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Robert Levy As Inspiration

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The Week in Review (updated Sunday 05/10/09, 11:59 PM EDT)

May 08— More than one email questioner asked early this week how the Moose could have opted out of such a nice rally in stocks over the past seven weeks. Most long time readers know the answer, but I suspect that there are just as many new or casual new readers who are wondering the same thing. So I will take a circuitous moment to explain.

I read somewhere, early on, that the most successful investors settle on one strategy, with which they personally are comfortable, and from which they rarely deviate. I decided to do that, and being a pragmatist, determined that I would be most comfortable using a strategy comprised of tactical components that appeared to have worked in the past.

My research on technical indicators and previous models based on a century of data pointed to intermediate term constructs as the most promising. Since I don’t have a trader’s hyperactive mentality, nor am I a fan of long term buy and hold strategies, nor am I any longer of the tender age at which I could put greed before fear with reckless abandon, the intermediate term was a better fit. It worked, but more importantly, it made me more personally comfortable. Along the way, I fell into the understanding that timing stocks is greatly simplified when you’re timing everything else too.

In the late eighties, I needed a holistic way to rationally discuss stocks, bonds, currencies, gold, and foreign equities in my newsletter, and found it through Robert Levy’s relative strength work in the 60’s. He used a sub-intermediate time frame (26-weeks) instead of an intermediate one (40-weeks), but it worked. I tweaked it a little, started using it, and immediately began to notice the inter-related nature of the capital markets.

US stocks have gotten most of the media attention in this country forever and a day. It is only recently that investors have started to look at alternative assets in a big way. Some mutual funds have always dealt with alternative assets, but they were opaque, traded end of day, and were often expensive. It wasn’t until ETFs arrived that things really took off in the alternative space.

Ultimately, then, there are two reasons that the model would avoid a solid US stock rally like this one. Either (1) the intermediate trend criteria have not been met, and/or (2) there are better places to put your money. In this instance, both reasons have been valid—so far. The S&P has not cleared its intermediate trend hurdles, and other markets have been more attractive.

Models are nothing more than mechanisms that attempt to standardize disparate situations. Think of it as putting a series of averages together, and then monitoring market behavior against those averages. The most widely used intermediate-term average, for example, is the 200-day, or 40-week. When an asset’s price goes above its 200-day moving average, it is considered bullish. Below it, the asset is considered bearish. If that average alone were your “model”, the S&P would still not be bullish! Even though the index has risen 28% in the past seven weeks, its price is still below that average.

Of course, rarely is there ever an “average” situation. They are usually only recognized in hindsight. In this latest instance, the speed and ferocity of last fall and winter’s stock market crash was unusually atypical— something you might see once every 70 or 80 years. At the January Bottom, the S&P was 40% below it’s 200-day average. That’s a very long way to go to return to intermediate-term respectability, which is why it hasn’t happened yet. To put that in perspective, it was almost twice the “average” medium term deficit after a sell-off.

To date, we are told that this rally appears to have been a fast money phenomenon, predominantly fueled by hedge funds and traders. Intermediate money, in particular mutual funds, has only just begun to take notice. Fearful money, those individual investors who recently ran screaming from the exchanges between September and March, may be out for a long while, if not forever.

It is a fool who walks into a planning meeting with only one scenario. The Moose is one scenario, albeit a pretty good one. There are a variety of other ways to look at the markets, macro and micro, and to make sense of them. Many of those methods get passing mention in this space. When one works, I’m convinced it isn’t necessarily because of the quality of the indicator or methodology. Many times it has to do with the broadness of its appeal. If enough people are making the same assumptions, it can often become a self-fulfilling prophecy.

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John Hussman 2003 Prior to War in Iraq

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I rarely discuss political risks, but these are becoming increasingly central to the investment markets. It is difficult to discuss war in relation to finance, because such discussions often appear terribly cold to the human tragedy of it. With the understanding that politics is never a subject that evokes agreement, here are my thoughts.

On a historical basis, war has not been particularly bad for the markets, because early uncertainty has been followed either by a certain numbness or by resolution. In both cases, risk premiums have initially spiked higher, followed by a decline. Prices move opposite to risk premiums, of course, leading to the characteristic sharp selloff and prolonged recovery related to war.

With regard to current risks, however, I don’t think we can be so neutral about them. A military action in Iraq is likely to lead to much wider ramifications than the Gulf War. If the greatest fear of our enemies is that the U.S. is willing to use its power to threaten or prevent their sovereignty, what stronger way to validate these fears than to overthrow one of their governments? As a result, a military action in Iraq carries with it a much greater risk of retaliation in the form of renewed terrorist attempts. This would most probably drive risk premiums to high and fairly sustained levels, with economic effects on profits further depressing equity values.

The human risks to a war in Iraq are of far greater concern. Many of the “hawks” favoring war seem to have little combat experience, and are relying on a cakewalk to Baghdad – convinced that the U.S. made an error by failing to “finish the job” in the Gulf war. One wonders whether they recall that Eisenhower chose not to “finish the job” by making a northern push to Berlin in World War II. The Russians pushed ahead, and lost roughly 400,000 soldiers doing so – more than the U.S. lost in the entirety of World War II. The Iraqi army is certainly not the German army, but war, if it comes, will not be confined to the desert as it was during the Gulf War. The U.S. would certainly minimize casualties by destroying as much as possible from the air before land troops were deployed. But I doubt that the total number of casualties on both sides would be reduced by such destruction. Though we are Americans first, every life lost in war is a tragedy.

It strikes me that the U.S. has lost much of the international support and sympathy that it enjoyed last year, largely because of a White House foreign policy team that seems intent on escalation of conflicts to the exclusion of diplomatic alternatives. That’s unfortunate, because already the White House’s unfathomable doctrine of “preventive war” has provoked a destabilization of nuclear risks in North Korea. To a great extent, our enemies hate us not because of our freedoms, but because they believe that we are willing to deny them the same freedoms that we defend for ourselves. If our enemies understood America from the standpoint of its principles, its ideals, and its people, they would see these fears as unreasonable. But such fears can certainly be fanned by the foreign policy of a particular Administration, and this one is doing a good job of it.

The heightened nuclear tension in North Korea is a predictable response from a country identified as the third vertex of an “axis of evil,” in the face of a planned military overthrow of one of the other vertices. What country, so identified, would not move to defend itself in the face of a potential invasion of Iraq? Understanding this, the best answer from the White House would be some gesture to assure that the U.S. does not intend a preemptive attack on North Korea as well. The resolution of any dispute requires one to ask “To what is each side entitled?” – and North Korea has asked for a nonaggression pact. Even if our response falls short of such formality, there are certainly some gestures that the U.S. can make along those lines to de-escalate the threat there.

All peace is based on a willingness – however distasteful – to understand one’s enemy. Hate and evil typically have their origins in fear, ignorance, suffering, and perceptions of injustice. It is always possible to make gestures that address these without compromising one’s own security or justice.

Is the group of hawks in the White House wise enough to understand its enemies? Maybe not. U.S. foreign policy is increasingly based on the notion that enemies should be eliminated. But if our enemies believe the same thing, the equilibrium cannot be peace without devastating losses first. Escalation is a long road, and the end of that road may not be peace after all. As Zen master Thich Nhat Hanh says, there is no way to peace – peace is the way. Understanding our enemies requires us to contemplate their fears, ignorance, suffering, and perceptions of injustice – however distasteful that is to imagine. Understanding does not prevent us from defending ourselves, or from seeking justice, but it informs a multitude of decisions and actions that can help, and as a result, that can stabilize our world.

As we enter a new year, there seem to be no fewer risks than in the year that is ending. But always, we can be full of hope.

I want to thank you for the opportunity to come into your computer monitor every week to analyze, discuss, teach, rant, and occasionally make no sense at all. (Those of you who have flat panels are also forcing me to buff up, so thanks for that too). As always, I appreciate your business, and I hope that I have served you well. But most of all, I am thankful for your trust.

Wishing you health and happiness in the New Year. – John

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“The Three Dimensions Of A Complete Life”

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In memory of Dr. Martin Luther King, Jr.

Excerpted from a sermon titled “The three dimensions of a complete life”

Somewhere along the way, we must learn that there is nothing greater than to do something for others. And this is the way I’ve decided to go the rest of my days… I don’t know how long I’ll live, and I’m not concerned about that—but I hope I can live so well that the preacher can get up and say, “He was faithful.” That’s all, that’s enough. That’s the sermon I’d like to hear: “Well done my good and faithful servant. You’ve been faithful; you’ve been concerned about others.” That’s where I want to go from this point on the rest of my days. “He who is greatest among you shall be your servant.” I want to be a servant. I want to be a witness for my Lord, to do something for others.

And don’t forget in doing something for others that you have what you have because of others. Don’t forget that. We are tied together in life and in the world. And you may think you got all you got by yourself. But you know, before you got out here to church this morning, you were dependent on more than half of the world. You get up in the morning and go to the bathroom, and you reach over for a bar of soap, and that’s handed to you by a Frenchman. You reach over for a sponge, and that’s given to you by a Turk. You reach over for a towel, and that comes to your hand from the hands of a Pacific Islander. And then you go on to the kitchen to get your breakfast. You reach on over to get a little coffee, and that’s poured in your cup by a South American. Or maybe you decide that you want a little tea this morning, only to discover that that’s poured in your cup by a Chinese. Or maybe you want a little cocoa, that’s poured in your cup by a West African. Then you want a little bread and you reach over to get it, and that’s given to you by the hands of an English-speaking farmer, not to mention the baker. Before you get through eating breakfast in the morning, you’re dependent on more than half the world. That’s the way God structured it; that’s the way God structured this world. So let us be concerned about others because we are dependent on others.

But don’t stop here either. You know, a lot of people master the length of life, and they master the breadth of life, but they stop right there. Now if life is to be complete, we must move beyond our self-interest. We must move beyond humanity and reach up, way up for the God of the universe, whose purpose changeth not.

Now a lot of people have neglected this third dimension. And you know, the interesting thing is a lot of people neglect it and don’t even know they are neglecting it. They just get involved in other things. And you know, there are two kinds of atheism. Atheism is the theory that there is no God. Now one kind is a theoretical kind, where somebody just sits down and starts thinking about it, and they come to a conclusion that there is no God. The other kind is a practical atheism, and that kind goes out of living as if there is no God. And you know there are a lot of people who affirm the existence of God with their lips, and they deny his existence with their lives.

You’ve seen these people who have a high blood pressure of creeds and an anemia of deeds. They deny the existence of God with their lives and they just become so involved in other things. They become so involved in getting a big bank account. They become so involved in getting a beautiful house, which we all should have. They become so involved in getting a beautiful car that they unconsciously just forget about God. There are those who become so involved in looking at the man-made lights of the city that they unconsciously forget to rise up and look at that great cosmic light and think about it—that gets up in the eastern horizon every morning and moves across the sky with a kind of symphony of motion and paints its technicolor across the blue—a light that man can never make. They become so involved in looking at the skyscraping buildings of the Loop of Chicago or Empire State Building of New York that they unconsciously forget to think about the gigantic mountains that kiss the skies as if to bathe their peaks in the lofty blue—something that man could never make. They become so busy thinking about radar and their television that they unconsciously forget to think about the stars that bedeck the heavens like swinging lanterns of eternity, those stars that appear to be shiny, silvery pins sticking in the magnificent blue pincushion. They become so involved in thinking about man’s progress that they forget to think about the need for God’s power in history. They end up going days and days not knowing that God is with them.

And I’m here to tell you today that we need God. Modern man may know a great deal, but his knowledge does not eliminate God. And I tell you this morning that God is here to stay. A few theologians are trying to say that God is dead. And I’ve been asking them about it because it disturbs me to know that God died and I didn’t have a chance to attend the funeral. They haven’t been able to tell me yet the date of his death. They haven’t been able to tell me yet who the coroner was that pronounced him dead. They haven’t been able to tell me yet where he’s buried.

You see, when I think about God, I know his name. He said somewhere, back in the Old Testament, “I want you to go out, Moses, and tell them ‘I Am’ sent you.” He said just to make it clear, let them know that “my last name is the same as my first, ‘I Am that I Am.’ Make that clear. I Am.” And God is the only being in the universe that can say “I Am” and put a period behind it. Each of us sitting here has to say, “I am because of my parents; I am because of certain environmental conditions; I am because of certain hereditary circumstances; I am because of God.” But God is the only being that can just say, “I Am” and stop right there. “I Am that I Am.” And He’s here to stay. Let nobody make us feel that we don’t need God.

As I come to my conclusion this morning, I want to say that we should search for him. We were made for God, and we will be restless until we find rest in him… Somewhere I read, “The earth is the Lord’s and the fullness thereof, and I’m going on because I have faith in Him. I do not know what the future holds, but I do know who holds the future. And if He’ll guide us and hold our hand, we’ll go on in.

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Loving Your Enemies

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In honor of Dr. Martin Luther King, Jr.

Loving Your Enemies
November 17 1957

“I want to use as a subject from which to preach this morning a very familiar subject, and it is familiar to you because I have preached from this subject twice before to my knowing in this pulpit. I try to make it a, something of a custom or tradition to preach from this passage of Scripture at least once a year, adding new insights that I develop along the way out of new experiences as I give these messages. Although the content is, the basic content is the same, new insights and new experiences naturally make for new illustrations.

“So I want to turn your attention to this subject: “Loving Your Enemies.” It’s so basic to me because it is a part of my basic philosophical and theological orientation—the whole idea of love, the whole philosophy of love. In the fifth chapter of the gospel as recorded by Saint Matthew, we read these very arresting words flowing from the lips of our Lord and Master: “Ye have heard that it has been said, ‘Thou shall love thy neighbor, and hate thine enemy.’ But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them that despitefully use you; that ye may be the children of your Father which is in heaven.”

“Over the centuries, many persons have argued that this is an extremely difficult command. Many would go so far as to say that it just isn’t possible to move out into the actual practice of this glorious command. But far from being an impractical idealist, Jesus has become the practical realist. The words of this text glitter in our eyes with a new urgency. Far from being the pious injunction of a utopian dreamer, this command is an absolute necessity for the survival of our civilization. Yes, it is love that will save our world and our civilization, love even for enemies.

“Now let me hasten to say that Jesus was very serious when he gave this command; he wasn’t playing. He realized that it’s hard to love your enemies. He realized that it’s difficult to love those persons who seek to defeat you, those persons who say evil things about you. He realized that it was painfully hard, pressingly hard. But he wasn’t playing. We have the Christian and moral responsibility to seek to discover the meaning of these words, and to discover how we can live out this command, and why we should live by this command.

“Now first let us deal with this question, which is the practical question: How do you go about loving your enemies? I think the first thing is this: In order to love your enemies, you must begin by analyzing self. And I’m sure that seems strange to you, that I start out telling you this morning that you love your enemies by beginning with a look at self. It seems to me that that is the first and foremost way to come to an adequate discovery to the how of this situation.

“Now, I’m aware of the fact that some people will not like you, not because of something you have done to them, but they just won’t like you. But after looking at these things and admitting these things, we must face the fact that an individual might dislike us because of something that we’ve done deep down in the past, some personality attribute that we possess, something that we’ve done deep down in the past and we’ve forgotten about it; but it was that something that aroused the hate response within the individual. That is why I say, begin with yourself. There might be something within you that arouses the tragic hate response in the other individual.

“This is true in our international struggle. Democracy is the greatest form of government to my mind that man has ever conceived, but the weakness is that we have never touched it. We must face the fact that the rhythmic beat of the deep rumblings of discontent from Asia and Africa is at bottom a revolt against the imperialism and colonialism perpetuated by Western civilization all these many years.

“And this is what Jesus means when he said: “How is it that you can see the mote in your brother’s eye and not see the beam in your own eye?” And this is one of the tragedies of human nature. So we begin to love our enemies and love those persons that hate us whether in collective life or individual life by looking at ourselves.

“A second thing that an individual must do in seeking to love his enemy is to discover the element of good in his enemy, and every time you begin to hate that person and think of hating that person, realize that there is some good there and look at those good points which will over-balance the bad points.

“Somehow the “isness” of our present nature is out of harmony with the eternal “oughtness” that forever confronts us. And this simply means this: That within the best of us, there is some evil, and within the worst of us, there is some good. When we come to see this, we take a different attitude toward individuals. The person who hates you most has some good in him; even the nation that hates you most has some good in it; even the race that hates you most has some good in it. And when you come to the point that you look in the face of every man and see deep down within him what religion calls “the image of God,” you begin to love him in spite of. No matter what he does, you see God’s image there. There is an element of goodness that he can never slough off. Discover the element of good in your enemy. And as you seek to hate him, find the center of goodness and place your attention there and you will take a new attitude.

“Another way that you love your enemy is this: When the opportunity presents itself for you to defeat your enemy, that is the time which you must not do it. There will come a time, in many instances, when the person who hates you most, the person who has misused you most, the person who has gossiped about you most, the person who has spread false rumors about you most, there will come a time when you will have an opportunity to defeat that person. It might be in terms of a recommendation for a job; it might be in terms of helping that person to make some move in life. That’s the time you must do it. That is the meaning of love. In the final analysis, love is not this sentimental something that we talk about. It’s not merely an emotional something. Love is creative, understanding goodwill for all men. It is the refusal to defeat any individual. When you rise to the level of love, of its great beauty and power, you seek only to defeat evil systems. Individuals who happen to be caught up in that system, you love, but you seek to defeat the system.

“The Greek language, as I’ve said so often before, is very powerful at this point. It comes to our aid beautifully in giving us the real meaning and depth of the whole philosophy of love. And I think it is quite apropos at this point, for you see the Greek language has three words for love, interestingly enough. It talks about love as eros. That’s one word for love. Eros is a sort of, aesthetic love. Plato talks about it a great deal in his dialogues, a sort of yearning of the soul for the realm of the gods. And it’s come to us to be a sort of romantic love, though it’s a beautiful love. Everybody has experienced eros in all of its beauty when you find some individual that is attractive to you and that you pour out all of your like and your love on that individual. That is eros, you see, and it’s a powerful, beautiful love that is given to us through all of the beauty of literature; we read about it.

“Then the Greek language talks about philia, and that’s another type of love that’s also beautiful. It is a sort of intimate affection between personal friends. And this is the type of love that you have for those persons that you’re friendly with, your intimate friends, or people that you call on the telephone and you go by to have dinner with, and your roommate in college and that type of thing. It’s a sort of reciprocal love. On this level, you like a person because that person likes you. You love on this level, because you are loved. You love on this level, because there’s something about the person you love that is likeable to you. This too is a beautiful love. You can communicate with a person; you have certain things in common; you like to do things together. This is philia.

“The Greek language comes out with another word for love. It is the word agape. And agape is more than eros; agape is more than philia; agape is something of the understanding, creative, redemptive goodwill for all men. It is a love that seeks nothing in return. It is an overflowing love; it’s what theologians would call the love of God working in the lives of men. And when you rise to love on this level, you begin to love men, not because they are likeable, but because God loves them. You look at every man, and you love him because you know God loves him. And he might be the worst person you’ve ever seen.

“And this is what Jesus means, I think, in this very passage when he says, “Love your enemy.” And it’s significant that he does not say, “Like your enemy.” Like is a sentimental something, an affectionate something. There are a lot of people that I find it difficult to like. I don’t like what they do to me. I don’t like what they say about me and other people. I don’t like their attitudes. I don’t like some of the things they’re doing. I don’t like them. But Jesus says love them. And love is greater than like. Love is understanding, redemptive goodwill for all men, so that you love everybody, because God loves them. You refuse to do anything that will defeat an individual, because you have agape in your soul. And here you come to the point that you love the individual who does the evil deed, while hating the deed that the person does. This is what Jesus means when he says, “Love your enemy.” This is the way to do it. When the opportunity presents itself when you can defeat your enemy, you must not do it.

“Now for the few moments left, let us move from the practical how to the theoretical why. It’s not only necessary to know how to go about loving your enemies, but also to go down into the question of why we should love our enemies. I think the first reason that we should love our enemies, and I think this was at the very center of Jesus’ thinking, is this: that hate for hate only intensifies the existence of hate and evil in the universe. If I hit you and you hit me and I hit you back and you hit me back and go on, you see, that goes on ad infinitum. It just never ends. Somewhere somebody must have a little sense, and that’s the strong person. The strong person is the person who can cut off the chain of hate, the chain of evil. And that is the tragedy of hate – that it doesn’t cut it off. It only intensifies the existence of hate and evil in the universe. Somebody must have religion enough and morality enough to cut it off and inject within the very structure of the universe that strong and powerful element of love.

“I think I mentioned before that sometime ago my brother and I were driving one evening to Chattanooga, Tennessee, from Atlanta. He was driving the car. And for some reason the drivers were very discourteous that night. They didn’t dim their lights; hardly any driver that passed by dimmed his lights. And I remember very vividly, my brother A. D. looked over and in a tone of anger said: “I know what I’m going to do. The next car that comes along here and refuses to dim the lights, I’m going to fail to dim mine and pour them on in all of their power.” And I looked at him right quick and said: “Oh no, don’t do that. There’d be too much light on this highway, and it will end up in mutual destruction for all. Somebody got to have some sense on this highway.”

“Somebody must have sense enough to dim the lights, and that is the trouble, isn’t it? That as all of the civilizations of the world move up the highway of history, so many civilizations, having looked at other civilizations that refused to dim the lights, and they decided to refuse to dim theirs. And Toynbee tells that out of the twenty-two civilizations that have risen up, all but about seven have found themselves in the junk heap of destruction. It is because civilizations fail to have sense enough to dim the lights. And if somebody doesn’t have sense enough to turn on the dim and beautiful and powerful lights of love in this world, the whole of our civilization will be plunged into the abyss of destruction. And we will all end up destroyed because nobody had any sense on the highway of history.

“Somewhere somebody must have some sense. Men must see that force begets force, hate begets hate, toughness begets toughness. And it is all a descending spiral, ultimately ending in destruction for all and everybody. Somebody must have sense enough and morality enough to cut off the chain of hate and the chain of evil in the universe. And you do that by love.

“There’s another reason why you should love your enemies, and that is because hate distorts the personality of the hater. We usually think of what hate does for the individual hated or the individuals hated or the groups hated. But it is even more tragic, it is even more ruinous and injurious to the individual who hates. You just begin hating somebody, and you will begin to do irrational things. You can’t see straight when you hate. You can’t walk straight when you hate. You can’t stand upright. Your vision is distorted. There is nothing more tragic than to see an individual whose heart is filled with hate. He comes to the point that he becomes a pathological case. For the person who hates, you can stand up and see a person and that person can be beautiful, and you will call them ugly. For the person who hates, the beautiful becomes ugly and the ugly becomes beautiful. For the person who hates, the good becomes bad and the bad becomes good. For the person who hates, the true becomes false and the false becomes true. That’s what hate does. You can’t see right. The symbol of objectivity is lost. Hate destroys the very structure of the personality of the hater.

“The way to be integrated with yourself is be sure that you meet every situation of life with an abounding love. Never hate, because it ends up in tragic, neurotic responses. Psychologists and psychiatrists are telling us today that the more we hate, the more we develop guilt feelings and we begin to subconsciously repress or consciously suppress certain emotions, and they all stack up in our subconscious selves and make for tragic, neurotic responses. And may this not be the neuroses of many individuals as they confront life that that is an element of hate there. And modern psychology is calling on us now to love. But long before modern psychology came into being, the world’s greatest psychologist who walked around the hills of Galilee told us to love. He looked at men and said: “Love your enemies; don’t hate anybody.” It’s not enough for us to hate your friends because—to to love your friends—because when you start hating anybody, it destroys the very center of your creative response to life and the universe; so love everybody. Hate at any point is a cancer that gnaws away at the very vital center of your life and your existence. It is like eroding acid that eats away the best and the objective center of your life. So Jesus says love, because hate destroys the hater as well as the hated.

“Now there is a final reason I think that Jesus says, “Love your enemies.” It is this: that love has within it a redemptive power. And there is a power there that eventually transforms individuals. That’s why Jesus says, “Love your enemies.” Because if you hate your enemies, you have no way to redeem and to transform your enemies. But if you love your enemies, you will discover that at the very root of love is the power of redemption. You just keep loving people and keep loving them, even though they’re mistreating you. Here’s the person who is a neighbor, and this person is doing something wrong to you and all of that. Just keep being friendly to that person. Keep loving them. Don’t do anything to embarrass them. Just keep loving them, and they can’t stand it too long. Oh, they react in many ways in the beginning. They react with bitterness because they’re mad because you love them like that. They react with guilt feelings, and sometimes they’ll hate you a little more at that transition period, but just keep loving them. And by the power of your love they will break down under the load. That’s love, you see. It is redemptive, and this is why Jesus says love. There’s something about love that builds up and is creative. There is something about hate that tears down and is destructive. So love your enemies.

“There is a power in love that our world has not discovered yet. Jesus discovered it centuries ago. Mahatma Gandhi of India discovered it a few years ago, but most men and most women never discover it. For they believe in hitting for hitting; they believe in an eye for an eye and a tooth for a tooth; they believe in hating for hating; but Jesus comes to us and says, “This isn’t the way.”

“As we look out across the years and across the generations, let us develop and move right here. We must discover the power of love, the power, the redemptive power of love. And when we discover that we will be able to make of this old world a new world. We will be able to make men better. Love is the only way. Jesus discovered that.

“And our civilization must discover that. Individuals must discover that as they deal with other individuals. There is a little tree planted on a little hill and on that tree hangs the most influential character that ever came in this world. But never feel that that tree is a meaningless drama that took place on the stages of history. Oh no, it is a telescope through which we look out into the long vista of eternity, and see the love of God breaking forth into time. It is an eternal reminder to a power-drunk generation that love is the only way. It is an eternal reminder to a generation depending on nuclear and atomic energy, a generation depending on physical violence, that love is the only creative, redemptive, transforming power in the universe.

“So this morning, as I look into your eyes, and into the eyes of all of my brothers in Alabama and all over America and over the world, I say to you, “I love you. I would rather die than hate you.” And I’m foolish enough to believe that through the power of this love somewhere, men of the most recalcitrant bent will be transformed. And then we will be in God’s kingdom.”

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Beyond Vietnam

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In Honor of Dr. Martin Luther King, Jr.

[Dr. King’s words seem as relevant today as when he originally spoke them. The details have changed, but the principles are enduring – John]

Excerpted from “Beyond Vietnam,” April 4, 1967, via John Hussman

As I have walked among the desperate, rejected and angry young men I have told them that Molotov cocktails and rifles would not solve their problems. I have tried to offer them my deepest compassion while maintaining my conviction that social change comes most meaningfully through nonviolent action. But they asked — and rightly so — what about Vietnam? They asked if our own nation wasn’t using massive doses of violence to solve its problems, to bring about the changes it wanted. Their questions hit home, and I knew that I could never again raise my voice against the violence of the oppressed in the ghettos without having first spoken clearly to my own government. For the sake of those boys, for the sake of this government, for the sake of hundreds of thousands trembling under our violence, I cannot be silent.

Now, it should be incandescently clear that no one who has any concern for the integrity and life of America today can ignore the present war.

As if the weight of such a commitment to the life and health of America were not enough, another burden of responsibility was placed upon me in 1964; and I cannot forget that the Nobel Prize for Peace was also a commission — a commission to work harder than I had ever worked before for “the brotherhood of man.” This is a calling that takes me beyond national allegiances, but even if it were not present I would yet have to live with the meaning of my commitment to the ministry of Jesus Christ. To me the relationship of this ministry to the making of peace is so obvious that I sometimes marvel at those who ask me why I am speaking against the war. Could it be that they do not know that the good news was meant for all men — for Communist and capitalist, for their children and ours, for black and for white, for revolutionary and conservative? Have they forgotten that my ministry is in obedience to the one who loved his enemies so fully that he died for them? What then can I say to the “Vietcong” or to Castro or to Mao as a faithful minister of this one? Can I threaten them with death or must I not share with them my life?

Finally, as I try to delineate for you and for myself the road that leads from Montgomery to this place I would have offered all that was most valid if I simply said that I must be true to my conviction that I share with all men the calling to be a son of the living God. Beyond the calling of race or nation or creed is this vocation of sonship and brotherhood, and because I believe that the Father is deeply concerned especially for his suffering and helpless and outcast children, I come tonight to speak for them.

This I believe to be the privilege and the burden of all of us who deem ourselves bound by allegiances and loyalties which are broader and deeper than nationalism and which go beyond our nation’s self-defined goals and positions. We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy, for no document from human hands can make these humans any less our brothers.

They must see Americans as strange liberators. For nine years following 1945 we denied the people of Vietnam the right of independence. For nine years we vigorously supported the French in their abortive effort to recolonize Vietnam. When Diem was overthrown they may have been happy, but the long line of military dictatorships seemed to offer no real change — especially in terms of their need for land and peace.

The only change came from America as we increased our troop commitments in support of governments which were singularly corrupt, inept and without popular support. All the while the people read our leaflets and received regular promises of peace and democracy and land reform. Now they languish under our bombs and consider us — not their fellow Vietnamese — the real enemy.

Somehow this madness must cease. We must stop now. I speak as a child of God and brother to the suffering poor of Vietnam. I speak for those whose land is being laid waste, whose homes are being destroyed, whose culture is being subverted. I speak for the poor of America who are paying the double price of smashed hopes at home and death and corruption in Vietnam. I speak as a citizen of the world, for the world as it stands aghast at the path we have taken. I speak as an American to the leaders of my own nation. The great initiative in this war is ours. The initiative to stop it must be ours.

This is the message of the great Buddhist leaders of Vietnam. Recently one of them wrote these words:

“Each day the war goes on the hatred increases in the heart of the Vietnamese and in the hearts of those of humanitarian instinct. The Americans are forcing even their friends into becoming their enemies. It is curious that the Americans, who calculate so carefully on the possibilities of military victory, do not realize that in the process they are incurring deep psychological and political defeat. The image of America will never again be the image of revolution, freedom and democracy, but the image of violence and militarism.”

The world now demands a maturity of America that we may not be able to achieve. It demands that we admit that we have been wrong from the beginning of our adventure in Vietnam, that we have been detrimental to the life of the Vietnamese people. The situation is one in which we must be ready to turn sharply from our present ways.

A true revolution of values will soon cause us to question the fairness and justice of many of our past and present policies. On the one hand we are called to play the good Samaritan on life’s roadside; but that will be only an initial act. True compassion is more than flinging a coin to a beggar; it is not haphazard and superficial. It comes to see that an edifice which produces beggars needs restructuring.

A true revolution of values will lay hands on the world order and say of war: “This way of settling differences is not just.” This business of burning human beings with napalm, of filling our nation’s homes with orphans and widows, of injecting poisonous drugs of hate into veins of people normally humane, of sending men home from dark and bloody battlefields physically handicapped and psychologically deranged, cannot be reconciled with wisdom, justice and love. A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual death.

America, the richest and most powerful nation in the world, can well lead the way in this revolution of values. There is nothing, except a tragic death wish, to prevent us from reordering our priorities, so that the pursuit of peace will take precedence over the pursuit of war. There is nothing to keep us from molding a recalcitrant status quo with bruised hands until we have fashioned it into a brotherhood.

This kind of positive revolution of values is our best defense against communism. War is not the answer. Communism will never be defeated by the use of atomic bombs or nuclear weapons. Let us not join those who shout war and through their misguided passions urge the United States to relinquish its participation in the United Nations. These are days which demand wise restraint and calm reasonableness. We must not call everyone a Communist or an appeaser who advocates the seating of Red China in the United Nations and who recognizes that hate and hysteria are not the final answers to the problem of these turbulent days. We must not engage in a negative anti-communism, but rather in a positive thrust for democracy, realizing that our greatest defense against communism is to take offensive action in behalf of justice. We must with positive action seek to remove those conditions of poverty, insecurity and injustice which are the fertile soil in which the seed of communism grows and develops.

A genuine revolution of values means in the final analysis that our loyalties must become ecumenical rather than sectional. Every nation must now develop an overriding loyalty to mankind as a whole in order to preserve the best in their individual societies.

This call for a world-wide fellowship that lifts neighborly concern beyond one’s tribe, race, class and nation is in reality a call for an all-embracing and unconditional love for all men. This oft misunderstood and misinterpreted concept — so readily dismissed by the Nietzsches of the world as a weak and cowardly force — has now become an absolute necessity for the survival of man.

When I speak of love I am not speaking of some sentimental and weak response. I am speaking of that force which all of the great religions have seen as the supreme unifying principle of life. Love is somehow the key that unlocks the door which leads to ultimate reality. This Hindu-Moslem-Christian-Jewish-Buddhist belief about ultimate reality is beautifully summed up in the first epistle of Saint John :

Let us love one another; for love is God and everyone that loveth is born of God and knoweth God. He that loveth not knoweth not God; for God is love. If we love one another God dwelleth in us, and his love is perfected in us.

Let us hope that this spirit will become the order of the day. We can no longer afford to worship the god of hate or bow before the altar of retaliation. The oceans of history are made turbulent by the ever-rising tides of hate. History is cluttered with the wreckage of nations and individuals that pursued this self-defeating path of hate. As Arnold Toynbee says : “Love is the ultimate force that makes for the saving choice of life and good against the damning choice of death and evil. Therefore the first hope in our inventory must be the hope that love is going to have the last word.”

We are now faced with the fact that tomorrow is today. We are confronted with the fierce urgency of now. In this unfolding conundrum of life and history there is such a thing as being too late. Procrastination is still the thief of time. Life often leaves us standing bare, naked and dejected with a lost opportunity. The “tide in the affairs of men” does not remain at the flood; it ebbs. We may cry out desperately for time to pause in her passage, but time is deaf to every plea and rushes on. Over the bleached bones and jumbled residue of numerous civilizations are written the pathetic words: “Too late.” There is an invisible book of life that faithfully records our vigilance or our neglect. “The moving finger writes, and having writ moves on…” We still have a choice today; nonviolent coexistence or violent co-annihilation.

We must move past indecision to action. We must find new ways to speak for peace in Vietnam and justice throughout the developing world — a world that borders on our doors. If we do not act we shall surely be dragged down the long dark and shameful corridors of time reserved for those who possess power without compassion, might without morality, and strength without sight.

Now let us begin. Now let us rededicate ourselves to the long and bitter — but beautiful — struggle for a new world. This is the calling of the sons of God, and our brothers wait eagerly for our response. Shall we say the odds are too great? Shall we tell them the struggle is too hard? Will our message be that the forces of American life militate against their arrival as full men, and we send our deepest regrets? Or will there be another message, of longing, of hope, of solidarity with their yearnings, of commitment to their cause, whatever the cost? The choice is ours, and though we might prefer it otherwise, we must choose in this crucial moment of human history.

As that noble bard of yesterday, James Russell Lowell, eloquently stated:

Once to every man and nation
Comes the moment to decide,
In the strife of truth and falsehood,
For the good or evil side;
Some great cause, God’s new Messiah,
Off’ring each the bloom or blight,
And the choice goes by forever
Twixt that darkness and that light.

Though the cause of evil prosper,
Yet ’tis truth alone is strong;
Though her portion be the scaffold,
And upon the throne be wrong:
Yet that scaffold sways the future,
And behind the dim unknown,
Standeth God within the shadow
Keeping watch above his own.

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John Hussman on Cash Flows

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John Hussman describes for us in simple terms the difference between EBIT, EBITDA and the investor “Owner Earnings” which should be the real evaluation cash flow for a business:

Just for Kids: Let’s start a lemonade stand!

By John P. Hussman, Ph.D.

OK, boys and girls. It’s been pretty hot out lately. So we’re going to start our own lemonade stand!

What? Jimmy, Sally, and Bobby all have lemonade stands just on your block alone? See, this is why I’m a professional money manager and you’re not even out of middle school. I only have two words for you: Global Warming. It’s a New Era. That’s all you need to know. Now go and borrow $100 from your Mom.

… I’ll wait.

Got it? Great. Now you’re deeply in debt, far beyond your ability to earn income, in an industry ridiculously overburdened with capacity. Hey, we haven’t been at this more than 30 seconds and you’re already qualified to run a telecom company! See how much you’ve learned already?

Now let’s go public. Go to your Dad and offer to sell him your business for $100. We’ll still have to pay Mom back, but Dad will have a claim on everything else.

… I’ll wait.

Holy smoke, you’re a natural. Alright now. Let’s take that $200 of investor money to buy some stuff: a lemonade stand, pitchers, spoons and ice buckets. Since the lemonade stand is cheap, you’ll have to spend another $10 a week to fix it as it “depreciates,” but we’ll deal with that later.

You’ll also have to pay for some other things before we show a profit. The lemonade mix and paper cups will be part of your “cost of goods sold.” Since you’ve got a credit rating of about F-, Mom wants $10 a week “interest” on her loan. Finally, there’s the big kid. For every dollar of profit, you’ve got to give him 40 cents or he’ll give you a wedgie until you cry “Uncle.” We’ll just call him the Uncle.

You’re off to a great start! In the first week, you’ve sold $50 of lemonade. Subtract off $20 as “cost of goods sold” and the $10 that you’ve stuffed into your pocket as “selling, general and administrative expenses.” Congratulations, you’ve earned $20 in “EBITDA” – earnings before interest, taxes, depreciation and amortization. Now subtract that $10 of depreciation, and you have $10 in “EBIT,” otherwise known as “earnings from operations.” Call CNBC. Also, make sure to buy the lemonade mix and cups with an IOU and don’t replace the depreciation, so when Dad looks into your cash register, he’ll actually see $40 in “cash flow from operations,” underscoring the “quality” of your earnings. Sweet.

But let’s take a closer look at what Dad can actually claim if you actually intend to stay in business. $50 revenue, minus $20 cost of goods sold, minus $10 administrative expense, minus $10 interest, minus $10 to replace depreciation, gives $0 in “net earnings.” The good news is that you don’t owe anything to the Uncle.

Hmmm. Which number should you report to Dad? $20 of EBITDA or $0 of net earnings? Hmmm.

Wait. Even better. Let’s classify the lemonade mix and cups as an “investment.” We can also underdepreciate the lemonade stand. And we’ll write both off as “extraordinary losses.” After all, the stand wouldn’t have worn down had it not been for the existence of time, and our investment in lemonade mix and cups would have survived had it not been for the existence of customers. That leaves us with EBITDA and operating earnings equal to $40. Yes, that’s much better.

Week two. Unfortunately, the novelty of lemonade has worn off in the neighborhood, and it’s a little cooler out too. As it turns out, you’ll only be able to take in $25 a week in revenue from now on. Now we’ve got $10 in cost of goods sold, $10 in administrative costs, $10 of interest costs… Oops! We can’t even make our interest payment, much less replace depreciation. And nobody wants to buy a used lemonade stand. Suddenly, Dad’s investment is worthless, and we’ve got to default on our debt to Mom.

But hey, we can still report $5 in EBITDA! Maybe nobody will notice.

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John Hussman: The Two Essential Elements of Wealth Accumulation

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Excerpts from The Two Essential Elements of Wealth Accumulation

How to make them work for you

Wealth is not acquired through addition. It is acquired through multiplication……According to statistical studies, two factors are most important in achieving wealth:

The number of years that an individual has been consistently saving and investing
The proportion of funds, on average, allocated to higher return investments such as stocks.

This does not mean that stocks should always be held regardless of price and risk levels. ….. Most have achieved their fortunes by compounding a moderate but consistent rate of return over a long period of time.There is a simple mathematical explanation for why these two factors are most important in building wealth:

Future Wealth = Current Wealth x (1+k)T

Where k is the annual rate of return earned on current wealth, and T is the number of years that wealth is allowed to compound in value.Wealth accumulation is exponential. At a 10% annual rate of return, $100 compounds to $259 over 10 years, and to $673 over 20 years. At a 15% annual rate of return, $100 compounds to $405 over 10 years, and to $1637 over 20 years. So both the rate of return, and the length of compounding have enormous leverage in creating future wealth.Simply stated, if your goal is to accumulate a significant amount of wealth during your lifetime, you must first save something, and then exercise some amount of control over one of two factors: your long-term rate of return, or the time horizon T over which you compound your wealth.

Increasing the long-term annual return

For most individuals, the best way to increase the annual return over time is to allocate a larger fraction of their funds, on average, to higher return types of investments such as stocks. The pitfall here is that stocks are not always priced to deliver high returns. Historically, the price/earnings ratio on the S&P 500 has averaged about 14. When the price/earnings ratio has approached 20, stocks have typically returned less than Treasury bills for as much as a decade or more.While it is not possible to avoid every downturn in the market, it is essential to defend capital when the Market Climate suggests a poor tradeoff of expected return to risk. …….Here’s why. Suppose that you earn 20% returns in three consecutive years. Clearly, your average annual return is 20%. But suppose that in the fourth year you lose 20%. The combined effect of lost value and lost time has a profound impact on your annualized return. If you do the math, you’ll find that for the overall 4 year period, the compound annual rate of return has dropped to just 8.43%.While risk-taking is essential to generate long-term returns, it is important to understand that market risk is typically rewarded much better in some Market Climates than in others.

Increasing the time horizon

The best way to increase the time horizon T over which you compound wealth is simply to start saving and investing as early and consistently as possible. Consider an investor earning a 10% long term rate of return. If the investor saves $2000 annually in a tax-deferred account (such as an IRA) for 10 years, and adds nothing for the next 20 years, the value of the portfolio at the end of 30 years will be $198,575. Although the investor committed a total of only $20,000, the account will have grown nearly tenfold.Now consider an investor who fails to start early. Suppose that the investor saves nothing during the first 10 years, and then attempts to make up for lost time by investing $2000 annually for each of the next 20 years. At the end of 30 years, the value of this portfolio will be just $114,550. The investor has committed a total of $40,000, twice as much as the first investor, but because the funds were not given as much time to compound, the investor retires with just over half as much wealth as the early bird. The higher the compound annual rate of return, or the greater the number of years to retirement, the more dramatic the effect that an early start will have on the ending wealth.

Some advice about saving

The key rule of saving is this. Don’t let your savings adjust to your spending needs. Let your spending adjust to your savings needs. It will help tremendously if you budget a certain amount of saving monthly, and make your investments first, as if you were paying a telephone bill. If you wait until all the bills are paid and all the spending is done, the result may be that you have nothing meaningful left to invest……..The best strategy to manage credit card debt is to minimize the number of cards you carry. But if you ever want to save, then start saving now. Make your monthly investments when you pay your other bills, and treat them as if they had a substantial late-payment penalty. The penalty for starting a savings program late really is enormous.

The bottom line

Financial security does not require extraordinary income or investment “home runs.” It requires, first and foremost, that you start saving and investing early, and add to your investments consistently.As for investment strategy, financial security requires avoiding large losses, particularly in environments that have been historically hostile to stocks. And it requires the willingness to take larger amounts of market risk in environments that have been historically friendly to stocks.

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Rob Arnott Interview: Barrons 12/22/08: “How to Play a Take-no-Prisoners Market”

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Summary:

Investment Recommendations:
Value Stocks
Convertible Bonds
Investment Grade Bonds (ie. LQD)
Junk Bonds
Emerging Market Stocks and bonds (bonds denominated in local currency – a play on falling dollar)
TIPS
“Anything But Treasuries”

“This is not a time to shy away from taking risks. The markets are priced right now to reward risk-bearing more than any time in many, many years.”

Treasuries – which had a strong 2008 – are the worst place to put money in 2009.
The market has created great investment opportunities, including value stocks and convertible bonds.

“I was a bear coming into this credit crunch – some called me a perma-bear – yet this contagion effect went a lot further than I predicted.”

“Some markets have been hit beyond any rational valuation of the risks associated with those assets.

What’s an example of a promising area hit hard?
Emerging Market Stocks and bonds
TIPS

“This is the richest environment of low-hanging fruit I’ve seen in my career. You’d have to go back to 1973-4 or even, in some markets, the Great Depression, to find markets priced as attractive as now. It’s tempting in a bear market to focus on the glass being half-empty and on how much has been lost. But the glass being half-full is largely ignored.

Inflation/Deflation debate
We will have inflation.
If you have very little debt and you have a depression, it is likely to be deflationary. If you have very high debt (like US today), and you have a depression it is likely to be massively infationary. Not suggesting a risk of hyper-inflation, but people are not pricing in the risk of inflation.

Expects Value stocks to outperform Growth Stocks.

Realistic target for future stock returns is 8% (comes from 3.5% dividend yield, plus 4.5% earnings growth). “There are segments of the bond market where we can almost assuredly do better.”

“The problem I have with stocks – is that while nicely priced, they aren’t attractively priced relative to their own bonds. The savagery of Sept. – Nov. was more drastic for bonds than stocks. The market actually widened opportunities on the bond side even more than the stock side…..Investment grade corporate bonds are a vivid example of that.”
Also below-investment grade bonds (i.e. ‘High-Yield’ bonds). which yield nearly 20% above Treasuries. “Suppose 40% of [Junk} bonds go bust next year. And suppose you get 50 cents on the dollar back on the bonds that go bust. Only at that point will you have lost your spread on the 20%. But such a scenario has to happen every year until the [junk] bonds mature, in order to merely match Treasury returns. A 40% default rate every year for several years would be truly without precedent.”

Has the market bottomed out?
“There is slightly better than 50-50 chance we see another leg down in the stock market. That’s because the deleveraging in the economy is only partly underway, and there is a lot more of it to come. The mass liquidation of hedge funds is not done. As for economy, expect 2009 to be a bit worse than people expect. ”
Housing market turns up 2010/2011, not next year.
Would surprise if ‘Risky’ bonds (ie. corporate/junk) take another significant leg down