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2009 Year in Review: The Second Chance Saloon

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Taking stock of what was, what is, and what will be.

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As we edge into The Age of Austerity, expect the bloom to fade on former leaders as upstarts grab both market and mind share. We're already seeing this in the financial realm (the emergence of boutique firms such as BTIG and WJB Capital) and the media sphere (The Huffington Post, The Daily Beast and yes, Minyanville).

This is a multi-year process as seeds of future franchises sow so stay on your toes and remain alert for what promises to be a plethora of abundant opportunities.

A Yen for Japan

January Thought: While comparisons abound between our current stateside situation and Japan in the 1980's, there aren't many folks talking about Japan as a relative winner in the global marketplace.

There is clearly risk to that region but we must remember they have a 25-year head start down Deflationary Road. Japan has the highest level of savings relative to private debt. Their public debt is horrendous but what is happening over time-and why the Yen is appreciating-is that Japanese savers are bringing those savings back to Japan.

You can't spend relative performance, we know, but I expect Japan to out-perform U.S. equities this coming year.

Update: The Nikkei entered the 2009 halftime up 13% vs. a 3% loss in the DJIA and a 2% gain in the S&P.

Alpha Bits

January Thought: Now that the equity epitaph has been written for the "buy and hold" strategy, it may be time to begin looking for babies in the bathwater. There will be deep value opportunities in small and micro-cap stocks, creating an environment where real value investors step up and stand out.

This will not come easy and it will require due diligence. Debt free companies with strong balance sheets, free-cash flow and trustworthy management will trade at a premium. Integrity, as a whole, will be a commodity in the coming years as distrust in the system permeates.

As a savvy seer once told me, "I don't invest in companies, I invest in people." Look for the cream of corporate America to rise to the top-and the entrepreneurial spirit to awaken-as once trusted companies fall by the wayside.

Update: The market has reflected the notion of a recovery and stocks have risen as a monolithic asset class off the March lows. While select sectors (such as tech) have meaningfully out-performed, investors have not differentiated between companies.

The "mother of all stock pickers" market should soon emerge, particularly if we traverse the other side of the "W" into the autumn. Once that occurs, absolute winners will be sifted from relative sinners and investors will be rewarded for doing homework rather than jumping on the perception of broader equity trends.

You Gotta Believe!

January Thought: We often say that it should never take something bad to make us realize we had it good and 2008 was a harsh reminder that profiting is a privilege rather than a right.

This is no garden-variety one-and-done recession; it will be a prolonged process as we attempt to regain respectability on a global stage after years of mismanaged affairs. It would be myopic to expect a V-shaped recovery despite the historic stimuli being injected into the marketplace. Keep it in perspective, no matter what comes our way.

The upside to the anger sweeping the Street is that we, the people, will band together as we find our way. Communities such as Minyanville will flourish as folks surround themselves with trusted peers that have skill-sets that compliment their own.

We will, in many ways, yearn for simpler pleasures as we appreciate the little things and each other. We'll revisit our religious beliefs, support our local businesses and strive to provide a safer world for future generations.

There will be better days and easier trades. The onus is on us to find our way, one step at a time and together as one.

Update: "No matter what comes our way" indeed! The first half of 2009 was a bipolar stroller with widespread despair near the March lows (S&P 666) and a popular perception that the worst passed as we tickled the highs (S&P 956). The sentiment pendulum has been vicious, like a horizontal guillotine designed to inflict the most damage along the path of maximum frustration.

Consistent with the above theme, a legitimate recovery-rather than a government-sponsored respite-will be a prolonged process. If we operate under the assumption that the "stealth recession" began at the turn of the century, I would venture to guess we're halfway towards the stealth recovery one way (globalization via debt destruction) or the other (isolationism and global friction).

Through it all, people will persevere, as we have no choice. There will be incredible-and I mean, insane-opportunities to prosper on the other side of this ride for those with financial staying power. Given the tenacity it will take to get there, the grass will be greener and the wine will taste sweeter for those that do.

Think positive, good luck on the back 9, and thanks, as always, for being a Minyan.

R.P.
No positions in stocks mentioned.
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