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A Better Way…

Kirk SpanoAccording to Warren Buffett, the top 2 investing rules are…

Rule No. 1: Never lose money. 

Rule No. 2: Never forget rule No. 1.  

What we can take from those rules is that the most important aspect of financial planning is having an investment approach that protects you from large losses and still gives you an opportunity to make money over the long-term. Very few people actually have that.

My name is Kirk Spano and I founded Bluemound Asset Management, LLC in 2010 as a response to what I saw the financial industry doing to people. I am widely published, including regularly on MarketWatch.com of the Wall Street Journal network. I have also appeared on television and radio. Take some time to learn for yourself how I have helped people a lot like you. 

If it is time for you to better know that your lifestyle and legacy are secure, please contact me soon.

MarketWatch  Fox Business  WisBusiness.com  Seeking Alpha

After Midnight

October 2011

After Midnight

The darkest hour is just before the dawn.”  Proverb

For the past twelve years, I have been outright negative about the economy and equity markets.  Recently though, at long last, I have started to feel optimistic.

Last month I hinted at my developing optimism.  A month later I am not all the way there yet mind you, but I can see the blue sky starting to form on the horizon.  

Today, I want to cover four specific reasons that I am feeling better, and one incredible opportunity that is just developing. 

But first, a public service announcement.

Pessimism Is a Contrary Indicator

Much as extreme optimism is an indicator that things really are not as good as they seem, extreme pessimism is an indicator that things really are better than they seem.

Today, pessimism is an overarching theme throughout not only the stock and bond markets, but also society in general.  While I would not argue that there are no legitimate reasons to feel pessimistic given the recent financial and social history of the world, it seems to me that the dark emotion is overstating reality at this point.  

Where were the pessimists from 20022006 when we were creating our current financial mess?  Well, back then, most people were smiling optimists enjoying their good fortune.  Today, many of those same people are angry and anxious over today’s seeming poor circumstance.  It is too much, too late.  It is time to look to the future.

Europe is Rich

Much of today’s turmoil centers on fears that Europe is about to collapse the world economy.  There is a major problem with that theory.  Europe is rich.  It is very rich.  The Europeans have accumulated wealth for centuries.  Their biggest countries economically are fine, Germany in particular.  France needs bank support due to exposure to debtor nations, but otherwise, due to its energy policy is well off.

Greece is no more than an argument over who is going to pick up the tab for the person who didn’t bring cash to dinner.  They are too small to matter other than in a rhetorical sense.  Italy and Spain are bigger problems, but hardly insurmountable.  Heck, Italy has higher net worth per capita than the United States.  They can draw on that if need be. 

Depending on how the Europeans want to divvy things up, they will either clean up their Union or change it.  There are very strong mutual reasons for preserving the European Union and Euro in particular. The Euro is their tool for avoiding inflation due to their lack of natural resources.

Regardless of which way they go in the next year or two or three, their negative impact on the global economy will be very temporary should it get worse there– which is at least a 50/50 proposition at this point.  If they simply “print money” to shore up the banks and create better rules to keep those who do not produce from sucking from the system, they will contribute to global growth much sooner than later.

China is Rich and Getting Richer

China has 1.2 billion people.  About one quarter lives a middle class or better life.  That leaves three quarters still needing for that economy to develop further.  Without further economic development, the 900 million have-nots will cause upheaval at some point.

The Chinese political power structure has no intention of allowing civil unrest to develop.  Part of their methodology is clearly heavy handed, however, their main tool is economic growth.  

The Chinese have over $5 trillion of foreign cash reserves to spend, in order to maintain growth.  Despite over building in the short run, there is still a long term shortage of housing.  As the next few tens of millions move into the empty units, construction will pick up again and help support growth in the high single digit rates.

Further, the Chinese have a cycle similar to the U.S. Presidential economic cycle.  With each 5 year plan the Chinese put together, there is an ebb and flow which is fairly regular.  This is the ebb year.  Next year begins to flow again.  

Japan is Rich

This spring Japan was afflicted with the worst nuclear disaster in history, surpassing Chernobyl.  Food, land, water and air has been poisoned.  People have died.  More will die.  Our thoughts ought to still be with them.

Economically, that disaster created a huge void in global production.  Semi-conductor plants closed.  The auto industry, one of the most important global industries, lost massive production.  Millions of jobs were disrupted.  

In 2012, Japan will continue to fill the economic gap created by the spring earthquake, tsunami and nuclear disaster which they have just begun to recover from.  The Japanese economy in a growth cycle will have immense fire power.  It would not be surprising if that terrible event jump started an economic boom in Japan which would positively impact the entire planet.

Long-term Japan will have some demographic challenges and likely will move sideways, however, their relationships and business acumen will keep them from falling off a cliff.

The United States is Rich and About to Get Richer

While we continue to argue about how to pay for the baby boomer retirement which has unfunded liabilities well into the tens of trillions of dollars (estimates range from 65 to 100 trillion), a simple fact escapes us, we are rich too.

Our rich currently is not in our individual net worth.  At least not for 80% of the population.  Our rich comes from three things right now: 

First, our labor force is very good and has the ability to return to great in about four years time whenever we prioritize it.  My guess is we prioritize education and skills again shortly.

Second, our corporations and wealthy are in very good shape.  Some claim too good of shape, but I suppose if there is a problem to have, it is to have too much money, even if it is spread around poorly.  I have little doubt that one way or the other, much of that money finds its way back into the economy soon, after sitting idle the past several years.

Third, the United States, after sixty years of purposely and strategically using other nation’s natural resources, especially oil, is beginning to tap our own resources.  This is in fact the biggest and most important point of this letter for Americans.

As of this year, the United States became a net exporter of fuel.  This is huge.  According to Goldman Sachs, by about 2017 the United States could be the largest producer of petroleum on the planet.  Add to it natural gas, coal, nuclear and solar exports and the United States is in a good position.

So, among the key reasons we are rich is because, per capita, we have a lot of natural resources.  Sometime soon and for the rest of the lives of everybody reading this, the United States will be a permanent net exporter of energy.  The trillions of dollars this country will make is well in excess of our debts over longer time frames.  Our only challenge will be to make certain everybody takes part in this national wealth and that we do not spend too high on the hog when everybody gets overly optimistic again.

As investors, we need to select investments that take part in this just beginning long term trend of the United States becoming an energy exporter.  Today’s market turmoil, which will last awhile longer, is an opportunity to do that, as well as, buy some agricultural assets as well.  Agriculture has been one of the top performers post 2008-09 crash and is likely to rebound well. 

While we will not get entry points perfect, simply being over weighted in the right areas will likely propel portfolios to higher levels.  The right areas appear to include energy and agriculture companies.

Your seeing the sun on the horizon Advisor,

Kirk Spano

 

This newsletter contains forward looking statements that may not come true.  Past performance does not guarantee future results.  This letter is intended for informational purposes only, and reflects only my thoughts and opinions in general, and do not constitute individual advice.  Opinions expressed may change without prior notice.

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Tactical Asset Allocation

The best offense is a great defense.

Tactical Asset Allocation

Are you utilizing the appropriate defensive strategies for your portfolio?

Today’s economic and financial climate are extremely dangerous and could lead to a large, fast drop in asset prices. Do you have a strategy to get out of the way quickly should that happen? 

“Set it and forget it” methods of investing like mutual funds, do not usually work. So-called “guaranteed” products, like annuities, are expensive, often lock people into low returns forever and aren’t always as safe as advertised. 

Tactical Asset Allocation using some of America’s top financial minds can offer protection that sales driven investment approaches don’t. Call today to find out how a tactical investment strategy can protect your retirement nest-egg and secure your lifestyle.

Punch Card Stocks

Buffett MungerWarren Buffett has famously said that investing in only twenty stocks, represented by a punch card, could improve your financial welfare. That is the impetus behind my “Punch Card” Stock Portfolio. These are the roughly twenty companies that I believe belong in the long-term growth portion of your portfolio and mine. 

Read my columns on MarketWatch, on my websites and elsewhere to see how a slow-handed and well thought out approach to stock investing can control risk and be profitable long-term. Learn more here.

 

Monthly Investor Call

The first Friday of each month at 4pm Central. Open to the public.

My next call is on: October 3rd, 2014

To join, follow this link or call 262822-3677. No PIN needed.

Submit questions by email. Podcasts available.

Retirement Catch-up Plan

Behind on your retirement saving? Call us today to get back on track with a unique barbell approach to retirement saving.

Kirk’s Recent Quarterly Letters

Dealing With Today’s Volatility

“I don’t really care about volatility.” Warren Buffett

Asset Returns vs InvestorsI put off publishing this letter for about two weeks, as over the past month, stock market volatility has increased quite a bit. While we are not seeing the wild swings of 2011, we are seeing a significant reaction to the overdue realization that the enduring slow global growth I have talked about multiple times and the end of quantitative easing by the Federal Reserve are both real. 

Buffett’s quote above is meant to convey a message that emotions should not be a part of our investing process. He goes onto discuss how volatility gives us opportunities to buy great companies at good prices.

With the uptick in volatility, I have not responded by fearfully selling assets. We actually were doing some selling between May and September when volatility was lower and most investors were complacent. Instead of being a seller the past two weeks, I have indeed been a buyer.

Continue Reading

 

 Freedom to Unite and Invest in Tomorrow

UpWhen I was a kid I dreamed about being an astronaut, a baseball player, a rock star and the President. As I hit my teen years and I hadn’t done much musically, I dropped the Mick Jagger aspirations and focused on baseball. By senior year of high school I knew that baseball was fun, but that I wasn’t an elite player so I had to drop the Robin Yount dream too. 

When I got to college, I focused on having a good time and taking courses that might help me when I grew up. For awhile I thought I’d be a lawyer, but a great uncle gave me some guidance and I decided against that career path. I graduated from college with a degree in economics and a second in political science with a law certificate tossed in. That’s not what I dreamed about as a kid, but it has proven to be a good direction for me. I got there by taking one step at a time and just not stopping.

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 The Great Retrenching Continues…

Total DebtIn September of 2008 I had coffee with a group of executives from local manufacturers, it was just after the financial crash had started. One company president in the group — a particularly political sort — asked me how long the economic slowdown would last? I said “until the middle of the next decade sometime.” He laughed at me.

Fast forward to today. What we know now is that the economy still has not recovered in real terms and that it will be a few more years until it does. The United States is just about in the middle of a demographic depression that can not be fixed with legislation or easy money. We must wait until household formation and spending by the very large millennial/ echo boom generation ramps up. Last year was the first year since 2008 that we saw an uptick in the birth rate, so that is a positive, however, it is only a baby step.

Continue Reading 

 

2014 Another Crossroads

 

S&P 5002013 proved to be a profitable year for investors. The S&P 500 rose 29% and set new record highs. Global balanced indexes, more representative of most people’s portfolios, also did very well by returning about 20% despite a tough year in China which lost 9%.

The high return of the stock market had an expected effect on people. Many investors started to chase returns and look to be more aggressive after years of being risk averse. The result was that 2013 saw the most money from retail investors flow into stocks since 2000. I discussed this in a November article on MarketWatch titled “How Bad Will New Investors Get Hit.”   

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Volatility, Opportunity and the Next Crisis

Secular Bulls and BearsOver the past several years, I have discussed the monumental demographic changes that not only America is dealing with, but also that Europe, China and Japan are dealing with. The cumulative impact of national and personal debts, de-leveraging from the bubbles of the 2000s and the four largest economies in the world having aging populations has created global demand destruction that is not likely to end soon.  

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