John Wasik

Staples and discretionary stocks, it’s that easy

Jun 4, 2012 16:13 UTC

CHICAGO, June 4 (Reuters) – To maintain your mettle as an
investor in the face of mixed economic signals, you have to be
able to be able to do what F. Scott Fitzgerald said was the test
of first-rate intelligence: be able to hold two opposing ideas
in your mind and still function.

On one hand, it’s counter-intuitive to buy into a decline.
It doesn’t feel right, although you will get better prices on
quality stocks. The standard approach, which I suspect most
investors choose, is to retreat to the sidelines.

If you can take the risk, keep investing in solid companies.
If you need growth in your portfolio, don’t pull out; embrace
the long-term prospects of owning companies that produce
consistent profits and dividends. A good place to look for
profits are U.S. consumer staples and discretionary stocks.
These stocks are among the most profitable in the world, have
paid robust dividends and continue to benefit from the
snail-like U.S. recovery that may be “de-coupling” from Europe
and not moving in lockstep.

How can this be possible in the face of U.S. consumer
confidence falling to its lowest level in four months in May,
fears of a global slowdown roiling stocks worldwide and pathetic
employment growth?

My theory is based on this: Slowly recovering U.S. home
prices signal that the dismal housing recession may have
bottomed out. When Americans absorb that reality, they will
start to buy homes, cars, appliances and other consumer goods.
And with the easing of oil and gasoline prices, more money will
be spent on these other items. We’ve seen some of this activity
recently in May retail sales, which were stronger than expected.

Where in the world are dividends good?

Jun 1, 2012 14:39 UTC

CHICAGO, June 1 (Reuters) – Finding consistent total stock
returns has always been a challenge. But even as the euro zone
beast continues to flair its nostrils and U.S. employment
wheezes, there are stocks that are worthy contenders,
particularly ones that pay dividends. While they don’t eliminate
market risk, dividends can bolster total return in skittish
equity markets. And some of the best sectors for high-dividend
players are far from Wall Street.

For long-term investing, think commodities, energy,
utilities and non-banking financial services. Banking is still
touchy, but insurance is a safer bet.

Established, brand-name stocks often pay large dividends,
but that doesn’t mean they should dominate your portfolio. The
Admiral Group, a U.K.-based auto insurance company, for
example, is hardly in a league with the oil producer Royal Dutch
Shell in terms of name recognition. Yet the insurer is
the top holding in the SPDR S&P International Dividend ETF
, paying a 5.38 percent dividend yield as of June 1.

Four new ways to curb your market enthusiasm

May 29, 2012 15:10 UTC

CHICAGO (Reuters) – It’s already shaping up to be a summer of discontent for investors, so it’s time to manage your expectations. To a global investor, there are conflicting signals everywhere: Although the U.S. economy continues to chug along like a tugboat, the “fiscal cliff” of massive tax increases and budget cuts still looms at the end of the year. Then there is the euro zone opera with the fat lady singing in Greece, Spain and elsewhere.

Do you stay out of all stocks and cower in bonds? What about the possibility of rising inflation in the United States and recession in Europe? How do you avoid the “tail risk” of multiple sour scenarios unfolding the way they did last August?

While it’s hard to predict the cumulative effect of political and financial uncertainty, you can adjust your attitude accordingly so that you deal with what will come. Here are some new approaches:

College investing the low-risk way

May 25, 2012 17:00 UTC

CHICAGO, May 25 (Reuters) – Despite saving for the past
decade and a half, I know I’m nowhere near covering projected
college bills for my daughters, who are now teenagers. So I’ve
been employing an investment strategy to try to make up the
difference so that tuition doesn’t sink my kids into a loathsome
amount of debt.

The basis of our plan is that we invest our college funds in
an age-adjusted 529 college savings plan that reduces market and
interest-rate risk the closer the girls get to matriculation.
Every state offers these funds with major mutual-fund companies
managing them.

In our case, we started investing in the Upromise plan that
links my business credit-card purchases to contributions to
college-savings accounts for both of my daughters. Depending
upon the item purchased, the company, owned by Sallie Mae, will
contribute from 1 to 5 percent of the purchase price into our
college accounts. There is a similar program called
BabyMint.com, which is also worth exploring.

What if Europe and U.S. decouple?

May 21, 2012 17:26 UTC

CHICAGO, May 21 (Reuters) – What if, despite conventional
wisdom, the United States and Eurozone economies “decoupled?”
This suggests that no matter what happens in Greece, Spain and
the rest of the beleaguered European nations, the U.S. economy
wouldn’t be linked to those woes and would continue its mild
recovery relatively unimpaired.

There’s growing evidence to suggest that this has been
happening and may manifest itself more in coming months. That
means Europe and America could be more like two ships passing in
the night rather than on a collision course.

As most of Europe struggles with austerity programs,
political shifts and debt woes, U.S. stocks have generally been
staging a rebound. The MSCI All Country World Ex USA Index
finished April 2.5 percent below the level of October
2009, “when foreign stocks established their relative strength
peak against the U.S.,” according to a May report from Leuthold
Weeden Institutional Research.

Bet on U.S. manufacturing for a rebound

May 18, 2012 12:36 UTC

CHICAGO (Reuters) – If you were betting on a big rebound for any one sector this year, you probably would have put your money on banking instead of manufacturing.

The more glamorous rebound story has been banking and the financial services sector, but with the revelation of a $2 billion trading loss at JP Morgan Chase & Co, it’s clear some of the biggest banks may have not taken the lessons of 2008 seriously. They continue to bad-mouth and fight reforms and engage in risky derivatives trading, and there is likely more dirt under the carpet in that sector.

Megabanks are difficult to divine. The economy might be rebounding, but they might not lend widely and focus instead on making more money from their trading desks, which are still largely a black box to investors.

Professional tricks to lower property tax assessment

May 14, 2012 17:35 UTC

CHICAGO, May 14 (Reuters) – One of the best investments I
made in my home this year was to hire somebody to prove that its
value had fallen.

I know this sounds daft, but it resulted in a lower property
tax bill. In our case, our taxes dropped by $1,000 to around
$10,000 for the 2011 tax year. But we didn’t challenge our taxes
ourselves – we will pay a specialized property-tax consultant
$250 – 25 percent of our tax savings – to appeal for us.

If you owe more than your home is worth and you want to stay
in your home – or just can’t sell – taxes are the one fixed cost
you can have some success in reducing. (You can also try to
refinance to a lower mortgage rate, but that can be difficult
or impossible when you haven’t any or enough home equity.)

Facebook IPO meets behavioral economics

May 11, 2012 17:51 UTC

CHICAGO, May 11 (Reuters) – You may be smitten with the
Facebook story and debating whether or not to buy stock
when the company goes public. But if you haven’t studied the
history of IPOs, you may be jumping into the purchase with
unrealistic expectations and flawed biases.

While many of those allocated shares early on will likely
prosper – or be able to sell quickly at a profit after an
immediate run-up – the rest of us might not fare as well.

The company may raise up to $10.6 billion, an amount that
would beat the debuts of tech giant Google Inc while
giving it a total stock market value that exceeds Amazon.com
. Facebook has indicated an initial public offering
(IPO) per-share range of $28 to $35, pegging the potential value
of the company at $77 billion to $96 billion.

A continental shift for euro zone investors

May 7, 2012 18:17 UTC

CHICAGO, May 7 (Reuters) – If this weekend’s elections in
France and Greece do nothing else then they should remind
investors that these are individual countries, despite being
members of the euro zone. The 17 current countries in the
currency bloc might have thrown in their lot together in an
economic sense, but for investing purposes, you don’t want to
treat the members – and surrounding countries that are waiting
to join – as a single entity.

I break up the continent into four distinct blocks that have
nothing to do with geography, but instead with economic risk
profile and political dynamics.


I consider Portugal, Ireland, Italy, Greece and Spain to be
“Yankee” Europe. Although their fiscal problems are all slightly
different from each other, these countries all over-borrowed or
got nailed by a housing bubble, emulating American missteps.
Most have imposed devastating austerity measures that are
roiling their political systems and triggered double-digit
unemployment. Their short-term prognosis has been sour.

Is hot money heading the wrong way?

May 4, 2012 17:18 UTC

CHICAGO, May 4 (Reuters) – Troubles may dog the euro zone,
but in the U.S., stocks are on an ascent, with the S&P 500 up
about 12 percent in the first quarter. Apart from employment and
housing, there’s plenty of evidence that the U.S. is in a meek
recovery, which means that most of the hot money for short-term,
high-yield investments may be headed in the wrong direction.

Some $70 billion flowed into bond mutual and exchange-traded
funds from the start of the year through April 25, according to
Lipper, a Thomson Reuters company. That’s 10 times the amount
invested in large-company stock growth funds over those several
months, during which the exodus from stock funds was the largest
since 1996, according to EPFR Global. (More details here:).

This signals to me that either investors who were burned by
the 2008 financial crisis are still staying away from stocks, or
they don’t believe the stock rally is sustainable. That would
explain the continued retreat into corporate junk bond funds,
emerging market debt, U.S. mortgage securities,
intermediate-maturity bonds and all other forms of bonds.