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I spent last week on a family vacation to the Outer Banks of North Carolina … and based on all that happened in the markets, maybe it was the very best time to be away from my desk!
Make no mistake, I was still glued to stock quotes zipping across my smartphone … I did fire up my laptop to read financial articles far more often than I’d like to admit … and as I packed my bag Friday evening, the implications of S&P’s credit downgrade — rather than the long drive home — were definitely at the top of mind.
Yet being on a remote chain of sandbars out in the Atlantic provided some great perspective on the events, especially since I was able to think about them while spending quality time with my family.
As I’ll explain in a moment, I do not view this major sell-off as a time to unload positions. Instead, I’m viewing it as an opportunity to continue putting money to work.
But First, Some Economic Antidotes from the “OBX” …
While the bookend events of the debt ceiling debacle and S&P’s downgrade have clearly rattled global investors, I think the most important factor behind the market’s recent swoon is all the mounting evidence that we are now entering a double-dip recession — the first in nearly three decades.
Everyone here at Weiss has been warning of just such an outcome for quite some time now … so this shouldn’t come as a surprise to you.
But clearly plenty of other folks are shocked by the news, especially since even mainstream papers like The New York Times are now running headlines like “Time to Say It: Double Dip May Be Happening” and “Second Recession in U.S. Could Be Worse Than First.”
I have to say that what I witnessed on my recent vacation definitely echoes the hard data we’ve been receiving lately — things like weak manufacturing gains, slumping real estate figures, and still-elevated unemployment numbers.
For starters, the drive down was far smoother than I would have expected on a Saturday morning during a prime summer week. There was virtually no traffic around Ocean City, Maryland. No jams on the Chesapeake Bay Bridge. And empty asphalt all the way past Virginia Beach.
On the Outer Banks, it was a similar story. I saw far less foot traffic at stores than I would have expected. Restaurants generally had short waits, too.
Meanwhile, signs of the real estate bust were all over the place, literally!
In addition to all the properties for sale, I saw plenty of realty offices advertising lists of short sales and foreclosures alongside slogans reminding us that now is a great time to buy.
And on that note I would like to shift the conversation a bit since I think we all recognize the challenges that exist today. The more important question is …
Where Are the Good Places to
Invest in These Uncertain Times?
When things head south as they have been, the natural tendency is to “take a vacation” from the markets — to pack it all up and wait for better days.
But as I spent my actual vacation watching the Dow plunge day after day, I started thinking not about the dangers but rather all the opportunities that would soon be presenting themselves.
You see, these types of sell offs are precisely why I have recommended my subscribers keep a large portion of cash available in their investment portfolios. Right now, my Dividend Superstars model portfolio shows a 27 percent allocation to cash … and my Dad’s Income Portfolio contains a whopping 56 percent in cash (plus another 5 percent in bonds).
So, no, I’m not one of the people who typically recommends selling into market weakness. Instead, I prefer to do the selling when there are profits to be taken … and the buying when everyone else is panicked as they are now.
Keeping some money in cash during good times is precisely what allows you to do act on this approach!
Regarding where the opportunities are, I continue to favor investments that have real economic value … especially if they also produce safe, reliable income.
It’s like the best of both worlds:
You get built-in inflation protection as you would with any other tangible asset. After all, if the Fed starts printing even more money to resuscitate the economy yet again, the values of companies, properties and other income-producing assets will naturally rise right alongside metals and other commodities.
Meanwhile, if a renewed slowdown creates a long period of weaker prices, you will continue to receive steady payments along the way.
In fact, I would go so far as to say I may actually agree with the Outer Banks realtors right now — because some vacation properties finally do look attractive from a cash flow perspective these days.
However, I consider with my favorite dividend-paying stocks even better buys at the moment!
I liked them at prices two weeks ago, and I like them even more at today’s rates.
Remember, as stock prices drop … their yields naturally go up.
More importantly, the majority of my favorite dividend stocks operate in recession-resistant sectors and industries!
As I’ve been pointing out for quite some time, the very best corners of the stock market during times of economic weakness are utilities, health care, and consumer staples companies — both because they are rich with dividends and also because their businesses are largely insulated from slowdowns.
It should come as no surprise then when I tell you that the lion’s share of my recommendations in Income Superstars have been in these sectors — including some firms that either boast large overseas businesses or are actually based overseas themselves.
Heck, my Dad’s Income Portfolio currently contains nine stocks. Eight of them are pure plays on the three aforementioned sectors and pay VERY healthy dividends!
This is precisely why I was still able to relax on my vacation even as the market dropped … and why now that I am back at the office, I’m most excited by the prospect of finding new ways to put money to work despite all the dismal news out there.
So, please, despite all the negativity out there right now … always try to stay focused on the longer term in mind and remember that — like the Outer Banks — America’s best companies have survived countless storms over the last century and will continue to do so for decades to come.
Best wishes,
Nilus
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We saw just the opposite on our vacation to NW Florida’s Gulf Coast, July 23-30. We’ve been vacationing there off and on since 1987, but this was undoubtedly the busiest I’ve ever seen South Walton County. Traffic was terrible, and it seemed like everyone in Georgia, Tennessee, Alabama, and Louisiana had decided to go to the beach. Our normal 8.5-hr return trip took 11 hours, albeit maybe an hour of that was due to construction on the interstate in Birmingham, Ala.