|
2009 has demonstrated to
be once again a difficult year for seasoned
investors. Whether it comes from jobs report or some
other dose of bad news, the stock market is likely
to retest the November bottom�and probably sooner
than later.
Despite me thinking that we've already seen the
belly of the beast, I still would not be surprised
to see the lows retested.
But even with the short-term bearishness, many
financial advisers are telling clients to look past
the bottom and start picking up small- and mid-cap
stocks that traditionally lead the market out of
recessions. I see technology and health care
companies playing leadership roles. Small-cap stocks
always have and always will lead out of recessions
and they will continue to do so. A few that I like
GERN, OSIR, JNJ, MU, OVTI, IBM�
Since the DOW tumbled to 7,552 and the S&P 500
dropped to 752 on Nov. 20, the market has meander in
a fairly tight trading range while it wallows in the
negativity of swelling unemployment, along with poor
earnings and pessimistic outlooks.
Opportunity Awaits
Those looking inside the numbers think the outlook
for the rest of the year, beyond the immediate
damage, could be what provides a retest.
For sectors on the smaller-company end, like
biotech, emphasizing a stock-picker's environment
rather than one, where plays on indexes and
exchange-traded funds will thrive.
What will lead us out of this is a change in
psychology you'll want to start to see some of the
negative news be minimized and more of the positive
substance start to come out. That will be the first
kind of change in the market. It's all about
sentiment. Bear markets reverse much quicker and
with much more of an upside than most people
realize.
Obviously the government�s recent interaction to the
market economy will play a significant role of
reversing this bearish trend. Markets will interact
to the government�s plan with further stimulus aid
that could easily top above $1 trillion. This week�s
announcement by the new Treasury head regard�s to
the remaining $350 billion TARP funds and Senate�s
vote on the much anticipated stimulus package will
propel the market towards the 9,000 range. I believe
the market will run off with the news through the
end of the 1st half or 2nd quarters then settle back
around 8,000. There�s just too much bad news and
economic cut backs. (Graphs have been provided
below) Markets have been moving up relative to
government official�s thoughts and announcements.
Finding Safe Harbor
I continue to urge
diversification and discourage clients from using
"that sense of a crystal ball" to determine which
sectors will lead. You've just got to stick to your
diversification. There's a lot less risk in holding
a diversified portfolio than in a concentrated
portfolio with what you think might get us out of
this.
Those who believe in the
theory that large-caps won't be the leadership group
can play smaller companies through ETFs that reduce
risk.
Some examples are sector
plays that have been prevalent during the
recessionary period. Many have played sector driven
leaders such as financials, tech, pharma, to
commodities. The most interesting factor which have
been more commonly used as a hedge against
depreciating stock values are most notable in
financials (due to the volatile swings). (FAZ vs FAS
� ERY vs ERX, UYG, XLE, XLF, XLV) The list goes on
and on. As time goes on, ETF�s will play larger
roles similar to mutual funds had once experienced.
Fees associated are minimal least to say compared to
some outrageous fees from most notables which I�m
not obliged to cite.
Ones I have mentioned
are a selected few that best gauges each sector as a
pool. Again, financials being the most volatile. We
should not expect banks to lead our economy like it
once did through 2007.
The president has
already outlined the administrations agenda by
increasing spending in new technology and improved
health system. Approximately $100 billion will be
vested into pharma tech and R & D while $150 million
will be invested to improve the aging
infrastructure. Our economy has hit a plateau which
requires new spending in areas much needed.
I like to use the
correlation and studies from the Great Depression
Era. I mean how can this economic environment differ
from the Great Depression. We have similar macro
economics with the following; over indebtedness,
deflation, underconsumption, increased savings rate
(by the way have not seen an increase savings rate
2.5% in over 20 years. We will continue to see an
upward trend in savings rate and penny pinching),
tight money supplies, pessimism, fall in profits,
fall in value assets (housing), and trade deficit
gap narrowing. I�ve included some graphs below to
demonstrate the 10 year period of revitalization or
more commonly known as the ―The New Deal‖. Obama�s
package resembles much of this deal of improving
technologies and infrastructure.
Now if our current trend
continues, we will experience a flat growth economy
for the next 3-7 years unless of course the
masterminds behind the mess can mastermind our way
out of this. I don�t anticipate the market to make a
complete reversal trend. We�ll continue to see no
growth while governments impede on more pressing
matters such as debt, liquidity, and regulation of
financial markets. The move toward debt reflects a
continuing distrust of the stock market and not
always spectacular returns while guarding against
wild fluctuations in share prices. Until things
turn, I continue to advocate high-yielding corporate
bonds and emerging market sovereign debt. Those
instruments provide returns as the direction of
stocks remains unsure.
We can definitely test
the lows again on any bad news or any surprise. That
doesn't mean long-term disciplined investors should
not look at this as a phenomenal opportunity to
restructure your portfolio.
Gold is King
Gold seems to be the
subject of every investor. How can we deny it?
Gold�s impressive run during Bush�s presidency is
one that will be taught at every Finance seminar
course. We�re in the perfect environment for the
precious metal such as high debt, government�s
relentlessness of printing monies, and Federal
chairman�s decision to keep overnight lending rates
near 0%. Rest assure, rates will remain at historic
lows for the later part of the year. Appreciation of
this precious metal created a fad that has televised
several commercials ―trade gold for cash‖ Now the
question is, will we see Gold reach the $1,500 mark,
as many investors are speculating? The probability
has been ever so growing. The last four months since
November I�ve noticed gold making week after week
gains at a much slower pace than previously
projected. We�re slightly above $906 an ounce. I
personally like to measure the success of gold with
a Spider Fund ETF - GLD. November 3, 2008, GLD
reversed down trend to $70. Today it�s valued at
$90, a 28% return.
We may possibly reach
the $1,100 � $1,500 mark by year�s end. I would
continue to exercise caution due to the government�s
influence in the current markets. In addition, the $
dollar�s strength has been notable with currency
traders. The dollar has appreciated against the Euro
by 20%, Pound by 27.5%, Canadian dollar by 30% while
the YEN has appreciated against the dollar by 29%.
Gold and the dollar�s strength must be closely
watched as a strong dollar may be a signal of a tell
sign. Whether it may be a; Currency bubble? Bond
Bubble? Hyperinflation? Or US deep prolonged
recession.
Gold 2 Year
6 Month Dow
20 Year Dow
|
