We've got the right to choose and
There ain't no way we'll lose it
We're not gonna take it anymore
Ok, for some reason the weeks seem to be flying by. I've had a lot of things on my mind of late, so I thought I would just highlight a few in today's note.
Just a reminder, safety is the better part of valor, and we have been getting safer and safer in our portfolios. Equities are under 30%, and cash is at 20% and probably heading higher. If you'd like to chat give me a call.
First, is it just me or does it seem that we've entered the carnival's house of mirrors. Everything we see seems to be distorted. Especially the economic recovery, and the stock market.
This great chart from Doug Short shows the markets rally after each level of Fed intervention. Clearly noticeable is the markets selloff when each QE program ends. Also, the magnitude of each advance wanes. With the market already selling off prior to the end of Operation Twist, and with Obama's reelection campaign in full swing, it wouldn't surprise me at all to see some new form of QE in the Feds June meeting. The big question is, will the market react positively, or has the stimulus drug worn off? After three years of stimulus and very little true growth, I think the patient is looking for something more substantive...diet & exercise! Unfortunately, I'm not sure we're going to get it.
The Feds easing, and the collapse of the Euro continues to lead all US interest lower. It's really tough to be a saver. The 10 year treasury at 1.70 is near record lows. This has surprised many, because of the belief that the printing of trillions of dollars will lead to inflation. While that is certainly true, the key question is when? Global economies are deflating first, inflation will come later. Don't be surprised if the 10 year approaches 1.5%, or even 1%, before it is all said and done.
This excess liquidity and a flattening yield curve is causing many investors to increase their levels of risk to try and make a buck. This is the unintended consequence of ZIRP. So it is no surprise that JP Morgan Chase stretched a bit trying to make a few tokens for their shareholders, and employees. No biggie here, they made some bets that morphed from hedges to directional trades, and they lost. It's OK for banks to make bets, it's their shareholders money. This is how the system is supposed to work. The problem arises when we deem any enterprise (banks or auto companies) as to big to fail. In a capitalistic society nothing is as sobering as failure. Failure cleanses the system and allows the strong/smart to rise. Supporting/protecting companies only leads to crony capitalism. As an aside I find it hilarious that President Obama is running a reelection ad touting his crony capitalism bailout of GM. Simply hilarious! Once the State starts choosing who to bailout, and who to invest in, we no longer live in a capitalistic society. Sadly that is where we are today!
College -- Is It Worth It?
Consider this business model. You have a product that nearly everyone believes is invaluable. It's a strange product in that the higher the price, the more sought after it is. It is extremely hard to determine if one manufacturer of this product is significantly better than another. The effectiveness of the product seems to depend a lot on the individual user. Oh, and here's the real kicker, wait for it. No matter how much you charge, the government is willing to lend to your buyers, no matter what that buyers ability to repay is! What a business model! Is it any surprise that college tuition is up 600% in the last 30 years?
I could spend hours writing about this, but as I said earlier I'm trying to keep it short. Consider this option though. If you have a rather bright child who went to a good high school make them this offer. I'm going to invest $200,000 in your future, come to me with a business plan and we'll compare it to what the colleges are offering. Of course I don't expect them to come up with the next Facebook, but you'd be surprised how far an enterprising kid could go with $200,000. We could go to the nearest college campus and buy $1,000,000 (20% down) worth of rental properties and become a landlord. Who do you think will be further ahead after four years? Just some food for thought.
Graduation Time -- The perfect time for a simple message for our young ... Wake Up!
A commencement speech you probably won't hear. Every individual born today has a $50,000 debt on their head, that debt balloons to $138,000 per taxpayer. So at graduation time, you are faced with paying off your student loans, paying off the debts/promises of all those generations that came before you, and finding a job that will enable you to do both while still having a bit left over to buy yourself a much deserved beer. Not the most encouraging prognostication. Of course all of us old folks don't want you to be discouraged or to lose hope, we need you (your President certainly needs you). So we promise that we'll keep your student loan interest payments at a below market rate of 3.4%. Some of us on the left are even considering forgiving your student loans. Doesn't that sound nice, even generous on our part? Of course it does, it's all about keeping you believing in the Ponzi scheme. You see, we don't really have the money to keep your interest rates at 3.4%, and we certainly don't have the money to forgive your student loans, we're just adding it to your $138,000 tab.
Wake up! You really are our hope for the future. We (this country) really need for you to stand up and say enough already. You didn't sign up for this welfare state, and you're not going to pick up the tab for benefits that you'll never receive. You're a huge voting block, and you can sway this election. Austerity is painful, especially for your elders, therefore very few of your elders will be willing to join you, but you must persist. It is imperative that you save us from ourselves.
You are our hope. I know you can do the math. Vote for the candidate that promises to take a hatchet to all of those promises made to your parents and grandparents. You don't need to pay their bills, you'll have plenty of your own to pay. Don't take it anymore! God Speed and Good Luck!
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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