Founder & Chairman
Where did the summer go? Hard to believe that as I write this, the first college football game of this year is only 3 days away. It’s been a little while since we’ve posted a Marketview, mainly because there simply hasn’t been much to talk about, at least until now. I can tell you that there are two distinctly different perspectives being offered about the end of summer in our office. One of us (whose name rhymes with dill) couldn’t be happier that the 90 plus degree sunny days are nearing an end, and the other of us (think awesome) is quite sad that the perfect summer is about to exit stage left. Either way, neither of us can change the fact that fall is around the corner. Much like neither one of us can change the fact that the developed world has a population problem. If you’ve been following us for any length of time, you know that we have been warning investors about the coming economic slowdown, which is in part based upon the aging of the baby boomers, both domestically and abroad. It’s quite simple really, once people reach the spending apex of age 48 they tend to start spending less money. This is not to say that the current economic challenges are exclusively due to demographics, far from it, but they certainly play an important role.
The stock market has meandered its way up over the last 6 weeks or so, on very thin volume and, frankly, a lack of significant news. The primary driver of the market has been Europe, and since the European policymakers have taken a holiday, there hasn’t been much to report. That will all change in about a week, though, as the September calendar is loaded with potentially market-moving European data. We suspect that, in general, this may not be great for the market. What has been good for the market is that speculation that the next round of quantitative easing may be just around the corner. Simply the hint of more central bank intervention has been enough to put a floor under the market for much of the last month. There is a lively debate taking place among market experts (is that an oxymoron?) as to whether more monetary easing is warranted or even likely. It begs the question: do you really want to invest in a market that requires government support to move higher? Yet, that is the game today— jump in ahead of the Fed and buy investments that the central bank is intentionally manipulating in value. To this point, the answer has been a resounding yes, as each infusion of quantitative easing has paved the way for a 20% or more rise in equity prices. Alas, there is much more to the story these days than whether or not Mr. Bernanke will once again fire up the printing press. There is that little matter of determining who will be the leader of the free world for the next 4 years. Given the amount of advertising we will all be subjected to over the next couple of months, it’s hard to imagine that any of it will be good for the market.
Speaking of the market, we long for the good ole days when the market was driven by trivial things like earnings, fundamentals, sales and revenues and profits. The current disconnect is astounding really, when you see the stock market rising and virtually all of the economic data points to a massive slowdown in the four major developed economies of the U.S., Europe, Japan and China. Did I mention that little speed bump ahead— I think they call it the “fiscal cliff”? You know, where the tax cuts expire, and more than one trillion dollars in government spending just stops. That one might leave a mark. Needless to say, the list of concerns regarding 2013 is growing. Fortunately, there is always a way to make money, even when the traditional methods are failing and chaos is the order of the day. With every door that closes, there is another that opens up. We are preparing for the coming challenges by looking for opportunities in areas that go beyond the traditional way of investing, and there are a number of possibilities that have potential. We have long held the belief that the challenge in investing has always been hanging onto your value during bear markets. Making money in a bull market requires no skill; however, protecting your gains when the market looks to rip them away from you— that is the real secret to success. We have maintained a fairly conservative position this year, and while we haven’t gained as much as the overall market has, we’ve stayed fairly close, and have done it with much less risk. We will continue with this approach, and at the same time, look for ways to make some money without necessarily having much or any money in the market. Natural resources, commodities, and treasuries may have some growth potential if the economic data continues to deteriorate. Income generating assets may also be a place to go. We already have a list of investments that we like if things continue along this path.
We intend to be proactive over the next few months, as there will be a tremendous amount of data that pours in on literally a weekly basis. The fact is, nobody knows how much of this will play out, as it’s like a series of dominoes with one move affecting the next. As the election draws closer, we will share with you our views on how the scenario may affect your portfolios. Keep in mind, however, our commentary will reflect only what we think the implications of outcomes are from strictly an investment point of view, and will in no way reflect our own political views. We can save that chat for another day. Rest assured, Bill and I will be very active and we intend to guard your portfolio values as vigilantly as possible. We’ve always believed that discretion is the better part of valor and, if we can get through 2013 unscathed, there will be many opportunities waiting on the other side.
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