2010 Year End Review
For those of you who have worked with us over the years, you might recognize the above quote from Scott Cook as something that has been said time and again by the founding principals of LCM Capital Management. As Mr. Scott was able to get his quote into print, we will respectfully give him the credit for saying it first, but the message conveyed remains the cornerstone of our company. For over two decades we have understood all too well that Wall Street sells people whatever they want, their main focus being to line their own pockets, making the needs of their clients secondary at best. As 2010 came to a close, bankers and brokerage firms were yet again paying themselves massive bonuses based on their “talent,” despite the fact that U.S. taxpayers have bailed them out with trillions of dollars while being paid 0% (zero) in interest on their hard earned savings. The new year always brings hope along with new goals and resolutions. Unfortunately, it also produces LCM Capital Management’s biggest vexation - economists’ predictions - or what we kindly refer to as “annual guesstimations.” This brings us to your first New Year resolution: Turn off CNBC, Bloomberg, MSNBC, etc. The commotion these programs create serves only to obfuscate the investing public’s perspective of reality. Case in point, there was endless talk this past year regarding the “death cross” and “Hindenburg Omen,” two technical indicators that had predicted a 20%+ downward correction in the markets. CNBC discussed this topic senselessly for weeks on end. The S&P has rallied 17% since these doomsday predictions. This past year’s stock market performance only validated our continued belief that volatility is here to stay. 2010 saw quarterly swings in all major indices of 10%+ both on the up and downside, but the year ended on a positive note for all major global markets. Investors can thank the unprecedented efforts of the government and central banks worldwide for keeping their economies and financial markets afloat this past year. However, like a raging New Year’s Eve celebration, there is usually a price to pay the following morning. We stated in our First Quarter 2010 Review that, “No country has ever spent its way to prosperity.” At some point, governments must look to reverse their economic stimulus strategies. The unparalleled amount of global debt issued will eventually lead to higher inflation, interest rates and taxes. Because of this, LCM Capital Management will continue to procure within the fixed income area, insured high quality municipal bonds, inflation protected CD’s, and U.S. government mortgage backed securities, when priced appropriately and balanced in duration. For the same reasons, if you own or know someone who owns bond funds, please call or email us. The fourth quarter performance of those “products,” down an average of 5%, is a precursor to the pain investors will eventually endure in bond funds when the Fed finally reduces the unprecedented amount of liquidity given to the financial industry. This is primarily due to the leverage within these funds, in addition to the bond manager’s continual lengthening of maturity dates hoping for yield (i.e., taking more risk in order to increase the fund’s yield), while trying to cover front-end sale loads, expenses, soft dollars and interest costs. This brings us to our first New Year prediction: Everyone will enjoy their home While many people are concerned about job security, foreclosure or bank short sales, these are times to enjoy your home. Our grandparents and parents lived simply, bought houses they could afford using little leverage (if at all), and remained there until their children moved out. Their residence was not considered a speculative asset to flip for a profit every few years. Many people are now learning this as they try to refinance. Taxpayer-sponsored banks are now only willing to lend up to 50% of what they were lending two years ago. With an obscene overabundance of existing homes and developers insistent on building more, every homeowner should sit back and enjoy his/her castle. We will be here for a while. Looking forward, we continue to believe in a jobless recovery theme, slow to moderate GDP growth, and extremely volatile markets. Real estate is settling into a prolonged restoration mode. Unemployment, along with our budget deficits, will stay high, and Europe’s problems will linger. LCM Capital Management would like to share our New Year resolutions, which have not changed since we founded this company, but which bear repeating:
We thank you for the significant number of referrals we have received, as well as for your continued trust and business as we build the most transparent, low-cost, fiduciary-focused private money management firm in the country. Have a Happy New Year. LCM Capital Management The view expressed reflects those of the authors as of the date of this commentary. Any such views are subject to change at any time based on market or other conditions, and LCM Capital Management (LCMCM) disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for LCMCM are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of LCMCM. Thoughts about investing, the direction of the market, and individual securities are based on the author's own analysis and are not representative of actual future performance. Investing involves risk including the possible loss of principal. |