Tuesday, October 31, 2006

Professor Carroll Quigley---a few more comments

In a post on September 14, I began a brief series of quotes from the last lectures of Carroll Quigley. This will conclude that series and complete my comment on the Georgetown professor.

Quigley wrote two major books. The first, "The Evolution of Civilization; an introduction to historical analysis", was in the intellectual tradition of Toynbee and Spengler, but at just 271 pages not at all related to them in accessibility. To a college freshman, the book for the first time gave a construct to the "facts" of history, with its detail of Quigley's seven stages of civilization and the six level hierarchy of human and societal needs. In its clarity and brevity the book is brilliant. "The Evolution of Civilization" was the primary course book for his School of Foreign Service required class, and boot camp, of "Development of Civilization".

His second major book, "Tragedy and Hope, a history of the world in our time" is an exhaustive 1311 page history of the world from 1895 - 1950, that was published in 1966. It was the primary textbook for Quigley's course "The World Since 1914". Unlike most history textbooks in my experience, it is not just a recording of generally accepted "facts" --- far from it. It is an interesting narrative that fits within Quigley's historical framework and is filled with "facts" that are derived from Quigley's primary research, "facts" that are believable because they are not boring. It often has a point of view that is clear. Unfortunately, the main fame of this history book today is a result of Quigley's "documented" contention that an Anglo-American elite organization conspired to and to some extent did control the U.S. and U.K. governments in the period between the 1920's and 1940's. Conspiracy lovers have extrapolated this theory beyond this period, which is by no means suggested in the textbook. Quigley purportedly remarked to a colleague in the 1960's that "today the reality is much scarier. Instead of a secret cabal now being in charge, no one is. We have instead a kind of chaos or anarchy."

Despite his demanding approach to instruction and grading, Quigley remained one of the most popular professors at Georgetown and for the last four consecutive years before his retirement he received the student-voted Faculty Award. Unfortunately, however, in the last years of his career he was not so well regarded by the Georgetown administration. He had strong opinions about education and in 1967 wrote a widely circulated article for the campus newspaper, "the Hoya", entitled "Is Georgetown University Committing 'Suicide'?"(can be Googled). This did not endear him to the adminstration. He wrote "Education , correctly defined, means training toward growth and maturity to prepare a person to deal, in a flexible and successful way, with the problems of life and eternity. It does not mean, as it increasingly is taken to mean by the educational operationalists who now control our educational bureaucracy, obtaining a ticket of admission to some other bureaucratic structure, however large and rich that may be".

He and his close colleagues at Georgetown were educators who represented an American pragmatism and at times idealism, senior professors who brought their full energy, insights and teaching skills into the undergraduate classrooms. Along with Quigley, some others were Jan Karski, political science professor and a famous leader of the Polish resistance in WW II; Walter Giles, the precise, refined, and demanding professor of constitutional law; Jules David, professor of history who, being a loyal Catholic, penned "Profiles in Courage" for John F. Kennedy's signature; Father Zyrini, a professor and master teacher of economics; Father Sebes, professor of comparative civilizations who had spent most of his life in Asia(not so common at the time); and Jesse Mann, professor of philosophy and a leading scholar of William James and American pragmatism. In the 60's and 70's they were all teaching but ascendancy was moving toward a politically predictable and reliably mainstream group of polished bureaucrats, which could never have been a description of the above group.

Quigley retired in May 1976, still full of ideas and passion for them, but also disheartened by the evolution of his beloved Georgetown School of Foreign Service; by his view of the sad state of affairs in U.S. government and the materialist U.S. society; and by America's seeming choice to ignore Eisenhower's admonition about the military industrial complex. To my mind, in addition, he never really recovered from the murders of the Kennedy brothers, whom he knew and championed.

Quigley died of a heart attack at a young 66, seven months after he retired. A few months before, he closed his final formal lecture series as follows: "Now I come to my last statement. I regret ending on what is, I suppose, such a pessimistic note--I'm not personally pessimistic. The final result will be that the American people will ultimately prefer communities. They will opt out of the system. Today everything is bureaucratic structure, and brainwashed people who are not personalities are trained to fit into this bureaucratic structure and say it is a great life--although I would assume that many on their death beds must feel otherwise...Now I want to say good night. Do not be pessimistic. Life goes on; life is fun. And if a civilization crashes, it deserves to. When Rome fell, the answer was, 'Create our own communities'. Thank you, Ladies and Gentlemen."

From the notebook of...

He who has a thousand friends
Has none to spare
He who has one enemy
Will meet him every day.

Friday, October 27, 2006

From the notebook of...

If everyone would sweep before his own door, the whole world would be clean.

Chinese proverb

Thursday, October 26, 2006

Wednesday at the Morgan

Yesterday I went to see "Bob Dylan's American Journey, 1956-1966" at The Morgan Library and Museum. JPMorgan and Bob Dylan --- the times they are a'changin'.

Given the publicity for the exhibit and the expansive new atrium lobby of the museum, the actual exhibit is in a surprisingly small space, one room that is no more than a 40 by 90 foot space. The experience for me was like being in a Bob Dylan funhouse, absent the distorting mirrors, false doors and a rolling floor. Sounds of Dylan's voice and songs come from every direction. There are listening booths all around, one each for Blonde on Blonde, The Times They are a Changin', Highway 61 Revisited, Freewheeling, Bringing It All Back Home, Another Side of Bob Dylan, and Bob Dylan(first album). There's an open "Don't Look Back" cubicle, with some portions of the film always running. There's a television monitor at the front that invites you to choose between various Dylan interviews and out takes. Lots going on for a small space.

There are displays related to Hibbing, Greenwich Village and upstate New York. There are areas devoted to primary influences like Woody Guthrie, Joan Baez and Dave Van Ronk. There are concert posters, ticket stubs, newspaper clippings and album covers(which Dylan signed as if content with the message already there as in signing Highway 61 album by writing "how does it feel to be on your own like a rolling stone" or a Times are a'changin' album cover by writing "the times they are a changin' ").

The Morgan is also into the exhibit more broadly. The gift shop has running Dylan music that is not the usual best hits, but good tunes that you know but don't usually hear. And the cafe in the atrium has a Bob Dylan Blue Plate Special on the menu(cheeseburger, cajun fries, cole slaw, apple pie) along with the stylish salads, sandwiches, and drinks.

Given the impressive architecture of the museum inside and out, I was at first a little underwhelmed by the Dylan exhibit. It does not threaten the Morgan Library. But I liked it, and everyone else there, from pierced face note takers to sweater vested cane users, seemed to as well.

From the notebook of...

Quotes from "A Gift of Joy" by Helen Hayes

---To those who have no resources in themselves for living well and happily, every age is burdensome.
---Old age is wonderful. The compensation more than makes up for the negatives.
---It is obeying the order of nature to keep busy.
---Old age has its pleasures, which, though different, are not less than the pleasures of youth.
---I am never less alone than when alone.

Tuesday, October 24, 2006

Sunday at the Met

On Sunday I went to the Metropolitan Museum to see the new exhibit "Cezanne to Picasso: Ambroise Vollard, Patron of the Avant Garde". It was an exceptional exhibition. Ambroise Vollard was an art dealer in Paris from the 1890's to the 1930's, and he represented at very early stages many of the innovators in painting there during that period. The extensive show details his life and his association with many artists, using paintings that passed through his hands borrowed from museums and collectors everywhere. He represented many artists and here are a few examples from my non-notebook backed up memory:

---He discovered Cezanne before Cezanne was Cezanne so to speak. They developed a strong relationship and two thirds of all Cezanne paintings passed through Vollard's hands.
---He bought paintings and drawings from a poor 20 year old transplanted Spaniard named Picasso and built a relationship. As Picasso's fame grew he stopped buying from him(no more deep value), but the relationship continued until Vollard's death in 1939 as Picasso became a buyer of paintings from Vollard.
---He only really discovered Van Gogh shortly after the artist's death when most of Van Gogh's production was in the hands of Van Gogh's sister-in-law(his brother had been his business manager to the extent that there was any business and he had died around the same time). At the time there was little interest in Van Gogh's work as it was viewed as the work of a madman or worse, but Vollard risked buying the impoverished sister-in-law's trove. He later regretted the prices that he sold the pieces for as Van Gogh's reputation soared.
---He had purchased a few Gauguin's before the artist returned from Tahiti for the first time. Meeting Gauguin at that time he described him as a huge man walking down the boulevards of Paris wrapped in multiple cloaks and scarves and followed by a small native woman in bright multicolored apparel. "He could have passed himself off as an Asian prince". Gauguin was without funds, so Vollard aranged to put him on a stipend in return for his future works, and the artist was able to return to Tahiti.
---He and Renoir had a long term and close relationship, and there is a remarkable 15 minute silent film of Vollard and Renoir sitting, talking, smoking, and observing paintings in 1915, shortly before Renoir's death. The old Renoir somehow is gripping a piantbrush in a right hand deformed by rheumatoid arthritis and is seen speaking in an animated way with a slight wry Parisian smile coming to his face when finishing a point.

Vollard was a French national raised in Madagascar. At 18 he came to Paris to study law and become interested in printmaking and painting as he was inspired by the artist stalls along the Seine. He dropped the schooling and opened his own small gallery. There is a painting(by whom I can't remember) of Vollard hosting a dinner with a group of artists in the "notoriously humid" basement of his gallery, as he often did, as he was "renowned for his chicken curry".

I was obviously engaged by this exhibit. But I was also caught up in the museum. I usually visit museums, to the limited extent that I do, on weekdays but on Sunday it was different. It seemed, literally, that the whole world was there---the Brits, continental Europeans, Asians, both the downtown and uptown New Yorkers, even a few Texans(did you take my glasses honey). There were so many people, or perhaps I should say women, who were so stylishly individual and casual in their dress that it could have been a Sunday walk on Boulevard St. Germain. And everyone, it seemed to me, was into the museum trance. At one point in the Gauguin room a woman's cell phone rang, and on the second ring a young man with a European accent, Dutch I would guess, turned to her and said "Turn that off. Don't you realize where you are. You're in a museum." His tone was one of speaking of a spiritual place.

I must note that the NYTimes gave the exhibit a tepid review a few weeks ago. The thrust of the review was that while many of the paintings were of interest the overall show was somehow second tier. But the real message for sure was that the snippy and I'm sure highly knowledgeable institutionalized art critic was offended that an exhibit was built around the life of someone who was neither artist nor collector, simply a dealer or trader. In fact the last paragraph of the review was devoted entirely to suggesting that one should not forget to go to the permanent collections rooms of the museum, with a clear implication that this was a superior alternative. Too bad this guy was too smart to enjoy a great exhibit.

Afterward I met up with a wonderful friend who came into town late afternoon from Chapel Hill for business the next day. We walked the city some and then had dinner at Marseille, a French, Mediterranean, North African brasserie at 44th and 9th. Lots of food and lots of talk.

Pretty good day.

From the notebook of...

Neal Armstrong, when asked about an anticipated trip abroad commented "I've only been to the moon".

Tuesday, October 17, 2006

From the notebook of...

"We rely upon the poets, the philosophers, and the playwrights to articulate what most of us can only feel, in joy or in sorrow. They illuminate the thoughts for which we only grope; they give us the strength and balm we cannot find within ourselves. They give us the wisdom of acceptance and the will to push on."

Helen Hayes

Saturday, October 14, 2006

Excerpts from the last lectures of Carroll Quigley in 1976(continued)

"The idea of Providential Deity has a number of results. There is no rule of law, there is only rule of God's will. This is part of the heresy of the West. When the Crusaders went to capture Jerusalem, and their war cry was 'God wills it' they should have been rejected. This is not Western, because the Western idea is that God gives man free will, and if men do evil things, they are responsible. In Providential Monarchy you get the rule of will. Their slogan became, 'One God in heaven, one ruler on earth', which meant that Providential Monarchs frequently tried to conquer the world. I have already said the Genghiz Khan was the greatest of them. His government, his army, his whole attitide are very much worth studying. His organization was a magnificent machine for world conquest and world rule as the vicar of heaven on earth.

There are no constitutional rules of political succession in a Providential Monarchy. There are no constitutional rules of succession in Islamic Civilization, in Byzantine Civilization or in Russian Civilization---ever."

From the notebook of...

It is the selfish man who makes others the victim of his moods.

(something to strive for)

Dow record?

The last week has been filled with news from CNBC, network programs, and newspaper headlines about a record by the Dow. Does it mean anything other than the latest day by day hook of the media? Stocks are, over time, meant to go up or otherwise no one would invest in them. The Dow has been higher over the last week than in it was in January 2000, shortly before the tech bubble deflated. The Dow however is not especially tech heaven. Some companies like GE traded at 50+ multiples at that time, but much of the Dow, notwithstanding everyone's completely silly efforts to join the "new economy", was trading at higher but not bizarre levels. Major banks for example were trading at around 14 to 15 multiples as opposed to 12 to 13 today. So in a sense, it's about time that the Dow is back where it is. No big news really.

On top of that, an article in Barron's today points out that, on an inflation adjusted basis, the Dow is 20% below its high six years ago. The Dow needs to reach 13,900 to get us even with that former high. What do those smiling chuckleheads on CNBC say to that---"let's go to our sponsor". Barrons points out that the S&P is 12% below its all time high and 32% below on an inflation adjusted basis, and the Nasdaq, now there was the bubble, is 55% below its all time high, and they don't bother to calculate the inflation adjusted level but a guess would be maybe 80%.

The point is that all of this record setting talk of late is self serving business and general media talk. It means almost nothing as far as the long term valuation of the equity market. It is, however, important in a different way. If this begins to draw back retail investors who have shrugged off their bubble pop disaster of six years ago, who can't get enough of on-line, Las Vegas, and speakeasy poker, of offshore sports betting, and now their real estate investments, this could be something important for a limited time frame. On Larry Kudlow's show the other night he asked his panelists what was the key issue on their minds regarding the stock market---housing market, energy prices, interest rates, Democratic ascendancy in a few weeks, etc. and they opined in line with the question except for Herb Greenberg at the end. He wouldn't commit at all, and pressed by Kudlow he finally said "momentum" was it right now. He may be right. Is retail back in to add the icing onto the cake. Is CNBC beginning to be watched from the stairmaster and treadmills again.

There are plenty of issues clouding the equity market today. They will have their impact. But two important considerations are: valuation---is the market playing catch-up in the short term relative to earnings and dividends(stocks are supposed to go up over time); and momentum---is another segment of the investment community coming back into the market. The clouds will likely have their day, but when.

Saturday, October 07, 2006

From the notebook of...

(the following, on one page, is a list of items for a gathering for a meal, probably a historical society event that she was organizing---listed and itemized exactly as on the page)

1. yeast biscuit
2. pound cake
3. jelly roll
4. egg custard pie
5. sugar cookies
6. orange bread
7. banana bread
8. peanut brittle
9. ginger cookies

1. Boston baked beans
2. vegetable soup
3. brunswick stew
4. tuna fish salad
5. deviled crab
6. chicken chow mein
7. cranberry salad

pineapple pie

Excerpts from the last lectures of Carroll Quigley(continued)

"By 1776 there was a landed oligarchy in England. That landed oligarchy controlled the Parliament. It had taken it away from the king in the civil wars of the seventeenth century. It also controlled the court system and the interpretation of the law. Naturally, when any dispute arose, 'What rights does someone have in this piece of land?' they invariably decided in favor of the landlord group and against any other group, above all, any peasants. As a result, England's rural areas became depopulated. In the early eighteenth century, Goldsmith wrote 'The Deserted Village'. 'Sweet Auburn, loveliest village of the plain...but there's no one there'. Or if you read 'Elegy in a Country Churchyard' once again there's no one around. The whole countryside was deserted by the end of the eighteenth century. The people came to America, or they went to other places, and this eventually gave us the British Empire."

Friday, October 06, 2006

From the notebook of...

The luxury of reading in bed before breakfast -- one of the trivial pleasures when there is nobody else to consider.

From Third Avenue Funds

The following is an excerpt from the Third Avenue Funds letter to shareholders for their third quarter ending 7/31 and received by shareholders in the last few days. It is written by Martin J. Whitman, the 80+ year old co-chief investment officer of Third Avenue and portfolio manager of the Third Avenue Value Fund.

"Ernest Jones, in his three volume biography of Sigmund Freud, describes Freud's genius as an abhorrence of looking at people as irrational or 'off the wall'. Rather Freud sought to understand the underlying reasons for why people acted the way they acted, and why they thought the way they did. Were Freud to be describing the 1998 to 2000 high tech bubble, he probably would have described it as 'Rational Overexuberance' rather than 'Irrational Exuberance'. And so it is with the question of, 'So what are earnings anyway.

Earnings for Third Avenue Value Fund(TAVF) purposes are something quite different from what earnings are deemed to be in conventional, plain vanilla, market analysis. Rather, both the Fund and the conventional analysts tend to be rational; they just approach the problem from different places. The fact is that in conventional security analysis, predicting market prices over the very near term is crucially important. In contrast, TAVF ignores near-term market prices for individual securities. Third Avenue tries to buy long-term value safely and cheaply; and allows market prices of individual securities in the portfolio to take care of themselves...

Unlike TAVF, many market participants are, in fact, affected vitally by day-to-day price fluctuations in markets for individual securties. For these people, it is important to predict near-term target prices. For them, therefore, there actually does exist a 'Primacy of the Income Account' and a need for GAAP to tell them the truth. After all, it seems quite valid to conclude that market prices for most securities will be influenced more by earnings as reported under GAAP than by any other single factor. These market sensitive participants include margin buyers; people and institutions relatively uninformed about the securities and companies in which they are interested; participants holding junior securities in companies that are not well financed; and participants who have to strive to outperform benchmarks consistently(such as many research department analysts who want to keep their jobs and get promoted). There are also market participants with both near-term predictions and fundamental analysis-to wit, short sellers and risk arbitrageurs.

The basic problem is that this market sensitive group seems to be the only group that is studied by academics. This group also seems to be the primary concern of securities regulators. However, this group seems to be a small factor in the overall economy, and may even be a minority of Wall Street. Most value investors, control investors, distress investors, and venture capital promoters think and act more like TAVF than like market participants affected vitally by near-term securities price fluctuations. Like TAVF, most sophisticated market participants look at market prices not as something you predict, but rather as something of which you take advantage.

Stealing from Sigmund Freud, it is not that some financial participants are irrational and others are rational. Rather, almost all participants tend toward rationality. It is just that what is rational for those affected by immediate market price impacts tend to be irrational from the point of view of those involved with long-term fundamentals. Those involved with immediate market impact are involved with market risk, i.e. securities price fluctuations, while those focusing on underlying fundamentals are involved with investment risk. For most fundamentalists, like TAVF, market risk, both for individual securities as well as for macro factors affecting general markets, are things that can be ignored safely."

"Someday Baby" reminiscense

One of the songs on Bob Dylan's current album "Modern Times" is titled "Someday Baby". It brought back a memory, and I'll get to that. "Someday Baby" is one of those blues songs that has a refrain that sets a theme for lyrics to build around. Lightin' Hopkins is generally credited with the first rendition, Jerry Garcia used the song as part of his repertoire on and off again from the 70's to the 90's, Muddy Waters reworked it and called it "Trouble No More" and the Allman Brothers did a cover of that version. It's a blues refrain standard, I guess, open to each musician's experience and creativity.

Dylan's version is solid music with lyrics that are all his but totally true to the spirit of the song. His first verse is:
"I don't care what you do, I don't care what you say
I don't care where you go or how long you stay
Someday baby, you ain't gonna worry po'me anymore."

Lightin' Hopkins' version with a slightly different refrain begins:
"She's on my mind every place I go
How much I love her, ain't nobody know
But someday baby you ain't gonna worry my life anymore."

Muddy Waters' version has his own lyrics as well, with again a slightly different refrain:
"Ah keep on dancing baby, let me dance one dance
Well I know when I go, I'm living too fast
Someday baby, ain't no trouble for me anymore."

Dylan's ends with:
"Living this way ain't a natural thing to do
Why was I born to love you?
Someday baby, you ain't gonna worry po'me anymore."

My first introduction to "Someday Baby" was hearing Junior Wells at a club in D.C. sing it in 1971. It was perfect. It was on his Delmark album "On Tap" a year or so later. I loved the song and in my mind it belonged to Junior Wells.

So the memory. In about 1982 I went to see Junior Wells and Buddy Guy at a blues club in New York called Tramps, at that time at its first location on E. 17th St. It was a long narrow hallway of an entrance and bar, and at the end of the bar it opened into a small room and stage. As expected the band was tight, the sound true south side Chicago, and Junior's voice and harp led the way with Buddy's strong backing guitar and the band in sync. Then came Buddy's part of the show and he did what New York blues fans had come to hear and see. He played like Jimi Hendrix, he played with his teeth, he played behind his back, he held notes forever. The club was filled with yells and whoops. Feeling a little claustrophobic in the midst of all this, I walked back to the narrow hall of a bar for some relief, and at the far end near the door sat Junior Wells, alone, smoking a cigarette, a bottle of vodka and a full glass in front of him. He was rail thin and tired looking. I went over, beer in hand, did a mind if I join you, got a nod, and sat down. He motioned to the bartender for another glass. I simply said something like "nice show", he said "thanks man" and we sat there for a while listening and sipping and exchanging very few words.

I don't know what triggered it, but at one point I commented that "Someday Baby" was one of my favorite songs and that I'd heard it first when I saw him in D.C. about ten years ago. And he looked up and really looked me in the eye for the first time and said you mean this. And in a low whispering singing voice, he began to sing the song to me. He sang a couple of verses, looked at me, half smiled, took a long drink of his vodka, and sang a few more verses. The band broke, he nodded, power shake, and he walked back to the stage.

Wednesday, October 04, 2006

From the notebook of...

Behind every successful man is a very surprised mother-in-law.

Tuesday, October 03, 2006

E-mail from Thailand---Update from 9/21

"It's business as usual around here. Most Thais are happy that the coup has brought a greater degree of certainty back to Thailand. But all bets are off when Thaksin actually puts down in Thailand, from London. Not that there is any schedule on that. Currently they are cleaning the house that Thaksin built and investigating all the ill gotten gains from Thaksin to his buddies. He could end up being stripped of a lot of his wealth. The feeling is that he was unable to get most of it out of the country. Lots of bad press here on how America has so strongly condemned the coup and stopped certain aid programs to Thailand. Can America sink any lower in the opinion polls? I doubt it. Having to resort to saying I'm Canadian in more and more situations. Never know who you are talking to."

From the notebook of...

"I like terra firma,
The more firma the less terra."

George S. Kaufman


"No, you're not going crazy. Crazy people never think they're getting crazy. They think they're getting saner."

Lock to Jack on "Lost" season one DVD


In mixing friends and investments, the risk to the friendship could be greater than the risk of the investment.

Sunday, October 01, 2006

From the notebook of...

"My father would not have been able to do the job he did in those days without being more ruthless than would be acceptable today."

David Rockefeller

The U.S. dollar and the equity market

As the third quarter ended the stock market was generally strong despite all of the well known reasons for worry--interest rates, the residential housing market, energy prices, growing credit concerns etc. There are also positives(see recent post of 9/18) but they seem only enough at best to offset the negatives rather than push the market higher.

So what are other variables that have, for the moment, reinforced the positive. A common explanation relates to end of the quarter buying by mutual funds and other institutional investors that must report their results and holdings to shareholders at the quarter end date. In the first instance these investors need to show that they are for the most part fully invested into their stated goals. Secondly, some want to report their strong commitment to stocks that seem to be on the upswing in the eyes of securities analysts, the business media, or by themselves in their letters to shareholders. And third, funds or fund families that have big positions in stocks that they believe in and are willing to hold can add to their positions during the last week or two of the quarter with the hope that the short term impact of supply and demand on valuation will cause the stocks price to rise and improve their quarter end results.

Of course, another reason for the recent performance could simply be that, regardless of all of this quarter end jabber, the markets, especially large capitalization stocks, deserve a higher valuation based on their earnings outlook in this not too hot, not too cold market. That's simple and may be the answer.

The entire reason that I've written all of the above is to set the stage for my next thought. The stock market is strong and is being led by large cap stocks due to the widespread belief among the "lead steer" investors that the dollar is going to lose value against other major currencies over the next 12 to 18 months. They believe that the large budget deficit and the large trade deficit will over time put pressure on dollar valuation, and this pressure will be aggravated by a weakening U.S. economy that will eventually require the Fed to begin to lower interest rates. Each of these pressures will lead large foreign holders of U.S. treasuries to reduce their concentration of dollar holdings(sell dollars).

How can the market as a whole hedge against this risk? There are the foreign exchange futures and derivatives markets but they are generally for capital markets institutions and hedge funds, and they have multiple risk characteristics. For most mutual funds there are limits to what they are allowed to do and limits to their risk appetite. Same for pension funds. And the individual investor is, for the most part, likely to steer clear of the fx markets.

So what investments provide the most insulation to a dollar decline without having an fx bet characteristic--it's large cap equities of firms that already have significant earnings denominated in currencies that could appreciate and that have exports that will become more price competitive as the dollar declines and therefore will have sales increases. Their global profile is not likely to make anyone a bundle but it will smooth out the volatility in a global weighted valuation and on a dollar basis could rise in value.

One might ask, isn't this just a zero sum game. While dollar denominated investors buy the U.S. global firms, won't foreign investors who are just as savvy be selling the U.S. globals to protect against currency declines. Yes, but mostly No. For most large U.S. corporations, foreign holdings represent around 10% of total stock outstanding. So if 10% of your shareholder base may be selling and the rest could be buying, the impact is positive.

In the last six months the small cap U.S. stocks have been down sharply after three years of good performance, mid-caps stocks have declined as well, and large cap stocks and the Dow in particular are threatening a record high. Interest rate increases and energy prices have certainly led to the relative underperformance of the small caps especially but, in my mind, investors going global has been an important factor in the divergent performance.

From the notebook of...

"If you want to rest
In peace and quiet,
Here's the place
For you to try it.
Forget your cares,
Your worries too.
And just relax
The whole day through.
It makes no difference
If you're rich or broke.
You'll enjoy your rest
At Ocracoke."

Carl Goerch