And Now for Some Good News.....

For everyone who follows this blog, you know we have continually set forth the fundamental economic problems that burden the global economy. Excessive leverage and the uncomfortable consequences of reducing that leverage top the list. We have studied similar events in history to learn what could go wrong, as well as what could go right. We have stayed conservative since 2008, with a healthy cash position. Our stock and bond holdings have done very well during the recovery phase, surpassing our expectations.

Remember, our number one focus for the past year has been simple: invest conservatively to preserve capital, allowing for investment at a better time and price. After a relentless and unprecedented “bull” market for the last 14 months, investors are finally appreciating risk again. We welcome this change.

An appreciation for risk is exactly what allowed us to buy investment-grade corporate bonds in late 2008 and early 2009 at yields-to-maturity ranging from 8% to 12%. An appreciation for risk is what allows us to buy EVA companies with 3% to 5% dividend yields at reasonable prices. An appreciation for risk benefits the patient and conservative investor.

If people now question everything from whether markets are “rigged” to complete Armageddon in the global economy, then that is a change for the better. It is a shift in investor psychology that we have been expecting for some time. Without a healthy dose of skepticism, conscientious investors have no chance. Attention to risk does not spell disaster. It opens up opportunity.

Could markets go lower? Yes. Could we have market instability from “machine” trading? Yes. Do we face challenges from Europe, an over-indebted Japan, a bubble in China, persistent deficits and higher taxes at home? Yes. Those are issues we study every single day. They matter greatly to us and have kept us cautious. We factor them into the prices we are willing to pay. But there are solutions to each problem that are difficult but not catastrophic. The issues are clearly on the table and voted on every day in the market. Beyond those solutions we have a fundamental belief in the “going-concern”.

“Despite our country’s many imperfections and unrelenting problems of one sort or another, America’s rule of law, market-responsive economic system, and belief in meritocracy are almost certain to produce ever-growing prosperity for its citizens.”

-Warren Buffett, Shareholder Letter, 2007

Households will always seek to maximize wealth and consumption, making the most of the resources available. Behavior won’t always be rational or predictable, but markets allow for our society to proceed in the most efficient way possible. Mistakes are made and corrected, confidence will rise and fall, and capital will be misallocated only to be reallocated. Politics and power will interfere, but society will continually pursue a better outcome. There is opportunity to invest for that future. If we didn’t believe in that, we would resign our role as investment managers to live on a farm near a reliable source of water and grow our own food.

Every doomsayer or perma-bear I know of at least acknowledges the going-concern concept and the fact that difficult issues can and will be resolved. In valuation analysis it is often called “terminal value”. That is an oxymoron because it actually represents continuing value. It measures what an asset is worth into perpetuity. While we don’t know exactly how the issues of today will be resolved and we expect it to be uncomfortable at times, markets need to simultaneously appreciate both risk and going concern.

For several months now risk has been underappreciated. It is indeed good to see assets start to re-price, even if our holdings are somewhat negatively affected. Since the market surpassed our expectations last year, it does not surprise us to see some of those gains retraced.

What is important is that we are here to take advantage of better prices as they develop. We have been prepared for a change in market character.

Expect us to maneuver by trimming certain positions into rallies and making investments in core EVA holdings at lower prices. Protecting capital is still our main priority today in an uncertain world, but our long-term goal is to make money and generate wealth for our clients. We are encouraged to see that goal come into focus. Don’t get me wrong, we can be as bearish as anyone; it is in our nature to be conservative. Much of what we are dealing with is slow to develop, requires patience, and a watchful eye. Just give us good value at a price that appreciates risk, and we can do more than just wait. That is good news.

Peter J. Falker, CFA

For more information about our business, please visit our website at:

www.FalkerInvestments.com

Living in the Land of Oz

All those who said Greece did not matter (I guess it has something to do with its economy being only the size of Massachusetts) can finally face the truth that it matters by roughly $1 Trillion. I guess $1 Trillion is not what it used to be, especially when central banks can print money without limit to be administered by generous, bailout-minded custodians of taxpayer money. They must save their only son (the banking system) from the cruel realities of life on the street. Who’s looking out for the rest of us? I think we can only help ourselves.

From reading and listening to many market experts today, last week’s sell-off was supposedly an overreaction anyway. The 1,000 point drop was a “glitch” (actually it is a “yet to be discovered glitch”). The market simply corrected last week to set up the next leg higher. Greece really didn’t matter after all.

Actually, there is a grain of truth to thinking that Greece doesn’t matter. French and German bank exposure to the debt of weak Euro-zone economies is all that really matters. Pure and simple, this is a bank bailout by the European Union, with self-imposed rules being broken to maintain the status-quo. The IMF, funded largely by the U.S. taxpayer, is providing 33% of the money involved ($330 billion!). In an unprecedented move, the European Central Bank has announced it began buying an unspecified amount of debt of European countries. It will provide this money, as ECB President Jean-Claude Trichet remarked, “to re-establish a more normal functioning of the market in order to be sure that we have an appropriate monetary-policy transmission.”

“More normal functioning” depends entirely on your point of view. It is becoming the norm to bail out irresponsible and negligent behavior. The money provided by the ECB didn’t exist yesterday. The ECB isn’t a money making, high return on capital enterprise. They simply own a printing press. There is a certain gullibility required for people to believe in this magic. If it was Procter & Gamble, Clorox, Cisco, Microsoft, or Berkshire Hathaway making this type of investment, we might entertain it as a shrewd, well-reasoned move by a disciplined, value-creating business. But that is not the case. In fact, left to the market to decide, it is a very bad investment. Just last week, two-year Greek bonds were yielding 15%. Only someone with a printing press would make that bet.

I know the EU, the ECB, the Federal Reserve, and the U.S. Treasury are worried. They fear that a moment like last Thursdays “glitch” was actually real. After stumbling for weeks with words of confidence, the EU finally orchestrated a “Sunday Save”, taking a page from the U.S. crisis playbook. Greek riots and truth-seeking markets seemed enough to push the EU to extreme measures. Weekend elections in Germany indicate real political divisions over the European bailout. So, the time to act is now, before markets and democracies impose real discipline. Monday, we went from “Euro-phobic” to “Euro-phoric” (clever…my words) due to the bailout’s absolute size. Who doesn’t love free money? I understand the need for liquidity in a credit crunch, but what we are dealing with here is real, lending-based insolvency in the banking system.

Sometimes it feels like we live in the Land of Oz, with some lunatic calling the shots behind a curtain. Democracy and capitalism, however, reveal the truth, even if they take us on a long, winding, yellow-brick road. Indeed, that road might someday be made of gold. If we eventually find comfort in what Keynes called the “barbarous relic”, it would be an attempt to prevent us from acting likewise. If central bankers and legislators want to maintain order without returning to some type of money based on metal, they need to act in line with free market principles and remove the specter of continual bailouts.

The curtain has been pulled back. The Wizard has been revealed. The hot air balloon is on its way. Everyone must think for themselves, and be courageous and willing to take responsibility for their actions. That is what we do every day as fiduciaries. This is our livelihood and we invest our own capital alongside our clients. The companies we invest in must create value and we look to protect capital from the risks inherent in markets.

There is no magic (or bailout) in that.

Peter J. Falker, CFA

May 11, 2010

Why We Don't Panic

Yesterday the Dow Jones Industrial Average dropped nearly 1,000 points intraday. The market ended the day down roughly 350 points. It is still unclear what directly caused the freefall. The New York Stock Exchange said this morning that they could not identify an error, but certainly something or somebody created an automatic and overwhelming response from computer generated trading.

Hopefully, this event will receive a tremendous amount of scrutiny from traders, regulators, and exchanges. Most of the downturn was corrected quickly. The market went down 700 points in 15 minutes then recovered 600 points in the following 20 minutes. The exchanges have decided to cancel many of the trades that occurred in that time frame. We had no orders present in the market when this occurred. When buying or selling, our orders are small and incremental and manually entered by us. We never have open or standing orders in the market that would fill automatically.

Regardless of the technical aspects of the sell-off, stocks began moving lower over the past week. The last several days have seen rising market volatility and a rally in U.S. Treasury Bonds, indicating a correction with a concurrent flight to safety. This comes as little surprise to us as markets will continue to confront the consequences of global over-indebtedness and economic imbalances. As written in this blog many times, deleveraging at all levels of society is a major theme for us in managing client portfolios today. The markets will ultimately deliver the verdict on how deleveraging takes its course, despite the efforts of interventionist government policies to manufacture a sustainable recovery. Currently, Europe is providing the best example of this circumstance and was a significant contributor to the momentum that got out of control yesterday.

“Show me a hero, and I will write you a tragedy.”

-F. Scott Fitzgerald

We have dual investment goals: generate wealth and protect capital. Our equity and bond holdings have performed very well since the market started recovering 14 months ago. Our bond holdings were mostly purchased in the midst of market panic in 2009 for very attractive yields-to-maturity. As stocks have recovered, we have shifted a significant portion of our equity holdings to conservative, high dividend paying companies that generate long-term wealth with consistently high returns on capital. These stocks achieve both investment goals simultaneously. Notably, however, we have also maintained a significant cash position, invested in the Schwab U.S. Treasury Money Market Fund.

Along with our bond holdings, this cash position contributes meaningfully to our goal of protecting capital. Even with a low yield, it provides a very important component of return. While it gives us flexibility to invest when opportunities appear, it gives us great comfort on days such as this. To be sure, while the market was down 9% yesterday afternoon, our cash position was down 0%. If a correction continues, that cash component will become more and more valuable both in its ability, not only to protect capital, but also for reinvestment at reasonable prices, upon which we intend to act.

Up to this point in the market recovery, we have been glad to let our bond and equity allocations do the heavy lifting of generating capital appreciation. Our cash position has not significantly hindered overall returns. Its relatively low yield has been inexpensive insurance to protect against a volatile backdrop no less severe than what was witnessed in the 1930s.

We are not trying to be heroes in this environment, chasing higher returns into a vortex of uncertainty. We have too much respect for the challenges of today to be cavalier in taking unnecessary risk with our clients’ capital. When confronted with low rates of return, investors often make the mistake of taking added risk. (A phenomenon we have witnessed repeatedly over the last 10 years.) Without compensation for that risk, losses occur suddenly and usually by surprise. Yesterday’s market action, reminiscent of late 2008, demonstrated clearly how a market shock might quickly undermine confidence when returns are low and risks are elevated. This environment is very different from the 25 years that preceded the collapse of the tech bubble.

Managing a portfolio that balances the goals of generating wealth and protecting capital will continue to serve our clients well as investors become more familiar with the changing character of markets.

If you have questions or comments, please contact us.

Peter J. Falker, CFA

CHINA

Aside from grazing the subject in previous posts, I have refrained from directly addressing China and the inherent economic issues. We are by no means experts on China, and the implication of Chinese economic policy is not usually a factor in building our client portfolios. However, the macroeconomic (big issues) world we live in today, requires more thought on subjects like this than at any other time since we started managing investments. We have also been asked our opinion on China in many conversations with investors and friends. So here is my opinion, and I will try to keep this within the specific context of our investment principles. There are many issues that contribute to a well rounded analysis, but my focus here is on that of price.

The Divinity of Price

Our investment strategy, focused on EVA-producing businesses, favors markets that are generally unencumbered and free to translate value through price. The goods and services of the businesses we invest in should be priced to reflect the inputs of labor, capital investment (that includes the cost of capital), and any value that a business creates in excess of these inputs. That extra value is known to us as economic profit and is what ultimately drives capital allocation in the market. Investors will seek out those businesses that consistently deliver economic profit. Equally important is that investors abandon those that destroy value.

Of course, there are factors that interfere with an efficient pricing mechanism, such as uncertainty over changing tax policy and regulation, among many others. For the most part, however, the capital market allows for value-creators to be rewarded and value-destroyers to be punished. It differentiates the good and bad stuff, allowing for both success and failure. Obviously I could launch into a discussion here of the consequences of the bank and auto bailouts of 2008 and how that doesn’t fit this model at all, but I’m trying to stick to the subject here. We clearly understand and are troubled that free-market principles are quickly abandoned when the going gets tough. Stock market returns over the past 15 years and, in turn, our investment returns have been, at times, driven by the forces of market manipulation and intervention.

So, very simply, anytime a pricing mechanism is controlled or distorted, the ability to correctly translate value breaks down entirely. The history of global trade and economics is full of pricing distortions. The driving force is always political and self-serving. So let’s be clear about our politics. The U.S. is a market-based, democratic country legislated by Democrats, Republicans, and a few Libertarians, while China is a centrally-planned economy with a single party government run by the Communist Party of China (CPC).

I don’t have to go much further for you to understand my point, but it should be abundantly clear that the two ideologies approach economics and markets from very different points of view. However, tinkering with market prices is tempting for both. International trade utilizes a natural pricing mechanism in currency exchange rates. Those rates are meant to translate the value of inputs from one economy to the other. China’s policy of a fixed peg of the Renminbi to the dollar is simply a price control. Price controls obstruct free markets. China creates seemingly endless GDP growth, yet without a real price, they likely destroy value and hide losses.

The Yin Grows

Why do the Chinese engage in such overt market manipulation? Some might argue that the Chinese have gone a long way to accepting market principles. I just want to get right at the core of the issue here, knowing we can rationalize or qualify this endlessly. The Chinese are, by definition, Communists. The CPC explicitly uses Marxism as one of its guiding principles. After all, Marx literally wrote the book on communism. In the Communist Manifesto there are statements that reject free trade and free markets. Marx also recognized that capitalism does not tolerate over-capacity. Persistent over-capacity drives returns below the cost of capital to the point of loss. Capitalism and free markets thrive on allowing failure so capital is redirected away from non-productive uses. China is the poster child of over-capacity in today’s world, building vacant cities in anticipation of future growth (Read this article in FT about Chenggong. See this video about Ordos City).

The wealth of the working class in China is suppressed and controlled by an overwhelmingly dominant single party political system, for the (supposed) eventual benefit of the whole. In the short-term, the benefits are disproportionately endowed on exporting industries and state-owned enterprises. The working class absorbs the short-term economic loss for the benefit of increasing total employment. By pressing continually on with investment in more and more capacity, China slowly transfers the means of production away from other countries. On the global stage, this is a power play, leveraging off an economic model of large trade surpluses to gain economic influence in the world.

The Yang Shrinks

The U.S. fell into the trap, with little pause or consideration of the consequences. Lured by a price too good to pass up, the U.S. has repeatedly justified manufacturing and consumption decisions. We fooled ourselves, living in an economy where price supposedly reflects value and aggregates all inputs, we rationalized that China just has access to more resources, more people, enjoying comparative advantages. With unemployment at low levels in the U.S. for many years, largely because asset prices and lending were supported by loose monetary policy, we hardly noticed the growing consequences. (Thanks to our own price fixers at the Federal Reserve – for a better look at that I recommend reading William Fleckenstein’s book “Greenspan’s Bubbles”).

Here we sit with 17% under/unemployment, structurally impaired from years of misallocated capital. Small businesses have little access to capital and banks are not increasing lending. Consumers have pulled back and everyone is yelling about deficits and healthcare. (By the way, the next great misallocation of capital is well underway in healthcare. It is by far the fastest growing component of consumption expenditures AND employment). I am at least encouraged that the political debate in this country is raging. People are paying attention. The fix may well be in on our side of the equation, with much work left to be done.

Yin Must Equal Yang

Welcome to the consequence phase. Too little too late for debate on the subject of currency manipulation, in my mind. The die is cast and we now find ourselves at the end of the debt rope. In order to run persistent trade deficits while maintaining high levels of employment, we have been borrowing in the pursuit of prosperity. How convenient for the Chinese to have been the natural source for much of that credit. Not convenient at all really. It is by design. They seem to have bought into the story as well. As hedge fund manager Hugh Hendry describes it, it’s as if Bernie Madoff was in charge of U.S. GDP accounting and China was the largest investor. The worst thing then for China is a derailment of the U.S. growth story as promised, especially in the form of a banking crisis. As the U.S. hits the debt ceiling, no longer able to borrow excessively as markets deny a further misallocation of capital, growth is short-circuited. China (and other surplus countries like Germany in Europe) must naturally face the consequences as well.

Bubble Hunting

Is China a bubble? I’ve read many who think so, such as Jim Chanos and Hugh Hendry, and they sound very compelling (read Chanos’ thoughts, read Hendry’s thoughts). But I don’t analyze China for investment purposes, have never been there, and I don’t have good insight on the numbers. What I can say, is that manipulating price prevents the market from purging losses. This type of price fixing is meant to rig a country for GDP growth and employment, not value creation. That is similar to how we ended up with the Dot Com and housing bubbles, as the price of money was set by the Federal Reserve to prevent the loss of jobs and GDP growth. In the end, we destroyed value, eventually reflected in falling asset prices. If China is in a bubble of some kind, without free market mechanisms, they may well blow hot air longer than we expect.

China Is As China Does

Financial headlines are ablaze that China must float the Renminbi now. No one seemed to care much until it all went wrong. It’s gone wrong, but there is no value in blaming China. We have been willing participants believing that prices reflected value. Now we confront the circumstances of having reached our borrowing limits and looking for retribution. Retribution, according to many in Congress, comes in the form of trade barriers. So, in essence, instead of manipulating price, we suspend pricing entirely. Let’s only hope this stays within the bounds of a diplomatic resolution. (Follow this link to find Taiwan on Google Maps).

My belief is that China holds the Renminbi peg (or close to it) beyond any pressure applied from the U.S. That circumstance will only serve to enforce the necessary process of deleveraging and the incipient deflationary forces in the U.S. With or without trade barriers, the U.S. must reign in debt and start saving more. Any radical adjustments in policy at this point would likely spark greater uncertainty and exacerbate that process.

This continues to favor our aversion to general equity market risk and keeps us close to “dollar” assets. Within equities, that requires larger holdings in defensive stocks such as consumer staples and very select utilities that pay above market dividend yields. We have continued to hold the high quality corporate bonds we purchased in late 2008 and early 2009. We also hold a fairly high cash position that protects against adverse market reactions. It also gives us flexibility to exploit investment opportunities that will be present as market volatility is likely to continue.

Fighting Words?

One last, rather well known quote from Communism’s founding father. Whether this is relevant or perhaps even prophetic, we might need to reconcile what it means in today’s world.

“Freeman and slave, patrician and plebian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes.”

-Karl Marx, The Communist Manifesto, 1848

Consider this as the China story continues to unfold on the global stage.

Peter J. Falker, CFA

March 22, 2010

Thanks for visiting our blog today. Please visit our website at www.FalkerInvestments.com

Letter to Clients - February 2010 (Final Installment)

Note: We are publishing this blog post in three installments, because of its length. If you would like to read it in its entirety or send it to a friend, here is a link to a pdf file on Google Docs of the entire article: FI Letter to Clients - February 2010

If you would like to return to the first installment, click here.

Video Introduction (replay)

This is where we left off in our second installment:

Leading up to the crash in 2008, we had rampant inflation driven by excessive debt. At the bottom we were faced with, and indeed experienced, the debilitating effects of deflation. Correcting inflation is easier, if sometimes painful. Attempting to correct deflation is more difficult and much more painful.

The reason for this is the legacy of debt that the inflationary period leaves behind.

The Elephant in the Room

“This country got very, very leveraged up in a lot of respects… at the individual level, in housing, in the government levels, everyplace. Deleveraging is a painful process and it takes a long time. And we’re not done.”

-Warren Buffett, January 20^th, 2010 on CNBC

“It matters little which factor in the vicious spiral (commercial bank liquidations or the fall of the price level) started first; nor what factor, remote or near, started either of them. They could even start together. But once started, they were doomed to continue in a vicious spiral, each accelerating the other. What seems sure is that the crash of the stock market helped to force the rest of our debt structure into liquidation, and that it was the hopeless magnitude of the debt burden which made it so difficult for the economic organism to right itself.”

-“Booms and Depressions”, Irving Fisher, 1932.

I am indebted to the writings of Fisher for providing a real time look at economics during the Great Depression. Thankfully, at the current time, our story departs from that of the early 1930s. Toward the end of 1932, when that book was written, the stock market had fallen for four straight years, declining nearly 90%. While there was a 50% recovery in early 1930 from the 1929 panic lows, the market continued down mercilessly with several “rallies” along the way. During that time, nominal GDP contracted 45% and the absolute level of debt in the country was reduced by over 20%.

In contrast, by March 2009 the stock market was down about 60% from the highs in 2007, and has recovered now to be down a less traumatic 26%. Nominal GDP has fallen a mere 1.3% from the highs in 2008, helped tremendously by government stimulus and inventory restocking in late 2009. Aggregate debt levels (government and private) have remained flat. Important to note, however, regarding debt levels, private sector debt will have fallen slightly in excess of 1% during 2009. This would be the first reduction in private sector debt levels since the 1930s. Also consider that bank lending is down 5% in the last 12 months. During all recessionary periods since the Great Depression, private debt has never contracted. In fact, it was always expanding credit that has jumpstarted recoveries in the past.

This is where I start to worry. You see, Fisher recommended in his book, that “reflation”, brought about by resetting the value of the dollar (devaluing it) could create expectations of the price level rising. This would motivate buyers and investors who had dollars to abandon them in favor of assets and goods before prices rose. It wasn’t until FDR basically took control of the banking and monetary system in 1933, and effectively removed the dollar from the gold standard, that prices started to rise. In effect, this so called quantitative easing is exactly what has lifted the stock market in 2009, and even back in 2003. The only difference, I hasten to add, is that debt levels have only begun to fall and the availability of credit is indeed shrinking, which is very worrisome.

Add to this that consumers are recently showing a change in behavior toward debt reduction and increased savings. Certainly, after losing/under-producing over 10 million jobs over the last 2 years, they have reason to continue that behavior. Consider, for example, that mortgage debt remains unchanged, while home prices have fallen nearly 30%. Not only is the elephant in the room still there, he’s taking up more space than before.

With debt levels relative to GDP in the United States at twice what they were in early 1929, I worry that we face what Fisher referred to as that “hopeless magnitude of debt”. While outside the scope of this writing, this is not just a domestic problem, global sovereign debt concerns are taking the stage in 2010. Again, it matters little what causes debt to unwind, it matters how it proceeds when it does.

WWBD? (What Would Bernanke Do?)

The mere size and duration of Fed and Treasury directed bailouts should give anyone pause to consider why they are so vast and long. The next closest comparison outside the Great Depression is Japan, where deflation persists to this day amid new “threats” to devalue the yen. The Japanese banking system was slow to reduce debts in the early 1990s over fears of insolvency. Similar to the U.S today, Japan slowly shifted private sector debt to government debt. Witness the recent expansion, now with a new provision for unlimited losses, of Fannie Mae and Freddie Mac to further underwrite the housing market. Add to this the purchase by the Federal Reserve of $1.25 Trillion in mortgage-backed securities.

Japanese Government Bonds have recently become cause for concern, even if still not a great risk, as sovereign debts are showing early signs of strain evident in the latest struggles of Greece and Spain. While Japan still enjoys a high standard of living, likely due to their history of maintaining high savings rates, the stock market is but one-third of its 1990 value, in nominal terms. Ben Bernanke, in a 1999 paper which he wrote while still a pure academic at Princeton, blamed the Japanese for not lowering rates to zero immediately and pursuing quantitative easing soon enough in the early 1990s. He states: “Most striking, is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn’t absolutely guaranteed to work. Perhaps it’s time for Rooseveltian resolve in Japan.” As such, that statement provides valuable insight toward understanding the person driving our monetary policy today. The Great Reflation Experiment has been unveiled.

Bernanke, and possibly Greenspan, are likely to go down in history as the first to orchestrate a real economic recovery simply by repeatedly devaluing the dollar, without a decline in the level of outstanding debt. As mentioned earlier, when FDR left the gold standard in 1933, he was starting at much lower absolute levels of debt and GDP. This formed a very important base from which to grow. The economy continued to struggle even then with a low confidence level, but relief was on the horizon as government programs reinforced recovery until World War II finally intervened. In Japan during the 1990s, stubborn to allow debt reduction, the price level remained under pressure as confidence has been repeatedly lost.

While each scenario is somewhat different, they are identical in that a period of inflation resulted in too much debt, which in turn caused great difficulty in resurrecting profitable growth in the economy for years to come.

Today, just as quickly as we reflate, we may well run right back into the wall of debt that repelled us before.

Starting Over

So that brings us back to the beginning of this blog, the conclusion. With an outlook for modest, below average growth in the economy for possibly several years, we stress our high regard for businesses that generate consistent returns on capital and deliver high cash flow yields to investors. Staying alert for reasons to reduce market exposure will remain important. Our number one concern is, as always, protecting the wealth of our clients. We are not predicting a crash and by no means desire that outcome. As we’ve said before, preparing in earnest for a crash can leave you with years of significant missed opportunities. We are simply being careful to safely navigate the challenges that will come to define the era in which we live. (It was worth repeating.)

Peter J. Falker, CFA

February 9, 2010

Thanks for visiting our blog today. Please visit our website at www.FalkerInvestments.com