Jubak: Everything’s changed now — for the worse

Things aren’t looking good according to Jim Jubak

He now recommends a portfolio of the following:

40% cash
20% natural resource stocks
20% in ‘ high-dividend stocks in sectors with good growth prospects beginning in the second half of 2009’
20% in ‘growth at a very reasonable price’ stocks

He also recommended buying OKS with ‘an October 2009 target price of $52 a share. Buyers will also get that 9.6% yield while they wait.’

This Article Just About Sums It Up…

size:85%;">Jon Markman’s 9/26 article is worth a read: size:85%;">Trust Them? We Don’t Have a Choice

To summarize Jon Markman’s conclusion:

‘Is there any hope that it [the bailout plan] will work out? Sure. David Kotok at Cumberland Advisors provides this calculation: Assume the entire $700 billion will be deployed in acquiring damaged or toxic financial paper and any recovered money will be redeployed doing the same. Further assume that the ultimate recovery will be zero. The U.S. economy is $14 trillion in size; $700 billion is 5% of one year’s output. The entire amount can be financed with Treasury bonds at an interest rate below 5%. Assuming the $700 billion never gets repaid and is refinanced indefinitely, the cost is $35 billion in interest for each of the next 30 years. He concludes that $35 billion a year is not much to pay if it can avert another Great Depression.

I asked Kotok why we need to buy into the assertion that the alternative is a depression, and he argued that the real issue isn’t the actual amount of new credit made available but that the lack of lending today has dramatically reduced the global credit “multiplier” — or the amount that borrowed money is reused and re-lent. “We need a huge credit extension to offset the shrinking multiplier, which is now at 12 and is normally 14 — a massive difference,” he says.

Kotok says that in the world of credit unseen to most politicians and equity investors, credit spreads are widening, corporate bond issuance is growing more costly, and bank failures are expanding. A contagion is spreading, in other words, and Wall Street is dying. And dying with it, unfortunately, are the financing vehicles for houses, small businesses, autos, college education, cities and bridges.

In this context come the two actors who may not be perfect, but they’re all we’ve got. “Our leadership says, ‘Trust me.’ Should we do this? The answer is no,” says Kotok. “Should we authorize the $700 billion? The answer is yes.” Reluctantly, I agree. The show must go on.’

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