Q2 | 2016


This is the new word circulating on the internet used to describe our current political and governmental system. It is, perhaps, the system now in place in most developed westernized nations – a system of government where the least capable to lead are elected by the least capable of producing; and, where the members of society least likely to sustain themselves or succeed are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

Whether you believe this is the case here in the U.S., it is clear that socialist parties are gaining power in developed nations. These nations’ economies were built on capitalist fundamentals and are now being threatened by their electorates.

“Banks a Lot”

That is what Wall Street said to Jamie Dimon. Just as legislators were quieting down with respect to banking regulations, J.P. Morgan stunned the financial world with a $2 billion trading loss. In the context of J.P. Morgan’s earnings or balance sheet, the loss was by no means earth-shattering. What it does point out, however, is that big banks are not only too big to fail, but have also become too big to manage. We continue to pound the table—please bring back the Glass-Steagall Act!

Thank China

China’s holdings of U.S. Treasuries rose by 1.3% to $1.17 trillion. Japan, our nation’s second-largest foreign creditor, watched its holdings slip to $1.08 trillion. Behind those big buyers of U.S. debt stood the Federal Reserve which remains the top holder of U.S. debt with $1.665 trillion on its balance sheet.

The U.S. stock markets are swooning from the uncertainty in global trends: China’s growth is slowing, Europe has its debt mess and slowdown, the national election looms large, and U.S. growth and unemployment are disappointing.

One positive from this retreat is that the price of oil has come down, which equates to a tax cut for most Americans. This, in turn could boost consumer confidence.

Commodity prices and gold have weakened considerably. Does this portend low inflation and continued low interest rates? We believe so. It just may be that in the next few months the ten-year U.S. Treasury Note falls below its all-time low of 1.672%.

A “Weak” Later

As of this writing, Facebook shares have traded down from their IPO price of $38.00 to $28.00 per share. The underwriting was successful in that Facebook raised capital at an extremely high valuation, but unfortunately, small and unsophisticated investors got burned if they did not sell quickly, or if they bought in the aftermarket. Now the company will have to prove itself. The jury is still out…

Polio (yes Polio!), is now endemic to just three countries: Afghanistan, Nigeria and Pakistan. Bloomberg News reports that in recent years, visitors have carried Polio back to 39 previously Polio-free states. Proper funding is needed to continue to keep the disease from returning, but with the global economic slowdown, monies have not been available.

As the news from Europe vacillates, U.S. stock markets, and markets worldwide, will experience continued volatility. Germany, France, Italy, Spain etc. must find a solution to the Euro debt crisis. Europe’s woes must not be underestimated. The European Union was the second most important destination for U.S. exports, comprising 19.2% of the total – just behind Canada at 19.9%. Make no doubt about it, a weakened Europe is a negative for U.S. growth.

However, volatility of markets should not obfuscate positive developments in the U.S. economy and in the standards of living worldwide. American companies are well-positioned to benefit from the national gas and oil boom. As energy becomes abundant and cheaper to American manufacturers versus their international counterparts, we as a nation should become more competitive globally. This element of the economy can be viewed positively from a long-term point of view.

We are very bullish on American businesses. Yes, there are problems – there are also solutions. Good leadership is the answer.

Until our system brings the best back to the top, stagnation is likely.

Each of us must do our part and participate to bring about the necessary change. Get involved in the political process – it is your duty. Following this Memorial Day weekend, let us pay homage to those who fought to keep our nation free and strong. It is truly in our own activism as citizens that we pay respect to those who have given their lives to protect it.

Wear Sunscreen!

Q2 | 2016


…does lift all boats. At this point, even rising interest rates are lifting boats as we have watched the ten-year treasury note rise in yield (not price) from 1.95% on January 1, 2012 to 2.246% as of this writing. Although interest rates are higher than they were at the beginning of the year, they remain historically very low.

Americans are buying more homes this year than in 2011. The Wall Street Journal reports that the pending home sales index was up 9.2% in February from the same month last year.

Good news, and Federal Reserve Board Chairman Ben Bernanke’s comments regarding keeping interest rates low until 2014 buoyed the market month end.

A relief rally in global markets occurred after the Euro stayed intact. This resulted in impressive gains with the S&P 500 index advancing and even Germany rallying 17%.

The best performing market sector was American banks as a group, gaining 26% in the first quarter. Despite that, three major U.S. banks – Morgan Stanley, Bank of America and Citigroup may be downgraded by Moody’s Investor Services. This may present an opportunity to buy the debt and preferred securities of these issuers.

Currently, the Italian ten-year government bond yields 7.104% – that is roughly five percentage points more than a U.S. ten-year government bond yields. If both countries are ultimately backed by a printing press, how much of a difference is there really? We shall see.

The world “feels” like it is heading for repair, with the exception of China, which is being “talked up” as a slowdown story for 2012.

Is it any surprise that Apple’s supplier in China, Foxconn, was found in violation of labor practices. We believe that there are many similar violations worldwide.

The markets are trading at reasonable valuations right now given what investors can receive in bond interest. Savers are being forced into high-quality equities, but the rally seems to be running out of steam. The market may take a breather due to valuations and investor reluctance to get in after the run. We say “may” because momentum usually swings the pendulum to excesses on the upside and downside of the market.

The world has moved from wide lens to a narrower and narrower viewpoint. We recently heard a comic remark that the great magazine of the day has gone from “Look” to “People” to “Us,” and now to “Self.”

In a paradoxical way, that seems complimentary to the technology that has evolved and clearly the “me” is in, and the “group” is out. Just look at the annoyed fellow train/plane passenger on his “device” as you dare introduce yourself!

One of the best things for this nation is to have an active population. People should not stop growing. Albert Einstein said, “Intellectual growth should commence at birth and cease only at death.”

The price of oil is dominating the news, and there is no doubt that gasoline prices could put a damper on the fragile recovery. We do not believe, however, that the current spike in prices is cause to use the strategic petroleum reserve.

“The Election” means the government will be less likely to stick its neck out. This may be a net positive for the markets. Stay vigilant, however, because the waters have been so calm (and the weather so good!) that we are due for a storm.

Enjoy the holiday and the spring!

John Locke, the famous English philosopher, said, “It is one thing to show a man that he is in error, and another to put him in possession of the truth.”

If only the world’s politicians would follow this credo… but could we really handle the truth?

‘Til May/June,

Q2 | 2016


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.

Q2 | 2016


As the world turns, we are now faced with pessimists almost everywhere we look. It is as if we have never faced large deficits and high unemployment before. Solutions exist to the economic problems we face, but there is little, if any, debate about the sociological changes this country has undergone and what the impact of these changes has been. I call our current state of affairs “The Era of Me.”

The individual, rather than family or country, has become the priority and focal point and, in many respects, has caused the dilution of our ethics, our strength and our resolve as a nation. Further, the state has become the safety net as opposed to the family… that is just not a good thing.

Fifty years ago, our nation admired those with courage, principles, discipline and patriotism. Now, we see one politician after another preach bipartisanship while stonewalling each other’s proposals to no good end. The population is fed up, and Herman Cain’s win in the Florida straw poll is just one example.

The “September Massacre” has taken no prisoners. Every asset class except for high quality bonds has suffered. A small number of stocks have performed, but they have been few and far between.

Fortunately for us, the majority of our equity holdings are high quality, high dividend stocks. Many of them got marked down, but by less than the market as a whole and the dividends helped soften the blow. Our bond portfolios have performed extremely well, as did most of our hedge fund holdings.

Among our asset classes, the two primary disappointments have been foreign bond holdings and commodity exposure. We believe that non-dollar exposure continues to represent an important component in many portfolios and have retained our exposure in this area. However, we cut back the commodity exposure due to internal risk control factors.

Doomsayers abound, from George Soros to pundits on CNBC. For sure, this is the choppiest, most challenging time I have EVER seen for markets. The problems are (i) a dysfunctional United States government, (ii) an over leveraged economy from home mortgages to credit cards, (iii) a European currency and monetary union which may fail (G-d forbid) due to the inability of the P.I.I.G.S. (Portugal, Italy, Ireland, Greece and Spain) to get their financial houses in order and (iv) the “managed” slowdown in China.

Putin has decided it is time for him to reassume the Russian presidency… whatever happened to “Gorby”? This is more evidence that Russia is a “back to the future” country.

The gold trade rattled investors, as margin calls and stock market downdrafts sent weaker holders to the sidelines. We expect the metal to shine again as quantitative easing #3 becomes more obvious to Fed observers.

Mayor Michael Bloomberg said, “We have a lot of kids graduating college who can’t find jobs. That’s what happened in Cairo. That’s what happened in Madrid. You don’t want those kind of riots here… ” Mayor Bloomberg is correct. We need a jobs program through strong tax incentives here. Those incentives should be directed towards growing industries and to educational programs.

Is it not ironic that over-regulation occurs when the economy is weak, and under-regulation occurs when the economy is booming and freewheeling? The pendulum on regulation always swings too far in reaction to the last crisis… don’t they get it in D.C.?

President Obama is out campaigning already. Raising money is his number one job. Are we not sick and tired of the political money raising machine? If only they were as good at raising a few dollars to keep the country running! Is the best man or woman winning the race, or is it the guy with the best fundraising apparatus?

Governors Cuomo and Christie (the Two C’s) are inspiring their local constituents to believe in government, and we applaud their practical and common sense approach to governing. It would be interesting to see these two as opponents in the 2016 presidential election.

Diversification is critical in these uncertain times. Too many let fear hold their investments hostage. As Warren Buffet says, “When the sun is shining, it is too late to buy cheap.” Keep your allocations in line with what you can handle emotionally. Otherwise, your plan may get scuttled.

We believe the problems of the world are very solvable. We need leadership that is above petty partisanship. Once we achieve that, the United States will be off and running again.

As a friend of mine said, the United States needs a “mood transplant.” I am hopeful that as the holiday season approaches, we will be uplifted by the news that our leaders, and those around the world, will make good choices and bring about the confidence that is sorely needed.

The best is yet to be!

Q2 | 2016


That is the status of the American government today. It is now Sunday, July 31st, and I am watching CNN as Senator Reid is speaking on the 1pm vote — at this point much of the damage has been done. Who would ever believe that this government would go from bad to worse? Though I believe a deal will get done, we have proved to the rest of the world that we are as irresponsible as a 10th grader who crams for an exam by pulling an “all nighter.” It is incredible that as of today, Apple Computer has more cash on hand to pay its bills ($78 billion) than Uncle Sam!

Since banks have tightened their lending, Americans are turning to their 401(k)’s for money. According to The Wall Street Journal, companies that run these plans reported double-digit increases in borrowings since 2009. This is not a good sign.

It seems inevitable that we are falling into a period of “stagflation,” a concept I’ve discussed before — slow or no growth in the economy with inflating costs. The unfortunate consequence of stagflation is a lower standard of living for most Americans.

We believe that strong individual tax incentives are needed to reignite this economy — NOT tax reductions or excessive government spending. Government spending as a percentage of GDP will be over 40 percent. Enough already!

The rain in Spain falls mainly on the banks… When Banco Santander went to the credit markets in June, the markets bought only about half of the deal. This speaks volumes to the nervousness in Europe. I do not know how they are going to keep it “all together” there.

Headlines of U.S. government dysfunction, the European debt crises, and the slowdown in China have the markets very skittish. Even so, American businesses continue, for the most part, to report good earnings — and their balance sheets are in good shape. “Private Enterprise” is better equipped to bring the economy back than the government.

Tax Freedom Day is the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden. This year, it was April 12th, the 102nd day of the year. Taxpayers worked more than three months before they earned enough money to pay this year’s federal, state and local taxes. Americans will pay more in taxes in 2011 than they spend on groceries, clothing and shelter combined.

There is so much controversy about how to get the economy going. The simple math is that we, as a nation and individually, have been living beyond our means. Deleveraging this economy will continue to be painful. There are no quick fixes.

Americans spent $55 billion on pets last year… amazing given the current environment. I guess the bark is as big as the bite.

Even though the stock market has been choppy, our portfolios have done well with foreign bonds, specialized mutual funds, hedge funds and income-based equities. Total return vehicles should play well in the deleveraging economy.

If we could get health care spending under control, it would go a long way to reducing the stresses on citizens and the government. This should be a national priority.

Quentin Crisp said, “Never keep up with the Joneses. Drag them down to your level. It’s cheaper.” The United States needs to learn this lesson.

Stay nimble and do not be afraid to make changes in your portfolio — the only constant is change.

The best is yet to be!

Q2 | 2016


As The New York Times recently reported, federal safety regulations must take the weight of Americans into account when regulating air, sea and land travel. The National Center for Health Statistics has calculated the average weight of an American male as 194.7 pounds and 164.7 pounds for females. He’s (she’s) not heavy, he’s American!!!

America is a tale of two cities. On the one hand, corporate America’s profits are strong, borrowing costs are low, workforces are lean, and balance sheets are flush with cash. This contrasts with strapped underemployed Americans, higher taxes coming, political posturing at the expense of our country and a widening economic gap between the haves and have nots. The potential for social unrest because of these issues continues to rise, as does the percent of government responsible for GDP! We are not a fan of this prescription.

In a sign that “breaking up is no longer hard to do,” the U.S. divorce rate, which had dipped in the economic collapse, has rebounded. Along these lines, the royal wedding was met with much less fanfare than in the past. Just a matter of “Kate” expectations.

As an asset class, Hedge Funds eclipsed their previous high in assets under management, reaching an estimated $2 trillion, roughly $600 billion more than in 2008. Public pensions have been a big contributor to this increase.

As the budget crisis deepens every day, Washington wastes time, preoccupied with elections, sex scandals and old ideas for solving the problems of a new generation. It is foolish to think that what happened in the Middle East cannot happen here. New media is delivering unprecedented power to the people, and incumbents (of all types of governments) should be concerned with inaction.

We must all be concerned with what happens around the globe. The world has become so interconnected that no nation can prosper without the cooperation of Earth, Inc.

Under current projections, interest payments on the national debt will swell to above $650 billion by 2017—three times more than what the U.S. pays now. For the next 12 months, the U.S. will have to roll over $2 trillion in short term obligations. Just staggering!!!

In our view, the dollar will continue to fall, commodities (generally) will continue to become more valuable, in dollar terms, and strong large multinational corporations with predictable cash dividends will continue to perform well.

We still believe a 5-10% advance in the large indexes is a likely scenario for 2011, so the recent pull back was not unexpected.

Watch for second quarter earnings releases in July to see where the markets might go. Our view of bonds is to remain on the shorter end of the yield curve, but it is likely that no major interest rate increases will occur unless a crisis occurs or business and housing improve dramatically.

As said in the Financial Times, “Rebalancing our economic engine always makes for a bumpy ride.”

In our view, volatility in the markets will remain an issue for the balance of this year. It is our job to be a steady and calming influence on this otherwise rocky road.

If you need our guidance, we are here.

Q2 | 2016


Sixty-six years after the U.S. dropped the atomic bombs on Hiroshima and Nagasaki, nature, rather than man, caused the nuclear reactors in Japan to explode and leave an uncertain wake of destruction and potential disease in the Nippon lap. Our deepest condolences to the families in Japan who have suffered.

The Four Billion Dollar Problem

That is approximately what the U.S. deficit is per day!!! Clearly, the municipal deficits have taken center stage. Fortunately, politicians such as Mitch Daniels, the Governor of Indiana, and Chris Christie of New Jersey are starting to introduce responsible economic policies to bring them voters’ admiration. Unions are not necessarily happy about this; nor are some older Americans, but ultimately altering entitlement programs (i.e., Social Security, Medicare, and Medicaid) are necessary to keep this nation solvent and strong.

“Derivatives are financial weapons of mass destruction,” said Warren Buffet in a prescient 2002 letter to Berkshire Hathaway shareholders. Financial companies in the U.S. have approximately $7.38 trillion of gross exposure. This exposure is mainly among J.P. Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley… talk about diversification!? We believe this represents an unacceptable risk to our entire financial system… it appears that the lessons of 2008 may have gone largely unheeded. If we had our way, the notions of authority, responsibility and accountability would be clearly aligned. Enough is enough.

The markets had a great run in the first 45 days of the year, up almost 7 percent. As the Tunisian and Egyptian people stirred, so did the markets. Then as Libya followed, oil prices soared, metals and treasuries rallied, as did the Norwegian Krone, the Canadian Dollar and the Swiss Franc (the two former currencies have oil as a major resource) and the markets dropped, scared of the financial impact of higher oil prices. Then came the disaster in Fukushima…

Also dampening the markets was the report of downward adjustment of U.S. growth in the last quarter of 2010 from 3.2% to 2.8%.

With commodity prices rising significantly, including agricultural commodities, and growth slowing, could stagflation be around the corner? We believe this to be a strong possibility. Unfortunately, although there is plenty of slack in the U.S. labor market and in our manufacturing capacity, this is not the case elsewhere in the world, and certainly not in China. We believe that ultimately we will be “importing” inflation along with the purchase of electronic goods, clothes and furniture from overseas.

The junk bond rally, in our view, is close to its end. Buyout firms were paid dividends with a large measure of the junk money raised, and deal covenants have become excessively liberal for the issuers.

Mortgage rates have been inching up and with a high number of adjustable mortgages resetting in April, there may be a rude awakening for variable rate mortgages.

All of the factors above are reasons the Fed is stuck between a rock and a hard place. Too much printing of money and the Fed fuels inflation. If it is not accommodating enough, there is the risk of a double dip. I would not want to be Ben Bernanke.

The markets are becoming more volatile after a steady rise… mixed messages and uncertainty are difficult for the markets to digest.

Don’t be bearish on the USA! We have a GDP three times as large as China’s. Yes, their rate of growth is higher, but we are a transforming nation steeped in a long economic curve that has stalled. Once we figure it out (and we are) America will boom again.

Christie and Daniels are proving that Americans are ready to elect and support politicians who are responsible governors. To regain our financial footing, we must address Medicare, Medicaid, defense spending and raise the retirement age for Social Security. Now, because the U.S. is in a weak financial state, we can no longer dictate to the world. We need to learn to build consensus. After all, when you pick up the check, you can choose the restaurant… China’s move to purchase arms and build its military can be viewed as a positive as it moves to share responsibility to police the globe with the western nations.

Further, we applaud President Obama’s position of asking other nations to help the U.S. police the world and share responsibility for keeping peace.

As a recent World Street Journal editorial read, “The responsibilities of power, and the realities of a dangerous world, tend to be educational.”

The U.S. will be printing money through June, and this will probably keep things humming through September. Once that source of credit ends, the question is whether the private availability of credit will pick up the slack… in other words, when the patient is taken off life support, can he breathe on his own? Only time will tell.

AMEN! Hope “Springs” eternal. Happy Holidays.

Q2 | 2016


“On the one hand… and on the other hand…” Well, as applied to “one hand” the housing market and economic crisis has caused deflation. And “on the other hand” the U.S. continues to print money to inflate the economy. We say BOTH deflation and inflation are happening at the same time. Let us explain.

If you buy a home today, odds are that it will cost less than it would have three years ago. If you go to Wal-Mart or Target, the values are incredible and you will pay less for much of their merchandise. If, on the other hand, you want luxury items from abroad, you very well may pay considerably more.

This trend may continue for awhile. Capital has flowed through the American consumer to the government’s intended target — i.e. housing for one (mortgage deduction!). In the last 50 years, the average American home has grown from approximately 1,500 sq. ft. to 2,500 sq. ft. — much larger than the homes in China and most of the world.

Also, for the better part of 50 years in this nation, we have stressed consumption. Rather than consumption, we should be incentivizing education, good health habits and investment in infrastructure.

Bonds have been very kind to investors and QE2 (quantitative easing the second time around) is an attempt by the Federal Reserve to keep interest rates low and boost stock prices. So far, it is working. We must recognize, however, that buying bonds ultimately raises their prices while lowering their real value — the definition of a bubble. Thus, it is crucial that investors be vigilant in monitoring their bonds to decide the exit point. Simply put, we do not want QE2 to equal the Titanic!

Stocks rallied exuberantly on the heels of the Fed’s announcing its continued willingness to buy treasuries. We especially like the juicy dividend stocks and the stocks with a strong prospect of dividend increases. Why? With bonds, one’s income is set — no increases. With stocks, increasing dividends provides inflation protection because of the extra income derived. Retirees are consistently concerned about “increasing income.”

President Obama got a wakeup call on Election Day and came out like a contrite puppy. Policy needs to drive this administration now — not apologies.

The G-20 meeting brought about a major change in international expression of discontent with America for inflating (QE2) its way to stability. For the first time that I can remember, foreign governments are meddling forcefully in U.S. economic policy. There was sentiment at the G-20 meeting that the U.S. should stop the stimuli and work out its problems the old fashioned way — cut back its spending, reduce debt and live within its means. How successful this pressure is on the Obama administration could possibly determine the direction of U.S. monetary and economic policy over the next year or two.

The Deficit Commission came out with a package that we thought was reasonable. If only the Politicians would take it seriously!!

On November 9, China’s Dugong Global Credit Rating Company reduced its credit rating for the U.S. to A+ from AA citing “a deteriorating intent and ability to repay debt obligations after the Federal Reserve announced more monetary easing.”

As Bill Gross from PIMCO said, “Nobody knows whether QE2 will work; we are certainly in unchartered waters.” This is why we must continue to diversify our clients, among other investments, into foreign-oriented fixed income, more inflation resistant assets and acknowledge that creativity in investing will be a critical component to success.

We believe that we are indeed close the end of a thirty year bull market in bonds, so we must look increasingly to asset classes that provide, among other things, an inflation hedge. We feel that good stock selection and active management of all positions will be critical to achieving our individual client’s investment goals.

We want to take this opportunity to thank you, our friends and clients, for your support over the past year.

Managing money is an imperfect art — at FMC we strive to do what is right for each of you individually.

We are dedicated to being the best at all times and still believe, as we did over twenty years ago when we started, that the best is yet to be!

Q2 | 2016


The world has just experienced the hottest decade since weather records have been kept. As such, the world economy must adjust; weather patterns affect the economies of all nations… some for the better and some for the worse. Weather will be an increasingly important theme in investing in the coming years.

As a result of the rising cost of healthcare in the U.S., medical tourism is becoming big business outside of the United States. More than 500,000 Americans traveled abroad to receive medical care in 2006. Experts predict that by 2012, medical tourism will be a $100 billion business with more than 780 million patients traveling abroad to receive care from foreign doctors, dentists and hospitals. Thailand, Costa Rica and Panama are fast becoming the hot spots in this burgeoning industry.

Is it time to bring back debtor prison? There was once a time when if you were broke, you would have to pay back your debts or go to jail. You even had to pay for your own imprisonment! I’ll bet this would serve as an effective deterrent to the rampant overspending on credit cards!!!

The country is sputtering along — some good statistics, some bad statistics. We expect this trend to continue for quite some time, however, we do not believe in the double dip scenario.

We do see a “new normal” as described by Bill Gross from PIMCO and the themes below make gut sense to us at this time:

First, we believe that big American firms will benefit from their competitive advantage (size, balance sheet, cheap cost of capital) and will generally be better investments than their smaller counterparts. The exception to this rule will be small firms bought by big companies attempting to secure their sales while laying off employees. As a result, we believe merger activity will be significant.

Second, we believe the dollar will experience continued weakness and thus, the big firms with foreign sales will benefit via currency translation back to dollars that enable their earnings to get an artificial boost.

Third, real assets will benefit from their ability to maintain purchasing power. Everything from real estate to diamonds, gold, silver and other agricultural-related investments can benefit from the U.S. printing an abundance of dollars.

Fourth, the U.S. will do everything in its power to defeat any deflationary trends — democracy, it is said, is inherently inflationary, and we believe now is no different.

The most unfortunate piece of our economic puzzle is that 43.6 million people (or 14.3% of the population) in this country were living in poverty in 2009. A family of four that earns below $19,971 is considered to be below the poverty line.

As for the stock market, there is reason to believe that the remainder of the year will see the Dow and S&P 500 advancing as the big corporations show profits, as we discussed above.

Interest rates should turn slightly higher, but in our view, not significantly; that would speak to a cautious view on longer term issues, but if one finds good value based upon historical yields (or one’s own income needs) opportunities should be seized.

One of our major concerns are the disincentives being put in place by the Obama Administration to create a safety net which begins to serve as a way of life for those who lack the impetus to strive. Abraham Lincoln said, “You cannot build character and courage by taking away a man’s initiative and independence.”

We should be mindful of President Lincoln’s words. After all, this is a country built not only upon individual freedoms, but also, and equally important, on individual responsibility.

Take care of yourself—we’ll be happy to help!

Q2 | 2016


“Ex Nihilo” means “out of nothing” in Latin… It is just what the Federal Reserve will have to do — create money out of nothing. They do this through quantitative easing, a phrase you may have heard but may not understand. In practical terms, the central bank purchases financial assets (mostly short term), including government paper and corporate bonds, from financial institutions (such as banks) using money it has created “ex nihilo.”

Normally, the central bank increases the money supply in the economy indirectly by lowering the discount rate on reserve requirements. But when it cannot lower rates any further, it can attempt to seed the financial system with new money through quantitative easing, otherwise known as “printing money.” Because economic stimulus will probably be required for some time, “printing money,” we believe, will be happening for quite awhile.

Nevertheless, the economy is in a good news/bad news phase. One day we trade based on fear and deflation, and the next on greed and inflation. Mohamed El-Erian of Pimco said recently, “We are on a journey to an unknown destination at an unknown speed over an uneven road and we have already used our spare tire.”

This is clearly a grim view of where we are, but to me, it also speaks to the lack of leadership in this country. Leaders are supposed to paint a vision of where a country should be going, build consensus, and then implement policy to get us there.

Do they know the questions to be asked? If we are to reduce spending, should we be fighting in Iraq and Afghanistan? Is the economic imperative the most important issue for our country’s strength or is it the military? Will the social fabric of our country crumble if the middle class continues to get squeezed? Is the rule of law being upheld? Is everyone really paying their fair share of taxes?

We believe that the corporate profit recovery is real, but one cannot expect that this recovery will be like those in the past. The drag of huge public debt will keep this recovery from creating jobs quickly. Therefore, unemployment is likely to stay at stubbornly high levels and corporations will be slow to hire — why create overhead?

The stock market can do better “slowly,” but watch for signals surrounding the November elections. Success for the Republicans could mean a better market and the beginning of rougher sledding for this administration.

Keep focused on your needs and game plan.

Remember that the economy is still in a deleveraging phase, and painful corrections may take place along the path to “the new normal.”

Patience has its limits. Take it too far, and it’s cowardice. The politicians have run out of time — action is needed.

Just remember, success comes to those who say “I can make it happen!”