Franklin Roosevelt said that at his first inaugural address when the country was in the depths of the great depression.  That depression was deflationary, and right now, this economy has businesses fighting the problems of deflation again.  Our current economy is in no where near the sad shape of the 1930’s when banks failed en-masse and unemployment reached 30%.  However, there are some similarities between then and now, so Roosevelt’s words are relevant now.

Things are clearly better today.  Our economy is growing, albeit in fits and starts.  And things are much less dicey than a year ago as we emerged from 9-11 with little idea of what to expect.  The threats are different today, but no worse than global depression, Pearl harbor, the Cold War arms race and the threat of nuclear annihilation, Viet Nam, oil embargoes, 82% income tax rates, rampant inflation and a host of other problems the United States and our free enterprise system successfully dealt with.  Human nature dictates that looming problems seem to be the worst ones.

Ironically, consumers see deflation as good – purchases become cheaper – but it can mean death for business, because they can’t make any money.  A glut of capacity (idle factories) built in the go-go 1990’s means price competition in which only the most efficient businesses will survive.  This is the creative destruction called capitalism.  We end up stronger for it, though.

Now it seems that fear of War with Iraq is holding many folks back from making long term plans, like investing.  Before Iraq became the big issue last Summer, there were signs the economy was beginning to pick up.  While there is great confidence that a war with Iraq would be a swift success, the potential backlash from the Arab world is an unknown.  And investors fear uncertainty.  

The benefits to the US of having a friendly regime in Iraq are significant.  Iraq has the 2nd largest oil reserves in the world behind Saudi Arabia.  Having a secure source of oil will allow us to deal with terrorists with out having to tip toe around the Saudis.  As an investor, you need to ask yourself does this benefit outweigh the fear?  Think of Roosevelt when you do.

Unintended Consquences

he Patriot Act, passed in the wake of the 9-11 attacks, has many provisions to help stem terrorism, but the Anti Money Laundering provisions (AML) are proving to have many consequences for our industry.   A few weeks ago, our securities Broker/Dealer, Cambridge Investment Research, Inc., stopped allowing us to handle accounts for persons not residing within the 50 United States because the AML procedures required for not residents are simply too much of a burden.

We were also notified that we can no longer accept cashiers checks for deposit into client accounts.  Apparently cashiers checks are a favorite tool of money laundering terrorists.  Now we can accept only checks from a client’s personal account. 
We were told this war on terrorism would be a long, drawn-out affair that would eventually affect us all.  Now I’m beginning to see what they meant.

A Bad year for Investment Managers

It must have been a bad year for investment managers.  On December 16, 2002, Morningstar announced its nominees for Manager of the Year honors.  Surprisingly, of the four nominees that ran diversified stock portfolios, all lost money this year (through December 20th, source: Bloomberg .com), and one even lost money over the past three years.  Perhaps Morningstar’s criteria were other than performance.   Perhaps I should become a fund manager.  My investment strategies that Adapt to Changing MarketsÒ attracted enough attention that last summer I did receive an offer to manage a mutual fund. Couldn’t do it while I hold a securities license, although I would have loved to.  But you can know that Hepburn Capital Management ranks up there with the leaders in the industry.

Who Says you Can’t time a Market?

Someone once said “The only ones who say ‘You can’t time a market’ are those who can’t figure out how to do it themselves”.  In my October 5, 2002 quarterly update to investment management clients, I mentioned that that I thought we were close to the point where the market would find its bottom.  As it turns out, all the major indexes bottomed on October 9th, three trading days after my letter.  We certainly do not fit the traditional definition of a market timer, one who tries to get out precisely at the top of a market and in precisely at a bottom..  That is tough to do with any regularity.  But we do use many of the same tools.

At Hepburn Capital Management we use those charts and graphs that can seem like a foreign language at times to tell us when a market has more potential to rise or fall.  We use this data to provide an edge to our clients that they don’t get with a passive buy and hold approach, the ability to know when to hold ‘em and when to fold ‘em.  If you or someone you know is ready for a different approach to investing, call 778-4000 for an appointment to discuss the details of these risk reducing tools.

Long Term Care Insurance Available Here

If you are thinking of Long Term Care insurance, we can shop it for you among dozens of the strongest companies.  Call us today for a no obligation quote.