In the Belly of the Beast

No asset is safe. Everything has its vulnerable heel. Gold: Depression and confiscation. Cash: Inflation. Real Estate: Depression/Deflation/Stagnation. Stocks: Deflation/Depression/Stagnation. Growth and lack of growth in the economy, in part of the economy or in the currency all have a bruising impact on something. No asset is safe.

From 1920 to 2009 the stock market has returned 10% annually with a deviation of about 20%. In the 2000s it has returned -1%. For some perspective, in the 1930s it returned -0.1%. From October 1992 to September 2011 a fund I follow returned 9.47% annually; the S&P returned 7.74% for the same period.

This fund held a meeting last week to discuss the world, this country and the fund. It was held in New York amide the peculiar Wall Street demonstrations which colored several of the speeches. Indeed, there seemed to be an element of soul searching in the meeting as if the people there were trying to understand themselves and their purpose better. In the next several days I will summarize the thoughts of some of the excellent speakers on these subjects.

The conference was keynoted by Roger Lowenstein, the author of "When Genius Failed." He is a sharp, broad thinker but his talk was general and in some respects surprising. First, he denigrated several accepted concepts--diversification, liquidity and short term markets. These are not investments in the economy, they are hedges against it. All of these notions have moved the investor into less productive investments for both individuals and the economy. Leverage he feels is flat out madness. Wall street has one purpose: It collects capital for growth. Any subsidiary purpose is minor and can be a distortion. Inflation is always a threat but it it no more evident than in education where degrees are progressively devalued.

More tomorrow.