Thursday, October 25, 2012


I found an interesting video about growth and how growth itself is unsustainable.  In this video, Professor Albert Bartlett shares his very rational and realistic understanding about simple math and how growth has some unsettling implications on the way we live as a nation and as a human race.


As I expected when I first started watching the video we do end up in some of the usual places that liberal professors go.  Ultimately, Professor Bartlett found his way to the concept of population control and resource scarcity.  I think if we let him continue and were off camera we'd witness the professor explaining the benefits of abortion, euthanasia, and championing China's one child policy.   Fine, I'll put up with that as his story is one that applies to just about everything we deal with in the markets and investing.

Clearly, uncontrolled growth (even slow growth) causes really big problems three and four generations out.  This is why we need to have seriously responsible leaders in the Congress and the Presidency to deal with government spending, inflationary costs, and declining energy resources.  Unfortunately, we don't have these leaders, we have children that would rather line their own pockets with stock picks based on insider knowledge and we insist on candidates that tell our special interests "Yes" when they should all be told "No".

Below are three or four key areas where growth will cause major life-altering changes in the way we live;

US Debt
Energy usage versus available resources

Just another pleasant topic to lift you up for the day!

We've seen a 3% to 4% drop in equities this week as earnings reports continue to come in with misses despite earlier downward revisions and guidance.  In fact, even future guidance is suggesting lower earnings as well.  I am beginning to hear mixed stories from my clients about business orders and what larger customers are doing, but I still continue to hear that small businesses are fearful and they will not hire till they get through the election.  Many of these owners are very against President Obama even though their current business seems to be improving.  Notice what I just wrote, business is improving, but they don't give Obama credit, they feel like the recovery is just due to normal cycles.  

We may be back to the sector rotation where instead of cyclicals, industrials, financials, and technology are the place to be, we are seeing a move to utilities, consumer staples, and healthcare.  This is a recessionary fear rotation and is evident by the way that CAT and others have been clobbered.

Treasuries also have started to rebound and even high yield and corporate bonds have sold off a bit.

I don't want to forget to highlight that many of the "safe haven" sectors and dividend payers we've highlighted and invested in over the last two year may also become the target of significant selling pressure even if they fit into the healthcare, defense, consumer staples, and utility space.  The reason for this is that many investors will attempt to take their tax lumps right now in 2012 before capital gains rates go from 15% to 20%.  Add in the Medicare tax for high earners, and this could go as high as 23.8%.  In all, investors will pretty good gains in these dividend paying stocks may be inspired out of a fear of higher taxes to sell in the next two months to avoid higher capital gains rates in the future.  Significant selling will obviously bring the markets down.

In addition to tax-based selling, we are seeing firms guide earnings lower, in fact 100% of healthcare companies and 100% of energy related companies that have reported earnings have ALL guided future earnings prospects down!!!  That can't be good.

Stop.  Before you buy Facebook remember these three things.  Facebook is no longer cool.  Second, who is buying stuff on mobile and who really wants to buy stuff through their Facebook page?  (Goatmug does not have a FB page by the way).  Last, more than 1 BILLION SHARES will be unlocked for employees and investors to sell in November and December.  WHY WOULD YOU BUY BEFORE THAT TSUNAMI HITS THE SHORE?  I am happy for those that saw a 25% increase in the price of Facebook this week, just know that you'll be able to buy this stock 75% lower than today in less than one year.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at