Almost two years ago, the Arizona Republic did a feature story on their cover about a talented and successful residential real estate agent located in Paradise Valley, Arizona. He was featured because the Phoenix market had been hot for years and nobody was hotter selling high-end homes than him. Phoenix and its high-end homes were pre-ordained to fall and boy have they fallen.

Pull out yesterday’s Sunday business section of the Seattle Times and you’ll see a feature on shortsellers. It’s the kind of article they write when someone has been on a roll (in this case betting against stocks). Short Sellers have every right to bet against stocks, but the media only wants to write about you when you’ve had a hot hand lately. There were no features on short sellers in the 1990′s, as stock rose dramatically off and on for a decade.

These cover stories come from the media all the time, both nationally and locally. Examples include T. Boone Pickens, Donald Trump and Shawn Alexander (the former Seahawks running back). The media had Boone Pickens all over their covers during the big run up in Oil prices. The price of oil has since been chopped in half and Picken’s Hedge Fund has lost $2 billion.

When real estate was hot, the “Donald” and his smiling face were everywhere. Sell real estate when Donald Trump is popular and buy when he is in bankruptcy court. Former Seahawks running back, Shawn Alexander graced the cover of Sports Illustrated two plus years ago (after being named league MVP). He couldn’t find a team that would hire him at the start of this year. The Seahawks can barely win a football game. The fall from the cover is a hard one.

The media is in love with the Hedge Fund managers and shortsellers who have had the hot hand in the decline of the last few years. We think they and their investors could be singing the blues in two years. Remind me to be cautious down the road when the cover stories are about value buyers like us, who stayed the course around the bottom of the Panic of 2008. We are looking forward to getting to the top of the performance mountain from this difficult valley and believe that it is being set up by the current cover stories.

Best Wishes,


William Smead

William Smead
Chief Executive Officer
Chief Investment Officer 

Dear Clients and Prospective Clients:

The day before the 1980 Presidential Election was 28 years ago today. Ronald Reagan was ahead in the polls and the stock market had risen over 25% in the six months leading up to Election Day. Reagan ran on a platform of lower income and capital gain taxes and a strong national defense. Investors were very excited about the effects that Reagan’s policies might have in the future. The most popular stock sector in 1980 was defense stocks. The day after his victory over President Jimmy Carter, the New York Stock Exchange was two hours late opening due to massive buying interest. No group of stocks was hotter than defense stocks which hit a high they would not see for years. It took the Dow Jones Industrial Average two years to recover from the decline that followed the enthusiasm surrounding his victory. These “believers” led to a two-year bear market which saw the Dow Jones Industrial Average drop 22% over the next 22 months. Over two terms in office, Reagan’s policies have been given credit for future prosperity, but not in the short-term time frames that many investors “believed” on the first Monday in November in 1980.

The stock market had been horrendous from October of last year until last Monday, October 26th, dropping over 40% in a credit crisis and panic. On top of the difficult circumstances, the favorite tomorrow in the Presidential election is a candidate who is viewed as an anathema to investors, Barack Obama. He says he intends to raise income taxes on the wealthy ($250,000 income or greater) and capital gains taxes on everyone who pays above a 15% income tax bracket. He is viewed as especially bad for drug companies which received some of his most populist wrath in campaign speeches.

The stock market had its best week last week in over twenty years and the building contractor is not faced with any repair work from investors beating down our door to get into this market. The fact that there are “no believers” makes me think that Warren Buffett’s Op-Ed in the New York Times is going to be rewarded soon. If Obama gets elected tomorrow, we believe the next two years could be the antithesis of 1980-1982.

In Warm Anticipation,

William Smead