When the Beatles sang, “Can’t Buy Me Love,” who would have thought that the chorus might some day apply to U.S. stimulus spending. Indeed, the $862 billion hasn’t purchased much in the way of love for new employees. And as it currently stands, longer-term economic growth hinges on love for human resources.
Consider an example that involves actual dollars. As part of the U.S. government’s record stimulus package, it gave one billion dollars ($1,000,000,000) to build a clean coal repowering program and carbon dioxide (CO2) storage network in Illinois. The Department of Energy has projected that the spending created 1,900 jobs. In other words, private taxpayers funded a government project that yielded 1,900 new jobs at a cost of more than $500,000 per new hire. $500,000 for a single job!
Is it any wonder that only 20% of investors believe that stocks will go higher over the next 6 months? There’s very little faith in the government’s current approach to job creation. In reality, investors want to see corporations spend money that they do have, rather than the government spend billions that it doesn’t have.
Getting CEOs to hire may not be as difficult as some suggest. Gather leaders of respective economic sectors in the Oval Office. Ask them what they need to spend their money on hiring, as opposed to acquisitions or share buybacks. To the extent they can meet certain yardsticks… give them what they ask for. (Lather, Rinse, Repeat!)
Yes, if that means cutting the corporate tax rate, cut the corporate tax rate. If that means limiting legislation that hinders business cash flow, limit legislation. Again, as long as hiring yardsticks that business and the White House agree upon are met, everyone would win.
How might this relate to U.S. ETFs? Not much will change over the next 4-6 weeks… so stick to income-oriented investments.
For instance, the S&P SPDR Dividend Fund (SDY) tracks the the S&P High Yield Dividend Aristocrats Index – S&P 500 companies that have increased their payouts for 25 consecutive years. SDY pays out 3.5%… or 100 basis points more than the paltry yield of a 10-year treasury bond. Similarly, the iShares High Yield Corporate Bond (HYG) serves up 8%+ annual income that’s delivered monthly; that’s 600 basis points greater than treasury bond funds with comparable average maturities.
Even as I find myself buying SDY and HYG on dips and pullbacks, I recommend the use of stop-loss limit orders. This protects you against the slim possibility of a September-October catastrophic collapse in “riskier” assets.
Around mid-October, when we can begin to assess likely outcomes of the mid-term elections, possibilities for growth-oriented assets will come into view. My early “guestimates” favor Software (IGV), Telecom (IYZ) and First Trust’s Internet (FDN). I wouldn’t recommend going out on a limb unless you have a plan for the possibility that the limb might break. (In contrast, I would recommend keeping your eyes on the wonderful developments in a variety of Emerging Market ETFs.)
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.