April showers...Bring May Flowers

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Buy Something Quality.

The U.S stockmarket has emerged early from Death Valley, with a wicked thirst for cash and still carrying a pack of bad debt thanks to government policy. Credit is now becoming available* and for a short time cash will be sloshing around the economy scooping up cheap assets.

Certain banks are making record profits even as the 23rd bank of '09 goes belly up. As the good banks begin lending again, the national economy will show minor improvement.

How to make sense of all this? Companies today are the classic tale of two cities; on one hand are the parisitic, government subsidized companies (of all sizes) that deserve to rot but will continue to be propped up by government corruption (more infusions of cash for politicial reasons) and on the other hand are the all-star performers (that are accustomed to carrying the load - taxes) that can now be purchased on the cheap. When it comes to buying stocks - Do you want to own a Ferrari or a parisite?

Quality vs Junk.

Why buy a company that is constantly straddling the bankrupcty fence? US Bank is a model company run by managers who believe the best way to make money in banking is borrow money at 0 - 1% and lend it out at between 4 and 12% - depending on your credit. No goofy financial derivatives here (if you need a definition - Financial Derivative: Highly dangerous pieces of paper not well understood by top government officials, CEOs and other people calling the shots lately). Those of you who bought USB will continue to reap the benefits of good old fashioned cash returns on your investment.

The future performance of some companies depends on this question: Are "things" going to get better? Depends on what you mean; unemployment won't get much worse, the free fall in house prices will level off and Americans will save more than they did. Walmart is a fine tuned machine, the only significant retailer to increase sales in 2009. WMT does carry significant debt; nonetheless, they pay their bills and still have cash left to pay dividends.

Beyond 2009 - Inflation

In light of recent disasterous government bloating and spending, there is a bad smell in the air and eventually inflation (rising prices) is coming our way. Do not be the last one to leave the party, owning long term fixed rate bonds (why agree to lend money and be repaid with dollars that are worth less?) or a signficant cash stockpile, you will be punished. What should you do? Fix your home mortgage interest rate. If that advice does not help see the next paragraph:

For You Doom and Gloomers

How could I post a blog without something for the doom and gloom "Buy gold and sacks of grain before it's too late" crowd? Doom & Gloomers can be spotted from a long ways off. They usually have a dark cloud overhead to match their forecast for the future of the human race and sport a bumper sticker "Abolish the Fed". But in defense, D&Gers have rights too. Humor me and take a quick survey to determine if you say yes to any of these:
1) Is the US government spending this country into debt that will cause "the end"?
2) For whatever reason, can you not refinance or expect to be taking a mortgage in the next few years and are worried about "missing out" as interest rates go up?
3) Would you like to profit from increased interest rates and the failure of the US government's ability to borrow gobs of additional money in the future?
4) Are you a hairy Ron Paul supporter that has been stockpiling ammunition in the garage?
5) Do listen for black helicopters in the dead of the night?

If you answered yes to any of the above, TBT is a wise and appropriate investment for you, it profits as long term interest rates skyrocket.


Many of the financial decisions people have been holding back from do not make any better sense than six months ago. As example, now is a great time to buy a house but if it is 99% of what you own, you are taking unneccessary risk. Let me explain myself and call on two financial gurus for backup on this topic:

-Henry Markowitz won a nobel prize in economics by showing with hard math that you can get the same return with less risk by "not putting all your eggs in one basket". It's the one free lunch in economics.

-Mark Twain said "put all your eggs in one basket and don't take your eyes off it". One key difference. Mark Twain had "people". The most highly skilled investment managers that ordinary investors did not and do not today have access to. In this way, Twain was able to "keep his eyes on his investments" while writing inspired classic novels about tarring and feathering unscrupled bond salesmen.

Deflation in 2009

-In 2009 what is a "good price"? the other day someone showed me a nice shirt that used to be $65 now $15. My thought was that Citigroup stock last year was at $100 - recently hit $2. This is deflation. Frankly, given the choice between the aforementioned pair, I might be tempted to go with the shirt as an investment. Might come in handy for the cold, deflationary months ahead.

*(see TED SPREAD for technical details regarding liquidity if you like)