I just got back from The Las Vegas Money Show, where I had a fantastic time speaking with subscribers and catching up on all the latest financial trends.
In a second, I’m going to give you a quick summary of what I told everyone at the conference. But first, I want to briefly point out something that happened in the few short days that I was gone …
I’m talking about the fact that the underperformance in commercial real estate shares, which I told you about two weeks ago, is getting worse.
Just look at the iShares Dow Jones U.S. Real Estate Index Fund, or IYR. That’s the exchange traded fund that holds major Real Estate Investment Trusts, or REITs. It dropped more than 1% on Monday … more than 1.3% on Tuesday … another 1% on Wednesday … and 1.75% yesterday!
Meanwhile, the Diamonds Trust — the ETF that tracks the Dow — rose about 1% over those same four days. Overall, the IYR is down fractionally since the beginning of the year, while the Dow has risen more than 8%. Definitely keep your eyes on this trend — I know I am!
Now, here’s what I told The Money Show attendees …
Why Should You Stay
Stuck in the American Mud?
Sometimes, I wonder what I did wrong. I mean, the rest of our research team gets to traipse all over the world sniffing out new investment opportunities:
- Martin has been sending you dispatches from Brazil.
- Tony Sagami just left on a whirlwind three-week tour of Asia’s major cities, including Taipei, Hong Kong, Shenzhen, and Kuala Lampur.
- Larry Edelson has been jet-setting around Asia on-and-off for the past few years.
- And Sean Brodrick has been exploring gold, silver, and uranium mines by helicopter and mine cart … from one end of North America to the other.
Me? I get left behind covering one of the worst performing major global markets … one of the worst performing major global economies … and one of the worst housing markets in decades. I’m talking, of course, about the country many of you and I call home — the United States.
It really is stunning when you stop and look at the latest figures. We’ve gone from the global economic engine to the global economic caboose …
- In the first quarter, our economy expanded just 1.3%. That was almost half the pace of a quarter earlier and the slowest result in four years.
- For the full year, the International Monetary Fund expects our economy to expand just 2.2%. That’s half as fast as the forecasted rate for Brazil (4.4%) … roughly a third as fast as our old Cold War adversary Russia (6.4%) … and way below developing economies in Asia. India is expected to rise 8.4% and China should gain a stunning 10%!
- Domestic auto sales have been trending down month after month. Manufacturing activity has generally been slowing. And payroll growth has been shrinking to the point where we added just 88,000 non-farm jobs in April, the smallest amount in 29 months.
The root of the problem is housing, housing, housing. More than two years ago, we warned you in Safe Money Report that there was a dangerous bubble inflating and that it would burst.
That happened in late 2005, and conditions have been deteriorating ever since. Just look at the latest news:
Existing home sales just hit the lowest level in four years …
New home sales just hit the lowest level in seven years …
Housing starts recently hit the lowest level in more than nine years …
And building permit issuance — a key indictor of future construction — just plunged to the lowest level in almost 10 years.
Meanwhile, delinquency and foreclosure rates are rising fast, and mortgage lenders are dropping like flies due to rising loan losses. You still hear pundits promising that “the bottom is in” almost every month. But so far, there’s no evidence whatsoever. It will likely be well into 2008 before supply and demand move into better balance.
Don’t get me wrong — I love this country and I think America has a bright, long-term future. But facts are facts. I simply can’t ignore the major economic reality that we’re confronting right now, and I don’t think you should, either.
Instead, there are several steps you can take to build and protect your wealth in this environment. The general rule: “Go where the growth is!”
First, you can buy foreign stocks and exchange traded funds (ETFs). Many leading foreign stocks can be purchased right here on U.S. exchanges as American Depository Receipts (ADRs). And it’s easier than ever to buy entire foreign markets with ETFs.
Second, you can buy investments like gold and short-term foreign bonds, which are likely to go up as the dollar falls. Even though inflation is above the government’s comfort level, the U.S. Federal Reserve is afraid to raise rates because it doesn’t want to make a bad housing situation worse. Meanwhile, foreign economies are growing fast so their interest rates are rising. That’s driving down the dollar. In this scenario, certain investments that move opposite the dollar should continue to do well.
Third, for your U.S. stock holdings, choose companies that can prosper in any economic environment … that have specific forces driving growth … or that do a big chunk of their business overseas. For example, look at companies in the defense business like the ones John Burke is targeting in Jarhead Trader or select companies in “defensive” industries such as food.
If you follow these general guidelines, I believe your portfolio will thank you. And these are definitely the areas that I’ll be focusing my attention on. So stay tuned for more updates!
Until next time,
Mike
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Kristen Adams, Jennifer Moran, Red Morgan, Adam Shafer, Jennifer Newman-Amos, and Julie Trudeau.
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