Jon Markman’s Top Trades for 2012
My research suggests the majority of investors underestimate the trouble that lies ahead for Europe as it enters a deep and prolonged recession. By the same token, the research suggests emerging markets will get dragged down in the wake of Europe’s decline because they’re key export markets, suppliers of raw materials and depend on French and German banks for credit. And the research suggests the U.S. will not be able to withstand the loss of buying power overseas, and that will drag down earnings of most companies.
I think companies that are the most dependent on government subsidies, such as alternative energy producers, will experience the most trouble as their fundamental business declines and their sugar daddies close their credit lines.
So just to make it simple, the easiest trades next year will likely be to short iShares S&P Europe 350 Index (NYSE:IEV) index, short iShares MSCI Emerging Markets Index (NYSE:EEM) and short solar energy equipment producers like First Solar (NASDAQ:FSLR). But you can pair them against a long of Consumer Staples Select Sector SPDR (NYSE:XLP) that tends to do fairly well — if not actually great — when times get tough, as well as a corporate bond fund such as the Vanguard Long-Term Investment-Grade Bond (MUTF:VWESX) fund or the exchange-traded iShares iBoxx Investment Grade Corporate Bond (NYSE:LQD) fund.