Portfolio Holdings Update, September, 2011 — download pdf

I am near the end of a fascinating read about the highs and lows of the famed Lewis and Clark expedition, Stephen Ambrose’s Undaunted Courage. I understand the passion Meriwether Lewis enjoyed as he wrote about a new biological discovery or seeing the Great Falls for the first time. I enjoy the same freedom writing market reports (like this one) that say exactly how I see things. Writing about solar, wind energy, healthy foods or microfinance brings out the best in me.

The last 100 pages or so of Undaunted Courage show Meriwether Lewis condensing his painstakingly written daily journals into a readable format for politicians, business interests and varied special interests. To write pleasing reports for special interests must have been an arduous task, and one that would have been tough for me to complete.

The financial services industry is full of blustery written reports meant to soothe, please and encourage investors. While cleaning my office for a repaint this week I ran into one such report from a major mutual fund company written in April 2002. In part it reads,

By most measures, the recession that began in March 2001 is over. It was an unusual recession by historical standards. The Federal Reserve began reducing interest rates before the recession officially began! These are not typical events in a typical recession. The result? A barely perceptible dip in the economy. Rock-bottom mortgage rates kept the housing market chugging along while consumers put extra cash in their pockets by refinancing with a vengeance. (emphasis added)

The market didn’t bottom until 2003, the recovery was weak, and we all know what happened to the housing market a few years later.

Since 2007 my client reports and videos have detailed my cautious outlook for the general economy. I believed then, as I believe now, that an economy that has a shrinking manufacturing base with a growing federal payroll is not on a sustainable economic path. After a few years of gain, this August the equity markets hit the skids just as Wall Street began to sing “Happy Days are Here Again”. The 130 years of market history suggests to me that equity prices have yet to bottom in this cycle that started in 2001-2002.

This general market caution is tempered by the belief that the need for clean energy, clean water and healthy foods continues to grow. One only has to look at the surge (+500%) in the price of Green Mountain Coffee Roasters (GMCR) these past few years to realize that individual stocks can run counter to a general market trend. It is my belief that stocks in the food or health-related area are the ones to hold while the general market finds its bottom. I am hoping for more stories like Green Mountain Coffee Roasters to emerge. I have added to my holdings in the healthy foods area as a result.

If I am buying healthy food stocks, what am I selling? While I love the story of solar long-term, there are just too many headwinds at present to hold many solar stocks. I have been pounding the table over the past few years over China’s seemingly free run at US and Western European solar companies. As governments we have done very little to put even a speed bump in front of the unfair labor practices that steal market share from our solar and wind companies. China continues to subsidize Chinese companies while the Western nations play fair by World Trade agreements. I see no political will to do more than talk. Solar and wind company shares continue to either move operations to China or to head toward bankruptcy.

Since we switched into more defensive names in the foods-related area, the performance of our conservative and aggressive portfolios has held up much better than other green mutual funds and ETFs. Hedges have also played a part in outperformance relative to our peers this year, and the hedges will stay in place until the general market finds a bottom. That will not happen until real estate bottoms. I am looking at years, not months, in this process.

The equity names that sport a dividend such as Herbalife (HLF), Telvent (TLVT), Eaton (ETN) will be emphasized going forward in the conservative accounts. Aggressive accounts will see names such as Green Mountain Coffee Roasters (GMCR), Hain Celestial Group (HAIN) and Jamba (JMBA) emphasized. Both conservative and aggressive accounts may contain hedges. Please speak with your financial advisor regarding the use of hedges. They are insurance-like and may help accounts in a declining general market perform better than those accounts without hedges.

In terms of specific performance as it relates to your own account, please talk with your financial advisor. I am available for conference calls between your advisor and yourself. Please give me some notice. Thanks for reading, and be sure to check out my recent video.

Thomas Moser, CFP®
Portfolio Manager
High Impact Investments®

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