The Fix Is In
The stock market continues its uneasy equilibrium. After a slow start earlier this year, the economy inched ahead in July and August as employment improved slightly in some areas and housing showed signs of life. Both exports and consumer spending are up but overall growth remains sluggish.
Since the recession ended more than three years ago, the economy has been unable to build sufficient momentum for a breakout to the upside. On the other hand, despite all the prevailing fears, it has not slid back into another recession. Inflation and interest rates remain low while growing corporate profits in most sectors have kept stock market valuations reasonable.
The uneasy truce among these factors has left the U.S. economy more vulnerable to outside shocks. Last year, the earthquakes in Japan caused tragic losses there and disrupted global supply chains. Turmoil in the Middle East spiked oil prices. Rational leadership, a factor never to be taken for granted, could ease stresses from the European financial morass and the looming “financial cliff” in this country.
The U.S. elections add more uncertainty. President Obama is slightly ahead in the polls and investors who might think a second term could hurt the stock market should look at the record. Stocks greeted the President Obama’s inauguration with a 300-point drop in the Dow Jones to below 8,000. It’s over 13,500 now, up 70% since he took office, and seems headed for a new record for a single term.
That’s no comfort for the millions of Americans out of work and challenges the Federal Reserve to help get the economy moving again. Chairman Bernanke led the Fed in rising to these challenges with a full throttle new round of bond buying coupled with an extension of its commitment to postpone any expected increase in short-term interest rates until 2015. The Fed fix is in.
These steps are powerful medicine, which the stock market celebrated with a 200-point rise in the Dow Industrials. We are now within hailing distance of the Dow’s all-time high of 14,164, set almost five years ago on October 9, 2007. As we near the five-year anniversary, we can expect to hear increasing chatter about breaking this record. That’s interesting but the real measure of progress will be the returns on our investments, not from stock market commentators making noises on TV as if it were New Year’s Eve.
Maybe it will be. With building market momentum, we may see a new high by the New Year. The old problems are still here but it is quite possible that we will see increasing investor and consumer confidence, pillars of any advance.
For now, investors should still keep the course with stocks in big-cap companies but a firmer market tone means shaking out the reefs from our sails. More aggressive stocks include emerging markets. Many investors are familiar with “BRIC” stocks, an acronym for Brazil, Russia, India and China. Currently, all four of these present issues that suggest deferring buys of their stocks.
The new acronym is “MIST,” for Mexico, Indonesia, South Korea and Turkey. This group has a combined GDP only one quarter that of the BRIC’s. Their mobile telecommunications companies provide attractive plays on their economic and population growths.
America Movil (AMX-$25) is a continuing buy recommendation. Based in Mexico City, it provides wireless service throughout Latin America. Sales are $52 billon and earnings are recovering from the global recession. Telekomunikasi Indonesia (TLK-$39) has $7.5 billion sales, also with recovering earnings
These two offer modest dividend yields while Korea’s SK Telecom (SKM-$15) has a highly variable yield, currently above 6%. Turkcell (TKC) is interesting. It has $5.5 billon sales from wireless operations in Turkey, Cyprus, Belarus and Ukraine. The company suspended its 2011 and 2012 dividends while two rival investor groups fight over the company. Turkey’s growth is the strongest of this group and resolving this wrangling should benefit its shareholders. Resolving the wrangling here over the “fiscal cliff” and other avoidable crises will provide benefits for all of us.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. [email protected] 949.494.1376/
800.697.2622 www.crowellroberts.com
