Having studied under two legendary value investors Max Heine and Michael Price, Winters has a long history of producing outsized gains: before he was 40, he was overseeing some $35 billion in assets as Chief Investment Officer for Franklin Templeton Advisors. During this period (2001-2004), David outperformed the S&P 500 by an average of 10% a year.

In 2005, Winters struck out on his own to launch the Wintergreen Fund (WGRNX), one of the top performing mutual funds available to ordinary investors. Unfortunately, last year’s performance brutalized his returns, bringing the fund’s performance since inception to break-even. However, there is little doubt Winters will soon be back producing the large double digit gains his investors are used to: in 2006 he returned 20%, in 2007 it was 21% and year to date he’s up 10%.

With this kind of track record, Winters is one of my favorite investing legends to watch. Which is why I was absolutely floored to see his latest Quarterly holdings revealed a total of $116 million (15% of his $748 million portfolio) in US Treasuries all maturing between October 2009 and March 2010.

As you know, short-term Treasuries are primarily used as safe haven investments during periods of market volatility. Investing in them otherwise offers little if any reward (short-term yields currently stand at 0.14%-0.26%). So if someone’s loading up on short-term Treasuries today, they’re likely doing it out of fear, NOT greed.

The Wintergreen Fund’s prospectus gives us some insights as to what David Winters might be thinking:

The Investment Manager may keep a portion, which may be significant at times, of the Fund’s total assets in cash or invested in high-quality short-term, money market instruments, corporate debt, or direct or indirect U.S. and non-U.S. government and agency obligations, when it believes that insufficient investment opportunities meeting the Fund’s investment criteria exist or that it may otherwise be necessary to maintain liquidity.

For example, when prevailing market valuations for securities are high, there may be fewer securities available at prices below their intrinsic value. In addition, when the Investment Manager believes market or economic conditions are unfavorable for investors, the Investment Manager may invest up to 100% of the Fund’s assets in U.S. or non-U.S. dollar denominated short-term investments, including cash or cash equivalents.

Thus, the two possible explanations are:

1. Winters doesn’t see a lot of opportunity in today’s markets
2. Winters is worried about market volatility or a potential crash

Regarding #1, Winters regularly asserts that today’s markets are a value investor’s dream come true. Here are a few quotes from interviews he’s given in the last six months:

“… [today’s market] is heaven, it’s like gems on the beach.”

Smart Money Interview

June 2, 2009

“… around the world as people become wealthier, we think there are a lot of ways to make money”

CNBC Interview

May 28, 2009

“… it’s actually a great time to be a value investor… the smart investors are buying.”

Bloomberg

May 9, 2009

“I’VE NEVER SEEN SO MANY TRIFECTAS IN MY LIFE — GOOD BUSINESSES WITH GOOD MGM’T AT LOW PRICES.”

Outstanding Investor Digest

March 17, 2009

Obviously Winters sees opportunity in today’s market. So the idea that he’s got nearly 1/7th of his portfolio in short-term Treasuries because of “insufficient investment opportunities,” doesn’t work.

This, then, leads me to conclude that Winters is extremely worried about market volatility or a potential crash. Indeed, looking over his fund’s historic portfolio holdings, we see that Winters only began buying short-term Treasuries in May 2008, after the financial crisis had begun in earnest (Bear Stearns had already gone under).

Winters’ Treasury holdings hit a peak of 24% of assets in the wake of the financial collapse in November 2008. So it’s quite telling to me that despite a 25% rally in stocks since the November lows (42% since the March ’09 lows),

Winters continues to hold 15% of assets in short-term Treasuries. This is especially bearish when one considers that Winters is repeatedly stating that today’s market is a long-term value investor’s dream come true.

In light of this, I would argue that Winters expects greater market volatility ahead… possibly even another Crash. After all, if opportunities are so abundant, why does he have 1/7th of his portfolio in short-term Treasuries (a safe haven)?

I urge to you to be extremely cautious investing in today’s market. If investing legends like David Winters remain heavily invested in short-term Treasuries then were are DEFINITELY not out of the woods yet. I wouldn’t be surprised to see something of a repeat of last year’s September-November performance. Looking at David Winters portfolio, I’d say he’s thinking the same thing.

I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only protect your portfolio from the coming carnage, they’ll also show you enormous profits: they returned 12%, 42%, and 153% last time stocks collapsed.

Swing by www.gainspainscapital.com/roundtwo.html to pick up a FREE copy today!

Good Investing!

Graham Summers

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These claims are not only wrong, they are completely misleading and should be depicted for what they are: nonsensical hype from sources with conflicted interests: folks whose jobs and income stem largely from people remaining bullish.

More often than not, these are the same guys who claimed that Bear Stearns marked the end of the Financial Crisis (how’d that work out?) and that the Federal Reserve can pump our way back into a bull market (how’s that working out?).

The reason this is entirely wrong is because this recession is not your average run of the mill excess inventory recession: the kind of economic contraction we’ve experienced post-WWII.

No, this is a DE-flationary debt collapse, a bursting of a 30-year credit bubble that papered over enormous drops in real incomes, standards of living, and financial stability. The private sector hit a point of total debt saturation in 2007

This recession so far has been the first taste of DE-flation the US has experienced since the ‘30s. Comparing it to every other post WWII recession is like comparing apples and oranges. A debt bubble cannot be re-flated by issuing more debt. A second grader can understand this. I don’t know why guys with PhDs, alleged experts, and the like don’t get it.

For 30 years, our economy grew by borrowing from the future. I mean that the US’s economic growth was funded largely by the use of credit: borrowings that would be paid back down the road.

In simple terms, the economy grew based on imaginary, not REAL demand. We pulled forward future sales of cars, TVs, homes, and the like. By using credit, we bought things NOW, that we would have normally bought LATER. This pulled future sales, future corporate earnings, future incomes, and future economic growth to the NOW through the ‘70s, ‘80s, and ‘90s.

So instead of having a safe, annual rate of consumer spending growth (say 4-5%), we saw double digit rates of growth: for example, between 1980 and 1990, credit card spending increased more than five-fold while average household credit card balances quadrupled. That’s NOT normal.

This lead to the single largest debt bubble in history ($49 trillion in private sector debt and $50+ trillion in public sector debt). And a debt bubble can continue until you can no longer meet debt payments. The private sector hit its “debt wall” in 2007. The public sector continues to grow its debts, creating an even larger bubble that will have even worse consequences.

Now, as you know, there are only two ways of dealing with a debt problem:

1)      Paying it off

2)      Defaulting

The US consumer has begun both. From February to May of this year we paid off $45 billion in credit card debt. Consumer credit contracted $3.3 billion in May, the fourth consecutive monthly decline (this makes our current credit contraction the longest running since 1991).

And we’re just getting started…

Total consumer debt at the bubble’s peak was $2.57 trillion (the other $46 trillion was corporate). So the fact we’ve paid off about $50 billion of this means Joe America has a LOT more  (98%) debt to pay back and default on before he’s finished de-leveraging his balance sheet.

Folks, we’ve got a long, LONG ways to go before this crisis and Crash are over. Anyone who’s telling you the Bear market is over either isn’t looking at the data or is basing their analysis on “a gut feeling” or some other nonsense. They’re all going to get destroyed this fall.

Tomorrow I’ll show you two charts that should make your jaw drop. And I’ll explain why today’s market is mirroring the Crash of 1929 almost PERFECTLY. I’ll also explain why this market rally is just about finished and why anyone buying stocks today is going to get obliterated very shortly.

In the meantime, I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only protect your portfolio from the coming carnage, they’ll also show you enormous profits: they returned 12%, 42%, and 153% last time stocks collapsed.

Swing by www.gainspainscapital.com/roundtwo.html to pick up a FREE copy today!

Good Investing!

Graham Summers

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