Tuesday on Twitter I said “Moved the % of US equities in my long-term portfolio down from moderate to basically zero.” I got a lot of questions so here’s more.
What? · I’m too busy to be an active investor; most of my portfolio lives with a nice low-MER low-ceremony investment firm where I pick the proportions that go into various buckets and they try to go down the middle of that bucket in risk-reward terms. So I didn’t get to ride the pre-crisis zoom all the way to the top, but I bled quite a bit less than most others when the you-know-what hit the you-know-what. (I’m still in favor of jail time for a substantial chunk of the Wall Street executive scum.)
Anyhow, when I sat down with them Tuesday morning, I asked them to take all the money from the “US Equities” bucket and put it into others.
Why? · It looks to me like consumer spending in the US is pretty well flat for the foreseeable future. Management is (appropriately) biting down hard on expenses so profits are trending up and share prices are ramping reflexively. But I keep reading these stories about the frightening number of mortgages that are underwater or otherwise troubled; which is to say there’s still some air in the big mortgage bubble and that top-line is going to stay flat for a whole lot of the economy.
Here’s a little symptom that crossed my radar, one of the many straws that broke my US-equity-tolerance camel’s back: Why NetApp Is Winning, by their CTO Dave Hitz. Dave quotes an analyst who thinks their quarter was “supersonic” and says: “The quick summary is that our revenue was flat from a year ago, up 9% from the previous quarter. Profitability has also recovered.”
He argues that NetApp’s doing well because they have a better virtualization story. Maybe so, but a market where the winnners have flat year-to-year revenue just doesn’t smell investable to me.
Trans-Pacific · I’m a fan of the United States of America and would like to be an investor, but I just can’t see doing it until there’s progress on a couple of really hard problems, one each side of the Pacific.
The necrotic malignancy eating away at the conservative half of the US political spectrum. Any healthy civic dialogue requires a sane pro-business conservative voice, arguing that grand plans are prone to grand failures, and that the public sector is prone to subtle systemic corruption. Unfortunately, America’s official opposition has become a self-parodic rump, all about sex and superstition and obstruction. I just don’t think it’s possible to be usefully pro-business and anti-science at the same time.
One consequence, just for example, is that the US political arena is entirely lacking in rational debate about how to pay for the services that a voting majority of Americans apparently want their government to provide them.
The Chinese regime’s ongoing embrace of mercantilism; all those political and monetary resources deployed in support of keeping the currency unreasonably low and the export opportunities unreasonably high. With, as a consequence, insufficient money flowing into service industries and, more important, middle-class pockets. I continue to think that what China needs is some good old-fashioned Social Democracy, where you use labor laws and bank regulation to route spending power to working peoples’ wallets.
If that happened and for a while the RMB soared and the dollar sagged, it’d be good for both China and America. But it’s not going to, because China’s oligarchs are blinkered and corrupt; existentially threatened by any slackening in economic growth, they’re just not going to change the recipe that’s kept their heads above water this last few decades.
At the end of the day, all the world’s big problems are essentially political. I’d promptly reinvest in an America where there was fact-based dialogue between sane Left and Right factions and which had a Chinese trading partner interested in a sustainable relationship. I’m not holding my breath.
I wonder how many other people there are like me?
Contributions
Comment feed for ongoing:
From: MathiasTCK (Nov 25 2009, at 23:09)
I was mostly invested domestically, am now about half. I plan to increase my domestic investment though.
What foreign investments do you prefer? What marekts/sectors/ etc?
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From: csw (Nov 26 2009, at 00:40)
Tim, I think the fundamental problem we have here is that the "sane pro-business conservative" doctrine for the last forty years has centered around cutting into wages, job security, and above all the power of labor, in order to produce greater profits for Wall Street. They have done this very effectively. However, consumer spending is a vital part of the economy; easy credit was substituting for the lack of real wages to prop up demand, but we saw how well that worked out.
Absent another credit bubble, I don't see how consumer demand can pick up again until there is a substantial political shift toward increasing wages and employment rather than repressing them. That is to say, something resembling (at a minimum) the good old-fashioned social democracy you propose for China. I agree this isn't likely in the forseeable future, but the first prerequisite for it is the marginalization of the 'pro-business conservative', i.e. neoliberal, doctrine (accepted completely by the Democrats as well as the Republicans). David Harvey has had good stuff to say on this recently; see http://is.gd/53UNh and http://is.gd/53UPQ (audio).
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From: john (Nov 26 2009, at 07:59)
Forget about thinking too hard about all this - if your employer is American and you live in a country which is sort of dependent on the fortunes of its large neighbour you should diversify away from investing in US securities as much as you can.
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From: Robert Young (Nov 26 2009, at 08:53)
This identity carries the subtitle "It's the Distribution, Stupid", which I've written about, off and on, since my senior thesis in 1971. Said thesis told the tale of Uruguay in the 1960's deindustrializing (nowadays called financialization) its economy to be the Switzerland of the South. It was a bloody and nasty tale.
Today, the banks have taken over, and we reap the result. China, to an extent not appreciated, is moving to bolster domestic "middle class" consumption; realizing that it can't go on forever exporting poverty to smaller economies. At the same time, it is embarking (with US aid, wittingly or not) on mercantilism in a big way. Afghanistan being a prime example where they get the resources while we fight the war. Americans are such idiots.
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From: Doubleday (Nov 26 2009, at 09:37)
I agree with you on the two problems that you identified. But I think there is a third.
Over the last 30 years the prevailing ideology in the USA has been to limit the extent to which capital shares the rewards of productivity gains with labor. Those productivity gains have been immense, but workers wages have been essentially flat. Trends like offshoring have been used as a cudgel to make workers feel insecure so that they do not demand wage gains.
Households have attempted to offset these effects by working longer hours, increasing the number of workers per household, going further into debt, etc.
The system is now pathological. Capital has been so effective at shifting the gains that there aren't enough consumers who can afford to buy their products. Debt burdens can't be extended further, there are no more family members to send into the work force (and not enough jobs, anyway), and an aging population is beginning to realize that a 401(k) is not an adequate replacement for a stable pension.
I count myself among the lucky, but I am worried about the future.
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From: Lee Levin (Nov 26 2009, at 12:13)
Hi Tim,
Glad all is well. I totally agree with the concerns you raised but I have connected the dots and they lead to a different conclusion.
The American population wants a villain and the American economy needs jobs. On Tuesday the president is making a major address to the nation about sending more troops to Afghanistan. He was the peace candidate!
Put your US bucket in defense contractors and health care companies. Government policy will be very good to both of them.
Regards
Lee Levin
(425)770-1531
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From: Matthew Willson (Nov 26 2009, at 16:19)
Universal healthcare is something we take for given in europe. Good luck to you if you see it as something americans can do without.
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From: Don McArthur (Nov 26 2009, at 19:09)
Hmmm ... consider a bigger picture. I suspect we are entering an historical inflection point as big as the Agricultural Revolution and the Industrial Revolution, which might be called the Digital Revolution.
I think the disruption will be as broad and painful, but it will occur in a much shorter time period than the preceding shifts.
And I think it is going to devastate the middle class of all industrialized nations.
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From: Michael Campbell (Nov 27 2009, at 06:18)
Or, perhaps, "divesting"?
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From: Scott Johnson (Nov 27 2009, at 12:56)
If only Tim's opinion of "America's official opposition" was more commonplace in America.
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From: Duane Phinney (Nov 27 2009, at 15:50)
"Hmmm ... consider a bigger picture. I suspect we are entering an historical inflection point as big as the Agricultural Revolution and the Industrial Revolution, which might be called the Digital Revolution.
I think the disruption will be as broad and painful, but it will occur in a much shorter time period than the preceding shifts.
And I think it is going to devastate the middle class of all industrialized nations."
You are 100% correct.
You are witnessing the destruction of the middle class as we speak.
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From: Chris (Nov 27 2009, at 18:19)
<blockquote>I wonder how many other people there are like me?</blockquote>
Lots. What we need is some money (hmm) and organization. Until we can lobby as effectively as the wingnuts and their corporate benefactors, no progress can be made. The right has been organizing around winguttery for 40 years, so is it any wonder the balance has tipped so massively in their favor? Modern progressivism was born in 2004.
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From: Nathan (Nov 30 2009, at 10:09)
Minor nitpick: Hitz isn't the CTO, he's the co-founder and executive vice-president.
The thrust of his post was that NetApp is beating its competition in recovering. It's worth noting that in the guidance provided to analysts, NetApp predicted a record quarter next quarter.
(Full disclosure: I am a NetApp employee and stockholder)
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From: Andrew (Nov 30 2009, at 15:01)
By focusing on Republican dysfunction and China you seem to be ignoring the fact that America is still an extremely business and investor friendly country and, like it or not, is still the most productive innovation cradle in the world. I'd never bet against America in the medium/long term.
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