Sunday, May 31, 2009

Seeds of Hatred--Reaping the Harvest

I was shocked to learn that President Obama and others said they were shocked that Dr. George Tiller was murdered in cold-blood while serving as an usher in his Kansas church. If you believe that you reap what you sow then the murder of Dr. Tiller is not shocking at all.

What we are seeing could be the harvest of the seeds of the vile and unrestrained anger and hatred that have been planted, spread and nurtured by the sleazemeisters of the Right Wing--self-described media stars and politicians who claim to be true conservatives, real Republicans, and patriotic Americans exercising their First Amendment rights.

George Tiller was one of the few doctors in the U.S. who continued to perform controversial late term abortions. For years he has been literally (he had been shot before) and figuratively in the cross hairs of pro-life groups who oppose abortion in general and late term abortions in particular. He was a frequent target of Fox News commentator Bill O'Reilly who, referred to the doctor as "Tiller the Baby Killer" and characterized him for the last four years as a "Nazi-like" criminal with "blood on his hands."

The Tiller murder comes just weeks after a man who said he was concerned that "Obama wanted to take away his guns" went on a rampage that left three police officers dead in Pittsburgh. The words the killer used to characterize his concerns were an almost verbatim recitation of a rant aired by Fox News commentator Glenn Beck just a few days earlier. Beck has referred to Obama as a man who wants to destroy America and the capitalist system. Beck once delivered an ominous warning about the president's agenda with Nazi soldiers marching on a screen behind him and ominous martial music playing in the background.

I'm certain that O'Reilly will insist, as Beck did, that it would be both wrong and unfair to link the inflammatory rhetoric and the vicious language of his repeated attacks against Dr. Tiller to the fact that a passionate true believer may have taken him seriously and decided to rid the world of this murderous Nazi abortionist.

But the venom spewers can't have it both ways. In their zeal to make headlines and establish themselves as true leaders of a movement and a party that has become consumed by anger and hate, these "celebrities" have chosen to abandon their civility, reason, and sense of responsibility. They either mean what they say--in which case those who rid the world of murderers, Nazis, and other liberal villains should be hailed as heroes--or they don't in which case they are simply cowardly liars committing libel in the name of the First Amendment as they discredit their once proud movement and/or party.

They have made a bargain with the devil in exchange for ratings and their 15 minutes of fame. Now we are all paying the price.

This gutterization of discourse hit full stride during the presidential campaign last year when Obama was characterized repeatedly as a friend of terrorists, a secret Muslim, and a person who wanted to destroy America, slit the throat of Israel, and desecrate values that all true patriots hold dear.

Since he became president, the attacks have actually picked up in volume, intensity and scariness. I have seen President Obama portrayed as a Nazi, a socialist, a communist, an enemy of Israel, the destroyer of capitalism, and a racist. And that's in the self-described "mainstream" media.

When you troll with the true bottom dwellers (Limbaugh, Hannity, Liddy, O'Reilly, Savage, Beck, Gingrich, Cheney. Levin, and such) it gets really ugly. Each of these scumbags claims to speak for the Republican party. While none holds any elective position, the party leadership treats them with deference and respect. Is it any wonder that fewer people identify themselves as Republicans today than at any time in a generation and the number continues to drop on a daily basis? Anger and hate apparently just aren't in vogue this season.

Reasonable people can and will disagree about whether the deaths of Dr. Tiller, the Pittsburgh policemen, and other recent victims of violent outbursts can be attributed in part to the increasingly vile and vicious attacks coming from the Right.

But there is absolutely no doubt that we are suffering mightily as a society from the spread of hatespeech and the decline of civility in our public discourse. The truly racist, bigoted, and inaccurate attacks against Supreme Court nominee Sonia Sotamayor have taken the level of discourse to a new low--not just because of the outrageous and ugly rants themselves but even more so due to the way they have been legitimized and spread by the true mainstream media.

This has nothing to do with the freedom of speech guaranteed by the First Amendment. People are free to express their opinions--that's what makes America great. But people do not have a constitutional right to viciously attack and slander people with lies at hateful comments on our commercial airwaves. The decision to provide these vermin with an electronic soapbox is a commercial decision that is made daily by owners of radio and TV stations who are putting their desire for profits ahead of the public good.

We are paying a huge price as a society for our unwillingness to marginalize these evil people and the media outlets that provide them with airtime and credibility. Unless and until we start making better choices and acting more responsibly, we will continue to reap the bitter harvest that will continue to sprout from the toxic seeds being sown in our midst.

Edmund Burke is credited with telling us that "all that is required for evil to prevail is for good men to do nothing." We can all start by changing the channel when these egomaniacal zealots are posturing or are being quoted by others and inform the station management that we are V-chipping them until they start acting responsibly.

It is not necessary or even good if all of us agree about the issues. But we cannot afford the luxury of tolerating those who are angry and hateful and want us to be the same. The one value we can all stand for is the importance of civility.

We can't honestly call ourselves civilized until we learn to disagree like grownups.

Monday, May 25, 2009

Investment Update -- Stocks, Stuff, and the Bond Bubble

This is a good time to look at where we've been to help figure out where we're going.

For months now I have been very worried that the U.S. Treasury bonds that so many frightened investors have flocked to seeking safety are not safe at all.

I've also talked about how it’s a time of great risk and great opportunity. About how it’s not time to be bullish or bearish but it’s time to be smart. About how that means owning stocks and stuff—quality technology companies with proprietary, productivity enhancing products, consumer staples, and emerging markets on the stock side and commodities, basic materials, infrastructure products, and energy on the stuff side.

The underlying thesis has been that we are in a deep recession where debt-strapped people and companies will only buy necessities and value-added products. We are in a bad demographic place in the U.S. with too many of us old fogies who will live way too long and be net takers from society and the economy so it’s better to invest in countries where there are more young people.

We have a president who says he is committed to building infrastructure, clean energy technology, and saving the economy at all costs. ALL costs.

Since early in the previous administration, the U.S. has been printing trillions of dollars with no tax revenues to back those pieces of paper up. Once we reached the the brink of financial collapse, those efforts were ramped up even further. As a result, the cost of stuff is about to go up and our loan sharks (the institutions and countries that buy our debt) will demand much higher interest rates going forward.

No matter which party is in control, we will never raise enough tax revenue to service and pay down our debt so the Treasury will simply print more dollars with nothing to back them to give our creditors the “money” they have coming. We won’t default—we will just inflate.

As usual, the experts and pundits have been clueless. All of the cable conversation been about whether the stimulus will work (whatever that means), whether the banks will all go broke (as the stock market seemed to predict two months ago), whether the banks will all come storming back (as the stock market has been predicting lately), whether Obama is a socialist, whether Nancy Pelosi is a liar, whether Rush Limbaugh or Colin Powell is a better Republican (just the fact that they’re having the conversation is scary), and a whole bunch of other stuff that range from inane to not a big deal.

Here's what's important. The economy is terrible. Tens of millions of Americans are hopelessly in debt, out of work, or underemployed. But things have started to get worse at a slower pace and eventually things will get better. That's because Obama has decided to take a complete financial collapse and economic depression off the table for now by printing money. The price we will pay for that in the future is not totally clear but some things are getting clearer by the day.

The long-term borrowing costs for the U.S. government have increased by well over 50 percent during the last few months and will go higher. The value of “safe, guaranteed, and risk-free” treasury bonds has dropped sharply during that period. These are the holdings in the funds battered investors turned to in March to get away from the volatility of risky equities. Since then, the stock market has soared (to great fanfare) while sharp drop in the Treasury market has gone relatively unnoticed.

Short term interest rates—which the Federal Reserve can control—have remained near zero. But the free-market forces in the long-term bond market are suddenly making it very clear that even with the Fed out there buying hundreds of billions of dollars worth of bonds, there is still way more supply than demand at these interest rate levels. The yield on 10-year notes has jumped from 2.00 percent to 3.45 percent and the 30-year rates have gone from 2.50 to 4.30 percent since the first of the year.

The rise in rates could provide the catalyst that many are looking for to trigger the correction that most investors are expecting after the recent straight-up move of more than 30 percent in most stock averages.

But something else could be going on.

It may well be that with all its problems, the economy is at least on the right track and will, albeit in fits and starts, keep moving in the right direction. It could also be that the mountain of money that moved into cash and bond funds earlier this year will start moving into stocks and that correction everyone is now expecting will come from much higher levels.

We have already seen cash lose its buying power as those who own oil, gas, gold, silver, copper, and other raw materials are demanding more dollars for the same amount of stuff. Did anybody out there check out gas prices over the weekend? As the cost of stuff goes higher, the cost of essential products will go up as well. The value of the companies that make those products could go up with the tide.

That assessment may only be partly right and things may not unfold exactly that way. The fact that we don’t really know is why we diversify.

I'd want to keep owning stocks and stuff and buy more if we get the pullback in prices that everyone has been predicting--which is why we might not get it.

It’s time to look past all the stupid chatter coming from the media and be smart. I’m here for you and anxious to talk about how to invest in this very challenging environment. Everybody's investment objectives and risk tolerance are unique. There are a lot of question marks out there, but smart is still smart.

Be well and stay in touch.

Tuesday, May 12, 2009

Investment Update -- What Now?

It was just nine months ago that George Bush was assuring us that the economy was fundamentally sound and Phil Gramm accused Americans of being a bunch of "whiners" who were going through an imaginary recession. That was, of course, the time when the value of virtually every asset in the world (stocks, bonds, real estate, oil, commodities, businesses) was about to go into a death spiral that slashed at least half the value from the best companies and assets and more from the rest.

At that point investors either chose or were forced to sell pretty much everything they had because many felt the last one out of anything and everything was certain to get zero.

That panic mentality peaked on March 9--the bellweather day when I received five calls and emails from different clients demanding that I sell everything they owned (I talked four of them out of it). As it always has, that panic-fest marked a bottom from which we have seen most markets shoot higher by at least 35 percent over the last two months.

That rally has occurred in the absence of anything that could be called a clear sign of recovery in business conditions. Housing prices continue to fall. The problems in commercial real estate are just beginning to get truly ugly. Most consumers are still deeply in debt. Our economy continues to lose more than 500,000 net jobs a month as almost 9 percent of Americans are unemployed and a larger percentage are significantly underemployed. Any yet, since March the riskiest assets and stocks are the ones that have appreciated the most.

Stocks of home builders have doubled or tripled as have the shares of the most troubled banks and other financial institutions. At a time when mortgage defaults are skyrocketing, the stock of MGIC--the world's largest mortgage insurer--has gone up by 500 percent in just eight weeks. That, of course, is after it dropped from $60 a share to less than a buck. But still...

So here we are. The easiest money has been made. The banks that everyone thought would all be worthless are now way up in price (from the bottom) and actually are selling billions of dollars worth of stock daily to hungry investors--a topic which I was asked about today on National Public Radio's Marketplace.

Has the whole world gone crazy? Is all forgiven? Is this the beginning of the new bull market? Is this a bear trap? Are investors about to get their hearts and 401-k's crushed again? What now?

The answer, of course, is that no one really knows. But the course of action that I've been recommending for months should continue to provide good returns over time as it has recently. That's because during these times of great uncertainty there are some things that we actually know for sure.

We know that our government is determined to stoke the economy with trillions of dollars of stimulus money targeting infrastructure, alternative energy, technology, and creating the jobs of the future. We also know that as an inevitable consequence of the deficits that will accompany that stimulus, interest rates will rise and the cost of tangible assets and many products will go higher--a lot higher.

We also know (with credit to Rod Smyth and Michael Jones of Riverfront Investment Group) that price matters. Historically, people who buy good stuff and good companies at low prices do better over time than people who invest at high prices. By many measures, a lot of good assets and great stocks are cheap right now although prices could pull back some after the recent two-month straight-up run.

So my advice is to buy those things over time and plan to own them for a while.

But there are other things we know. We know that the boom years that just went bust were fueled by unrealistic assumptions about unending growth and by mountains of consumer debt. Most of those bills have not yet been paid and even when they are it is unlikely that lenders or borrowers will get themselves into that big a mess for a while. That will translate into lower consumer spending for some time to come.

We also know that health care costs are killing us (no pun intended). There is going to be pressure on the profit margins of insurers and providers for the foreseeable future.

We also know that our country's demographics do not bode nearly as well for growth as do those of many other countries in the world where there are a lot more young people and a lot fewer old people who will live well into their 80's and 90's. The economies of those emerging, younger markets will probably do better going forward than those loaded down with us fogies who have neither the energy, the appetite for risk, nor the inclination to work as hard as we once did. So an overweight position in selected emerging markets makes sense.

What we don't know is whether the TARP, the bailouts, and the recent spate of stock offerings will put our biggest banks on sound footing again. They are all doing great on an operating basis now taking in deposits at zero percent and loaning the money out at much higher rates. But those pesky balance sheets may still be telling an ugly story that I, for one, don't understand so I'm sort of staying away. If things work out well--and I hope they do--then that's just money someone else will make.

So if I had to make a guess--and I actually do since I do this for a living--I would say that emerging markets, hard assets, technology, commodities and infrastructure companies should be over weighted in portfolios going forward and long term U.S. Treasury bonds should not be owned at all.

Since I first took this strong stand against treasuries, the 30-year U.S. Treasury bond has lost 15 percent of its value as rates have quietly but steadily climbed.

That means that an investor who sold his or her stocks two months ago and invested the proceeds in a "safe" government bond fund has missed out on the 30 percent up move in the market while losing 10 percent of their money in their "safe and guaranteed" investments. Who knew? Actually, I did and I have the blogs to prove it but I've done enough own-horn tooting lately.

Be well and stay in touch.