Fed day is finally behind us and we can now move on form will they to how often will they raise rates. The amount to talk and wagering surrounding the first rate hike since 2006 has at times reminded me of my tripe to Keeneland race track in Lexington, Ky for the Bluegrass Stakes race. The Bluegrass is a big per- Kentucky Derby race and a bunch of us used to go down every year. Sitting around McCarthys Saloon we would talk about which horse would and which horse wouldn’t and make some faulty complex bets based on what was at best bourbon fueled confusion. The week leading up to the Fed decision reminded me very much of those evenings. All that was needed was some Woodford Reserve and cigar smoke.

With the Fed raising rates I suspect we now hear lots of mentions of Marty Zweigs don’t fight eh fed theory that has been so spectacularly proven over the past 6 1/2 years. If the Fed is lowering rates own stock and if they are raising them sell stocks. Zweig made a ton of money for himself and investors with that advice over the year. It’s too soon to tell as there is still a strong contingent of those who think that the economy is not strong enough to handle a sustained strong of rate increases. Count Jeffrey Gundlach of Double Line who told CNBC an hour before the hike was announced that the economy had weakened since the last meeting and raising rates was a mistake He suggested a portfolio comprise primarily or REITS and discounted closed end funds. We have a lot of those in both Deep Value and value Income so we will not be sad if he turns out to be 100% correct.

As oil as continued to plunge we have taken a final year end beating in our energy related stocks. The one month returns on these stocks is just horrible. This afternoon I went in and read the Value Line reports for the energy stocks in our portfolio that are covered by the service. The reports were all similar and said something along the lines of bad short term outlook with enormous upside potential over the 3 to five year period. The expected returns average 148% on the low end of anticipated range to an average of 308% on the high side. I have been long and wrong so far with oil but the pendulum will swing the other way at some point and we will staggering advances for the current price of these stocks. We have also seen what I suspect a lot of tax loss selling in some of our stocks so I am not going ot be surmised if we see something of a January effect in the portfolio in the new year

I am pretty sure we are getting closer to the point where value investing takes the lead again. I am starting to get the emails about what a moron I am and how deep value no longer works. It remind some of the calls I got as a broker in 99 and 07 when we held a lot f cash and the stocks we did own were simply not working. While I freely acknowledge the pain of the Deep Value portfolio it seems the fact that I have suggested a 70-30 mix of community banks and deep value all year is forgotten. That mix has returned about 4.5 this year, or more than 4 times the admittedly paltry return of the S&P 500. When I start seeing the accusatory emails and calls I can be confident that the turn is near. I am in pretty good company as Mason Hawkins, Carl Icahn, Tweedy Browne, David Einhorn, Bill Ackman and a whole bunch of other formerly smart people are now at least as dumb as I am this year. I suspect we will all look a lot smarter in a year or so.

Around Chez Melvin we are gearing up for a painful election year. We live in a swing state and the advertising barrage will be brutal until the primary is over here in Florida on March 15^th. We will then get about a day and a half before the special interest groups begin the barrage about ballot issues and then after the conventions the general election candidates will buy up every second of airtime. If you don’t live in a swing state I can tell you that by about mid-September you really miss the incontinence and erectile dysfunction ads. I try to avoid politics for the most part in my newsletters but I think this may end up being one of the more brutal and mean spirited campaigns of my lifetime and there are going to be a lot of plans, promises and attacks that can move the market around in 2016.

I continue to favor the community bank stocks as we head into the New Year. The M&A trend is going to accelerate as everyone under $1 billion is vulnerable because of regulatory costs, technology costs and a slow growth environment. The bubble banks between $1 and $2 billion will come into play this year as they look to grow or buy their way into the $3 to $5 billion industry sweet spot. More than 85% of bank over $5 billion of assets have said they are looking to buy a bank this year. About 70% of those between $1 and $5 billion are on the hunt takeover candidate. Most of the bank CEOs below $1 billion in assets are well aware that they need to grow and grow quickly. The only way to grow is to buy so its going to get busy and should make us a lot of money again in 2016.

Don’t forget that this month only you can get Deep Value for 30% and get a year of Banking on Profits free. Sign up here and use coupon code DVBOP.

This time next week will be Christmas Eve so don’t expect to hear from me. I will be cooking up dinner for a bunch of folks and getting ready for the traditional Melvin open house party on Saturday.

Happy Holidays everyone.

Tim

Lets all have a https://www.youtube.com/watch?v=Olns-bsUoB8