4/10/2013 6:15 PM ET|
The bull market's last stand
I'm not saying that the economy is healthy right now. But the Fed is being more forceful with its stimulus efforts and money printing now than it was during the financial crisis in 2008, when things were clearly worse. We're in the fifth calendar year of a mediocre recovery held back not by a lack of credit, but instead by things like a need for government reforms, a tax code overhaul, a better health care system and an infrastructure initiative that can tap the ingenuity and financing of the private sector to build public works.
The Fed needs to step aside.
Doing what it is doing now -- pushing hot money into frothy markets like large-cap stocks, risky debt securities, high-yield corporate "junk" bonds and subprime auto loans -- isn't going to solve these problems. In fact, such efforts will likely make them worse, if the aftermath from the last two asset bubbles is any guide. Only this time, we won't have the ability to use cheap money to soften the blow.
The war on savers
In this dangerous context, savers are contending with hostile policymakers who are purposely pushing down interest rates on "safe" assets like U.S. Treasury bonds and even certificates of deposit, forcing retirees into riskier assets such as dividend stocks to stay ahead of inflation. In Europe, large depositors in Cypriot banks are nearly getting wiped out to fund the country's bailout -- a strategy European leaders have said could apply to other troubled eurozone countries.
This is a tragedy waiting to unfold, given the impetus to participate in the market's daily incremental gains. Retirees and near-retirees are feeling compelled to aggressively chase this market higher (and they're dabbling in low-cost, high-risk "penny stocks" on a scale not seen since 2000) even as professionals slowly start accumulating bets against them in the options and futures markets.
This is exactly the wrong strategy. The time for investors to demonstrate confidence and optimism is when it's rare, putting money into stocks when they are down amid fear and uncertainty from everyone else. Not when everyone is suspending disbelief and jumping in. Not as we face a repeat of the stagflationary 1970s. And not as the last two bastions of support for this bull market start to crack and crumble.
What are the alternatives? Treasury bonds are ripping higher, helping the iShares Barclays 20+ Year Treasury Bond (TLT) exchange-traded fund push over its upper Bollinger Band and its 200-day moving average for the first time since mid-2011. But this should be a short-lived trade, since T-bonds will suffer once inflation is unleashed.
Long-term, the focus should be on protecting against rising prices. Precious metals have been in the dumps lately, but they can be attractively accumulated down at these levels The cost of new gold and silver production remains on a relentless upward trajectory, providing a floor for metal prices.
But more simply, just increasing the cash allocation in your portfolio is a prudent move here even if you're faced with the inflation losses of holding real money. After all, when bubbles of optimism burst, the last one out the door is stuck with the bill.
At the time of publication, Anthony Mirhaydari did not own or control shares of any company or fund mentioned in this column in his personal portfolio.
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 email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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If stock prices had to depend on money earned from actual work, instead of printed money that banks get for free, the dow stock market would now be below 4000.
Anthony, I like your "War on savers" heading since this is exactly what us retirees are up against. You make it seem like buying solid dividend stocks is a bad thing, but it's the only way we can get a reliable ROI these days. We won't care how much the stock prices of T, VZ, etc. fluctuate as long as they don't cut the dividends.
Buying treasuries, bank CDs is pretty much like flushing money down the toilet since you are going in the hole due to inflation.the day you buy them.
Sooner or later there will be a selloff or correction. Anthony will take credit & say he told us so. Never mind that anyone following his advice months ago would have missed out on some nice appreciation on their investments. He obviously missed it, made the wrong call. What else can he do now? Admit he was wrong? Better to say everyone's been in a delusion and this market makes no sense. Talk it down. But then, there's rarely been a bull market where no one thinks that. Those are probably the ones to be most concerned about. That's far from being the case these days. Whenever the inevitable selloff or correction does come, that really shouldn't vindicate him, although he'll probably act like it did. My advice is to invest in companies with good earnings and bright prospects and sit tight until those things change, and in the meantime give up trying to play the market like a casino.
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