If you’ve been reading this newsletter, you know we have been calling for the end of the world for a while--and, there is little doubt that it has come! If you’re not afraid yet, it’s probably time to consider it. When both the heads of Treasury and the Federal Reserve are scared the entire US banking system is crashing, it’s probably time.

Read on. We have a lot to say on this topic.

Is “De-Risking” Really a Word?

We are currently facing down a potential financial crisis unseen since the great depression. How many investment banks, commercial banks, hedge funds and large corporations are, in fact, insolvent, assuming they had to mark their assets to market?

Everyone has stopped lending. The banking system has, at least for the moment, ground to a halt.

The most euphemistically minded among us coined the term “de-risking” to describe the current phenomenon. The rapid decline in asset prices and jump in default rates have forced a kind of universal margin call, forcing everyone to sell liquid securities, dump risky bets, raise cash to meet redemptions and barricade the doors against vast bad “insurance” bets, including the infamous credit default swap.

While the great investment banks were levering up their proprietary trading books to the proverbial 30x, there was free money for all and no risk was too risky. Now the bottom has fallen out and no risk is worth taking. In fact, given the danger in some of the biggest money market funds, even “cash” is suspect.

The Long Term Opportunity Fund

We are sharpening our pencils to raise quality, bring down PE’s and increase dividend yield.

Given our three-to-five year investment time horizon, this is rapidly becoming our kind of market. We took our lumps in Q3, for sure, but continue to believe it’s our job to stay invested and not retreat to cash. We are already seeing unprecedented long-term valuations and yields on higher and higher quality investments.

The Income and Growth Fund

We believe that high-quality dividend paying equity securities are one of the best ways to ride out the storm. None of us can time the bottom, but that doesn’t mean we can’t get paid to wait. The Income and Growth fund is designed to provide reliable current yields in concert with long-term growth. We are hard at work seeking out the highest quality “hybrid equity securities,” hunting for firms with solid businesses that won’t be likely to cut their dividends if times stay rough.

We’re so excited about this strategy that we’re giving speeches throughout the country. Read Bill’s piece in this newsletter. I think you’ll be intrigued.

Yours,
Eric Wanger, JD, CFA