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The Sandy Spring Way

March Observations

March 5th, 2013 | By Beau Mercer

FredericBurke“May you have warm words on a cold evening; a full moon on a dark night; and, a smooth road all the way to your door.”

—Irish toast

Marty Zweig, Warren Buffett and Charles Dickens can communicate! In February, Marty Zweig, author of the 1988 book entitled, Winning on Wall Street passed away. Zweig was famous for the following market observations: “Don’t fight the Fed”, “generally a rising trend in rates is bearish for stocks; a falling trend is bullish”, and, “falling interest rates reduce the competition on stocks from other investments, especially short term investments such as treasury bills, certificates of deposit, or money market funds.” Warren Buffett in his March shareholder letter stated,” American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game heavily stacked in their favor. Since the basic game is favorable, the risks of being out of the game are huge compared to the risks of being in it.” Charles Dickens wrote about the Ghost of Fiscal Disasters to Come long before Congresswoman Maxine Waters, ranking Democrat on the House Financial Service Committee, warned that “over 170 million jobs could be lost” if the sequester took place-more jobs than America has-. Somehow the major stock indexes largely continue to ignore the potential impacts of the sequestration cuts and deepening problems in Europe. Complying with the insights of Marty Zweig, Warren Buffett and Charles Dickens, investors have decided that all is well with the world.

Whom can you trust? The White House put out a scare report which began with a warning that the sequester would diminish the chances that 4,200 children in Georgia would receive vaccines and 400 victims of domestic violence in Kentucky would receive government services in Kentucky. The Wall Street Journal retorted that the idea that $85 billion in cuts to a $3.6 Trillion budget would mean that children would go without vaccines and battered women would have nowhere to go is preposterous. President Obama commented, “it’s conceivable that in the first week, the first two weeks, the first three weeks, the first month, a lot of people may not notice the full impact of the sequester.’ Seemingly the White House strategy is to scare as many people as possible and let the media take care of the rest. The markets and media will now move their focus to the stop-gap budget, or continuing resolution set to expire on March 27, which has kept the government in operation since the previous budget year ended last September 30. The strategic positioning of the political combatants persists and financial values are going to be tested AGAIN. Remember Grouch Marx in the movie, Horse Feathers, as he looked out over the anxious eyes of the Huxley College student body, when he commented “As I look out among your smiling, eager faces, I can readily understand why this college is flat on its back”.

Happy Saint Patrick’s Day
March 3, 2013
—Fred