Here are the thoughts we prepared ahead of this morning’s CNBC appearance


Thoughts for 2009.  2008 Destroyed Capital.  2009 Should Repair/Rebuild It.
Economic Overview

  • Unemployment will increase significantly, perhaps to as high as 10%. 

  • GDP continues to decline, but starts to stabilize at some point during the year.

  • The financial markets start to do better, leading the economic fundamentals on the way up. (Just as they did on the way down.)

Investment Strategy

  • Stay Patient.  By all means, go “all in” like the Fed, but never with any resources that you’ll need in the next year.  (Your balance sheet isn’t as endless.)

  • Stay Nimble.   When making any decision, consider first where you are on the S&P 500.  While we’ve likely seen the lows at 750, we are unlikely to make much progress above 1100 without fundamental confirmation.  The admonition to buy on weakness and sell on strength applies.

  • Stay Close to Home.  The U.S. led the rest of the world into the downturn and should likewise emerge first in an upturn.  

Where We’re Putting Money Today

  • The Consumer.  Rumors of the consumer’s death are greatly exaggerated.  Earnings estimate reductions are old hat for this sector, which should likewise turn up earlier than others in the economy.

  • The Innovators.  Necessity is the mother of invention, and we’ve got plenty of that these days.  First Solar (FSLR) may be a unique beneficiary from not only strong political tailwinds, but also recent data showing that the technology can generate electricity more efficiently than the current grid even without government subsidies.

  • The Small.  Small companies have two things going for them.  One, they typically outperform coming out of downturns and two, they tend to have less global sales exposure, which fits with our Staying Close to Home Theme.  A small cap index or ETF here might be worth exploring. 

Where We’re Cautious

  • Energy/Materials.  The stocks are down but we haven’t seen much in the way of earnings estimate reductions like we have in every other sector.  With oil now under $40, we will.  It would also be very unusual for the most recent stock market bubble to lead us out in a recovery.   

  • Cash and Treasuries.  While they’ve been the place to be in the past year, the trade is getting both crowded and expensive.  

  • Classic Defensive Sectors.  Health care, consumer staples, and utilities have been relative outperformers in recent months but, like cash and treasuries, are unlikely to do as well in a rebuilding and eventual recovery phase.