Here are some of our observations from the 1st quarter of 2013. Please provide a few of your availabilities for a 20 minute conversation with Clark to Minki Jung minki@clarkwinter.com. We look forward to hearing from you.

1.    Barometer of increasing uncertainty is decreasing slightly.

Apart from the tragic events in Boston, money is increasingly inclined to go back to work. Still, it is important to remember we are merely back to where we were pre ‘07-08.

2.    Money centered banks are largely frozen in their tracks.

In this environment then, why haven’t more people been able to borrow cheap, long-term money? Partly because the decision making process is under assault in large money centered banks. Top management is afraid to make any decisions. It looks more like game of musical chairs if not Russian roulette. The vilification of Jamie Dimon, the nation’s most astute banker shows that Washington would rather throw flames of blame than truly understand the underlying issues. As a result, rational capital allocation is largely paralyzed in the financial system leaving the horizon widely open for hedge funds and private equity firms. 

3.    Ending the big anomaly.

Portfolio managers  were rewarded for years for nothing but parking in bonds. Before that, for nothing but liquidity. Now with cash being boring and bonds potentially dangerous, money is going to be rewarded for going back to work. This is happening worldwide. Productivity now really matters, not just being clever.

Perhaps the most important question looking forward is understanding – will growth and employment increase to such a degree that FED will have to curtail stimulative policy or will the US economy show bifurcating evidence of growth in a few sectors and lack of resolution in others?

4.    The disastrous management of municipal affairs

Detroit, Chicago and numerous other cities have shown that elected officials have been unable or unwilling to deal with any serious problems in heavily unionized cities, while elsewhere in Houston, Dallas, Atlanta, Charlotte, and San Francisco, jobs are being created and new entities formed in places where politicians get there act together.

In some ways, US looks like Asia, where different cities have dramatically different prospects- Singapore vs Manila. The difference here is that they all have the same passport and fiscal code. How will democracy deal with it?

5.    Tokyo a role model for Washington?

Historically low interest rates from Tokyo, Inc. and Washington, Inc. are making NPV calculations of future interest rates almost meaningless. Central banks have run out of ammunition. Traditional tools of monetary policy are exhausted. Only quantitative easing and bond buy backs remain as options. How long can this go on?

6.    Management focusing on distractions

Lots of management is focused on distractions -- hoping to improve profitability by charging for pillows on airlines rather than increasing quality of service. These actions evidence minor revenue gains but, in fact, they are distractions from dealing with opportunity at hand.

7.    Where will the money wind up?

Cyprus. The idea of taxing depositors may come back in another form. Why? Remember, Willie Sutton’s answer of why he robbed banks – “that’s where the money is." If these fissures remain unresolved, need to be alert on its impact on the two very large reservoirs of liquidity -- Russian and Chinese offshore investors.

8.    Environment

Overall concern about he environment is increasing, particularly among younger people. While this is not new, the direction continues and is important to monitor. The horrific images of contamination and pollution in China, and the inability of the government to suppress those pictures are putting tremendous pressures on the new Chinese government. London had similar pressures early in the 20th century with the infamous London fog, which we now know is carbon, not water vapor. Ditto Pittsburg, and other cities. The Politics of Environmental thinking is likely to get larger.

9.    Mexico

In one continent alone, we see demagoguery on the rise (Venezuela and Argentina), and continued productivity from governments dealing with reality (Mexico, Chile, and Peru). These issues alone can be a long conversation.

Within emerging markets, however, I think Mexico is particularly interesting. The previous two presidential administrations did not succeed in establishing investor confidence. Particularly among Mexicans themselves. They saw the benefits of Brazil’s dramatic reform and the massive wealth creation in bordering Texas through the complete restructuring of their oil industry. The new administration in Mexico is aggressively attacking the monopolistic inefficiencies. The recent restructuring of telecommunication will be followed by increasing efforts to nationalize Mexico’s vast oil exploration and distribution industry. In the interim, opportunities in Mexican equities, Peso fixed income and private equity restructuring and infrastructuring are likely to remain strong.

10. Status Quo No More

10 years after the US invasion of Iraq, there is an increasing awareness that the efforts in that country and Afghanistan as well have not produced the idealistic results. That the early protagonists claimed would happen. The recent success of two movies- Argo and Zero Dark Thirty- show the effectiveness of covert action rather than broad military action. It suggests that people are fed up with the status quo and are looking for something that they can believe actually works. This can have very interesting implications if played out across the political arena. The ability to finance and finesse deficits by kicking the can down the road has meant that the politicians have not been adroit in resolving but rather adroit in sidestepping major issues. Is it true that the population in the USA is getting fed up with their politicians ??? Finally??

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