SPENCE Asset Management

The Squeeze July 2010

The cost of a United States postage stamp is going up…again. New Mexico Gross Receipts tax just went up…again. Prices at the pump are spiking in their typical summer fashion and triple digit temperatures across the country are going to bring sticker shock to millions standing at their mailbox with a freshly opened electric bill in hand.

Tuition and property taxes are soaring despite declining property values and an education that can only guarantee a lifetime of student loan payments, let alone gainful employment. Traveling costs are making home bodies out of all of us as airlines attempt to boost their bottom lines through baggage, blanket and beverage fees.

New menus with new prices greet us at all of our favorite eating establishments as their managements struggle to endure dramatic declines in traffic, and free checking accounts are on the verge of extinction.

As every American business owner and every American consumer can confirm, the squeeze is on. It is coming from all sides as the economy struggles to regain its footing, the steel walls seem to be closing in on us daily, inching ever closer, restricting a little more air every minute, leaving us only to wonder where it stops.

As lemons produce a scrumptious summer-time thirst quencher when they are squeezed, we see the great American squeeze resulting in an overall delicious outcome. More families eating at home together, more energy conservation, more family road trips, more coupon clipping, and perhaps last year’s model will do just fine for another year; many long over-due habits can pop out on the other side of increasing costs.

For some U.S. companies, the lemonade is already flowing. Hundreds of companies devote their resources to saving businesses and consumers money. Take for example the health care industry: there are members of this industry whose sole purpose is to reduce costs to the health insurers. Along with these companies, the industry boasts hundreds of health care technology companies intently focused on automating physician offices as well as sharing information across various health care providers again resulting in cost savings. There are also companies who pool the purchasing power of millions individuals to reduce the cost of pharmaceuticals as well as companies who streamline the daily operations of health care facilities from food preparation to waste removal. It’s all about reducing costs.

As regulation and compliance costs increase almost as fast as health care costs, companies that can take on and/or simplify those headaches for corporations are in high demand. Companies that supply technology that can reduce energy costs are also growing at break-neck rates and companies that offer automation technologies that save time and labor across all industries are likewise experiencing record profitability.

Instead of spending our time complaining about the endless numbers of hands outstretched waiting for their respective “cut” and the ever approaching steel walls ready to squeeze the pulp out of us, we focus our efforts on finding these companies that are excelling in this constricting environment. We are pouring over the universe of global corporations in order to figure out who the cost savers are and more importantly, how well they are doing in their cost saving mission.

At the same time, we are ever critical of how the cost savers are handling their own costs. Many corporations are in better financial condition today despite the economic environment due to effective cost cutting initiatives, de-leveraging of their balance sheet and overall vigilance of their operations. This environment has given strong managements around the world the opportunity to shine and we are working diligently to find them.

The lemonade is much less plentiful as our fixed income investors sit at the heart of the squeeze. Attempting to find safe fixed income instruments at reasonable prices these days is like trying to herd cats. It is increasingly difficult to earn “a safe rate of interest” during an era when the Federal Reserve Board is doing everything it can do to help the federal government borrow money at historically low rates. We feel, at this time, that the fixed income recipe calls for one heaping cup of patience.

Therefore, as you sit back and enjoy your summer, lemonade or your beverage of choice in hand, be certain we are commiserating in the compression that you and your business are feeling. But also be certain that opportunities are being created and that we are working very hard to find them.

The information contained herein is for informational purposes only without regard to any particular user’s investment objectives, risk tolerances or financial situation and does not constitute investment advice, nor should it be considered a solicitation or offering to investors. To determine if investment in a Separately Managed Account with Spence Asset Management is an appropriate investment for you please call 1.800.230.1840.

Investment Advisory Services are offered through Spence Asset Management, a federally registered Investment Advisor. Investment Advisory Services offered through IAR’s of Spence Asset Management, a Registered Investment Advisor to all residents of the United States.