Investor sentiment continues to be very negative for stocks and you know that times are tough for equity investors when the NYSE plans to relax its ru...
Investor sentiment continues to be very negative for stocks and you know that times are tough for equity investors when the NYSE plans to relax its rule that listings trade above one dollar per share. The exchange recently reduced its minimum market capitalization for listings,
while the NASDAQ stock market has already relaxed its minimum bid price and minimum market capitalization for companies.
The bear market continues and it's a long road ahead to recovery. In fact, we're not even at that point yet; the market is still in shock, testing its most recent low. I suspect this is part of a long bottoming out period for the broader market, but in this kind of environment, anything is possible.
In my view, gold continues to be one of the most attractive assets going forward over the next few years. As an investor, you can consider individual gold stocks, a precious metals mutual fund, or iShares, or you can trade the futures market itself.
Over the last month or so, I've been writing about the ideal stock portfolio going forward, taking into consideration the bear market and the significant correction in stock prices. A model stock market portfolio in the current environment has to have a mix of industries and a lot of dividend-paying securities.
If I was putting together an equity portfolio right now for a wealthy client, I'd have some pharmaceutical stocks included, some agriculture, gold, perhaps some oil, and I'd definitely consider a basket of Chinese shares.
I say oil now, because, like most everything else in the marketplace, the commodity is down and so are the big oil companies. But I just don't think it's reasonable to assume the current situation is going to last. OPEC is cutting production and will likely cut more later this year. And, even if demand for oil is stagnant in the U.S. economy, China and India still have enormous appetites for energy. The price of oil is going to come back.
This leads me to the Chinese component of a model portfolio. Domestically, we're in a real pickle and it's going to be years for things to get turned around. I just don't see the recession ending soon and then having the economy take off with three percent or four percent growth. The recovery in the U.S. economy is tied to the real estate market and we all know that the real estate price cycle takes a long time to unfold.
There really is no other large economic engine in the world that can generate the kind of growth necessary to create significant amounts of wealth for investors. Besides, the Chinese stock market has already corrected and, currently, it's showing signs of a recovery. We all know they've got lots of money in the bank and that their domestic stimulus package is affordable. I think the best way to play China is with a basket of stocks or some sort of fund.
I like pharmaceuticals for their business model and their dividends. I like gold because of all the current government spending, the safe haven aspect and the inflation risk. I believe the commodity price cycle has yet to run its full course and that the price of food is going to get a lot more expensive. Therefore, some exposure to agriculture is useful in the form of a seed and grain merchandiser. China is a given and related to the recovery in commodity prices. Throw in a couple of special situations and you have the makings of a great starting portfolio in a stock market that's already corrected. Of course, you have to have the spare cash sitting around that you don't need or the whole exercise is just plain academic!
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