Near the top of the current cyclical bull on 4/15/2010, at Dow 11,144, Jim Cramer predicted Dow 12000. He did it emphatically… as he is known for… and he did it without preconditions. Less than 8 weeks later, however, he floated a price target of Dow 8200.
Anyone who has watched Jim Cramer is already familiar with the “flip-floppiness.” There were ill-timed assessments throughout the first half of 2008, even a bit of scandal over Bear Stearns. So it comes as no surprise that… here in 2010… Cramer’s proclamations are harder than ever to track.
For example, Dow 12000 didn’t just shift to Dow 8200. No sir, Dow 12000 went to a Dow 9000 call in mid-May. Yet, when the Dow Industrials surged 400 points on word of a $1 trillion dollar European bailout, Mr. Cramer became a raging bull once more, declaring the correction over. He explained that when the facts change, he changes with them… and that he had never seen a more important commitment in his 30+ years of experience than the commitment by the European Union.
The markets recovered in dramatic fashion, but only temporarily. Attention shifted from sovereign debt worries to European growth/euro currency fears. Mr. Cramer then kicked off a new campaign for Dow 9500, shifting back to bearishness. (Facts changed… perhaps?) Yet with the Dow hovering in and around 10,000, Mr. Cramer consistently encouraged viewers not to be sucked in by the perma-bears like Nouriel Roubini.
On 6/8/10, JC now sees the Dow falling to 8200. That’s an additional -17.5% slide from an already depleted Dow! It seems to me that Mr. Cramer has the capacity to be every bit as pessimistic as Roubini when the day’s facts dictate.
Truth is, neither Cramer nor Roubini nor any human being can possibly know where stock markets will go. We can use charts that objectively determine a bearish or bullish price trend… and today… the trend is bearish. Still, there’s little possibility of knowing whether a downtrend will reverse course in a day, a week, a year or longer.
What I do know is that investor pessimism has become pervasive. In fact, the few outspoken bulls suggest that… rather than a period of irrational exuberance… we’ve entered a period of irrational negativity.
Other equity strategists resort to listing the reasons why stock assets are attractive. Bob Doll, chief investment officer at BlackRock, sums up his case for U.S. stock investing as follows: (1) manufacturing levels are up, (2) inflation is low, (3) interest rates are low, (4) average hourly wages are up, (5) average hours worked are up, (6) nominal GDP is at an all-time high after just a few recessionary years, (7) the Great Depression required 15 years to reach similar milestones, (8) corporate profits are exceptional, (9) business inventories are rising, (10) cash on business balance sheets are at a 60-year high, (11) Unit labor costs a la productivity have dropped at the fastest pace in 40 years.
Still, most of us can only see the cloudy overcast of Europe’s economy, the fog-filled tightening of credit in China and the murky repercussions of the BP oil spill. Is this who we’ve collectively become… a nation of forecasters calling for an endless rain?
Yet I believe there are ways for ETF investors to worry a bit less. Consider one or more of these 3 unique investments:
1. JP Morgan Alerian MLP (AMJ). Most of my readers recognize the ticker symbol. And I admit to speaking about energy partnerships ad nauseum. Yet the facts (today’s, tomorrow’s, next year’s) are quite favorable.
The country requires its pipeline infrastructure for the transportation of oil and natural gas… now, more than ever. If you are uncomfortable picking a specific partnership, JP Morgan Alerian MLP (AMJ) diversifies across the entire lot. AMJ also offers 6% annualized income and it’s still in a technical uptrend.
2. iShares MSCI Malaysia (EWM). I can’t be serious, right? An emerging market stock fund during exceptional levels of market volatility? Well, it might not be for everyone, but hear me out!
Malaysia (EWM) sports a 2.2% annual yield that’s competitive with the domestic U.S. markets at about 0.85x the volatility of the S&P 500. Franklin Templeton, one of the premier companies in global bond investing, has been investing heavily in Malaysian sovereign debt. The fund is primarily diversified across financials, industrials and consumer stocks, with virtually no exposure to the more volatile energy and basic materials segments. GDP growth is one of the fastest in SE Asia (7% projected for 2010). And its technical uptrend is, for the most part, still intact.
3. PowerShares Insured National Muni Bond (PZA). Monthly, tax-free income at an annualized rate of 4.75%. Top bracket earners are looking at a taxable equivalent yield of 7.3%. Compare that against the lower-yielding, far more volatile 20+ Treasury Bond Fund (TLT).
Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above.The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC and Geary Advisors, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.
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