What to do? Dismal economic figures and soon to end government stimulus seems to finally have crippled the 3 year old bull market. U.S. markets are now faltering or declining and commodiites are stagnating.
A healthy cash position is warranted. I've previously written how inverse ETFs can help (see here). High yielding securities may also provide protection. The high yield (even if reduced) is a natural defense against disinflation. Consider the following:
Annaly Capital Management (NYSE:NLY) and Chimera Investment (NYSE:CIM) are REITs which (thanks to Fed policy) borrow at near zero rates and then, using leverage, invest in high yielding Mortgage Backed Securities. The result? Fantastic cash flow which, because of the REIT structure, is 90% distributed to shareholders. Annaly yields 13.6% and Chimera yields 15.1%.
The Street has an article on how high yielding REITs may beat stocks now that QE is ending. Keep an eye on Fed policy though. When the Fed abandons its low interest rate bias you may also want to abandon these REITs.
BBVA Banco Francs S.V. (NYSE:BFR) is an Argentine bank yielding 12.5%. Argentina has a booming economy (and 10% inflation). The country is rich in exportable items such as agricultural, natural resource, and industrial products.
Finviz stats show BBVA Banco Francs has a 12% plus yield, a P/E of 5.37, and debt-to-equity ratio of 0. Compare that to U.S. based Bank of America with its .35% yield, no earnings, and debt-to-equity ratio of 3.49. To me, its obvious which is the better buy.
Partner Communications (NASDAQ:PTNR), an Israeli cell phone company which yields 7.1%. The forward PE is only 2.16 (see here). An added plus: Partner has a 5 year growth rate of 36%. These are good numbers and Israel is somewhat insulated from the U.S. economy.
Keep in mind that Israel withholds 20% of distributions. In a retirement account the 20% witholding may be hard to recoup.
TICC Capital (NASDAQ:TICC) is a Business Development Company which yields 10%. The company has no debt and a price-to-free cash flow of 9.76. TICC provides capital to technology companies. The company invests in "secured and unsecured senior debt, subordinated debt, junior subordinated debt, preferred stock, and common stock of both private and public companies", see here.
If the U.S. economy weakens more than expected TICC may have problems, but a payout ratio of only 41% provides some protection. Phillip Mause has a good write up on BDCs you may wish to read.
Enerplus Corporation (NYSE:ERF) and Pengrowth Energy Corp (NYSE:PGH) are former Canadian Energy Trusts yielding 7.1% and 6.7% respectively. Distributions are monthly. Enerplus has both Canadian and U.S. oil and gas assets while Pengrowth is in western Canada.
Financial stats may not be as compelling here, but read this on Enerplus:
. . . [the company has] probable reserves of 110,568 thousand barrels of light and medium crude oil; 46,778 thousand barrels of heavy crude oil; 14,507 thousand barrels of natural gas liquids; 1,013,180 million cubic feet of natural gas; and 24,890 million cubic feet of shale gas.
As central banks of the world continue to "print" money I like stocks like Enerplus and Pengrowth for the long term, regardless of payouts.
At this point markets seem paused, possibly poised for a downturn.
It's a good time to be defensive. Hold a large cash position, maybe own some inverse ETFs, and consider some high yielding stocks such as mentioned above. As always, the above represents only my opinion. Be sure to do your own due diligence.
Disclosure: I am long NLY, CIM, BFR, TICC, ERF.