I am hearing that from everyone, Main Street to Wall Street, what the ramifications of this global market liquidity crisis are. The events over the last 10 days really highlight how fragile and intertwined the global economy has become. What was literally isolated to the US sub prime meltdown caused the initial jolt to the financial system and like dominos one after another started to fall. I believe that Alan Greenspan Blood Car move Knife Edge divx download Elizabethtown said it best in a recent interview when asked if in his career he had ever seen it this bad, he replied “no this is the worst it has ever been, this is a once in a century crisis”. That is a bold statement from a man that ran the Federal Reserve for so many years. The liquidity crisis will cause continuing pain for the economy, real estate pricing and increase unemployment. Banks are starting to fail and the money market funds are in dire straits which is one reason the bailout needs to occur quickly. Our markets are built on confidence so absent that we as a nation are in deep trouble.
So to the question of what now? Well, let’s recap, banks failing, money markets very sketchy, gold at an all time high, corporate bonds almost as volatile as common stocks and T-Bills… well I guess they are safe? At some point, as someone with capital in the market in one form or another, you have to draw a line in the sand. It is certainly not feasible to have cash buried in your mattress or gold bars buried in the back yard. So a pragmatic approach based on realistic assumptions should be used. First assumption, that the stock market and capitalism will continue. Second assumption that there will still be free markets and that anarchy will not prevail. That’s basically it, the belief that regardless of the pain level business will continue. So in looking back what has fared well in times of market uncertainty? Defensive companies the ones that provide us with basic necessities like food, water, alcohol and smokes. Times of stress usually benefit alcohol and tobacco companies. Pharmaceutical companies, which provide us with the medicines to cope (Zoloft, Prozac and Viagra) with challenging times. Basically, look at the large capitalizations companies especially the ones that have good brand recognition both national and international. In fact international companies may actually be the way to go from a portfolio weighting point of view. Some of the pharmaceutical and large multi national food companies have very decent dividends on their common stock. Another interesting route would be a small amount of diversification into Japanese banking stocks as they had relatively low exposure to the toxic products generated here in the states. Last but not least some of the leading mining and mineral companies in the world have certainly fared better than most and with commodity prices still at high prices that should bode well for the underlying business.
I have intentionally not provided specific recommendations in these sectors but if anyone would like my opinion please feel free to email me or post a comment and I will get back to you with my specific thoughts. As always cautious investing.Keith film
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