The end of every year brings the desire to recount the good and the bad of the year ending and look forward to the year about to begin. It is natural to think is those terms, this period is ending and the next beginning. But, the market doesn’t do that. The market is always looking forward to the next thing. Most of us are just now beginning to think about the new year, but the market has been looking toward it (and the next one) for a long time. Unless something really surprising happens, the market already has a pretty good notion of what is going to happen next year. Generally, the notion is that next year will be a pretty benign period for the world, the various economies and most markets. It may not be all that great for bonds, but it should be pretty good for stocks, commodities and maybe even property. That is why we’re setting new recovery highs all the time these days. Read more

Well, they tried. That’s probably the nicest thing that most people will say about the President’s deficit panel, which published its final report and disbanded. Government finances are in no better shape than they were yesterday, possibly worse. Chaired by Alan Simpson (former Republican Senator from Wyoming) and Erskine Bowles (former Clinton White House Chief of Staff), the panel tried to get people to at least think outside the box on taxes and spending. They started with lofty goals and a real world determination to change the discussion about government spending. They failed to get their package of changes approved by their self-imposed super-majority of the members, but did get a majority to sign-on to approach the budget from a different perspective. Read more

Social Security was back in the news again with the release of a series of recommendations from the President’s Commission on Deficit Reduction. You see, Social Security isn’t very secure right now. Any competent actuary would tell you that the way we fund Social Security is nowhere near sufficient to pay the benefits that are promised. That is why a goodly proportion of younger workers deride the idea of ever getting anything from Social Security for themselves. That is probably a little overstated, but none the less a good starting point for discussions. Read more

If you’ve ever seen ‘The Seven Samurai’, Akira Kurosawa’s masterpiece (although a little slow for most modern tastes, brought up on Sesame Street and accustomed to explosions every couple of minutes in their movies) you’ll remember the somber ending when the elder samurai tells his acolyte “alas, once again we survive” (you see what he really wanted all along was an heroic death). Well, it looks like our democracy will survive again. Accosted by negativity, bolstered by hyperbole, misguided by half truths and yet, we have decided who will be the leading politicians of the next couple of years anyway. Luckily for all of us, we can change our minds every couple of years. The beauty of our democracy is that the founding fathers understood what stupid, boorish and easily lead people would follow them. They kept it fairly simple and kept the political power spread out among an elected legislature, the anointed judiciary and the powerful executive. Having just survived the rule of hereditary kings, they were anxious to keep the powerful executive from exercising too much power. Read more

It had to come to this sooner or later. Interest rates broke zero at an auction of 5-year Treasury Inflation-Protected Securities last week. The auction lead to a nominal negative 56 basis points coupon for the notes, so evidently folks are convinced enough to pay 102 for a bond that will return 100 in five years, with only the inflation adjustment to change that outcome.

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We hope you enjoyed your Labor Day weekend.

A while back, I was thumbing through my bookshelf copy of Graham & Dodd’s classic text, Security Analysis, first authored in the 1930’s.  Coincidentally, this was just before the recent Wall Street Journal article declaring the “Decline of the P/E Ratio,” among other articles that occasionally allude to their work.  Strangely, the two seem to be most readily acknowledged either in times when they’ve been dismissed as passé, out-of-step with cutting-edge quantitative techniques, or, conversely, their traditional and straightforward ways of looking at the world have been “rediscovered” by investors discouraged by complicated modern methods. Read more