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?
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.
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.
August 11, 2009
William T. Hepburn
Here’s one of Will’s articles that has proven popular over the years.
It is no secret that the economy is in a recession that will be with us for a while longer. But I do believe a significant and overdue bear market rally is underway.
How many times have I said over the past 6 months that:
1. The stock markets will begin their recovery 6 months before the recovery in the economy is reflected in the news.
Time for liftoff for the markets? I think so.
The spark that ignited all the rocket fuel (cash on the sidelines) under the stock market the past few weeks appears to be several glimmers of hope in scattered economic reports, including retail sales and housing.
In the housing area, statistics have turned positive for the first time in a long time. The combination of low prices and low interest rates have made housing more affordable than in many, many years. Investors are finding real estate bargains to be irresistible and are starting to dip their toes back into the real estate market. Prices could still slip a little lower, but right now you have the best combination of quality properties and low prices that I can imagine.
Next year, prices may be a little lower (my research shows prices bottoming next year, but the steepest declines are behind us) but the choicest properties will have been snapped up already. That makes 2009 the year of the bargain in real estate.
I expect a lot of fits and starts in the markets as corporate earnings continue to suffer from the recession, Europe has a rougher time than the US due to the inflexibility of their economic system, and a significant foreign country will have its currency collapse. But trend in the US stock market seems to have changed with even the March 30th drop stopping right at a key level of support. We will only know for sure as the advance unfolds, but I think the stock market highs for the year will be substantially higher than where we are today.
It is normal for rallies to recover half of earlier losses even if the stock market ultimately resumes its decline. Recovering only half of the decline we’ve just experienced would bring a 65% gain. History strongly suggests that we could see a big run up in the market over the next year. Those kinds of gains are worth reaching for. I’m thinking it will be a fun ride to make up for some of the discomfort of the past 18 months.
Market historian Jason Goepfert of Sundial Capital Research says that the way the market has acted lately it would be unprecedented to not see generally higher prices over the next one to three months. Pretty much everything I’ve looked at recently helps confirm that outlook.
The bear market has made some investors so fearful they are frozen in inaction. This is understandable for investors who have suffered life changing losses, but fortunately that does not pertain to my clients. We have weathered the storm pretty well and are now in a position to reap the performance benefits of staying invested and taking advantage of the opportunities that have developed.
2009 Fall Class Schedule
Basic Investing For Retirees
Advanced Investment Analysis Using Charts
For details or to register call Yavapai College 717-7755
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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.
Information in this newsletter is 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.
In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Hepburn Capital Management, LLC, adapt to changes in the markets by changing the investments they hold. Therefore, comparisons to broad stock market indexes such as the unmanaged indexes listed above may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares are not insured by the FDIC or any other agency, are not guaranteed by any financial institution, are not obligations of any financial institution, and involve investment risk, including possible loss of principal. Advisory services offered through Hepburn Capital Management, LLC, a Registered Investment Advisor. HCM will not transact business unless properly registered and licensed in the potential client’s state of residence.
Copyright (C) 2009 William T. Hepburn. All rights reserved.