Sky-high gasoline prices? Not to worry. Greeks about to repudiate 30% (or more) of their $500 billion national debt? No sweat. Ford Motor Company (NYSE: F) just posted its best quarterly profit in 13 years, and IBM (NYSE: IBM) boosted its dividend 15%. It’s time to celebrate!
That was the mood on Wall Street yesterday. Stocks posted a broad-based advance, vaulting the Standard & Poor’s 500 index (a laggard for the past couple of months) to its highest close since July 2008. Even the bond market joined the festivities, with the longest-dated Treasurys up a full point.
You would almost think Ben Bernanke — or somebody — had discovered the formula for perpetual prosperity. Bad news is good news, because it means the Fed will stay easier, longer. Good news is good news, because good news is always good news. Tell me, is this a great country, or what?
Not to play the skunk at the lawn party, but it seems to me that soaring share prices are papering over some real problems. Driving across the nation’s heartland these past two days, I’ve been distressed by the number of shuttered factories, darkened storefronts and decaying neighborhoods. Apple (NASDAQ: AAPL) may be glistening, Goldman Sachs (NYSE: GS) may be minting money, but millions of ordinary Americans are still hurting — badly.
One of these days, the contradictions will trigger a major (20% or greater) stock market plunge. Not yet, though — and probably not for the next three or fourth months, at least. For now, stick with a policy of cautious accumulation, preferably on dips of 3% or more in the blue-chip indexes.
While awaiting a more meaningful pullback to pad your stock holdings, look for bargains still available among closed-end municipal bond funds, such as the nationally diversified BlackRock MuniEnhanced Fund (NYSE: MEN).
MEN isn’t a risk-free “gimme.” At last glance, almost one-third of the fund’s portfolio was concentrated in California and Illinois. Nonetheless, MEN has taken care to select bonds of solid investment quality — over 90% of the portfolio’s bonds earn one the top three ratings from Moody’s or S&P.
MEN currently yields 7%, the equivalent of 10.8% for a taxpayer in the top federal bracket. Get a more detailed profile on MEN here.
