Some weeks it is a bit tricky to come up with ideas for one more article every Thursday afternoon. Other weeks there is so much going on in the world this little epistle pretty much writes itself. This week is one of the latter. There is a lot going on in the world including some important investment conference with some of the biggest names in business and finance speaking on a wide variety of topics. The biggest news this week is the usually silent Andy Beal spoke up and was featured in an article in Forbes. For those unfamiliar with the Texas banker he, along with Mr. Womack and Hetty Green, make up my trinity of investing. He has made a fortune buying during panics and collapses and doing next to nothing when there is nothing to do because of high valuations and increased risk.

The article quoted Mr. Beal as saying ““The financial markets of the world have become a playground for the academic central bankers of the world. We all know how government controlled markets ultimately perform. It’s a huge confidence game and all confidence games always end the same: with a loss of confidence.” He also told the magazine that the government is wasting a major opportunity for economic recovery saying “With our new cheap energy, the U.S. should be in a huge economic growth period. The question is whether our relatively free energy is more stimulative than our stupid government is depressive. So far it seems that stupid government is winning.” That’s statement in and of itself is depressing in my opinion. Unfortunately (actually fortunately as we would love ot see stock prices a lot lower) Mr. Beal has a very long history of being very, very right.

Out in Las Vegas the titans of industry and market convened to talk about markets, economic and politics. Sam Zell and T. Boone Pickens appeared together in a session with Bloomberg news anchor David Westin. Mr. Zell said that there is plenty of opportunity in todays world for entrepreneurs and business builders saying ““We live in an environment where there is unending opportunity. Anyone who says there is no opportunity, just talk to Mark Zuckerberg.” He also echoed Mr. Beals comments about governments negative influence waring that ““The biggest issue is the regulation of our businesses has become so repressive that the ability to achieve has been brought down by regulatory burdens.”

Mr. Pickens remains bullish on oil prices looking for $50-60 this year and $70 in 2017 for a barrel of oil. He thinks that the US could do without middle east oil and we should pull out of the region altogheter and look for other sources of oil closer to and at home. Mr. Zell wasn’t so sure about that thinking that the turmoil if we left entirely would be severe. Both think that alternative energy should be competing against traditional sources without all the subsidies. Mr. Zell commented that “You and I are subsidizing millionaires to buy Teslas. There is no substitute for cost-benefit analysis. If we keep subsidizing people, we’re not going to solve the problems.”

Both titans of industry think that the government is one of the biggest obstacles today. Mr. Zell said ““Building a business is like building a wall of bricks businesses are built on the confidence of their owners that they believe in tomorrow, that they believe in new markets. The owner isn’t always right, but it’s that belief. You have to have confidence in leadership and your country. How can you make commitments when the rules change [regularly].I’ve never thought about what a President would do for me. Only what a President won’t do to me.” Mr. Pickens agreed saying that he didn’t’ want Washington to do anything for him but was concerned about what the might do to him.

I can tell you that I share their concerns. Every few months we stop and consider setting up a small investment management operation in addition to writing columns and publishing the newsletters. My expertise in small banks gives me what I think it’s a marketable edge and I think we could turn out solid numbers. It would create a few jobs right away and a few more as we got to optimum size. Each time we peek around the corner, talk to the lawyers and accountants and decide that the startup and ongoing regulatory and compliance costs are prohibitive. Small cap deep valuable, especially with bank and financial stocks is not scalable past a certain point and it looks like you would have to grow assets to a size that has negative performance implications to justify paying the ongoing costs. It is not just me either. I have friends in the auto repair, restaurant, healthcare and other industries who tell me it is not worth the cost of expanding when you add in the costs of things like healthcare, taxes and complying with the ever growing web of government regulations and restrictions. As a country we have the talent, the opportunities exist. We need a government that understands we all benefit if they get out of the way and let business grow and flourish.

Former Speaker of the House John Boehner expressed similar thoughts at SALT. He told the conference that ““Not enough Americans can save enough money to start their own businesses. When you look at what Washington has done to the banks over the last eight years, it’s surprising that they are lending any money. If we don’t expand lending, expand the money supply, you can’t increase economic growth.” He said that he believes in the American Dream and thinks it is still very much alive but ““What stands in our way of economic growth is the last eight years. I went to Washington to fight for a smaller, more accountable government.”

It all adds up for me to a market that has very limited opportunities, outside community bank stocks to pus much money to work. There is a lot that can wrong both economically and geopolitically and the only thing really going right at the moment is super low interest rates. It is clear that much of the earnings and price gains of the last few years have been driven by stock buybacks at high valuations and I am just not sure that is going to be enough to drive markets higher much longer. We had a 7 year bull market and I think it is time to emulate Andy Beal and continuing stock piling cash in anticipation of the next inventory creation event.

Until then we have lots of great baseball, a summer book catalog with fantastic titles but some of my favorite authors and its getting to be serious beach season even in places that aren’t Florida.

Tim

PS Until we see lower price perhaps we should all grab our

https://www.youtube.com/watch?v=8t08uiJB-8k