Go for the Gold…and Guns

09/12/2011 11:30 am EST

Focus: STOCKS

Jon Markman

Editor, Trader's Advantage

It remains a trader’s market, and as long as that’s the case, there some good stocks that are in buy range now, says Jon Markman of Trader’s Advantage.

Stocks slumped across the board following more bad news from Europe, which trumped President Obama’s jobs speech. There was nothing in the speech by Fed chairman Ben Bernanke in Minneapolis that shocked and appalled...but on the other hand, there was nothing positive to cling onto, either.

The market loves Bernanke, as you know, and was hoping he would lift his eyebrows or wink at the cameras to let them know another big money print is on the way. Instead, he gave what I would consider half a wink in that direction when he talked about the upcoming Federal Open Market Committee meeting on September 20, and it didn’t seem enough to get traders’ imaginations flowing.

Across the Atlantic, meanwhile, the European Central Bank announced that it would leave rates unchanged, while also noting more downside risks to growth. ECB President Jean-Claude Trichet also noted that inflation appeared subdued, which is his code for suggesting to his German partners, or overlords, that a new round of quantitative easing would not do any harm.

As for sectors, financials and industrials underperformed significantly while defensive groups like utilities and staples were the most firm. So were the gold-mining stocks, which we will get to in a minute.

Thursday we got the speech by Obama on jobs. The plan is around $450 billion worth of tax cuts and infrastructure spending, aimed at helping middle-class job seekers and home owners restructure their personal balance sheets.

Expectations were depressed going in, so there was a decent chance for a bounce coming out. Smart money is wondering, however, why the president is so late to realize that jobs are more important than health-care reform, fighting in Libya, Iraq, and Afghanistan, and everything else he seems to have prioritized ahead of employment.

When Bill Clinton ran for office in 1992, amid the nagging unemployment and slow-paced economic conditions suffered in the first part of that decade, his campaign famously focused like a laser beam on this one simple concept, the one that is the beginning and end of prosperity: Regulatory and tax conditions that favor job creation. "It’s the economy, stupid" was the internal campaign slogan.

Clinton’s teams had a lot of faults, and in many ways paved the way for the 2007-2009 financial crisis by allowing banks and brokerages to merge, but they did at least help get American businesses rolling again at a time that, many now forget, was pretty bad.

And look what happened next: The 1990s tech boom was just a glimmer in entrepreneurs’ eyes at that time, and yet the last half of the decade is known now for the Internet boom and advancements in technology and housing.

If Obama gets this phase of this administration right, he could help lay the same foundation. But it is not a slam dunk, and the reason the market is anxious is that it fears his administration lacks the Clinton team’s good instincts. My own belief is that one of the most important pieces of the puzzle will be to find a way to get companies to repatriate cash and jobs sent overseas back home.

This can happen, as overseas labor markets are a lot more expensive now than when companies first started shipping jobs to India and China in the 1990s and mid-2000s. It would be a shock, but that’s where you make your big money: By developing a variant opinion that seems impossible and betting on an outcome that most people can’t see.

New Buys
Eldorado Gold Corp. (EGO) has been one of my go-to gold stocks for years, as it is very liquid and trades well in tandem with gold prices. It has just broken out of a one-year consolidation, and is likely headed to the mid-$20s. Buy EGO.

Sturm Ruger & Co (RGR) is a maker of handguns and rifles. If you are going to own gold, you better have weapons too. Sorry to sound like a survivalist, but as stocks they do go together. RGR has performed well in recent months, and has traded back into its uptrend. Buy RGR.

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