The troubles in Italy, Portugal and Greece are shockingly serious. How serious? Many insist that these 3 little piggies will eventually succumb to disorderly bankruptcies, causing Armageddon for world stock markets and the global financial system.
For the doomsday crowd to be right, however, everything has to go wrong. Ev-er-y-thing!
For instance, coordinated eurozone plans for aid to Greece would have to go completely awry. Simultaneously, Italy would have to fail at every turn to shore up its balance sheet. Then, the country would have to be turned away by European policymakers because Europe wouldn’t have the capital to “bail out” Italy.
Of course, China would have to forgo its own well-being by sitting on the sidelines. For that matter, all of the other nations in the world - Germany, Japan, the U.S, Russia, Brazil, Switzerland, the U.K., Australia - would have to stand idly by as a “sovereign debt crisis” decisively destroys the global economy. And this sounds likely?
Financial markets may or may not panic if Italy drops the ball. Yet the rest of the world’s sovereigns, albeit grudgingly, would certainly pick the ball back up off the floor. Indeed, Italy is “too big to fail,” which is precisely why it won’t.
So what can volatility-weary investors do? Have your own personal eurozone plan. Specifically, use stop-limit loss orders on your holdings to reduce the risk of any one asset becoming a hopeless liability. If you’re not comfortable with actual stop-limit loss orders, employ key moving averages (trendlines) as part of your unemotional sell discipline.
If you still believe you’re overexposed after stop orders and trendlines have raised your cash level, draw a simple line in the sand. Perhaps you would choose the October stock market low (S&P 500 at 1097). If it doesn’t hold, neither do you.
Although I have a plan for dealing with disaster, I don’t believe we’re heading back to the October lows. China will declare victory over inflation in the near future, allowing for an easing of fiscal and monetary policy. The European Central Bank (ECB) has no choice but to reduce rates too.
The likely effect? Higher stock prices and higher commodity prices. After all, the S&P 500 is sporting a 7.4% earnings yield (E/P) at a time when the 10-year note is just 2%.
Here are three ETFs that I continue adding to client accounts:
1. ALPS Alerian MLP ETF (AMLP): Can the moat be any wider? There are no viable competitors to the limited number of “toll-road” transporters of oil/gas. Better yet, the 6% annual cash flow is as reliable as anything in the investment universe. Moreover, the federal regulation of energy MLPs is mild (if not downright supportive).
2. SPDR China (GXC): Inflation in China has cooled off dramatically, but so has growth. China will need to begin the process of easing/stimulating growth once more. I already began buying shares in the 50s and 60s. With GXC pulling back from its monthly peak of 70 to 65.5, put it on your “list.”
3. PowerShares S&P 500 Low Volatility (SPLV). You can’t argue with a strong technical uptrend or an anticipated yield greater than 3%. This ETF seeks investment results that correspond to the price and yield of the S&P 500 Low Volatility Index, which consists of the 100 stocks from the S&P 500 with the lowest realized volatility over the past 12 months.
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.