Wait for the Whites of their Eyes


Today’s market action suggests a correlated sell-off is in the marking for the stock and other markets. Only a few assets sectors are doing particularly well, among them 20 Year U.S. Treasuries (TLT) which represent a flight to safety trade. The dollar also firmed representing a “risk off” attitude within markets.

While ease of monetary policy is cited by most of those who project the stock market higher, the reality is that easy money has about run its course. We have already talked about reduced effectiveness of central bank policy

The markets are absolutely starting to recognize the “slow growth forever” that I have been talking about for over a year. What we know is that there are many economies already in unhealthy places. That is what is driving risk in the markets. When asset prices finally adjust for the reality of global GDP growth around 2% for the next couple decades (or longer) and not the 3.8% we knew from post WWII to 2007, we will be in a healthy market place.

Someday, and that day is fast approaching, by 2017 I believe, we will see global coordinated fiscal stimulus in various sectors. Those will be sectors and industries that we will want to invest in. We have been talking about some of those sectors and industries in the forum. Among those that will do well are certain infrastructure related industries and many alternative energy plays, including the biggest industrial change since before WWII. 

We have identified a few dozen ETFs that are attractive based upon factors such as industry, sector, fundamentals of underlying holdings, national demographics and market forces. I am adding six new companies -remember, there is a company behind every stock – to the “Very Short List” tonight for subscribers across three industries with very high growth rates. This raises our our total potential stock investments to 42 if prices permit – most likely we own 12-20 at any one time. 

Do not be too quick to jump into new equity positions. I stand by my analysis that we see 1600s on the S&P 500 soon enough. If there is a global recession, we will see a lower number. Use rallies to bring your cash holdings near 50% (or more if you like). If your 401k is heavily invested in growth mutual funds, pare that back. 

Do not believe the hype that the world is returning to faster growth. Anybody who says that is either a liar or a fool. The global demographics and accumulated debt absolutely impair future growth. It is only a matter of time before entire markets feel the earthquakes from the current tremors.

Kirk