The Economy to Regain Its Mojo and Investors Can Look to Coal Play Alliance Resource 5% Yield for Growth and Income

The economy’s recent stutter step may prove to be just that. We have recently got speed bagged by an Ali hammer jab of Japan’s economy screeching to a halt followed by a Frazier left hook by Greece’s near debt default. Taken together it’s no wonder the US economy was left reeling on the ropes. I believe however, while we may have been staggered and given the mandatory eight count, which is what this hiccup in growth may turn out to be, we were not counted out. Evidence of just such a blip being the down tick in Weekly Unemployment Claims, the surprising rise of Leading Economic Indicators and Industrial Production. The Japanese economy shutting down closed off electronics component shipments along with parts for auto suppliers and manufacturing which cost an estimated one full percentage point off of growth. The question remains with Japan factories back humming will we, the US economy, resume its expansionary trajectory. We’ll need more time and data to support either conclusion, but I believe the momentum of the expansion will not be stopped on a dime. The weakness or slow down we’re experiencing being more a temporary downshift due to an external shock and the fundamentals for higher equity valuations remaining in tact.



Greece. As distasteful as it seems, no one entity that may have the characteristics of being “Lehman-esque” (Too Big To Fail-TBTF) will be allowed to fail. No matter the costs or effect on currencies or assets, or to what extreme measures need to be taken to avert the disaster. I’m not saying Greece won’t default, from what I’ve read it most likely will experience a “technical” default. The Greek debt load is far to great for the size and structure of their economy. If this is the case, a plan will have been well thought out, the problem ring fenced thus preventing any contagion from spreading to EU members Ireland, Portugal, Spain and Italy. Now, after Lehman, we were able to witness, real time, what can happen when an entity of such scale is allowed to go under, and the catastrophic repercussions, all Central Bankers are squarely on the same page. They, we witnessed history as it unfolded. Remember back in the early days as the financial crisis was only beginning to take flight. ECB President Trichet warned the markets he may need to hike interest rates on inflation fears at the same exact time Chairman Bernanke was aggressively cutting rates interest rates and converting Investment Banks to Savings Banks to gain access to cheap money. In Trichet’s opinion the financial crisis was a US problem and he had no fears of any contagion. Many of us argued against such a move then and were proven out correct and ultimately Trichet reversed course. The ECB perception was the wide spread proliferation of derivatives had allowed EU Financial institutions to lay off or hedge their risks. Who did he believe the counter party was that the risk was off loaded to? Yes that’s correct AIG, Lehman, Bear Stearns etc. The point being now that we have real time data on how catastrophic such a failure can be, the appetite to run another such experiment is nil. So, as long as Central Banks are reading from the same playbooks and recognized how inter-connected the global financial systems is, expect monetary responses to be of a proportion to meet any catastrophe that threatens the system. The implications being Central Banks and the Federal Reserve will remain committed to debasing our currencies to support the economy and foreigners will continue “buy our tulips”, as we, the US is still the best game in town. I believe we’ll be fine. It’s only when someone refrains from accepting those “tulips” that we follow the path of the Dutch.



The market correction we’ve experienced is normal and may prove a healthy set up for the next leg higher. The market has rallied significantly over the last twenty four months and barring any further aggressive deterioration of the market, remains a healthy correction within the context of a bull market. As we entered 2011 we set out a few wild cards, 1. Greek Default 2. Super Spike in oil 3.Failed US debt auction. None thus far has come to be, nor were they predictions of what would happen to derail the bull market, merely what could. We’ve received enough of a scare on a few so far, but not enough of one to send the bull into hiding. So, GSA stands by our year end target for the S&P 500 of 1410-1450 and look to add to or establish new positions on weakness.

Investors looking for Income and Growth can look no further than Alliance Resource-ARLP to sate their appetite. Alliance Resource continues to bring new production to market while securing long term commitments for up to 75% of production out to 2014 giving clear visibility for the near term. Their last quarterly earnings was yet another stellar performance with revenues up 11% driven by coal prices and production. Alliances is in the the sweet spot with attractive assets and production ramping up at a time where the global distaste for nuclear power after the Japan disaster still taints the palate of many. A potential for a take out is on the table but even without that catalyst earnings and revenue growth coupled with a very attractive 5% yield should allow investors to breathe easy for some time.

Yours in pursuit of the Kwan!