This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Sunday, April 26, 2009

Take advantage of the coming recovery

During the past six months I’ve said it again and again, but this just needs repeating: This current pain in the market is much closer to being over than most people think. The markets are seeing prices that remain irrationally low and what we see now is a buying opportunity that only comes along every 30 years or so.

In fact, this same claim is being made by a growing number of financial professionals, many of whom were saying a year ago that credit was too lose and the housing market was ready to cave in. Now these same professionals are saying that things will get better, and sooner rather than later.

In fact, with surprisingly positive economic numbers coming out, it’s becoming apparent that the prime reason the markets aren’t already improving is that, unfortunately, fear is getting the best of people. They remain convinced that the Dow is going to zero and the world is coming to an end. And yet more than 90 percent of the U.S. population is still employed and, according to the Bureau of Economic Analysis, Gross Domestic Product is less than 6 percent off its peak set late last year. The fact is that, as bad as things are, the current situation isn’t as dire as many previous crises.

At this point, the advice we hope to convey to readers how important it is that they not hide from this opportunity. We have said before and still believe that we are about to witness one of the greatest shifts of wealth in our countries history. Don’t get caught on the sidelines. Speak with a financial professional who is knowledgeable and trustworthy so that you can take advantage of the coming recovery.

Recently, attention has been drawn to automotive retirees and the risk they see of losing their pensions if their former employers go into bankruptcy. Unfortunately this is a very real risk for a lot of people, not just automotive retirees, but anyone drawing a pension, including public employees. We strongly encourage them to get informed on the subject. In fact, it was recently discovered that the State Teachers Retirement Systems of Ohio, the pension fund for Ohio teachers, is in terrible financial shape.

So please, if you or someone that you know is in this or a similar situation, please talk to someone knowledgeable and independent of the former employer. It’s very important that this person, preferably a financial professional, be an independent third party that can provide an objective opinion on the former employer and its likelihood of surviving the remainder of this recession.

Sunday, April 19, 2009

Tea, anyone?

It certainly is lonely at the top. Just ask the Obama Administration. It is becoming increasingly evident that, as the president looks around, he finds himself among fewer and fewer friends. The reasons for this are many, from pushing spending bills through Congress that 70 percent of Americans oppose, to expecting China to continue buying U.S. Treasuries that can do nothing but decline in value.

Now, even government is beginning to hate government. Just ask Texas. Its governor rallied support for states’ rights and the 10th Amendment. And let’s not forget the Tax Day Tea Parties. Finally, Americans are becoming so fed up with obscene government spending that they are taking to the streets in protest.

But that’s not all. Who among us ever thought they’d see the day when banks that received government bailout money would turn against their savior? Talk about biting the hand that feeds you.

Goldman Sachs lately is leading the charge to pay back federal bailout money, stating that they can no longer tolerate the strings attached to funds they were forced to accept. On topics ranging from size and scope of business to executive pay, it seems that big banks are tired of the federal government’s meddling.

Of course, many of these banks, Goldman Sachs included, have rational support for increased autonomy as they have lately begun to show profits once again. These profits have been mostly due to changes in accounting rules, namely mark-to-market. The concept of marking assets on the books to their current market value is surprisingly new, having been instituted while the real estate market was doing exceptionally well.

When they were first put in place, they helped banks have record earnings, but since the collapse of real estate, the same rules have contributed to massive write-downs and corporate losses. Now that the mark-to-market rules have been changed back, banks have been, and should continue to, see better earnings. These earnings are due as much to the change in accounting rules as to an improving economic climate. However, they are almost certainly NOT a result of any of the government spending plans passed by Congress.

It seems that across the nation among individuals, companies, and even governments (aside from at the federal level), there is a resounding call for markets to be free and capitalist again. This call will, obviously, have implications in the global markets. Even more important will be how federal governments around the globe respond to this call.

Sunday, April 12, 2009

Somebody wins, somebody loses

Recent market activity has shown that it obviously ran too high too fast in proceeding weeks. This latest stall in the market’s rally could – and probably does — have several causes. While we hate to imply any cause and effect relationship, lately there has been some bad news in housing as new delinquencies have taken off.

However, in light of recent policy changes in Washington, we believe that there are more than enough programs in place to help along any delinquent mortgages. This is facilitated by a greater willingness on the part of banks (most of which are now controlled by the Obama Administration) to help borrowers.

In addition to these programs to help borrowers finding themselves in trouble, readers who are self-employed may have noticed from 2009 tax documents just released that rates have fallen for tax withholding. This is a program we have argued in favor of for months now, and one that we feel will put more money directly in the hands of American consumers and should do more to stimulate the economy than all the spending bills passed thus far.

It is worth noting that in the past week or so, the only things doing well were the same investments doing poorly during the rally — namely the dollar and treasuries. This would imply that there may have been some profit-taking by some investors as the market comes off the bottom. This would indicate that those investors either needed or wanted greater liquidity in their portfolios.

Then again, perhaps the recent downturn has more to do with the return to winter weather we’ve seen in the past few days. The previous optimism in the market could be attributed to spring fever, in which case it should — hopefully — return shortly.

Changing gears, there is an April 8 article in The Wall Street Journal by Timothy Aeppel that is rather interesting. In it, he looks at a furniture manufacturer based in North Carolina that has been seeing explosive growth lately as many of its competitors have disappeared. This article reiterates a point I made in one of my first blogs, that being the importance of recognizing opportunity in crisis.

Many investors, even after all this, fail to recognize that the markets are a zero-sum game. To quote Michael Douglas in the 1987 movie “Wall Street,” “It’s a zero sum game; somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another.”

In this market, as in any market, it is important to remember that for every loser, there is a winner. Prowess (or luck in some cases) is the only thing separating the two. Keep your nose to the grindstone, stay adaptive and work hard and you improve your odds of emerging this or any crisis in better shape than you went in.

Sunday, April 5, 2009

Glass half-full

It’s simply amazing how much is happening in the world today. How many mornings we’ve woken up, greeted by headlines we never thought we’d read. In such times, it’s important that we keep the global perspective developed in recent years. Doing so should make us realize very important notions:

1. The situation is much worse in other parts of the world.

2. Things will get better

In fact, numbers now being released suggest that this recession was no worse than the one that occurred in 1982. The reasons it were felt more deeply were the credit problems and the media. Not to blame the media, but unfortunately this recession, because of how many major corporations it dragged under, shook up the system more than many recent recessions. Because of its victims, this recession lent itself to taglines and appeared much worse than it actually was, but also represented a great opportunity for headlines.

Fortunately, now things seem to be getting better. The global economy, it appears, is improving selectively by country and industry. Recent numbers out of China indicate that the stimulus plan there seems to be working, and lately the U.S. housing industry has enjoyed some fantastic numbers related to new starts, sales, and prices.

Sadly, many of these numbers are coming as protesters have led demonstrations at the G20 conference in London. Realize that these protesters have other motives for their actions and anti-capitalist agenda. They are simply using the economy as an excuse to incite riots and spread fear across the globe through news coverage. We can only hope that the economy continues to improving and this causes the violence to dissipate. Luckily, governments have injected so much money into the system that it looks like they’re finally having an impact.

Throwing money at these problems does have consequences, which we are starting to see. Lately, both China and Russia have expressed a desire to move away from dollar in order to prevent their economies from being dragged down by ours should something like this happens again. In fact, Russia has even suggested the use of a gold standard. Of course, Russia has the capacity to mine significant amounts of gold to back their currency. Meanwhile, Venezuelan President Hugo Chavez has tried to rally support from Arab countries to create currency to be backed with oil.

In all that is happening, it is infinitely important that both we and policymakers realize that the game is changing, as are the rules and the teams. Many longstanding alliances are withering as new ones form. For years, the United States has enjoyed its role as the world’s foremost superpower economically and politically, made possible militarily. It’s quite possible that is now changing. And while the United States won’t become a third world country anytime soon, it’s time we realized that we aren’t the only big dog in the yard anymore.