We are all being sold a bag of goods!

Unless one has been living under a rock, you are aware there is broad consensus that if nothing changes in Washington, the US government will be broke several years from now.  The looming debt crisis is one of the reasons why Tea Party candidates won so many seats in the last election.  In the past 2 weeks, we have heard about cuts in spending of $38 billion in order to avert a shutdown, Paul Ryan’s plan to cut spending $6.1 trillion and Obama’s plan to cut $4 trillion.  Let’s be clear, there are truly no cuts in spending in any of these plans.  The US Government will be spending more ten years from now than they are today.  Only in Washington can spending more be considered a cut.  They do all this through baseline budgeting.

If you and your family were doing a budget and discovered that you were overspending, you would make an actual cut to what you spend.   I know we did that in 2009 as we tightened our belts and spent less money going out as a family.  THOR also made cuts as a company by reducing its expenses.  That is how the real world cuts spending, they actually cut spending.

Washington uses baseline budgeting.  Using baseline budgeting, the Congressional Budget Office (“CBO”) makes the assumption that current services continue without change and builds in automatic spending increases.  For example, if a current program costs $100 billion and its assumed annual growth rate is 10%, the CBO would set aside $110 billion ($100 billion plus 10% increase) in next year’s budget for that program.  If Congress changes the CBO’s assumed growth rate to 5%, Congress would take the position that it made a cut of $5 billion when in reality it increased spending by $5 billion.  As one of the most entertaining Congressman, James Traficant, would say “Beam me up!”  In our opinion, baseline budgeting should be a thing of the past.  Politicians should budget every year how much more they are going to spend and share that number with the American people.  They are not making cuts under the current system.
As always, feel free to contact us if you have questions or concerns.

Sincerely,

Your THOR Team

Special Note:  Many clients have come to us recently to help evaluate and/or liquidate coin collections.  Jim is a collector and although he is not an expert on all coins, he is available to assist in these matters.  Now may be an opportune time to sell common date silver coins as silver has reached decade highs and the silver value of these coins is significantly above their numismatic value.

Looking at the S&P levels for the month of March might suggest there wasn’t much that happened in the way of meaningful events.  The broad market index closed at 1,327 at the end of February and is looking to close right around that same level this month.  That analysis would fail to recognize the tremendous swing in the S&P in the middle of the month with the index getting as low as 1,249.  This movement is not surprising in light of the nuclear radiation in Japan, the unrest in the Middle East – Tunisia, Egypt, Libya, and now Yemen and Syria – and fiscal issues in Europe.  These occurrences beg the question “How do these events affect my investments?”

First, we definitely see signs of an economic slow down from Japan.  This slow down appears to be temporary, but we are watching events closely.  Some of the individual companies we own have facilities in Japan and are acting accordingly.  In the aggregate, resources are being diverted to address the disaster and as unfortunate as the situation is, we do not see any immediate threat from Japan.

Second, the unrest in the Middle East continues to capture headlines. The uncertainty associated with this region of the world has caused the price of oil to move around and catch the attention of inflation watchers.  We feel oil – energy companies in general – will play an important role in the portfolio, but we are not looking to profit from a short-term spike in oil. As the future of certain leaders in the Middle East becomes clearer, we feel oil will settle down. Production in that part of the globe is just as much of an interest for the producers as it is for the consumers.

Finally, Europe still seems to be grabbing a headline or two, as we feel it should.  We have taken an interest in the future of the Euro – see our most recent Newsletter – and its impact on the portfolio.  Although we are not cheering for its demise, we do think it is priced inaccurately relative to the dollar and have taken positions to profit from that relationship.

We are watching the events that affect your investments in the short-term, but try not to lose sight of what’s important in the long-term.  Getting caught up in headlines and current events is easy to do, but usually only leaves one questioning what real impact an event may have had.  Keeping a long-term focus ensures we invest according to what really matters and what will affect your portfolio in the end.

As always, feel free to contact us if you have questions or concerns.

Sincerely,

Your THOR Team