QUARTERLY LETTER
Published Fourth Quarter 1992
Muhlenkamp
Memorandum 24
Before writing this newsletter, I usually
read past issues as a review of my thinking and to see what
has changed. It helps my perspective. This quarter not much
changed. The trends that we identified earlier are continuing.
In the United States, the borrowing public continues to refinance
its mortgages and pay down its debts. This has the effect
of giving us a slow (spending) economy and puts downward pressure
on interest rates. The savers among us continue to search
for returns greater than the 3% now available on CD's. They
are being sold a number of products that promise higher returns
but many of these promises won't be kept. The borrowers fear
that interest rates will go back up; the savers hope that
interest rates will go back up. Both are helping to drive
them down. Lower interest rates cause long term bond prices
to move up and allow some stocks to do the same. This, and
a bit of luck helped us to have a good quarter. Meanwhile
the public's pessimism and the recent market correction have
given us another chance to buy good companies at good prices.
So we're investing your assets and are encouraging you to
add to them if you can.
About the time that you receive this newsletter
the election question will have been answered, but the political/economic
questions won't. The major presidential contenders have been
long on promise and short on specifics. I find similarities
to the election of 1976 when the electorate opted for an unknown
promise over a known, dull quantity. It looks like we may
be doing that again. The saving grace this time should be
the domestic and international constraints on inflation and
the budgetary limits on new spending. The discouraging aspect,
as we detailed last quarter, is government spending grew by
8% per year for the past four years with an administration
claiming that it did not want to spend.
In last quarter's
newsletter, we printed the 1992 Federal Budget. Entitlements
are now 50% of that budget and have been the fastest growing
part of it for 30 years. The biggest piece is Social Security.
Read our quarterly newsletter, Muhlenkamp
Memorandum, for more by Ron Muhlenkamp.
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