The last thing the markets want is uncertainty, and right now, we have a lot of uncertainty.
As I started to write this on Thursday afternoon, a group of House Republicans announced a new proposal of $250 billion, a change in the way future funding is approved and a call to drop the pork from the Senate's version.
Though I think Congress should consider alternative plans, yesterday's press conference showed that it is still questionable as to whether there is enough support to pass the proposal. The inclusion of pet projects and special tax breaks showed that some Senators needed to be persuaded to support the bailout. Speaker of the House Nancy Pelosi is against changing the bill before vote, so it will be interesting to see what House Republicans choose to do. (A vote should start soon after this column is published.)
Rate Cut Coming?
On Friday morning, there was scuttlebutt about several central banks cutting rates on Monday morning. While I won't argue against a rate cut, I am skeptical about whether doing so will help much.
Still, I would give credit to policy makers for trying something to avoid the economic slump from worsening.
Focus List Strategies
Waiting does not mean investors should ignore the markets, however. Conversely, the current environment requires a proactive stance.
We're continuing to research new investments for the Focus List. I've got a notebook with names that I am considering after we discover what the fate of the bailout bill.
Right now, I'm seeing share prices of fiscally-sound companies dropping significantly. Though painful, the current environment provides a really good opportunity for long-term investors to look.
That said, there are real short-term risks to buying stocks right now. This is why we are being slow to add stocks to the Focus List and the Growth & Income portfolios. Rest assured, however, we are looking at candidates. And you should have a shopping list ready too.
Do I know when the best time to buy will be? No, and neither does anybody else. However, the alternative of just sitting out of the market means missing out on what could be a large rebound rally. The bad economic news is being priced in; it's just a matter of when, not if, the markets will recover.
Timely Buys List
Due to the current market conditions, we will let the Timely Buys List fall below our preferred size for the portfolio.
Our performance guidelines call for a minimum of three positions to be held in the Timely Buys List. In such instances, our performance guidelines use the following allocation strategies:
* 3 stocks - 100% allocation to stocks * 2 stocks - 66.7% allocated evenly between both stocks, 33.3% allocated to cash * 1 stocks - 33.3% allocated to the stock, 66.7% allocated to cash * 0 stocks - 100% allocated to cash
We do not like letting the portfolio have 3 or fewer stocks, but we're choosing prudence over portfolio size right now.
The Markets
The new level of support for the S&P 500 is 1,106.39. This was the close on Sep 29 and it was not tested yesterday.
The VIX continues to trade at high levels, as many traders and portfolio managers opt for put options. Some construe this as a sign that we are at a bottom.
There is a very real flight-to-quality occurring. This can be seen in the performance of Warren Buffett's Berkshire-Hathaway (BRK.A), which has been climbing.
So why aren't we adding it? Because the Class A shares trade at about $115,000 and the Class B shares trade at $4,600. There is also the risk that these shares could fall when a rebound occurs, as the money flows out to other sectors.
Keep Looking At Stocks
I know my commentary has not exactly been positive, but I'd rather give you the facts than provide false optimism.
This said, the economy will recover and stocks will find new highs. The economy goes through cycles, with recessions typically being considerably shorter than periods of expansion.
The best thing you can do is keep researching stocks. This is what successful investors do. We'll help get you through it by finding fundamentally sound stocks and giving you the tools necessary to do your own research.
Charles Rotblut is the Vice President of Web Content for Zacks Investment Research and the Senior Market Analyst for Zacks.com. He oversees the editorial staff, manages the market-beating Focus List, Timely Buys and Top 10 portfolios, and plays an instrumental role in the development of new products. For more information, visit www.zacks.com.
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