It is almost 2013, and in a few weeks 2012 will be a thing of the past. It’s hard to believe it has come and gone so quickly. Unfortunately, I don’t have high hopes for the incoming year. I think it will be more of the same: high unemployment, more government deficits, and more euro crisis.
Let’s talk about the euro zone crisis: If a family owed so much that they could not afford to repay their debt, every rational person would expect them to default. Yet when it comes to Europe, we seem to forget common sense and we start thinking that somehow all will be fine in the end.
I don’t think the stock markets have fully digested that concept yet, and for the most part are counting on this issue to be kicked far down the road. My fear is that we eventually have our day of reckoning and that it might happen this year. The sooner it happens the better it will be for everybody but that does not take away from the pain we will suffer when it does happen. Here in the US, we will eventually face a similar fate, but I don’t think it will be a 2013 issue.
I have a couple of recommendations to make for those that are interested. I was very surprised this year when interest rates dropped to such historical lows, I would advise anyone who can to go ahead and refinance their current mortgage to a 30-year fixed.
The current rates are around 3.5% and I would expect inflation to eventually eat away the principal and render the monthly payments into a pittance. As far as buying a brand new house, I am not so sure if that would work right now. Here in my area of Southern Florida, houses in desirable neighborhoods have gone up but I think it’s mostly due to low monthly payments. I wonder what will happen once rates start to go back up. It’s a tough call.
As far as stocks, I have two recommendations. One of them is Diana Containerships (DCIX), a container shipping company. In my opinion, the company is well capitalized and pays a healthy dividend. Given how awful the business is right now, I believe that DCIX will survive the downturn and once things get better the dividend should increase along with the stock price.
My other recommendation is online game developer Zynga (ZNGA). The company has a massive cash stockpile and has a business that breaks even. In my opinion, the company could tweak its strategy and triple in price. I realize it sounds insane, but ZNGA was a $15 stock not that long ago.
I was asked some questions about the Technical EFT model portfolio that I manage. I will take this opportunity to clarify a my outlook: I don’t expect much out of the stock market in the near future, given that valuations are no longer cheap. I will continue to sell rallies and buy dips. It’s a boring and slow strategy, but I’m committed to staying the course.
Any investments discussed in this presentation are for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions made by model managers in the future will be profitable.
Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
