Cleland's latest letter
This month, he features WEW, which is making good progress. He states:
....we have arrived at the end of 2008, yes, with the core stocks beaten down to levels I could never have imagined seeing again, BUT, in almost every case, both the business fundamentals and valuations of the core positions better than they have ever been.....
And wraps up with:
Where does my base case stand?
Two months ago, my base case of -10% to +10% returns in the U.S. markets and a bottoming in U.S. GDP in Q4 was looking hopelessly optimistic. Now, with the market having absorbed the bank “stress tests” and the “Swine Flu” with hardly a shrug, it appears even odds that my base case may even prove to be conservative. Recent data points and facts that are encouraging include:
1)
The “acceleration wall” that the equity markets have seen off the March 9 lows is the most powerful acceleration wall since 1982 (which was the beginning of an almost-20-year secular bull market).
2)
The process of inventory de-stocking appears to have run its course, according to sources as varied as government data, and companies such as Intel and Nokia.
3)
Chinese industrial production recently hit new all-time highs.
4)
Industrial production was up on a global basis in March for the first time since declining at an annualized 35% rate in Q4 of 2008.
5)
The U.S. yield curve (which is the most leading of leading indicators) has now been positively sloped for well over a year, and is so steep that U.S. and global banks can achieve a great deal of balance-sheet healing simply through what is supposed to be their core business of “borrowing short and lending long.”
6)
There have now been over 675 fiscal and monetary policy initiatives announced globally since the Lehman bankruptcy.
7)
Last (but far from least) the over $600 billion of fiscal stimulus that is supposed to be injected into the U.S. economy over the next 12 months has only just begun to flow in the past month.
On the other hand, there are plenty of negatives still out there. The most important near-term negative which will present a challenge for the U.S. economy is what is going to happen in the U.S. auto industry over the next six months. International Strategy and Investment Group Inc. (ISI) estimates that dealership and plant lay-offs and shutdowns should see initial jobless claims shoot back up over 700,000; despite this near-term headwind, they believe the balance of factors for the equity market remain positive between now and year-end. An important factor is that the negatives out there are well known, and still well embraced by investors, as well-known purveyors
of the doomsday scenarios (such as Nouriel Roubini) continue to hit the speaking circuit on a regular basis i.e., the “wall of worry” that allows equity markets to continue on a generally upward trajectory appears to be intact.
A few points in closing
Thank you for your patience and trust as we travel together on this journey to a ‘new normal’, and know that I am doing everything I can to catalyze the value that I believe is being created by the companies in these portfolios. Also know that Likrilyn Capital Corporation, the parent company of Northern Rivers Capital Management Inc., made further investments in several of Northern Rivers’ funds on April 30, and has pledged to invest more money in the funds between now and the end of the year.
Best regards,