It would probably be a good idea to consider investing in real estate over the next two years. According to the numbers, it seems like the housing market is at a multi-year low. If you want to invest in stocks, there’s still opportunity, but don’t forget that we’re also in a bear market. If fact, stock prices are still down from their highs set over 10 years ago.
The right shoulder formation of the S&P 500 Index is likely to be achieved and that’s why I’m calling for the S&P 500 Index to hit 1,500 this year. Corporate earnings are strong enough and so is investor sentiment. Long-term, however, I’m worried about the structural problems facing the economy. The problem really is government intervention and the efforts of the Federal Reserve to smooth out the business cycle. The economy is floating on the central bank’s massive creation of new dollars, as well as its efforts to keep interest rates artificially low. Then there’s the stimulus spending, which is coming to an end. Once monetary and fiscal policy efforts are withdrawn from the economy, the chances of a double dip increase significantly.
This is a concern that’s shared by many stock pickers, consumers and workers for that matter. No one really knows what’s going to happen to the economy over the next few years and that’s why you have to be covered with a balanced approach to your investments. Anything could happen going forward—anything.
This is the best investment advice I can give to investors and speculators. You don’t want to load up on anything in this market, because the uncertainty is too great. This even applies to the real estate market where prices are attractive for buyers, but the interest rate cycle is about to reverse.
For now, I’d be long large-cap stocks and I’d speculate in resource stocks. I like large-cap, international companies, because they are the ones with the pricing power to keep earnings growing, even if revenues stagnate. Exposure to resources is key over the near and medium terms. This is where outperformance can be achieved, as the commodity price cycle continues to unfold. I like the technology sector as well, but with a focus on telecom-related equipment suppliers. I’d also speculate in select Chinese micro-cap stocks, which offer some great values right now.
The best stock picker I know of, Jim Rogers, is an individual who waits for markets to go to extremes, then bets the other way. Currently, there aren’t a lot of extremes out there for a person to be a contrarian. I’m pretty confident that the stock market will keep ticking higher over the coming quarters. I’m long, but uneasy about the economic recovery.