Last week I received an email invitation to an on-line conference where, among other things, the presenter will divulge “the exact path the economy is going to take as predicted by centuries of studying patterns.” I’m assuming, unless the dude’s a vampire, that he meant to say “studying centuries of patterns.” Yet even that would take an awfully long time, don’t you think? Oh, and he added; “this is scary accurate and I wish it were better news”.

Now I’ll sometimes (rarely actually) overlook the I-can-predict-the-future line (even credible characters have egos). But when he threw in you-need-me-cause-it’s-bad-news, my left pinky found the shift key, while my right synchronistically tapped delete.

You see folks, whether it was Ravi Batra, author of the bazillion-selling late ‘80s book “The Great Depression of 1990” (you know what the economy did during the ‘90s); Harry Dent, author of the then hugely popular ‘90s book “The Roaring 2000s” and the follow up “The Next Great Bubble Boom” (he had the Dow at something like 40,000 by 2009); NYU prof Nouriel Roubini (I have a video of him predicting near-term doom for the market 5,000 Dow points ago), the Amway Emerald (really rich guy) (name escapes me) turned financial guru, or the above referenced business consultant, the market makes absolute fools out of the prognosticators time and time again.

Now understand, these guys aren’t your modern-day Nostradamuses, Edgar Cayces, or Jimmy the Greeks, nor (as far as I know) do they consult the Mayan Calendar (although at least one of these geniuses is currently predicting the end of the financial world as we know it). Nope, these prognosticative pied pipers make their cases statistically and methodically – and they sound so dang smart doing it! But PhDs, penmanship, multi-level marketing success and public speaking prowess aside, while they may indeed guess right on (rare) occasion, I’ll bet ya a buck that your neighborhood Madam Sophia sports every bit the accuracy rating.

The way I see it, people are, by and large, desperately uncomfortable with uncertainty. And therefore the siren song of the soothsayer can be extremely difficult to resist. But here’s the thing folks, uncertainty, when it comes to investing, is a beautiful, in fact essential thing – for every buyer there has to be a seller. And the ones who get it, the ones who embrace uncertainty, always invest accordingly. I.e., the enlightened youngster loads up on equities, for she understands that owning businesses offers the greatest opportunity – and her time horizon offers her the luxury of riding out the volatility. The erudite elder underweights equities in favor of fixed income, for he understands that he may not have enough time on his horizon to weather the inevitable storms to come. The storms that tomorrow’s fortune-tellers will no doubt parlay into personal fortunes.

Knowing (per last week’s commentary) that emotion-inspired investment decisions typically undermine your long-term objectives, my advice would be that the moment you hear (or read) someone make a global market or economic prediction (I have no problem with assumptions related to given sectors) be the moment you change the channel, turn the page, or click the X. I’m telling you folks, he’s either attempting to sway the market, market his wares, or, scariest of all, profoundly diluted and believes he can foretell the future.

In the immortal words of Lao Tsu:

“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge”

Have a great day!
Marty

“Reality is merely an illusion, albeit a very persistent one” Albert Einstein

I tell ya, in today’s bipolar world, you just don’t know what to think – or that’s what we say anyway.

The fact is, we’re going to think whatever suits our personal or political fancies, all the while fooling ourselves into believing we’re being objective. For what it’s worth, the following is yours’ truly’s foolish attempt at objectivity.

Of course you’ll agree or disagree to suit your fancy…

SPIN: The only jobs growth we’ve seen of late is the result of census workers and other temporary and government employment.
REALITY: Companies by and large managed their affairs exceptionally well during and coming out of the recession. Demand is indeed picking up as evidenced by the ISM’s Manufacturing and Service Sector Indexes. Current readings of these indicators point to continued growth for the balance of the year – the double-dip recession threat is almost off the table.

The recent jobs numbers, while they were indeed impacted by census hires, reflect substantial growth in private sector employment as well.

That said, the uncertainty over higher taxes, healthcare reform and new regs will no doubt mute the rate of job growth going forward.

SPIN: All this government “stimulus” is having no positive impact on the economy.
REALITY: Of course it’s having a positive (albeit slight) impact. You give a trillion dollars to a bunch of winos and you’re going to see some trickle up.

SPIN: All this government “stimulus” is having a sustainably positive impact on the economy.
REALITY: Wrong kind of stimulus… Permanent tax cuts and other business incentives are the only kind of government stimulus that has sustainable positive ramifications. Not that the expansion isn’t sustainable, but it’s soon going to have to survive on its own as the Fed withdraws (which they’re subtly beginning to as we speak).

It’s also going to have to face 2011 and beyond (higher taxes, higher interest rates and new regs) …

SPIN: Washington wants to own the banking system.
REALITY: When the Treasury converted $25 billion of the Citigroup preferred shares (it purchased as part of the bail out) to common, you all screamed “see they’ve tricked us, now they own Citigroup”. The Treasury said they converted to ease Citi of the burden of paying the preferred dividend. But now that Citi has paid back the remaining $20 billion in loans, it’s time for the government to divest of its equity stake. And that’s precisely what it’s doing.

Sorry to disappoint you conspiracy theorists, but, unlike the politicians and the spinners themselves, shouldn’t we be intellectually honest and give credit where credit is due? At today’s share price the “taxpayer” will make around $7 bill on the Citi deal.

Now, that said, let’s see what they do to the banks on the legislative front…

SPIN: We have to raise taxes to lower the deficits.
REALITY: Hogwash! Raising taxes won’t do squat (they’ll – both sides mind you – just spend more). We have to cut government spending to cut the deficits.

SPIN: Capitalism is in danger of extinction!
REALITY: Baloney! Capitalism is popping up all over the world. You may suppress it every now and then, but it’s (to steal a line from Dennis Hopper in Water World) “that turd that just won’t flush”.

Bottom line; if you’re patient and have the stomach (volatility’s a comin), opportunities abound…

SPIN: Generations to come are in dire straits as we spend them into oblivion.
REALITY: Balderdash! Things will change before oblivion comes. It may (will) get painful at times, but hey, no pain no gain, right?

It always feels like whatever’s happening at this moment will last forever. But haven’t you noticed, it never does.

The beauty is that our awareness (concern, fear, worry, panic, etc.) of the “dire” trend virtually assures that the feared outcome (at the extreme) won’t come to fruition. As the “pain” intensifies, we’ll change the trend. If policy indeed takes us down the wrong path, we’ll change policy. Haven’t you noticed that policymakers always get blamed (some more deserved than others) for inflation, deflation, or whatever the economy dishes.

The good news my friends is the bad news. I.e., there may just be enough global pessimism, spun and legitimate, to keep the market moving north for the time being. But please remember, nothing lasts forever…

“When you argue with reality, you lose” Byron Katie Mitchell

Have a nice day!
Marty

Frustrated that your portfolio’s not back to its October 2007 peak? Doubting the old conventional buy and hold wisdom? Well folks, I’ve discovered the answer (you can now forget about all that asset allocation and rebalancing garbage I’ve been preaching for so long). I literally spent every afternoon last week watching CNBC and I’ve come up with THE strategy for making money in the market.

Here’s what you do. Beginning this week, set your DVR to CNBC from 2 to 4pm Monday through Friday and spend just two hours every evening after work (the spouse and kids won’t mind – after all, you’re gonna be rich) watching your replays of the Mad Money and Fast Money programs – I promise you’ll learn everything you need to know about making crazy-fast money.

That’s right, just listen to the Mad Money guy and not only will you get some can’t-miss stock tips, you’ll find out where the market’s headed near-term. Or listen to the panel of expert traders on Fast Money and you’ll know what “tomorrow’s trade” is going to be. Sometimes you’ll even get advice on what to do in the morning versus the afternoon.

Then, armed with all that info, you’ll simply log onto your trading account right at 6:30am every day to make the “morning trade”. Put in your limits and your stops, then check your positions from work every few minutes. Or if you want to get insanely rich even faster, you can trade puts and calls like the options guy on Fast Money…

Now if for some strange reason this doesn’t work, I have a backup plan. There’s this radio commercial I keep hearing for a new program called “Hindsight Trading”, this could be even better yet. In the ad, one guy tells his buddy that with this program he only has to spend like a half hour every morning on the computer placing a few trades. The dude’s making big money every single day!

I wish I knew all this twenty-five years ago!

ApRiL FoOls!!!

Don’t laugh; people really do buy this stuff…

Interest Rates on The Rise?
Those of you I work with know I’ve been concerned about the bond market of late, due to the fact that interest rates are the lowest they’ve been in the history of our planet. And I can give you a half-dozen reasons why rates are (ultimately) going up. For starters, the Fed stops buying mortgage backed securities this Wednesday. Then there’s the growing (albeit tepid) economy and the fact that stocks are looking a whole lot more attractive than bonds these days. But the three most obvious reasons rates can’t help but move higher would be government deficits, government deficits and government deficits. And when the ten-year treasury goes from 3.8 to 4.something, other bond prices are gonna fall right along with them (prices (principal values) move inversely to yields).

Now I’ve always been painfully aware of my own simplemindedness, but lately I’ve been wondering if I’m not worse off than I thought. I keep hearing these bond gurus offer up chapter and verse on how to make money in bonds in a rising rate environment. In fact, I just signed up for a conference call later this week sponsored by a premier bond fund manager. It’s titled something like “how to make money in bonds in a rising rate environment”.

While I’m afraid, quite certain in fact, that I’ll not emerge from the session with any great epiphany, I’m interested nonetheless in hearing what folks way smarter than me have to say about things I think I know a little something about, particularly when we disagree… I promise I’ll keep an open, albeit simple, mind.

Now my open (yet simple) mind notwithstanding, do not (as implied) expect to hear from me with a recommendation to buy the XYZ Floating Rate Fund, or the “This Ain’t No Junk” Junk Bond Fund. You see, while these brainiacs may indeed have a creative strategy that might not lose, if the stars align just right, I ain’t going there for one simple reason – the fixed income portion of your portfolio is supposed to be the safe portion. And in my humble opinion, it’s perfectly okay to make 0.00001% in money market funds when rates are at 0.00001%. In fact that’s really the only time to be substantially in money market funds. If they were paying say 5%, we’d be owning bonds at say 8% instead – probably expecting rates to drop and bond prices to rise.

Seriously, you don’t want to buy something that goes down when interest rates go up, at a time when interest rates can’t go anywhere but up.

Have a great day!
Marty

When was the last time you called a tech helpline and spoke with an individual who you weren’t convinced was maybe mid-way through his ESL (English as a Seventh Language) course? Put together your own blog site in mid-October and expect to be stalled for a few days while the techs your consultant hired celebrate Diwali (India’s most important holiday) – they’re working from home (New Delhi). Hop on an Air France Jet, slap on the headphones and watch a few movies on the screen affixed to the back of the seat in front of you, doze off four or five times and poof! you’re landing in Barcelona. While relaxing in your ocean-view cabin on your voyage to Monaco, grab your laptop, log on and visit with the kids through your webcam.

In today’s world, if you’re willing to tech-up, you can stay connected 24/7. Technology has not only changed the global playing field, it has made it remarkably small.

So why then did I title this essay It’s A Big World After All? Because as I visit with people day in and day out, I find that so many of us possess a most myopic view of the world. And if you happen to be one of these dear souls who can’t see beyond the challenges in your own community, I hope to expand your horizons.

Let’s take my friend John for example. John is convinced that the United States is headed down a political path of destruction. He’s unusually bright, he’s an independent thinker (for the most part) and he sees his world changing to the detriment of virtually every citizen who works hard for a living. He sees the government taking control of the healthcare system, the banks, the auto companies, the energy markets and anything else they can sink their talons into. He sees aging Baby-boomers becoming more conservative with their money – not supporting the stock market the way they used to. He sees spiraling government deficits, he fears higher interest rates, higher inflation, and higher taxes. He’s thus experiencing higher stress, higher blood pressure, a lower life expectancy. John’s not camping happily these days, to say the least…

Let’s now take my friend Jane. Jane understands and acknowledges John’s concerns. They live in the same city, drive the same streets, listen to the same news. But when you chat with Jane you get the sense that her world is brighter, broader somehow than John’s. She sees beyond her immediate surroundings, the demographics, the politics. She’s freer, doesn’t seem stressed, no meds, no aches. Watch her eyes light up as she turns the topic to the opportunities that abound throughout the world’s markets. Jane believes her portfolio will grow like Jack’s beanstalk as the companies that fill her mutual funds find opportunities around the globe. She’ll tell you how capitalism is taking root in places like China and India. How the coming demand for infrastructure in other emerging markets offers unimaginable growth prospects for the companies in those regions as well as for those here at home.

Jane doesn’t see herself as a gambler. She believes that a well-diversified global portfolio, while volatile at times, will give her the best odds of reaching her long-term investment objectives. While John says he’s a capitalist, Jane displays it in her attitude and her actions.

So whom do you relate to and who do you think will be wealthier over time? Heck, forget wealthier, who do you think will be happier? While there’s nothing wrong with being a John, being a Jane, quite frankly, sure seems a lot more interesting. But please don’t go there if you can’t stomach the ups and downs. Or, in the words of that great old rock band ‘America’;

“don’t cross the river if you can’t swim the tide”

I.e., don’t go swimming with Jane if there’s a chance you’ll panic when you hit the strong currents – cause you’ll friggin drown.

Bottom Line: A true capitalist rarely, if ever, broods. A true capitalist finds reason for optimism in every changing trend. A true capitalist never gets tangled in the trees, clearly sees the forest and exploits the opportunities therein.

A true capitalist, ladies and gentlemen, capitalizes!!

I get goose bumps just writing this stuff!

Have a great day!
Marty

P.s. Jane would be a young to middle-aged capitalist… Middle to older-aged capitalists will share her perspective but apply it to a smaller portion of their portfolios…

Once every blue moon someone will ask why we don’t time the stock market. My pat reply is always “I’m afraid we’d totally screw up and get it right the very first time”. Seriously, the worst thing that could happen would be to sell right at the peak – or buy right at the trough – the first time out. We’d think we could do it again. It’d be like going to Vegas and hitting a jackpot on the first pull. We’d keep going back till we’re flat broke…

There’s a virtual plethora of prognosticators who rose to fame (for a little while at least) for predicting the 1987 crash, or the tech bubble-burst, or the recent credit crisis/bear market. Having studied many of their records, there’s one consistency I’ve found among them all – their glaring inconsistencies.

It seems to me that the more one knows (or thinks one knows) about the market, the greater one’s ego. The greater one’s ego, the more apt one is to prognosticate. The more apt one is to prognosticate, truly, the less one understands the market.

In other words, the more one knows the trees, the less one understands the forest…

Last spring a good friend of mine insisted I listen in on a conference call with an institutional money manager who possessed rarely-rivaled credentials. This Harvard Alum foretold a tale of terror. He posed a statistically-compelling argument as to why the economy would continue to flounder and why the stock market would continue to suffer mightily for the foreseeable future. That was about 70% ago by the way…

I’ll not question the expert’s intelligence quotient, but as I’ve implied; the higher a guru’s IQ, the higher the EQ (Ego Quotient) (that’s to the extent the guru identifies with his/her IQ) – and the higher the EQ, the lower the CQ (Commonsense Quotient)…

In other words, the more one identifies with the guess, the less likely the success…

So if you ever start thinking you know what’s going to happen next, please step back and consider the immortal words of Winston Groom’s Forest Gump, one of literatures most CQ-ly gifted characters;

“Life is like a box of chocolates, you never know what you’re gonna get”

But hey, if you hate surprises, you can always buy the box labeled ‘nuts (no pun intended) and chews’. In investing parlance, that would be your T Bills and CDs – which by the way should occupy at least some of your portfolio if you’re in or nearing retirement…

Have a nice day!
Marty

P.s. I expect you expected commentary on the healthcare reform package just passed by the House. All I can say is – whether you’re a Republican, a Democrat or an Independent, whether you’re a union member or a trial attorney, you can’t in good conscience feel good about how this one came down.

You tell me what’s worse; the fact that this legislation (with its lack of tort reform, its union concessions, its ultimate cost, etc, etc, etc.) just won approval by the House of Representatives, or the backdoor deals, the begging, the bullying and the blatant bribing it took to get it done – and what that says about how Washington conducts its business.

Honestly, it’s not this legislation that has me concerned (we’ll make the most of it), it’s the fact that our policymakers are clearly of the mindset that their desired ends justify any means. And that my friends is a little scary, to say the least…

Sectors Outlook
In spite of this politically fine mess we find ourselves in, when we look at the market, sector by sector, things don’t appear to be all that bad. The following by the way is no prediction, just my commentary on the major sectors and their prospects going forward. Your portfolio’s overall allocation (stocks and fixed income) should first and foremost reflect your temperament and time horizon. Once the proper allocation to equities is determined, then the sector considerations come into play.

• Technology: No matter how you slice it, the prospects for tech are good this year. Corporations are holding loads of cash and a chunk of what they don’t use for stock buybacks, mergers and dividends (all on the rise) will be invested in technology. At this stage of the cycle, companies are not looking to hire, they’re looking to gain efficiencies wherever possible.

While this has clearly been a business-lead recovery thus far, the consumer has shown recent signs of life. A continued pick up in household spending should bode well for the tech sector…

• Financials: With the yield curve steeper than it’s ever been, banks ought to be hitting it out of the park this year (they can borrow at zero and lend or invest at greater than zero). And I believe they’ll do well, earnings-wise. The political winds they face however (as I’ve proffered here ad nauseam) may temper what could otherwise be a banner year for their stock prices.

• Healthcare: Lord knows?

• Materials: The weak dollar play is off the table for the moment – largely due to the Euro’s troubles, but also due to the recent rosier economic forecasts for the U.S… If the global economy gains a little steam however, demand will pick up and materials stocks should do okay (although they’re coming off of a huge run in ’09). Longer-term, this sector makes a lot of sense to me…

• Energy: Same story as materials in terms of the dollar and the global economy…

• Gold: The problem I see with gold is that everybody’s talking about it. You show me a commodity they’re selling on TV and radio multiple times a day, and I’ll show you a commodity whose price has peaked. That said, it’s been a pure dollar trade of late – if the dollar tanks again this year (don’t count on it), gold should rally…

Spendaholism
In Milton Friedman’s book “Free to Choose” he likened excessive government spending to excessive drinking. We spend a little, it feels good – A little more, it feels good – A lot more, it feels good – We have a hangover (asset bubbles, etc), it feels bad – Hair of the dog (more spending), it feels good. Eventually however, the long-term deficits (which we’ve been too inebriated to notice) will severely damage a nation’s liver (economy) – and rehab (spending cuts) then becomes a very painful process indeed (just ask the Greeks).

I.e., excessive spending (like excessive drinking) may feel good initially, but it eventually results in misery. The fix is miserable initially, but we’ll feel so much better in the long-run…

Now it’s not too late here at home my fellow co-dependants, my fellow enablers, but it’s definitely time we wake up and stage an intervention on our dear old Uncle Sam. In other words, it’s time we vote in a few policy-makers who are willing to administer some tough love (i.e., cut spending – like corporate America has done big-time of late).

How about we vote in some folks with a little business experience for a change? Then pray they don’t start drinking Washington’s kool-aide right away – cause it’s definitely spiked…

And don’t you dare think this is a partisan diatribe (that would clearly be denial on your part) – the previous administration spent out the friggin whazoo – the current one has simply picked up (and a whole bunch) where the previous left off. And believe me, higher taxes (they’ll just buy more booze) will only make matters worse!!

PLEASE Vote Smart!!!!

Have a nice day!
Marty