9/7/2011 12:45 PM ET|
This is not a 'Mad Max' economy
We're not alone here. Denmark recently proposed a new fiscal stimulus package after its economy dropped 0.5% in the first quarter. The European Central Bank is expected to halt its rate-hiking campaign and possibly extend and widen its direct bond purchases. Other central banks, including the Bank of Japan, the Bank of England and the Swiss National Bank, are also engaging in or considering additional policy easing.
So, what are investors to do?
Just looking at the numbers makes a compelling case for investing for greed instead of fear. Start with investing in stocks versus Treasurys.
Corporate bond yields are at lows not seen since the early 1970s. U.S. Treasury yields, after accounting for inflation, are in negative territory. And we've reached a point where rich world governments carry more debt than nonbank companies -- yet government debt is paying some of the lowest yields in history. That doesn't seem like a good deal to me.
According to Garthwaite's calculations, using conservative below-consensus earnings estimates, the return "premium" offered to stock market investors is 7.4% per year. Moreover, long-term valuation measures suggest stocks should return 5.7% after inflation. Compare that with a -1.6% return, after inflation, for 10-year Treasurys.
The return differential will only grow as inflation and GDP growth accelerate. And if the opposite happens, and a "Beyond Thunderdome" scenario looks more and more likely, don't forget that sovereign debt defaults will also become increasingly likely and the United States would see additional credit-rating downgrades. Either way, Treasury bonds will suffer.
The point of all this is that while the situation is scary, at some point it stops being profitable to be so fearful. While I can't call the exact bottom (though I have a hunch the Aug. 9 low will hold) the evidence suggests we're near it. And that means that instead of huddling together and worrying about survival like frightened prey, it's time to look around, scanning the environment for opportunity -- like predators.
Next week, I will have a list of specific picks and plays for investors. But as a preview, I recommend a focus on noncyclical, high-dividend stocks with exposure to emerging-market growth. Telekomunikasi Indonesia (TLK, news) is a perfect example. Shares are breaking up and out of a multimonth range and offer a 4.2% dividend yield.
In the months to come, safety won't be found in paper assets issued by Washington or in precious metals. It will be found in companies like TLK that thrive on serving the basic needs of the developing world far from our shores and our problems.
At the time of publication, Anthony Mirhaydari did not own or control shares of any company mentioned in this column. He has recommended TLK 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 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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As usual the paid for media will tell you anything to make you feel better. The smart money is buying silver & gold. This whole fiat system is going to collapse. Maybe if the news actually did its job, asked the hard questions, and told the truth we would not be in this mess.
If you really want to know the numbers go to shadowstats.com The longest a fiat system ever lasted was 40 years. In 1971 we were taken off the gold standard 100%. If you do the math 2011 is 40 years.
What the Swiss did this week was the final nail in the coffin. There is only one flight to safety and that is silver and gold. When you can buy the DOW for 1oz of gold, or a one family house for 500 oz silver then you will know its time to get back in at the very bottom.
Mad Max world is what we live in right now. America takes care of the rich, boarder crossers, and countries around the world. But if you work hard, pay taxes, and obey the laws you get treated like a criminal.
One more note: After last night Republican debate, I'm switching to independent. Only 2 simple things I want to hear. What are you going to do if elected and How are you going to do it. Got the same problems, everyone wants to run on a record (that did not work for last 30 years) and how bad the other guy is. If I want to waste my time at a boxing match, I'll go to a fight. I was hoping to see mature adults discuss solutions, not 2 school yard bullies saying "Smell my finger".
A total embarrassment to the political system. I hope everyone will write in their own names as President in 2012, who are in protest of this current government politicians. Remember it is not the system that is broke, but the people we elected to run it.
The "smart money" is writing propaganda like this, leering, and looking for the next sucker - just like it was when it blew the housing market and all the rest up to self-destruct size. This nation has the Tax Code it has, and the IRS enforcer it has, for the same purpose that Lenin and Soviet Socialists had one like it. That was to relocate wealth. The IRS, being the most effective government agency possible - tyranny is always efficient, if nothing else; it has no rules but those it makes itself - since the NKVD and the Nazi Gestapo, has done that.
All one needs to do to see why we're in the mess we are is look to see where the IRS has put all the wealth. You'll also see where all the business has gone, where all the jobs have gone, and where the size of government has gone.
Income taxation and inflation, its sister tax, aren't about internal revenue, they're about power - the "power to destroy," to quote Thomas Jefferson.
The home front isn't a lot different today than it was when the market crashed in 1929, followed by what we call "The Great Depression." We even have a Dust Bowl, a la the 1930's, going in Oklahoma and Texas. My mother remembers; she was there in northwest Texas when it all happened. Her family was fortunate enough to keep their property and live to re-establish their lives in a post-depression U.S.A. It took a World War to get us back on our feet.
The only thing between here and all out pandemonium, is the fact that systems, checks, and balances are in place now. It has averted us from a major disaster. But.....
Perhaps it's a major disaster that will bring everyone to their senses. A reset may be just what is needed. And we are holding the line against the very "medicine" that holds the cure = a shakedown. A winnowing out. No crying and whining, 'cause nobody will be there to listen.
Folks, 17 trillion in debt, a valueless dollar, an extreme Marxist federal government, 20% unemployment, and real inflation rates rising... Sounds like a recipe for meltdown. Add in that nobody trusts the federal government, or the federal reserve system.... YIKES
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