%

16 to 20 10.3%

20 to 24 6.6%

Above 24 3.5%

5-year S&P 500 total returns by P/E level

***Shiller P/E is currently 24***

Shiller Avg Annual Return

Below 12 16.5%

12 to 16 12.4%

16 to 20 9.3%

20 to 24 11.6%

Above 24 3.2%

(Note the jump in five-year returns for valuations in the 20 to 24 range: it is the result of short-term momentum in bubble markets. The S&P 500 hasn't seen Shiller P/Es at or above 24 except for a very brief period in 1929, and then during the current bubble years encompassing 1999 to the present.)

Please feel free to call or e-mail with questions about the current investing environment...

Regards,

Christopher Royce Norwood, CFA

Biechele Royce Advisors, Inc.