May 4, 2010
Don’t Write Off the US
With all the fallout from the recession and change coming from government actions, it is easy to conclude that everything is going down the tubes. Change is often uncomfortable, but just because “times are a-changing” does not mean that life as we know it will be coming to an end.
Everyone worried about Japan overtaking the US, until their economy came unglued, miring them down for the past 20 years.
Today the bogeyman is China, and I expect that before too long the fragility of their command economy will meet a similar fate as Japan’s.
The dollar was largely written off as going in the tank until 2008 when the whole world decided they liked the comfort of owning dollars during the worldwide financial crisis, driving the dollar higher. And the dollar has rallied strongly again over the past six months as the Euro gets hammered by economic problems in Europe.
The thing to keep in mind about currencies, is they cannot all go down at the same time. Currency values are measured against other currencies, not against a static benchmark. As one currency goes down, somewhere else, one has to be going up.
According to an analysis covering the period from March 11th to present, by my friend and hedge fund manager Michael Price, the US stock markets have out-performed all 41 global, regional and country-specific indexes studied.
Not one stock market in the world is outperforming ours at the moment.
In my experience, there are three factors that make a country’s currency and financial markets attractive to foreigners. They are:
1. Economic power,
2. Political stability
3. Military might.
No country can compete with the US on all three of these points. A few countries might compete with us on one but fall way back on the others.
For a couple of hundred years anyone who has ever bet against the future of the United States has lost and I don’t expect that to change.
Our free market system is like a great river that, when encountering an obstacle, adjusts, gathers its power and goes around, wrapping itself around the obstacle and making it a part of the river.
Capitalism and the profit motive provides the flexibility and encourages the innovation that has overcome every obstacle ever encountered, and it will overcome the current problems, too.
All we have to do is let it work . . .
On the Road Again
As you are receiving this newsletter I’ll be in Orlando at a national conference where I have been asked to make another presentation to a room full of money managers.
It is a heady experience being looked to for how-to’s and trade secrets by a group of bright, already-successful money managers. It seems that I always learn things from questions and discussions afterward. That makes it a worthwhile experience.
And, the friendships I have made over the years have proved to be quite remarkable.
Yes, there is a little golf involved, too, just to keep me humble. You golfers will know what I mean. The course here at the Hilton – Waldorf Astoria complex is beautiful, but what sticks out in my mind was the signature hole at Disney’s Magnolia course, home to many PGA tournaments, where one prominent sand trap is in the shape of Mickey Mouse. Very cute.
Q: I give you a group of three. One is sitting down and will never get up. The second eats as much as is given to him, yet is always hungry. The third goes away and never returns. What are they?
A: A stove, fire, and smoke.
What We Were Saying a Year Ago
Last year about this time I was poo-poohing the swine flu frenzy as a grab for scarce resources by public health entities.
I took heat from a childhood friend who is now a doctor in the Public Health Service for my April 28, 2009 article entitled Swine Flu? Oh, Puhleeez!
My final comment was “fuggedaboutit”, and I’m sticking to it.
Hopefully you already know this, but Hepburn Capital respects your privacy and conducts all of its business on a confidential basis.
We do not talk about your business outside of the office. In fact I frequently get in hot water with my wife, Cathleen, when clients see her in town and mention their business to her, catching her by surprise because even she does not hear any of the details discussed at the office.
There. Do you feel safer now?
What’s Going On In Your Portfolio?
Stock markets have taken a few sharp hits recently as Wall Street titan, Goldman Sachs, is being taken to task for its part in the financial collapse of 2008.
I just completed (on Sunday, May 2nd) a market analysis, and most of the stocks we hold in the Careful Growth* model are only one day removed from their all time highs. One day does not make a downtrend evident enough for me to jump into action, so I am currently sitting tight while watching the market closely.
We did reach a sell trigger on one of our stocks, last week, but it was not due to the general market sell off on Friday. That money moved into the money market fund.
On the Careful Growth* side of things we currently hold 67% stocks, 10% gold and 23% cash.
Flexible Income* accounts hold a mix of high yield bonds, Australian currency, and preferred stock funds, all of which are acting normally.
Municipal bond portfolios* remain fully invested.
Our Spotlight Strategy
A portfolio blended with a roughly equal mix of HCM’s growth and
income portfolios can pursue growth while taking less risk, compared
to a pure growth portfolio.
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* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** The S&P 500 and Nasdaq Indexes are unmanaged lists of stocks considered representative of the broad stock market. Investors cannot invest directly in the S&P 500 Index.
Balanced Strategy Description and Performance Information
Careful Growth Strategy Description and Performance Information
Flexible Income Strategy Description and Performance Information
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.