The 10 Keys To Selling Anything

I probably don't feature James' work enough as I find him to be one of the most intriguing and interesting reads within the blogoshpere.  I'm not sure how many readers are sales people but with most of Altucher's work you can usually find some nuggets that you can relate too.


Here are his 10 Keys to Selling Anything

1. Ask what’s the lifetime value of the customer
2. Ask, what are the ancillary benefits of having this customer 
3. Learn the entire history of your client
4. Give extra features
5. Give away the kitchen sink
6. Recommend your competition
7.  Idea machine
8. Show up
9. Knowledge
10. Love it

Public Pensions Increase Private-Equity Investments

A lot of outlets such as media, political organizations, and the likes of Occupy Wall Street like to rail against private equity.  However did you know that the largest investors in private equity funds are public and private pension funds?  Yes, teachers, policemen, firefighters state employees, etc. all in some way typically own a piece of private equity.


From the WSJ here are the details

• Big public-employee pensions had about $220 billion invested in private equity in September, or 11% of their assets, according to Wilshire Trust Universe Comparison Service, which tracks the holdings of pensions, foundations and endowments.
• Some of Mr. Romney's critics are labor unions, including those who count public employees as members and have representatives on pension boards that determine how much to invest in private equity. The retirement benefits of thousands of police officers, firefighters and teachers depend in part on the profits of investments in private-equity firms such as Bain.
• Earlier this month, the Service Employees International Union, a major public-sector labor group, blasted Bain for what it described as "a long and troubling track record of putting profits above workers." The union said, for example, that Bain had acquired a plant in Indiana where workers were fired and then rehired at a lower wage.
• SEIU members have pension money invested in numerous state and county pension plans around the U.S., many of which are invested in private-equity funds. And SEIU members serve on the pension boards that make decisions about where funds are invested.
• Pension-fund officials say they increasingly are turning to private equity in an effort to hit annual return targets of 8%. Over both the past five years and the past 10 years, private-equity returns were more than double those of the S&P 500 stock index and the Dow Jones Industrial Average, according to Cambridge Associates LLC, which tracks over 4,500 private-equity firms.
• As of September 2011, median private-equity returns for large public pension funds over the past five years was 6.6%, according to Wilshire Associates. Median stock-market returns for those funds were a negative 0.9% over that same five-year period.
• In November, the $100 billion Teacher Retirement System of Texas made one of the largest single private-equity investment ever—a $6 billion commitment to new partnerships with Apollo Global Management and KKR & Co. The pension fund and the two New York firms will swap strategies and share resources.
• "I am confident that our private-equity investments have created more jobs than they have lost,'' said Steve LeBlanc, head of private markets at the Texas fund. "The way you make money is through growth."

Goldman Makes Money for the Romneys

After much pressure Mitt Romney released details from his previous tax returns.  What became interesting was Mr. Romney's ties with Goldman Sachs.  Many of the trusts held by the Romney's were managed by Goldman.


From Dealbook here are few points from their piece;

• Two Romney trusts – the Ann and Mitt Romney 1995 Family Trust and the W. Mitt Romney Blind Trust – made nearly $2.8 million in combined capital gains from their Goldman investments, according to the trusts’ filings. Almost all of those gains, nearly $2.7 million, were long-term gains made by selling securities that the trusts had owned for more than a year.
• The trusts sold a combined 7,000 shares of Goldman’s own stock, which was purchased in May 1999 when the firm went public. The shares, offered at the time of the I.P.O. to Goldman’s most important clients, including Mr. Romney, were issued at $53 a share. But they had zoomed up to $161.45 apiece by the time the trusts sold them in December 2010.
• Aside from the Goldman I.P.O. shares, the Romneys’ trusts sold several financial stocks in 2010. A January 2010 sale of Bank of America and JPMorgan Chase stock produced a small loss and a small gain, respectively. More common were sales of retail companies like Target, Unilever and Apple.
• Mr. Romney’s trusts made money on Research in Motion. His brokers bought shares in the BlackBerry maker in 2006 and 2008, long before the company’s stock began its precipitous slide. Before the worst hit last year, the trusts sold 1,027 shares in RIM, notching gains of more than $30,000.

Here are a few other bullet points from a WSJ Op Ed piece

• The details of Mr. Romney's six IRS schedules, eight forms and 69 income statements—totaling some 547 pages—are by now familiar. The Bain Capitalist made $21.7 million in 2010 and an estimated $20.9 million last year. He doesn't merely belong to the group President Obama disparages as "the rich." He's actually rich. Mr. Romney's effective tax rates are 21.2% in 2010 and 17.6% in 2011 as a share of adjusted gross income, and 13.9% and 15.4% as a share of taxable income, respectively. He still pays a lot of taxes—about $3 million in 2010 and an estimated $3.2 million in 2011.
• As the White House delights in pointing out, Mr. Romney nonetheless paid much less than the top marginal income-tax rate of 35% on wages because almost all of his income came from his investment portfolio, which is held in three blind trusts. Some 58% of his 2010 earnings—$12.6 million—were long-term capital gains, taxed at 15%.

Week 4 2012 Performance...What a sick week

And when I mean sick I mean really sick.  For the majority of the week I was wiped out with the flue despite actually getting a flu shot for the first time in my life this year.  I guess I must have gotten a different strain?


Despite mine or anyone else's illness the market moves on and this week there was a lot economic news as I noted in the weekly performance from last week.  GDP came in at 2.8% just below consensus estimates at 3.0%, Consumer Sentiment Index for the end of January rose to 75 from a preliminary reading of 74 for the month and 69.9 at the end of December, according to sources who have seen the report.  The latest reading was better than the 74.5 expected by economists surveyed by Dow Jones Newswires, and New Home Sales in 2011 hit their lowest level on record (see graph below)





What did all of this mean for the markets?  The S&P 500 finished flat and the DOW broke it's 3 week winning streak ending the week lower.  Our performance was quite the contrary as the Fund finished up 2.8% vs. last week and is up 7.2% YTD.


The real leader in the portfolio this year has been OI.  OI reported a wider overall loss this week for Q4 but core operating earnings improved and were a couple cents better than estimates.  The company forecasts a better 2012 as well as announcing that the CFO will retire in Q2.  The stock has been on a staight line up almost since bottoming around 1$17 to $18 in November & December.  BMW has been no slouch either up nearly 28% for the year.  We pretty much got in at the bottom of this stock and it is not getting close to hitting it's first big resistance test.  I've got a stop loss in place to make sure we capture a good majority of our profits.  The option side of the fund had a solid week posting a gain of 3% led by Buffalo Wild Wings, Research in Motion, and Crocs.


The real stock news this week was the blow out and I mean blow out numbers from Apple.  Typically Apple smashes earnings estimates to begin with but even if you took the most bullish estimates they blew those out of the water.  The key in one word....iPhone.  The company sold 37 million iPhones in the last quarter.    Apple registered earnings of $13.1 billion, or $13.87 a share, up from $6 billion, or $6.43 a share. Revenue surged 73% to $46.33 billion. About 58% of revenue came from international sales.  Currently we own call options on Apple.


So what does this week bring?  Hopefully for me a clearer head as the flu exists my system.  Markets are up anywhere between 4% and 5% this year but we are only one bad European rumor away from a big down day that could take with it much of the year's gains.  I feel like a broken record stressing caution and more caution but something still feels amiss with this rally with is now up about 20% since the November lows.  That is a sizable move in a short amount of time.  However, you can't go all out either in case things continue to climb which is why we are using our capital very strategically.


Have a good week

Week 3 2012 Performance...Earnings Season in full swing

The portfolio actually started seeing some action this week as I started to get more defensive and finally had the opportunity to get into some names I have been eyeing for some time.  You will see a new category this week in addition to the long and option portfolio pieces there is now a short component.

I took action this week going after a few names that I believe are extremely overvalued.  Ever since Groupon went public a few months ago this has been on my radar screen.  The company does not make money and the valuation it received in my mind is completely ridiculous.  I wanted to short it from the very beginning but didn't as I watched the stock continue its downward trajectory.  I finally came to the point that I couldn't pass any longer as it's valuation still doesn't justify it's price.  Another recent IPO LinkedIn currently sports a Forward P/E of 150 which is out of this world.  I just don't see how the stock can live up to such high expectations (think tech bubble in 1999/2000). I like the product just not the stock.  It will be interesting to see how much Facebook is valued at when it goes public later this year and if it will be able to live up to expectations?

I exited out of the natural gas position UNG this week as I have no insight as to when it will find it's bottom.  I still believe that long-term nat gas is a solid play but with all of the supply coming on board the price has no where to go but down.

Buffalo Wild Wings BWLD is now apart of the options portfolio of the fund.  This is the time of year where people are heading in to watch the final days of the NFL season with March Madness just around the corner. I also see this as a play on lower input costs i.e. chicken as well as any type of positive news in consumer spending and confidence.  BWLD also has a great growth story intact as they continue to build out new locations.  I know that I could certainly use one by our new house.

Here is the link to this week's Economic Calendar.  Besides the continued earnings parade this is a big week for data.  There is a  FMOC  meeting that starts on Tuesday with the rate announcement on Wednesday, consensus estimate is for no change.  On Thursday you get durable goods orders, weekly jobless claims, December new home sales, and the weekly Leading Indicator number all before or just after the opening bell so expect some price action early on in the trading day.  The week wraps up on Friday with the release of the first revision of Q4  GDP  and the University of Michigan Consumer Sentiment with consensus estimate being unchanged.  Here is a link to all of the corporate earnings releases.

Again I think it will be another week where we wait to see if any of our orders hit and keep a tight watch on the earnings releases of specific companies in our watch list.  I see no need to get extremely offensive here but instead to continue to build some defensive positions and possibly start taking some profits.

Parenthood and the Best Values in Public Colleges

Last night I was catching up on one of the few TV shows that I watch on a regular basis which is  Parenthood  on NBC.  Great show for those of you with or without children but I guess I have more of a draw to the show now that I am a father.

Ironically one of the major themes of the show this week was that of college, and more specifically sending a child off to a college that parents could not afford.  The debate was that the kid worked extremely hard, did all of the right things, and had outstanding grades and was accepted into Cornell with a yearly price tag of somewhere close to $60k but did it make more sense for the kid to go to nearby by UC Berkley which is a great school with a much lower cost.  Of course the kid really wanted to go to Cornell and by the end of the show the parents gave in and committed to doing whatever it took to see that the kid would get here first choice in Cornell.

I can't really fathom how much college may cost by the time my 1 year old triplets get there.  I can only hope that maybe the college bubble busts and the costs come dramatically down.  Quite frankly I really don't see that happening but there is hope I guess.

My previous post from yesterday Is College Still Path to Success? looks at the return on investment aspect of the college experience.  In the example above going to UC Berkley would presumably have a much greater ROI than going to Cornell or at the least have a reduced risk component due to the large discrepancy in costs.

I wonder in 17 years if I will be able to tell any of my triplets no they can't go to the college of their choice due to a low ROI?

With that question I leave you with Kiplinger's Best Values in Public Colleges - 2012

Laid Off, With Retirement Almost in Sight

For those of you who have been out of work and are nearing retirement or for even those of you that are working close to retirement or in retirement this NYT articles puts together some very good detail on how to bridge gaps in your plan given your specific circumstance.


The piece Laid Off, With Retirement in Sight by personal finance reporter Tara Siegel Bernard, lays out some very good approaches about how to deal with the set backs of lost revenue from a position and what you can do to offset the loss an still plan ahead with retirement.  Not all or possibly any may work for your given situation so please consult a financial adviser before making any decisions.


One of the major points to take away from the article is that it is easier to earn additional money via part-time work, or even a reduced salary than it is to try to save additional money.  A real concern becomes when people come up short for retirement or any financial goal for that matter they begin to increase their risk and assume higher rates of return which are just not achievable which leads to an even bigger shortfall to your goal.


Here are the take aways from the article; (see my comments in blue)

• REASSESS CAREER POSSIBILITIES
• SOCIAL SECURITY
• TAPPING RETIREMENT SAVINGS
• DO NOT ROLL OVER YOUR 401(K), I only agree with this point if you absolutely need access to your assets before you reach age 59 1/2. In an IRA you will be penalized for early withdrawals prior to this age.  However if you don't need the assets then an IRA would like give you additional investment options and greater flexibility.  
• TAP YOUR ROTH I.R.A, again there are only a few specific occurrences which will allow you to withdraw assets without penalty so be sure to check the rules for your specific situation 
• PAY FOR HEALTH INSURANCE
• ANNUITIZE YOUR I.R.A. OR 401(K), the basis for this move involves receiving a tax break so be sure to consult your financial adviser or accountant to ensure that a decision like this would indeed help your tax situation 

Is college still the path to success?

Here is another viewpoint on the education topic that I continue to cover [November 3rd 2011 Whats Your Kid Getting From College].  With the cost of education in bubble territory, unemployment up, the prospects of gaining an adequate return on your investment people need to take a serious look at weather college is still the path of success.


In this piece Is College still the Path to Success? posted on MSN.com by US News & World Reports the article takes a look at both sides of the debate.  My personal belief is that a person must weight the return on investment as I keep noting as to weather or not college is the right path.  If you aren't able to make a wage high enough to pay for the costs let alone a position in the field that you want or are studying for then how does college make sense?  Fortunately if you are planning on sending your kids or other family members to college there are a plethora of ways to save for it.  This is where our firm can help cut through all of the varying options that people can face.  There are quite a few tax implications that can either help or hurt your savings goals and plans.


Remember that paying $100k for college just to have your child find out what they want to be is an extremely expensive proposition.


From the article;

• In "The Education of Millionaires," Michael Ellsberg argues that many young people would be better off skipping college altogether and going into business for themselves. "For the typical kid who isn't really sure what they want to do . . . and who just wants a general introduction to becoming an adult, $50,000 a year is a very expensive price to pay for that," he says. His own degree from Brown University, he says, proved useless in the real world. In fact, he says his experience there made him a worse writer. Many of the most successful people in today's economy skipped college in favor of self-education, he writes.
• Businessman and philanthropist Peter Thiel recently launched a fellowship program for entrepreneurial young people; the $100,000, two-year fellowship allows young people to pursue business ideas instead of going to college. One of the first recipients was Dale Stephens, the founder of the website uncollege.org, which encourages self-starters to look for alternatives to a traditional college education.
• Richard Vedder of the American Enterprise Institute has argued that colleges are failing to educate students while getting more and more expensive. Andrew Sum, an economics professor at Northeastern University, has pointed out that many young college graduates, age 25 and younger, wind up taking jobs in customer service and retail that don't make use of their college degrees, while these students are still paying dearly for them.
• But Ellsberg argues that's not a good enough reason to pay tens of thousands of dollars in tuition, and also says studies showing that unemployment rates are much higher for those without a college degree are misleading. "Correlation is not causation. . . . The fact that people who do better tend to also have college degrees doesn't necessarily mean that (the degrees) caused their success, it just means that smarter and more ambitious people tend to go to college. So, if you're one of those people, you should question whether you need to spend $200,000," he says. "What if instead, you start a business? Then you could have a whole portfolio to show potential employees," he adds.
• Ellsberg acknowledges that in certain training-intense fields, such as medicine or law, a college degree is necessary. But for motivated young people who plan to go into business, art, or technology, there are better and cheaper ways to learn the necessary skills, he says.

A Summary of Market Wizards

I had an earlier post Curated Interview with Paul Tudor Jones from Curated Alpha.  In the post the author had referenced the book Market Wizards: Interviews with Top Traders by Jack D. Schwager.  At the end of his book Mr. Schwager put together a summary of those traits that he thought that the most successful market mavens had in common.  I touched on this point in my earlier post where I made the point that there are countless ways to be a successful trader but at the root the best develop a system that works for them and implements that system with few hiccups.

Below is the excerpt from the book;

There is no holy grail to trading success. The methodologies employed by the “market wizards” cover the entire spectrum from purely technical to purely fundamental – and everything in between. The length of time they typically hold a trade ranges from minutes to years. Although the styles of the traders are very different, many common denominators were evident:

1. All those interviewed had a driving desire to become successful traders – in many cases, overcoming significant obstacles to reach their goal.
2. All reflected confidence that they could continue to win over the long run. Almost invariably, they considered their own trading as the best and safest investment for their money.
3. Each trader had found a methodology that worked for him and remained true to that approach. It is significant that discipline was the word most frequently mentioned.
4. The top traders take their trading very seriously; most devote a substantial amount of their waking hours to market analysis and trading strategy.
5. Rigid risk control is one of the key elements in the trading strategy of virtually all those interviewed.
6. In a variety of ways, many of the traders stressed the importance of having the patience to wait for the right trading opportunity to present itself.
7. The importance of acting independent of the crowd was a frequently emphasized point.
8. All the top traders understand that losing is part of the game.
9. They all love what they are doing.

Curated Interview With Paul Tudor Jones From Market Wizards

Curated Alpha is a new source of investment and financial data that I had picked up on a few weeks ago.  A very interesting approach that the author took in a recent post was taking detailed notes on a book Market Wizards: Interviews with Top Traders by Jack D. Schwager in which he breaks down each interview in digging out the points that he found most critical.  Call it the cliffs notes version of the book but I have found the author to be very insightful.

The first interview that I picked up on from Curated Alpha was the Curated Interview With Paul Tudor Jones from Market Wizards.  Paul Tudor Jones is a legendary hedge fund managers that unless your in the investment industry you may have never heard of.  Mr. Jones has been so successful that he can charge above the industry norm 2/20 structure which is 2% of assets under management and 20% of returns.

Mr. Tudor's focus is on daily trading in and out of position which is not highly recommended for typical investors which is why this sort of activity is left to the pros.  However his process in how he determines his positions and why he gets in and out of positions is very relevant to investors.  Very successful investors and traders generally have one main attribute in common with each other which is that they have a system or process for what they do.  You have good days and bad days with your trading process but the fact is that as an investor or trader you must have conviction in your system.  When you believe in things one way and invest in the opposite you can cause yourself some real damage.

Please reference the link above for details

 

Announcing the Morningstar Fund Managers of the Year for 2011

I know that I am little late in posting this but for those interested Morningstar announced their fund managers of the year both for equities and fixed income.  Here is the link to the Morningstar's article  and below are the winners.  I have also included the CNBC video which interviews the winners and discusses why they were chosen.

Domestic-Stock Fund Manager of the Year for 2011Scott Satterwhite, James Kieffer, and George Sertl Artisan Mid Cap Value (ARTQX): 2011 Return/Category Rank: 6.42%/2
 Artisan Value (ARTLX): 2011 Return/Category Rank: 5.49%/15
 Artisan Small Cap Value (ARTVX): 2011 Return/Category Rank: negative 3.17%/49


International-Stock Fund Manager of the Year for 2011William Browne, John Spears, Tom Shrager, and Bob Wyckoff Tweedy, Browne Global Value (TBGVX): 20Publish Post11 Return/Category Rank: negative 4.13%/5


Fixed-Income Fund Manager of the Year for 2011John Carlson Fidelity New Markets Income (FNMIX): 2011 Return/Category Rank: 7.93%/1

Through an Economic Lens, an Election Too Close to Call

The common thesis in the presidential race right now is one of three beliefs which are;

1. The economy improves and President Obama retains his position
2. The economy declines and Mitt Romney the assumed GOP candidate wins
3. The Economy muddles along which may improve Romney's chances but results in one of the tightest presidential elections of all time

I am personally n the camp that the economy declines or at best muddles along.  But putting economics aside who would be the best president given the current issues for the long-term or at least the next 4 years?  no candidate is perfect so it comes down to choosing the lessor of two evils to some degree.


In this NYT piece Through an Economic Lens, en Election Too Close to Call, the writer Jeff Sommer puts the economic scenarios/thesis to test with a few scholars.  Below are the bullet points from the article;

• If the economy surges, he’s likely to win. If it lurches into a recession, he will quite probably lose. And if it simply muddles along at a sluggish pace, more or less as it has been doing for months now, the election could easily be a photo finish.  Those are the latest projections of Ray C. Fair, the Yale economics professor who has been studying the economy’s effect on American elections for decades.
• His current calculations, which he shared with me last week, showPresident Obama with 50.17 percent of the vote, giving him a margin so small that it falls within the 2.5 percent “standard error” of the equations. “That means it’s too close to call,” Professor Fair says.
• On his Web site, fairmodel.econ.yale.edu, he maintains models of the economy and of its effects on presidential and Congressional elections. There are even do-it-yourself modules that let you plug in your own assumptions about the economy. The site will crunch those numbersfor you and issue fresh predictions about the 2012 election.
• “I’m not attempting to do the job of a political scientist,” Professor Fair says. “I’m just assuming that there’s a historical regularity in the effect of the economy on how people vote, and I’m trying, through the use of econometrics, to estimate what that regularity is, and to use it to make a prediction.”
• Nigel Gault, the chief United States economist at IHS Global Insights, a Boston research firm, says IHS’s projections, using proprietary methods and different economic variables, show the president facing a tough battle. Mr. Gault has a bleaker “baseline” forecast — 1.25 percent per capita real income growth for the 12 months leading up to the election, and unemployment of 8.8 percent on Election Day. That would produce an apparent Republican victory, he says.
• “Our model suggests that it will be very difficult for Mr. Obama to win,” he says. A more “optimistic scenario” — one with a 15 percent probability, in the IHS model — shows the president with only 48 percent of the popular vote, making the election too close to call. A “pessimistic scenario,” with a recession in the United States most likely set off by shocks from Europe, gives the Republicans a landslide victory; the firm assigns a 30 percent probability to this outcome.

The Great Leading Indicator Smackdown

For those of you into charts and that follow economic indicators then this post is for you.  This post comes from Doug Short vice president of research at Advisor Perspectives and provides some great insight.  There are a couple major economic indicators that people follow 

1. ECRI Weekly Leading Index
2. Conference Board's monthly updates of its index of Leading Economic Indicators 

I wrote about the ECRI and its recession prediction back in the beginning of November ECRI Recession Watch.  Usually these two indicators are highly correlated moving together up or down.  However the LEI has surged higher setting new records while the ECRI has started to steadily decline.

Lakshman Achuthan head of the ECRI has stood the firm's recession call.  See the CNBC video below.  Although the interview took place back in November ECRI continues to stand by it's call.  The ECRI has an outstanding track record of correctly calling the past several recessions so their calls should be taken seriously.

The second video comes from Bloomberg.  Both videos give a little more insight into the development of ECRI's call and the detail behind their thinking.

So, What's Your Algorithm?

In trading circles everyone knows about algorithms.  It's how 70% or so of the trading also know as HFT (High Frequency Trading gets done.  Little black boxes collecting, churning, and spitting out information to take advantage of the smallest trading opportunity if you will.  But did you know that those algorithms could be used in our daily lives in or to make better decisions?


Daniel Kahneman world renowned psychologist and Nobel laureate in his new book "Thinking, Fast, and Slow writes ""we are often confident even when we are wrong,"  In this WSJ piece, So, What's Your Algorithm it looks specifically at how algorithms can change your life.


I took away the following points;

• These systems can now chew through billions of bits of data, analyze them via self-learning algorithms, and package the insights for immediate use. Neither we nor the computers are perfect, but in tandem, we might neutralize our biased, intuitive failings when we price a car, prescribe a medicine, or deploy a sales force. This is playing "Moneyball" at life.
• You probably hate the idea that human judgment can be improved or even replaced by machines, but you probably hate hurricanes and earthquakes too. The rise of machines is just as inevitable and just as indifferent to your hatred.
• "There is a whole class of things that couldn't be done five years ago," says Opera CEO Arnab Gupta, who just landed an $84 million venture investment from investors including Accel-KKR and Silver Lake Sumeru. His company is now valued at around $500 million. "A few years ago it might take a month to run a project involving 30 billion separate calculations. Today it can be done in two to three hours."
• A warning awaits, of course. As Mr. Rajaram explains, analytics will eventually become the norm, which will push adaptation and business cycles even faster than they are today. "As computers become better and better, our lives are becoming more and more complex. They create new problems as much as they solve old ones."

I actually read the book Moneyball by Michael Lewis and just watched the movie last evening.  Imagine being able to run your life the same way Billy Beane picks ball players?

GMO Quarterly Newsletter

Jeremy Grantham Co-Founder and Chief Investment Strategic at GMO is another market maven than I tend to follow closely.  Mr. Grantham publishes his own quarterly newsletter which I will post on the site as well.  This past quarterly newsletter which actually covers Q3 2011, Mr. Grantham continues to reinforce is cautious sentiment.  Rather than post all of his notes as bullet points (click here for full newsletter) I instead have laid out his recommendation

For the record Mr Grantham and I share similar views on commodity.  I believe that long-term there is a great story in commodities as China and other emerging markets continue to consume not only fossil fuels but as the world population grows potash, fertilizers, seeds, or anything that goes into food production or processing.  However I think that there is enough short-term risk out there in which you don't want to go all in.  Remember these same investment ideas were good back in 2007 thru 2009 and these stocks took a hit as the financial crisis melted just about everything in the commodity sector.

• Avoid lower quality U.S. stocks but otherwise have a near normal weight in global equities.
• Tilt, where possible, to safety.
• Try to avoid duration risk in bonds.  For the long term they are desperately unattractive.  Don’t be too proud (or short-term greedy) to have substantial cash reserves.  Admittedly, this is the point where we at GMO try to be clever and do a little better than the minus 1% real from real cash – and, so far, with decent success.    
• I like (personally) resources in the ground on a 10-year horizon, but I am nibbling in very slowly because, as per my Quarterly Letter on resources in April 2011, I fear a major short-term decline in commodities based on a combination of less bad weather – which has been bad, but indeed less bad – and economic weakness, especially in China.  Prices have declined, often quite substantially, since that letter.  However, I believe chances for further price declines in resources are still better than 50/50 as China and the world slow down for a while, and the weather becomes a bit more stable.

Don't Bet on Election Gains

As investor we try to look for trends and take advantage of them weather they are up or down.  Since it is an election year this only adds to the excitement if you will.  You will see all types of statistics about returns in a presidential year, presidential cycles, or if a republican takes over for a democrat (I've posted a few below from Don't Bet on Election Gains in the WSJ.


Bottom line, it looks like Romney will be the republican nominee and it is way to early to tell who may come out on top in November.  So in the meantime we can develop scenarios and strategies for either candidate and be ready for the outcome.  However we'll be looking for early signs in order to be ahead of the game.

• Since 1926, the Standard & Poor's 500-stock index has returned 11% during an election year, the second-best year of the four-year election cycle, according to Credit Suisse research.
• Historically, the market has performed best during year three of the election cycle, when the S&P 500 has averaged returns of 17.5%. That's followed by the election year's 11% gain, which trumps years one and two by 2.4 percentage points and 1.4 point, respectively.
• The two possible results this time—a Democrat stays in office or a Democrat hands off to a Republican—have produced mid-double-digit returns during past election years, according to Credit Suisse.
• This cycle, however, hasn't followed the historical pattern. The first and second years of President Obama's presidency stand a good chance of being the best, not the worst: The S&P 500 gained 26.5% in 2009 and 15.1% in 2010, well above the average first- and second-year returns of 8.6% and 9.6%. Meanwhile, 2011, the third year of President Obama's term, should have been the best of the cycle—yet the S&P 500 gained just 2.1% counting dividends, and was essentially unchanged without dividends.
• No matter who wins in 2012, investors should expect a volatile year in the markets, says Barry Knapp, head of U.S. equity strategy at Barclays. He looked at past elections that occurred soon after recessions or periods of economic turbulence. His finding: Market volatility rises during the primary season, falls and then nearly doubles during the 12 weeks leading up to the election, as the outcome becomes its central preoccupation.
• David Rosenberg, chief economist and strategist at investment firm Gluskin Sheff & Associates in Toronto, recommends investments that typically do well in periods of volatility, including "hybrid funds" that blend corporate bonds and dividend-paying stocks, and top-rated "junk" bonds—which are already priced for a recession, he says.

A Year Without Fear

Although you may not know his name off hand you certainly may know his work.   Scott Adams is the creator of the Dilbert comic series.  You will occasionally see Mr. Adams work with pieces in the WSJ like A Year Without Fear.   


In this piece he discusses taking on his fears and more importantly taking on a few more risks.  It got me thinking about dealing with risk both personally from an investment standpoint.  No matter what your investment view is of the world being an investor you need to make calculated risks.  Weather those moves are bearish or bullish at the end of the day your goal is to minimize the risk you take while maximizing your return.  The same could be said about life itself.

Scott Adams

Week 2 2012 Performance...Basically Flat but things will start to get interesting

Week over week performance was up a minuscule .2%, so basically we were flat.  There was a lot of movement within the individual names in the fund especially on the option side of the fence led by a big increase in Crocs and a subsequent decline in our Disney call options.  Crocs was up on news that the company had forecasted revenue of $200 million to $205 million for the quarter that ended on Dec. 31. Coming in at the high end of that range will take annual revenue over $1 billion for the first time, Crocs said.  Analysts expect Crocs to report $204.4 million in revenue in the fourth quarter, according to FactSet.


On the long side of the portfolio Natural Gas UNG took a plunge on continued weakness in natural gas pricing due to increases in supplies with all of the new discoveries.  I still believe that long-term natural gas is a good story especially if the US can begin to export which is extremely challenging.  New energy policies focusing oil consumption would also help support pricing as well.  From a technical perspective the chart if definitely in a downward spiral, so I think it may be time to cut our losses and wait for the bottom to occur and look at getting back in once things stabilize.


Since I'm not quite sure what direction the market is going to take and given that we have entered into earnings season which tends to add to the volatility mix look for us to add to our option portfolio rather than going long equities straight up.

I Don't Need Economist, I Just Need a Calculator

This will be my first introduction to the DWCM audience of Mr. Rick Santelli from CNBC.  For those of you not familiar with Mr. Santelli who is often known for his colorful outburst on camera.  Rick was a former trader at the CME before making his way up the corporate ladder and then eventually to CNBC.

What I find great about Rick Santelli is his straight forward candor and his efforts to lay the facts on the table. You may now always agree with his opinions but I would think that most Americans would lean towards his way of thinking especially when it comes to fiscal and monetary policy.

In this latest piece from this past Thursday, the group including Sanetlli discusses the labor participate rate and how the employment rates continues to drop without a substantial amount of jobs being created.  Just to add a little color, if someone who was being counted as unemployed decides to stop looking for a job they drop of the books which artificially decreases the unemployment rate.  So in theory the unemployment rate can go down without any jobs being created.  The labor participation rate has been declining of the past several months which has contributed to the lower unemployment rate.

If you really want to get lost in some data here is the link to the U.S. Bureau of Labor Statistics.  Look for more to come from Rick Santelli

What to Expect When You're Expecting Apple to Rally in 2012

Here is a  good piece  in the  Motley Fool  estimating the growth rate of market cap potential of Apple.  Apple it set to hold it's next earnings call on January 24th.  Usually Apple blows out there estimates which put this article in context.

Apple has been on a run since the end of November going from the low $360's up to over $420.  The stock is still relatively undervalued using most fundamental metrics.  Probably the best way to play Apple is with calls which limit your downside exposure.  Remember even a great stock can experience pain if the rest of the world goes into the tank.

Full disclosure DWCM fund owns Apple call options, no personal ownership

John Mauldin - 2012: A year of Choices

Now that we are up posting on a weekly basis you will likely see John Mauldin's weekly newsletter here on the DWCM site.  John Mauldin is a renowned financial analyst who has had a long and successful career detailing market, social, and economics events throughout the year.


In this week's post he dives into what he sees as the big issues in 2012 including a topic is focus's on quite specifically which is Path Dependency.  Here is the  link a word copy of Mauldin's newsletter this week and the points that I took away that I thought were particularly relevant.

• There are several different types of path dependency. The simplest analogy is that we go down a path, come to a fork in the road, choose one direction, and go down that path until we are presented with another fork. If we decide we don't like that path we can always go back to some previous fork and take another path. Our only loss is the time we took and the energy (or money) we spent on that path, while we did gain some knowledge of the path we left, even if we ultimately decided not to go on.
• The problem is that there is another type of path, one that we cannot retrace. After we choose that sort of path, the way back is blocked, and we must go on dealing with the consequences of our chosen path. We may come to forks in the road and vary our directions on the path, but we can't turn back, no matter how much we would like to. We can choose other paths into the future, but the past will always be there.
• And then there is yet another category of paths, the ones that are chosen for us, whether by family, circumstances, or fate; and once on them we don't know what we may have missed on alternative ones. Parents move to a different town and take the kids with them. A "chance" meeting becomes a new business endeavor. A torn muscle forces a promising athlete into another career. War erupts and changes the plans of young men. Accidents happen.
• We all have a lot of stories about the paths that we chose or the limits of our choices. The good choices we take credit for and the bad choices we blame on circumstances or find some way to rationalize them.
• And our choices add up. They become cumulative and create an economic tide. Policies and practices that initially seem small in the grand scheme of things can become much more significant when taken together and given a little time.
• "Essentially, the Debt Supercycle is the decades-long growth of debt from small and manageable levels, to a point where bond markets rebel and the debt has to be restructured or reduced.
• We increase the amount of debt in a system until there is too much debt. Each and every time, the people and leaders in a country convince themselves that "this time is different" and the debt is not a problem to worry about. And that is true until some moment in time when the markets lose confidence in the ability of governments or businesses to service the debt.
• When they begin to lose confidence that a government (or business) will be able to raise enough revenue to pay off the debt at some point in the future, interest rates begin to rise.
•  And make no mistake, austerity is a path for slow growth and/or recessions.
• No country starts borrowing money with the thought that they will keep on borrowing until there is an economic collapse. It all starts with good intentions. No bank lends money not expecting to have it returned. Then things change over time. Since there seemed to be no problem with the current level of debt (and spending), why can't we increase it a little more?
• At some point, the math, even for the US, does not work. There is a limit to what a government can borrow and a central bank can print without a total collapse of the economy.  
• And in the midst of a crisis, how do you get Congress (or any politician) to make the right decisions?
• The credit markets are telling us there is a crisis in the making, on the scale of Bear Stearns or Lehman in 2008, except that now governments have less ability to step in and salvage the banks. Now, government debt is the problem.

There is a distinct possibility that over the next 1 to 3 years we could have another devastating recession.  What are you doing to prepare?  The time to buy house insurance is before a fire occurs not while your house is on fire. 

It is better to make the wise, if harder, choice as soon as you can.

Gary Shilling 2012 Investment Themes

In addition to writing his own weekly newsletter John Mauldin also creates an "Outside The Box" piece in which he features a guest author writing on a specific subject.  This past week he featured Gary Shilling's 2012 Investment Themes.  Gary Shilling is a noted analyst and author who makes frequently appearances in the various business media outlets.  He has a very solid track record in predicting economic trends and events.  Not everyone in this business will ever get every call write but those that hit 70% or more of the time make for a good follow.

Here is the link to the full article  but I have listed his 9 2012 Investment Themes below.  And just to be clear Mr. Shilling is definitely predicting a recession here in the US in 2012 and he is not alone


1. U.S. consumers will shift from a 25-year borrowing-and-spending binge to a saving
spree. This will spread abroad as American consumers curtail the imports of the goods
and services many foreign nations depend on for economic growth.
2. Financial deleveraging will reverse the trend that financed much global growth in
recent years.
3. Increased government regulation and involvement in major economies will stifle
innovation and reduce efficiency.
4. Low commodity prices will limit spending by commodity-producing lands.
5. Developed countries are moving toward fiscal restraint.
6. Rising protectionism will slow—even eliminate—global growth.
7. The housing market will be weak due to excess inventories and loss of investment
appeal.
8. Deflation will curtail spending as buyers anticipate lower prices.
9. State and local governments will contract.

Twinkies Maker Hostess Files for Chapter 11 Protection

I guess America has reduced its twinke consumption enough to help push Hostess into chapter 11.  This is the second major restructuring for the privately held company in the past three years.  Not even the free publicity Hostess received sponsoring Ricky Bobby's race car in Talladega Nights could prevent this situation from happening.


The real reasons for the filing according to the company are higher input costs such as sugar and flour as well as increased labor costs.


The company stated the following;

• "Whether the debtors can achieve long-term viability depends directly and substantially on the debtors' ability to achieve dramatic change to their labor agreements, with a corresponding material reduction in their cost structure and legacy pension and medical obligations, and a restructuring of their capital structure," Hostess said in court papers. "That is the purpose and the focus of these Chapter 11 cases."
• "We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees," President and Chief Executive Brian Driscoll said in the statement. 
• "While no agreement has been reached to date, the Teamsters Union remains committed to working with all stakeholders during the bankruptcy to find a mutually agreeable solution, if possible," said Dennis Raymond, director of the Teamsters Bakery and Laundry Conference, in a statement

A Breif History of Twinkies

According to this WSJ article, Sales of its signature Twinkies have declined a bit recently while the overall bakery-snacks category has been about flat. Nearly 36 million packages of Twinkies were sold in the year ended Dec. 25, down almost 2% from a year earlier, according to data from SymphonyIRI Group, a Chicago-based market-research firm. The data captures sales from supermarkets, drugstores, mass-market retailers and convenience stores, but exclude sales from Wal-Mart Stores Inc. and club stores.