They say what doesn’t kill you makes you stronger. I keep that in mind as I watch the Dow Industrials repeatedly test the 8,000 support level.
We’ve watched buyers continue to step in at the 8,000 range. That clearly makes this support level stronger. The recent sell-off at Bank of America (NYSE:BAC) failed to send the Dow below 8,000. Today, it’s GE’s (NYSE:GE) turn.
GE’s Q4 numbers actually met expectations. Given the uncertainty, one might think that would pass as good news. But the stock is down 4% or so this morning.
Most of GE’s divisions performed well. The weakness in GE’s earnings is mainly due to GE Capital. The weakness in the stock appears to reflect fears that GE will cut its dividend and lose its AAA rating. The debt rating may be somewhat beyond its control, but I have to think GE would move heaven and earth to avoid cutting its dividend.
Now, let’s get to some reader mail…
*****Tom asks: Was it you who recommended a consumer goods ETF that went up 2x for every percentage point that the consumer index went down? I wrote it down but I can’t seem to find it. Refresh me please if you have the symbol for it.
Yes, I did mention a leveraged, short consumer goods ETF. It was the ProShares UltraShort Consumer Goods (NYSE:SZK). It’s up 4% today to $84 and change. This ETF appears to have support at $70, and resistance just ahead at $90.
With the major averages essentially at support levels, now may not be the best time to take a downside position (remember, a short ETF will rise as its benchmark falls). And I’d expect consumer goods stocks to respond positively to Obama’s plan to give taxpayers a break in the form of income tax withholding.
But over the next couple of months, there will be some good opportunities to trade short ETFs. Definitely keep this one on your radar.
*****J. Jensen has the bullish case for commodities worked out: Seems to me if Obama and govt are successful in reigniting inflation that should be bullish for gold, oil and other real assets. If they are unsuccessful then govt receipts/taxes will fall…causing higher deficits that will add to the stimulation deficit. The result should be a crashing Dollar. That would be bullish for real assets. So, the worst period is right now and future should be better for real assets no matter how the govt reinflation works out.
Make no mistake, Bernanke’s number 1 priority right now is getting a little inflation going. Like it or not, the U.S. economy is geared for inflation. Spend it now, or it’ll be worth less in the future.
I believe certain hard assets, or commodities, are good investments given the potential for the US dollar. The best case scenario is the dollar gradually weakens. Worst case, it crashes. Given the global economic problems, the dollar is strong, because it’s the safest currency. And so long as the global recession persists. Commodities will remain weak due to slack demand and strong dollar.
Ultimately, though, strength will return to commodities. And a rally for commodities might even be a leading indicator for a return of global growth.
*****Hesham continues the discussion: I’m holding position on the gold, kindly can you advise me with your expectation about the gold direction for 2009-2010 ?
Commodities in general are a play on both global growth and a weakening dollar. They won’t rally sharply until demand returns. That’s not true for gold.
Gold is a pure play on inflation/weak-dollar fear. To me, that makes gold an attractive investment. Because given the amount of money that’s being pumped into the economy, there’s simply no way the dollar can remain strong.
In fact, I’m so bullish on gold that I’m making a gold investment one of the first positions in my $100,000 Recovery Portfolio. As you may now, the Recovery Portfolio video conference aired last night to an audience of nearly 5,000 investors. If you’d like to view an "on-demand" replay, you can find it HERE.
*****Adams asks about Graham Corp (AMEX:GHM): I bought it at $13.43 and now it’s at $12+. Not happy, but what your advice?
I first recommended Graham Corp to Daily Profit readers on November 21, 2008. It could have been had around $7.50 that day. If you entered at $13.43, that means you were buying at the absolute highest point (January 6-7) since the original recommendation.
Clearly, that’s less than ideal. After all, at $13.43, the stock had practically doubled since the original recommendation. That was a point to take profits, not enter a position. Now, I realize that’s after-the-fact advice. I believe Graham will recover to $13.43 and higher in time. But there are some obstacles in the near term.
Oil prices remain under pressure due to rising inventories and slack demand. That’s going to keep a lid on oil services stocks. Plus, Graham announces earnings next Friday. Given current valuations, a forward P/E of 7, price to book of 1.6 and a market cap a little more than 2X its cash, there’s a lot of bad news priced into the stock right now.
Graham has virtually zero debt and should be able to weather this economic downturn. The stock is close to support at $9, but I can’t see taking a position right now, with earnings coming up.
Now, another important aspect of this reader’s question concerns how to buy stocks mentioned in Daily Profit. As you know this is a daily letter, and my comments and suggestions usually relate to the situation at hand. In other words, I’m usually not recommending stocks for long-term holding. Rather, the stocks I mention as buys are showing bullish signs in the immediate economic climate. That means if you’re going to buy them, do it quickly, within a day or two.
Also, I’ll be more clear with my recommendations in the future so we avoid misunderstandings. I’ll include acceptable entry prices and what the timeframe for holding looks like.
*****Finally, now that President Obama is in office, L. Campbell asked: Seems like you mentioned a report about good stocks to buy now that Obama is President. Can you refresh my memory?
Sure, my advisory letter, Top Stock Insights, published a Special Report featuring 3 stocks that should benefit from President Obama’s policies. You can find out how to get that report HERE.