America’s death, quite the opposite is happening – we’re moving up. For the first time in decades we are coming to terms with the institutionalized malevolence that has been consuming our republic. We finally have a President that does not pretend “off-budget” expenses will magically disappear with pixie dust, one who refuses the play the Government Sponsored Entities game, one who will not propagate the cheap-money-induced boom-bust cycles, one who will not let labor unions turn America into Europe-Lite. Obama does not resemble the New-Dealing Franklyn Roosevelt, but rather his Trust-Busting cousin Teddy. As a lifelong republican (who has never voted Democrat) I say Bully! Regardless of which party is driving; this is an American Renaissance, and it’s just getting started.

For years we have toyed with government-sponsored mortgage expansion through Fannie and Freddie. When they bled onto an otherwise healthy balance sheet, they were placed in a special category, one which was intended to create the illusion of being indemnified by the faith and credit of the Union. Thus was born the ruse of the Government Sponsored Enterprise, GSE. This façade worked until a Modern Depression occurred and prompted their demotion to receivership. That the GSE game was ever played is a testament to the institutionalized smoke-and-mirrors that are finally being dismantled. That, combined with off-budget accounting, has been business as usual for my entire lifetime. Simply stated, they were a deception and we deserver better. We are finally receiving transparency. Hazzah! 

 

Like an out-of-shape distance runner trying to compete in an Olympic field, our economy has been staying “fresh” with regular doses of cheap-money opiates. They work for a while but eventually our economy, like the hopped-up runner, is extended so far past its organic ability that a collapse is unavoidable. We just lived through that collapse, a Modern Depression. You can differentiate a Depression from a Recession (Great or garden variety) because the momentum carries the economy past the point where the Federal Reserve has any tangible influence. They find themselves steering the toy wheel in front of the baby seat, while the car careens over the cliff. Understand that all prices are artificial. Whatever caused prices to falter, Federal Reserve cheap money props them back up. In other words, each recession threatens an incipient deflationary depression and each “fix” only buys time; at the price of increasing the pressure. Depressions are periodic under this system; it’s just a matter of when. That President Obama is even addressing this cheap-money habit evokes my Hazzah!

 

Collectively we are gathering the nerve to perform our own economic vivisection; examining the pulsing innards to make sure they’re actually working. The reality is that we have been living far larger than we can afford, and subsidizing an American Oligarchy, through the boom-bust oscillations. Markets are patently too free when each bust results in an orange jumpsuit parade. The perp-walks of course are to placate the public with “justice” while the free-market-fleecing-machine stays largely intact. Each bubble has effectively transferred wealth from the many to the few. No larceny, mind you, it’s contract law. Each and every participant willingly bellied up to the window; it’s just that they lost before the ink dried. If the meaningful banking reform now underway continues in earnest, it will be mitigate the Sting of 20th Century American Capitalism; bully, quite.

 

Finally, to those who believe we are heading closer to an “ism” greatly resembling Europe, please notice a once mighty UAW, now greatly humbled. GM is breathing its last and the UAW better understands the futility of the Tragedy of the Commons. Truth be told, auto unions enslaved Ford, GM & Chrysler and forced them to use their capitalistic might to create a UAW-designed socialist utopia; one where every member was taken care of forever. That push for ever-greater security worked when we dominated the world’s auto industry but faltered with each percentage lost to foreign automakers. Step back and see that the worker-mandated social net is no more tenable than Medicare, Medicaid and SSI.  Now the UAW, but eventually every citizen must understand that you cannot have complete security and capitalism at the same time.  The biggest question remains – will Obama have the courage to face the most dastardly demon of them all, our national legacy costs?  

 

With a restoration of public confidence through the diminution of institutionalized con-games and real governmental transparency, much more of America’s potential will be unleashed. The deficit numbers are presently irrelevant; recovery is a function of our franchise value! We are the greatest franchise this planet has ever seen. We just endured the equivalent of a World War and we will now enjoy an America fundamentally stronger than any time in the past 35 years. The idea that the world could dirty their hands while we financed the transaction is over. We will now rebuild our manufacturing might to produce things for a world committed to capitalism; a world we created. Stand back and realize that we have indeed won the world over to American capitalism and they are not going back. Capitalism dead?  Nothing could be farther from reality. Capitalism allows the unleashing of the human spirit and the last version (the 20^th century one) simply let “free market” shake the middle class nearly out of existence.  This is the dawn of 21^st Century Capitalism and it will continue to lead the world, American style. 

Dear Client,                                                                                                                May 21, 2009

 

 

Despite the trumpeting of America’s demise, quite the opposite is happening. We are undergoing a substantial reform and many of the cancers that have been consuming this republic are being excised. Although I did not vote for President Obama, he is getting it right. We need fundamental reform because the “free market” has become an institutional casino; one where players get a chance to get rich quick, either in equities or real estate. The financiers, who give them this chance of-a-lifetime, make their profit up front buy printing stock certificates or selling them a loan. When the smoke settles, they have been grifted; their stock worthless and their mortgage payment impossible. No coercion, no larceny all US contract law. It created bubbles that looked like prosperity while shifting money to America’s Oligarchy.

 

Now, however, this administration is headed in the right direction. You might not think so because of the massive deficit spending, necessary to break the real estate bubble’s deflation, but it’s true. Like GM, we’ve been pretending to be solvent for decades. When we finally make a realistic balance sheet it won’t be pretty, but it will be true. We remain the best franchise on Earth and once a cynical public understands that the “free market” is not a euphemism for “bend over”, they’ll rejoice.

 

Over the course of the past few months I have been decreasing the largest position, *&^#  and getting more aggressive with *&^@. I was a bit early, starting in late December but we were in a superior position to make back much of what was lost in that Modern Depression. I have recently exposed you to *&^#@ and *&^#@.  Your portfolio now has more US exposure than it has had for several years. Your single largest position soared 20% in one session! We have some exposure to *&^#@ and I will be looking for opportunity for more. They are becoming a quasi-capitalist juggernaut and that trend is getting stronger. As I survey the global economic scene, Japan will be one of the biggest losers. With the ascent of an Asian middle class, Japan has little efficiency left to squeeze out of its graying population. I have recently reduced some exposure to Japan and will continue to do so in the future. 

 

Finally, I know that many of you remain nervous about the recovery and I remain vigilant as to its validity. Certainly the cross-currents are amazingly disparate and a case for a full-blown depression can still be made. Now I see no evidence that will occur and to the contrary, I see the events like a compressed world war and deficit sponsored recovery. I’ve included a recent article, which to you may sound like cheer leading. I’m very happy that someone is confronting the systemic ills of my mother land. Simply, Party matters not, I see good things happening and a more honest approach to our economy than any time in my past. It’s a matter of restoring the confidence of the middle class, for it is we who are America's engine.

 

Thank you for you continuing confidence.

 

 

 

David Roskoph  

Partners,

 

We had a fine month in "sell in May and go away" May.  Our portfolio ganined another $#^% above the April high-water mark!  We remain poised for growth in what will eventually be described as an American Renaissance.  The seemy innards of our great nation are getting upgraded and I remain very optomistic about the future. 

 

This month was the last for the venerable, but bankrupt-for-decades, GM.  The UAW finally agreed to meaningful concessions as the company shuddered and breathed it's last.  This is a classic example of The Tradgedy of the Commons, where the individual selfishly kills the organization that supported them.  To me it was a necessary death to allow a more competitive structure to emerge, one which serves the patrons who support it, not the unions seeking a socialist utopia.  Each major industry has had to endure bankruptsy due both to the coersion of labor unions and incompetence and greed of management.  The process forces growth, albeit uncomfortably.  We will emerge stronger.

 

An unwelcome development is the decline of the US dollar and the reciprocal ascent of oil and gold.  We rode the dollar up during the brief deflationary depression and its descent is not a good thing; it portends inflation well before it should mathematically manifest.  Understand that about 18 trilion evaporated in the deflation so, despite the incessant hum of the Treasury's presses, the amount lost still greatly exceeds the amount printed, so far.  The deflation has been arrested and a calm should exist for at least a year, due to the diminished demand.  Therefore, I am inclined to believe it's a mini-bubble in commodities and may try to profit from their decline.  If they continue to rise, I must reduce risk as the market will become much more vulnerable.

Thank you for your continuing confidence.

 

David Roskoph