The Grimmer it Gets, the More Profit Opportunity We See

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Investors who are regular readers of the financial pages are no doubt feeling about as uneasy as can be about the near-term outlook for the U.S. economy and U.S. stock prices.

But if you're a regular reader of the Money Morning Web site these same headlines are probably a lot more reassuring. The reason: Almost all of them reinforce the messages that we repeat here time and again.

These daily developments reinforce the need for globally focused investments like those we advocate, because such holdings are "decoupled" from the fiscal disaster that continues to build here in the U.S. market.

But even for us, I know the headlines can sometimes be tough to stomach. Just remind yourself that with each development, there are actually profit opportunities for us as investors - even though those same headlines mean we'll experience pain from a consumer standpoint.

Beginning at the top:

  • On Friday, President George W. Bush noted that "it's clear the economy has slowed." No kidding. Leaders are supposed to lead, so why is it that the Beltway Boys are continually stating the obvious as if it's some new revelation? Give us some solutions.
  • From the Ministry of Whitewash, former CEOs Charles O. "Chuck" Prince III [Citigroup Inc. (C)], E. Stanley "Stan" O'Neal [Merrill Lynch & Co. Inc. (MER)] and Angelo Mozilo [Countrywide Financial Corp. (CFC)] all defended their multi-million-dollar payouts on Capitol Hill. "In short," Mozilo said, "as our company did well, I did well." Prince stated that his pay tied directly to the performance of the company. And O'Neal argued that his compensation was in line with the broader financial services industry." Well if that's the case, what I want to know is this: How come these guys aren't now being penalized for giving investors a billion-dollar haircut?
  • Meanwhile, the U.S. Federal Reserve reported that - for the first time on record - homeowners' unpaid loan balances exceeded their equity. Having personally lived through the Japanese economic nightmare of the early 1990s, I can't help but feel an uncomfortable sense of déjà vu here - particularly with foreclosures now reaching all time highs. This is a highly negative, "reinforcing downward spiral" Mark Zandi, the chief economist at the Moody's Corp. (MCO) unit, told The Associated Press last week. We couldn't agree more.
  • U.S. employers are operating in a slash-and-burn mode when it comes to jobs. According to federal statistics released Friday, the 63,000 job cuts that were just reported were the biggest total in five years. If U.S. companies and their government labor-market protectors aren't careful, this slash-and-burn mode will turn into a permanent "scorched-earth" policy - meaning the jobs will never come back.
  • Durable-goods orders were down 5.3%, while revised fourth-quarter gross-domestic-product (GDP) growth was a measly 0.6% - the slowest result in five years.
  • And the previously sinking U.S. dollar is in a full-fledged freefall. No wonder Europeans are upset: Our exporters are stealing their market share faster than hooligans looted storefronts after the 1960s East Coast blackout.

When these facts are taken together, two things are clear:

  • First, the U.S. economy isn't just slowing - it's in a full-fledged retreat, something we predicted months ago.
  • GDP may actually contract, positioning us for an "official recession."

Before you start to believe everything is bleak and that we're headed for a Great Crash-style downturn, let's take a look at the good news.

And believe it or not, there still is good news for investors. There are plenty of ways that investors can position their assets for growth, even as they more closely control downside risk - even the face of such horrific market conditions.

Some of these investments - such as balanced funds - provide stability, which is crucial in a market like this one, and which is why we've been recommending them for a while. Other types of investments, such as bond funds, provide additional stability and generate a stream of income, to boot.

As for specific companies, it should be no surprise that we continue to favor the so-called "Global Titans" that we've referred to so often in recent months. Not only are these stocks holding their own, but many actually are expanding their market share and profits.

Of course, the inverse funds that we've been recommending are up by double-digit amounts, too. Compare that with the broader markets, which have plunged to hair-raising levels in only a matter of weeks.

When I look into my crystal ball - in my case, a very powerful PC supercharged with some highly customized and highly proprietary analytics - I see some very bright times ahead. But that's only for investors who are shrewd enough to play the hand they're dealt - and not the investors who sit around waiting for the so-called "perfect" hand.

We are not facing anything close to the death of the equities markets. In fact, when we see a cover story in Time, BusinessWeek, Forbes or Fortune that's eulogizing the U.S. capital markets, I'll be backing up a truck to buy.

Studies show that investors have a great history of doing exactly the wrong thing at the wrong time so that kind of media coverage is one of the best Contrarian indicators in the technical playbook.

Keep an eye out.

You can bet that we'll be doing just that.

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