September 23, 2011
Potential Buys If Panic Strikes
The major theme following this week’s FOMC announcement can best be summarized by one word: SELL. That this theme has played out with terrific correlation (i.e. global stocks plunged yesterday and many key commodities are in bear market territory) is not surprising. After all, if policy makers cannot agree on any new fiscal adventures and monetary schemes will continue to be unsuccessful in reviving economic activity, what is left to stop the reincarnation of the Great Depression?
Along with the growing threat of a global recession, there is also the realization that the so called ‘Euro crisis’ has neither been solved and/or actually become a ‘crisis’, yet. That is to say, the threat of a Greece default sparking a horrific contagion still exists, and policy makers still offer vague reassurances that everything will be all right. Everything may well be all right, but perhaps only after Greece defaults/restructures…
Against this backdrop there are few choice options for the investor. On the one hand there is short-term safety in one of the most treacherous regions of the investment world (U.S. bonds), while on the other there are beaten down stocks that look to be spectacularly attractive unless the world is amidst the Greatest of Depressions. Unfortunately, what both of these hands do not offer the investor is any long-term comfort That is to say, with volatility across many financial markets becoming the norm, many event driven investment decisions could backfire quickly. U.S. bonds (or the dollar), and equities more generally, are hardly great places to be if Lehman II is imminent.
With quality advice on specific investments a rare commodity, one conclusion remains: make sure you own some precious metals. Along with this increasingly mainstream slant there is also the conclusion to have a list ready for when, and if, capitulation transpires. To be sure, if the markets collapse by say 10+% tomorrow, it may be time to forget about the coming Euro/dollar/currency crisis, scoff at the looming global recession, and allocate some capital to beaten down stocks. Leaving the increasingly attractive list of precious metals stocks alone for the moment, here are some potentials. These would be the type of companies you buy on severe weakness, and hold for an extended period of time.
Cameco Corp.
Corby Distilleries
MOCON Inc. (former Wish List holding that has cyclical tendancies)
Along with these three there is also a host of passive instruments to consider. One potential if the financial world is at threat of ending tomorrow is the BMO Equal Weight Utilities Index (ZUT). While it may take a lot for an ETF like ZUT to be added to the Wish List, this is the type of income instrument that could do well if the unthinkable happens. The unthinkable being what Bernanke pledged as impossible almost 9-year ago:
“…a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero.” Nov 21, 2002
Did Benrnake overreach with the word “considerable”?