8/17/2011 5:08 PM ET|
Do-or-die time for the US economy
An expert reading
Lest you think all of this is economic mumbo-jumbo, I checked in with the folks at ISI Group, a smart and low-key group of economists out of Manhattan that caters to high-end money managers. They run their own proprietary surveys of businesses -- asking managers across a wide swath of the economy what conditions are like.
Their takeaway? While conditions are well down from the highs of late May, they haven't fallen into recessionary territory.
ISI's Oscar Sloterbeck told me that while the current downturn in his business confidence surveys is less intense than the one seen last summer, it is more diverse. That makes sense when you think about the things responsible for the current soft spot: the political debacle over the debt ceiling, the threat of a U.S. Treasury default, the European crisis and stock market volatility.
The good news is that these negative factors have passed either entirely or are fading. The fact that retail sales in July continued to expand is a sign that consumers, while worried, aren't scared enough to stop spending. Sloterbeck notes that while consumer sentiment and retail sales move together over the long term, divergences have been seen during temporary events that have shaken the national psyche. Think Hurricane Katrina or the wave of anti-business nausea that was felt on Wall Street after President Barack Obama's election.
As the macroeconomic environment calms, and as retail gasoline prices continue to drop to reflect the fall in crude oil prices, sentiment should perk up. There are already early signs of this. The Rasmussen daily consumer and investor confidence polls are well off the lows of last week.
At the same time, Sloterbeck continues to see strength in retail and auto-dealer surveys. Weakness has been concentrated in industrial surveys -- echoing the springtime supply-chain woes out of Japan. Those are fading now that the Japanese economy is revving up.
Overall, the team at ISI sees only a 30% chance of a new recession. Given the strength I'm seeing in "smart money" buying from commercial traders in equity futures (think big banks) and corporate insiders, and M&A activity, I'd say Wall Street professionals think the same way.
Placing your bets
Contrast this with the stampede out of risky assets by average investors. Fund flow data from Lipper show that in one week (through last Wednesday), more than $11 billion was pulled from mutual funds -- the fifth-largest one-week outflow since 2002.
History shows that when average consumers and investors are panicking at the same time professionals are coolly snapping up shares, it's time to buy. Just focusing on ultralow consumer sentiment numbers, Jason Goepfert at SentimenTrader found that they've historically been followed by a median one-year stock market gain of 22%. Examples include 1974, 1975, 1980 and 2009.
After shorting stocks during the market's decline earlier this month and moving to cash last week, I'm recommending that readers here (and my newsletter subscribers) start to look for opportunities on the long side again. There are plenty of bargains to be found with valuations and sentiment so low. But I don't expect a smooth, uninterrupted rally from here: The market is likely to test and retest the August lows, trading in a range as it did during this past summer's multimonth consolidation.
That necessitates a laserlike focus on the areas of the market showing strength, and for most, the maintenance of a healthy cash reserve. I talked about the importance of investing only in sectors showing relative strength a few weeks ago. (Read "Save yourself from US debt disaster.") That strategy should be used now.
To be fair, it's still early. So while there aren't a plethora of attractive buys, there are a few worth mentioning.
At the sector level, utility stocks -- represented by the Utilities Select Sector SPDR (XLU) -- look particularly attractive. Not only do they offer healthy dividend yields compared with the pitiful offerings on Treasury bonds (the XLU exchange-traded fund offers around 4% versus 2.3% for 10-year Treasurys), but they're finding favor with traders looking for a conservative way to get bullish on equities. El Paso Electric (EE, news) is my favorite in the sector.
Another group showing strength is mortgage investment companies, which are scouring for value in the universe of collateralized mortgage debt -- the instruments that powered the housing bubble. These folks are benefiting from ultralow interest rates, which not only lower their funding costs but also serve as a healing salve for the housing market. I like Annaly Capital Management (NLY, news), Cypress Sharpridge Investments (CYS, news) and PennyMac Mortgage Investment Trust (PMT, news).
I've added El Paso Electric, Annaly Capital and Cypress to my Edge Letter sample portfolio, which tracks my recommendations in real time for MSN Money readers.
And finally, for overall market exposure I recommend the PowerShares QQQ Trust (QQQ, news) which represents the 100 biggest Nasdaq stocks and which is perking up, thanks to the strength of the tech sector and the desirability of large-cap stocks in these uncertain times. Since I added a leveraged play on this idea, the ProShares Ultra QQQ (QLD, news) fund to my tracking portfolio on Aug. 11, the position is up 6.3%.
Slim pickings, I know. And there is still a risk that additional shocks could push the economy off its knife edge into a new recession. But for now, I believe there is more money to be made by being cautiously optimistic rather than insistently fearful.
At the time of publication, Anthony Mirhaydari did not own or control any stock or fund mentioned in this column in his personal portfolio. He has recommended El Paso Electric, Cypress Sharpridge Investments and ProShares Ultra QQQ to his newsletter subscribers.
Be sure to check out Anthony's new money management service, Mirhaydari Capital Management, and his investment newsletter, the Edge. A free, two-week trial subscription to the newsletter has been extended to MSN Money readers. Click here to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
VIDEO ON MSN MONEY
Last year I mismanaged my funds and this year my family and I cannot decide on a budget. Until we can come to a unified decision that fits all of our needs and interests, we will have to shut down our check book and will no longer be able to pay our taxes. I'm sure you'll understand. Thank you very much for setting an example we can all follow =)
I am a one trick pony. The outsourcing of American manufacturing to Communist China is an insidious death for America.
Buy from Wal-Mart or any other big box retailer and help drive the final nail in the coffin.
Corporate avarice and Wall Street greed are killing us.
Somewhere along the line we inadvertently lost control of our government. It might have been out of blind faith and trust in a government pretending to be the one our Forefathers created, In any case this government is under the control of a corrupt Political Class and its supporters.
Corporate American profiteers dictate Domestic and Foreign policies to further consolidate their wealth and power. They, along with this government, DO NOT have the welfare of the American people at heart, nor do they any longer reflect the Ideals of the American populace.
The lack of jobs, suppressed wages, the failing economy, rising inflation rates, and the vast disparity of wealth between the classes are symptoms of the outrageous abuse Corporate American profiteers, greedy Bankers, and Wall Street manipulators have perpetrated against our Citizens. We all know that, and many of us are feeling the pain.
Approximately 55%/60% are struggling from the effects of a major Recession, about 25%/30% are barely surviving a very real Depression, and the other 10% or so, don't give a rats ****.
What do we do? I don't know of any silver bullets. We either accept to live on bended knees, or fight....
Only basic change can save us from depression. For a starter we could force our public owned corporations to pay our minimum wages wherever they go. They are making record profits from slave labor and getting tax breaks for outsourcing. When the CEO of Disney made 600 million in salary and God knows what in bonuses he had children working in Haiti for 12 cents an hour.
Our 4 biggest banks have 8 trillion in assets and have been getting billions in 0% loans to play the market. This is insane unless you are a big banker or a wall street billionaire.
All government guaranteed loans should be made directly for a small interest. This would cut student and home buyer's notes by half or more and leave trillions in the hands of our people instead of thieving banks. Why should anyone pay a bank 500k or more for a 200k house when the tax payer backs the loan.
We are in bad need of a government and a banking system that serves the people instead of rapes them. Our capital gains tax where most giant money is made is only 15%. So, the top 1 or 2% take more and more while the middle class declines and poverty grows. This is a certain path for Disaster.
We will demand real change or greed and usury will soon have us in depression and chaos. These pigs and their government will not change without force. They have found out they can get away with anything. We need to quit acting like pawns and peasants. Ten or twenty million in the streets with specific demands may be our only hope for saving America.
"a string of bad luck"
Bad luck is not to blame for our current economy, it’s bad leadership!
Canada’s mortgages are recourse loans. If a borrower defaults on their mortgage debt, they cannot give the house back to the bank and walk away as Americans can. They are still responsible for whatever debt remains on their mortgage after the proceeds of a foreclosure sale are applied.
Reduced taxes to Corp.
Reduced individual income taxes.
Reduced Gov't interference with using natural resources.
Sells most manufacturing to US markets at cheaper prices.
In 2009 went from 6 % to 8% but now are back down to under 6%.
America's problem is everyone wants a free lunch. There is no such thing as a free lunch. Once we get out of the Socialist style mode of Gov't, the better off all Americans will be.
The Sky is falling, the sky is falling!!!
Jeez sheeple, settle down.
First, it's time to quit the "us vs. them" mentality. Left and right need to come to center so we can save OUR country.
Second, we need to vote real leaders into office, the ones that give real answers and don't play dodge ball. No more "agendas", we need to see a plan or you can't run for office.
third, All members of congress and the senate should cut off all their benefits(trust me, they don't need them, they are all rich). they can buy their own insurance and save for their own retirement. This will show the American people that we are all equal.
fourth, no more free checks and food stamps for able body citizens.. if you don't have a job, go clean the streets. Time for work projects so we can improve our infrastructure and clean up our cities.
We need ideas and leaders, not complaints and finger pointers.
The American taxpayers must be the most altruistic people on the planet.
We let those losers that pretend to be citizens cry about how the revenue is being spent on wars and entitlements, tax breaks and political perks when in fact 1/2 of the nation:
- has not paid a dime for the wars
- have not paid to maintain the national parks they (over) use
- have not even paid for Odufuss's paycheck, retirement, vacations, airforce 1, or the 1.1 mil bus
- have not paid anything to maintain the interstate freeway system they (over) use
- have not paid for anyone's Medicaid, including their own use
- have not and never will pay for the national debt
- have not and never will provide any assistance to the poor
- have never supplied foreign aid or national or international disaster assistance to anyone
- have not paid for any nation defense, military, DHS, CIA, FBI, ICE, etc, etc
And finally, have no plan to better their or their family's situation......short of telling us to give them more, more , more!
THE SAD FACT IS THAT THOSE WHO ...DO...ACTUALLY PAY TAXES, ARE PAYING 50% OF THEIR TAXES FOR NATIONAL CHARITY, 25% FOR INTERNATIONAL CHARITY AND FINALLY 25% FOR THEIR OWN .........FAIR SHARE!
Families are "deleveraging", i.e. paying off their debt, instead of spending. While this is causing short term pain it is very healthy for our future. You can either pay some banker interest on a loan or you can keep that money for yourself. In the long run we will have more to spend because we are saving all that interest.
Another side benefit is that people are finding out that they really don't need all that "stuff", so hopefully people will be more responsible with their finances.
So like many others I could care less if the Market collapses, they done screwed the country.
NO MATTER WHO THE CONTINUAL BLAME GAME IS RESPONSIBLE, AS AN AMERICAN, THOSE WASHINGTON A-HOLES ALL NEED TO BE REPLACED, ESPECIALLY WITH SOME COMMON SENSE, NOT THE CONTINUAL IT'S ALL ABOUT ME! AND THE NEXT ELECTION.
AFTER 3 YEARS, OBAMA HAS BEEN THERE LONG ENOUGH TO TAKE SOME RESPONSIBILITY OF THIS MESS, AND GET IT ON THE RIGHT TRACK!
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