While it may seem rather inappropriate to talk about hedging strategies while the markets are retracing at least a portion of 2008’s devastating plunge, common sense continues to support the position that the worst is yet to come. Granted, focus has shifted to ‘less bad’ economic data and the anointing of government spending as the elixir that will return the American economy to prosperity. Yes, that whole “We’re going to spend our way to prosperity” mantra is once again in play. Make no mistake about it; what we are witnessing right now will be viewed years from now as the biggest suckers rally in history – so far.

That said, now is the time to start talking about protecting portfolios from the next move down. The techniques below were used either singly or in tandem to drastically limit losses in our client portfolios during the 2008 liquidation. Some of these strategies have been sold to the investing public as ten feet tall and bulletproof, but don’t work out too well unless the intricacies are understood. And still others are exceedingly complicated to execute and rely on a preponderance of difficult predictive successes to be beneficial.

Flight to Cash and Equivalents

This move is an obvious one and constitutes either a partial or total exit from the market in question and the capitalization of whatever gains/losses existed to that point. Depending on the type of account you’re dealing with you will have a taxable event. Under many circumstances, it may be detrimental to sell out of the market. This can especially be the case if you are one of those folks who have invested in a dividend-producing portfolio and need the income from those investments for living expenses. Obviously, people in this position don’t want to see their portfolio go down in value, but can’t necessarily afford to sell those assets either.

In terms of the average investor, this is undoubtedly the easiest hedge to execute with the opportunity costs being commissions, possible tax consequences, and the forfeited gains if you’re wrong.

Going Short the Market

Shorting shares and/or indexes is one way investors will choose to hedge portfolios during times when they believe markets will head lower. Let’s use the DJIA as an example.
Let’s say that an extremely prescient (and lucky) trader identified the last major top in the Dow Jones on 5/19/2008 at 13,028.16. That day he shorted 100 shares of DIA at a price of $130.23 for a total of $13,023 with a $10 commission. So our trader has $13,013 in his pocket, knowing he’ll have to cover those shares at some point. Let’s assume once again that our trader gets lucky and picks the precise bottom on 3/6/2009 with the DIA at $66.23 and decides to cover. He buys 100 shares for $6,633 ($10 commission) and has $6,380 as his gain.

Obviously, this is a best-case scenario, and ironically enough, this is often how many investment ‘get-rich-quick’ schemes are presented.

The following is the flip side of shorting the market.

In this scenario, our trader, having seen his brokerage account drop by 25% since the beginning of 2008 decides to short DIA on 10/22/08. He is scared to death of a further decline. He shorts 100 shares at a price of $84.59 on the DIA, pays the same $10 commission and has $8,449.00 in his pocket. Unfortunately, he has picked a short-term bottom and the market rallies substantially immediately after he takes his position and our trader is scared into covering on 11/4/08 at $95.19. Including commissions, his short position just cost him a quick $1,080 – in just 9 trading days.

With the benefit of 20/20 hindsight we can easily point out that our trader would have been much better off waiting a few more weeks to cover. He would not have lost anything, and in fact would have helped his portfolio.

The take-home point here is that shorting is not for the faint of heart. You’d best have a solid understanding of market behavior and fundamentals before even considering short-selling shares. As we learned above, the risk to the trader is unlimited. Lets say the DJIA would have gone all the way back up to its 2007 high after our trader shorted on 10/22/2008. He’d have been out over $5,700. In shorting, the rewards are finite (a stock can only go so close to zero) whereas the risks are theoretically infinite.

For the average investor, shorting shares is difficult in that you must pledge the balance of your account as collateral in case your bet goes bad. This nullifies the ‘qualified’ status of IRAs therefore IRA custodians will not extend margin privileges to IRA accounts. Standard brokerage accounts may be used to short stocks and such an account could be used to hedge other investments. While this strategy may bear occasional fruit, it is not for everyone, particularly those with short time horizons or a low appetite for risk.

Inverse Funds – Not what they’re cracked up to be?

Before beginning this segment, a few things must be said. For those who read this column regularly, you know that I rarely use specific companies or funds in these discussions, and tend to stick to sectors, fundamentals, and macroeconomic conditions. However, in this article, specific examples are going to be used to illustrate the points made and to show investors how these funds don’t always perform the way they’d expect. This is not to imply that there is an attempt to deceive on the part of the fund sponsors, but rather a misunderstanding by the investing public of the stated objectives of these funds.

Dow Jones UltraShort Profund (DXD) – The stated objective of this fund is as follows:

The Fund seeks daily investment results, before fees and expenses that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones Industrial Average.

Let’s use a couple of hypothetical examples to illustrate how a leveraged inverse fund works. We enter our position when the DOW is at 10,000 and the price of DXD is $100/share. For the purposes of the example, we’re going to forget about the expense ratio. While the expenses must be considered, they are not necessary to make our point.

So over the course of our hypothetical 10-day trading period, the DJIA lost 8.28%. Conventional wisdom would have expected DXD to come in at a 16.57% gain. However, it only returned 14.44% (before expenses). Granted, this is not a big difference, but when you start putting it in the context of a million dollar investment you’re talking about some serious money.

Now, for the sake of argument, let’s use DOG, which is the non-leveraged inverse ETF for the Dow Jones Industrial Average, and see what happens.

The performance of the non-leveraged inverse ETF wasn’t quite as bad as it netted 7.64% (before expenses) when compared to an 8.28% loss in the Dow Jones Industrials Average.

Now let’s apply a real-world example from earlier this year and watch what develops:

On February 9th, 2009, the Dow Jones Industrial Average closed at 8270.87. The Ultrashort DOW ETF (DXD) closed at $58.07 that same day. Now, shortly before close on 5/13/2009, the Dow Jones Industrials Average is at 8274.05, while DXD is at $51.33 – a difference of $6.74 from the 2/9/09 price. Conventional logic would have surmised the DXD prices would be within a few cents given the trivial difference in DOW levels. For comparison, the non-leveraged ETF (DOG) closed at $71.82 on 2/9/2009 and sits at $68.60 shortly before the close on 5/13/2009 – a difference of $3.22. Conventional logic would have also expected the price of DOG to be very similar. What is going on here?

Here’s what. It is all in the objective of the fund. Remember how it mentioned the daily performance? These funds track the index on a day-by-day basis, but as time goes on, the tracking becomes more and more sloppy. Volatility enhances this condition as was evidenced in our 10-day hypothetical study from above.

It is due to the fickle nature of mathematics that a 10% drop followed by a 10% gain doesn’t put you back where you started. This is where the inverse funds fail to protect portfolios in the longer-term. Now, if prices always moved in straight lines, the inverse funds would do fine. Obviously prices don’t behave that way. The above analysis should not be construed as an indictment of the DOG and DXD inverse funds, but rather suggests they only be used with a clear understanding of their objectives. Furthermore it must be realized that you might not get quite the level of protection you anticipated even if you’re right and the market goes down but takes a lazy path to get there.

For the average investor, inverse funds are an easy way to ‘short’ the market without actually taking the full risk of shorting. Think of it this way: if you invest in an inverse fund and the fund goes to zero, you’ve lost only your initial investment. Your actual risk is known going in. A second plus is that inverse funds may be bought in non-marginable accounts like IRAs. The major drawback, outlined above, is that you may not get the performance you expected for your buck – particularly over extended periods of time.

Using Options to Hedge Portfolios

Another potential strategy for hedging portfolios is through the use of options. We have previously discussed covered call writing for the purposes of generating income, but this week’s topic varies considerably and requires looking at things from a totally different perspective. This discussion focuses on using options for protection ONLY – not for day trading or other speculative activities.

While this is not intended to be a primer on options trading and involves prerequisite knowledge, there are some important concepts that must be highlighted when using options for hedging purposes. For most average investors, hedging with options involves the purchase of put options, which can be done from many types of accounts. However, individual brokers have their own restrictions on what can and cannot be done in particular types of accounts.

Time – Options are good for a specified period of time and after such time has passed expire worthless. Even in the month (or sometimes more) before their witching (expiration), options begin to degrade in value and investors find that they’re not doing their job in terms of protecting the portfolio. Options have ‘sweet spots’ and if you’re going to use them to protect a portfolio you’d better be able to align the option’s sweet spot with the period when the market’s decline will be most dramatic. Otherwise you’re not getting the full benefit of the option and your portfolio isn’t being protected. This is no easy task by any stretch of the imagination.

Strike Price – In the case of the Dow Jones Industrials Average, put options could be purchased on DIA. If you feel the decline will last 6 months and start today, you’d look at options that expire 11/2009 or beyond. In the case of DIA, 12/2009 put options are available. Now you must decide how far you think the market will fall. Buying an option with a strike price that is too low may result in it staying out of the money in which case you might not get the full performance; especially if the decline is not as steep as you anticipated. Buy an option at a strike price that is too close to the current price of DIA and you’re going to pay a hefty premium for the option. If your prediction ends up being right that won’t be an issue, but if you are wrong, you just wasted a lot of your money.

Know Your Portfolio - A common mistake of investors who use options for hedging is that they buy the wrong option. It is imperative to understand the components of the portfolio that you’re trying to protect. For example, hedging a portfolio of junior gold mining stocks with Dow Jones Industrials Average puts is probablynot a great idea. While the junior gold stocks may trace the DJIA to a certain extent there are plenty of times when such is not the case. Using a simple statistical correlation study between your portfolio’s value and the value of different market indexes can help you identify which markets your portfolio tends to track and you can then hedge more effectively.

The major benefit of buying options is that you’re taking a known level of risk. Your outlay for the option and related commissions is the extent of your risk. If you are wrong and the market moves up your option will expire worthless and you lose your initial investment only. It must be noted that this defined risk does not apply when one is writing uncovered (naked) options. These types of activities are extraordinarily risky and are highly inadvisable merely for hedging purposes.

In conclusion, there are many other factors that play into hedging and would require a dissertation to elucidate all of them to proper justice. Each investor must consider their own objectives and risk tolerance and should also consult a qualified advisor before implementing any investment strategy.

The important thing to take away from this discussion is that if done properly, hedging can provide relative comfort during periods of market mayhem such as we just witnessed last year. However, if undertaken without a solid understanding of both the benefits and detriments of the hedging methodology you choose to employ, not only will you not enjoy comfort, you’re quite likely to be a regular in the antacid aisle at your local pharmacy as well.

Improper hedging techniques and use of hedging vehicles are some common mistakes investors make. Consider taking a look at our free report about 7 additional mistakes investors make – and how to avoid them. To get your copy click the following link: www.sutton-associates.net/7mistakes_report.php

- ADP Report shows worst ever job losses in March 2009; stocks surge on the news.

- US President fires CEO of a private-sector corporation after the government shuffled tens of billions into the zombie firm.

- US Congress considering measure to set pay levels for ALL employees of any firm in which the US Govt. has taken a ‘capital position’.

- The Federal Reserve and US Treasury have now spent a year’s worth of Gross Domestic Product on rescuing financial firms.

No folks, we’re not making this up.

The bigger question is how could an elected representative in good conscience vote for something they haven’t even had a chance to look at? At the very least, this is despicable behavior. This bill of goods has been sold under the premise that if something isn’t done within days that the economy will collapse. This is utter nonsense and fear-mongering – nothing more. An economy doesn’t collapse over a period of days. It has taken us well over 2 years from the beginning of the blowup just to get to where we are now. Certainly a few weeks could be taken here to at least give due diligence before committing the equivalent of fiscal suicide.

Unfortunately, by the time we actually learn about the content of this ever-changing bill, and its ultimate impact on us as citizens, the time for action will be long gone.

“I am supporting the economic stimulus package for one simple reason: The country cannot afford not to take action.

Agreed 100%, Senator. Unfortunately, taking an opportunity to create lasting, sensible solutions is much different than going in with a half-baked, half-compromised plan and hoping it will keep things glued together a few months. I might remind you of the $168 Billion cure-all stimulus from early 2008. At the time the Congress was convinced that action would fix everything. Now the same Congress is convinced that nearly a trillion will be enough. Not to mention nearly another $10 Trillion in pledges, guarantees, and bailouts that have been thrown at this collapse between Stimulus I and Stimulus II. At the very least, the Congress should be willing to admit that it has no idea of the ultimate final cost of this problem. I will guarantee you this much though – it is a lot more than $10 Trillion.

The unemployment figures announced Friday, the latest earnings reports and the continuing crisis in banking make it clear that failure to act will leave the United States facing a far deeper crisis in three or six months. By then the cost of action will be much greater — or it may be too late.

This will be the case no matter if this bill becomes law or not. That is because this bill is not addressing the real problem. It doesn’t address the fact that our economy is based on debt, and needs that debt to grow. Without continued debt accumulation, we have no economic growth. Simple as that. That is why it will be necessary for Congress to continue bailing out failed firms and passing stimulus packages. This package will stimulate consumption for a time, but that is it. It will not, nor does it have any prospects for stimulating the economy. If you want this measure to be effective, dedicate 100% of it to rebuilding our lost manufacturing base. Create products here. I know this violates the tenets of globalism and free trade, but it is the only solution. Unless you want to be writing the same arguments for stimulus III in 6 months or so.

Wave after wave of bad economic news has created its own psychology of fear and lowered expectations. As in the old Movietone News, the eyes and ears of the world are upon the United States. Failure to act would be devastating not just for Wall Street and Main Street but for much of the rest of the world, which is looking to our country for leadership in this crisis.

Our country has been the ‘leader’ in the world economy because both our people and our government have expressed a willingness to borrow money to consume. We have done so even to the point of our own detriment, and now decades of borrowing constitute a boat anchor on future growth. Yesterday evening, the President stated that the government was the only institution remaining with the resources to combat this problem. What resources? The government has no resources; other than the ability to borrow (at the expense of the People), create money from nothing (at the expense of the People), and pledge future economic growth to paper over current problems (at the expense of the People). The government doesn’t have $780let alone $780 Billion.

The legislation known as the “moderates” bill, hammered out over two days by Sens. Susan Collins, Ben Nelson, Joe Lieberman and myself, preserves the job-creating and tax relief goals of President Obama’s stimulus plan while cutting less-essential provisions — many of them worthy in themselves — that are better left to the regular appropriations process.

Our $780 billion bill would save or create up to 4 million jobs, helping to offset the loss of 3.6 million jobs since December 2007. The bill cuts some $110 billion from the $890 billion Senate version, which would actually be $940 billion if floor amendments for tax credits on home and car purchases and money for the National Institutes of Health are retained.

Nowhere has anyone actually demonstrated where these 4 million jobs would be created other than the desire to hire nearly 600,000 more government workers. It is very likely that the business community is aware that this will not work and will therefore seek to conduct whatever business the stimulus allows without actually expanding staff to the extent expected. This is not a ‘business as usual’ environment. If the private sector really had faith in this package, it wouldn’t continue to cut jobs as it has been. It would hang on and wait, understanding that retention is far more cost-effective in the short run than going through the hiring cycle. The private sector’s actions alone are a vote of no confidence with regard to government stimulus.

House Speaker Nancy Pelosi says the proposed cuts “do violence to what we are trying to do for the future,” especially on education. Her objections are a warning to conservatives that more cuts would be unlikely to win House approval. They are also an admission of the high price that moderates have been able to extract for their support of stimulus legislation.

If a stimulus bill doesn’t pass, there won’t be any money for Title I education programs. The moderates’ bill provides marginally less money for Title I than the House and Senate bills. But while it’s less than supporters want, this proverbial half a loaf beats no loaf by a mile.

Title I existed long before the stimulus. Education is one of the few areas that have actually seen growth over the past year in terms of employment ex-stimulus! How will Title I spending stimulate the economy?

In health funding, both the House and Senate bills contain billions of dollars for wellness and prevention programs, including for smoking cessation, prenatal screening and counseling, education, and immunization. The moderates’ bill, regrettably but necessarily, cancels this funding on the grounds that such programs are better left to the regular appropriations process.

Same point as above – how is any of this going to stimulate the economy? This is one of the portions of the bill which has been totally dedicated to the political pandering necessary to get the votes needed for passage. While on the surface, all of these initiatives sound warm and fuzzy, they will not stimulate anything other than perhaps the national debt.

“In politics,” John Kennedy used to say, “nobody gets everything, nobody gets nothing and everybody gets something.” My colleagues and I have tried to balance the concerns of both left and right with the need to act quickly for the sake of our country. The moderates’ compromise, which faces a cloture vote today, is the only bill with a reasonable chance of passage in the Senate.”

As Thomas Jefferson so eloquently put it, “A government big enough to give you anything you want is also strong enough to take everything you have”. This bill seems to be little more than a government stimulus package. It will do very little for the economy or the real root causes of the problem: debt and a broken monetary system.

In the 1990s globalization was presented to the nations of the world. Terms like competitive and comparative advantage became part of business lore. Americans, already punch drunk from a 25-year assault on the purchasing power of their currency, were sold on the promise of inexpensive imported goods. These goods would be made elsewhere and moved on barges powered by oil that would be cheap forever. While the former was certainly true, the costs of such shortsighted thinking were largely ignored by those in Washington. We are now witnessing the effects of those costs firsthand.

“We cannot afford a trade war”

This week, Senator John McCain proposed an amendment to the pork-laden ‘stimulus’ package that would have effectively wiped out the ‘Buy American’ clause in the package. Essentially this clause stated that any government or public building projects had to use steel that was produced in the United States. Having already lived through the obliteration of this iconic industry once, the ‘Buy American’ clause was very encouraging. However, it appears that in this regard, it will be business as usual, maybe not because we want to, but now because we have to.

To put it simply, America can no longer live on its own production. This is no surprise and has been the case for quite some time. However, we are in a position now where a little leverage might come in handy. Our economy is bleeding jobs and we need to be able to maintain and promote American manufacturing. And contrary to the tenets of globalization, there is absolutely nothing wrong with producing our own goods and services and we should be doing exactly that.

While the argument will be made that our trade partners cannot afford not to trade with us, it is much more likely that they can remain solvent far in excess of our ability to sustain ourselves. This is particularly true in the case of energy, the ultimate staple good. Despite the claims of many that we have enough oil right here in the US to last us umpteen years, even if that were true, you don’t just flip a switch and have oil flowing. History should have taught us that much. It takes years in many cases to raise these products, build a transport and distribution network and get them into the economy. Again, we have no leverage.

And in reality, why do these countries need to trade with us anyway? Much of what they get in return is nothing more than IOU’s on fancy paper.

The chart below illustrates our trade gap in terms of actual goods – goods we either aren’t able to or currently do not produce ourselves.

US Trade Statistics (Goods only – in Billions of Dollars)

*2008 Final Data Available on 2/11/2009

In typical lukewarm fashion, the US Senate shot down McCain’s amendment in it’s version of what is likely to become a $3 trillion pork-barrel spending package in the coming weeks. For those who are counting, that is $3,000,000,000,000. However, what was most telling is that the balance of the Senate has no respect for American jobs or industry either. This was evidenced by the addition of a proviso that no existing trade agreements be violated by the bill.

This is what happens when you’re behind the eight ball. You have no leverage and little flexibility. In the case of trade, it is doubtful that we can even talk tough let alone back it up with substantial action.

‘Free Trade’ agreements and the Lowest Common Denominator

Another spin off of free trade agreements such as NAFTA is that in addition to driving our jobs overseas, they created a lowest common denominator situation where wages in developed nations came under downward pressure. The causal relationship is simple to illustrate. If a company can make something in Taiwan for example where GDP per capita is about 1/3 that of the US (Economist World in Figures 2007), then import the goods back into the US, the consumer will benefit from the cheaper good. Unfortunately, for every benefit, there is an equal and opposite detriment, and in this case, the jobs in the US which used to produce that good no longer exist. This is what has happened over the past 25 years or so. We chose instead to focus on a service economy where we basically shuffled papers and intangible goods amongst ourselves and called it an economy. All the while, we racked up massive external debts to buy the real goods we needed to survive.

I will allow that obviously this transformation has not been total. There are still some thriving industries in the US, but rather, I am referring to the net effect of the past 2 and one half decades. Much of the wage gap has been filled with various types of consumer credit whether it is credit cards or, more recently mortgage equity withdrawals. Obviously, as we have seen in dramatic fashion, these levels of debt accumulation proved to be as unsustainable as the dynamics that necessitated the accumulation in the first place.

The Solution?

While we have been showered with announcements that our trade deficit is improving, it must be noted that this is almost entirely due to the liquidation of 2008 (which crashed commodity prices) and the US-led global recession. Were growth to return to normal levels, we would immediately observe the trade deficit returning to its prior trajectory. By way of extension, the same situation exists in the case of the US Dollar. Fundamentally, nothing has changed. Media outlets and pundits alike are reading false signals created by the distortions of a debt-laden, fiat monetary system. It is something along the lines of going to an 80s movie where 3D glasses were necessary to make sense of anything. Only the guy at the door forgot to give them a pair.

For quite some time now this commentary has been a soapbox for the idea that we need to rekindle our productive economy. Never has that been truer than right now. We tried the globalization experiment, and in my opinion, it has been a dismal failure. Sure we got some cheap goods, but as a country, we’ve become dependent on others for our very sustenance. This is not an enviable position for anyone to be in, especially not for a country that wants to call itself an economic superpower.

That said the upcoming stimulus package could be used help return America to her pre-1980s position of industrial superiority. During the late 1800s and early 1900s, we ran large trade deficits and put them to work building an industrial base that was second to none. We have a chance to use the debt that will be incurred regardless for something productive. Simply handing people checks so they can go buy television sets (thereby sending the money to Asia) is not going to help anything. Rewarding zombie banks for past financial transgressions will not help anything. Taking the ‘stimulus’ and building industrial capacity, creating real jobs, and producing high quality products, however, would be a nice start.

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Disclosures: None

In the coming days you will be faced with a decision. Once again, fear will be instilled in you, this time by a different group of faces. You will be told that if you do not act that our economy will collapse with all blame solely laid at your feet. You might even be told that martial law will result if you don’t pass the next stimulus and bailout bill.

This time you don’t have the distraction of a coming election. Nor do you need to worry about pandering. The American political memory is pitifully short, and there are almost two years before the next elections. So you can act in confidence and principality without having to worry about keeping your job. Such a sad state of affairs we have in America.

Let’s take a look at the last failure of government intervention. On October 3rd, you authorized over $800 billion in taxpayer dollars (which had to be borrowed) to save the financial system. It has been an abysmal failure. You’ve succeeded in doing little more than creating a giant financial parasite. A parasite that will require more and more resources going forward while producing nothing but a drain on the efforts of future generations.

Even worse, since October 3rd, the unaccountable Federal Reserve has created tens of trillions more behind closed doors, pinning the bill on the forehead of your constituents with nary a whimper of protest from the Congress. This reality is not indicative of the Republic our Constitution demands, nor is it acceptable as a means of government.

The net effect of the bill that will be put before you will be to increase the burden of government on the American people. When will you learn that the markets do a better job of allocating resources than government? When will you learn to stop rewarding irresponsible behavior? I credit you with having the intellect to figure out that when you subsidize bad behavior that you guarantee more of the same. Bank of America needed to fail. Citigroup needed to fail, AIG needed to fail. And the list goes on. Now they sit like an albatross upon the productive output of our already fragile economy.  How do you expect our economy to recover when you continue to pile dead weight on top of it? Despite the fancy verbiage that you’re likely to include in your terribly scripted reply to this letter, that is exactly what you’re doing.

It is time for the bailouts to stop and for responsibility and accountability to begin. It starts with you. You are paid a handsome salary and lavish benefits package (far better than anything your constituents receive) to represent them. Slamming them with debt obligations while telling them you’re fighting for them is a bald-faced lie.  I would like to know by way of a personal reply that you’re going to stand with the American people in this crisis – not with big banks, Wall Street, the unaccountable Federal Reserve, and the status quo.

Respectfully,

“We the People”

We encourage the general public to use any or parts of this text as they consider contacting their representatives about this latest egregioous breach of responsibilty to the American people.

1) You don’t clean up spilled milk by spilling even more.

2) Actions have reactions and sometimes the reactions are not what you thought they’d be.

3) A nation cannot borrow and spend its way to prosperity.

4) Neither can a nation print its way to prosperity.

5) Government is the least efficient vehicle for implementing anything, but is unrivaled when it comes to destroying it.

Perhaps most importantly, 37 years of monetary imprudence is not undone in a month, six months, a year, or even a Presidential term. It doesn’t matter who you are, how good you are, or what party you belong to. Even if the mistakes stopped today, it would probably take the better part of a generation to recover from the debt and lack of productive output which currently encumbers us.

I will say that President Obama could have done both his credibility and the American taxpayer a huge favor by taking a pass on the lavish inauguration festivities. There is work to be done; the time for partying was in November. Now is the time to lead, roll up our sleeves and get to work. I will say that I am quite sure I’d be making the same comments had John McCain been sworn in today. Whether or not stocks are in a bear market is open for debate. However, the bear market in leadership in America shows no signs of ending.