“Perception is greater than reality.” I hate that saying – I’m a reality guy. I once tried to start a counter movement to political correctness called “actual correctness,” but I didn’t get very far. It seems people actually are not that interested in what is actually correct. People are interested in having what they want to believe being affirmed.
For example, if you follow professional golf you have probably heard that Tiger Woods is back. The headlines suggest that he won the President’s Cup for the American team. What actually happened was that Tiger won two matches and lost three matches over the course of the competition, and one of those losses was the worst in President’s Cup history. However, there are a lot of people, especially in the sports media, who desperately want Tiger to be back. So when he shows glimmers of the old Tiger in one 14-hole stretch, he is “back.” Reality, unfortunately, is harder than that.
More importantly to our endeavor, over the last month there have been several proclamations of progress on the European debt crisis. European leaders met and announced a deal, and markets cheered. When we looked for the details, there were none. Part of the plan was to ask the Chinese for money, but when they asked for details there were none. The reality is there was no deal, just the most basic of outlines to make a deal. When the Greeks and Italians did not like what their neighbors were asking them to give up, they “shot the messengers” and both countries now have new leaders. The markets cheered this as progress, but is it really? Does a new head of state change the anemic GDP or the overwhelming amount of debt? We don’t think it does.
In the meantime our own deficit problems were being completely ignored by the media until the last few days, and the markets seemingly believed the Super Committee would magically live up to its name. There seemed to be an assumed consensus that the same politicians who could not agree on anything a few months ago would somehow come out of the committee chambers arm-in-arm, singing Kumbayah. When that did not happen the market seemed surprised; we were not.
Our caution to brace yourself a few months ago has held true, and our approach thus far has worked. All of our clients’ portfolios have faired well when the market has risen and have done far better than the market when it has fallen in this volatile environment. We will continue to brace ourselves until the reality on the ground changes for the better, and that will happen. Knowing when it will happen is a guessing game, but this too shall pass and we will get through it.
As we approach our national day of thanks it is appropriate to remember that our glasses are still half full. We all have much to be thankful for, and as is our tradition I will list some of the things for which I am thankful this year.
1. I am thankful that my ancestors were kicked out of Europe and thus I had the good fortune to be born an American.
2. I am thankful for my children, Charlie, who just turned four, and Mary Frost, who is one year old. Seeing the world through a child’s eyes is a marvelous thing. When I get home each day, my son and daughter have no idea what the market has done or what kind of mess this generation of politicians is leaving for them. I am grateful for that innocence and hope they are fortunate enough to keep it for a long time.
3. I am thankful, as always, for Mama’s Pumpkin Cheesecake – mmm, mmm.
4. I am thankful for my loose pants still being loose, clean and ready for Thursday’s feast.
5. Finally, I am thankful for you, our clients. Our relationship with you is what makes this enterprise worthwhile. Thank you for your continued faith in Iron Capital.
On behalf of the entire Iron Capital family I wish you and yours a very Happy Thanksgiving.
Chuck Osborne, CFA