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Quarterly Newsletters
WINTER 2012 NEWSLETTER
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2012 Themes and Outlook
by Jude Bedell & Mike Frazier
A strong finish to the turbulence of 2011 demonstrates that bothU.S.Markets and the American consumer are strikingly resilient. With all the negativity circulating around the world, it’s remarkable that the Dow Jones Average ended in the green whilst most foreign markets declined over 10%. The greatest irony of 2011 was the downgrade ofU.S.credit by Standard & Poor’s. This action drove hoards of global cash into American markets and the U.S. dollar. Seeking safety, the world came to American shores for refuge once more recognizing our financial supremacy. In 2012, American stocks and bonds continue to be the ones to own.
Bull Markets historically last about four-and-a-half years. This current run began in March of 2009, so the survey says we have another year-and-a-half of wind at our backs. It’s naïve to think we can proceed the old fashioned way of buying low and selling high. We have to act quicker and be more nimble. Markets move faster than ever and so do we. Ultimately, we believe that investors need to embrace longer-term themes to reduce the short-term gyrations. But for the time-being, we plan to continue to buy like investors … but sell like traders.
WHAT WE KNOW
Europe’s problems will not be solved quickly nor easily.Europewill remain a thorn in the side of the global economy in 2012 and beyond, with resolution far from clear and more pain likely.
There will be a Presidential election in theU.S.in 2012. Election years are historically positive for investors. It is way too early to tell who will represent the Republicans, but it is clear that both parties are gearing up for a street fight. The election will no doubt have an impact on the Markets. The problem is thatWashingtonhas been in election mode since last summer, and the prospects of getting meaningful legislation before 2013 is slim to none. This gridlock frustrates investors and voters alike.
WHAT WE SEE
Contrary to popular belief, theU.S.economy actually continues to grow. We are not in a recession. We repeat, we are not in a recession. Job creation is at hand. The unemployment rate has come down, currently sitting at the lowest level in two-and-a-half years. It’s still high by historic standards, but it’s moving in the right direction. Recent polls suggest companies are planning to hire more in the new year. Spending creates jobs and new jobs create more spending. And so the economy grows.
2012 INCOME THEME: MANUFACTURING CASH
The 2012 Income component of your portfolio will “manufacture” cash in three ways: collecting dividends (think stocks!), depositing interest payments (think bonds!) and accumulating cash premiums up front (think options!).
2012 GROWTH THEMES: TECH, ENERGY AND THE CONSUMER
Innovation has not been hampered by the problems in Europe nor the bickering in Washington. Demand for Smartphones and other web-enabled devices is only getting stronger, and they’re not just for “techies” anymore.
We are in the midst of an energy renaissance in the U.S., with vast reserves of oil and natural gas secured. The result could be lower energy costs, a reduction of CO2 emissions, more stable supplies, removing dependence on foreign energy, and a source of new and higher-paying jobs. Technology has made this renaissance possible.
The American consumer is back with a vengeance. Retail sales jumped a whopping 4.7% this holiday season. We continue to be impressed by the consumer’s toughness and see this trend continuing into 2012.
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Read Past Quarterly Newsletters
Weekly TGIF
Every Friday since July 5, 2002, we’ve published a newsletter called TGIF. The genesis of TGIF was our five-year participation in the Contra Costa Times stock picker’s column. We were among ten firms competing. Our internal brain trust would get together every Friday afternoon to compare notes and come up with our stock recommendation for the week. The competition was a huge hit with readers and we enjoyed participating in this column. In fact, we once got an unsolicited phone call on a Wednesday from a subscriber inquiring about our next pick, so the eager investor could front-run and buy the stock ahead of time. We got a chuckle out of that.
If you recall, 2002 was a challenging time for stocks. It was the worst of the three-year Bear Market resulting from the dot.com bubble burst in 2000. Most of our co-participants abandoned the contest, complaining it was bad PR. Many scarred investors loathed stocks, and couldn’t tolerate the Stock Market. We were one of the last three standing when the Contra Costa Times decided to pull the plug on the endeavor. The Stock Market hit bottom in October of that year.
Since we enjoyed our Friday strategy sessions so much, and found value in putting our ideas on paper, we decided to bring it directly to our valued clients. TGIF allows us to communicate our thoughts and strategies in an efficient manner and hopefully provide some education and entertainment along the way. TGIF is now nine years old and counting and we hope you enjoy it!
Thank God It’s Friday February 17, 2012
The 3rd Monday in February is also known as “President’s Day” in the United States. Some no doubt think of it as another ski day, or clean out the garage day, or the day where every retail store offers unbeatable deals.
The roots lie with Congress, in 1880, honoring George Washington, and making his birthday the first Federal holiday to honor an American citizen. The holiday was observed on his actual birthday every year. In 1971 the holiday was permanently moved to the 3rd Monday of the month. It later unofficially incorporated Abraham Lincoln’s birthday, and in the 1980′s became known as President’s Day. For those keeping tabs, Lincoln never had an annual Federal holiday in his name. They are both at the top of the list of Great Americans.
President’s Day 2012 will be especially eventful. Not just because it’s an election year, and the campaign trail is kicking up plenty of dust and debris. While we Americans will be honoring our Chief Executives, European leaders will be behind closed doors, in heated debate, trying to hash out another deal to bail out Greece. Without more financial aid, Greece will default on their debt obligations in March. Greece’s financial problems have been well documented for years now. The country is still running 160% debt to its GDP. That can’t last.
The Market has continued its strength in this new year because expectations have grown for this second Greek bailout. Our international sources believe the European financial ministers are on track to approve a deal on Monday. The proposed deal will allegedly contain a list of 24 “prior actions” Greece must undertake by month’s end to receive funding. Unlike other troubled European nations, the Greeks have not embraced austerity measures to force spending cuts. Time is almost out.
A healthy recovering Europe is a critical missing piece of the global economic puzzle; it’s a big one. Remember, the US and Europe combine for half of global GDP. Clearly this is going to be a long, drawn out process, as there is no quick fix to Europe’s troubles. But you gotta start somewhere, and tough issues are finally being addressed. This will be a big weekend in Europe.
Needless to say, they won’t be celebrating President’s Day on Monday…. But we will. George and Abe knew a little bit about dealing with a crisis.
We’ll be back, dark and early Tuesday morning. Have a great weekend!
By: Mike Frazier
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