Is it time to pull out of the European Market?

Well it is clear that the psychology of the market is driving investor actions instead of the fundamentals. The U.S. economy continues to show increasing strength but the domestic market continues to fall on fears that Europe will fall into recession if they engage too aggressively in debt and budget reductions.

Of course the other side of the coin is if their austerity program is not aggressive enough, they will go all bankrupt and the whole house of cards will come tumbling down around their ears ending the great European Union and signaling the death knell of the Euro, the common currency of the member nations. The EU and the IMF are left with little room to maneuver as they negotiate the narrow chasm between bankruptcy and recession.

This is a heck of a balancing act and if they pull this off without fomenting a disaster, then the EU and the weak links comprised of the PIIGS will recover, but the recovery may take years. Thus the outlook for Europe is somewhere between bad and worse so this is not a good time to be investing in the European market. The reaction in the U.S. market, however, appears to be overwrought based on the current state of the economy and could be ripe for those investors who are willing to do their homework and screen for companies that are undervalued and buy them on the uptick.

Is Market Contagion a Good Time to Buy Stocks?

The debt situation in Greece and Europe in general is still dragging on the domestic and international stock markets with some justification. The U.S. economy is showing continued signs of strengthening, however and is supported by growth in manufacturing and discretionary spending, especially in electronics, and a stiffening of the housing market. Notably, Apple will sell millions of iPads to make up for a shrinking market for the iPhone and could be a good buy especially if shares of Apple are being sold off due to the overall selling contagion spreading from Europe. Most of the iPads will be sold in America and as the economy strengthens and people have more discretionary income to spend. There is some budding evidence that iPad will be a monster hit especially after introduction of the 3G models. Keep an eye out on the stock price of AAPL to find a good entry point, but don't buy until the stock price recovers which it appears to be doing now.

MLPs for Everyone's Portfolio

I recently read a Kinder Morgan Energy Partner company PowerPoint slide show that presented some very interesting facts about the company. I think investments in structural energy companies like KMP that operate energy transport pipelines for natural gas, oil, CO2, etc. are a good instrument for portfolio diversification since they generate a lot of cash from existing operations and typically pay a hefty dividend.

The issue for most of us has been the fact that since you are buying in as a partner they you a K-1 every year and a lot of tax forms have to be sent in with your returns to the IRS. This may be a small price to pay given KMP's stellar 2009 performance while paying a 6% plus dividend. For those who prefer not to tick off their accountants, you can buy into the Kinder Morgan management company, ticker symbol KMR, and still get the performance and the dividends which are paid out as shares of stock so there are no forms to file with the IRS unless you sell and realize a capital gain. In essence, KMP is KMR without the paperwork requirements.

There are also a couple of Exchange Traded Notes (ETN) out there like UBS E-TRACS Alerian MLP Infrastructure ETN which give added diversification within this subsector. I am not, however, a huge fan of ETNs given their fairly high expense ratio and credit risk, i.e. if the issuer, e.g. Barclays, UBS, or JPM go out of business you could lose your entire investment.

The other compelling thing about KMR is that the shares are selling at a 15% discount to KMP. It is not often outside of a company stock option plan that you can buy shares of a company at a discount. I own shares of KMP and am considering purchasing KMR for my IRA since it does not have any UBTI (Unrelated Business Taxable Income) like KMP does which precludes holding KMP in an IRA because it could trigger a taxable event if more than $1000 is earned in any given year. Both KMP, which may be suitable for a taxable investment account, and KMR, if held in an IRA, are worth consideration to diversify a portfolio in today's volatile market.

As usual, this is not advice to buy KMP or KMR and no one should buy stock in any company without thoroughly researching the company's financial and forward looking statements and determine if it is a suitable investment considering their current portfolio allocation and tolerance for risk.

Dividend stocks with Significant Potential Growth

The market is still trying to figure out what happened and pretty much went sideways today. There are still opportunities to get in on some beaten down stocks especially those that pay a good dividend and should continue to do so, e.g. WWE, KMB, and CTL. All should do well when the market returns to fundamentals. The market always runs on greed and fear and with the fear index as high as its been recently there is an opportunity to profit if you maintain a long term outlook. Notably, this is not advice or a recommendation to buy these stocks. As usual, you must review the company's financial information and research the stock before making any commitments to buy or sell.

Stock Market Lemmings

I would like to repeat that the recent stock market retreat was caused by computerized trading on stock prices which caused a lemming effect without the lemmings and not on economic fundamentals which are more supportive of the market than at anytime over the last two years. The bottom line is that long term market performance will be driven by market fundamentals and not by the computerized algorithms that attempt reduce market risk but instead instill fear in investors which adds to market volatility. The market has always been about greed and fear and the current computerized trading systems amplifies both. There needs to be aggresive action by the SEC to deal with this problem or it will continue to hinder the market's recovery.

Fear brings Opportunity

Fear continues to plague investors who continue to sell stocks in the face of good economic news including the largest increase in jobs in awhile. In fact, unemployment has risen to 9.9% from 9.7% as the job market has improved enough that people that had given up looking for jobs have returned to the job market. Today I added 200 shares of an emerging market ETF that I sold for a healthy profit not more than a couple of months ago as the share price had dropped well below what I had originally paid back then and I expect to be able to sell it at a greater profit i couple months hence. Again opportunity presents itself when fear is driving the market in the face of decent fundamentals.

I would stay away from the European market right now until Merkel etal have loaned Greece enough money to allow their austerity measures some traction so they can begin to pay down their debt. It is still too early to say whether or not Greece will default on their bondholders and a debt restructuring may be in the cards down the road.

Several solid companies are cheaper than before and their share price may have reached a good entry point. There are some good dividend players in the telecom and industrials markets andtech including Microsoft could be a good buy right now.

Today's Market Meltdown

You may be understandably concerned about today's global market declines as insufficient economic fundamentals underpin the Dow and the S&P 500 at its current levels. So any significant bad news, especially firebombing banks and rioting in the streets of Athens when Greece approved the austerity measures required by the IMF and the EU before they agree to give them the money they need to prop up their foundering economy, will shock the markets causing steep declines followed by a slow return to normal after the dust settles and the investor fears are mollified by the realization that the U.S. economy is still chugging along and Greece's economy is smaller than 36 of the states in America.

News reports tell us that today's rapid stock market decline was also exacerbated by an enormous trade error when $10B in stock of a DJI company was sold instead of $10M triggering a massive automatic sell off as stop-loss trades were made by computer until the last domino had fallen. Everyone on the trading floor are pointing fingers at everyone else, but of course no one is responsible or accountable apparently which seems to be the theme of the year at Wall Street from Blankfein on down.

Regardless, no one who needs their money in the next five years should have it invested in the stock market, but if you won't need your money for the next 10 to 20 years, there is really no other investment that will earn as historically a healthy return as the stock market and give you a decent chance to beat inflation and retire in comfort.

Underemployment

My friend Ray (a very smart guy) recently posted some very interesting information on underemployment which appears to bring overall unemployment close to 20%. This is a very high number and its impact on the economy should not be underestimated since it will likely double the time it takes to get back to a sustainable level of employment.

My outlook for the U.S. economy pending additional major ecological disasters and the inability of the EU and the IMF to effectively prop up the Greek economy and the rest of the PIIGS continues to be slow growth with sporadic volatility because those invested in the U.S. stock market will remain apprehensive until the the job market improves and we begin reducing the deficit and pay down the debt.

Of course, this assumes that our elected officials find the political courage to do what is necessary to turn this ship of state around and the leadership to convince the American public that now is the time to make our own sacrifices instead of saddling our children with an enormous amount of debt which is $58K per person I believe and rising everyday.

Will a powerless deficit reduction committee created by presidential decree do the trick? It appears doubtful, but I am hopeful that what is happening in Greece will help our political leaders to see the writing on the wall and to spur them into directed non-partisan legislative action for the good of the country (if the country goes bankrupt isn't that the ultimate in national security issues?!) and the American people who should be holding themselves and their elected officials on both sides of the aisle accountable.

Holding our elected officials accountable should be done with decency and vigor without resort to the shameful tactics used by some on the far right and left. The strength of our country lies in our capacity to change and to do what is necessary to meet the challenges of the day, to leverage the diversity of our people, and to marshall the good will of all for the common good of the nation.