SPENCE Asset Management

The Juice March 2010

When it is all said and done our role at Spence Asset Management is pretty simple. We serve as your trusted advisor. Since so many of our clients realize they do not have the time or inclination to attempt on an ongoing basis to process all the information necessary to make sound investment decisions, we have work to do every day. And frankly, we have our own money to take care of too.

With this in mind we think we would be less than forthright if we did not concede that there is not an asset management company on the planet (including us) that doesn’t wonder if despite all the efforts it takes, it might still be ignoring something particularly pertinent, or possibly paying too much attention to something that is fast becoming irrelevant.

In the end, after processing information on a real time basis, we try to reduce our thinking to two practical applications. The first application is to manage fixed income portfolios intelligently and the second is to do the same with common stock portfolios.

In our fixed income accounts we try to weigh all the factors related to the interest bearing instrument arena. And in the common stock portfolio management arena we search for companies that we feel possess durable competitive advantages.

As March 2010 begins we have to continue to aggregate the sum total of our knowledge, experience, and wisdom and try to convert our thoughts into decisions that involve taking action or taking no actions.

For many years now we have reported to you on our observations in the hopes of giving you greater insight into our thought processes. In doing so, we have tried diligently to tip toe around the subject of politics. Not only do we prefer not to offend anyone by giving the appearance of holding partisan sentiments; we do not want to hold any partisan sentiments. For in the investment arena, holding on to partisan political biases can become a very expensive past time.

With two months worth of 2010 into the history books, we find that projecting what actions governments all around the globe take or do not take, matters more than at any time in our careers. Never in our lifetime have the possibilities of shifting public policies had a more immediate or profound impact on the behaviors of both the fixed income markets and the market for common stocks.

Perhaps the most troubling aspect of attempting to interpret daily information streams and/or anticipating what might happen next, is identifying how the incentives in each system might change. And while some incentives are fairly obvious (take care of your customer being one) some incentives and influences take the form of artificial inhibitors and hidden agendas financed by nearly invisible sources.

Clearly the America of our founding fathers has changed in a rather dramatic way since 1789 when the country abandoned the Articles of Confederation in favor of the U.S. Constitution. And somewhere along the way, as our government gradually became much bigger and much more powerful, moneyed interests and other vested interests became more in tune with the need to continuously influence the people’s government.

These days as we watch both Democrats and Republicans toil in frustration and lament the system’s inability to formulate competitive responses to global economic threats; we begin to realize our system must undergo true reform rather than one partisan skirmish after another.

Part of our response is to look around the entire globe for alternative investments as a hedge against a complete commitment to a faltering U.S. system. Still, during our off hours we concede we do a bit of dreaming about how we wish things worked.

For the balance of this newsletter we would like to suggest what we think real reform in the United States might look like. And as we allow ourselves the luxury to dream out loud a little bit we wonder how we might help bring about meaningful change in our country.

Contemplating the flow of history can help one develop wisdom. From our vantage point the American political system behaves much like a tangled fishing line. Anyone who fishes knows that when a fishing line gets tangled you don’t have to throw away the rod. On the other hand in many instances you do have to make a cut and run some fresh line.

Reluctantly and gradually we have concluded that the Constitution of the United States requires an amendment to return the all important “incentives” affecting the behaviors of elected officials back in the right places.

The 28th Amendment to the United States Constitution

So that all U.S. citizens are provided with equal protection under the law and all individual citizen voting rights are unabridged, all federal election-related campaign expenditures shall be publicly funded.

1. All primary, runoff, and general election candidates for federal office shall be provided with equal public funding.
2. Other than for a candidate’s personal transportation expenses, all federally-elected public officials, candidates for elected federal offices, and affiliated persons of any federally-elected officials or candidates for federal public office, are strictly prohibited from accessing any funding source, other than public funding, for the purpose of paying for any campaign-related expenses whatsoever.
3. The conveyance of money or any other consideration of any discernible value, in any form to any federally elected official or candidate for federally elected public office, or affiliated persons, for the purpose of directly or indirectly supporting any candidacy, shall NOT be protected by the freedom of speech or freedom of the press provisions under the 1st Amendment.

Our Reasons for Ratification of the 28th Amendment:

The 14th Amendment of the Constitution of the United States was ratified to assure equal protection rights under law for all U.S. citizens. Both the 15th and 19th Amendments of the United States Constitution were ratified to provide protection for all citizens of the United States against the denial or abridging of their voting rights. These protections (in the 14th, 15th, and 19th Amendments), are clearly delineated. However, these constitutional protections have been gradually abridged and encroached upon by an increasing tendency towards misapplication of constitutional protections of free speech and freedom of the press in the area of campaign financing. Accordingly, the boundaries of each constitution protection must be clarified by amendment.

This amendment provides THE CLEAREST POSSIBLE BOUNDARY LINES for constitutional rights protecting freedom of speech and expression as contained in the 1st Amendment, as wells as the equal protection and voting rights protections provided to all citizens in the 14th, 15th, and 19th Amendments.

Though freedom of speech and the press are sacred, these freedoms should not ever be construed under any circumstances, as also providing protection for any citizen, group of citizens, or organizations to convey money or consideration in any other form, to any elected public official, candidate for elected public office, or affiliated person, at any time, for any reason. The act of individuals, groups of individuals, or organizations conveying money or other considerations to candidates or office holders in an effort to influence public policy has caused profound imbalances in equal protection rights provided by the 14th, 15th, and 19th Amendments to all citizens. In this context, freedom to convey money or other considerations of value to candidacies is clearly distinguishable from the freedom to speak and freedom of the press.

As home grown investors, we want to see an end to a cycle in Washington D.C. that requires every elected official to keep an eye on raising money to perpetuate their political dynasties. Literally 7 days a week, 52 weeks each year, year after year, Senators and House members do what they have to do to continuously gather money. It as if our entire system is hooked on the political equivalent of steroids wherein money of course, is the “juice.”

To be fair to elected officials (as much as we might be fair to steroid taking athletes), to remain competitive under the current rules, no elected officials or candidates for federal offices can “afford” to get OFF the juice. And unfortunately for America, no elected official can serve the public interests 100% of the time if he or she is ON the juice.

At this stage of U.S. history is does not matter much whether you think of yourself as a liberal, a moderate, or a conservative. Both Democrats and Republicans are being governed by people on the juice. It is not so much that the “other” side is the enemy. The juice is our enemy. And the juice routinely gets in the way of Washington making common sense decisions on our behalf.

So, now that you know what we feel like is TRUE REFORM, we will return to managing our investment thought processes and do our best to apply them to the market for fixed income instruments while also seeking to identify companies that possess durable competitive advantage. But please know that until the day when the amendment above or something similar is ratified, we will be required to continue to cultivate our deep sense of awareness of the insidious affects of the “juice.”

—Jim Spence, Eric Walton

Spence Asset Management, Inc.
2455 E. Missouri Ave. Suite A Las Cruces, NM 88001 575-556-8500

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC
Investment Advisory Services offered through Spence Asset Management, Inc., a Registered Investment Adviser
Cambridge Investment Research and Spence Asset Management are not affiliated

The views expressed here are those of Spence Asset Management and are subject to change with market conditions. The information contained in this newsletter is derived from sources believed to be accurate. You should discuss any legal, tax, or financial matters with the appropriate professional. Neither the information presented nor any opinion expressed constitutes investment advice or a solicitation for the purchase or sale of any security. Market forecasts cannot be guaranteed. Past performance does not guarantee future results.