Unfortunately, today's dots are pointing towards a recession.
With first-quarter GDP growth under 2% and a whole host of indicators moving in the wrong direction, it looks as though the U.S. economy has stalled.
That leaves income investors like us faced with a very important question: how do we best protect our portfolios from the stock price declines and dividend cuts that a recession would bring?
One simple answer is to invest in those countries that are not suffering recession. That opens up a world of possibilities.
For instance, you might consider investing in Japan, which grew at over 4% in the first quarter. Orix Corporation (NYSE: IX) is a name I like.
Or better yet you could invest in emerging markets where growth continues to sizzle.
That makes stocks like the Aberdeen Chile Fund (NYSE: CH) a good buy-especially considering the fund offers a dividend yield over 10%. The fund is attractive to me for two reasons.
First, it's because Chile is a well-run country, standing higher than the U.S. on several international business surveys. But more importantly, its dependence on copper and other commodities is not a problem unless the global economy as a whole goes into recession, which I don't expect.
With assets in primarily Chilean securities, the fund also offers investors a nice measure of diversification from the U.S. economy, since they can expect Chile to keep on growing-- even if the U.S. economy takes a step backwards.
But that doesn't mean you need to avoid the U.S. altogether, either.
In fact, there is a key indicator I'll discuss in a moment which will allow you to preserve your income and the value of your investments through all but the deepest recessions.
First though, you'll need to avoid a few pitfalls. As always, it's never just a matter of picking the stocks with the highest dividend yield. It's just not that simple.
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KEEP CASH, BE A PATIENT VULTURE
I think the U.S. economy will slip into recession by the end of this year (December). However, it will not seem that much different to many people on the street and engaged in the "real economy". So, whatever economic contraction we are headed for, it won't be significant enough or early enough ( before Nov. 8 election) to change the outcome. President Barack Obama is probably headed for a second term and Ben Bernanke headed for reappointment in 2014. The Republicans won't quite get enough additional Senate seats to get a kind of technical "majority" (52 seats).
Therefore, we should plan on full implementation of ObamaCare, eventual higher taxes after the election, and continued Trillion dollar annual deficits. The national debt will grow until a Greek like bond market crisis occurs and interest rates are forced up sharply by the global bond market (foreign creditors). This will cause the Mother of all Recessions and a -40%drop in the stock market, including dividend Aristocrats. Save your money and stay in cash for now. Be patient.
I think Bradley has about 'hit the nail on the head', but I do hope that it doesn't happen! Politicians World Wide have about equal finance intelligence, nearly none! Just look around,
Most Countries are in the same financial mess plus corruption full scale. Generally people
don't do their homework when they vote one reason the 'rats' keep getting in office.
Oh dear, Obamacare. It certainly would be a lot better if we went back to what
Romney was advocated — sending all the uninsured to the emergency rooms. That
would sure help the burden that health care is putting on the economy. The repubicans
have such bright ideas!!!
Any comments on: "Triple Tax Free" NYC/NYS Bonds? Any particular one (s)? A friend purchased w/ their bank last yr. and said they're paying a guaranteed 4% w/ int. paid 2 x/yr.???? Thank you.
I'm new to your reporting letter – I'm interested in your coverage of cyber security companies – if any – and your recent related investment picks.
On September 18 I purchased Commtouch Software Limited. I paid $2.86.This Friday,September 29
the value was $2.48. Please advise your advice.
One fellow here suggests saving one's money in fear of much higher interest rates and a plunging stock market. I wonder if he knows what the dollar does during that time. His cash just may be trash.
Agree wholeheartedly with Jason's 12/14/12 comment.