Well, we got the new “quantitative easing” program from the European Central Bank. Yesterday, ECB President Mario Draghi unveiled a plan to purchase 60 billion euros a month of public and private sector bonds, starting in March.
Slated to run through September 2016, the scheme will total more than a trillion euros — a larger figure than Wall Street was expecting and one that, anytime before the global financial crisis, would have beggared the imagination.
Stock markets on both sides of the Atlantic celebrated the news. The Stoxx 600 index of European shares rose 1.7% yesterday for its highest close since December 2007. Offsetting most of those gains for U.S. investors, however, the euro currency plunged to around $1.13 — an 11-year low.
Happily, our own S&P 500 index, priced in home-grown dollars, soared 1.5% to close at 2063.
Where does Dr. Mario Draghi’s new policy leave us? Chances are, quantitative easing “over there” will calm global investors’ fears to at least some extent, giving stock markets around the world an excuse to extend, for several more months anyway, the uptrend that began nearly six long years ago, in March 2009.
I look for the S&P 500, in particular, to punch out a new record high (above 2100) within the next few weeks. If you’re invested in strong stocks or equity funds, this is a time to sit back, relax as best you can — and let the bull do his work. It ain’t over till it’s over.
Energy
On the other hand, yesterday’s explosive rally (on top of the previous three days’ gains) makes it harder to find undervalued stocks. For a safe source of income in the energy sector, you might consider model portfolio toll-taker Enterprise Products Partners L.P. (NYSE:EPD).
This afternoon, the master limited partnership reported that it will go ahead with the proposed 60-mile extension of its Panola natural-gas-liquids pipeline in Texas. Enough binding commitments were received from shippers during the recent open season to justify the project.
This is an encouraging development, both for EPD and for the pipeline industry generally. It indicates that, despite the collapse in oil prices, NGL producers still foresee rising demand for their fuel.
Buy EPD on dips to $35 or less, where the yield ticks up to 4.2%, mostly tax-deferred. Note that because of a quirk in the tax law, you should own EPD outside your tax-sheltered retirement account. Inside a retirement account, master limited partnerships can generate Unrelated Business Taxable Income (UBTI).
Gold
Long-suffering gold investors should be pleased with the Midas Gold Corp’s (OTCMKTS:MDRPF) performance of late. Spot gold settled yesterday on the Comex at $1300.70 an ounce — a five-month high.
Previously, I predicted that gold “will stay comfortably above its November 2014 low and should reach $1,400 an ounce in the second half.” Four weeks later, we’re halfway to our target!
In the near term, the metals complex looks overbought. A pullback may be due soon.
However, I would consider buying bullion and mining shares again if spot gold were to retreat to the $1,240 area. Specifically, if you’re concerned about the ongoing financial instability in the world and the reckless monetary policies of all the leading central banks, you might buy SPDR Gold Trust (ETF) (NYSE:GLD), a bullion vehicle, on a decline to $119 or less, and Market Vectors Gold Miners ETF (NYSE:GDX), an index fund of gold-mining stocks, at $20 or less.
Treasury Bonds
Panic buying of Treasury bonds (and high-grade bonds in general, such as municipals) seems to be nearing a climax. The latest poll of bond-trading advisors by Consensus Inc. showed 78% bullish, the highest reading since July 2012, when T-bond prices were forming a major peak.
Do NOT follow the herd buying Treasury bonds and munis here. If anything, you should be taking profits. A much better buying opportunity will present itself later this year, after yields have risen significantly.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.
