The impressive strength of global equity markets in recent months may be in large measure due to the $155 billion of liquidity that the Fed and the BOJ are pumping into global financial system monthly. Stock market strength can't be attributed to accelerating global growth. Why? Well, because there is none. Every indicator from copper to FedEx to euro-area PMI to the coincident-to-lagging index is sounding warning bells. But
as has been the case for much of the last four years, investors are focused almost entirely on monetary policy. "Don't fight the Fed" is the mantra on Wall Street.
Global central banks have so distorted equity markets that positive economic news is met with buying and negative economic news is met with even more buying.
Your best defense against the prospect of another vicious bear market is to focus on stocks whose prices aren't unduly detached from underlying fundamentals. Here the opportunities are more abundant internationally. And on the fixed income side, it isn't often that a case can be made for holding a significant portion of your assets in cash, but this is one of those times. Hold some cash in reserve and wait for a fat pitch. With the balance of your fixed income money, we favor a combination of GNMA securities, floating rate notes, and corporate bonds, which will net you close to 2% with minimal duration risk. We understand 2% isn't compelling, and relative to a stock market that seems like it can only go up it looks worse, but investors eschewing the safety of bonds today will regret it when the next bear market comes. More >>
The U.S. economy may be the best house in a bad neighborhood, but successful investing is about more than buying stocks in the best or fastest growing economies. Since the recovery began, we've seen a tendency for U.S. economic growth to accelerate at the start of the year, only to fizzle out as we move into the summer. Much of the optimism on the U.S. economy is centered on the ongoing recovery in the housing market, but residential investment is still only 2.5% of the U.S. economy, and a meaningful downturn in broader business investment would easily overwhelm even robust growth in residential investment.
Fortunately, the U.S. stock market isn't the only house in the neighborhood. With many European economies in or nearing recession, slower growth in China, and recessionary conditions in Japan, opportunities are beginning to emerge in sectors and regions that have lagged the broader U.S. market. One sector where some interesting values are popping up is in the materials sector. This month, I'm recommending a materials company that produces nutrients required by every living thing and essential to modern agriculture. To free up funds, I recommend selling a stock we hold that's at risk from bubble conditions outside the U.S. Since our initial recommendation of the stock, we're up 9.5%. More >>
The Young Research Natural Gas chart book includes short and long-term charts on the natural gas market.
The Young Research U.S. Economy chart book includes short and long-term charts on output and activity, the labor market, inflation, and consumer and business sentiment.
Since 1896, the average bull market has lasted 835 days and resulted in a doubling of stock prices. For more historical perspective on the duration and magnitude of bull and bear markets, check out our new Dow Bull and Bear Markets table.
Our Credit Markets chart book includes many of the charts we monitor and use regularly to formulate fixed-income investment strategy. The chart book includes long-term charts on nominal and inflation-adjusted treasury rates, policy rates, interest rate valuation indicators, and credit spreads.
Jeremy Jones, CFA, is the director of research for Young Research & Publishing and editor of the Global Investment Strategy newsletter. Jeremy is also the Chief Investment Officer at Richard C. Young & Co., Ltd., an investment advisor to high net-worth families and businesses. More »