USA: 12 stocks and thus bonds for 2011's jobless recovery
Summary
Readers know of our shudderings about what the global Economic Clock® is revealing - particularly about America. Indeed, we assert that there is a huge disconnect between America's Economic Time® and her stock market. This is why we are predicting an "October" crash - one that even could be ignited by China this time around.
This crash could well happen before October , if you track current earnings sentiment and read how CIT (CIT:US), an American lender to mainly mid- and small-sized businesses, is being savaged by financial markets. We discuss CIT's significance as another "nail in the coffin of crash" and then walk you through 12 recession-proof "long-only" ideas for your stock as well as bond portfolios.
Both ideas - CIT as well as recession-proof investments - have been prompted by two respective articles in today's Wall Street Journal Asia (WSJA): "U.S. lender CIT faces crunch", and "Charting course to gains in sea of joblessness". We tie these thoughts into the logic of our Economic Clock® in order to help you make dollars and sense.
Topics Covered
- Another nail in the coffin of crash
- The worsening Economic Time
- Stocks and bonds that make money off this idea
Background
1. Another nail in the coffin of crash
CIT may have to file for bankruptcy: it is having difficulties getting America's Federal Deposit Insurance Corporation (FDIC) to guarantee its borrowings. One reason for the FDIC's reticence is the parlous state of CIT's finances: its bonds that mature this February trade at US 83.5 cents, and are yielding over 40%, degrading its credit rating to "junk". And its stock has done poorly, too: hovering at around $61 in early June 2007, it currently is wallowing around $1.53.
CIT is a significantly bad omen for America's Economic Time®. Should CIT go bankrupt, thousands of small borrowers could be affected. The danger is that the Economic Time is characterized by an excess demand for money in America: banks are flush with cash precisely because they are loathe to lend, and if a mainstay of small-time lending falters, so will many other small "feeder" businesses. Indeed, the ricochet effects on all sorts of other small businesses cannot be dismissed lightly.
With assets of $75 billion, CIT ranks 20th among US bank holding companies. But with $75 bn in assets and $3.5 bn in deposits, how does it finance its lending activity? According to the WSJA that we mentioned in the introduction, "...to get most of its funds to lend, it has historically relied on bonds and the short-term debt market known as commercial paper. It has been largely unable to tap the credit markets since mid-2007 ..." CIT represents the tip of the iceberg of other cash-starved lenders who cater to America's small borrowers: If CIT won't get government guarantees, what about other lenders to the little folk?
2. The worsening Economic Time®
Given the strong role of small businesses in job creation, such government meanness must drive America's unemployment rate above June's 9.5%. That exacerbates her "excess supply of goods" in her Economic Clock® - and hardly can encourage the creation of jobs - nor bank lending. So America's "excess demand for money" intensifies. None of this can be good for her corporate earnings outlook; indeed, when observing the current flight to U.S. Treasuries, earnings sentiment during this second quarter is likely to sour. And lending sentiment will sink further in its wake. Green shoots have been only for the colour-blind, in my humble opinion on the video clip.
3. Stocks and Bonds that Make Money Off This Idea
- Always consult your financial adviser first.
- What we now do is to list various stocks noted in the Wall Street Journal Asia of today, 13th July, by Jeff. D. Opdyke. Given that these corporations are large, they no doubt have issued very liquid "cousins" whom you might want to look at for your bond portfolios.
- Here is a brief list of stocks, codes, buying logic, and dividend yields:
Stock Code | Why Buy? (source: WSJA) | Dividend Yield (trailing twelve months) |
| Boston Scientific BSX:US | "A medical device maker tied to non-elective care" | NA |
St. Jude Medical STJ:US | "Heart procedures tend not to be deferred, benefiting this maker of heart-related medical instruments" | NA DISCONTINUED |
Wal-Mart Stores WMT;US | "Pinched consumers have been flocking to this low-cost leader in recent months as they abandoned most upscale retailers." | 2.1% |
McDonald's MCD:US | "Fast food...is easy on the wallet at a time when consumers are focused on savings more of their money." | 3.3% |
Philip Morris International PM:US | "Smokers smoke no matter what the economy is doing." | 5.1% |
Kroger KR:US | "Restaurant sales are down and people are eating in - good news for a supermarket chain that has redefined itself as a low-cost leader | 1.7% |
Kindred Healthcare KND:US | Skilled nursing and long-term care of an aging population are not tied to the Economic Time ®. | 1.7% |
Sun Healthcare Group SUN:US | Skilled nursing and long-term care of an ageing population are not tied to the Economic Time ® | NA |
Kraft Foods Inc. KFT:US | A business that supplies "...what people need." | 4.5% |
Coca-Cola Co. KO:US | A business that supplies "...what people need." | 3.3% |
PepsiCo Inc. PEP:US | A business that supplies "...what people need." | 3.2% |
Colgate-Palmolive Co. (CL:US | A business that supplies "...what people need." | 2.3% |
