In part 1 of our commentary we covered a great deal of critical fundamental developments, which are ...
Join Neil George LIVE at The MoneyShow San Francisco!
Join Neil George LIVE at The MoneyShow San Francisco!
Is Your Portfolio Looking for Handouts?
08/26/2011 10:41 am EST
Too many investors are holding and hoping for a miracle from the US and EU governments to get the markets moving. Instead, you need a self-reliance program for your portfolio, writes Neil George of The Pay Me Strategy in this exclusive story for MoneyShow.com.
“The nine most terrifying words in the English language are: I'm from the government and I'm here to help.”
So were the words from the 40th president of the US in 1976—but they have even more resonance today when it comes to your portfolio.
With the S&P 500 down some 7% so far this year, and leading stock indexes from Europe and Japan down as much or more, no wonder that investors are getting ever more anxious over one emergency governmental summit or the next.
From the recent summit of the leadership of Germany and France that was supposed to come up with a magic moment for the Eurozone’s failing stepchildren, to the current Federal Reserve sponsored meeting at Jackson Hole, Wyoming, the hype is heavy that little will get better until we get some sort of hallowed helping hand to turn around the globe’s economies and markets.
But really? Do you want to make a bet that out of nowhere, all of the world’s credit and economic challenges will simply go away if only we can get a good speech out of a central banker, treasurer, or head of state?
Traders love this sort of thing. Because folks that have supercomputers directly connected to public and private stock exchanges can cash in on quick moves in stocks, as the lemmings of the financial media jump in and out of the market with every ephemeral sound bite that results in daily swings up and down.
But for us mere mortals, trying to time the investment of our life savings to the next great hope is going to result in little more than further despair.
Take the recent summits. Supposedly the Germans and the French came up with various ideas to prop up the debt-failing governments of Greece, Ireland, Spain, and others inside the Eurozone. But just as they came out with their press conference complete with appreciative applause, the realities of governments took it all back.
A prime example is the plan to have the European Central Bank and the governments of Germany and France buy massive amounts of bonds from their poor relations. That’s getting stomped upon, as Germany’s President and head of state, Christian Wulff, came out with his proclamation that the plan is illegal and threatens the economic stability of the German government.
Now, we have hold and hope folks looking for the US Federal Reserve to come out with another wave of bond buying and bank lending that’s supposedly going to fix the markets.
Fat chance. Sure, it might play well for a swing in the S&P 500 for an hour or two—but it won’t do any more than what’s already been done and not unwound from the past few years.
But Wait, It's Worse
Even more upsetting is the news that isn’t getting discussed—the trillions of dollars that the Federal Reserve is already on the hook for in loans and guarantees for countless banks that are headquartered throughout Europe and beyond.
Since the beginning of the unwinding of financial leverage in the summer of 2007, the Federal Reserve—not only continuing to provide loan facilities through the Discount Window and Reserve facilities to European banks with branches in the US—has been ramping up the amounts of loans to these same banks.
And the loans don’t stop at the banks. Governments throughout the Eurozone and beyond have been allowed access to even more cash from the US, including so-called currency swaps and other credit facilities, leaving the Fed and us taxpayers as major creditors of Europe and beyond.
Even the Fed is getting nervous about the pending problem lurking on its balance sheet. Statements have been slipping out that Federal Reserve Banks around the nation have been quietly monitoring foreign-owned banks in the US for signs of sucking out reserves and collateral out of the country ahead of another failure.
All of this of course is completely off the balance sheet of the Federal Budget, and even out of the purview of Congress, despite its authorities and even the Freedom of Information Act.
So we don’t even know completely what the US government has done so far...but we know that it hasn’t resulted in a soaring stock market, let alone a sustained turnaround.
Your Own Solution
You don’t need this. You’ve got enough trouble either trying to get your portfolio back to even, or heaven forbid up a shekel or two. And if you’re still holding and hoping for a government miracle, it’s just not going to happen in the near future.
Instead, get self-reliant. You have to be focused on getting more of your portfolio away from the usual suspects of the S&P 500, and into investments that are grounded in reality and pay you with ample cash dividends to build up your portfolio or live well off of it during retirement.
One of the best starting blocks of a self-reliant portfolio is actually bonds from markets that aren’t imploding with debt, and aren’t bleeding cash from spending and trading deficits.
The markets aren’t in Europe or the US, but in nations such as China, Indonesia, Brazil, and many others that have been pooh-poohed by Wall Street as supposedly being risky emerging markets.
But the key with these and their other successful peers is that they’ve seen and learned from the so-called first-tier nations that are now seeing their credit ratings cut and cut again. And they’ve moved to ramp up not just their credit ratings, but their credibility.
And the results are palpable. Bonds from these nations have been rising in price, as more and more serious investors aren’t taking the hold and hope program of the US and EU—going instead for the stability of real hard assets.
Buying into these markets isn’t as hard as you might think. You can actually get a great mix of the best of the world’s best-paying bonds right on the New York Stock Exchange.
There are four closed-end investment companies that have been in these markets for many years—delivering the goods through all of the ups and downs of the US and EU, including the past few years’ gut-wrenching plummets.
- AllianceBernstein Global High Income (AWF)
- Templeton Emerging Markets Income (TEI)
- Western Asset Emerging Markets (ESD)
- Pimco Strategic Global (RCS)
Together is how you should consider buying them, as their individual holdings work together to build a more stable portfolio, as well as balancing out some of the inevitable bobbling of their stock prices on any given day or week.
Collectively, these four are trading at or below their book value, and are paying 8% with checks cut to investors monthly. Even better, over the past five years—despite all of the meltdowns in the US and EU—these four keep delivering, with gains averaging over 83.2%.
Go where the real credibility and not the hype of hot air and political panderings. You’ll not only sleep better—you’ll eat better as well.
Related Articles on ETFS
In this week’s Macro Theme, we review “Draghi’s Dilemma” and the opportunity...
In part 1 of our commentary on U.S. markets, we discussed the current Fundamental Gravity of our &ld...
Early Q3 data in July confirms what real-time U.S. financial markets have been saying for months: Th...