It seems like nothing matters away from Europe as investors are fixated on the eurozone debt problems like they are a celebrity sex scandal.
Even though the U.S. market has had a pretty good rally, it is nowhere near what it should have been given the steady better than expected U.S. economic news. However, if Germany gets its way and splits the EU in two, essentially getting rid of the Euro-Trash, stocks would likely soar. That is a long shot however as the easiest course of action is for them to finally allow the European Central Bank (ECB – their version of the Federal Reserve) to print money like our Fed does and backstop the death spiral many of the over-indebted European nations are in.
Even if the ECB is allowed to print money, the respite will only be short term as the answer to the developed world’s debt problems is not more debt. For years, the demographics of the developed world (U.S. included) have been pointing to a slowdown in spending and therefore growth. Basically, the world had a baby boom at the same time. We know that people spend the most in their 30’s and 40’s, with the peak in spending occurring at about age 48. After that people just save more and spend less.
Therefore all these baby-boomers have been steadily passing their peak spending years for over a decade now. To make up for this loss of demand, we came up with all kinds of fancy tricks to allow people to borrow more. (My favorite was the nothing down 110% home loan). This simply created a second problem on top of the inevitable natural demographic slowdown due to occur anyway: a massively over-leveraged/over-indebted world which borrowed more than it could ever pay back.
Considering that the demographics of the world’s population will only get worse over the next decade, before it gets better with the echo-boomers who won’t approach their major spending years for about 5-7 years, the addition of more debt only adds fuel to the fire or should I say like more uranium to the atom bomb. These very issues as well as what investors need to do, is exactly what the internationally acclaimed book of the year, "Facing Goliath: How to Triumph in the Dangerous Market Ahead," is all about. A must read for every serious investor.
Investors must realize that we are in the middle of a cyclical bear market and big rallies are very common within this trend. Since 1940, there have been forty seven-day huge rallies of 4% or more. Of these, seven occurred immediately after major market bottoms -- May 1970, Aug. 1982, Twice in Oct. 1987, Jan. 1991 and Twice in Mar. 2009. Two others occurred immediately after big one-day declines, in November 1963 and October 1997. The remaining 37, 4% one-day gains all occurred in bear markets with just one exception.
I share these figures not to scare you but to simply keep you aware of the reality of the situation and invest accordingly. You can’t sit in cash and earn nothing on your money. There are plenty of places to make money in this market if you know where to look. While some nimble traders might attempt to time the short-term swings in the market, investors should remain alert to the primary trend and focus on investments that get the best returns with the least risk possible.
Whether or not Germany acquiesces, stocks should have a Santa Claus rally. Eventually they will have to give in, which will give a big boost to the high flying growth stocks such as Apple (NASDAQ:AAPL), Google (GGOG), Cisco Systems (NASDAQ:CSCO), Intel Corporation (NASDAQ:INTC), Microsoft (NASDAQ:MSFT) and General Electric (NYSE:GE).
In addition, when the ECB does start to print money, commodities and particularly gold and silver; such as 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), will soar.
We are happy to have been concentrating on high yielding opportunities for our clients for some time now and they are still the way to go as many corporate bonds, preferreds and high income stocks are yielding 8-10% along with upside potential. So why take all the risk if you don’t absolutely have to? Keep in mind the mantra I reiterate on the radio every week on "Smart Money With Keith Springer" – Invest for need, not for greed.
- Tutor Perini Corp (TPC) - 7.625% 11/1/18 yielding 9.8% cusip 901109AA6.
- Edison International (EIX) 7.5% of 6/13 cusip 281023AN1. This is yielding almost 10% for less than 2 years
- Edison International (NYSE:EIX) - 7.75% 6/15/16 yielding 17.5% cusip 281023AR2
- Legacy Reserves LP (LGCY) –- yielding 9+%.
- Vanguard Natural Resources (VNR) – yielding 9+%.
- Breitburn Energy Partners (BBEP) – yielding 9+%.
- Terra Nitrogen (TNH) –10 1/4% yield. Makes and markets farm products. One of the few hot sectors in our economy. It is yielding 8%.
- Ally PrA – 11.5% There are three very attractive Ally Bank Preferreds yielding around 10%. Ally is 91% government owned, so they’re not going anywhere.
- Ally PrB – 12%
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.