Year End 2009 Viewpoint

“America’s abundance was not created by public sacrifices to the common good, but by the productive genius of free men who pursued their own personal interests and the

making of their own private fortunes.” — Ayn Rand

O F ALL THE STUFF THAT HAPPENED in 2009—and take if from us, there was a lot of stuff—most of it not good—the

stock market rally was one of the more notable. Of course, we’re probably a little biased since we spend our day plastered in front of a computer screen crocked full of stock quotes. But that’s just us. After bottoming out in March, the stock market as measured by the Dow Jones Industrial Average was up a heady 57% through year end—and the Dow was actually the lagger among the major mar-ket averages. Over the same period, the S&P 500 was up 63% while the NASDAQ compos-ite was up a notably significant 75% just from March through year end. While stock market rallies are always a welcomed and appreciated turn of events, the 2009 stock market rally predictably has all manner and quality of stock market gurus, pundits and amateur prognosti-cators alike hailing the end of the long-term bear market for stocks. While we certainly have no qualms with stock market rallies in the generic sense, there is an important distinction between stock mar-ket rallies of the “dead cat bounce in the midst of a long-term bear market variety and the long-term price earnings multiple expanding variety. The first is a temporary reprieve from the relentless down beat of declining share prices in the process of correcting record

breaking “over-valuations” achieved in 2000, while the second is a long wave of wealth building based on a growing economy, grow-ing earnings and expanding P/E ratios from long-term bear market lows of 1982 to 2000. As much as we’d like to capitulate to the growing view that the stock market is now officially and fully in a bull market and stop having to defend our bearish stance each quar-

ter, we can’t. First, it’s simply not in our nature and we don’t mean it’s not in our nature to be bullish. For the record, we were as bullish as the next guy all throughout the 1980s and most of the 1990s, when being bullish was justified by growing earnings and expanding price-to-earnings multiples. Just ask any-one who knew us way back when. Funny thing is, no one accused us of being irrationally Pollyannaish. Now that the stock market’s

been in the throes of a long-term bear market (may we remind you that stocks haven’t produced positive capital returns in over a decade) we think it’s patently unfair to brand us “permanent bears” just because we’ve been right-on-the-money in our bearish stance on the stock mar-ket lo-these last ten years. So when we say it’s not in our nature, what we really mean is that it’s not in our na-ture to go along with the crowd, since the crowd is usually and without fail—wrong. One need only look no further than presidential elections or American Idol for proof of the col-lective ignorance of crowds. An excellent and highly accurate measure of the ignorance of crowds as it relates to in-vesting is the actions of the crowd takes when

(Continued on page 4)

Year End 2009 Special Addition ViewpointYear End 2009 Special Addition ViewpointYear End 2009 Special Addition Viewpoint Trying to make sense of the nonsense—These days that’s harder than ever

Year End 2009 Viewpoint

Volume 10 Issue 4

Helping You Navigate in an Uncertain Investment World

Inside this issue: Front Seat-Our approach to investing 2

Chart 1, Market 2000-2009 4

Chart 2, Market Rallies 5

Chart 3, S&P & Nikkei Index 6

Chart 4, Buying Higher Yields 7

Interest Rate Outlook 8

Doubling Income every 5 years 9

Big-fat Gov’t Takeover 10

Casey On Technology 11

Truth-Stranger than Fiction 12

World Headquarters 128 South Fairway Drive

Belleville, Illinois 62223 Phone: (618) 397-1002

[email protected] [email protected]

Maryville Office Jason Loyd

(618) 288-2200 [email protected]

Highland Office Matt Powers

(618) 654-6262 [email protected]

We’re on the Web at: deschaineandcompany.com

Deschaine & Company, L.L.C. A REGISTERED INVESTMENT ADVISOR

Annual Returns 2009

US MARKETS 28.5

GLOBAL EX-US 40.6

DEV MRKTS EX-US 38.1

EMERGING MRKTS 88.1

CORE BONDS 4.6

LT COMMODITY 18.3 Source: Morningstar Q4 2009 Market Commentary

Market Summary 2009

Page 2

VIEW FROM THE FRONT SEAT by Mark J. Deschaine

We Take a Different Approach to Investing, Here’s Just a Few Examples

I ’M SURE YOU REALIZE THAT THE END OF DECEMBER marks the end of the first decade of the new Millennium. What you may not know is that is also marks the end of the first decade for Deschaine &

Company as a registered investment advisor. Technically, the firm was registered as an investment advisor in April of 1997, but only so we could provide consulting services to other investment advisors. We actually didn’t take our first investment advisory client until December 1999. On that date, assets under management were a whopping $240,000 for two clients. A short ten years later, we’re re-sponsible for managing about $65 million for 120 clients. Going from $240,000 to $65 million, works out to an annual compounded growth rate in assets under management of about 75% a year. Not bad when you con-sider the stock market is down about 20% over the same period. Needless to say, we’re pleased with the firm’s growth. Without wallowing too deep into the usual year-end sentimentali-ties, our growth as a firm is a direct reflection of the confidence our clients have in us, and for that we are eternally grateful. Mar-nie and I started Deschaine & Company with one sim-ple goal: manage client assets the way we manage our own. And that, I can say without any equivocation, is exactly what we’ve done over the last ten years. Dividends or Bust? Given our dividend fo-cused approach to equity investing we’re often asked, “is managing stocks for dividends all you do?” Our response is: “we manage equity portfolios for dividend yield and dividend growth because we happen to believe this is the best way to make money in the current economic and financial environment.” That is to say, a stock market still fraught with considerable downside price risk (even more so now after stock prices are up 60% since March 2009) and interest rates that are at unprece-dented lows.(1) (See Chart 5. on page 8). With interest rates near zero, obvi-ously there’s little room for them to drop further, making bonds an espe-cially risky investment when interest rates begin to reverse course and head higher, which they’ll have to do—sooner or later. We also happen to think that a portfolio that provides a steady and growing stream of dividend income is the best way to finance a financially secure retirement for the ever increasing number of folks at or nearing retirement, without having to sweat the disconcerting daily fluctuations in stock prices—by the way. If you have a portfolio that’s invested in a diver-sified group of strong companies that have the ability to grow their divi-dends, and here is the important point—come hell or high water—why would you ever be concerned about the short-term price fluctuations that are part and parcel to owning stocks. In fact, (and I’ve said this a million times) price volatility works to the benefit of investors looking to buy

stocks. If stock prices never fluctuated, we’d never have the opportunity to buy shares at cheap prices, or as we prefer to say it: at “higher yields.” Maybe the best way to understand our unique approach is to compare and contrast it to some con-ventional views held by investors. What’s my account’s current value? vs. How much income can my portfolio generate? I know from personal experience that most investors focus on one benchmark, and that is: “what’s my account’s current market value?” Each month they open their account statement and immediately look at their portfolio market value, hoping, I suppose, to find that it’s gone up each month, an unrealistic goal for sure. Not only that, but managing a stock portfolio for monthly capital returns is completely beyond any in-vestor’s control. Further, the volatile nature of the stock market guaran-tees an emotional rollercoaster ride as your portfolio market value fluctu-

ates—sometimes dra-matically—even in the best of economic times. Over the last 129 years, for example, the monthly returns for the S&P 500 show that 45% of the time the stock mar-ket was down the previ-ous month. Even the most emotionally fit in-vestor is likely to get shaken psychological by the “normal” volatility of the stock market.

In long-term bear markets, like the one we’re in now, they’re sure to get emotionally whip-sawed into making investment decisions that are detrimental to achieving their long-term investment objectives. Followed closely behind monitoring their portfolio value is the question:

“How much was my account up/down this year? vs. How much did your investment income grow this year? We’re convinced we can safely grow dividend income between 6-12% a year, and even greater when we’re able to reinvest a sizable chunk of the dividends every year into more shares; maximizing the power of compounding to grow portfolio income at dou-ble digit annual rates. Consider that since 2000 we’ve been able to grow portfolio income at better than 16% annually from growing dividends and dividend reinvestment. As I’ve pointed out on many times in these pages, declining stock prices work to help us achieve the goal of growing income because every drop in stock prices allows us to capture higher and higher dividends for the same dollar of investment. Frankly, after seeing this play out over the last ten years, we’re surprised how few investors appreciate the power of such a simple strategy, and that includes some of the most sophisticated investors in the world, as well as yours truly, for the first 20



What’s my account’s market value? How much safe income can your portfolio generate?

How much is my account up / down this year? How much did your income grow this year?

Where is the stock market going this year? We don’t predict short-term swings in the market.

I bought XYZ at $20 hoping to sell it at $30 We buy XYZ stock at $20 for its 5% current yield.

XYZ is down to $10, I see no alternative but to sell it at a loss.

XYZ is down to $10, but the dividend is intact, so we can buy more shares at $10 locking in a nice 10% yield.

I need to grow my portfolio value to X, convert it to income producing assets to live off of the income.

We invest your portfolio for income and income growth from the start, so you can retire and live off growing income. Not the uncertainties of capital returns.

CONVENTIONAL THOUGHT PROCESS D&C’S INVESTMENT THOUGHT PROCESS

1) We believe today’s bond market is just the latest “bubble” in a decade of financial bubbles. Investing in long bonds or long-term bond funds at today’s interest rates is, in our opinion, the riskiest move an investor can make. See feature article on page 8, for our reasoning. At some point, stocks will reach a point where they are dirt cheap on a P/E and a price-to-dividend basis. At that point, we expect to have gobs of excess dividend income to throw at cheap growth stocks to capture the next long-term bull market. During bull markets, capital returns replace dividend income as the primary source of investors returns. In bull markets, stock prices rise from growing earnings and expanding price/earnings multiples like they did from 1982 to 2000.

years of my investing career. Probably the leading proponents of maxi-mizing the power of money to compound are Warren Buffett and his venerable side-kick Charlie Munger. It’s funny that even after years of espousing the magic of money to compound over long periods of time (and repeatedly noting the inability of the average investor to grasp the concept), their investment success is often attrib-uted more to the ability to buy “cheap stocks” than to any other factor. Obviously, the ability to buy stocks cheap helps the process of compounding. However, Buffett has often noted repeatedly that a cheap price is just part of the process and the smallest part at that. Buffett believes what really turbo-charges investment returns is buying a com-pany with growing cash flow that he can con-tinually redeploy at the highest available return to maximize compounding. Our interpretation of Warren’s rule is to buy stocks with a history of growing dividends. We expect to add to client returns by taking redeploying a growing dividend as the stock market’s volatility dishes up juicy dividend yields when it periodically, and often indiscriminately whacks share prices. Where is the stock market going this year? vs. We don't try to predict short-term swings in the mar-ket. Believe it or not, we don’t try to predict short-term changes in the stock market. That is to say what the stock market will do over the next 12 to 18 months. Obviously, veteran read-ers of VIEWPOINT know we do believe that long-term bull and bear market cycles are iden-tifiable and should to be heeded. At the same time, within the long-term market cycles are some pretty volatile short-term swings—like the 60% jump in stock prices since last March, as an example. But rather than shy away from stocks when prices fluctuate, we see price vola-tility as an opportunity to buy stocks when they go on sale at unusually steep discounts. I bought XYZ at $20 hoping to sell it at $30 vs. We buy XYZ stock at $20 for its 5% current yield. In a bear market cycle, buying stocks for capital appreciation is especially tricky. One problem with trying to capture capital returns is you’re never sure when they’ll appear—if ever. A stock can remain undervalued for years. With a divi-dend stock, we’re pretty sure the dividend check’s going to arrive in the mail every quar-ter. Occasionally, we even expect to get a bump in our dividend payments, too.

XYZ is down to $10, I see no alternative but to sell at a loss. vs. XYZ is down to $10, but the divi-dend’s intact, so we’ll buy more shares at $10 locking in a healthy 10% yield. This might just be the most important advantage to our dividend strategy over a capital return focused strategy. Individual investors are quite prone to selling in an emotional panic when a stock they own gets hammered. The reality of the stock market is that even the best stocks are going to drop precipitously for no particular reason other than the economy or the stock market hits a rough patch. Warren Buffett says that if you are not willing to suffer through a 50% drop in the price of a stock, you shouldn’t be in the stock market at all. From our perspective, as long as the com-pany has the ability and intention to continue to make its current dividend payment—never mind any increases—and the stock gets cut in half in price, we jump at the chance to buy or add to our position at twice the dividend yield. Again, as long as the company has the ability to pay its dividend, we’ll hold the stock. If the price gets whacked, we’ll use that opportunity to add to our position to capture hefty yields. Again, share price volatility is the friend to a dividend stock buyer. I need to grow my portfolio to X, convert it to income producing assets and live off of the in-come. vs. We invest for income and income growth from the start so you can retire and live off a growing income. The conventional strategy in portfolio management, going back as long as I’ve been in the business (which seems to get a little longer with each passing year), is to save and invest for growth to accumulate as big a pile of assets as possible while you’re working and can afford to take risks. In other words, “growth is the name of the game.” The conventional wis-dom being that growth stocks while riskier than dividend stocks yet offer investors more growth potential in order to accumulate a large a pile of assets as possible for retirement. If you’re successful, then, as you began to approach retirement, you’d begin the process of converting your (hopefully) sizable pool of “growth assets” into income producing assets. Presumably, you’ll be able to sell your growth stocks, and buy bonds at a high enough interest rate to provide income to live on in retirement. It’s safe to say that over the last 10 or 15 year that strategy has been repudiated for a couple of reasons. For one, such a strategy is not functional now because with interest rates at an all time low, it’s simply not possible to lock in a high

enough interest rate to provide sufficient inter-est income to fund a reasonable lifestyle. It’s difficult to live on the income when your assets are yielding 1 to 3% unless you’ve accumulated a sizable pile of money. Second, life expectancies have increased dramatically over the last 50 years. In 1950, the average person barely made it to retirement much less lived after the age of 65. Today the average life expectancy in almost 80. If we com-bine a much longer life expectancy with a more folks retiring in their 50s, many retirees today face a retirement of 30 or even 40 years. With interests rates at 2-3%, and a longer retirement period it’s likely that many retirees face the possibility of outliving their retirement assets. Our equity strategy is to designed to build a growing stream of income from the start so that at retirement the income already covers retirement expenses with cash to spare. Not only that, but income continues to grow in retirement at a healthy annual rate so that you can retire knowing that there’s the least amount of chance you’ll outlive your income. Even if a retiree needs most (or all) of the income leaving little after living expenses to reinvest, we still expect dividend income to grow 6, 8, 10 percent a year—well in excess of inflation—to provide growing income—for life. Having a growing income for life is an ambitious goal to be sure. However, our experi-ence over the last ten years and the history of the stock market leads us to believe we’ll be able to achieve our goal of growing dividend income for our clients. The sooner you begin the proc-ess of investing for dividend growth and rein-vestment and the longer you have to allow the magic of high yields and double compounding from dividend growth and reinvestment to work their magic, the bigger your annual in-come will be when it comes time to retire. And, may I suggest, the happier you’ll be sitting on your favorite beach collecting more dividend income than you can spend in a year. Last, what value the stock market ulti-mately puts on the stocks we accumulate over the next decade is anyone’s guess. We suspect though, that the stock market will place a value them at least as well as any portfolio of growth stocks we could buy. When it comes to capita appreciation, way we look at it, any capital gains over the next ten years be will like a nice thick layer of gravy on top of our growing big pile of dividend income. Ok, so not the greatest of metaphors, but hey, by now you get the idea.

(Continued from page 2)

Deschaine & Company, L.L.C.

PUBLISHER: MARK J. DESCHAINE EDITOR: JOHN H. DESCHAINE CONTRIBUTING EDITOR: TOM O’HARA STAFF CONTRIBUTORS: MATT POWERS, JASON LOYD COPY EDITOR: MARNIE E. DESCHAINE TECHNICAL ADVISOR: Joseph M. Deschaine. VIEWPOINT is a comple-mentary publication of Deschaine & Company, L.L.C. a registered investment advisor in Belleville, Illinois. This information has been prepared from sources deemed reliable, but its accuracy is not guaranteed. It should not be assumed that any securities discussed will be profitable or will equal past performance, or is it an offer to buy or sell any security mentioned. Deschaine & Company and/or one or more of its clients, employees, family or friends may have a position in the securities discussed herein. © 2010. All rights reserved. Reproduction of this publication is strictly forbidden without written consent from Deschaine & Company. This issue was published on January 30, 2009. If you would like to receive a complementary copy each quarterly, simply send us your address and the preferred method of delivery: snail-mail or email, to: 128 South Fairway Drive, Belleville, IL 62223 Or email us at [email protected] and we would be happy to add you to one of our mailing lists.

Page 3

Page 4 Year End 2009 Viewpoint

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Dec‐99 Dec‐00 Dec‐01 Dec‐02 Dec‐03 Dec‐04 Dec‐05 Dec‐06 Dec‐07 Dec‐08 Dec‐09

Dow - 34.52 87.20 - 52.98 57.36

S&P - 45.51 95.08 - 56.24 63.17

NQ - 71.99 146.13 - 53.88 75.38

Chart 1: Does the 2009 Stock Market Rally Signal the End of the Bear Market? (The Dow Jones, S&P 500 Index and The NASDQ Composite Index from December 31, 1999 to December 31, 2009) Stock Market Returns Since 1999

Dow Jones - 9.30

S&P 500 - 24.10

NASDAQ - 44.24

picking and choosing equity mutual funds. Consider that in 2009, mutual fund investors overwhelmingly put their money in foreign and emerging market equity funds while at the same time tak-ing out huge chunks from our domestic brethren. A quick look at the returns for the mutual fund categories of 2009, we could assume investors made the right choice as international equity funds in general—and emerging market funds in particular—earned three to four times the average return of US equity markets for the year. However, as history and last year’s mutual fund cash flows confirm, the majority of fund investors plunked their money into the emerging market equity fund category because they were up 88%, not before they were up 88%. In their defense, crowds are usually wrong because their judgments are based entirely on that most unreliable, yet entirely predictable human trait; emotion. As any fan of Fantasia(2) or a recently elected president can tell you, that’s not a great way to ensure a good long-term outcome when having to make important decisions.

Of course, it’s one thing to get swept up in an emotional moment when voting for a president or for your favor-ite American Idol, it’s quite another to let emotion influence decisions about money. When it comes to our own money (or our client’s money certainly) we like to think we base our investment decisions, as Dragnet Detective Joe Fri-day used to say: “on the facts mama, and just the facts.” At the same time, we’ll acknowl-edge we’re not exempt from an occa-sional fit of cursing at an incompetent CEO or slamming a fist on our com-puter keyboard at the announcement of a dividend cut. Nevertheless, we soon regain our composure and remind our-selves of what the facts tell us. And the facts today tell us we’re still a long way from the bottom of the current bear market cycle. That’s the bad news. The good news—and we really do mean this is good news and not some fabricated optimism to provide these pages with some positive spin—as long as we in a bear market, we’re going to get multiple opportunities to buy our favorite dividend stocks at higher and higher dividend yields all the way down to the bottom of the bear market cycle.

How good is the good news? We firmly believe that we’ll be able to lock in 7, 8, 9, and even 10% dividend yields over the next ten years as stock prices continue to adjust. But, Is the Bear Market Over? In order to make our case that we’ll be able to grab double digit dividend yields over the next ten years, we first have to debunk the view that the stock mar-ket rally of 2009 signals the end of the current bear market cycle. We’ll start by pointing to Chart 1, above which out-lines the returns for the Dow Jones In-dustrials, S&P 500 index, and the NASDAQ composite from December 31, 1999 to December 31, 2009. Of all the information the chart conveys, the most relevant from our perspective, is the fact that the stock



“Stock market volatility is bad for the nerves for those unprepared for it. If you’ve done your homework, volatility is how you make money in the stock market.” — The Casey Report

2) Fantasia Barrino, 2004 winner of American Idol.

Deschaine & Company, L.L.C. Page 5

market by all three indexes is still down from year end 1999 levels. For the ten year period ending 2009, the Dow Jones is down 9.3%, the S&P 500 index is down 24.1%, while in the case of the NASDAQ composite, the 75% rise since last March simply cut the stock index’s 10-year losses to a more mod-est 44%. Lessons from Past Bear Markets Depression Era Rallies For an additional perspective on how the current stock market cycle might play out over the next few years, we can look back to the 1929 to 1933 period. After peaking in 1929, the stock market struggled with a slump-ing economy much like the one we find ourselves in today. (See Chart 2, above.) First, do we believe the econ-omy’s in a depression the magnitude of the Great Depression of the 1930s? In a word, no, primarily because we don’t believe unemployment is likely to reach anything near the 25%, like it did in the early 1930s. Nevertheless,

we do believe the economy’s in for a long slow recovery with high un-employment and “under-employment” remaining for quite some time along with the prospects of rising (possibly even hyper) inflation. That toxic economic combination, coupled with a stock mar-

ket that remains “overvalued” by just about any historical standard, will work to keep the stock market in a bear cycle for possibly another decade—or more. We think the period from 1929 to 1933 illustrates how, during the worst economic period in our country’s his-

tory, the stock market staged multi-ple and statistically significant ral-lies, all while dropping over 90% from its peak in 1929, before finally hitting bottom in late 1932. What we learned from the stock market experience of the 1930s in trying to draw parallels to the last 10 years, is that significant rallies in long-term bear markets are the rule not the exception, even as the stock market makes its re-lentless march to the bottom. Suggestion: Learn to appreci-ate price volatility, it’s an everyday reality of the equity investing equa-tion. Better yet, make volatility your friend by being prepared and taking advantage of it to buy your favorite dividend stocks during the many periodic stock market swoons that are certain to come our way over the next ten years.



Beginning Level

Ending Level

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% Change Period

386.10 195.35 - 190.75 - 49.4%

297.25 207.74 - 89.51 - 30.1%

247.21 154.45 - 92.76 - 37.5%

196.96 119.89 - 77.07 - 39.1%

156.74 85.51 - 71.23 - 45.4%

119.15 69.85 - 49.30 - 41.4%

89.87 40.56 - 49.31 - 54.9%

81.99 49.68 - 32.31 - 39.4%

Table 1: 8 Largest Market Rallies & Declines 1929-1933

195.55 297.25 + 101.70 52.0%

207.74 247.21 + 39.47 19.0%

154.45 196.96 + 42.51 27.5%

119.89 156.74 + 36.85 30.7%

85.51 119.15 + 33.64 39.3%

69.85 89.87 + 20.02 28.7%

40.56 81.39 + 40.83 100.7%

49.68 110.53 + 60.85 122.5%

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Average Duration of Rallies: 11.3 weeks Average % Increase: 52.6%

Average Duration of Declines: 14.0 weeks Average % Decline: 42.1%

Current Market Rally: 40 weeks: Up 57.%

Chart 2: Depression Era Stock Market Rallies, Foretelling the Future?


Seeing the Future but for the Past While we profess to be able to foresee the stock market’s future, (with a rela-tively high degree of certitude, no less) we should clarify that we’re only able to do so on the general direction of the stock market’s long-term trends. For example, in 2000 with stock P/E ratios around 40 (an all time high, by the way) we were certain that stock prices would have to go down just to bring P/E ratios in line with their his-torical averages. We also surmised that such an adjustment could take years. How did we know? Well for starters forecasting such a trend didn’t require much more than recognizing what stat-isticians refer to as “regression to the mean,” a fancy way to say that when data gets way out of whack with its long-term historical averages, the data must, at some point, move in the other direc-tion of time in order to “re-establish” long-term historical averages. It didn’t take much than that basic understanding of statistics to come to the conclusion that starting in 2000, stock prices would have to drop (a lot)

over an extended period of time in order to re-established historical P/E aver-ages. That basic understanding of statis-tics, we’ll acknowledge, is a long way from forecasting with any precision how long it will take for prices to adjust to their averages or how much prices will bounce around in the process. Studying other bear market periods, gave us a good indication that it could be as long as 15 or 20 years for prices to fully adjust. Why? Because historically, the length and duration of the bear mar-ket cycle tends to mimic in reverse the length and duration of the bull market that preceded it. Since the 1982 to 2000 bull market lasted about 18 years and reached unprecedented heights in valua-tion, we figured the bear market would be equally as long and possibly equally unprecedented on the downside. Here we, are 10 years later and the stock market has pretty much played out as we anticipated in the spring of 2000. Since 2000 P/E ratios have been cut in half—more or less—and dividend yields have more than doubled from a record low of .90% to about 2.40% as of year end 2009. (See Chart 4, on page 7.) Where we sit today, both P/E’s and dividend yield are only about half way

to a level where they need to be to be considered bear market bottom. We’ll need to see average P/E ratios like 7 or 8 times earnings and average dividend yields in the 6 or even 7% range for the stock market before we’re prepared to call a market bottom. How long do we think it’ll be before we reach such valuation levels? How about another decade? Oh, and just so you know, once at we reach a market bottom, the stock market has a nasty tendency to languish at the bottom for a lengthy period beyond that. The Japanese Experience 1989 to 2009 You can’t be serious. Another decade of declining stock prices? Is that possible? If the last decade hasn’t convinced you that stock markets can suffer long down cycle for stock prices maybe Chart 3, above will do the trick. Chart 3, compares the S&P 500 from 2000 to 2009 to the Nikkei index, the Japanese’s stock over the 1989 to 2009 period. As you may know, Japan went thor-ough a similar credit and real estate bubble in the late 1980s. Financed by easy credit and low interest rates, (sound



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Chart 3: Is the S&P 500 going to follow Japan’s 1989 to 2009 experience?

?

The S&P 500 from 1999 to 2009

The Nikkei Index from 1989 to 2009

Deschaine & Company, L.L.C.

familiar) Japanese investors went on a buying binge in the 1980s. At its peak in1989, a square foot of downtown Tokyo sold for over $250,000 and the Nikkei, Japan’s stock market index, reached a hyper-inflated 39,000. In many ways, Japan’s 1980s credit bubble equaled or surpassed our own loose and cheap credit fueled real estate and stock market bubble from 2000 to 2008. As Japan’s credit and real estate bubble burst in early 1990, the Japanese economy fell into a protracted economic slump that it has yet to recover from. As the economy tanked under the burden of excess debt and real estate prices col-lapsed, stock prices naturally followed suit and as chart 3 on page 6, shows, they have yet to recover. As we write this, the Nikkei Index is trading at about 10,500 which means the index is down more than 70% from it’s all time high of 38,850 in 1989. That’s a high set over twenty years ago. Meanwhile, Japan’s economy has shown no signs of any of a meaningful eco-nomic recovery anytime soon.

Given the similarities in Japan’s economic experience in the 1980s and our own over the last decade—and our government’s eerily similar response to our credit bubble as the Japanese took to theirs—we believe our US stock market could be in for a similar experience which would mean another decade, or more, of slumping stock prices. Looking Ahead to 2020 Just to reiterate, if we express any level of certainty in our forecast it’s related to the long-term trend in stock prices. That is not the same as suggesting we can tell what’s going to happen to prices over the next six months or even the next year. Yet, we’re convinced, based on our interpretation of multiple

market, cycles that the current bear market will remain intact and be the dominate variable in our outlook for stocks until P/E ratios across the mar-ket, settle into single digits and divi-dend yields, again for the market over-all, average 6% or higher. Note: we temper our certainty on the long-term trend knowing full well that the market can fluctuate wildly in the short run at the same time its con-tinues to trend down over a long period of time. As chart 4, demonstrates, divi-dend yields bounced all over the place during the1966 to 1982 bear market while dividend yields went from a low of

2.9% in 1966 to 6% in 1982. This points out the risks in any investment strategy. Even though the long-term trend may be predictable, short-term volatil-ity can cause havoc on even the

best laid stock market strategy, espe-cially if we allow ourselves to get caught up in the emotion of the mo-ment. It is our job to guard against such a possibility by doing everything in our power to let cold facts and dividend yields to guide us.



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Chart 4: S&P 500 Month End yield: 1965 to 1982

(Dividend yields during the last bear market)

S&P 500 Month End yield: 2000 to 2009

When Stock Prices Go

DOWN

Dividend Yields Go

UP

The advantage to a high-yield strategy in down markets

Our equity portfolio strategy for the coming decade? Buy stocks has dividend yields rise all the way to top of the dividend yield cycle. Just like we’ve been doing since 2000!

Page 7

BOND MARKET REVIEW & OUTLOOK

Caveat Emptor “Bond Buyer Beware!

P ROBABLY THE BIGGEST LESSON of the last ten years for the bond market is to

never underestimate the Federal Reserve’s power (or determination) to hold interest rates artificially low. When we launched the asset manage-ment business in the fall of 1999, one of the primary investment assumptions we made at that time was that low interest rates posed a potentially sizable risk to bond investors. (See the orange dotted line above.) Given the historical low level for inter-est rates in 2000, we made what we thought was a reasonable assumption in expecting that interest rates were equally likely to go up as go down.(3) First, we figured that if interest rates went down, the modest com-mitments to bonds we had in client accounts at the time would benefit from higher prices—albeit only modestly. On the other hand, if interest rates spiked, like they had several times in the recent past, bonds with a maturity longer than seven years were likely to get hammered in price to cause a capital loss from 25 to

40%, depending on the particular maturity and quality of the bond. So our bond strategy was to take a very conservative approach, stay very short in maturity and take a wait and see attitude toward interest rates and the direction of the overall bond market. Client assets not com-mitted to stocks was invested in money mar-ket funds and short-term bonds, in order to benefit from rising interest rates. It’s said that the Fed’s job is to take away the punch bowl when the economic party gets rocking. What that means is it’s their job take money out of the system in time to check risk taking and to keep inflation under control. Un-fortunately, over the last 15 years, the Federal Reserve, first led by Alan Greenspan and then Ben Bernanke did just the opposite and printed money like there’s no tomorrow. Apparently, neither Greenspan nor Ber-nanke wanted to play house mother at the economic party. In fact, rather than halt any of the multiple speculative bubbles of the last decade (in everything from tech stocks to housing to oil) by raising interest rates and slowly, albeit painfully, deflate each bubble, the Fed took action that actually added money to the system causing each successive bubble build. Consequently, interest rates have been artificially pushed down almost over the last ten years to an all-time record low of five

basis points on the overnight fed funds rate. That’s 5% of one percent. Now we’re suppose to believe this time the Fed is going to yank support for low interest rates in early 2010 or whenever Ber-nanke feels it’s the right time to begin slowly tightening the money supply and be able to successfully head off inflation—and a spike in interest rates that’ll surely follow. Count us among the skeptical for a couple of reasons: First, the Fed hasn’t done it in re-cent memory. Second, it’s already too late. Money growth over the last two years has grown at such a rate that it would require a massive contraction in the money supply to even put a dent in its growth rate. Even if Ber-nanke went against type and did such a thing, a contraction in money supply of that magnitude would virtually ensure a “double dip” reces-sion—if not a full blown Depression. Just about every previous time in history when the Fed had to choose between pulling the legs out from under the economy or letting inflation loose, it’s opted for inflation. This time’s not likely to be any different. With interest rates essentially at zero, we’re betting the next move for interest rates is up—quite possibly in a big way. Anyone hold-ing bonds with a maturity of longer than a couple of years, will be staring at massive capital losses—don’t let that be you!


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This is the next “Bubble” With interest rates are at record lows the next logical major move is UP!

Not a time to be buying long-term long bonds or long-term bond funds!

Chart 5: 10-Year Treasury Yield 3-Month Treasury Bill Yield

?

3) How’s that for sticking our neck out?

Deschaine & Company, L.L.C. Page 9

Our Equity Strategy: Don’t Fight the Trends As we said, our equity strategy is to take advantage of the stock market’s long-term down trend and short-term price volatility, to buy stocks at increas-ingly higher dividend yields. We expect to lock in 7, 8, 9, and eventually even 10% dividend yields, over the next ten years by being patient and disciplined when buying dividend stocks. In other words, the very same strategy we’ve employed successfully since the current bear market began in early 2000. Our portfolio objective is to end the decade with a portfolio yielding annual divi-dend income equal to 10% (or better) on what we paid for our stocks. We also except to double dividend income every five years in the process. Ambitious goals, we know, but quite doable, here’s how.

How Income Doubles Every Five Years The table above outlines the simple arithmetic that’s required to double divi-dend income every five years. A critical part of our assumption is the ability to reinvest all dividend in-come back into the portfo-lio to maximize the power of compounding. We’re convinced, if we achieve our two investment objec-tives the stock market will reward our stocks with higher share prices and capital returns will take care of themselves. At the same time, we realize that not every in-vestor, particularly those already retired, have the luxury of reinvesting, all or even most, of their dividend income. For those cli-ents past retirement and living off their dividend investment income, we still

expect dividend income to grow some-where between 8 to 10% a year from the companies in the portfolio raising their dividends. Under either scenario our

equity portfolio can expect to show positive income growth over time. The question is: will it be 15% from dividend growth and full dividend reinvestment or will it be 8 to 10% from dividend growth alone? For folks still working and socking money away for retirement, the income numbers shown above can grow more significantly still. For example, if an investor throws an addi-tional $25,000 a year into the $1 million example

above, annual dividend income in year 10 grows to $308,383.



“As the dividend increases, eventually the price of the stock producing that dividend will increase as well. The principle here is critical, both for investors seeking to accumulate wealth, and even more importantly today, for investors hoping that investment assets will support them in retirement.”

HOW INCOME DOUBLES EVERY FIVE YEARS

Income Growth

Objective Portfolio

Value @ Cost Dividend

@10% GR 1) From Dividend

Growth Alone 2) From Dividend Growth

& Div Reinvestment Yield on "Cost"

Year $ 50,000 $ 1,000,000 0.50 $ 50,000 $ 50,000 5.00%

1 $ 1,055,000 0.55 $ 55,000 $ 55,000 5.50%

2 $ 1,118,828 0.61 $ 60,500 $ 63,828 6.05%

3 $ 1,193,285 0.67 $ 66,550 $ 74,458 6.66%

4 $ 1,280,640 0.73 $ 73,205 $ 87,354 7.32%

5 $ 100,000 $ 1,383,764 0.81 $ 80,526 $ 103,124 8.05%

6 $ 1,506,335 0.89 $ 88,578 $ 122,571 8.86%

7 $ 1,653,106 0.97 $ 97,436 $ 146,771 9.74%

8 $ 1,830,285 1.07 $ 107,179 $ 177,179 10.72%

9 $ 2,046,071 1.18 $ 117,897 $ 215,786 11.79%

10 $ 200,000 $ 2,311,420 1.30 $ 129,687 $ 265,349 12.97%

11 $ 2,641,158 1.43 $ 142,656 $ 329,738 14.27%

12 $ 3,055,612 1.57 $ 156,921 $ 414,454 15.69%

13 $ 3,583,052 1.73 $ 172,614 $ 527,440 17.26%

14 $ 4,263,384 1.90 $ 189,875 $ 680,332 18.99%

15 $ 400,000 $ 5,153,844 2.09 $ 208,862 $ 890,461 20.89%

16 $ 6,337,933 2.30 $ 229,749 $ 1,184,089 22.97%

17 $ 7,939,678 2.53 $ 252,724 $ 1,601,745 25.27%

18 $ 10,146,876 2.78 $ 277,996 $ 2,207,198 27.80%

19 $ 13,249,744 3.06 $ 305,795 $ 3,102,868 30.58%

20 $ 800,000 $ 17,706,627 3.36 $ 336,375 $ 4,456,883 33.64%

Page 10 Deschaine & Company, L.L.C.

My Big Fat Government Takeover By William McGurn The Wall Street Journal December 14, 2009

S OME MISTAKES ARE SO BIG that only smart people are tempted to

make them. One is the faith in Big Gov-ernment. We’ll see that in full force today when Barack Obama gives another ma-jor address on the economy. On the gen-eralities, there won’t be much real dis-agreement. But at a time when many claim to see no difference between the two political parties, President Obama and his Democratic allies are making one distinction paramount: their operating assumption that bigger government is better government. Many of the people in the Obama administration, the president included, en-joy all the credentials we associate with the best and the brightest: the right schools, the good grades, the successful careers. Alas, whether it be allocating health care or defining the kind of jobs the economy ought to create, the policies they favor suggest a strong belief that they know what’s best not just for themselves, but for everyone else too. Of course, the kind of people who are apt to push for government-imposed solutions are those who are also apt to believe they will be the ones imposing decisions, not the ones who have to live with decisions imposed by others. Sometimes that’s because they enjoy the wealth that gives them escape-hatches unavailable to the less affluent, such as their ability to en-sure that their own children never have to set foot in a public school. Mostly, however, their trust in government re-flects with confidence that they have all the answers and that its government’s job to enforce them. What about conservatives? Don’t we have confidence in our judgment and abilities. Of course we do. The difference

is that we trust free citizens to make decisions about themselves—and are skeptical about government. As some-one who worked inside a White House, I say you really come to believe govern-ment should be small when you see your friends running it. Now, I know there are people who believe that George W. Bush was a Big Government Republican. And you can make arguments about spending and so forth, even so, there’s simply no com-parison with the Obama administration. That’s because conservatives believe that even our smartest friends are no match for the collective wisdom of the marketplace. If we were to wake up and

find that someone we knew well had been given control over some important part of the economy, the conservative would not likely think, “Everything will be fine now that Harry's in charge.” Far more likely we’d be saying to ourselves, “If it weren’t for his wife, Harry would be wearing red and purple socks—and we’re giving him that kind of power?” Mr. Obama and his team appear to be unburdened by such modesty. Detroit is in decline because its automotive giants no longer build the kind of cars Americans want to buy? Let’s have the president sack the CEO of General Motors, and then use the bail-out money as leverage to appoint a car

czar and get GM and Chrysler to build the kind of cars that Washington wants. Wall Street execs are getting sweet bonuses at a time when millions of other Americans are unemployed. Well, in-stead of encouraging these financial con-cerns to pay back the Troubled Asset Relief Program money and get the tax-payers off the hook, send in Ken Feinberg to set their salaries. Health-care spending is inefficient? The answer is obvious: Expand the De-partment of Health and Human Services and give its secretary more power. Un-der the bill now before the Senate, for example, Kathleen Sebellus would have the authority to decide what care insur-

ance companies could offer, who could get an abortion under a government-run plan, what prices were fair, and so on. Of course we shouldn’t draw any conclusions from an advisory task force that recently created a stir when it suggested women get fewer mammograms-and Secretary Sebelius’s dis-avowal in the face of intense public heat. She pointed out that the task force does not set government policy. But at some point some govern-ment task force will—and there will be simply be fewer ways around it. That’s government by the smart. The good news is that it doesn’t seem to be

selling. According to a recent poll, 57% of Americans believe government is do-ing things that should be left to business and individuals. Not only do most Americans object, Gallup says the oppo-sition is the “highest such reading in more than a decade.” Today Mr. Obama is going to give us more details about the wonderful things all these smart people in Wash-ington are going to do to help us on the economy. Maybe he would do well to take another look at all those bright lights around him. For the more he pro-poses government will do, the more skeptical Americans seem to be.

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% of Cabinet Appointments with Private Sector Experience: 1900‐2009

With the economy on the rocks and employment still declining, does it give anyone comfort to know that less then 10% of the Obama administration (by far the lowest percentage of any administration going all the way back to 1900) has private sector business experience. With such little real world business experience, we shouldn’t be surprised if a bunch of life time academics and government bureaucrats can’t figure out how to incentivize the economy to create jobs , so don’t expect significant private sector job growth anytime soon.


*Interviewed by Louis James, Editor, International Speculator. Doug Casey is Founder and Editor of “The Casey Report.” An excellent economic and market letter.

On A Positive Note: Doug Casey on Technology*

Louis: Doug, people have written in saying you’re a “doom-and-gloomer,” a “perma-bear”—but I know you’re an optimist. Why do you suppose that’s so? Doug: Perhaps it’s because I’ve long said that the Greater Depression is going to be even worse than I think it will be. But looking for-ward with a long view, I think the future is not only going to be better than I imagine: it’s going to be better than I can even imagine. The coming Greater Depression will be serious, but I don’t think it’s going to fundamen-tally change the long-term trend of human his-tory. I believe Jacob Bronowski was right: the Ascent of Man will continue. Mankind started out grubbing for roots and berries in the mud, but our descendants—not so far in the future—will be colonizing the stars. Louis: Was that the guy who wrote the 1973 BBC series, “The Ascent of Man?” I didn’t re-member his name, but I remember watching the series even though I was only eight. So, when you talk about the long term you’re not talking years, decades, or even centuries, but the grand scale of human history and beyond. Doug: Yes, exactly. An interesting thing about investing, and life in general, is that there are long-term trends, medium-term trends, and short-term trends. You have to figure out which ones are important, then if and how to capitalize on any of them. And it seems to me that of the longest-term human trends in existence is the 5,000 year-long bear market in commodities. In real terms, metals were extremely rare and ex-pensive in Neolithic times. Louis: Iron was so rare, it didn’t exist. And I’d guess that, say a polished copper mirror would have taken the equivalent of many human lives to make. Doug: Right. What metals there were came from what people could do to the metal in its native form. That meant primarily gold, but there would have been some copper and some sliver, but that would have been about it. And even the equiva-lent of kings back then had very little of it. Then civilization developed in what is now the Middle East and we entered the Bronze Age, which gave way to the Iron Age—and now we’re in the Silicon Age. Each stage the com-modity grew progressively less rare. Silicon makes the computer chip that drives modern life, but it’s basically sand. On a scale of millennia, commodities have collapsed in price. Eventually, they’ll go to near zero in cost. Commodities will

drop to no more than the royalties on the software that runs the nanotechnology that extracts them. Louis: Let’s come back to nanotechnology in a moment. The overall trend you’re describing doesn’t depend on it. Even without nanotech, cheaper abundant energy would drop the prices of most commodities to near zero. Sea water is full of dissolved metals, for example; you could have all you wanted if you just had the energy to process the water to extract the metals. Cheap enough energy makes the lowest-grade concen-tration of anything economical. Doug: Yes, and even now we know how to ex-tract those metals or make artificial oil; it’s strictly a matter of having enough energy to drive the engineering. And, of course, the eco-nomics. That is why I find it so frustrating when people talk about running out of natural re-sources. There is no danger whatsoever of that. Not only are the resources of the world ade-quate, they are essentially infinite. It’s a question of technologic-know-how and capital, enough wealth to implement the know-how that is, to build the machines. Look, just about every material thing in the universe is constructed from the nine elements in the periodic table of elements. Having anything we want from a slice of bread to and ounce of gold, to a new car, is simply a matter of rearranging atoms into the correct combination at an acceptable cost. Louis: My friend Jim Von Her, CEO of Zyvev, a nanotech instrument company once told me that some of the most valuable land in the future would be the sites of landfills, because they are basically mountains of purified materials. Once you can reduce matter into its component atoms and make new things with it, such places, packed with high concentrations of useful atoms, will command a premium. In the future, there will be no such thing as trash. So, this bearish trend on commodities you speak of isn’t really a bearish trend at all; it’s a bullish trend on technology. Doug: and that includes nuclear waste. Greens, who generally have a background in science, are completely unaware that spent reactor fuel is a potentially valuable future resource—in addition to being a trivial storage problem in the interim. Technology-it’s the most bullish thing possible for the standard of living of the average human being. Many people living below the poverty line in the U.S. have televisions, refrigerators, medicines, and luxuries that even kings and queens of a hundred years ago couldn’t have dreamed of. That trend is going to continue and even accelerate. It’d be hard for me to over state how favorable this trend is. But the megatrend remains that advancing technology makes it cheaper and easier to ex-

tract, purify and utilize commodities. Just think about computers. Moore’s Law. They double in capacity every 18 months. Louis: So, would you say you’re a techno-optimist as a matter of general principle—because you believe in the continuation of the 5,000 year trend—or because there are specific technologies or because there are specific tech-nologies you see developing? Doug: I’m a huge believer in nanotechnology. I believe it is likely—even in the span of the next generation–to change the nature of life on this planet totally, unrecognizably, and irrevocably for the better. It is, I think, the single biggest thing on the horizon. Louis: Define nanotechnology for us. Doug: Sure, it’s the creation of computers and machines on the sub-microscopic level—the atomic level, really. Louis: Why should anyone care about machines the size of molecules? Doug: For one, they enable you to build perfect machines—perfect in the sense of them having no mechanical imperfections—which vastly increases their efficiency and reduces the need for energy. If you use molecular machines to build things one atom at a time, there is literally no waste. Zero. Every atom is used and put exactly where it is needed. No by-products, no pollution. There are many applications. Medical ap-plications are among the most interesting. Once you have machines the size of an enzyme—you can program it to do just about anything. One example is to fix malfunctioning cells as in can-cer, though that would be trivial for such ad-vanced machines, but also fine-tuning all sorts of tissues for optimal health—which means pre-venting and repairing aging. Louis: A fountain of youth, sounds like science fiction. Doug: It does, but it isn’t. This is hard science. Ray Kurwell, an investor and thinker about the future points out we’re coming to “technological singularity,” a point at which technology just doesn’t get better, it leaps to its full potential. After that happens, people will look at this event as the single most important thing that’s ever happened—or ever will happen. As we date things now as BC and AD, in the future every-thing will be pre– and post-singularity. And I believe this could all happen within the next 20 or 30 years. So yes, I’m an opti-mist—and the greatest single reason for that is technology. Louis: Well. I’m feeling upbeat, thanks Doug!

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Page 12 Deschaine & Company, L.L.C.

4) It will take until 2012 or 2013 for the companies in the S&P 500 to increase dividend payments to their former level reached at the peak in 2008 and early 2008. This is actually a normal part of the recovery process as companies begin to increase dividends back to their former level after cutting them to preserve cash in a recession.

Finally, nothing in our equation takes into account our ability to capture higher dividend yields as the stock mar-ket rambles slowly down over the next decade. If you haven’t noticed we’re pretty excited about the prospects of being able to lock in high single digit dividend yields over the next decade.

Ah, What about More Dividend Cuts? S&P: 2009 Worst Year Ever for Dividends Positive Signs for 4Q ‘09 Point to Better Year for Dividends in 2010 In a recent press release, Standard & Poor’s announced that, of the approxi-mately 7,000 publically owned compa-nies that report dividend information, 74 decreased their dividend payments during the fourth quarter of 2009—marking a significant improvement from

the record 288 that lowered their dividend payments during the fourth quarter of 2008. “The fourth quarter was in no way a good period for divi-dends, but compared to recent history it marks a significant improvement, and when added to the stabilization in increases, supports our belief that the worst is over for dividends,” say Howard Silverblatt, Senior Index Analyst at S&P Indexes. “Standard & Poor’s believes that the dividend recovery will be slow and that it will take until 2012 to 2013 to return to where we were in 2007 and 2008.(4) According to Silverblatt, dividend cuts in U.S. traded companies cost investors over $58 billion in income in 2009. Increases for 2009 reached 1,191, representing a 36% drop from the 1874 times dividends were increased in 2008, and a 52.6% decline from the 2,513 increases in 2007. The year of 2009 showed the fewest in-creases and the most decreases since Standard & Poor’s started collecting the data in 1955. “Worse than the lack of in-creases in 2009 were the devastat-ing dividend cuts,” adds Silver-blatt. “For the year, 804 issues cut their dividend payments which equated to an increase of 631% over the 110 issues that cut their payment in 2007. Additionally, the cuts were extremely deep, costing investors $58 billion in dividend income, making it the worst year ever for a drop in dividend in-come.”

Closing the Book on 2009 After the specter of record dividend cuts the last two years, it’s reasonable to ask how we could be so optimistic on our outlook for dividend growth over the next 5 or ten years. For starters, our target annual divi-dend growth rate of 10% per year is actually down when compared to our actual historical growth rate of more than 13%. Second, as S&P noted, the worst is likely to be over regarding fur-ther dividend cuts, or at least when compared to 2008 and 2009. While we remain skeptical of the economy staging a strong recovery, many companies have done a good job at cutting overhead and reducing operating expenses, making more cash available to maintain, and yes, even grow dividends over time. Actually, the slow economy may in some way work to boost dividend pay-ments as many companies see little rea-son to spend money to gear up for reve-nue growth in a stagnant economy and instead be inclined to boost dividend payouts as a way to distribute excess cash and placate investors. At least we hope managements will see it that way. And finally, we focus on companies that have a long history, the financial ability and the business model which allows them to grow revenues, net in-come and thus dividends, just as they’ve done over many years and in all type of economic challenges. Are we done with dividend cuts? No one knows for sure, but guarding against such a prospect consumes our research efforts. We will even sacrifice dividend yield and potential dividend growth in exchange for the certainty of the current dividend payment. We always welcome your questions and com-ments about our investment strategies or any other issues discussed in VIEWPOINT. We’re also want you to know we’re here to implement our dividend growth strategy in your portfolio. Remember, at the same time the stock market and the economy present great challenges, they also offer great opportunities for investors prepared to take advantage of the fickle stock market to buy high yielding stocks at once in a lifetime prices. Happy New Year. May 2010 bring you and yours much joy, peace and happiness. As always, many thanks for reading. MJD


Truth—Stranger than Fiction

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”

—Groucho Marx Notes from an Executive at Chrysler, dated, July 19, 2009. “Monday morning, I attended a breakfast meeting where the speaker was David E. Cole, Chairman of the Center for Automo-tive Research and a Professor at the University of Michigan. Mr. Cole, who is an engineer by training, told many sto-ries of the difficulty of working with the folks that the Obama administration sent to “save” the auto industry. There have been many meetings where an experienced automotive execu-tive had to listen to a 30-year old newcomer to the industry, someone with zero manufacturing experience, zero auto indus-try experience, zero financial experience and zero engineering experience, tell them how to run their car company. Mr. Cole’s favorite story is a follows: A team of Obama people came to Detroit to meet with Mr. Cole to discuss “fixing” the industry. They explained to Mr. Cole that the auto companies needed to make a car that was electric and liquid natural gas fueled with enough com-bined range to go 500 miles before needing to refuel so we wouldn’t “need” so many gas stations (a whole other topic). They were quoting BTUs of natural gas and battery life, etc. from a source they had looked up on the internet. Mr. Cole tried to patiently explain that to do this you would need a TRUNK FULL of batteries and a natural gas tank as big as the car, and that there were other problems related to the laws of physics that prevented them from . . . At this point, an Obama person interrupted Mr. Cole and said (quoting Mr. Cole directly here): “These laws of physics? Whole rules are those? We’ll need to change that.” (Some of the other Obama folks began writing down the law’s name so they could presumably look it up later.) “We have the Congress and the ad-ministration, we can repeal that law, amend it, or use an execu-tive order to get rid of the problem. That’s why we’re here, to fix these sorts of issues.”

Editor’s Note: And theses are just a few of the folks running around the country meddling (op’s we meant trying to fix)

the economy and scheming to take over our health care system?!

Documents

Year End 2009 Viewpoint