11/10/2012 Happy Days are... almost here again...

Small Portfolio	XLF & IAU	16.43%
Position	Date	Return	Days
DECK	6/15/2012	-36.11%	148
RIMM	7/16/2012	17.79%	117
SEAC	9/25/2012	10.04%	46
CAJ	9/25/2012	-9.45%	46
DDAIF	9/25/2012	-11.58%	46
WMK	10/22/2012	-2.58%	19
CFI	10/31/2012	-1.87%	10
CGX	11/5/2012	16.86%	5
ALTE	11/6/2012	-3.21%	4
MO	11/8/2012	0.25%	2
S&P	Annualized	1.78%
Small Portfolio	Annualized	11.34%
Large Portfolio	Annualized	15.73%

 

Rotation: selling ALTE, buying EL.

I won’t bemoan the election.  I believed Romney would be a less bad President than Obama, but always granted that Obama was a far better campaigner.  The differences in their policies won’t be felt between now and 2016, which I detailed on my October 3^rd missive on the blog:

http://www.market-mousetrap.blogspot.com/2012/10/1032012-before-debate.html

As noted, 2013 would have possibly been a secular buy point if Romney were elected.  Since Obama was re-elected, the secular buy point will likely be in the 2017-2020 range… which is AFTER he leaves office.

The reason is their energy policies.  Since a secular bear market is created by a gap in working aged adults, the only other resource is commodities, which our energy resources could fulfill.  Romney was in favor of a more aggressive approach than Obama.  That’s it.

And I mean it: THAT’S IT.  That’s the only difference that will influence our investments, PERIOD.

Neither emphasized this difference, but it was the only one that mattered to investors.  When Obama leaves office in 2016 he will most probably have those 12 million new jobs Romney promised, and the S&P 500 will be at an all-time high.  He will leave on a high note and quite likely be remembered well by history.

His successor will inherit an unstable foundation that was not nurtured during the 2013-2016 Presidency, and will weather a horrific bear market, that will be the final panic washout for this secular bear.  By 2020 we will likely be out of the woods.

So, no visible difference by 2016.

All of this is based on simple demographics (note the graph on the October 3^rd post).  There are only two ways to create money:

     1)  Print it, or

     2)  Create real wealth with a strong economy, created by

          a.  People (secular bull)

          b.  Commodities (secular bear)

Under Romney we would have had the latter, and under Obama we will have half and half.

GOLD – that obscenely advertised yellow substance – will do well during the rest of this decade (which would not have been true under Romney).

Now back to the last point above (Create real wealth with a strong economy).  How is wealth created?  By using the resources at hand.  In a secular bull market your best resource is working aged adults.  In a secular bear it’s commodities.  In other words, in a secular bull you invest in PEOPLE, and in a secular bear you invest in THINGS.

Obama is doing the opposite.  It will work short term, but not long term.  The election is over.  The only thing for us to do is to invest accordingly.

Short answer: hedge with commodities for the rest of the decade, because we will have far more inflation in the next 8 years than we would have had if Romney had been elected.  The small portfolio is holding IAU.  It will continue to do so for the next 6 to 8 years.  Since it will merely be HOLDING, and not TRADING, there will be no capital gains to pay on that investment for a very long time.

As for the other details of the economy, I’d suggest the book, “This Time is Different”, especially chapter 14 on the aftermath of a financial crisis.  Using their time table, on average expectations, we would see:

     1)  Housing bottom in 2012-2013

     2)  U6 Employment bottom in 2013-2014

     3)  Another 20% added to the national debt before they can slow down the bleed.

That summary is on page 224 of the hardback version of the book.  All I did was add the length of years they gave to the time the crisis started.  They gave an average length of a housing collapse to bottom of six years from the beginning of the crisis, which was in 2006.  They gave an average length for employment to pick up as “more than four years”, but the unemployment didn’t really hit until the beginning of 2009.

So, we ARE at the bottom, or close to it… if we follow the average historical pattern.  Whoever was elected this time would get credit.  Peter Watson also noted this phenomenon in his book “Terrible Beauty” – some countries were ruled by leftists and some by rightists when the Great Depression bottomed.  Whoever happened to be in power got credit… and it had nothing to do with their policies.

For you Democrats, this has nothing to do with the brilliance of Obama.  For you Republicans, there is no “luck” involved.  And for those in complete despair… no, this is NOT the end of the world… just the continuation of a well-documented historical pattern for financial crisis recovery.  Most of the policy differences these candidates claim don’t have any meaningful effect at all.  Yes, Obamacare is bad, but so was the previous system that the Republicans failed to fix.

A pox on both their houses.

It’s not our job to invest according to how things SHOULD be, but how they ACTUALLY ARE.

Good investing.

Tim