JACK'S OUTLOOK FOR 2011

Oh how quickly things change!  Our work tells us that the secular ‘bear’ market ended last November!  The structural head winds our economy faced are fading…even the ‘idealistic liberal’ in the oval office is sounding more like Ronald Reagan these days! Supply side!!  There is talk of giving corporations a low flat tax exception (tax holiday) to repatriate profits from foreign subsidiaries of multi nationals.  It would bring home an estimated 2 trillion dollars presently held overseas in order to avoid the 2^nd highest corporate tax rate in the world…What could be more bullish for the market and the dollar?  The tax ambiguity has been lifted. Talk of protectionist measures have abated. The era of ultra-regulation is behind us!!  We are now on the brink of something great. I wrote an essay in December named, “American free market capitalism…Where have you been my old friend?”…I think the title sums it up!

 

If an investor remains in fear of taking risk they run the threat of losing purchasing power parity. What some don’t understand about risk is that if you don’t expose your capital, you could lose it! Now that’s risk! A great example is the soybean market: In 1932 soybeans were .44 a bushel but by the year 1952 they were $4.50 a bushel…There was nothing different about the genetic makeup of soybeans, yield per acre, protein count, oil count, etc…But we were living in an environment in which the government inflated the economy out of a depression and inflated ourselves through a war, World War II. So from 1932 to 1952 it took 10 times the amount of US dollars to buy the same bushel of soybeans.  Sound familiar...? It was a time for investors to maintain purchasing power parity. It is a question of financial survival. 

 

The last few years were the time to preserve capital and keep one’s ‘powder dry’!  Now the time has come to use weakness over the course of the next couple of years to accumulate positions and prepare for what I believe will be a rally of ‘biblical’ proportions!  In short, we will start to experience the ‘golden age’ of American style Capitalism.

 

Look for this year to surprise people to the upside. Cash will be put to work much more aggressively in the second half when the unbelievers start to convert.  Even a little commodity inflation will work its way into the equation which will be viewed as constructive by the markets. A little inflation is good…A lot of inflation, or hyper inflation, will be bad!