SOURCE: Creekside Partners

May 31, 2012 12:41 ET

Financial Analyst Rick Ashburn Encourages Investors to Stay Liquid

Ashburn Says the United States Economy in the Midst of the Public Finance Bubble, One That 'the Federal Reserve Can't Bail Us Out From'

LAFAYETTE, CA--(Marketwire - May 31, 2012) - Financial Analyst Rick Ashburn of Creekside Partners (www.creeksidepartners.com) believes it is inevitable that Federal Reserve Chairman Ben Bernanke will "take away the punch bowl, turn on the lights, and the investors will run for the exits."

All the more reason, he recommends, to stay liquid and avoid equities for the moment.

Ashburn lays out a case in his latest quarterly report that the U.S. Economy is in the midst of a public finance bubble. And the government can't escape the consequences of this one like it has the other public finance bubble during World War II, by relying on a massive labor force to jump start the economy.

"Bubbles are driven by, among other things, easy access to credit," Ashburn began. "It is very hard to imagine a genuine bubble that does not involve easy credit -- the ability to get more money in your hands than you really have a sensible right to."

One problem is "the balance sheet of the Federal Reserve has grown from $925 billion in mid-2008 to $2.9 Trillion today -- an increase of more than 200 percent. Over the same period, the Federal budget deficit has risen from $458 billion to $1.3 trillion today -- an increase of more than 180 percent. The effect of these dual cannons of economic stimulus has been to moderately stabilize the economy."

Ashburn makes the point that the Fed cannot sustain this strategy. "Just ask the Greek government," he writes. The bubble will ultimately burst, leading to "a more austere era, or one with higher inflation, or both. Investors can prosper only by becoming prudently flexible; moving money into cheap assets if and when they appear. Today...there are no cheap assets."

Ashburn adds that "the strongest contributor to any nation's real GDP growth is growth in the labor force. China's 8+% growth rate is in large part fueled by the fact that it can add millions of people to the labor force, year after year." The U.S. Government no longer has that luxury with the shift in demographics.

"So...what to do about this bleak outlook," Ashburn asks. "The solution, as we will implement it, is to be flexible and tactical." This means "temporarily accept the mundane results that are available in a portfolio that has a low risk of capital loss, and that is liquid."

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