Meet My Staff: The Greatest

I’ve been traveling for over two weeks now, and several times I have remarked how grateful I am to have such a competent staff that I can allow myself such luxuries as extended travel.

When asked what I do for a living, I often joke that I work for 3 women.  In truth, since much of my analysis and trading activity occurs away from the main office at odd hours, I rely on these women to be the face of the company.  And they do a wonderful job!

Yvette Romero is a quiet, competent young woman who has a smile that lights up the room and an attention to detail that keeps me humble.  Yvette is our operations manager in charge of paperwork, file administration, bookkeeping and helps with regulatory oversight.

Sheri Congdon is a wonderful, always-upbeat woman who has done so many things and has had experiences with so many American icons that I routinely tell her “you should write a book.”  Sheri has many gifts, including a welcoming style with people and organizational genius.  She runs our front office, creates and sends our newsletters, and is the first point of contact for many calls.

Laurel Taylor acts as our technology coordinator, but I refer to her as the brains of the operation.  She researches, implements and maintains complex technologies that let me sit on a dune in Door County, Wisconsin and have the same resources available to me as if I were sitting at my desk in the office.  Laurel’s gift for working with people makes her our human resources guru, also.

I can manage money pretty well, but without these women Hepburn Capital would be a far different company.  Thank you, ladies.  I am grateful to work for you.

In This Issue…

On the Road Again

Having grazed our way across the Midwest for the past 3 weeks, Cathy and I will be on a plane headed home about the time you read this.

My travels these past two weeks have taken me to some really neat places.  If you ever get a few days to drive the Mississippi River Road between the palisades near Galena, IL and Stillwater, MN, you will find it enchantingly beautiful, dotted with picturesque towns with deep historical roots.  I highly recommend it.

Hannibal, Missouri, home to Mark Twain is well worth a visit.  In my opinion, Twain and Will Rogers are two of the most colorful men in our nation’s history.  Beneath their sarcasm and wit lies great wisdom.

Boyhood friend, Tom Corbett, introduced us to a wonderful restaurant in Chicago called Twin Acres, at the corner of Eugenie and Sedgwick streets in Chicago’s Old Town.  This is where Frank Sinatra went for ribs when he was in the area, and now I know why.  How they keep the meat so moist yet have it fall off the bone is a wonder to me. Twin Acres gets five stars.

And if you make it to Wisconsin, have dinner at Crazy Water at 2nd and Walker Streets in Milwaukee’s historic 3rd Ward.  The proprietor, Peggy Magister, catered my brother’s wedding a dozen years back, and now makes gourmet meals from the world’s smallest commercial kitchen.  If the Chilean Sea Bass-stuffed poblano peppers are on the menu, I’d recommend that.  I called it Chili-Bassino.

Door County, called the Cape Cod of the Midwest, is the finger of land between Green Bay and Lake Michigan. The Bowling Lanes (seriously) in Sister Bay have been serving wonderful food for over 50 years.  And the rack of lamb at Glidden Lodge on the Lake Michigan side is another perennial favorite.

Now you know why I used the term “grazed” earlier.

The Riddle of the Week:

What goes around the world but stays in the corner?

Riddle Answer:

A stamp.

The Economy

I do pay attention to the markets and the economy while I’m traveling – work-a-holism does have its plusses – and a couple of things caught my attention recently.

The cheerleaders in the financial news are making a big deal of the S&P 500** moving through 1,000 and the Nasdaq** moving through 2,000.  These levels are of no significance.  In fact at 2,000, the Nasdaq still needs to gain 150% just to get back to where it was 9 years ago.  Whenever a buy and hold oriented financial adviser tells you “be patient, the market will bounce back”, remind them of this fact.

When the cash-for-clunkers program helped sell 250,000 cars in six days, the automobile feeding frenzy reminded me of the heavy trading activity when markets turn around.  Perhaps you remember me saying a few times in this newsletter that a high volume of trades validates the move that is underway.  We’ve just seen a high volume period in the car market.

Could this portend good things for the economy as a whole?  Let’s hope so.

I actually think the economy could be in the process of turning around.

My theory is that 75% of American’s lives have not been disrupted by the economic slowdown.  They have salaries that keep coming, regardless of what the economy does, or are in sectors that have done well in the slowdown.  5% of the unemployed are chronically unemployed and that hasn’t changed either.  The changes are where another 5% have been added to the unemployment rolls and are fully impacted by the recession.  The remaining 15% are underemployed – still working, but making less due to commissions, tips and business being down for certain businesses.

If the unaffected 75% got cautious as the economic rumblings began a year or two ago, and slowed down their spending, that is enough to create a recession.  However, at some point the ¾ of us who haven’t really been impacted by the recession might get comfortable enough to notice all the bargains and start buying again.  I think that is what drove the cash-for-clunkers blast off.

Recessions don’t last forever.  Although we won’t know for sure until history is written, we could be seeing the end of the recession right now.

Account Updates

The stock market continues its rapid advance begun a month ago.  Both investors and their advisers who are not back in the market are kicking themselves.

Although the market that never goes long in one direction keeps showing signs of being “over-bought” and due for a downward correction yet all the pullbacks of the past few weeks have been very mild.

This is a market driven by the massive infusion of money into the economy by the government.  Until the new factories are ready and the new employees hired, the money needs to be some place and that place is often the financial markets.   Right now, money is coming out of the safety of Treasuries and moving into stocks, so Treasuries are down and stocks are up.  Investors seem less afraid of the economy now than at any time in the past year.

Fortunately for us our Careful Growth* accounts have been fully invested since the end of July, with holdings in technology, utilities, health care, emerging and developed markets overseas and junk bond funds.  This diversification mix sometimes gives us slower growth than the major market indexes** but with much less risk.  Our growth accounts* have begun moving upward again after giving back some gains in June, and are up around 5% for the year.

Flexible Income* accounts are really doing well, with another strong month underway – our 5th positive month in a row.  In fact, our Income accounts*, invested primarily in high yield bond funds, have been outperforming our growth accounts*.

Having income outperform growth is normal in bear market environments, but not normal over historical periods.  Eventually growth will sprint ahead and make the risk worthwhile, but after years like 2008 most longer-term growth numbers look pretty pale.  This is one of those periods.

This is also the reason why our growth accounts* also have their largest holding in high yield bonds.  Simply put, that is what is working the best right now.  Although my income strategies* do not invest in the stock market, when managing for growth I can go to any market – including the bond market – to get it.

So you don’t need to call me to ask if your allocation to Careful Growth* strategies should be moved to Flexible Income* because income is performing so well.  I’ve already taken care of that for you by adjusting the holdings in the growth accounts* to hold high yield bonds.

The next installment of this newsletter will come to you from Prescott, Arizona as I will be home in another few days.  After 3 weeks on the road, staying put sounds pretty good.