Stock Ideas 
Stock Ideas Investors Daily Edge Recession, Inflation, Rocks, Hard Places and Little White Lies
Stock Ideas Investors Daily Edge Recession, Inflation, Rocks, Hard Places and Little White Lies 
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By Andrew Mickey Chief Investment Strategist, Q1 Publishing "I know Americans are concerned about the adjustments that are taking place in our financial markets." – President Bush Adjustment!?! What on earth is a financial market “adjustment?” |
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| Recession, Inflation, Rocks, Hard Places and Little White Lies |
| Wednesday, 23 January 2008 | ||||||||
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Overseas markets down 10 percent. Dow Futures down more than 500 points. Fed cuts rates by 75 basis points in a surprise move. Market rebounds powerfully off its session lows. It's been quite a day. But it's probably left you with quite a hangover. So what should you do now? Buy? Sell? Sit tight? I've asked our IDE editors to put together some brief thoughts on where we stand and what you should do moving forward. I think you'll find some common themes running through these thoughts that should be very helpful in your investing. As always, I wish you all the best with your investing. MaryEllen Tribby Publisher Investor’s Daily Edge Andrew Gordon - The worst thing you could do is jump off this fast-moving train. Where are you going to land anyway? Into Treasuries that are going to have a heck of a time keeping up with the rate of inflation? You don’t want to do that. The bad news is the market has a ways to go before hitting bottom. On the other hand, the market is oversold and will bounce up sooner rather than later. It’ll be a chance to do some pruning, lock in some gains, and increase your holdings in gold and some anti-recessionary stocks such as consumer staples. I also like some overseas opportunities that are taking advantage of special growth opportunities (more or less divorced from what is happening here) – tobacco in China and auto in India come to mind. Chris Johnson – Hedges on the market (protective puts and inverse ETFs) should serve their purpose this week. We will likely see some speculative buying on this morning’s large dip and possibly a few signs of a short-term bottom. If so, these hedges should be liquidated to create additional cash for dollar-cost averaging back into stocks as the market declines. Similar to the selling after the market opened on September 17, 2001, I expect to see some buying interest, especially after the FOMC dropped a 75 bp cut on us this morning. This should cause short sellers to step into the market to cover positions. After that, investors should still line up to sell stocks, as the fear they felt over the weekend is not likely to dissipate with this simple move. For now, I continue to recommend cash and defensive positions. Lynn Carpenter - What’s going on now is not a “correction” to irrational exuberance. It is a fundamental lack of faith. That means it could seek extreme lows and keep going until the fear is out of the marketplace. When is that? It’s when all the weak investors go home and the knowledgeable, sensible, long-term smart money has the market to itself. Investors will be fine after the bear is done, whenever that is. The first thing I would do in this market is take out any money I needed to use in the next five years. It never belonged in stocks in the first place. Second, I would review my portfolio to be sure I weeded out poor companies. Then I would target some of my best choices for additional buying. Do that before you venture into new investments. Then, look for other companies you want to own at cheap prices. Then wait. You just need good nerves and time. And keep on buying as the market drops. Bear markets strongly favor long-term, active investors.
Rick Pendergraft – The best advice I can give is to remain calm. Don’t panic and act on emotion. Those who remain calm when others are panicking will fare much better. At the same time, you don’t want to dive in headfirst, going long everything in sight. Stay away from financial stocks, as the credit problems have not totally played out yet. There are a huge number of earnings reports still due out this week. And so far, with the exception of Intel, non-financial companies have fared OK this quarter. IBM beat handily and GE met expectations. So, look for stocks outside the financial sector that have been performing well over the past few quarters. Rusty McDougal – I see all the current financial and economic chaos as friendly to gold and precious metals in the long run. The emphasis here is on the long run, because most anything can happen short term. We are in a liquidity crunch, and many positions will be sold off directly in contrast to company fundamentals. Buying opportunities will present themselves accordingly. Putting out the current fire with bailouts and money "stimuli" directly impacts the dollar negatively and gold positively. Charles Delvalle – The government will try everything to avert this drop. That means cutting interest rates, making agreements with other banks, and giving tax refunds. But they won’t be able to solve this problem. Government intervention never does. All intervention will do is suppress some of the nastier affects of this slowdown, while at the same time prolonging it. But the thing is, this recession won’t be stopped by these short-term actions. The economy needs a good amount of restructuring done in order to wipe out some of the over-investment and re-allocate it into other parts of the economy. Andy Carpenter – Huge stocks market drops like the ones we’re experiencing are usually accompanied by small bounces here and there. The trick for you now is not to obsess. Don’t get caught up in the media and blogosphere hyperbole … and there will be a ton of it because there are millions of investors who’ve never experienced a bear market. These neophytes think stocks only go up, and they will be desperate for a bottom that may be months away. Their fears and tears will fuel media stories that you simply must ignore. But it’s a great time to ask your inner investor what a bear market means to you. If the answer is not “opportunity,” then you likely have near-term financial goals that shouldn’t rely on the stock markets. Opportunity in Asia will mean real buys in infrastructure stocks. They may get punished, but they won’t get pounded like other sectors will. These are companies that make construction machinery, build roads, tunnels and hydroelectric plants, as well as trucking companies and railroads. Finally, the current markets should motivate you to dump some losers you have been too emotional or stubborn to sell.
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