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Monday, April 14, 2008


Inflation Musings

Stagflation is here already, as various economic reports and retail sales have made it clear that we are in a meaningful downturn while energy and food prices rise and the dollar can't get off the canvass. In the seventies we also had very high interest rates, which made for a unique form of torture. I guess rates at the long end have to start moving up from here eventually, but for now, the credit crunch is the result of the unwillingness of banks to lend rather than any high cost of money.

The solution to these problems is complex and requires coordinated actions, probably beyond the capability of our political system and the international banking system to provide them. The elements of what's needed include the end of currency debasement, particularly the dollar, reining in unnecessary public spending, more free trade (not less as Clinton/Obama would have it), lower taxes, and more rational accounting treatments that don't tie up capital and cause financial reporting that is totally unpredictable and discontinuous.

Somehow, the economy will underachieve but muddle through on some mediocre basis. The question is how long will it take. Those predicting a short and shallow downturn are probably smoking something that's pretty fun but severely clouds judgment. My guess is that we are looking at at least a couple of years of severe under performance, that could be lengthened by poor policy choices by the new administration, the Federal Reserve, and the rest of the G7 nations.

Does this mean we should all get out of our stocks? Well, they won't ring a bell when it's safe to buy again. In fact, it's the stocks you buy during the downturns that eventually become your 3 or 4 timers. The trick is to find solidly run companies that will survive the downturn with their market shares in tact, and avoid the companies with weak, leveraged balance sheets that might not make it through a prolonged slump.


The Democrats continue to provide great entertainment, if not much helpful in the way of policy prescriptions. This week, the intelligentsia are in high dudgeon because of Obama's supposedly elitist remarks about the underemployed people in the industrial heartland, who tend to be Hillary supporters. But his remarks are really consistent with the Dems' elitist philosophy, so I assume all the fuss is really about trying to break through his Teflon to keep options open. Democratic party hacks are right to be concerned that Obama could easily flame out in the general election, if he gets the nomination.

This week brought news that my college roommate's law firm, that he started right out of law school in the mid seventies to help provide legal representation for Philadelphia's most at risk youth, has won a prestigious and monetarily significant MacArthur Foundation grant. Bob Schwartz has co-led the Juvenile Defense Center of Philadelphia his entire career, and it has become the model for similar enterprises around the country and the world. You know, it's one thing to be a liberal (as Bob is) and another to lead your life in a way that actually reflects those ideals and brings help to people who need it, not just throw tax dollars at problems. I am proud to say my friend is a role model for all those who would like to make a positive difference in the world.

Last night's excellent episode of Cold Case ended with the song "Recovering the Satellites" by Counting Crows from their album of the same name. It sure sounded great running over the usual last shots of the people touched by the long overdue solving of the case.


Next week, it's off to Myrtle Beach for a week of golfing and "Little Boys" fun, so unless I squeeze in another post this week or find a stray computer down there, musings fans will have to content themselves with the achives for awhile. As usual, we've got the best courses on the Beach in our rota, including Tidewater, Caledonia, and TPC.

CBS delivered a great Masters telecast over the weekend. Augusta may be the most beautiful course in the world, but also it is easily the most exciting from the standpoint of watching on TV since everything from eagle to double bogey always seems possible, and that makes for a more dynamic leader board than you usually get at the weekly Bad Breath Open, co-sponsored by your favorite motor oil. It is also in significant contrast to the US Open where par is a great score and the result is a static leader board. The look on winner Trevor Immelman's face as he came off 18 and spied his two year old son coming toward him is one we will see replayed again and again over the next 12 months.


On April 7, I bought 6 (yes, 6) shares of Alleghany (Y), a new name, at 354.00. This is a property casualty insurer based in mid-town NYC. On April 9, I bought 400 more shares of Limco Piedmont (LIMC) for my IRA at 6.13. Both of these were value buys, so I was due (according to formula) for a zero buy, but I blew it and made another value buy today by mistake, 100 shares of Ceradyne (CRDN) at 33.18. Of course, value buys are the ones that make sense right now.

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