This post is brought to you by my favorite Finance professor, Jay Dubs, who believes that "Barack Obama and everyone in his administration are left-wing kooks."
Also, I think the market has under-priced the shit out of itself over the last few months, and is extremely undervalued right now. I won't get into the technical details of all of it for fear of boring you all to death, but I have read a number of reports that say that stock prices are all out of whack due to the economic crisis we're facing. I'm not saying that they won't go any lower (See next paragraph) but from a technical, sound trading perspective, most equities are generally undervalued right now, which means the opportunity to make some money exists.
I don't think we've seen the bottom of this crisis. I feel that we're really close to hitting rock bottom, but we're not quite there yet. This market has one more wave of panic it needs to get out before things begin to improve. I think this will happen over the next few weeks and we'll see Dow around 6000 and the S&P around 600. After that, people are going to realize that some of the Obama administration's policies make sense and job loss will fall off. A few months after that, the new government policies are going to help create jobs, credit will ease, people will begin buying homes, and the economy will begin the slow, laborious road to recovery. We're going to start seeing improvement in the stock market around May/June, and I think we'll see a nice rally in the second half of 2009.
Personally, I'm going to dump a good deal of money in the equity markets in the near future. Once I see the final wave of panic hit, I'm going to buy, and I the opportunities will be plentiful. If you have the money (and the balls) to hang in the market in a few months, you can really do yourself some good. With that said, things you're going to want to purchase are:
The British Pound v. The American Dollar - The pound is near record lows v. the dollar, and considering both governments are pretty stable, expect to see the pound rise from its $1.40 low to around $1.60-$1.65.
*BEWARE - currency investing is very risky and not for the feign of heart.
Bank stocks - Yes, you heard right, bank stocks. I'm not saying to invest in the entire industry, that would be stupid and irresponsible. What I'm saying is to do some research, see which stocks appear to be emerging from this mess in the best position (PNC comes to mind) and purchase some of their shares. Many bank stocks definitely took more of a beating than they deserved due to the failures of their competition, but the ones that survive are going to thrive in the new marketplace.
Good ol' American Blue Chips - GE is ridiculously underpriced right now. Ford is a penny stock. Many others aren't too far behind. The blue chips that survive this crisis (and yes I think Ford is going to survive) are going be be great buys this year.
Vanguard S&P 500 Fund - This mutual fund gives you a wide range of stocks that mirrors the entire market. If you are expecting an overall upward trend in the market, want to diversify, and don't want to pay a lot of management fees, this is a great deal.
Obviously, the aforementioned information is just my opinion, and is subject to market factors and forces beyond my control or foresight, so it should not be relied upon as sound investment advice. However, it will be interesting to see how this prediction holds up over the next year or so. And remember, "buy on the rumor, sell on the news."
- Kaps
PS - I think it's going to take the market 5 years from now to recover to pre-collapse levels (Dow - 14,000)
Song of the Day: The Beatles - Dear Prudence
2 comments:
I agree with your assessment, but don't have your confidence. We still aren't sure what to do about the housing market, asset backed securities are still on the banks' books, and the US auto industry is in shambles. The Treasury department's lack of leadership has been a bit disappointing. Overall though, you're right. It is a good time to invest broadly because things will inevitably go up. Too bad I have no money.
Good assessment Kaps. I agree with Rajesh that you're being a little optimistic on the time frame though. I don't think we'll start seeing the market consistently rise for a year or so. Too many things are going on right now with Iraq, US autos, and the banks.
You did make a good point (whether you meant to or not) that much of the "crisis" is in our heads, which leads to everything being undervalued. When people believe the economy is better and start spending money, that's when we'll see the economy get back to normal.
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