The markets are taking a nose dive due to increased worries about a slowdown in the U.S., Great Britain, and China. The U.S. trade deficit was higher than expected, forcing economists to revise projected unemployment levels in the second half of the year. Cisco (NASDAQ: CSCO) reported slower than expected revenue growth and guided below street estimates, raising concerns about the strength technology sector. The U.S. Federal Reserve is resorting to more desperate measures to provide stimulus, or least to avoid applying the brakes. Despite the ridiculously low yields the U.S. dollar is rising as investors seek safe havens.
The Feds' recent announcement it will reinvest funds from maturing mortgage securities into U.S. Treasuries is somewhat disturbing given the historic lows of Treasury yields. How much "bang for the buck" is really provided by this move? Alternatively, does the move ensure yields don't increase this year and provide a brake to the economy?
The good news is this is in-line with what I have been expecting (weaker economic growth and more desperate Fed actions). I think the push/pull between bulls and bears continues for the next couple months but the bearish indicators are exerting more force.
So what am I doing? For now I'm still in cash. I will look for high dividend yielding quality U.S. stocks that are getting sucked down in the overall market. Ideally I'd like to increase my exposure to 10-30% of these stocks by the end of the year. Longer-term I'm looking for opportunities in international markets that appear more attractive with the higher U.S. dollar (and likely weakening dollar once the fear subsides). Ideally I'd like to increase my international exposure to to 40-60% by the end of the year. Finally I plan to take a position in precious metals of 2-10% and keep a relatively healthy amount of dry powder for opportunities in small-to-mid cap companies in 2011.
I love these times.
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