Here’s the difficult disconnect we’re in with the stock markets today: nowhere is safe, but the U.S. is the safest place to be.
And the biggest irony of this situation is that big cap stocks are overvalued and have been in an earnings downtrend — if you don’t count stock buybacks — for many quarters now.
This is why all the talking heads talk about the pessimism most investors have with stocks. They see the companies are not doing well — net sales in stocks has outpaced net sales since April and hedge funds have seen selling the past month that hasn’t been seen since early 2009 — and the economy is stagnant at best.
The U.S. economy has grown an average 1.2 percent annually since the Great Recession, the worst performance since WWII. Worker productivity continues to decline, even in the Technology Age. Unemployment is low, but there are a record number of Americans that have simply opted out of looking for work in traditional ways. Consumer debt is rising, yet retail stores are seeing diminishing sales. That means people are borrowing just to keep going.
But this is, like it or not, the best of all possible worlds.
This may seem absurd, but this middling economy is the strongest of the developed nations.
That makes the U.S. market the go-to market for foreign capital and the dollar the strongest currency.
But it is difficult to hold that idea — stagnant growth, overvalued stocks and a strong currency and stock market safety net — simultaneously.
So you should either join ’em or go around ’em.
By joining, I mean buy stocks that will rise when there’s a flight to safety. I like to call them century stocks. These are companies that have been around for 100 years or more. They have seen it all. They also understand the value of a long-term plan as opposed to posting impressive quarterly results.
Century stock companies know how to make money in good markets and bad. They have seen pretty much everything before, and they can see the decisions the company took when it happened.
For example, Clorox, which owns of number of various marketing leading home product brands, only sold bleach for the first 50 years it was in business. If you can make bleach profitable enough to sustain market share and grow your business, you are doing something right.
That’s another point. Most of the century stocks are companies that actually make things. They’re not financial manipulators that make money out of thin air and derivatives. They provide necessary and important products to their markets.
The other alternative is to go around the markets and simply avoid the whole mess.
In that case, you want to park your money in hard assets like gold and silver. You can either buy metal-based exchange traded funds (ETFs), or you can buy the bullion. You can also buy gold and silver non-collectible coins.
You see, coins that are deemed collectibles carry a higher premium to the price of the metal since they supposedly have a great value. But that premium will rise and fall. Non-collectible coins don’t carry the premium, so they more closely track the metal.
Either way you want to play it, it’s going to be a bumpy ride, so strap yourself in tight.
— GS Early