Forget foreign markets and head to the sidelines
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Dear Mr. Berko:
I recently got a $92,600 windfall from selling farmland in Colorado, and I want to invest it right away. I’m kind of scared to invest in our stock market now, even though one expert I read believes that prices are a bargain today and is recommending dozens of stocks he feels are very undervalued. But some experts are telling me that the China market is hot because its economy is still strong. Another expert is recommending stocks from India because its economy is also strong. And still another expert I read is recommending the enclosed list of preferred stocks, which are all rated A and AA by Moody’s Investors Services Inc. and Standard & Poor’s. I would sure appreciate your sensible recommendations. I just don’t know what to do.
E.F., Harrisburg, Pa.
Dear E.F.:
I understand how you feel. But the pastures in India, China or Switzerland are not any greener than the grass on Main Street USA. And I’m certain it would be very unwise of you to invest overseas. There are gurus out there for everyone’s taste. You, like so many good folks, are playing the guru game, galloping to new gurus when the current guru’s flavor is out of favor.
Yes, China’s economy is still spicy hot, but it’s running out of steam. Many factories are producing products at costs above their prices and rely on government subsidies to keep their doors open and people employed. Though there could be some good equities in the Land of the Great Wall, I wouldn’t touch them with a chopstick. I don’t speak Chinese, I don’t trust the Chinese accounting system, I’m not comfortable with Chinese securities laws or business practices, and I believe China lacks the social, economic and financial infrastructure to sustain long-term growth. I also believe the Chinese economy will begin to slow significantly and its 2008 exports to the United States could easily fall by 15 percent from last year’s numbers. That’s the reason The Greater China Fund Inc. (GCH-$7.66) is down 78 percent in the last 12 months, and The China Fund Inc. (CHN-$20.20) is down about 60 percent. In fact the broader Shanghai Stock Exchange composite index, now at 1,930.65, is down 68 percent from its 52-week high of 6,124.04. The economies of China and India are tightly tied to the success of the U.S. economy, which ain’t doing too hot right now.
Most folks who put their dollars in the U.S. market lost money this year. However, the U.S. market has performed better than any other market tracked by the Standard & Poor’s Global index — with the exception of Jordan and Morocco. But I don’t know a soul on Main Street who has their independent retirement account invested in Jordanian dinars or Moroccan dirhams.
The Indian index is down 60 percent, and the indexes in Canada, Japan, France, Britain, Germany, Chile, Hong Kong and South Korea are off significantly more than our Dow Jones industrial average.
The list of preferred issues you enclosed looks fine to me, but I also thought some of the preferred issues of Lehman Bros. Holdings Inc., Wachovia Corp. and Fannie Mae looked good. However, I must tell you that I wouldn’t rely on the AA ratings — any ratings, for that matter — of Moody’s or Standard & Poor’s. These rating outfits supposedly hire some of the best and most conservative balance sheet/income statement analysts on the globe. I’m disappointed they all failed egregiously to correctly analyze the current risk. So I can’t get comfortable with the AA and A ratings on the six preferred stocks you are considering. And it’s even more difficult for me to be comfortable with those ratings when I realize that many public companies actually pay Moody’s and Standard & Poor’s for their ratings services.
I suggest you put that $92,600 in a money market fund and cool it. Cash gives you time to think. There’s no rule that says you have to invest right now. So stop flitting like a firefly in a jam jar and wait until the jitters stop jitting and the market becomes calm again. Then invest that cash stash in sober equities right here in the United States.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2008 Creators Syndicate, Inc.
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