This Has Been Making Investors Rich for 140 Years

Email

People are viewing the end of stimulus as a sunset. "My, what a wonderful day we've had," they say.

What they should be doing is investing for tomorrow's dawn – the turmoil we're seeing now as part of Yellen's arrival is actually par for the course.

It's also a great time to lock your sights on four companies that will lead the way when the smoke clears…

The Federal Reserve Transition Is Creating Bargains

Bloomberg data, for example, shows that U.S. markets have fallen an average of 2.6% for the three months immediately following a Fed handover. We're down 3.6% (as of last Friday's close) from the S&P 500 peak set on Jan. 15 of 1,848.33, so it would appear that the pullback simply began ahead of time.

When Paul Volker took over in August of 1979, the markets dropped 4.6%. That was nothing compared to the 26.5% wallop they experienced in August of 1987 when Alan Greenspan took office, according to USA Today.

Many investors are worried that things will go from bad to worse because of the taper from $85 billion a month to $75 billion a month and now down to $65 billion a month…

I can't say I disagree, at least not in principle anyway. But, eventually this will all blow over.

It won't be pretty, and what happens in the interim will undoubtedly test your patience. But it will blow over. Practically speaking, the Fed has succeeded in doing something this time around that has never been done in the history of mankind in that they've inflated everything.

What most people don't realize is that the markets have a funny way of adapting to stress. They also have a funny way of showing what happens when they do.

Most investors are surprised to learn that the vast majority of the time, turmoil like we're experiencing at the moment actually results in new liquidity and positive – as in higher – prices. There's clearly an upward bias at work.

making investors rich

Many investors find this hard to accept, even when looking right at the data. I know – I'm one of 'em. But at the end of the day, the data is the data.

To me this is a lot like being told to eat your broccoli because it's good for you – you can't see the immediate benefits even though you know research supports the assertion.

For instance, FactSet/Piper Jaffray data shows that the S&P 500 has returned an average of 5.9%, with some 70% of equities in the benchmark index reflecting higher prices 12 months after a Fed handover.

making investors rich

Personally, I think that's conservative.

These Are the Markets for the Next 140 Years

My expectations are for 8% to 12% growth this time around. Despite the litany of more cautious earnings statements we've seen so far this earnings season, companies continue to boost profitability. Generally speaking, they're cash flush and increasingly competitive.

As I shared with Money Map Report subscribers Monday, U.S. capital spending is going to increase by as much as 6.7%, according to UBS AG, which syncs with my expectations for 5% to 8% and spending north of the $2 trillion we saw in 2013.

It's not by coincidence that these companies are sitting on record levels of cash and short-term investments – some $3.6 trillion, according to Bloomberg. Nor is it random that 79% of the S&P 500 companies already reporting Q4 earnings have beaten estimates.

That said, there's no magic pill. I don't agree with the rosy 3% GDP growth that Moody's Chief Economist Mark Zindi has said he sees coming. Nor do I think we're going to see the robust job growth that many economists see coming.

Join the conversation. Click here to jump to comments…

About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

Read full bio

  1. Jeff Kinney | February 4, 2014

    How about SPY on same subject,and a sexy NFLX,TSLA etc. types?
    How I wish Bill's Pvt. Briefing could arrive earlier. It's 8AM, and I fight to digest Before 9:30AM-CNBC? Thanks for your great info.

    • Keith Fitz-Gerald | February 4, 2014

      Thanks for the kind words Jeff and for being part of the Money Morning family!

      Let me see what I can gin up on the three you've mention – SPY, NFLX and TSLA. Those are all great choices albeit with extremely different characteristics quantitatively.

      As for Private Briefing, I'll have a chat with Bill and see what the production team can do to get it to you earlier. I know they have their hands full but there's no harm in seeing if we can get even more efficient!

      All the best regards for a great day,

      Keith :-)

  2. Bill D | February 4, 2014

    Just a quick correction – near bottom of article, reference NYSE: KPM – Should be KMP.

  3. H. Craig Bradley | February 4, 2014

    Keith,

    What do you think of Johnson and Johnson (JNJ)? Its a global company (a Glocal ?).They also pay a 3.00% dividend at current prices. Right now, the stock is going though a correction off its 52 Week high of $95/share. It came up fast in just the past year, so like the overall market, its due for a correction of its own.

    JNJ has a 54% payout ratio, a .6 Beta, and it has raised its dividend every year for the last 56 years !! Its P/E is about 18, down from a high of 21 last year. Market is about 15, so it may come down some more yet. Time to think about building a position in a stock like Johnson & Johnson ? Seems like a candidate to me.

    • Keith Fitz-Gerald | February 5, 2014

      Thanks for your thoughtful and well reasoned question. There's a lot to like about JNJ to be sure and it's definitely a "glocal." I want to give this some thought in light of current market action so stay tuned for an upcoming column!

      All the best regards for a great day,

      Keith :-)

  4. H. Craig Bradley | February 5, 2014

    P.S..

    TOO MUCH MONEY AND NOWHERE TO GO

    Unfortunately, I don't think this "correction" is going to be deep enough, broad enough, or near long enough ( at least 3 months) to result in a screaming deal for JNJ stock, at this juncture. Its just a hunch, based on what the markets are doing. Right now markets appear choppy, with different sectors switching leadership (inflows) and the VIX up to about 20 ( which is still only "average" ).

    Gold is also moving up a bit, so I don't see capitulation, but rather strong hands. Its just another "pullback", so I do not even think JNJ will get down to $80.0/Share ( 3.3% dividend and maybe a 17.0 P/E ratio at this time). There is still too much liquidity out there and very high investor sentiment, accompanied by the same very low interest rates. Even so, I see a yellow light at the intersection coming up this year.

    One alert, a trader on Rick Santelli's Exchange (CNBC) said yesterday morning he has a leveraged short trade in on the YEN and expects it to devalue on FX to 200-300 YEN/ Dollar. If something like this eventually happens, what will the effect be on global stocks. I say, better get in your bomb shelter first and wait it out rather than risk capital in markets that are ostensibly "fairly valued" ( some disagree and maintain its "overvalued").

    Oh, least I forget: We have two blood moons (total lunar eclipses) this year coinciding with the Jewish Holidays of Passover ( March 15) and Feast of the Tabernacles ( Sept 28). Ditto next year for a "tetrad". This occurrence(s) is very rare. Therefore, something has to be brewing in the Middle East that nobody ( not even the CIA) is paying any attention to. Could it be that like the Soviet invasion of Georgia a few years ago we could all "get caught with our pants down" once again. Seems to me like investors should exercise extreme caution for now.

  5. estephen B esteve | February 21, 2014

    so pls give them the attention its time to our retirement.

  6. H. Craig Bradley | March 15, 2014

    No more articles here since this one? The SEC must be a cause. Suggest government bureaucrats instead worry about all the fraud that is currently going on undetected ( remember Bernard Madoff conducted his scheme for 20 years under everybody's noses). Giving a form of advice regarding a highly volatile and unpredictable stock like Facebook hardly seems like an issue worth any attention.

    Facebook remains a high-flier and has minimal earnings ( less than $1.00/share). The herd of professionals and dice-rolling individuals have bidded it way up in a bull market based on potential rather than current reality. Its remains a creature of this bull market. No bull, No Facebook, No Value.

Leave a Reply

Your email address will not be published. Required fields are marked *


7 − = zero

Some HTML is OK