Where is the Crowd going the second half of this year?
1) Everyone in the Crowd or avoiding the Crowd, wants income and all are going to continue to buy stocks that generate income. The granddaddy of high-yield stocks is Annaly Capital (NYSE:NLY). It has a 13% yield and growth potential. Disclosure: I own it.
2) The Crowd will continue to worry about volatility. Best position: Buy the ETF for the VIX and volatility, the iPath S&P 500 VIX Short Term Futures TM ETN (NYSE:VXX), and sell calls against it every week. I own the VXX.
3) Even after the recession takes hold here, the Crowd is going to continue to be hungry. If they have money, they will find the beef and produce at Whole Foods Market (NASDAQ:WFM) tastes better. If they don’t have money and shop day by day, they will go to the New American Grocery Store, Dollar General (NYSE:DG).
4) During frequent power failures expected in the second half of the year (I live in the Pepco (NYSE:POM) service area, Pepco having one of the worst if not the worst outage record in the country), the Crowd will rely more and more on their iPads, sold by a company the Crowd does not own enough of, Apple (NASDAQ:AAPL).
5) Speaking of iPads, the Crowd is awaiting the iPhone 5 and an Apple television. These will succeed. Who loses? Nokia (NYSE:NOK), Research in Motion (NASDAQ:RIMM), Best Buy (NYSE:BBY), Dell (NASDAQ:DELL) and, yes, I am saying it, Mister Softee, Microsoft (NASDAQ:MSFT).
6) Some part of the Crowd, worried about another round of QE from Dr. Ben at his Jackson Hole speech on Aug. 19, and ignoring housing prices, commercial real estate prices, stock prices and so on, still see inflation rather than deflation as the problem. Their Luddite-like view of the world will keep gold SPDR Gold Trust ETF (NYSE:GLD) buoyant if not rising, forgetting the gold miners Market Vectors ETf Trust ETF (NYSE:GDX) is cheaper.
7) Speaking of housing, by summer’s end the housing market will again be termed a bust, a victim of accelerating foreclosures, accelerating unemployment and decelerating growth. Even the Crowd we make fun of will get tired of waiting for a turnaround that will not, in my opinion, be robust until 2017. All the homebuilders are overvalued, check their charts and then think about some puts.
8) Cars will drive, airplanes will fly, Iran will do something nuts again for a few hours or days, and the price of oil will stay near current levels, making the Crowd that drives happy. It will make winners of some great companies that are also benefitting from fracking, such as Martin Midstream Partners (NASDAQ:MMLP, yield of 8.8%) and Calumet Specialty Products (NASDAQ:CLMT), yield of 9%) growth and income in one name.
9) The politicians will dither in Europe, then go to the beach. Then they will ruin it for all of us and come back from the beach. And as they dither and the Crowd gets nervous about the banks across the pond, the banks will take a hit. Deutschebank (NYSE:DB), UBS (NYSE:UBS) and Bank Santander (NYSE:STD) stand out as potential losers. Please, If you agree, buy puts, do not short them outright.
10) The politicians will yell and dither over here, trying to one-up each other with public displays of financial illiteracy. Regardless of the outcome of legislative debates, political yelling matches or the elections, austerity is coming. Overly expensive renewable energy is already losing subsidies. For-profit educators who successfully educate few but loan federally insured money to many will also take a big hit. There are too many to name; again, if you agree, think puts.
That should be enough for now. The bottom line: recession, a kind Federal Reserve, a near-depression in Europe, a kind European Central Bank, political gridlock here, political gridlock over there . . . this all means a market going up a bit, down a bit, up a bit, down a bit, with a slight bias to the upside due to the Fed.
What to do? Play fundamentals, play companies and products and winners and losers. And along the way, keep generating cash.