Outlook Archives

Christian Szell: Is it safe?Babe: Yes, it's safe, it's very safe, it's so safe you wouldn't believe it.Christian Szell: Is it safe?Babe: No. It's not safe, it's... very dangerous, be careful….  Christian Szell (Laurence Olivier) questioning Babe (Dustin Hoffman) in the movie Marathon Man.
 “You can sum up this sport [boxing] in two words: ‘You never know.’” ---Training legend Lou Duva The same two (errrr three) words could be said for the financial markets as well.  And, if there were boxing in the world of finance, the ring announcer would bellow, “In this corner, wearing the blue shorts is the Private Sector and its ability to create wealth!” (Cheers)  Turning to his left, he would then say, “And in this corner, wearing the red shorts is The Government Sector and its ability to squander wealth.” (Silence)
"The problem with socialism is that eventually you run out of other people's money." Margaret Thatcher Europe is about to run out of German tax money. California and Illinois are already out of taxpayer money. The inevitable is now upon hundreds of municipal, state, and national governments. And while pundits will tell you each situation is different, the fact is, the reason is the same everywhere…..the “tax users” have used too much for too long. Givers vs. takers. Wealth creators vs. wealth distributors. Regardless of how you put it, those are the sides that are opposing each other…. be it in the streets of Athens, the polling booths of Wisconsin, or the legislative chambers of Sacramento.
I am more concerned with the return of my money than the return on my money. “ Mark Twain (also attributed to Will Rogers) We at Talbot Financial fully understand why investors may be skeptical about the markets. After all, the S & P 500 is trading about where it was 12 years ago. We constantly hear “talking heads” opining about QE, TARP, European banking woes, flash crashes, and melt-downs. Volatility has become the new normal. Many just want to invest in something “real” and “stable.” This sentiment is clear as inflows into the “safety” of bond funds proceeds at a record pace; this despite ultra-low interest rates and a remarkable three year recovery in equities. In essence the public is validating the Mark Twain quote above.
When you want to fool the world, tell the truth.” Otto von Bismarck One of the overriding themes of this blog has been that investors are witnessing two very different “truths” operating side by side….and these truths may be misleading many investors. One truth is politicians/governments are now being forced to face problems that were decades in making. The other truth is the private sector is adapting and succeeding despite multiple headwinds. This dichotomy has made for a confusing investment environment. Analysts focused solely on government woes “headed for the hills” long ago. They are convinced that a slow-motion train wreck is unfolding before investor eyes and the outcome is inevitable. It’s just the numbers.
“Simplicity is the ultimate sophistication.”  Leonardo da Vinci If da Vinci is right, then why do “sophisticated” money managers seem to make things so complicated?   And, why does the investment world seem so convoluted to most “regular Americans?” The first reason may be that what most people see or read about isn’t investing.  It is trading or speculation that captures the headlines. Investing is different than both trading and speculation.  When you trade or speculate you are committing capital to an idea.   When you invest, however, you are committing both capital and time to an idea.
”The market can stay irrational longer than you can stay solvent.”  John Maynard Keynes What’s working? Hardware, software and underwear. In what can only be described as an extremely positive start to the year, the overall markets are surprising the skeptics and pushing ahead despite US election year rhetoric, European woes, and fears of a Chinese slowdown. Stocks like CSCO (hardware), Microsoft (software), and Limited/Victoria’s Secret (underwear) are up double digits percentage-wise…and the economic “green shoots” we were promised several years ago finally seem to be appearing. However, not all stocks are rising, despite the wind at their backs. 
The future ain’t what it used to be.  Yogi Berra Thank goodness.  Amidst incredible volatility, the markets of 2011 ended the year about where they started…and most investors are glad it’s behind them.  After all, 2011 brought with it Arab Spring, Japanese Tsunami, Greek riots, US debt brinksmanship,   European Sovereign debt crises, & Kim Kardashian’s marriage (um, divorce)…among other disasters. Yet, in the face of the above negative news, corporate earnings grew, world trade expanded, and (on the whole) corporate balance sheets got healthier. Hope and despair. Both paradigms operating side-by-side.
December 2011 “No snowflake in an avalanche ever feels responsible.” George Burns While we at Talbot Financial may be but a snowflake in an avalanche of financial advice, we do take responsibility for our actions.  Therefore, with but a few weeks to go until year end, it is time to “own up” for our predictions and performance in 2011. In January of 2011, our “bottom line” recommendation was investors should focus on stocks that had the following characteristics:  
"We can evade reality, but we cannot evade the consequences of evading reality" Ayn Rand When engineers in ancient Rome were about to pull the support structure before announcing a bridge complete, they were required to put their families underneath the bridge. Of course, this provided great incentive to do the job properly… and those in charge were fully levered to the consequences of failure. It represented ultimate accountability. We at Talbot Financial wonder how many European leaders are willing to put their families under the financial bridges they have built. We wonder the same about our US leaders.