- Slog through the mud economy leaves both sides with desires

The economy is a lot like the fabled stuck between a rock and a hard place Push me pull you, neither hot enough to sustain a true recovery nor cold enough for Ben Bernanke to pull the trigger on another round of quantitative easing.

The bulls hang their hat on “not terrible” economic data along with the meteoric, albeit narrow, rise the last few months and say the stock market is predicting an improving economy.  The bears point to the continued printing of money by practically anybody with the power to do so as the life preserver keeping the patient afloat.

What is the average person to believe? Many see their rising 401k statements and some friends driving a new car, and the recovery seems a reality. After all, our beloved government Federal Reserve would never lie to us, now would they?

However, Beneath the surface another story stays subdued, for now, but looms ever larger. The fact that the economy, and thus the market, is addicted to continued stimulus is so blatant to me; it screams my name in the middle of the night when I sleep. $15 Trillion newly printed dollars has to go somewhere, and it ain’t going into a bank saving account at 2/10 of 1%!

Robert Shiller recently said it best:

“In the U.S., major new fiscal stimulus is on hold, and monetary policy is impotent. State and local spending, housing, inventory investment, capital equipment investment and commercial construction are likely to remain subdued. U.S. exports are curtailed by sluggish foreign economies. So U.S. growth in 2012 will be decided by consumer spending, 71% of GDP. With declining real wages and incomes and low confidence, continuing strength in outlays is unlikely. A 2012 U.S. recession is probable, but milder than the 2007-2009 nosedive, unless another financial crisis unfolds”.

Not mentioned are increasing payroll and capital gains taxes, the expiration of the Bush tax cuts and the simple fact that the majority of the US population and developed world is not only over-indebted but now well past their peak spending years, all of which is discussed in Facing Goliath – How to triumph in the dangerous market ahead. Add in the simple fact that the administration will have little incentive to print more money after the election and it seems obvious that without a QE3, we’re a not so colorful creek without a paddle.

Investor Strategy

A QE3 will push stocks to new highs where as if we do not get additional stimulus we are likely in a topping pattern.  We must remember that nearly half of the stock markets return for over a hundred years has come from dividends. If you just own a bunch of stocks or mutual funds without a real plan or exit strategy, you’re just gambling, and I wouldn’t be gambling with my family’s security in this market, that’s for sure!

Naturally you can’t just “sit in cash” at 2/10’s of 1%, so the key is to be “Tactical” and avoid buy-and-hold (buy-and-hope) at all costs. Be the expert or hire one with a focus on the market’s “sweet spot”, which is, currently, higher yielding investments such as preferreds, corporate and tax-free bonds, and MLP’s, many yielding 8-10%. This way you can get the best of both worlds of appreciation along with a healthy dividend, but with less risk.

If your portfolio does not need the risk then don’t take it and concentrate on investment vehicles with a guarantee of principle. Many do exist if you know where to look, and come with very generous yields, upside potential based on the market but with no risk of loss and/or a guaranteed income for life. If your portfolio can live with this option, take advantage of it. Why lose sleep the next time the market crashes?

…And that’s where we can help. Our “Invest for need, not for greed” approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio; simply reply to this email, click our Appointment Request Form or call for a no-cost no-obligation consultation today at (916) 925-8900.