The M spells Miserable!! To the left is a monthly chart of the S & P 500 from 1985 to the present. There isn't much more that I can add to the pictured price action and the horific pain that is been dealt by Mr. Market. There are no safe trades out here as the public is long or in cash and the lower we go the more old positions get coughed up. This is not pretty and text books will be written about the excess liquidity from the late 90's thru 2010 that has created one bubble after another, dealing pain and despair to most of the participants.
I was delighted to get a copy of the latest annual report from Warren Buffet. Wall Streeter's need to take lessons from "The Oracle" when it comes to communcating his positions and transparency. The below is an excert from his latest letter to his shareholders explaing a losing trade.
"I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars. I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined
even further. The tennis crowd would call my mistakes “unforced errors.”
On the plus side last year, we made purchases totaling $14.5 billion in fixed-income securities issued by Wrigley, Goldman Sachs and General Electric. We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus. To fund these large purchases, I had to sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter & Gamble and ConocoPhillips). However, I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.
The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost
equally extraordinary. Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning
close to nothing and will surely find its purchasing power eroded over time.
Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns."
Said well, what we need now is more to follow in his foot steps, admit errors, take responsibility, communicate a plan for renewal and stop whining about how it was someone else's fault and we are a victim of the times.
The grain markets are all closing on the lows and look horrible. I am unfortunately out of time and have to run, but lows are made with new lows, tops are made with new highs. This is very painful for the farmer with inventory in his bin. The lower we trade the more demand we stir up. This is not a quick fix or even a small pain killer, but keep it mind. We are searching for a low and a spark to avert our gaze from the outside markets. There is a story developing in Argentina in the bean trade, bean basis up strong today in SA, wheat areas in US and China are dry, and we are getting ready to go farming for real in the weeks ahead. Risk premium will haved to worked into the trade someday, just not today. That is all for now, good luck and keep your head down!
Jon Hart
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