The Mass. Election and The Direction of the Economy

I prescribe to the following theory. Having the executive branch and the House and Senate, all controlled by a single party, has seldom been good for the economy and investors.

Reagan had great success with the economy when the House and Senate were controlled by the other party. Clinton had success when the other party had some control as well. In both cases, Reagan and Clinton were required to govern from what the media calls the "center." Let me keep this simple. Obama, due to the current control of all branches of government, is nowhere near the center. All the polls indicate Americans are not in majority support of what he wants.

Remember, what I am looking for is what "combination of politicians" in Washington will allow for:
1) The representation of the majority of Americans on a given topic.
2) The economy and stock market to recover vs. enter another recession.

If the country gets lucky in Mass., we may just end up with what can get the focus back on what Americans want: A group of politicians in Washington, that due to shared control, is forced to compromise and forces Obama to govern from the center like Clinton did. I have said for a year, give me Clinton back!

If the above happens, it will be a first step in improving my outlook for the short and long term future of the global economy. That said, the trillion dollar deficit spending authorized by essentially both parties is a LARGE, LOOMING issue, that whoever wins in Mass. does not address.

INVESTING LESSON:

Too much government control by a single party has seldom = a good economy.

Insight Into The Personal Side of Jerry Wade

I seldom, if ever, comment about my personal matters on this blog. That said, one of the potential benefits for readers of a blog is to gain additional insight about the author that might otherwise not be shared in the traditional format of "corporate communications." Readers need to understand that bloggers are representing their personal views, insights, updates, etc., that may not always be consistent with the company's traditional forms of communication.

The above said, I appreciate that many of the clients of my company, Wade Financial Group, care about me both professionally and personally and are often asking for updates regarding my health. With this in mind, I share the following about the personal side of my life on this amazing place we call earth!

Most readers may not be aware that I was a swimmer in college at Ball State in Indiana.

Last weekend, I competed in the Savannah Winter Classic, as part of the Savannah Swim Team (SST). Other teams were there from all over the region. I was one of three "old people" to compete.

I competed in the 100 freestyle, had not swum in race form in over 30 years. Had trouble in practice prior week with how to pace the 100 race. Came in at 1:02. I actually went faster in practice, but simply went out too slow on the first 50, of which I had been going out way too fast in practice. I will do better next time!


Matched my time of one month ago in 50 free at MN Masters meet of which I came in second in my age group.


MN Masters Meet- December 2009
Click on image below to enlarge.Savannah Winter Age Group Classic-January 2010
Of the 50 swimmers on the SST, age 5-21, I put in the fastest male swimmer time and second fastest across both girls and boys for the 50 freestyle.
Click on image below to enlarge.

Life Lesson:
Thanks for caring. It is the love and caring among each other that transcends the day to day challenges in life that we all face.

Jerry Wade

Words of Wisdom From Doug Kass

I follow Doug Kass, a professional investor whose views often beat to a different drummer than the status quo. Below is a section from his latest article at http://www.thestreet.com/.

"In markets and in life, we are consistently bamboozled by appearance and consensus. Too often, we are played as suckers as we just accept the trend, momentum and/or the superficial as certain truth without a shred of criticism. Just look at those who bought into the success of Enron, the financial supermarket concept at Citigroup (C Quote), the uninterrupted profit growth at Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), housing's new paradigm of noncyclical growth and ever-rising home prices in the early to mid 2000s, Saddam Hussein's weapons of mass destruction, the uncompromising principles of former New York Governor Elliott Spitzer, the morality of our politicians (e.g., John Edwards, John Ensign and Larry Craig), the consistency of Bernie Madoff's investment returns (and those of other hucksters) and the clean-cut image of Tiger Woods."

"Do you want to know the truth or see me hit a few dingers?"

-- Mark McGwire

"And, even the heroic home-run production of steroid-laced Major League Baseball players such as Mark McGwire is ignored until the facts are made public in black and white."

INVESTING LESSON:
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

The Biggest Losers Behind the Christmas Eve Taxpayer Massacre at Fannie and Freddie

Click on the above article link to the WSJ analysis of the open checkbook policy in Washington. Their open checkbook eventually requires that we open ours, further, as well.

INVESTING LESSON:
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Startling Economic Downturn In Savannah Since My Last Visit

I purchased a a condo in Savannah, GA last March. At that time, I saved approximately 15% vs. what I would have paid one year earlier. At that same time, markets such as California, Florida and Las Vegas had seen 30-50% drops in value. What I was told by locals is that Savannah is more recession resistant due to the following diversified aspects of its economy:

1) Hunter Air Force base with several thousand military families

2) Very strong tourism business

3) The Savannah College of Art and Design (SCAD)

4) Savannah is a port city

Each time I have come back since last March, a few more "For Sale" signs have been popping up. Other than that, the "Savannah Resistance" to recession argument seemed solid.

As readers of my blog know, I do not believe that this was/is a normal recession, and I expect the U.S. economy to struggle to recover as we move forward. Of particular concern is what will happen when the government stimulus is withdrawn. My most recent shock was the U.S. government extending what appears to be an unlimited credit line to Freddie and Fannie Mae. This will add billions more to the deficit.

Back to the Savannah economy. The following has been observed this trip that is a clear indicator that the recession in the U.S is not over and may actually be worsening:

1) The downtown heath club and spa that I use each trip closed its doors abruptly three weeks ago.

2) Three stores on the vibrant street I live on have emptied since my visit less than two months ago.

3) Several store windows have "Going Out of Business" signs on the windows.

4) My favorite restaurant is rumored to be closing in several weeks.

5) Ruth's Chris Steakhouse, open for less than two years, is rumored to be closing its doors.

6) I frequent Savannah pawn shops looking for guitar deals. I collect quality guitars. I have been waiting for some high quality guitars to start showing up as a sign that struggling consumers are willing to part with quality guitars, on the cheap. This week's visit found two Fender Stratocasters for sale, of which I had not seen in all my visits in the past year.

The point I am making is that if a city like Savannah is just now experiencing the impact of the poor U.S. economy, how many other cities across the country are experiencing the same sickness? How many other businesses have yet to close their doors? How many more people will be losing their jobs?

In summary, the shock of what I am seeing in Savannah this trip has provided further confidence that my contrarian view vs. those of the mainstream press and Wall Street is still correct.

INVESTING LESSON:

As the saying goes, "It ain't over 'til it's over," rings true with the U.S. economy. The patient is still sick and may not return to prior financial health for years to come.

After the final top we are reaching in the markets at this time has been reached, I believe we will experience a recovery that eventually looks like a caterpillar, with lots of movement, but not upward sloping. Not a "V" but a "VVVVVV" instead.

Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during the portion of market cycles where stocks are rising based upon the momentum of the herd vs. fundamental valuations.

What The U.S.A. "May" Face Moving Forward

The above linked article concisely summarizes the risks facing the U.S. economy and our citizens due to the decisions being made in Washington. Simply click on the title above to read John Hussman's point of view. I respect Mr. Hussman as one of the brightest investment minds in the business. As he points out, it is likely that some time in this new decade the views will be proven correct.

INVESTING LESSON:
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

Quick Take 2009 Review and View of 2010

The year 2009 will go down as a year featuring a spectacular rebound from an awful 2008, combined with the most massive level of U.S. government spending ever seen and spent in record time.

There are always rebounds from bear stock markets. The question we face in 2010 is how much of the 60%+ rebound from March of 2009 is "rented" vs "owned." By rented, the best example I can provide is the 2000-2002 technology bubble burst. The NASDAQ reached a February 2000 high of 4,696. It subsequently crashed to 1,172 in September of 2002. These returns were rented, ending up as "fairies on paper" that disappeared. The NASDAQ stands at 2,269 as of 12/31/09.

So, as we look forward to 2010, should the record returns of 2009 be viewed as "real" or "rented?" I started taking the stance halfway through 2009 that we were moving into the "rent but not own" category of stock market reality. For this reason, we have been reducing our risk exposure in the portfolios I manage at Wade Financial Group over the course of the past six months. I believe it is more important for investors to end up owning real portfolio returns. This may mean that their returns "may not be keeping up" during the rental stage of a stock market rally which may be judged, as based upon economic reality, when viewed several years later.

In our indivdual stock portfolios, we recently purchased more defensive stocks that we believe are well positioned for a potential negative return for the U.S. stock market in 2010.

Over the course of 2009, we reduced the stock/equity allocation of our no load mutual fund to a current level of approximately 46%. The S&P 500 ended up +26.5% for 2009. The WADEX fund, as measured via the fund's website, ended 2009 at +15.9%. The fund captured 60% of the return of the S&P 500 for 2009. In hindsight, I probably got too defensive too early, but with the fund launching in December of 2008, it was difficult to take an aggressive stance with the global financial markets, at that time, imploding towards a financial Armageddon. At the same time, our separately managed accounts at WFG had already been positioned aggressively in late 2008 and took significant hits in performance as a result. We chose to hold tight with the aggressive holdings in these accounts and were handsomely rewarded for doing so. As mentioned above, these accounts are positioned more conservatively at this time.

INVESTING LESSON:

Understanding the difference between "renting" vs. "owning" investment returns is critical for investment success.

Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during the portion of market cycles where stocks are rising based upon the momentum of the herd vs. fundamental valuations.