Even the Spartans couldn't save Greece
The inevitability is upon us. The thought that Greece would accept austerity is as ridiculous as a politician without reelection. Clearly the combination of the massive debt load of not only Greece but the entire developed world and not enough young people to pay for the old is making economic growth impossible.
A growing economy needs more spenders, and with the baby boomers well past their peak spending years, we just don't have enough. As I say in "Facing Goliath: How to Triumph in the Dangerous Market Ahead," an over-indebted, over-leveraged population always occurs at the bottom of economic cycles, but are not typically as bad as this one. As we are learning, this time IS NOT different.
For the past 50 years, the world's young made promises to themselves for when they got old. Now that day is here with the bills to pay for it along with them and not enough new young people to pay for it. Whether they keep the euro together or not, is irrelevant. There are not enough earners to pay for the benefits, and to keep borrowing and spending on these entitlements is a living train wreck in slow motion. Eventually this will affect the stock market, especially when the stimulus stops, as we all figure out that the answer to too much debt is not more debt.
In the short term, it looks like most stocks have peaked and the market is in the process of a topping pattern. Although the indexes are holding up relatively well, the internals look abysmal as the rally is driven by fewer and fewer stocks while an increasing number make new lows in the process.
- We are in the 40th month of this bull market. The average is 39 months
- We are in the 4th year of a presidential cycle, typically the peak
- The administration is less likely to increase the deficit pay for stimulus after the election
More stimulus is very likely and will drive stocks higher in a hurry. If you're a betting man, bet on a QE3 and buy commodity related companies such as Goldcorp. (GG), Barrick Gold Corp (ABX), SPDR Gold Shares (GLD), Power Shares Double Gold (DGP), Market Vectors Gold Miners ETF (GDX), Newmont Mining Corp. (NEM), , Freeport-McMoRan Copper & Gold Inc. (FCX), PowerShares DB Gold Double Long ETN for the not so faint of heart, plus Silver Wheaton Corp. (SLW) and ProShares Ultra Silver (AGQ) and Fortuna Silver Mines (FSM).
And growth ETF's and stocks like the SPDR S & P 500 (SPY), SPDR Select Sector Fund - Financial (XLF), iShares MSCI Emerging Index Fund (EEM), Emerging Markets Consumer ETF (ECON), Brazil (EWZ), PowerShares QQQ Trust, Series 1 (QQQ), iShares Russell 2000 (IWM) and iShares FTSE China 25 Index Fund (FXI). For the very nimble investor trader types, stay with the movers of Apple (AAPL), which will benefit from new products coming out in a few months as well other leading companies that will continue to rise the innovation wave like Google (GOOG), Intel Corporation (INTC), Qualcomm (QCOM), Microsoft (MSFT), Cisco Systems (CSCO), Dell (DELL), Caterpillar (CAT), General Electric (GE) and Yahoo (YHOO), Red Hat Inc. (RHT), Schlumberger (SLB), VMware Inc. (VMW).
Of course there is a risk that we will not get additional stimulus which would make me believe that we have peaked. For more defensive minded investors, buy dividend stocks like healthcare REIT's related to the aging baby boomers such as Healthcare Properties (HCP), Senior Housing (SNH) and IShares Healthcare (IYH), and MLP's such Terra Nitrogen (TNH), Legacy Reserves (LGCY), Vanguard Natural Resources (VNR) and BrietBurn Energy (BBEP)
Managing money, especially your own, is a daunting task. There are plenty of ways to make money in this market and in the dangerous market ahead, but the key is to do it without all the risk.