What’s happening right now:
- The EU and the Italian crises will pass for now and stocks will focus away from Europe and on other 2 E's - Economics and Earnings.
- Economic numbers are not so bad - not great but good enough.
- Don't fight the Fed - QE Mini-Me will keep us out of recession.
- Sentiment is decidedly negative – The market loves to climb that wall of worry.
A decade long debt binge fueled growth in most of the developed world. When the baby boomers throughout the world started getting older and spending less, we made up their lost consumption with the credit card. Now it's time to pay the piper. We are learning that debt actually has to be paid back. It's like the whole world was a U.S. homeowner borrowing on their home and just realized for the first time that their home doesn't have to go up and value. This is the proverbial "Goliath" in the must read book of the year – "Facing Goliath: How to Triumph in the Dangerous Market Ahead," and we are just seeing the tip of his enormous head.
In the short term, the EU problem will dissipate and stocks should do well due to strong earnings and better than expected economic numbers. Last week’s trade deficit number was a good sign and is finally showing signs of life from a weaker dollar. Maybe Ben Bernanke does know what he's doing!
A rally in stocks will push growth stocks the most and growth investors can play the “risk on” trade and play for a Q4 rally. A strong rally will be like a high tide that lifts all boats, with the biggest beneficiaries being the best growth names such as Apple (AAPL), Google (GOOG), Yahoo (YHOO), Microsoft (MSFT) and Intel Corporation (INTC).
As the world modernizes and people's wealth increases, they will demand better food and especially meat. There is a direct correlation between increased wealth and meat consumption. Therefore there is a special opportunity in agriculture and commodity stocks such as with iPath DJ-UBS Grains TR Sub-Idx ETN (JJG), Potash Corp. of Saskatchewan, Inc. (POT) and the Mosaic Company (MOS).
Gold and silver are also building a nice base and will continue to do well as the U.S. dollar and The euro get debased and investors would be wise to pick up the SPDR Gold Shares (GLD), Market Vectors Gold Miners ETF (GDX), Newmont Mining Corp. (NEM), Goldcorp. (GG), Freeport-McMoRan Copper & Gold Inc. (FCX), Silver Wheaton Corp. (SLW) and ProShares Ultra Silver (AGQ.
Making money in any market is every investor's dream. The current massive volatility, is making that goal overwhelmingly difficult and dangerous. Naturally the first step is to avoid some of the major investor blunders such as being “buy-and-hold” (buy-and-hope!) instead of being tactical and/or being all-in or all-out of the market rather than “investing for need and not for greed."
However, fear in making a mistake often leads to paralysis keeping people in investments they shouldn't own or in cash, which in today’s world of low interest rates is a guaranteed loss to purchasing power (inflation & taxes). The key is to focus on the “sweet spot”, that inflection point within the market that generates the best return with the least amount of risk.
This is not your grandfather’s stock market anymore. The economy has changed due to the “Goliath” and it requires updating your goals and objectives regularly just as you do with your clothes, car and hair styles.
The rapidly aging populations of not only the United States., but the entire developed world, has promised itself benefits which we simply can’t afford (yes Greece, Italy etc. and soon to be America). This, on top of a massively over indebted populace which is in a draconian deleveraging process that will take years, is creating an economic setting not seen in a generation and therefore difficult to comprehend and properly invest in. Most of us have never seen a slow growth deflationary environment, which requires totally different investments than what was working just a few years ago or I’m sorry to say what most people still have in their portfolios and 401k’s. (Buy-and-hold kills … worse than cigarettes)
Investor Strategy – Focusing on that “Sweet Spot”
For the moderate investor, “Invest for need, not for greed” and “Get the very best returns with the least risk possible.” You’re not going to outsmart the market any more than George Clooney outsmarted the sea in the movie, "The Perfect Storm." The market always presents opportunities and right now that is dividend paying stocks and corporate bonds, many of which are yielding 8-10% and higher. Getting equity returns without equity risk is our goal. If you’re not collecting dividends and income in this market, you are just gambling, and now is definitely not the time to do that with your family’s security.
Good Dividend opportunities:
- Healthcare Properties REIT (NYSE:HCP) – Yielding 5.6% - Owns and operates hospital services for seniors, and there’s about to be a lot of them.
- Legacy Reserves LP (NASDAQ:LGCY) –- yielding 9+%.
- Vanguard Natural Resources (NYSE:VNR) – yielding 9+%.
- Breitburn Energy Partners (BBEP) – yielding 9+%.
- Terra Nitrogen (NYSE:TNH) –10 1/4% yield. Makes and markets farm products. One of the few hot sectors in our economy. It is yielding 8%.
- Ally Bank Preferreds (ALLY PrA&B) - 11.5- 12% There are three very attractive yielding around 10%. Ally is 91% government owned, so they’re not going anywhere.
- Tutor Perini Corp (NYSE:TPC) - 7.625% 11/1/18 yielding 9.8%.
- Broadview Networks Holdings (BDVU) - 11 3/8% 9/1/12 yielding 16%.
- Colt Defense (CLTDEF) – 8.75% of 2017 yielding over 18% (cusip 19686TAC1) .
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.