For my last birthday I bought one of those yardage rangefinders that golfers use. Now I know the precise distance to carry the front bunker, to hit the middle of the green, and to fire directly at the pin. While it hasn’t helped me overcome a multitude of swing flaws, accurate distance measurements give me a fighting chance to finish each hole with the same ball I teed off with.

In a similar vein, accurate economic statistics related to interest rates, income, and taxes can provide valuable perspective with which to address the issues facing our country. Armed with the facts, disciplined, patient investors have a fighting chance to turn our economic challenges into opportunities.

The Fed is pushing on a string… Interest rates are at an all-time low, as measured by the 10-year US Treasury bond, which currently pays a measly 1.75%. Mortgage rates too, are at historically low levels, yet housing and the overall economy remain in the doldrums. With all due respect to Fed Chairman Bernanke, interest rates are low enough and initiatives to lower them are unlikely to accelerate the housing recovery, or solve our overall economic problems. While I’m at it, I have a similar message for President Obama. Temporary payroll tax cuts followed by permanent tax hikes will not lead to a meaningful increase in employment. With all due respect, that just won’t work.

What about all the unfairness… Adjusted for inflation, the average household earns about what it did in 1996. Essentially, from this perspective, we have made no financial progress in the past 15 years. It feels even worse than that to a lot of people, from the swelling ranks of unemployed to the 15% of the population that is living below the poverty line, the highest percentage in nearly 20 years. At the opposite end, the best-off Americans are under political attack from President Obama and Warren Buffet. It seems that virtually every debate centers around the belief that our country is or is becoming increasingly unfair, a society of haves and have-nots, where the middle class is the big loser. It is hard to imagine the political process in Washington becoming more polarized or ineffective. To where does all this class warfare lead?

A few more facts – The income gap between the best-off and the worst-off has changed very little over the past 10 years. The wealthiest 20% account for 50% of income, while the bottom 40% account for about 12% of income. This gap has remained relatively constant over the past 10 years.

With all due respect to Mr. Buffet, the average millionaire does not pay a lower tax than the average worker. In fact, the average income tax rate for those earning in excess of $1 million is around 23%, over twice the average rate paid by those earning $50,000-100,000, and more than triple the average tax rate for those earnings less than $50,000. Third, the share of taxes paid by the wealthiest segment has increased over the last two decades. Based on recent data, the top 1% of tax payers earn about 20% of all income and pay 28% of all federal taxes.

All these statistical facts lead me to believe there is something much deeper going on that has created this pervasive sense of unfairness. Worse over, we continue to search for quick fixes to our economic challenges through temporary stimulus programs that to date have been largely unproductive and frustratingly ineffective.

Americans are impatient. We want what we feel we deserve, and we want it now from any person, organization, or government entity capable of giving it to us. Impatience is a deep problem facing this country.

For America to continue to lead the world we must make five changes. One, re-dedicate ourselves to providing the world’s best education system at all levels. Two, learn for the first time in a generation how to live within our means. Three, realign our priorities from consumerism and status, to faith, family, and community. Four, achieve a balance between the pursuit of individual rights and the call to individual responsibility. Five, regain the formidable work ethic our grandparents demonstrated.

All of this will take time, perhaps a generation or two. Do we have the patience to see this through? Of this I often wonder…

So, what are the opportunities for disciplined, patient investors?

There is a degree of symmetry to the markets that can be helpful during times of emotional extremism. When there is excessive exuberance, there is heightened risk of disappointment. When there is rampant fear, there is significant opportunity for positive developments. In this context, heightened market volatility requires applying more patience to the buy and sell decision process. Unfortunately, investors face an onslaught of screaming heads imploring them to chase stocks that are rallying and to bail out of stocks that are falling. With all due respect to the doomsayers, emotional extremes can and should be avoided. In order to eliminate emotion from the decision process we continue to focus on industry-leading, high quality stocks that have sustainable competitive advantages vs. their peers in terms of product innovation, cost control, market positioning, technology, management, strategic vision, and earnings deliverability. Companies that can continue to leverage these advantages can provide profitable investment returns over time. With discipline and patience we have a fighting chance.

Michael Kayes, CFA