Capital Ideas Newsletters



November/December 2011

We lost him and we need them.

It was a sad day when Steve Jobs passed. He was one of the great, if not, the greatest, innovators America has ever seen.

Indeed, he was also one of the greatest job creators the world has ever seen. We will miss him — may he rest in peace.

“Occupy Wall Street” extended its reach across the land. How sad that this land of plenty has spawned such dissatisfaction and hatred.

According to TOA Technologies, a workplace solutions software company, the “cost of waiting” for scheduled in-home services, such as cable and internet hook-up or furniture deliveries, is $37.7 billion, equivalent to removing every working American from the workplace for more than two full work days a year.

The era of deleveraging continues, and now it is more striking than ever in witnessing the dysfunction of Europe. Almost daily our markets are held hostage to the news from Europe — are they coming to a debt solution or not? It appears that it will take much longer than hoped for Chancellor Merkel, President Sarkozy and company to reach a decision on how to restructure Europe — your read that correctly… Restructure Europe!

In our deleveraging society, investing is more difficult. It is critical to stress income components of your portfolio as the markets trade in ranges. In this environment, equity returns are largely driven by dividends.

The bond market has held steady… even high yield (or junk bonds) and their indexes are performing ok.

To us, this means that a double dip is off the table because the expectation is that highly leveraged companies, as a whole, will be strong enough to pay their bondholders. In the last week, we’ve seen good signals coming from the economy. In particular, early holiday season retail sales have been strong. The major central banks, as of today, November 30th, are injecting large amounts of liquidity into the system; this is having the effect of lifting stock prices.

Reflating the world is ultimately the debasement of paper money, but of course, everything is relative.

Remember why the central banks have moved in this way — fear was beginning to grip the markets worldwide.

I blame many of the political leaders worldwide for much of what has happened. Very few legislators anywhere understand the markets and how to regulate them effectively. It’s time we started electing our leaders based upon intellect and experience, rather than by popularity contests that are won by the best speakers and marketers. (Yes, I am pounding the table again on election reform — we need it!)

We close this letter with a Warren Buffett idea. In a recent interview with CNBC, he offers one of the best quotes about the deficit:

“I could end the deficit in 5 minutes,” he told CNBC. “You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”

As we close the year we want to wish all our friends and clients a year of health, peace and joy.

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