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 Wall Street has Indigestion, But This Stock is Up!
(Posted Dec 01)
Last week, the Wall Street rally was a nice break from the bear market, allowing us to enjoy the Thanksgiving holiday and a 12% rally in the Dow Industrials. But this kind of bear-market rally was artificial, completely induced by the federal government's decision to rescue Citigroup, the nation’s largest bank, and today Wall Street is suffering from indigestion.
 The best strategy in this treacherous bear market is to invest in a well-diversified portfolio of quality income-producing stocks and funds, hold a strong position in cash and precious metals, and avoid any unnecessary expenses until the crisis blows over.
The current recession will be deep, due to a series of economic mishaps. The real estate crunch is still ongoing. At least 30% of the $1.5 trillion in subprime and Alt A mortgages are in default, and that figure could rise next year as ARM rates are adjusted upward again. Layoffs in the financial field are expanding — Citigroup announced plans to let go of 52,000 more workers. Consumers are cutting back on their spending and saving more (as they should). Hedge funds and institutions are deleveraging. You can count on three ways to protect yourself, and even profit sometimes, from this ongoing bear market.
For the past 15 years, we’ve been recommending the "Flying Five Strategy," picking the five highest dividend-paying and lowest-priced Dow stocks to publish in the August issue of the newsletter. Most of the time, we’ve been successful with this strategy, and have beaten the market. However, for the past two years, the strategy has at best kept up with a declining market, and this year it included General Motors, which is threatening bankruptcy. Forecast on interest rates and income investments (30%): The Fed cut the target rate to 1% last month, and plans to cut rates again in December — all a sign of panic by the Fed. Investors have rushed to safety in Treasury securities even after the federal government raised its guarantee on bank accounts and money funds to $250,000 — at least temporarily. With the producer and consumer price indexes falling now, there is talk of deflation and depression. But don’t forget that the Fed is aggressively expanding the money supply, which will cause the return of inflation eventually. With the market down, where can you find some cash? Believe it or not, your term insurance policy might be the place to look.
The imminent collapse of the Big Three auto makers is putting new pressure on the economy and Wall Street. Despite desperate efforts by the Fed to re-inflate, the short-term fear is deflation, recession and tight credit conditions, both here and abroad. Preservation of capital is key, while looking for bargains from time to time. Here’s what I recommend that you do this month: "Two-for-One" Special on My World Economic Summit!
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