Streetwise for May 30,  2010

Streetwise for Sunday May 30, 2010

 

 

Streetwise

 

Lauren Rudd

 

Sunday, May 30, 2010

 

 

A Remembrance for Memorial Day

 

  

 

Memorial Day is upon us once again. For many it will be simply a day off from work and a time to drag out the barbeque grill for the season’s first summer party. However, for others it is a somber reminder of friends who sacrificed their lives in the name of freedom.

 

Regrettably, the devastating impact of armed conflict has a way of fading from memory. Few are left who can recount the untold horrors of the Holocaust. A younger but graying generation pushes remembrances of the sickening sweet smell of Napalm and burning flesh ever deeper into the dark recesses of their minds.

 

Nonetheless, the jarring impact of seeing young soldiers with scars on their faces and missing limbs not only unleashes a gushing torrent of emotion, but hopefully will also act as a constant reminder of the seemingly never ending violence and bloodshed that takes place across the globe in the name of security, peace, tranquility...oh, and yes religion.

 

If you saw Vietnam, Afghanistan or Iraq regurgitate the remains of your friends and classmates then Memorial Day cannot help but be a day of sad remembrance. Nevertheless, for all of us it should be a time to remember and honor those who have been called upon to make the ultimate sacrifice.

 

You are probably wondering how those comments relate to investing on Wall Street. They do not...except to point out that in today’s turbulent world it is important that we focus not just on what we want but also on what we can give back.

 

Traditionally this is also the time of the year when I discuss the subject of when and what to sell. For example, simply holding unrealized profits is never a reason to sell. Too often the subject is exploited with erroneously general terms such as, "the market is going up, sell," or "the market is going down, sell."

 

Deciding when to sell is difficult and I would be the first to agree that it often takes super human strength to decide the matter dispassionately. Given that it is Memorial Day weekend, may I once again suggest you contemplate the words penned over a century ago by Catherine Lee Bates in the song, "America the Beautiful." She wrote, "Confirm thy soul in self control."

 

Furthermore, the past two years have unmercifully demonstrated the need to reevaluate a multi-year buy and hold strategy. At the same time, continually turning over your portfolio will often result in profitless whipsawing. Never let others, especially those who stand to receive a commission, make the decision for you.

 

Instead, take your queue from current economic trends as evidenced by the data in ongoing stream of economic reports. You then translate those trends into specific sectors from which you then select your candidates. Keep in mind that a portion of any unrealized profit belongs to Uncle Sam. As long as you do not sell, you can continue to use his money to enhance your gains...interest free.

 

Now I know what you are asking yourself, what do I currently recommend selling? At the moment, nothing...although I must admit BP is tempting given my complete disgust with the company, its management, its ethics and its unadulterated greed. The economy is on the road to recovery and will remain so, despite the difficulties in Europe. Therefore, now is the time to be buying, not selling.

 

Recently I had the dubious pleasure of facing down a coterie of investors clinging to what I will politely call “far right” leanings. No, I do not believe we are heading for a double dip recession. No, Treasury Secretary Geithner and Fed Chairman Bernanke are not the Antichrist.

 

Nonetheless, caution is advised. Unemployment will decline but slowly. It takes about a 2 percent increase in GDP to reduce unemployment by 1 percent (Okun’s rule of thumb). If you have a bond portfolio, keep the duration relatively short. Interest rates will begin to rise but probably not until early 2011. Inflation is and will remain subdued. However, without the enactment of strict financial reform, we will simply rewind the film and play the movie over again. Popcorn anyone?