I will kick off this week with some highlights from the Delivering Alpha Conference this week. A lot of smart people spoke this year, and they said a lot of things worth considering. I really liked what Marc Lasry of Avenue Capital had to say about investing time frames. He recently did away with quarterly redemptions and would only take money with a three-year locks up. When asked why he replied” Because I think it's gotten extremely difficult to invest on a quarterly basis. I think before when you weren't in a zero-rate environment, a zero-interest environment, it was actually easier. But now, you actually need the luxury of time. And because sometimes things will go down, so you need to invest in a sort of two or three year period. Or not have people who get nervous who automatically want their capital. And I didn't think we could generate the returns for people if we did that. So mainly we just went to our investors and said we're going to shift anybody who is here to lock up to about three years. And whoever doesn't want to do that, you can leave, and about 75 percent of the money stayed and 25 percent left.” I preach it all the time but longer is better when it comes to investing and a focus on the short term will hurt a lot more than it could ever help.

There was a lot of concern about the markets expressed by many speakers. Paul Singer of Elliot Management said “"With the rates that currently exist in global bond markets, the term haven applied to G-7 bonds is just plain wrong. These are not safe havens. There is a tremendous amount of risk in owning 10-, 20-, 30-year bonds at these rates.” Bill Miller expressed concerns about rates as well saying "Look at what the Fed is doing and global central banks. I think they're beginning to rethink the efficacy of these ultra-low interest rates. They are an impediment to the system. So I think just the rethinking of that policy is something that's likely to lead the curve to shift up.” After 7 years of zero rates many, including yours truly, think that rates moving higher could be horrible for stock prices.

It wasn’t just bonds that investors are worried about right now. Carl Icahn told us that “"You look at the environment, and I think it's very dangerous. You're walking on a ledge and you might make it to the end, but you fall off that ledge, and you're really going to see trouble." When asked about the stock market Blackstone CEO Stephen Schwarzman opined that “If you have interest rates where they are then you will prop up all asset classes. So it's a little expensive for my taste.”

I have been saying for months now that this is just not a good time to be buying stocks. We have some stocks we still like and think are undervalued and continue to love the community bank space but putting new money to work here in the broader market is probably not going to work out well. We are easily beating the market in all of our portfolios in spite of large cash balances, and if any of our remaining stocks approach fair value, I will not hesitate to sell them and add the proceeds to my cash stockpile.

I have remarked for some time (and still waiting for some organization or another to send me a nice trophy for incredibly accurate economic commentary) that the US Economy is better than it was but still not very good. It is something of a puzzle as to why we haven’t done better. The government has thrown billions at the problem in the form of stimulus and easing programs. We have bright, talented people, lots of exciting innovations going on in part of the economy and a long history of a strong drive to achieve to make things better for ourselves and our kids. I have been ridiculed for saying that the only thinking between the United States and strong growth and widespread prosperity is our government. It turns out I have ben exactly correct.

In the 5^th edition of Harvard's U.S. Competitiveness Project report Michael Porter and his team find that this is exactly the problem with the economy right now. The study finds that “The U.S. economy retains critical strengths. Business leaders (including HBS students) perceive strengths in areas such as higher education, entrepreneurship, communications infrastructure, innovation, capital markets, strong industry clusters, and sophisticated firm management. However, these strengths are being offset by weaknesses such as the corporate tax code, the K–12 education system, transportation infrastructure, the healthcare system, and the U.S. political system. Skills have also been eroding and becoming a weakness. Many of the greatest weaknesses are in areas driven by federal policy.”

The study finds that the biggest obstacle is the Government and policy, or lack thereof, to fix our economic difficulties. The study finds that “Overall, we believe that dysfunction in America’s political system is now the single most important challenge to U.S. economic progress. Many Americans are keenly aware that the system is broken, but are unsure why it is broken or how to fix it. While there is rising frustration with politics, there is, as yet, no framework for understanding the reasons for today’s poor performance and proposing effective solutions. Identifying such a framework, and the set of reforms that can change the trajectory of our political system has become a crucial priority.”

The Harvard team also opines that all the current rhetoric about income equality is the wrong discussion. We should be focused more on creating a shared prosperity. The note that “Much of the rhetoric in the current presidential campaign focuses on reducing inequality, but we suggest that creating shared prosperity is a more appropriate goal. Creating shared prosperity and reducing inequality are related but importantly different. Shared prosperity arises when the prospects of all Americans improve in absolute terms. Inequality, in contrast, is inherently a relative term, comparing the incomes of well-off and hard-pressed Americans. One can reduce inequality without creating shared prosperity, for instance, by taking money from the richest citizens and burning it or, more realistically, by making all Americans worse off and the richest Americans especially worse off. We doubt that many Americans would embrace that outcome. Alternatively, one can generate shared prosperity without reducing inequality— for instance, by making all citizens equally better off. Our sense is that most Americans would welcome an economy in which all Americans, poor, working-class, middle-class, and upper-class, have the opportunity to prosper. Historically, this has been key to the American Dream.”

Take the time to read the whole study and consider the information carefully as we edge closer to time to head to the polls this year. This year’s election is about more than the difficult choice between thing 1 and Thing 2 for President. Officials at all levels of government make a difference and can help or hinder the creation of a shared prosperity that will work great for us as citizens and investors.

Off my soapbox and onto the couch to get ready for the season wrap up. The Orioles took 2 of 2 from Boston, and we have four more with them and 3 with Toronto so we can pretty much decide our own fate. Starting tonight, we have 4 games with the Rays so the games will be, to wife’s dismay, on local TV.

I am of to Atlanta next week for the FIG Bank Conference where I will get a chance to meet and talk to both bankers and investors and next week I will share any insights I bring home.

Cheers,

Tim

When it comes it the stock market today, it is no time to

https://www.youtube.com/watch?v=u2DedfiAd0A