Fin - Breakout - US

In Search of Relative Value in the Market

Jeff Macke
Breakout

Humans like to pretend we live in a world of absolutes. We gaze at ourselves in a mirror or look at our wallets and judge ourselves attractive or ugly, rich or poor, and adjust our behavior accordingly. It's a natural mental heuristic but the wrong mind-set for either life or investing.

The truth is that all things, save life or death, are relative. We'll stick to investing for the purposes of this note and our interview with Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Advantage Funds. The trigger for my brief foray into philosophy was Jacobsen "complimenting" the greenback by noting that picking a country in which to invest was "almost like the ugly dog contest as far as which one is the least ugly... in this case it might be the U.S. dollar."

Such are the times in our country and the investment world. We are reduced to a quest for the least ugly beast in a global dog pound of hideous. While perhaps disheartening to see the world through the lens of relative, it allows Jacobsen to see potentially profitable positions where others may just see chaotic whelping.

Like many Jacobsen feels that the Fed's current obsession is inflating asset prices. It's all the Fed can control and they're doing it. That being the case, equities are a decent place to start looking in Jacobsen's estimation. "Corporate America is doing quite well, especially when compared to the U.S. Government" he wryly notes.

Ah yes, the government outside the Federal Reserve. The government's apparent fixation on reducing spending and raising taxes at once reminds of Jacobsen of 1937 when fears of overstimulating a recovery led to a disastrous tightening program. Should the current budget crisis devolve and stumble into such a policy, Jacobsen would be racing us all to the bomb shelters. Failing that and befitting a guy who's bullish on the dollar by default Jacobsen is pursuing yield, be it from dividends or munis.

It may not be the sexiest portfolio imaginable but sexy is relative, just like everything else.

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