Four Fears That Haunt Investors

06/17/2008 12:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

John Dessauer, editor of John Dessauer's Investors' World, looks at the four big worries that are keeping people from buying stocks, and he thinks they're way overblown.

Investors are afraid of runaway oil prices, skyrocketing food prices, the housing crisis, and a possible politically induced economic nightmare in 2009. Let's look at these four major fears facing investors today, with both eyes wide open.

Fear #1: Runaway oil prices. Experts constantly debate the oil bubble issue. [But] in the last 12 months, the fundamentals have changed for the better: World oil production rose 2.5%, and consumption rose by 2%, resulting in a doubling of excess supply. The trends for the months ahead are in the same direction. These changes do not support a meteoric rise to $135 [a barrel].

Several governments in emerging economies have been heavily subsidizing fuel prices out of fear that high prices would bring riots and political instability. As more and more emerging economies are forced to allow higher [fuel] prices, we can expect to see demand gradually decline. Demand for gasoline has already begun to decline in the US.

Fear #2: Skyrocketing food prices. Food is easier to produce than oil, so we will see some modest relief on food prices soon. But with corn, political mandates for ethanol-in particular, US restrictions on ethanol imports-condemn us to a higher level of food prices than would otherwise be necessary.

Fear #3: Housing market meltdown. Naples, Florida was widely touted as the most overpriced real estate market in the nation last year. Pundits were confident that Naples real estate would collapse when the housing boom ended. This has not been the case. Why have prices stabilized? The surprising answer is that high prices discouraged overbuilding.

Real estate is local, [and] the extent of overbuilding of new homes is more important than the peak price level. The fact that Naples real estate is recovering offers real hope for other distressed markets. Naples is not alone. On the other coast, home sales in San Diego rose 22% from March to April.

The media loves to focus on the negatives, [but] mortgage rates are low by historical standards, [and] the biggest month for [resetting] subprime adjustable rate mortgages was March. With March behind us and more data accumulating, it won't be long before we see the pessimists' worst-case scenario is not happening.

Fear #4: Political nightmare. Ken Fisher, a Forbes columnist and money manager, says we shouldn't worry about this year's elections. Presidential candidates never do what they say. Once in office, he says, they always respond to political realities.

[And] unlike the 1970s, next year's president will start from relatively low tax rates-just 15% on capital gains and dividends and a 35% top rate on earned income. No one is talking about dramatic increases from there. [Also], I see the housing slump and high gas prices as practical, political restraints on any tax increases. Raising taxes on an economy under stress carries a political risk that would haunt our next president.

[So,] keep investing in quality companies. Don't let scary media headlines keep you from investing.

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