Hey, you won’t catch me complaining. The reasons people are citing for Wednesday’s monster stock rally (490 points on the Dow!) might be dubious and short-lived. But up is up, and I’m just glad to be a good deal richer now than I was when I turned the office lights off last Friday night.
Still, it’s a bit perplexing that the market can plunge one week, then soar the next with so little change in the underlying economic fundamentals.
As far as I can see, yesterday’s announcement of another money-pumping operation by the world’s central banks doesn’t really add much to the mix. Will it resolve Italy’s debt problem — or anybody else’s, for that matter?
Basically, the central banks have bought a little time for their most-favored clients, the commercial banks. If, however, the over-indebted European governments don’t follow through promptly by cleaning their fiscal houses, this stopgap measure will flop, like so many others.
The continent is facing a long-term solvency problem, not merely a short-term liquidity problem. Our leaders in Washington had better start tackling our own budgetary issues pretty soon, or we’ll be next.
Yesterday’s spike lowered my 10-year projected return for the U.S. stock market to 7.2% annually, including dividends. That’s not ruinously bad, but remember: Stocks require you to accept a lot of volatility.
Why put up with the Dow’s wild weekly and monthly swings when you can earn 7.7% up front with DoubleLine Total Return Bond Fund (MUTF:DLTNX)? Since inception in April 2010, DLTNX’s share price has fluctuated, month to month, about one-sixth as much as the S&P 500 Index — while producing a bigger total return!
Whether on an absolute or a risk-adjusted basis, you’re getting a far better deal with DLTNX.
With that introduction, you can see why it’s difficult for me to work up much enthusiasm for chasing the stock market higher after the moonshot of the past three sessions. If you just can’t suppress the urge to buy, though, make it a safe household name like Clorox (NYSE:CLX).
CLX gave up its early gains Wednesday after word spread on the Street that activist Carl Icahn further trimmed his stake in the company during the quarter ended Sept. 30. However, Icahn’s machinations are of little interest to us now that he has dropped his takeover bid.
If Clorox gets acquired, the knight in shining armor probably will be a much bigger player than Icahn — most likely, somebody in the Unilever (NYSE:UL) class. I’m buying CLX right now for the plump 3.7% dividend, which has been increased 34 years in a row.
As Benjamin Graham, the father of value investing and mentor of Warren Buffett, said: “One of the most persuasive tests of high quality is an uninterrupted record of dividend payments going back over many years.”
