Predictions for the Next 24 Months.

So, what do the next two years hold in store for us?  Well, we can never be certain, but I anticipate that the broader market will have a pull back of about 10%-15% starting in the late 3rd quarter or early 4th quarter this year.  The main reason is that companies will start reporting poor numbers for 2nd and 3rd quarter.  This will of course trigger a sell off, but the sell off will be magnified due to investment firms taking profits as I assume they know the broader market is overvalued currently. 

Energy will be relatively flat, with the exception of coal.  Coal has been beated to death, but will start to make a comeback due to foreign markets, especially developing countries.  The reason why coal has been beat up is that it is out of favor with US investors due to new regulations coal's effect on the environment.  The problem with US investors is that their foresight doesn't extend beyond what is going on in the US. 

Oil will remain around $95-$115 and gasoline should stay about the same or possibly tick down a dime or two per gallon.  Natural gas will continue to be very low due to the lack of consumption.  That will change in about 5-10 years, but nothing material will change in the next two years. 

The situation in Europe is only going to get worse, before it gets better.  At least one of the countries in the European Union will drop the euro and go back to their old currency.  I'm better that Spain or Italy will be the first to do so.  The conditions in Europe will aide in the pull back of the broader market.

Interest rates will increase in 2014.  That is an easy one, since the Fed announced that rates will remain low until 2014, unless something changes.  That means that bonds and bond funds will continue to be overvalued and anyone who has investments in bonds, should probably get out completely or reduce their exposure, since bonds have no where to go but down. 

Unemployment will continue to around 8% even if the US economy does grow at a faster rate than it currently does.  Eight percent is the new four percent for unemployment.  Small and start up companies, which create about 75% of new jobs will not be able to grow due to the lack of funding available to them.  People are working longer, so the job turnover will be extremely slow.  Companies have adjusted to the 2008 crisis when they down-sized.  They have learned to do more with less, so most of those jobs that were cut four years ago are not coming back. 

Home prices will increase marginally as we are a good five years away from any significant increase in home prices.  The main reason is that many people are choosing to rent rather than buy.  Also, new college grads are entering a terrible job market and also are trying to manage their student loans, so most will be renting or living with their parents since they won't be able to afford to buy.

So, we are looking not too many positive things that are probably going happen in the next two years.  Not to worry, since there are always solid investments in any market.  Here are the tickers to look into over the next two years.  These are long-term investments and I have positions in all of them except for Waste Management, but I plan on taking a position after the pull back later this year.

WM, DUK, BAC, CHKE, BTU and RSO.

Europe: Need I say More?

So, everyone is feeling pretty good that the market is still on the way up, however, in it has been a rollercoaster ride.  The problem is that Europe is still in schambles.  The latest is that Spain is screwed, even though it is the 4th largest economy in Europe.  The issue is that they are talking about a bailout, but in the age of bailouts, there is going to come to a point when there won't be anyone to bail anyone else out.  Spain's biggest issue is not the same as Greece in which the government workers had their retirement schedule and pension benefits restuctured.  Spain's problem is with their banks, and the fact that they are insoluable. 

The US survived the banking crisis, which in and of itself, was a joke compared to what would happen in Spain.  The reason for that is that the US is far more diversified in terms of available banks and that helps stem the problems caused when the there is a systematic banking crisis. 

So, the market has been increasing based on Apple and hysteria.  In a market like this, it is time to buy when there is a sector or industry that has been beat up for no logical reason.  We have to remember that the present day market is not the same market of the past.  There are more people who have no idea what they are doing, which basically throws a wrench in the market logic.  Since the market is illogical, you must take advantage of companies who have been oversold for no reason.  Peabody (BTU) is one of those.  Take a look and see if you can figure out why it is oversold.  As per usual, I own this stock and plan on increasing my position.  Good luck!

Stocks To Go Long On

Ok kids, it's time to see what the heck you can buy in a market that is overvalued.  But if the market is overvalued, how can there be good buys?  The great thing about an irrational market is that there are always good buys in an upmarket and bad buys in a down market.  The first thing I do is take a look at down sectors and try to find companies that are only down because the sector is down. 

Currently, there are a couple of sectors that have beat up pretty badly despite the run up the market has had in the first quarter of this year.  The most beat up sectors have been financial, materials and energy.  Yes, even though gas prices and electricity have been up, the sector overall is down due mainly to natural gas and coal.  So, lets take a look at these sectors and see what is the best stock to purchase from each.

First, we'll look at the Financial sector and the king of value right now is Bank of America (BAC).  Yes, I know this is the largest bank in the world, so there cannot be very much growth for this stock, right?  You are correct sir, but we are talking about value, i.e. "undervalued" companies.  BAC is trading right around $9 per share.  It is up from its low of just under $5 in the past 52 weeks, but it is still way, way undervalued.  Looking at its financials, it has the most cash and also the most debt of any company in the world.  It has about $600B in cash and about $650B in debt.  The cash total comes out to about $56 per share and BAC is currently trading at just under one-half of its book value.  So, if BAC was trading at the value of its underlying assets minus its debt, it would be trading near $20 per share.  I've always felt this company was a mid-twenties stock.  The debt is alarming, but it is mainly due to BAC taking over Countrywide.  BAC has a huge stockpile of real estate that, once housing starts to turn around will become a huge cash cow when it starts unloading its inventory.  However, BAC will be up for a decent drop next month when Moody's lowers BAC's credit rating to just above junk bond status.  All the dummies will see that announcement and start dumping BAC, which is when the savvy investor will pounce.  I currently own BAC and the most recent buy I made was at $6.61.  I've never sold this stock and am looking to increase my position after the drop. 

Next up is the Materials sector.  Peabody (BTU) is a coal company and has been beat up excessively due to the decrease in demand for coal and the new EPA standards for emissions.  I believe the reaction to the slight decrease in coal demand and the new emission regulations are not the big hurdle that investors believe it is and have overreacted by dumping this stock.  It has a 52 week high of $69 and is currently trading just under $28.  I believe this stock is valued in the $85-$95 dollar range currently, so it is trading at a steep discount.  I do own this stock and currently am looking to add to my position.  Coal is going to be around for a long time, since it is so cheap and China, India and other developing nations are going to be driving up the demand and price. 

Finally, we have the Energy sector.  Chesapeake (CHU) has been beaten up to the tune of about a 33% drop in the past year.  CHU has continued to grow its assets and pay down debt.  The ship has been righted with this company as they were running massively in the red as recently as 2009.  This stock is cheap right now and the company is on the road to success.  Plus, Chesapeake is mainly known as an oil company, but has acquired large inventories in natural gas, which will position the company well, when the demand for natural gas begins to climb as the price of oil gets too high and forces consumers to think alternative energy.  Unlike the previous two companies, I do not own any stock in Chesapeake.

Just a reminder, these are stocks to go long on.  When I say going long, I mean that you should plan on owning these stocks for at least ten years.  They are not geared as trades, but if you do try them as trades, proceed at your peril. 

Market Correction Is Inevitable!

Of course, any vague statement like that can be justified like anything from Nostradamos.  Regardless, the market correction is coming at about a rate of 10% to 15% in the next three months.  In case you have not been paying attention, that means the broader market has been overvalued for over a year.  The job reports are insufficient to confirm an economic recovery. 

Greece and the rest of Europe are a time bomb.  Everyone seems to think that other countries lending other countries money is going to help.  But if, the other countries are trying to lend other countries money, in which, either of these countries has any money, then you have a trend that defies explanation. 

But, what do I know?  1+1 equals 2.  Not in today's world.  I have to cut this short, because it is embarrasing to be apart of such horse hockey (thank you Harry Morgan), so be it. 

Here is your long term investment.  Coal is totally out of favor.  By BTU.  I own this stock by the way, but coal is totally out of favor.  Anything else, jump ship.  Good. Luck.  I own BTU, btw.