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I don’t need to tell you it’s tough out there. We’re coming off one of the worst periods in history for the market with stocks down more than 14% for the quarter and more than 7% in September alone. Even hedge funds were rocked with their worst quarter in 15 years. Worse than looking at our statements; that it is just dreary. It seems nobody has anything positive to say about the future. Well, I’m going to go on record as say that I believe the 4th quarter is going to be better than expected.

The continuation of QE Mini-Me and Ben Bernanke’s other stimulus programs should keep us out of a double-dip recession. It won’t be gangbusters by any means, just more of what I have coined as a ‘slog through the mud.’ Much of the economic data have been at the very least OK, mostly better than expected. These data coupled with the intense negative investor sentiment should bring a good Q4.

The key for the stock market will, of course, be earnings. Considering that we have had consistent positive earnings surprises and that earnings expectations have been lowered, stocks and bonds are set up for no less than a relief rally. The action of the market over the last few days has been encouraging. On Tuesday, I posted a Critical Market Commentary – The Market Breaks Key Support – where I said we needed a quick reversal back above the breakdown level to show a shakeout was complete, or we would have another major leg down, and we got that recovery. Of course, we won’t know until we have some follow through, but it is a good sign.

If an intermediate term bottom is in place, many growth stocks such as Apple (APPL), Google (NASDAQ:GOOG), McDonald's (NYSE:MCD) and Microsoft (NASDAQ:MSFT) and even some of the beaten up banks such as Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and JP Morgan Chase (NYSE:JPM) will do very well. Gold will rebound as well with the SPDR Gold Trust (NYSEARCA:GLD) and Market Vectors Gold Miners (NYSEARCA:GDX) ETFs.


The massive debt problems, coupled with a lack of spending in most of the developed world including the US, which is what the book "Facing Goliath: How to Triumph in the Dangerous Market Ahead" is all about, is not going away. Crises of confidence happen when you least expect them as massively over-indebted governments, banks, people or corporations can seem to be happily rolling along when lenders disappear and panic erupts. There’s a limit to how much the bond market lets you borrow, and that’s what shut down Greece, and if we’re not careful with our deficit, it will happen to us.

Investor Strategy
Our personal focus will remain on income and dividends and especially corporate bonds and preferreds, with many yielding well over 8%-10%. If you are not investing for income, you are just gambling. Many corporate bonds, preferreds and dividend stocks have been slammed, essentially with “the market throwing the baby out with the bath water.” This is clearly where the greatest value lies. After all, all we have to do is collect the enormous interest payments and wait just a few years for them to mature and get our principle back!

SOLO cup bond – 18%

Edgen Murray bond 19%

Ally A – 11.5%

Ally B – 12%

TNH – 10%

(Click charts to enlarge)










Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: The Future's So Bright, I Gotta Wear Shades - Q4 Could Surprise