Three recent MSN money articles, one each from Jim Jubak, Bill Fleckenstein, and Jon Markman, are worth reading.
The theme from Fleckenstein’s article is to remain liquid and flexible while we see how the coming wave of fiscal stimulus will take shape, some excerpts:
In any case, the fear of what all of that leads to, combined with the damage already done, continues to prod governments to come up with ever-larger stimulus packages as these two forces continue to thrash it out. My opinion — and I have my biases — is that at some point it will be clearer which force gains the upper hand, and that will make it easier to decide whether to be long or short, and how aggressively.
I firmly believe there will be at least one very good shorting opportunity by midyear, and I suspect that later this year there will be a very good investment opportunity on the long side.
But at this juncture, it’s difficult to ferret out how and when those opportunities will set themselves up. Thus, this is one of those moments when it may really pay to be more liquid and flexible. In essence, I prefer to react more and predict less this year until the road map becomes clearer….
On the long side (other than precious-metals names), I would say the names to focus on would be the obvious infrastructure companies. (I’m sure folks can come up with their own lists. I don’t have a solid one yet.)
I also happen to think the energy patch may be a worthwhile place to research….Going with software names also makes some sense….I’ll sum up with these watchwords: Be patient and be flexible.
From Markman’s article, he analyzes the ‘smart consensus’ to see where money managers think markets are headed:
So the smart consensus now believes so much bad news has been priced into stocks that the market is susceptible to positive surprises and that stocks will rally with a vengeance once fear abates. [Ned] Davis conjectures that once the dam breaks and hope replaces alarm, the top performers will be the volatile sectors and regions that are now the most oversold. He sees potential for small-capitalization stocks, commodities and emerging markets to lead...
Among all emerging markets, they see China and South America as the most likely to move a lot higher…
So what about the U.S. market? The smart consensus believes we’re still in a long-term bear market but overdue for a cyclical bull rally — pretty much what I have been arguing for the past two months.…this new cyclical rally would need to continue to motor higher with a big jump all this month, last until midsummer and amount to a 60% to 73% advance from the low. Davis’ target, like mine, is the 1,200 area of the S&P 500 (it closed Wednesday at 907).
Finally, Jubak’ article, No Crisis for the US Dollar — Yet, he analyzes the dollar’s current rally and projects the dollar will continue its long term slide in 2010:
These two factors — a global flight to safety while the financial crisis rages and an anemic and lagging response to the economic slowdown by the countries of the European Union — will push the dollar higher in 2009. As long as the financial crisis is alive and well, investors will flock to the dollar and the Treasury market, the world’s most liquid. As long as the U.S. economy’s turnaround seems closer than the European economy’s recovery or a resumption of 5% to 11% growth in Brazil, India and China, then investors will buy dollar-denominated assets because — in the near term — they offer a better potential return.
But these factors take the U.S. dollar only so far. When the crisis has passed, investors who have conquered their fears will notice that Brazil’s fiscal house is in much better order than the United States’. They’ll see the good side of the European Central Bank’s conservative policies and return to their belief that its inflation-fighting credentials are better than the Federal Reserve’s. And once investors have their bounce, as the U.S. shifts from recession to sluggish growth, they’ll start to move money to European and developing economies to collect profits from the same, if later, acceleration in growth.
That means, paradoxically, that the greatest danger to the dollar will come once the world’s financial system and economy are no longer in acute crisis….
This scenario — a dollar rally in 2009 and a long-term dollar decline after that — presents quite a puzzle to investors. The investments you’ll want to own to hedge or profit from the long-term decline of the dollar are likely to lose money in the short term if I’m right and the dollar rallies in 2009. As we know from 2008, a rallying dollar can kill an investment in a weak dollar hedge such as gold.
That leaves us with two choices. First, you can decide you’ll just ignore the short-term pain, focusing on the long-term gain and stocking up on the investments that will win in 2010 and beyond from a weak dollar. Or second, you can decide to wait to build your weak-dollar positions in gold and overseas stocks until the second half of the year.