TODAY’S INVESTMENT ADVICE TODAY FOR TOMORROW … PART TWO
By Murray Soupcoff
First, there was a world-wide stock-market implosion that wasn’t going to end.
Then there was last week’s ongoing “relief rally”, featuring stocks – in North America, in particular – recovering much of their lost ground.
And then, boom … another bad day on Monday, seeing stocks – at the day’s end of what looked like another recovery rally – falling faster than Donald Trumps “likeabilty” poll ratings, and almost as fast as Dr. Ben Carson’s recent ascent in the Iowa political polls (with the good doctor pulling into a statistical tie with the Donald, if not a tiny lead).
We had more or less predicted, since the beginning of last week -- when we had a huge market meltdown -- that there probably would be a big bounce since so many technical indicators were at extreme oversold conditions. Of course it’s not the bounce itself that matters most, but what happens after the bounce.
And with regard to market activity today, that action is obviously not positive. If you are an investor without a timeline of 3+ years minimum, I recommend that you ultimately sell whatever stocks you can, and retreat to the safest haven of all in these troubled times – cash!
After all, 1500 points is a lot of territory to cover in such a huge descent, in such a relatively brief period of time – almost as fast as it took The Donald to alienate the entire Hispanic community in the United States with his “frank” talk on illegal immigration!
But is this market drop sufficient to indicate that perhaps the worst may be over, and this MIGHT be a good opportunity to start metaphorically dipping your toes in the “purchase stocks again” waters?
Well, as I’ve indicated previously, a study of previous historical market meltdowns suggests the time might just have come:
In particular, a plethora of market breadth indicators are metaphorically screaming “oversold!”
So why not buy now, if you are patient and willing to invest for the long term?
Certainly, what goes up so high & relatively quickly, inevitably imitates Icarus – flaming out and dropping even further and more quickly.
On the other hand, what happens when you submerge an inflated beach ball under water as long as you can? It pops up with a vengeance – almost hitting you in the face.
And that’s what happened in the stock meltdown of 2011 in America: After a few months of what traders call “dead cat” bounces (trying to catch them is like trying to catch a falling knife – there’s usually a bloody aftermath), the S&P finally climbed the proverbial market “wall of worry” and rose over 31 points higher in a time period of approximately six months.
And when historical market lows in occurred in 2012, 2013 and even in autumn 2014, U.S. stocks ultimately soared higher.
But the recent market fall is the champ – the biggest drop since 2009.
So if the past ultimately becomes today’s new reality, a rebound is probably around the corner (in my opinion anyway).
At the risk of lulling you to sleep as I repeat my "theory", I am now taking an optimistic view of the market, on the basis of previous stock-market ‘meltdowns' in U.S. history.
And so last Thursday, I suggested that if you we’re willing to be patient -- and hold onto any stocks you purchase for at least two years (while you collect the dividends) -- then (in my opinion) it was time to start “accumulating” (that is, slowly buying) cash-rich, debt-free “dividend” stocks (stocks that pay a ‘sustainable” annual dividend) each time the market dips in the immediate future.
And so based on previous historical cycles, after a dramatic market downturn like last week I expected a significance bounce in the markets the last two days – since so many technical indicators indicated “oversold” markets.
After all, we had experienced the biggest market fall since the “Great Recession” of 2008.
But as you probably already know, there’s bad news: The bounce did begin this morning, but simply could not climb the wall of worry regarding declining factory orders in China -- panicking investors, so that stock prices were again in full retreat by the end of the day’s trading
The Down Jones average, today, falling 469 points, followed by the S&P down 58 points, and the NASDAQ falling 140 more points.
Folks, I am totally discombobulated – viewing these continuing market falls.
And my only thought is that the word-wide economic “Armageddon” that I predicted on Monday August 24rth (2015) may be approaching faster than I expected.
Based on historical patterns of past word-wide market and socio-cultural implosions which I've studied, I can only guess.
But here are some of the culprits which I suspect might be hastening the onset of what I’m inclined to call a new “21rst Century Great Depression”:
(1) The non-stop printing of cheap money by the Federal Reserve board, as well as record-low 0% interest rates, all available to “friends” of the Obama administration -- including some of the largest Wall Street banks which used these “rewards” to generate profits for themselves (instead of lending their new-found cash to ordinary consumers in order to help stimulate spending, restart economic growth, and usher in a new American economic “recovery”).
(3) The astounding trillion dollar deficits racked up by the profligate Obama administration, as well as unfunded liabilities (unpaid financial debts), for social security and Medicaid, left to compound dangerously by one Congress after another.
Mix in the inevitable credit rating downgrades for the U.S. government, as a consequence of such policies, and you have a recipe for financial disaster.
4) Not to mention anemic U.S. GDP growth (never really exceeding 2%); a “drip-drip” decline in employment income for middle and working class workers; soaring rates of poverty and unemployment among American blacks; record use of food stamps by America’s disadvantaged populations -- with all of these demoralizing economic setbacks occurring during the 9 year reign of America’s economically-challenged community-organizer-in-chief.
5) The precipitous decline in consumer spending relative to net government spending: consumers -- reacting to the disinflation created by the gamblers at the Federal Reserve Board – simply hoarding their cash and stopping spending -- watching for further drops in the price of consumer goods (after all, why buy now when goods could become even cheaper next week), while still fearing a rise in the cost of living (created, in part, by the “gouge-them-while-you-can” tax policies of the Obama administration and many Democrat state legislatures).
6) The tangled web of “derivatives”, and “off-book” (hidden) financial debts to security holders, hastening the decline of some of America’s biggest Wall Street banks.
7) Throw in the spread of ISSIS throughout the Middle East & North Africa, the unbridled territorial lusts of an emboldened Vladimir Putin, and the disastrous Obama "Iranian nuke deal" welfare handout to the terrorist Iranian regime -- and you have a recipe for possible future nuclear Armageddon.
8) And finally, let's not forget the obsessive fixation of Democrat politicians (like Barack Obama) on maximum government management & regulatory control over the American economy. The only catch is that -- as pointed out by classical free-market economists such as Adam Smith, Friederich Hayek and Charles Goodhart -- the complex interconnected web of human actions in the economic sphere is beyond the capacity of any economist, government bureaucrat, politician -- or even computer -- to predict or understand.
The implications of all of the above:
To paraphrase Charles Dickens, these are the worst of times. And so – despite my advice of only a few days ago – I would now suggest that -- if you are the cautious type -- you sell whatever stock-market investments you can sell , and go to CASH! And stay there until there are recognizable signs of a final market bottom and subsequent recovery.
If you are willing to be patient and endure a wait of up to four years (though the time frame may be shorter), then you might want to take advantage of so many beaten-down bargain stocks and start slowly accumulating their shares on periodic market dips.
And in that case, I do have some stock-investment recommendations for you – most of them cash-rich, debt-free companies that pay a sustainable annual dividend (“sustainable” in the sense that there is enough cash left to pay the dividend after all expenses have been paid).
So here we go:
(1) AMERICAN WATER WORKS CO. INC., ($AWK –NYSE), yielding 2.66%
Rationale: Even during the most dire economic or political crisis, ordinary citizens will need to drink water to still alive. And note that American Water Works currently has a quality rating twenty times more than the industry average.
(2) CERES ($CERE – NASDAQ), with NO current dividend
Ceres is an agricultural biotech company that develops and markets seeds and “traits” for feed, sugar and other farm outputs. These seeds and traits are designed to provide farmers with higher crop yields, the ability to successfully penetrate new markets, and even the possibility of eco-friendly farming
Bottom line: Humans have to eat to survive, even in the most critical of times. Food production is still where it’s at even at the height of the most dire calamities (death excluded, of course).
(3) ALGONQUIN POWER & UTILITIES CORP ($AQN.CA – Toronto Stock Exchange), yielding 5.17%
Rationale: Electric power is power in times of political & economic disruption. And Canada-based Algonquin Power owns and operates utilities in the United States which provide water, wastewater and local electric distribution services. And probably most important, the majority of the company’s electrical-generating sources depend on free-flowing water sources such as water falls and water flow from company-owned dams.
No worry here about failing nuclear reactors or oil-dependent turbines.
(4) PENNANTPARK FINANCIAL ($PNNT -- NASDAQ ), yielding 14%
In the words PennantPark’s CEO, “We remain focused on long term value and making investments that will perform well over several years and can withstand the worst of business cycles. Our focus continues to be on companies or structures that are more defensive, have a low leverage, strong covenants and high returns…as well as preservation of capital.We preserve capital and usually the upside takes care of itself.”
Based on the company’s latest financial reports, PennantPark’s current 14% dividend yield looks sustainable. However, once again tread carefully in today’s murky stock markets and – if you buy shares in this company – slowly accumulate them on periodic market dips.
(5) CANADIAN PACIFIC RAILWAY LTD (CP-NYSE), yielding 0.82%
Rationale: If nothing else, you should own “hard assets” -- like real-estate and profit-generating utilities -- after any market crash. They provide an alternative storehouse of wealth, which can be sold or even bartered for a loan if necessary.
And what better a hard-asset stock-market investment than money-making North American railway conglomerate Canadian Pacific? This railway investment’s merits can be seen in its recent earnings-per-share growth, resulting in an increase in net income, an impressive return on equity, and expanding profit margins.
And last but not least because I am an energy-stock “junkie”, here are two energy recommendations reserved for when the decline of oil futures hits bottom and oil prices finally start to bounce back (as early as the summer of 2016, and as late as the winter of 2018):
(6) EOG RESOURCES INC (EOG – NASDAQ), yielding 0.88%
The current "cheap oil" environment has forced many energy (production & exploration) companies to focus on cutting costs and strengthening their balance sheets. And so when commodity prices finally start to recover, the companies boasting optimum cost efficiencies, and production assets, will rise in share price the most.
And in my opinion, one of those companies is EOG Resources – perhaps even the best of the breed
(7) PEYTO EXPLORATION & DEVELOPMENT CORP (PEY) … yielding 4%
Peyto Exploration and Development Corporation is a Canada-based energy company, which boasts one of the savviest management teams in the Canadian oil and nat-gas industry. And as far as I know, it’s never missed paying its annual dividend; and I have been a frequent (and satisfied) investor since the company’s inception.
According to a recent company prospectus, Peyto “is engaged in the acquisition, exploration, development and production of oil and natural gas in Western Canada…Peyto's wells, gas plants, gathering and sales pipelines exist in a corridor about 200 kilometers long and 30 kilometers wide right by the foothills of the Rockies halfway between the Northwest Territories and the United States…Peyto operates in three core areas, namely the Greater Sundance, Smoky/Kakwa and Cutbank areas of Alberta. The Smoky/Kakwa/Chime/Kiskiu area is located 40 kilometers northeast of Grande Cache, Alberta, from Township 57-61 and Range 2-6 west of the sixth meridian.”
To quote an old “Wendy’s” hamburger commercial: Try it; you might like it!
And that’s it for today.
And to quote another classic, this time the “Hill Street Blues” TV show: Be careful out there!
Very careful – these really are dangerous times!
Nuff said on these investment matters today, I would guess.