This market still wants to go up. Copious federal stimulus combined with Wall Street’s need to have a good year seem to be pushing stocks higher for no particularly good reason--certainly no reasons coming from the ranks of the unemployed and underemployed (hence the terrible pun). Someone recently used the term fully invested bears to describe many stock investors: They are terrified of coming down from the too-much-too-soon rally of 2009, yet they don’t want to leave the party too early. Be careful! Once the year-end window dressing is over and bonuses are in the bag, anything could happen. If you don’t want to take some money off the table, at least consider reducing your stock market beta (see my article for details), using yield for some downside protection, or doing some hedging. In fact, we’re doing all three!

Banking on the Banks

In the 1960s, if you opened a bank account, they gave you a free toaster. In 2009, if you buy a toaster, they will give you a free bank! If you don’t believe me, ask the Federal Deposit Insurance Corporation (FDIC), the federal agency which insures our checking accounts. They just announced a special assessment to make sure they wouldn’t go under.

Banks serve as the primary interface between Main Street and Wall Street. If banks are willing to lend to businesses and consumers, the economy will recover. If not, growth and recovery will be choked off.

America is Not Over!

As a child of Japan Inc., Rising Sun era fear-mongering, I watched movie-star Sean Connery save the U.S. from the technologically superior and financially unstoppable Japanese economic machine. So you can imagine my surprise when I realized that Japan now has such a nightmarish load of public debt that it could stall them out for another decade. U.S. citizens are currently saving more money than Japanese citizens on a percentage basis. That feels as strange as when my Swedish friend informed me that my taxes were higher than his. Please think about this the next time you lose sleep over the “end” of America. Americans still work very hard and have a lot of resources and capital. America is simply not over.

What should fully-invested bears invest in?

We are fascinated by a number of interesting investment themes right now: Temporarily cheap energy (a natural gas glut, who would have believed it?); businesses that are downstream of “cheap rent” (the commercial real estate scene is going to be really ugly for a while); and, of course, companies producing the most valuable commodity of all — Yield!

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.

Yours, Eric Wanger, JD, CFA