One conceivable outcome of monetizing Wall
Street’s excess is inflation. Printing money to pay for
Courage
We have tried spending money. We are spending
more than we have ever spent before and it does
not work. And I have just one interest, and now if I
am wrong somebody else can have my job.
want to see this country prosper. I want to see
people get a job. I want to see people get
enough to eat. We have never made good on
our promises. I say after eight years of this
administration, we have just as much
unemployment as when we started. And
enormous debt to boot.
Treasury Secretary Henry Morganthau,
Diary entry, May 1939
Very little is new, through the lens of our
grandparent’s generation. What differs today is the
shrill and superficial means through which we discuss
it. Witness the Chairman of JP Morgan’s mocking
announcement of his firm’s intent to repay the
Federal funds which kept his bank from collapse:
Dear Timmy, we are happy to pay back the $25
Billion you lent us. We hope you enjoyed the
experience as much as we did.
Jamie Dimon to the NYU Hospitality
Investment Conference, June 2009
Can you imagine the real J.P. Morgan saying that to
Andrew Mellon? Over six million Americans have lost
their jobs during the past twelve months. Income tax
revenue is down 44% year over year. And so far our
collective response has been to take whatever
measures necessary to capitalize the largest banks.
With income down sharply (both government and
wages earned) and our debt skyrocketing
(government and the relative weight of our
mortgages), how will we become better off? Our
government’s apparent solution is to encourage the
return of animal spirits, or speculation. As they used
to say, feed a horse enough oats, the sparrows
prosper.
Courage can be defined as taking unpopular steps to
ensure a righteous outcome. Exploding the Federal
debt to pay off the speculative class is cowardice.
Our Founding Fathers spoke to this:
Loading up the nation with debt and leaving it
for the following generations to pay is morally
irresponsible. Thomas Jefferson
Copyright 2009, Farragut Resources, LLC. The material presented is for informational purposes only and is not intended to recommend a specific investment strategy or the
purchase of securities. All opinions are those of the author, and do not reflect the policies of Farragut Resources or Capitol Securities Management, Inc. Investment advisory
services and brokerage provided through Capitol Securities Management, Inc, Member FINRA/SIPC.
public works and welfare can put pressure on prices,
though a good bit is offset by an improvement in the
June 8, 2009 productivity of the beneficiary. Printing dollars by
the Trillions to pay off troubled speculators
emboldens them, with little impact on the
productivity of the nation.
An eerily similar scenario played out during the
Weimar Republic of 1923, when the German Mark
collapsed to one-trillionth its value of nine years
earlier. A highly politicized and unaccountable
I central bank can be a destabilizing force. Few know
this better than the Germans.
We must return to independent and sensible
monetary policies, otherwise we will be back to
where we are in 10 years time.
Chancellor Angela Merkel, June 2009
Hyper-inflation is not a foregone conclusion. The
Japanese had a similar credit, realty, and
consumption bubble, the bursting of which has led to
a generation of stagnant prices, employment and
interest rates. So there’s also the Deep Blue Sea.
Investing Today
It appears that we have seen the worst of this
credit crisis in the sense that we went over a
waterfall but the river is still flowing south. The bulk
of the economy's credit problems are still to come,
as charge-offs on trillions of dollars in loans remain
to be recognized.
Bob Rodriguez, First Pacific, May 2009
As investors, we cannot specify the weather, only our
degree of preparation. The dollar may collapse,
but it may well not. And while Timmy and Ben may
look at times like Lucy and Ethyl in the candy factory,
what if they pull it off?
Will Rogers counseled investors to buy stocks that go
up, and if they don’t go up, don’t buy ‘em. Absent
his foresight, we revisit the arithmetic of investing:
Stocks pay off through dividends, earnings growth, or
sale to a greater fool. Bonds pay off by meeting
their coupon, declining interest rates, or again, sale
to a greater fool.
Presume for a moment we’ve run out of fools. We
need companies to grow earnings, pay their
obligations, and enjoy a benign credit/interest rate
environment. So far we’ve seen little of the above,
excepting the fools.
Your Portfolios Readiness
The past eighteen months have given most all of us
Our approach has been to select a handful of long-
pause as we consider funding a dignified retirement.
term theses, invest in a short list of securities that
Having worked with many families on this transition,
support them, and never to forget our fiduciary duty
we’ve found some immutable truths.
to our clients.
First, one never has “enough.” For a fright, price a
We are investing along four themes: Resources, Blue
Single Premium Immediate Annuity for your current
Chips, Red Chips, and Something in Bonds. Positions
gross income. That’s your “number,” before allowing
are in the form of Index Shares, Individual Securities,
for inflation or a legacy. If you’ve not done this, it’s
and well-chosen Mutual Funds.
an eye opener.
Resource Stocks have been volatile, as speculators
Next, consider that most folks won’t use an annuity.
scramble to front-run an economic recovery in basic
Instead, they’ll strive to live on interest and dividends,
materials, or to seek shelter in precious metals. In
maintaining principal for their heirs and the tax
addition to broad index holdings, we have select
authorities. Double the number.
stakes in miners, oil services, and an agricultural
processor. Taking this diversified approach allows us
Retirement security is replacing your pre-retirement
to participate in broad market moves, while enjoying
income with a reliable equivalent stream. Part-time
the rewards of directly owning shares in companies.
work, pensions, and income-producing real estate
will complement a balanced securities portfolio. As
Blue Chips is a catch-all for a sleeve of high-quality
we are seeing with stocks and the value of our homes,
iconic firms, which we’ve been able to buy at fair
there is no one sure thing.
prices during the downturn. Our expectations for
this portion of the portfolio are modest, but should we
get the sort of “melt-up” in stock prices that crises Courage
can bring, we’ll have some dogs in the fight. Equally
important, we’ve found investors seeing their stocks Last June we’d counseled readers that life was to
down ask should they buy more. Investors in funds short to spend in the counting house. We hope you
just sell in disgust. took that advice; our work has kept us there.

Red Chips describes the Mainland Chinese firms listed
on the Hong Kong Exchange. Our exposure to this
market, as well as Asian Realty shares is exclusively
through exchange-traded index shares. There’s little
sense pretending that the financials of a Chinese firm
are transparent. It’s the Inscrutable East, remember?
These are challenging times for all, and fiduciaries,
those engaged and trusted as prudent stewards,
have had quite a journey. We are most grateful for
the support we’ve had from our clients, many of
whom have been investing with us for a decade or
more.

Something in Bonds is as specific as we can get at One constant has been our unwavering conviction
this writing. The past few weeks have rocked our to do what we believe to be right. This has kept us
world nigh as much as the past eight months. What from many of the permanent losses of capital which
was an inexorable return to normalcy in credit have characterized our industry.
markets, with terrific returns in Bonds, is now in
jeopardy. We are in the eye of a hurricane not seen in 75 years.
While much of the storm has passed, there’s plenty
The Federal Reserve’s “Quantitative Easing,” or “Zero more work to be done. Courage.
Interest Rate Policy” has failed, with the two-year
treasury yield spiking 60 pct in less than a week, and Frank J. Ruffing CFP
the benchmark ten-year yield up nearly 75 percent McLean, Virginia, June 8, 2009
from its mid-January lows (2.14 to 3.83). frank@farragut.us.com

The Gordian Knot of interest rates keeps armies of

wags and economists feverish. Expect the
unexpected. Recall, Alexander conquered Asia not
by unraveling Midas’ knot. He used his sword.

7918 Jones Branch Drive, Suite 800 McLean, VA 22102

Telephone 703-283-5220 www.farragut.us.com

Copyright 2009, Farragut Resources, LLC. The material presented is for informational purposes only and is not intended to recommend a specific investment strategy or the
purchase of securities. All opinions are those of the author, and do not reflect the policies of Farragut Resources or Capitol Securities Management, Inc. Investment advisory
services and brokerage provided through Capitol Securities Management, Inc, Member FINRA/SIPC.