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So, moving on from the commercial break, here are some recent thoughts from the past two days.

  • The markets are in a crucial stage right now, at least technically speaking.  It will be interesting to see if the S&P 500 can hold its lows.  As we wrote yesterday, we think it will and are encouraged that even with Intel’s lowered guidance last night, the markets are hanging in there this morning. 

  • It’s easy — too easy — to be a bear right now.  If you’re the least bit bullish on the financial markets for the next couple of years — as a very few guests on CNBC have been recently — prepare to be shunned.   Contrarians take note.  There can be a cockiness to both bear and bull markets, depending on how you’ve been positioned.  Typically, these mark important turning points.  I don’t know why it works out that way, but it often has  — at least in our experience.

  • T. Boone Pickens abandoned his well advertised $4 billion wind farm project a couple of days ago, claiming that the project would not be economical with natural gas prices under $9.  He also closed his energy hedge fund or at least started liquidating it a couple of weeks ago.  I really like T. Boone Pickens and admire him for all that he has done business wise and philanthropically.  A fellow blogger nevertheless pointed out six months to a year ago that investors could have earned the same sterling returns as Boone’s energy hedge fund investors had by purchasing an energy related exchange traded fund at a much reduced fee structure.

  • Which takes me to the next point.  This morning, James Chanos was a guest host on CNBC.  He is well known as a long term short seller, whose fund is rumored to be up 50% or so this year.  This is certainly amazing performance, likely earned because he has been almost entirely short this market which is close to being down 50%.  My question is this.  Could investors have been similarly well served at a much lower cost by purchasing an exchange traded fund that is short the market?  Is Chanos really smart and or has he simply benefited in the short run for making a perhaps once in a life time great call?  Are hedge funds truly a new asset class or simply a new, more expensive fee structure?

  • Jim Grant, writer of the well known Grant’s Interest Rate Observer and another longer term bear, was also on CNBC this morning.  He actually had some encouraging things to say.  He said he was dismayed that Treasury and Fed officials were mentioning the Great Depression so much as a comparison period.  He was pretty emphatic that we weren’t in another Great Depression, when as he put it, GDP was cut in half rather than just being down 4% as it likely is now.

  • Economist Ed Yardeni – a former co-worker of ours – poked fun at the TARP bailout plan yesterday, saying that if you wanted to participate, you would likely have to accept Congressman Barney Frank as your personal government consultant in the deal.  While it looks like the Treasury Department is adjusting their approach to the current chaos as real life success/failure measures dictate, Ed’s point is a good one.  We would also point out that it shows how ineffective socialism and state owned enterprises would become if Congress were able to scrutinize every move.  Could you imagine?  Not much would get done, as the Russians ultimately learned not too long ago.  This isn’t to say that capitalism is perfect — it is not — but it is better than the alternative.  Do we really think Congress could do a better job running our businesses?

  • I continue to get feedback on the Bailout Plan I proposed a couple of months ago and believe it deserves some consideration.  Another advisor I know said a client of his might be faced with foreclosure, but that if this person could use their IRA to invest in their home, the process would be avoided.  This advisor wondered if the idea had gained any traction.  The government is already taking it on the chin with all these bailouts.  The proposed plan doesn’t cause the government to lose eventual tax revenues, they are just deferred like any other IRA investment.  It helps the banks avoid an expensive foreclosure process, helps the home owner stay put, keeps the real estate market from becoming further depressed from forced sales, and helps the government in keeping solutions to the problem in private hands.  If you know of someone who might be able to influence the direction of the Treasury process, please forward them a copy of the idea.  I have no vested interest in the idea – in fact it might hurt our business if people were to sell their other investments in their IRA’s to hold their mortgages – but I can’t help but think it is a viable solution. 

  • I’ve been noticing a big influx of coupons to my mailbox.  Clearly, times are difficult for retailers right now and they are doing all they can to try to keep consumers using their services and in their stores.  This is another instance of how everyone is responding to the crisis in the private marketplace.  I wonder if it is possible to come up with a similar coupon process for individuals and their mortgage rates.  This whole problem started as a housing issue and will likely only start to heal in the form of a housing solution.

Enjoy your day and keep the faith.