As the herd continues to stampede into U.S. Treasury debt of every possible maturity, theoretically to avoid risk, this movement is predicting more than just a mild recession, in fact it's predicting a real depression. Yields on AA+ 10-yr bonds can be locked in o yield 2.11% per year and you get your principal back in 10 years. The only justification of this return on invested capital must be tied to the belief that a return is better than something less. In other words, a depression.
But Bernanke said that the Fed would not allow deflation to set in. That the Fed would be vigilant and understood how damaging deflation was. And that the Fed felt its mandate was to create inflation (granted only up to 2%).
Do We or Don't We Fight the Fed?
The time-tested adage is do not fight the Fed. When they make a decision, and then decide to raise or lower rates, print or contract money, etc., hen they succeed in what they intended. Volker's Fed succeeded in raising rates to the point where inflation started its multi-decade long slide to near zero. Greenspan's Fed succeeded in printing so much money that we blew not one, but two bubbles. And now Bernanke's Fed has clearly said that they fear deflation and it won't happen under their watch. They have backed up their words with deeds such as quadrupling their balance sheet, moving money at light speed throughout the world, and even covertly moving cash to foreign financial entities to prop up the system. We believe Bernanke's Fed will succeed in the stated mission, just as former Feds have, and in fact we would argue that history has shown the "risky" strategy has been trying to bet against them.
20 Blue-Chips That Are a Bet the Fed Succeeds
We can think of many stocks that will yield more than 2.11% and that we believe will be higher in price over the next 10 years. And to refine the list down, we are using the following criteria:
- Must be a large multinational diversified large cap of $25B+
- Must operate as a top leader in a major industry
- Must believe value will grow over the subsequent 10 years
- Must yield over 2.11%
The following are our recommendations ranked by yield:
1) Kimberly-Clark (KMB): $62.57 yield 4.35% 52wk 61.00 - 68.49, market cap $25B
2) Conoco Phillips (COP): $62.71 yield 4.03% 52wk 52.00 - 81.80 market cap $88B
3) Philip Morris (PM): $64.90 yield 3.94% 52wk 50.54 - 72.74 market cap $114B
4) Intel (INTC): $19.93 yield 3.66% 52wk 17.60 - 23.96 market cap $108B
5) General Electric (GE): $15.09 yield 3.64% 52wk 14.25 - 21.65 market cap $162B
6) Arcelor Mittal (MT): $21.35 yield 3.52% 52wk 21.20 - 38.88 market cap $34B
7) Wal-Mart (WMT) $48.41 yield 3.51% 52wk 48.31 - 57.90 market cap $171B
8) Procter and Gamble (PG): $58.51 yield 3.44% 52wk 57.56 - 67.72 market cap $169B
9) Home Depot (HD): 28.51 yield 3.41% 52wk 27.10 - 39.38 market cap $47B
10) Pepsico (PEP): $60.32 yield 3.30% 52wk 60.10 - 71.89 market cap $99B
11) Time Warner (TWX) :$29.07 yield 3.08% 52wk 28.91 - 38.62 market cap $31B
12) General Dynamics (GD): $58.38 yield 3.05% 52wk 55.46 - 78.27 market cap $22B
13) Boeing (BA): $57.41 yield 2.93% 52wk 56.66 - 80.65 market cap $42B
14) Coca-Cola (KO): $63.96 yield 2.85% 52wk 54.92 - 69.82 market cap $151B
15) 3M (MMM): $78.23 yield 2.7% 52wk 78.01 - 98.19 market cap $56B
16) JP Morgan (JPM): $34.37 yield 2.7% 52wk 33.69 - 48.36 market cap $140B
17) Exxon Mobil (XOM): $68.03 yield 2.66% 52wk 58.05 - 88.23 market cap $341B
18) Microsoft (MSFT): $24.20 yield 2.5% 52wk 23.32 - 29.46 market cap $210B
19) BHP Billiton (BHP): 75.17 yield 2.42% 52wk 64.14 - 104.59 market cap $219B
20) Caterpillar (CAT): $83.51 yield 2.13% 52wk 63.34 - 116.55 market cap $55B
The herd mentality is strong and dominant in today's fear based environment. And the desire to be "safe" is on the average investor's mind to be sure. However, we believe that fighting the Fed and investing like a depression is coming is not the right way to position your portfolio. We are confident the 20 stocks listed above will provide yields greater than U.S. Treasuries over the next 10 years, along with strong appreciation potential with modest risk. We do not believe Bernanke's Fed will allow a depression to take hold, so don't fight the fed and buy these 20 blue-chips for long-term potential.