Thursday, November 15, 2012

Letter to a client...

The following is a letter to a client I published recently.  I cannot emphasize enough the enormous advantage the U.S. enjoys relative to the rest of the world.  It is truly the age of Pax Americana.  Of course, as the great Lou Mannheim said in the movie Wall Street "Enjoy it while it lasts kid, cuz it never does".   The Nadir necessarily follows the Apex...even with Empires.

Its time to work on your handicap for the next 5 year period with respect to U.S. equities.

I see continued volatility for entirely fabricated reasons on U.S. equities through march of next year.  

Following this initial period, its time to just buy the market Beta, sit back and enjoy excellent returns for the next 5 years.

There are a number of reasons for this, chief of which is the the return of U.S. relative dominance as "the" global consumption and security engine, exploiting the enormous vantages in energy, services and even manufacturing that have been building up since 2007.  As the world shifts production away from China and to Africa and Central Europe, U.S. equities will emerge the winner.

Closer to home, net savings desires (by that I mean the trend to negative savings growth, i.e., borrowing for production) and a deficit that is closing the output gap is promising for equities.  Because of this, The Fed has a great deal of room before serious inflationary pressures are noticed...and the current Executive is certainly not going to reduce Deficit spending in any meaningful way.  Overall, credit structures are improving and even Housing is now starting to grind out a recovery.

Risks:  Euro area Implosion, Oil supply/demand shocks (a bit more unlikely now with U.S. dominance in the area) and Congress actually slashing the deficit.

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