Everyone wants to know what I think about the current market, administration, and situation.  I will take these moments to share.

Today is a result of years of neglect.  Neglect from voters in the polls.  Neglect of consumers voting on the storefront floors.  Neglect from the politicians whose agenda is so aligned with the highest bidder and personal gain, it’s almost woven into the fabric of our constitution.  And finally, the neglect of the majority of leaders and shareholders in the private sector, who see profit and growth as the biggest drivers of their employment contract and benchmark for success.  And they are (we are) all equally culpable in this myopic view.

Neglect was painted as the new mandate to grow (at any cost), and grow we did.  Laissez Faire economics.  And recently, this unprecedented growth gave birth to Enron, Worldcom, Wall Street Scandal Part 1 (2000) and Part 2 (2008), Backdated Options, and now Maddoff and Co. and a million other scams and crams of greed.

We grew on the backs of cheap exported jobs in labor and service for years, the lowest common denominator.  We grew on the backs of lax international environmental laws, “let’s just build it in Mexico.”  We grew on the shoulders of the “as seen on TV” culture that made millionaires on the backs of suckers who don’t read the fine print or were too drunk to care.  And now it turns out, the suckers are us.  All of us.  We cannot outsource our problems or systemic inefficiencies any longer.

Oh sure, we whined and complained about how unfair it was for our global neighbors to take our jobs that now paid them “15 cents a day with no bathroom breaks,” but we certainly flooded the stores to buy the cheapest goods we could on the isles of Walmart.

We complain about the cost of healthcare, but yet we continue to shovel in literally 60,000 tons of McDonald’s french fries every year, hoping for the next wunderdrug to alleviate and even cure years of (you guessed it) neglect.

In a further twist of irony, we raise the stakes on the war on drugs almost every year with our national budget while we simultaneously bombard our children with ever increasing budgets of billions on 100% legal ads ($4.8 billion in 2008 alone) promoting how drugs make you feel better, work better, live better and hump like bunny rabbits.

We talk about the cost of education becoming prohibitive, as we socially promote the next class of kids who can barely read, write, and worst of all (in my opinion), have little ability to think critically.  And like the bumper sticker reads on the back of that VW Bus (polluting away in front of you in gridlocked traffic)–What is the cost of ignorance?

But why would we want critical thinkers?  They would just question the motives of democrats AND republicans, the motives of the powers that be vs. the powers of you and me.  Critical thinkers would question whether there was a better way to make toothpaste or the fact that our “fill-in your scantron” students are still sadly, light years ahead of the technological curve that our educational system offers.  The Apple Store is the new community college for our students, offering relevant training and skills superior to most of the programs our tax dollars promote.

And at the top of this heap, we elected a president who has based his campaign on “Hope.”  And that my friends is where we are: in the epicenter of hope.

Hope that the Chinese will continue to fuel our growth by buying our Government’s debt, hope that we will grow the economy sustainably running on a infrastructure system that had it’s last reboot in the 1950’s.  Hope that we can reach for the stars, when we can’t even seem to keep litter off the streets. Hope that we can keep cutting taxes, because we hoped the little money we saved would be enough–and it’s not.

And until this crash, our world went spinning around 24/7 updating us on Britney and Angelina, and we thought our little lives were fine.  Until this crash, we thought we had enough for a lifetime of Starbuck’s. Until this crash, we thought we were the belle of the ball.  And now the clock strikes midnight.

Pensions are a thing of the past, unless you are an (evil) union member or a (lazy) government employee. And in this new reality, (without pensions) today’s children face a chilling fact:

In order for them to sustain a lifestyle of just 50k a year (before tax) in retirement they will need to save at least $1million dollars in their portfolio.  In 2006, there were 3 million people with more than 1 million dollars in North America (including Canada and Mexico and excluding primary residence).  There are 300 million people in this country, that is 1%.  So, 1% of the people (sans those union employees and government workers) in the new future will have enough to provide a lifestyle that isn’t a king’s ransom, 50k a year.  The rest of us? Not so good.  But the Baby Boomers—they will be ok, right?

Fact is: Most baby boomers are ill-equipped for retirement.  And today’s foreclosure market shows that.  As Warren Buffett say’s, “it’s when the tide pulls out, that’s when you see who’s been swimming without shorts.”  And these baby boomers are going to want their Healthcare and Social Security, believe me.

So, obviously, I’m absolutely decidedly not bullish, right?  And maybe here is the irony of being an American.  In the face of all of this, I am optimistic.

For every fact I know, like, just to supply the next billion people each with 4 hours of a single 60 watt lightbulb we will need 20 of the biggest powerplants we can make (spewing terrible CO2 and pollution).  And by the way, the next billion people will be here in 20 years… which means, a plant a year–to run a single 60-watt lightbulb per capita for (just) the “new people” -for 4 hours a day.  Or forget about the idea that the icecaps will likely be gone in 2013. Forget about the toxic island of trash that’s twice the size of Texas floating in the ocean. Or that 25% of our mammal population is or is about to be extinct.  Or that countries around the world are starting to store world grain supplies in vaults, “just in case.”

–Yes, In the face of all of this, I still find reason to be optimistic about our ability to innovate our way out of these issues.  Are we behind? Absolutely.  Can we do it?  Absolutely.

That being said, when someone goes from sitting on the couch to setting the aspirational goal of running a marathon, there is a proverbial gap in perception and performance.  And that is the place we exist, we have the vision of hope with Obama but we have absolutely no stamina, no cardio, no muscle to get off the couch in a meaningfully way.

After the 2000 crash, it took 4 years for the markets regain the loss.  And the subsequent run we saw; the stock market we’ve seen for the last 8 years… It was all an illusion, a propped up, leveraged up illusion–we were on steroid’s, if you will.  And now that we are off the ‘Roids, it’s not pretty.   And that amount of leverage (or juice) is just not coming back (at least not until we forget about this incident about 10-15 years from now).

I expect it will be at least 5 years before we see a material gain from the losses we’ve seen in the broad market–maybe longer. Even with all of the hope we have.  Unless Obama does something to fundamentally change the rules (which is possible, but not on the table at the time of this writing), this outcome is almost as certain as the physical laws that make the apples fall.

I raised and held cash last year, and frankly I wish I’d raised and held more, but this is the luxury of hindsight.

We are facing another tough year, and probably another one after that.  There is money to be made in these markets in unconventional places & names, and it will be in sporadic fashion.  These are the times.

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Market Assumptions:

Today S&P 500 is at 825.  Fair Value for S&P 500 is 950.  The S&P 500, hitting 600 is a real possibility in the next year.