Markets were up nicely in Q2 and there are (finally!) murmerings of an eventual recovery. It’s nice to get a break from the relentless stream of bad news. Sobering stuff, but it certainly feels better to worry about the Fed’s stimulus program than about how many hundreds of thousands will lose their jobs this month. Is the rally sustainable? We’d like to know too.

Where Are We Now?

The U.S. economy is in a complex place. Things are clearly getting better, but it’s impossible to really know. We are cautiously optimistic but are taking a trust-but-verify approach to investing. Banks are still sick, but grudgingly starting to lend. Bond issues are back and capital is starting to flow again—but expect to fill out a lot of forms if you want a loan. The days of easy lending are definitely over.

The “new normal” is really the old normal again: Get used to life without heady stock market and real estate profits supplementing our salaries and unsustainable spending habits. Household savings rates are higher than they have been for decades. And, yes, paying down your credit card bill counts as saving!

Where’s the Growth?

As the quarter ended, we saw many firms reporting higher profits on lower revenues. Obviously, this can only happen if expenses decrease faster than revenues. Theoretically, we should all want responsible corporate management teams cutting costs if revenues are shrinking. Profitability is good. However, an entire domestic economy full of firms cutting costs will have a sluggish time returning to growth. If you want to see growth, look back to China and its Asian neighbors. Huge amounts of stimulus are definitely taking hold. Hopefully, the Chinese haven’t merely swapped an export crisis for an eventual banking crisis. Only time will tell.

Our Kind of Market

We’re definitely in a “stock picker’s” market, an environment that should play to our strengths. “Active” managers such as ourselves need to demonstrate that we can consistently produce better returns than raw passive indices. It takes a lot of work, but that’s exactly what we’re here to do.

We started the Long Term Opportunity strategy to capture misunderstood opportunities in small public shares while hedging against major downswings in the market. Next we started the Income and Growth strategy to provide current income with some inflation protection. Things are exciting here.

Take a look at our numbers, they’re really good! Email us at info@wangerinvestments.com or visit us on the web at www.wangerinvestments.com.

Stay tuned! There’s a lot going on here!

Yours, Eric Wanger, JD, CFA