In his year-end letter, Ron Muhlenkamp says that, after being cautious for most of 2010, he gained confidence in the U.S. economy toward the end of the year and is now “near fully invested”.

In the U.S., Muhlenkamp says the extension of the Bush-era tax cuts should help increase employment, but he also says state and municipal budget strains are a concern. Abroad, he says the European debt crisis isn’t over, and that China is the “swing member” of the international community; he says China faces the tricky task of removing the extensive stimulus it provided after the financial crisis.

But overall, Muhlenkamp is bullish. “The main bullish argument, as always, is based on 2-3 billion people in the world who go to work every day in order to feed their families,” he says. “In doing so, they build personal and family assets and, coincidentally, business and national assets. As investors, we try to align ourselves with these efforts by investing in companies that aid people in the wealth-producing process and, thereby, benefit from it.” Right now, he says he’s finding the best values in “large, international companies (usually U.S. based) with rock-solid balance sheets and healthy cash flow”.

Muhlenkamp’s quarterly memorandum also offers a question & answer segment in which Muhlenkamp discusses his broader investment strategy, and expands on his views on the economy and market. One interesting note on strategy is that Muhlenkamp says his approach starts with finding stocks with strong returns on equity and low price/earnings ratios. “Today, our average holding has an ROE over 15%, and P/Es of about 11 or 12,” he says, “akin to owning ‘Cadillac companies selling at Chevy prices.'”