A Little Perspective Here

We moved out of our long positions, built up in the Oct 2008 to Mar 2009 panic period, way to early, and followed with short positions.  This action had a substantial  effect on our short-term performance.  As of a couple of days ago when the stock market peaked, the year to date performance of our Aggressive Portfolio was down 5 percent, the Conservative Portfolio was only up 5 percent, while the S&P 500 market index was up 19 percent.  On the other hand the Macro numbers over two years paint a much different picture, the Aggressive Portfolio was up 45 percent, the Conservative Portfolio was up 37 percent, while the S&P 500 market index was down 30 percent.

To us what is important here is that the Bubble built up under Greenspan, he was the culprit with all his followers, was enormous and will not go away easily.  The selection and retention of Bernanke means that this bubble will not go away quickly.  He is trying to be a magician also, and is trying to let out the air of the big bubble by creating a lot of mini-bubbles to cushion the fall.  One can debate forever whether this is the correct strategy, but for sure the pain while being cushioned will take a long time to go away.

Much of the money provided by the government has gone into speculation, no capitalist who sees the bubble situation clearly, will make long term investments unless it is in an area with government guarantees or can be a quick trading turn.  That is what is behind the bounces we have seen in stocks and commodities.  Years ago we were a manufacturing country, that is why we had the three Dow stock indexes, the Industrials, Transportations, and Utilities.  Now we have the S&P 500 and Nasdaq added so that we can invest in the consumer side of the economy which was over 70 percent of the total a couple of years ago and much of the Dow Industrials are now conglomerates that tap into that consumer side.

For me two things stand out, 1) the consumer is getting economic religion and is pulling back, and 2) the big banks and government haven’t begun to make the changes needed.  By the end of this economic cycle in 2017 there will be a new economic paradigm that will be much different than what we are seeing now.

 So in the mean time, if you are a conservative investor, take advantage of the mini-bubbles to get heavily into cash and wait for the next panic to start buying again.

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