If yesterday is any indication of what's in store, we could be looking at an ugly finish to 2011. The Dow finished down 258, the S&P broke 1100, and it looks like American Airlines might be going down for the count. Bank of America continued to have issues with its website, though they insist the problems aren't related to account closures in the wake of higher debit fees or that they're under attack by hackers. Their stock suffered further losses and is nearing the $5 threshold that could impact its marginability.
Morgan Stanley's stock continued to struggle, falling another 8% to a new low yesterday on fears of the bank's exposure to Europe. The dollar rallied hard in a seeming flight to quality.
In other words, things look pretty bleak. October is historically the worst month of the year for the markets, and we might be in for a doozy this year. My questions are these:
If the Dow drops below 10,000 this month, will it recover by year end?
If BAC goes below $5 a share, will the government or some other white knight step in to save them?
How serious is Morgan Stanley's European exposure? Is this downward pressure just hype, or is there really something to worry about?
And most important: how do you make the 4th Quarter the most profitable one of the year for you personally?
Assuming we're in for more shaky markets, what's the best way to make a buck this quarter?
Physical Gold...here we go!!
The old steadies TIPS, gold, and high dividend stocks
wasn't Buffett supposed to be BofA's white knight??
The market has had three years to brace for this. There is a sort of vol fatigue and a limit to how much P/Es can compress. For the record, P/Es have compressed 60% since 2001. And it will make for an EXCELLENT buying opportunity if the S&P dips below ~1000. Obviously it is very important to have an 8-12 month emergency savings fund and 10-20% of your portfolio in dry powder, but beyond that point, being long dividend-paying commodity equities is a winning condition in the retirement convexity game for 20-somethings. If price multiples go down further, you get to reinvest in stocks with real assets paying 8% or 10% dividends instead of 6%.
So maybe gasoline goes to $1/gallon and NY rents go to $1000/month for a penthouse on Central Park and the Es in P/E come down. But that's good news, right? Our big long-term retirement risk is that prices move the other way. Either way, this is a huge win for 20-somethings with a lot of savings.
I've been long dollar, short Euro, short SPY, and long SLV calls, and long a few dividend players.
It's a jungle out there.
From a market rationality perspective, election season is already in full swing, so it seems unlikely that anything major will be done on the political front. Even the thing with Greece is like pulling a bandage off of a cut painfully slowly, bit by bit. I don't think the Dow will dip below 10,000 before the end of the year, and like Illini would go long on those commodity equities.
Well, it could go below 10,000. Heck it could go below 5000. But one of three things will have to happen:
-Oil will have to go below $60/barrel and stay there permanently for everyone to enjoy $2/gallon gas. -PEs will have to continue contracting and stay there. Instead of making 10x off your investments in 40 years, you'll make 30x on the higher dividend yields. -Resource stocks gain 50% in value or remain where they are without going lower. (Worst case)
Because in the real world of energy commodities and not CNBC. About 18 months ago the trend between RBOB and WTI broke, actually US RBOB and Brent is the more closely watched correlation. Increased production from Canada and domestic US proudction have led to issues at Cushing which WTI is based off of, not RBOB.
I know you think commodity equities are underpriced and all, but geez, how long will they continue to languish? It makes no sense. Look at RIO, Archer Daniels Midland. What gives?
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