Forget the market. Recently, the best strategy for investors is to simply stay away from stocks altogether and head to the golf course or some other extra curricular activity.
The news just keeps getting worse every day with investors facing a nonstop barrage of bearish announcements. With the financials bleeding again, the market won’t make any headway. Stocks have gone down every month since October and sit 18% off their best levels last October. This is now the worst sell-off since 2002. Worse, euro-based investors are sitting on a 13% loss over the last three months alone based on the MSCI World Index, in euro terms.
The list of acronyms tied to busted or stressed credits is worsening. Banks, insurance companies, private equity funds and hedge funds are all in the same boat.
Over the last few days, reports of hemorrhaging at Carlyle Group, a major private equity fund, and several hedge funds in Europe are making matters worse. One hedge fund in the United States, Focus, went bust betting on Swiss mid-cap stocks. Plus, Jefferson County in Alabama became the latest casualty hit by derivatives yesterday.
Buying stocks on any market whether local or foreign is a losing proposition since market breadth worldwide is still deteriorating. Why buy stocks now if they’ll get cheaper next week or next month? In New York yesterday, the number of stocks hitting 52-week lows outnumbered the 52-week highs by a 10-to-1 margin. I don’t care how good of a stock-picker you are, it’s almost impossible to make money in this market.
And to make your day even brighter, the latest employment figures are dismal, sending the market back into the basement for another lousy day of trading.
Until the deflation in U.S. residential real estate stops, the market will have a very difficult time adjusting to find a bottom. The consumer is finally caving in with mortgage values worth more than their underlying home values, food and energy prices soaring and job losses mounting. The big question now is whether this will be a soft or deep recession? I’ve got to think it’ll be a bad one because housing deflation is the worst nightmare facing consumption and the broader economy.
Stick to defensive large-cap dividend-paying stocks, high quality Treasury and corporate debt, gold, other commodities and foreign currencies. Also, continue to hedge with reverse-index products. And don’t forget to hold cash if you don’t use hedging or other alternative investments to protect your stock portfolio.
Have a good weekend.
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