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Thid Point Dan Loeb: the environment for equity and debt investing will remain favorable

November 27, 2009

For the next six to twelve months, we believe the environment for equity and debt investing will remain favorable. Inflation should be tame in the short run due to persistent high unemployment and low levels of capacity utilization, which should keep interest rates low as the US government continues to focus on stimulus and job creation.

In this environment, we expect anemic revenue growth but continued margin expansion, increased corporate restructuring activity (spin‐offs, mergers, and the like), and earnings that will frequently surprise to the upside. Thus, for equity investors, it is a stock picker’s market on both the long and short sides.

In debt, following the appreciation in the market and our portfolio in performing and stressed corporate credit, we have shifted our focus away from spread tightening trades to distressed situations and restructurings. We have found several exciting opportunities to create fulcrum securities at attractive valuations, and we anticipate many more to come as the ill‐advised 2005‐07 vintage leveraged buyout transactions begin to mature. As mentioned above, we think that mortgage securities, given the inefficiencies and opaque nature of the market, still represent good value at the 15% IRR level on specific, well‐diligenced issues we are able to source.

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