JaysRage (93.59)

So now what?

October 30, 2009 – Comments (0) | RELATED TICKERS: APWR , VZ , HOGS

I've kind of been the opinion that the fair value price for the market (S&P 500) is around 1050.   We had a period of irrational exuberation and expectations that there was going to be a healthy recovery.  Now that this fantasty has vanished, we're looking at the stark reality of the world of equities.    Here are the factors that I think are at play.

Keeping stocks down.

1)  We still have stagnated economy, fueled by debt-laden consumers and businesses and high unemployment.

2)  We still have a sick debt market with continued foreclosures and defaults. 

Having little or no effect 

For the most part, we have a stable business sector with cost-cutting having at least set the table for profits to stabilize.  

Buoying stocks up

There has been an influx of money into the economy in term of the bank bailouts, low borrowing rates from the Fed, and incentives for house and car buying.

My foolish prediction going forward. 

The U.S. economy will continue to stagnate and "grow" at a rate of between zero and 2% for 2010 while the country continues to unwind the debt issues.   The fed will continue to keep rates low and money easy to continue to fight the deflationary pressures and keep things stabilized.   European "growth" will be similar.   The dollar will continue to lose against foreign currencies, which will generally keep stocks treading water, with a slight increase in the aggregate related to an inflation effect, particularly later in the year.   Volatility will far exceed the aggregate movement of stocks.

The Chinese economy will grow at a rate of 6-8%.   The Brazilian economy will grow at a rate of 4-6%.  Indian economy will grow at the rate of 2-4%

There are three potential logical ways to go forward, IMO.  

1)  Aggressive -- Play the short-term volatility.   Move into the options market.   Hold stocks purely as a hedge in certain circumstances. 

2)  Moderate -- Move into carefully chosen small cap stocks in key industries, primarily in the emerging markets of China, Brazil and India. 

3)  Conservative -- Move into high-dividend stocks, such as telcoms and blue chips, including Chinese and Brazilian large-cap stocks.    

I'm a moderate sort of guy.    I'll admit that dipping into the options market is a tempting play, but I'm into option #2 personally.   

My current carefully chosen industries are emerging energy (especially Wind) and Cloud computing.