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kirkydu (93.87)

Middle Age

Recs

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February 14, 2009 – Comments (1) | RELATED TICKERS: GE , JPM , BMY

Middle Age

Last week I was chugging away on an elliptical machine and wondering if reaching my 39th birthday the week earlier had officially put me into middle age or if I have one more year to reaching that particular age catagory.  Judging from the 20-somethings chugging much faster than me, I am guessing it is at least possible I am at the front end of middle age, though I do not want to admit that out loud- writing it is hard enough.  I hope if I work hard enough that maybe I can put off this middle age thing for awhile longer.

Too cope with my midlife awareness, it is not a crisis yet (when I show up in a Corvette, you will know I had the crisis), I gave in to my daughter and son, and got a puppy.  She is a black Lab and Husky mix, and very cute at 9 weeks old.  My kids named her Bella, even though I preferred Pokey.  I am rationalizing that if I make it through the puppy stage unscathed, she might help me add about a decade to my life, as part of her description is "needs daily long walks and runs."  If I can live up to the dog's excercise program, excercise being something I have clearly struggled with this decade, the belly on me you have noticed (a few of you openly) being proof of my struggle, she will clearly have been a good addition to the family.

Ironically (or not) the American economy is clearly having a midlife awareness issue right now as well.  While we are not sure it will reach crisis levels, we are clearly afraid it might, and frankly on the verge of that happening in my estimation.  Last week, to stave off the crisis, President Obama, Treasury Secretary Timothy Geithner and the U.S. Congress, from what I can tell, bought a puppy for the U.S. economy.  While reading the 1800 page document that Congress finally passed is not on my agenda, the Financial Times thinks that there are at least some strong elements to the plan, although clearly with many unknowns, and certainly far from perfect (much like my puppy only being about 80% house broken after a week). 

What I am coming away with is that this stimulus bill is only part one of what will be a three or four part plan, that will certainly include a comprehensive infrastructure bill relatively soon.  Since I have become skeptical of the government's ability to get anything right the first time or all at once, I am ok with the baby steps as that hopefully ensures prudence will take hold, and success will follow.

Congressional Silliness

I was watching the testimony to Congress of bank executives and two things jumped out at me.

One, many Congress people have no idea how the banking system and broader economy work, and that some politicians are just downright dishonest and stupid.  How can we keep electing these people to office? 

Two, most upper level executives of large companies are out of touch with the reality that 90% plus of the world population faces.  Some of the answers they give to questions posed to them are so revealing of their ignorant arrogant sheltered spoiled existence that it is enough to make you spit up a little.

Among the Congress people, and I know this is hard for most non-financial people to understand, but I had hoped the people in charge of the government got it, the lack of understanding of how the TARP funds (the fall bank bailout money) are supposed to work is astounding.  The TARP funds are not meant to be loaned back out to consumers.  That money is there to shore up the balance sheets of banks to legally required statutory levels, just so the banks can maintain their previous lending levels, NOT add to those levels.  To that end, the TARP has in fact been fairly effective, as TARP banks are lending about the same now as they were a couple years ago.  The reduction in lending many are seeing is not much due to the large banks, it is due to all of the other former lending entities that do not exist any longer, for example, mortgage companies, and the financing companies that got much of their capital from private equity firms, hedge funds, university endowments and pension funds, as well as, many of the mid-sized banks which are in dire condition.

The bankers testifying were also clearly astounded that they are not held in high regard for helping bury the U.S. economy and that they are being asked (told) to take pay cuts for their poor leadership.  While I am not much for pay controls in general, like those that are about to be made law under the stimulus bill, I am also not much for bailing out bad management either.  So, if putting temporary pay controls on executives from TARP fund receiving institutions drives out a lot of management, I say good. I hope they find their next jobs in Iran and North Korea.

Of note, if you watched any CNBC during the past week or two, just as with any other time you watched CNBC, I am sorry that the financial media can be so bad.  With the exception of Rick Santelli in Chicago and the occasional guest appearance by Art Cashen, I still can not find many redeeming qualities from the yelling heads on CNBC.  The guy who plays Fozzi Bear goes Wall Street- Dennis something, Charlie "I, me, me, me, I broke some story I really didn't break" Gasparino and Larry "so I've been wrong for 35 years" Kudlow, I find particularly tiring.  I strongly recommend Bloomberg to anybody who has that channel on their digital television package if you want to watch financial TV.  The links page on this site is also terrific if I do say so myself.

Fat Pitches

(Mandatory name drop) Warren Buffet described investing like this once:

The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'

While I have brought up the above notion before, generally in justifying why many of my clients have not been fully invested in what I considered expsensive markets the past few years, it might be time to consider this: that our fat pitchs are coming soon.

Here's what we know right now. 

The stock market averages are down about 40% from the 2007 highs depending on which index you look at.  This might very well have let enough froth out of some very well run company's stock prices to be attractive again.  There is a lot of money creation right now and planned over the next few years, which is likely to cause asset price inflation.Governement stimulus around the globe will be focused on infrastructure, healthcare and alternative energy spending, as well as, unfortunately, defense spending.The baby boomers continue to age and continue to be the biggest drivers of the American economy.The emerging markets still want to create better living standards in their countries and won't be held back long by what are largely the problems of developed market's financial systems.

I am currently reading research and looking for investment opportunities that benefit from lower than justified valuations, government stimulus winners, anticipated inflation in the next decade, evolving baby boomer spending habits and the growth driver of emerging markets reigniting soon.  This will be our very simple theme over the next several years.  So while I do still believe that a broader stagflation is likely in developed (middle age and mature) markets around the world, there will be some terrific investment opportunities for people who can shake off the cult of over-diversification that has destroyed many a portfolio this time around (versus under-diversification that many portfolios suffered from in the 2000-2002 market beatings). My anticipation is that we gradually reinvest over the next two to ten quarters (though we have been nibbling since around Thanksgiving 2008).

Brett Favre and the Economy

As most Packer fans know, the world does in fact revolve around Brett Favre.  Due to Brett's 2009 retirement (just to clarify) I thought I would post some facts about Brett's relationship to the economy:

In years where Brett Favre lost to the Dallas Cowboys in the NFC playoffs, the economy was pretty good.In years where Brett Favre won in a Superbowl, the economy was really good.In years where Brett Favre lost in a Superbowl, the economy was really good.  In years where a coach named Mike failed to call enough running plays on a Brett Favre playoff team, the economy was mediocre.In years where Brett Favre retired then came back to play for a team rhyming with "gets" the stock market got slaughtered.

I know that is not very scientific, but it is as good as a number of Senators use for their financial understanding apparently.

It is clearly time to go.  Here is to American financial middle age and puppies.

Kirk

1 Comments – Post Your Own

#1) On February 14, 2009 at 1:29 PM, rofgile (99.34) wrote:

You get a rec for the Brett Favre post.  As a Packer-fan by birth, I loved it. 

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