Ramblings of a Portfolio Manager 11-16-2009

Ramblings of a Portfolio Manager or Where have all the Doctors and Auto Mechanics gone? Have they been replaced by English Teachers, Biology Majors and Soda Jerks?

Another market week, another bevy of market analogies from economic bears. Everyone wants to be Yogi Berra (no pun intended) it seems. From the “Soda Jerks” we get talk of “sugar highs” and “double dips”, implying that the economy is only showing signs of energy due to a temporary and fleeting injection of “carbs” (fiscal and monetary stimulus), which, when removed, will cause a “sugar crash” i.e. a “double dip” back into recession. The “English Teachers” continue with the tried and true Us, Ws, etc. without any valid explanation of why we will get economic growth charts with patterns tracking those capital letters. The “Biologists” remind us that stimulating a dead frog gives an immediate reaction and then the frog returns to its dormant state--you get where they are going with that one. All these camps are trying to find a catchy sound-bite to describe either why the world economy looks better than they have been predicting all year, or why it will sink back into the level that they originally, incorrectly, predicted. Yogi Berra just sought to entertain, not depress. Perhaps these economists need to work on their delivery.

In our humble opinion, rather than comedian school, all these folks should take a quick refresher course at ITT Tech or, perhaps, a decent Caribbean medical school. Any guy named Skeeter down to the Standard station will tell you that once you jump start a car, it will keep running after you remove the cables (stimulus) because the alternator takes over and runs things. In the US, as well as the major capitalist economies around the world, profit motive is the alternator. Once the “jump start” gets the economic engine running, smart business people take over and start hiring and restocking ahead of higher expected future sales. And this behavior becomes self-perpetuating, thus driving the economy ahead in the absence of further external stimulus, just like a well functioning alternator will do for your car. Of course the ITT dropouts in DC are trying hard to throw a monkey wrench into our alternator but so far have only succeeded in slowing, not disconnecting it.

In the same vein (pun intended), any 3rd year Med Student will inform you that a good jolt from an AED will revive a patient whose heart has stopped (technically dead) so long as it is properly applied and the patient hasn’t been in cardiac arrest for a prolonged period. We argue that the “Biologists” are incorrect in their assertion that this patient is long dead with rigor mortis already set it. We may concede that our AED is being applied by 1st year Med Students (those handling policy in DC) so some risk remains, however, we also believe that the patient’s heart never really stopped, just slowed down. Despite the early credit-taking for the “Obama Miracle” we firmly believe that the normal business cycle has much more to do with the recovery we are seeing and that a little CPR might have been all that was needed (instead of the major open-heart surgery we are now getting) once the Fed applied the paddles last year.

It’s early Monday morning and, for the second week in a row, we have a world-wide stock market rally with the US futures pointing to a much stronger open. If the Markets here close up today, it will be only the second time we have had back-to-back positive Mondays this year. What does that mean? Heck if we know but some technician somewhere will find it to be a sign that the money flow or reverse oscillating Bernoulli Bands or some such thing are positive and that we are due for more gains (or losses) ahead. Personally, we believe in looking at astronomical indicators. In our case, we analyze stars rather than planetary alignment, and note that the waning power of one particular star, our President, has significantly reduced the weekend headline risk that used to cause weekly Black Mondays. The trend is your friend until it isn’t so, always looking for an inflection point, we may just rethink the day on which we price our picks for Ramblings going forward. Of course, before we do we will consider all the sugar, volts, amps and dead frogs out there.