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The Sandy Spring Way

December Observations

December 3rd, 2013 | By Beau Mercer

FredericBurke“We got something we both know, we don’t talk about it…you believe what you want to believe, but you don’t have to live like a refugee.”

—Tom Petty and the Heartbreakers 1980

How are you going to prepare for the next twelve months?  How did you prepare for the past twelve months?  What premium will you pay in advance for certainty? In 2013 short term interest rates were extraordinarily low and after the debt–ceiling crisis and partial government shutdown passed, longer term rates receded. The ultralow rates made certainty an expensive premium and quickly established the bargain prices of equities.  Since the market bottom in March 2009, the S&P 500 has returned more than 180 percent, including dividends. In the current low yield environment, it has been hard not to make money IF you have invested in the stock market. Should you use the rearview mirror as the predictor of 2014 stock market results?  If you think consensus would be helpful consider the monthly Intelligence Survey of Investment Advisors or the annual market prognostication from the American Association of Individual Investors. Remember, however, the stock market tries to grow to the sky but can’t! Based on valuations, such as the price earnings multiple and price to book, the current market is not in a ‘bubble’ as that term described the 2001 and 2007 market debacles.  The low cost of capital and the strength of corporate earnings provide the potential for continued appreciation.  Despite the market positives, politicians and special interest groups are conducting combat exercises daily in the media as they govern by crisis. Republicans seemingly believe their role is to denigrate and defund. Democrats have wish lists that have trumped a focus on excellence. The consequences of poorly planned government policy, such as withdrawal from Afghanistan or Obamacare are obvious. Obamacare does not let you keep your insurance plan and your doctor, and the new plans are not better! Each strategy erodes and affects the investor appetite. In early 2013, Thelma and Louise wrestled with a fiscal cliff and yet corporations found a way to increase earnings. In 2014, Senator Murray and Congressman Ryan will battle two monsters: the debt ceiling and prospective government shutdown.  Waiting for a political ceasefire is not an alternative to 2014 investment planning such as IRC 401(k) selections but sensitivity to promised volatility is a prerequisite. Recognition of the possibilities is the key step in preparation. “I’ll have a Blue Christmas without you; I’ll be so blue thinking about you.”   BLUE CHRISTMAS

Since 1955 on Christmas Eve, the North American Aerospace Defense Command (NORAD) purports to track Santa Claus as he leaves the North Pole and delivers presents to children around the world. Obviously the NSA has been tipped off as to the flight plan. There is concern amongst officials that the sequestration potentially will cast a shadow on the moment by moment analysis of the rather quick sleigh. A NORAD official contested recent comments of an EPA official regarding the cooling effect on the stratosphere of the heavily weighted delivery vehicle. The EPA official commented further that the TSA will need to investigate and X-ray the brightly colored packages. The Treasury Department expressed some concern about tax avoidance schemes and gleefully suggested that regulations could be quickly drafted that would address agency concerns. A Wiki-Leaks e-mail notified the SEC that the delivery program was funded by corrupt investors located in Chicago and Turkey. The Energy Department asked those responsible for the sleigh power pack about funding for development of the unique propulsion system. The Administration and Congress pointed to an agreement on legislation that would exempt the pilot of the sleigh from the proscriptions of Obamacare. Finally, judicial officials noted that the Supreme Court has not accepted jurisdiction from the Federal District Courts in the North Pole.

Despite the obstacles we can move the sleigh from its resting place, all we need to do is DREAM.

Peace of December to everyone.

—Fred