Changing Focus in a Changing World - Weekly Blog # 719

 

Mike Lipper’s Monday Morning Musings

Changing Focus in a Changing World

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

Changing Focus

Securities analysts should come with two perspectives. The majority attempt to read the current minutiae of what companies are saying, with the goal of assessing the current price and the probability of relatively short-term future prices. The second perspective, rarely produced for public or client consumption, eventually pays bigger rewards when correct. 

For some time, this blog has highlighted the relatively unreported negatives concerning the current optimistic outlook. Entering 2022, there are more comments about risks and possible recessions, which while still in the minority of published opinion, has increased in coverage. At this point there are enough bearish comments, so I can move on to the much tougher challenge of finding reasons to be optimistic. The eventual major stock and bond market decline is inevitable, although I cannot identify the time and headlines that will label the decline. Furthermore, I cannot stipulate the length of the bear market, which is normally a function of what owners do, not what issuers do. In other words, from the current lofty levels I am beginning to look across the valley of disappointment to the beginnings of the next expansion. 

I look forward to learning the views of subscribers, both concerning the down phase and the recovery.

Changing Environment 

The future will contain a multitude of changes, many small, but a few unexpected by most will verge on being seismic. At some point in many developed countries, the growing size of government debt owed to non-citizens will be too large. Not only will foreigners refuse to buy more, but they are also likely to push for debt repayment, not rollovers. 

For many Central banks and commercial financial institutions, US debt is a prized asset. However, Mae West may finally be wrong in that “too much of a good thing is wonderful”. In 1990 the Federal Debt totaled $3 Trillion, now in under half of a lifetime it is $30 trillion. Politicians of both parties are responsible for this growth in our children’s and grandchildren’s debt. Interestingly, 35 of 50 states require balanced state budgets. (One can examine the financial health of the 15 states that don’t have this restriction, comparing local crime and inflation.)  While the growing debt is deplorable, it is probably a good indicator of how the government meets its other responsibilities. (Some houses never have a single broken window.)

Looking at the implication of the growing debt and its likely impact on the investment environment in 30 years. The debt will impact our children’s assets and the future value of what our grandchildren inherit. It would be prudent to expect taxes of all sorts to increase. Increased taxes will lower the reported earnings of companies and will probably delay the dividend increases the third generation may be living on. Will it likely lead to lower price/earnings ratios? (Since the 1950s we have generally benefited from rising earnings multiples.)

There are at least two other changes to our investment environment, both positive if one’s portfolio is properly positioned. The first is that winning companies and institutions, no matter what they do, will make progress by improving customer service. Because technology will likely continue to lower the costs to manufacture and transport, the winners will have the attitude of successful service companies.

We are already seeing the third trend that is going global. Year-to-date figures show the US market declining more than 5%, while Brazil is up +10%, Greece +8.5%, South Africa +6%, and Chile +6%. Five other countries have positive equity markets. We are also seeing positive fund flows into Western Europe, Japan, and Emerging Markets. This is probably not a short-term phenomenon. While one can understand a certain reluctance to disclose critical information in patent applications, the number of patents granted suggests a large amount of technology innovation is taking place outside the US. The percentages of patents awarded in 2021 was: China 49, Japan 15, South Korea 11, US 10, and Europe 8.

Changing Companies

Many companies continually evolve, some more dramatically than others. As my primary focus is financial companies, I see some making changes that should impact earnings patterns in the future. Goldman Sachs (*) is developing a retail banking base to fund their investment banking activities. It is my speculation that when Buffett and Munger are no longer involved with Berkshire Hathaway (*), shareholders will own more than one stock certificate. Over time it is reasonable to assume a number of their activities could generate higher stock prices if separated. I also suspect that if the Fed, FDIC, and Treasury come under more restrictive management, a number of banks will split their activities requiring a bank license, placing the more profitable businesses in another company. Watch JP Morgan Chase (*) for such a move within ten years. The financial sector may initiate dramatic changes in how they manage their human relations and work from home activities.

(*) Owned in managed accounts or personal accounts.

Changing Investors

The current effort of some governments to regulate an increasing amount of corporate activity through regulatory bodies will drive more investment into private companies. There is already some level of private market transactions, which will increase. NASDAQ (*) has been active in this, as have a number of brokerage firms and banks. This drive may well lead to more cross border transactions. In dealing with private companies, valuations are often based on verifiable sales data, which includes a price/sales comparison. There is a lot of room for such transactions. For example, the P/S ratio for the Russell 1000 Growth is 5.12X, with the MSCI World ex US Small Cap being 1.05X. 

In terms of investment sophistication, there are private investors capable of protecting themselves as smaller institutional investors. There are times where not being public is better for both the company and its investors. In many cases these investors have entered a second career as a supervisor or confidant to multi-generational family assets.

Question: In your thinking about the future, what changes are you expecting and how will you handle them?

  

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https://mikelipper.blogspot.com/2022/01/things-are-seldom-what-they-seem-weekly.html

https://mikelipper.blogspot.com/2022/01/two-critical-questions-weekly-blog-717.html

https://mikelipper.blogspot.com/2022/01/current-causes-of-concern-weekly-blog.html

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An Investment Dilemma with a Possible Solution - Weekly Blog # 658

 

Mike Lipper’s Monday Morning Musings

An Investment Dilemma with a Possible Solution

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

                           

The Problem

Many of us have become addicted to the force of momentum in many aspects of our lives, including investments. We feel more secure in our judgements by going along with the crowd, particularly if we self-select the crowd, as there is an element of fear being outside the crowd. Is there something wrong with us?!

Current Situation

After record investment performance for many market indices and our own accounts in November, we believe that as owners of US stocks, not only are we bright but right. We hope the momentum will continue, for if we annualize the November gain our investment performance will generate an annual return of 100% or more. That is the problem, even if our egos question the probability of that happening.

Our Focus

Since there is so much investment momentum being celebrated by pundits and investors, subscribers don’t need any more “feel good” coverage, at least from me. Professor David Dodd hammered home the point that the entry price is the single most important factor in making a wise investment. That is the price relative to all the other factors. In a similar way, the most important lesson for betting at the racetrack is the spread between the betting odds and our perception of the future results at the finish line. In both cases there is a single underlying presumption, that on average the best company or horse may not be the best bet in terms of building capital. With that as a guiding principle, I offer up some contrarian inputs. I am not expecting to be instantly correct, but believe these views along with patience will produce sustainable capital for my investment responsibilities.

Contrarian Inputs

• The “Buffett Indicator is closing in on its former high of 187% vs its current reading of 180. (This is Warren Buffett’s most reliable indicator of a top and measures the aggregate market capitalization against GDP.) Due to the costs of the pandemic, the capacity level of the economy may be understated. It is fashionable for younger investors to discount the wisdom of Mr. Buffett, although the market has a habit of proving him right. Many doubted the wisdom of Berkshire’s private investment in Occidental Petroleum, although this week it was one of the best performing stocks, up +12.3%. (Berkshire Hathaway is a position in our financial services private fund and other accounts)
• This week’s reading of the CRB Raw Industrial Spot Price Index was up +15% year over year. The index is heavily weighted toward the price of scrap metal.  Not only in China but elsewhere, scrap is needed to produce completed metal products. (Despite Central Banks/National Governments putting a lid on government debt interest rates, I believe there is a reasonable chance of them doubling before the next US Presidential election, led by consumer purchases of both manufactured and agricultural goods.)
• Both individual and institutional investment accounts are shedding cash. (The tops of markets tend to coincide with the absence of fresh cash to keep upward momentum going.)
• There is a lot of wisdom in mutual fund investors, This may be particularly true with the existence of Exchange Traded Funds (ETFs) being used for shorter-term market judgements. This reinforces the belief that the bulk of money invested in mutual funds is long-term, slated for retirement and similar purposes to be used in the distant future. According to T. Rowe Price, the average 401(K) participant is investing 8% per year. (I suspect that other non-mutual fund investors are not similarly saving for their retirement and long-term needs.) 65.8% of all allocations in US mutual funds are invested in diversified equity funds, which have grown +12% vs the all equity fund return of +8.97% over the last ten years. (I do not expect diversified funds will grow at the same rate over the next ten years and can discuss that with you privately.) Mutual fund investors may have anticipated the current fall in the US dollar, which is discounting an apparently unfriendly new administration and open to better opportunities abroad. 26% of mutual fund investor assets are invested in world equity funds, which have the bulk of their investments in non-US listed companies. In addition, 17% of diversified funds are large-cap growth funds, which attribute much of their recent superior growth (+37.63% in the last 12 months) to investments in multinationals and foreign stocks. 
• Some portfolio managers are getting worried about the price of growth funds, demonstrated by the following quote from a Chinese portfolio manager in Singapore. “We believe the market is due for a meaningful correction as the pandemic worsens in the winter and fiscal stimulus may be slow and not generous. Valuation is also no longer as attractive, especially for growth stocks. We are selectively taking profits on some of our stocks and deploying the money into more decently valued stocks such as Chinese banks.”

Guidance 

I do not expect to pick the exact high in the US market, but I’m also extremely conscious that staying fully invested in well chosen funds and stocks has proven to be very beneficial in the long run. However, either due to extremely high prices, expensive stock acquisitions, or generous cash deals, accounts have somewhat involuntarily generated cash balances. Currently, my suggestion is to resist momentum by not reinvesting in the equity markets, as investors already have substantial amounts invested. When the lower-priced market almost certainly appears, it will be a good time to add to existing holdings or better investments.

Annual Market Research Visit to The Mall at Short Hills

My visit to a very high-end mall on a rainy Saturday, which later changed to a sunny day, brought out a medium-sized crowd. In some store’s, salespeople were waiting for walk-ins; however, at some high-end stores there were lines outside. There were still some vacant sites. Brooks Brothers had reopened, although it is still in bankruptcy and has some limits regarding merchandise. Shoppers at best we are carrying two medium size shopping bags. The best measure of the pulling power of brands were the three computer stores in the mall. Apple* had lines around the corner, Verizon with a smaller space had a few people waiting to be admitted, and AT&T had a large space with very few people inside. My conclusions: strong brands will have a reasonable to good Christmas season and some will scrape by on heavily discounted January sales, with a number of liquidations likely.   

* (Owned in personal accounts)

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https://mikelipper.blogspot.com/2020/11/approaching-multiple-turning-points.html

https://mikelipper.blogspot.com/2020/11/mike-lippers-monday-morning-musings_15.html

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Thinking About Selling

Introduction

For the last several posts I have been dwelling on the coming peak in stock markets. I have not been predicting that the current record levels are the peaks before major declines; however I am suggesting that many of the characteristics of a classic top are showing up.

The difference between smart and loud people

We are experiencing the beginning of an enthusiasm epidemic. The clamor of some media pundits echoing comments by economists and a few real market movers is almost becoming deafening. (I wonder whether there are any quiet bulls!) When I parse what they are actually saying I discover that they are looking for another year of rising stock prices and they are willing to see declining bond prices. This was reinforced to me this morning, when leaving our local gym I ran into the director of research of one of the smart new research firms. He said he felt that there was another good year ahead before the size of the government sector’s debt including the central banks would create instability.  This is the equivalent of believing that he can safely dismount from the tiger of “the greater fool theory” that I have written about previously. I earnestly hope he can.

In our continuing discussions with portfolio managers of successful small market capitalization mutual funds, I find they are not waiting to begin their exiting strategies. Quite a number have taken the steps of restricting the amount of money coming into their portfolios by closing their funds and their separately managed accounts to new money. One fund has already started a program of reducing the size of its commitments to some winning positions. Another technique being followed by some is not to fully invest the latest surge of new money that has entered their shop. Their cash build-up already approximates 60% of their maximum cash positions.

What to Do?

In terms of stock positions, one should start to think about net selling slowly. I stress net selling. At all times I would urge investors to follow my late friend, Sir John Templeton’s advice to always seek out better bargains. While a switch may improve the long-term results of one’s equities, it does not reduce the overall market risk of the stock portfolio. What I am suggesting is to begin to plan to reduce the overall commitment to equities. (For me this is a nerve-racking move as I have been long stocks for the last 40 years.)

The One-year Timeframe Portfolio

As regular readers of my posts, you are aware of my concept of dividing one’s portfolio into separate time horizon-oriented sub portfolios, or “Timeframe Portfolios.” At the minimum one should have at least three sub portfolios with time horizons of one year, five years, and ten or more years. My immediate focus is on the one year which is both for the net cash generation to meet current needs and the result most amateurs focus on in their discussions in mixed investment committee meetings with non-professional investors. For this section of the portfolio a selling program is needed to meet cash and competitive needs. The object of the exercise, while enjoying the probable rising market prices, is to raise sufficient cash to meet funding requirements. My suggestions are first to decide how much cash is required at the end of the year and then plan to sell an amount each month or quarter.

The next approach is to set price levels for each position that is a reasonable one year goal. Whenever the price is reached, sell the position and include the proceeds in the required cash raised for the month or quarter. Finally, there will be events, some positive and some negative that will cause the stock price to gyrate. Either way it would be a good time to exit the one year position.

The Five-year Timeframe Portfolio

The middle sub portfolio or the five year portfolio has a different set of issues and therefore suggestions. What is absolutely clear to me is that sometime over the five years stock prices will take a nasty hit, most likely in the 25% range, but possibly as much as 50% before returning to an upward path. The critical question facing this portfolio is, “Who will see the results?” If the only reviewer of this portfolio is its owner, then a sound growth-oriented portfolio would make the most sense as stock markets tend to rise three out of four years. However, if the portfolio is likely to be reviewed by a critic, a significantly different strategy might be best. To be over-simplistic, owners want upsides, critics want to avoid declines. 

Most of the time the discipline of a value-oriented portfolio has had less chance of declines. The overall characteristic of a value portfolio is that the stocks are selling significantly below their perceived intrinsic value. (Not so far below that only a small minority of investors would perceive the same value. These portfolios are often labeled “deep value” and better left in the hands of keen professionals.) Most often to keep value stocks from declining at the same rate as more aggressive growth-oriented stocks, the value stocks pay a dividend and may have a practice of buying back their shares from their shareholders. The dividend yield on these stocks should attract some additional buyers if the stocks go down in price and their yields rise. Currently the ten worst performing stocks in the Dow Jones Industrial Average (DJIA), often known as the “Dogs of the Dow,” have dividend yields of between 3% and 5%. Many so-called value stocks have similar or somewhat smaller yields. And this is what makes them more vulnerable today. 

For months the general stock market has been discounting the beginning of the Federal Reserve’s tapering and bond yields have been rising.  Over long periods of time when bond yields go up, stock yields go up and stock prices weaken. When this happens the partial safety net from dividends become less strong for value stocks. In addition, many value stocks are from companies that require significant capacity expansions to produce the same or higher dividends in a period of rising costs. I am increasingly concerned about some of these in the energy business. Quite contrary to past beliefs there is a multiple year threat of over production of oil which will lead to lower prices. Nice for us as consumers, but it is not a favorable outlook for maintaining or growing dividends. Thus, my recommendation for value-focused portfolios is to reanalyze the intrinsic value calculations as well as the value of future dividends as a price support for the stock.

Bond prices are declining

Contrary to much of market history, we have until very recently enjoyed having bond and stock prices rising at the same time. In the past their price movements have been inverse to each other.  As mentioned the markets have already sensed the slow pullback of the manipulations by central banks to keep interest rates artificially low. In addition, while it is clear some of the most damaged European economies have stopped shrinking and may be rising a small bit, the rating agencies are slightly lowering a number of the sovereign bond ratings. They are showing appropriate concerns as to the willingness of political leaders to continue the various austerity policies that helped to give confidence to the funders of the turnarounds. Removing this discipline runs the risk of a 1937-38 Roosevelt Recession which may well have been a contributor to setting up WWII. With the high-quality bond markets showing signs of nervousness, the yield spread for high yield, if you will junk bonds, will widen.  If this were to happen it will make the current wall of refinancing more expensive, perhaps prohibitively. Without support from the fixed-income world many of the expected merger and acquisition deals are going to be delayed which could hurt the value stocks.

When one hears of transactions, one should make the judgment whether the buyer or seller is smarter. I am very selectively and for specific purposes slowly beginning to sell a little bit.

Please let me know what you are doing.   

_______________________

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Government Debt vs. Tough Love

Introduction

Introspection is forcing many managers and investors to privately reconsider the basic premises of their long-term investment strategies. With the popular US stock indexes at or near all time highs, why don't they feel better?  The relative investment performance of many high quality value-focused managers is lackluster. The companies they own are doing well and for the most part they are sitting on lots of cash earned overseas from faster growing markets than their own home market.

One of the sectors which is doing very well for many portfolios is financial services securities. In terms of market value this sector is the second largest in the S&P 500. Further, in most other markets, the financials are the largest high quality names. Our own private financial services fund is having a good year producing returns at least twice a "normal" year would produce. And that dear reader may be a symptom of the deep problem.

The two drunks structure

When two people who have had too much to drink and are marching down the street supporting each other, there is a symbiotic mutual support system at work. In most countries, governments are thought to be the guarantors of at least the banks’ depositors, if not the majority of its creditors. In most societies, the largest owners of the governments' debts (those that are not a government entity like social security) are the banks. The drunks are into each of their pockets in a major way.

The reason and the costs of financial dependence

We all know the historic reasons for these relationships. In the past each side was feared to be in danger of failing. Under these circumstances heads, some of them innocent, would roll. There would be disruption of “normal” activities and many things would grind to a halt. That is until replacements came into being with new leadership and fresh capital. Order would be restored with the absence of some wonderfully historic nameplates such as Bear Stearns, Lehman, Washington Mutual, Countrywide and Merrill Lynch; as well as, at least initially, more assorted spending and investing. In a parallel example, think about some function or people who were let go and not replaced. In all likelihood they were not earning their cost of capital and in the past were a drag on all who were.

No bailouts plus “tough love”

In a somewhat simplistic view the bottom line of corporate, bank, and government failures is that they run out of money. This was probably due to the fact that they did not earn enough to pay their debts (including to their own people), and because their clients and citizens did not value their services highly enough to meet their obligations. As an independent investment advisor and private citizen, no one is holding a safety net beneath me to meet my obligations. Recognizing that I am not likely to get some form of bailout, and that with the specter of tough love, I have to manage my affairs to pay off my legal and more importantly for me, my family and charitable obligations.

What would the world look like under tough love?

Governments would rely on their taxing authority to meet much more limited needs. Some of present expenditures would be taken over by the private sector; this would include the postal system, Medicare, Social Security, Patent Office, Library of Congress, mortgage companies, student and farm loans, many government facilities and more.  At the same time the private marketplace would determine what would be the minimum level of capital required for a bank to be considered sound and safe. This probably would mean that banks would keep very little of their capital in medium to long-term bonds.

Do I expect this to actually happen?

No, but I think there is some chance that we will haltingly move in this direction.

If there is any chance, how should this be played?

In a conceptual sense we are already seeing replacements for traditional banks. You can't tell this from midtown Manhattan or in many wealthy suburban communities, but the number of bank branches is dropping. The financial agents for college age kids are credit cards, student loans and the “Bank of Mom” or other relatives. In some respects Google, Alibaba, Amazon and undoubtedly others including financial services web-based brokers, large family offices, gatherers and distributors such as BlackRock, Blackstone, KKR and T Rowe Price* will play roles that banks have played in the past. Not all of these stocks will be successful, but some exposure in portfolios will be warranted
          *Held by my private financial services fund.

A question

Who is providing financial services for your children and how will this impact your plans in the future?

___________________

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Turning Disappointments into Long-Term Gains

One of my sons has called me a dedicated contrarian, and he is right. I try to look at the whole of a situation rather than accepting the popularly described middle description. Focusing on elements that others do not has yielded unusual profits in the past; and more importantly, avoided significant losses. Thus, one should treat various contrarian views with interest. I believe most deliberative bodies, particularly boards of directors and investment committees should have at least one contrarian to more fully examine decisions, rather than always expecting unanimous votes with limited discussions.

As a self-proclaimed contrarian I will focus on two initial disappointments that lead me to the opportunities to profit as others catch up with their thinking. I will start with the smaller in terms of importance of the two.

Bleak Friday

Many of the longer-term readers of these posts know that each Friday after Thanksgiving I visit the Mall at Short Hills, New Jersey. For those who have not experienced such a visit, the two level mall (which is approaching one mile in circuit), is full of high-end brand names. The appropriate term for most of the stores is “glitzy.” My visit is true market research, in that I study the difficulty in finding an unoccupied parking space, the number of shopping bags being carried and the labels on those bags. The survey is not meant to be representative of the American public, but of a sliver of the population who can afford to own common stocks outside of their tax deferred accounts. In other words, I am looking at the shopping patterns of the rich or those that are called ultra high net worth (UHNW).

This year we were able to find a convenient parking space in less than ten minutes. In past years more than a half an hour was needed, and in some cases I had to park off the property and take a shuttle bus to the stores. The ease of parking should have been a clue. Within the mall, walking was only slightly more crowded than a normal weekend. The big bag carriers were toting merchandise from Macy’s, which appeals to the low-end income buyer as well as some of the more well-heeled. My guess is that the store had advertised significant discounts and an early opening. In contrast, most other stores’ signage indicated a 25-30% mark-down. They were not the kind of discounts that lead to “binge” buying. One indicator that people wanted to buy was that a number were carrying shopping bags from home, without labels and that were mostly empty. In clothing stores, inventory was attractively displayed, but there was little depth.

In-store orders were being taken for merchandise that was going to be shipped to the buyers at home. Clearly, merchants wanted to avoid excessive inventory that would lead to large markdowns before the end of their fiscal years in January. There are three phone stores in the mall. Apple was the most crowded, but still I recognized some sales people that were waiting for new walk-ins. Verizon had normal sized traffic, and as usual, the large AT&T store was practically deserted. My initial reaction to this visit is that the prospects would have to be labeled disappointing.

This is when my contrarian thinking asserted itself. First, it is just possible that the wealthy are spending less to leave room for an eventual binge buying of equities. (After reading this, some may believe that I consumed too much Thanksgiving feast). Second, like some investors, consumers are looking for growth markets and are doing their purchases online. If your responses from office workers Monday is a little slow, it could well be that they are using their employers’ computers to participate in Cyber Monday buying. Third, and much more importantly, it is possible that people of all economic levels are acting prudently by controlling their spending in order to generate money to carry them through an uncertain period. If I am correct, consumer-focused banks will have their loans paid off more quickly and see their deposit balances rising. Possibly one should look closely to savings banks and S&Ls.

The big disappointments: the euro and the deficits

Around the world stock, bond, and commodity markets shudder as values of currencies fall, particularly against the US dollar. (A future blog post will deal with the biggest bubble, the US dollar.) Almost all of the focus is on propping up the euro through various fiat or leverage techniques. The few articles that are coming out about the potential disappearance of the euro are encouraging. As a dedicated contrarian, I am happier when I see someone considering the reverse of the current view. Some articles have made a calculation as to what it would cost in debt repayments if the euro ceased to exist. These are very high, one-sided numbers. One-sided because they do not take into consideration the gains that some companies and families would benefit. One of the more thought provoking columns appeared in the weekend edition of the Financial Times by John Dizard, who pointed out that sovereign debt is governed by each country’s own laws which are relatively difficult to change or abort. Most corporate debt in “Euroland” is governed by English law and courts, which is more difficult to change. Even if a country defaults on its debt, that does not release most of its corporate issuers. Thus in today’s mixed up world, corporate debt could be safer than the debt of various countries. I believe markets on both sides of the Atlantic are recognizing this, with more institutions owning or buying corporate debt than government debt. Perhaps the rating agencies may even change their long-term policy that corporate debt could not be rated higher than that of its own country; the markets would agree with this action.

“With all the discussion about currencies, there has been little if any focus on the root cause of the economic problem,” so says the contrarian. If one looks at currency as a price mechanism, one needs to examine the base cause of the price disequilibrium sparked by almost worldwide deficit spending in Europe, America, Japan, and China. This is not a new problem as pointed out to me by my brother who sent me the following quote:

“The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
–Cicero, 55 BC.

There is much controversy on this quote’s accuracy. Many claim that the original quote is: “The arrogance of officialdom should be tempered and controlled, and assistance to foreign lands should be curtailed, lest Rome fall.” Others claim Cicero said nothing on the subject, and source the quote to later accounts. Whatever the case, this is an age-old series of problems.

We all know what eventually happened to Rome through authoritarian governments and the need for booty to sustain them. In the end Rome was not conquered by the barbarians but by its own corruption and inefficiencies. If there is not a willingness of the people all over to world to cut their reliance on government payments and services, then keep your eyes on military spending. Despite the political threats to the defense budget, I believe that a prudent long-term investor needs exposure to defense stocks. I suspect technology will increasingly play a role in protecting us even if we get our spending below our revenues.

All contrarians expect their views will lack popular enthusiasm, but they are willing to learn from others who represent more mainstream thinking. Thus, I ask you to communicate your views.
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