In the next several months, any or all of these could detonate, and each has the potential to inflict serious damage on your investments.
I'd love to believe the global financial crisis is over.
But I can't.
How to invest in emerging markets
And I'm not talking about the big bombs ticking away and set to explode in decades -- the demographic ones built out of all the promises governments and companies have made to an aging work force that they won't be able to keep.
No, the bombs I'm talking about now have much shorter fuses than that. If they go off -- and I don't know how many will -- it will be a matter of quarters, not decades, until detonation.
Knowing that they're out there creates quite a quandary for an investor.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=d889e349-a62d-40af-bc60-dc243fbfffd9,575bd742-4b81-45bf-bd42-f93d69fcc63e,3643e2d1-9027-41bf-b033-ceae30de8766,d8c26de9-c23f-4e93-99e3-35fda7f11faa,211ce599-8207-4893-9f6e-24130b836733,7ed20ecd-ac19-4ea7-bb11-8217ac80bf8e,e3151636-2171-487e-bb06-4c582b4fd7ce,5ce151ed-87ef-405a-8a33-9b870daddb99,9303d724-45ec-406c-8a59-30242cdccd8c,7cc9de3b-bcdd-4761-b967-41c73f34d34a,a26e2a64-6d9b-4379-a85b-322bcecc0a94,1be5fa9c-89aa-4d97-9554-d974adbe1e76,0d72d5f9-d392-4918-b7f8-502d210cd630,1210a681-69c0-4622-addf-ee1b5f87c64d,6a68e2dc-7bf0-47ef-a1c0-b8dce9a14088,13b88cd7-ec4e-4898-a5eb-d1fc61a99ee4,04c209f9-50d3-4474-b8cd-710a73dbed8a", "player.fr": "iv2_en-us_money_article_16x9-Investing-JubaksJournal"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=d889e349-a62d-40af-bc60-dc243fbfffd9,575bd742-4b81-45bf-bd42-f93d69fcc63e,3643e2d1-9027-41bf-b033-ceae30de8766,d8c26de9-c23f-4e93-99e3-35fda7f11faa,211ce599-8207-4893-9f6e-24130b836733,7ed20ecd-ac19-4ea7-bb11-8217ac80bf8e,e3151636-2171-487e-bb06-4c582b4fd7ce,5ce151ed-87ef-405a-8a33-9b870daddb99,9303d724-45ec-406c-8a59-30242cdccd8c,7cc9de3b-bcdd-4761-b967-41c73f34d34a,a26e2a64-6d9b-4379-a85b-322bcecc0a94,1be5fa9c-89aa-4d97-9554-d974adbe1e76,0d72d5f9-d392-4918-b7f8-502d210cd630,1210a681-69c0-4622-addf-ee1b5f87c64d,6a68e2dc-7bf0-47ef-a1c0-b8dce9a14088,13b88cd7-ec4e-4898-a5eb-d1fc61a99ee4,04c209f9-50d3-4474-b8cd-710a73dbed8a;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');There's no guarantee that any of these bombs will go off. If they don't, you can be on the sidelines when the big gains arrive, as many investors were in 2009. And as I was -- to a degree that left Jubak's Picks trailing the Standard & Poor's 500 Index ($INX) by nearly half. For the 12 months that ended March 31, 2010, my portfolio was up 26.6% while the S&P was up 49.8%.
But if the bombs do go off, any of them, we could get the kind of downturn that will make the 13.7% drop from the April 23 close of 1,217 to the June 7 close of 1,050 feel like the good old days.
Find a broker who's right for youI don't think any one of these time bombs is big enough to blow a hole in the global economy comparable to that of 2008. I don't think these bombs are leveraged into the global financial system in a way that would inflict that kind of end-of-the-world's-financial-system possibility again.
I'm not talking Great Depression here or even a replay of the 1929 stock market crash.
But these bombs are big enough to lead to a give-back of a major portion of the huge stock market gains from the March 2009 bottom. Investors and traders haven't really put fear behind them, and it wouldn't take much for fear to run wild again. What worries me most about that possibility is that I don't see the kind of growth in the world's developed economies that would power a stock market rally big enough to make up for those losses.
My take on the market for the next 12 to 18 months: Avoid risk when the payoff isn't sufficient; when you can, with caution, play the big relief rallies after massive sell-offs; and try to make steady money in the stocks of the world's developing economies your bread and butter. (For some suggestions on picks in those markets when the time is right, see my columns on the next rally's leaders and emerging markets. )
You don't have to follow that strategy. Maybe you've got a better one.
And you don't have to buy into my talk of time bombs and major stock market routs.
But you should at least make sure you're familiar with the downside case before you decide on your strategy through the end of next year.
Here are the three bombs I'm most worried about in that time period:1. The Fannie Mae and Freddie Mac money pit You know those signs you see in antique stores: "You break it, you buy it"? Well, I wish Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) had followed those rules. The banking and mortgage industries broke these two mortgage financing machines, but taxpayers have bought them. Now all that remains is figuring out how big the bill might be.
Estimates are all over the block, from the merely frightening to the downright terrifying.
Fannie Mae and Freddie Mac are in the business of buying and guaranteeing mortgages originated by banks and mortgage companies. The idea is that these two companies (once government agencies and then, in theory, private companies with publicly traded stock) would buy mortgages from the original mortgage lenders, providing those mortgage lenders new money to lend. In concept, Fannie and Freddie then would be able to resell their mortgages to income investors or, by guaranteeing the loans, allow the original mortgage lenders to bundle mortgages into securities and resell those securities themselves.
See where the trouble lies? If the original, underlying mortgages turn out to be bad enough that borrowers default on their payments, Fannie and Freddie are stuck paying a lot of interest to the investors who bought the mortgages they sold. The arrangement also puts Fannie and Freddie on the line for a lot of guarantees.
The two companies own or guarantee about 53% of the country's $10.7 trillion in mortgages. And after bailing out these entities in 2008, taxpayers own about 80% of the companies.
Now if you think taxpayers got a bad deal when they bailed out Citigroup (C, news, msgs) or American International Group (AIG, news, msgs), wait until you hear what kind of deal the Bush administration struck with your money in the case of Fannie Mae and Freddie Mac. In exchange for giving up 80% of their companies to taxpayers, the pair got unlimited federal credit lines. So far, they've drawn down $145 billion, but that isn't the end of the story. Borrowers continue to default on their mortgages, and the companies' obligations continue to grow.
Continued: What will the final bill be?More from MSN Money and MoneyShow.com
China's Ponzi-like banking policyJubak on video: New threat to big IPO in ChinaTime for investors to wait and watchJubak on video: Can Spain survive the debt crisis?Euro crisis is tip of the icebergDid Greenspan channel -- or betray -- Ayn Rand?1 | 2 | 3 | next >
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Connect with JimBecome a fan on FacebookSubscribe to his e-mail newsletterDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Articles by Jim JubakWhen to buy emerging-market stocks 06/14/2010Pull your portfolio out of its rut 06/10/2010Time for investors to wait and watch 06/08/2010More...Jim's Most Recent Top Stocks PostsRun like an ImpalaWaiting for a bellwether Chinese IPOCrunchtime for Merkel and GermanyFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='nsc0adkxcqq86x363jyfn6grmm0p3bef';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 3 of 3PreviousNextreally livin #1Friday, June 18, 2010 12:16:28 AMAt least Jim knows, it's not if but when. It's just a matter of time.ReplyReport Abuseewenw #2Friday, June 18, 2010 1:13:42 AMThis time around the cameras will be on hand at the blessing when the bride and groom say their vows, ITV said.# 5-4 Star Hotels In 3-2 Star Price# Discount Hotels Plan The Perfect Trip==={Plane air Ticket $1} {Hotel Room $1} {Rental Car $1} Cheap Holiday Packages---Flight+Hotel Up to 50% off Holiday Cars Car Rental--- Search the lowest price | Compare Be Smart, Compare before you Rent!ReplyReport AbuseEdward F. Dijeau #3Friday, June 18, 2010 1:41:05 AMStaying diversified with Domestic Dividend paying stocks, Domestic short term Bonds, Foreign Stocks in Major companies, Real estate, (even your home counts here), Bank CDs or money market shares, Gold, Silver, platinum or other precious metals could lesson the chance of a total wipe out and give you an edge if one really comes back strong. What percentages? Here you would need a crystal ball or time machine to really know but I look at risk and reward. If you are already getting a fixed pension or Social Security for life, then treat that as a money market or returns from a CD investment. This is my personal preferance based on my risk tolerance, age and Pension returns and my Social Security entitlement.
Insured CDs, Social Security and fixed pensions. 40%
Domestic Bonds.................................................. 15%
Domestic Stocks................................................. 20%
Foriegn Stocks ................................................... 5%
Precious metals in Safe deposit Box (real assets) 5%
Equity in real estate, (Home)................................ 15%
______
Total equities, investments and Cash equivalents 100%
If any 3, other than the Cash equivalents lost half their Value, I would only be down by 25% and that would be tolerable in the short term. Over time, they would return as long as you don't sell short.
If your pension loses money because it is invested in stocks and bonds, but you are not drawing from it, it would only be a paper loss as long as the plan remains solvent. If you have already been drawing from the plan for 5 years or more, your benefits must be guaranteed even if they reduce them to future retirements of other participants. If the Plan becomes insolvent, the the Federal Pension Guarantee will Pick up part of it.
ReplyReport Abuse1 - 3 of 3PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/JubaksJournal/time-bombs-put-portfolios-in-peril.aspx?page=3&','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*But if the bombs do go off, any of them, we could get the kind of downturn that will make the 13.7% drop from the April 23 close of 1,217 to the June 7 close of 1,050 feel like the good old days.
I don't think any one of these time bombs is big enough to blow a hole in the global economy comparable to that of 2008. I don't think these bombs are leveraged into the global financial system in a way that would inflict that kind of end-of-the-world's-financial-system possibility again.
I'm not talking Great Depression here or even a replay of the 1929 stock market crash.
But these bombs are big enough to lead to a give-back of a major portion of the huge stock market gains from the March 2009 bottom. Investors and traders haven't really put fear behind them, and it wouldn't take much for fear to run wild again. What worries me most about that possibility is that I don't see the kind of growth in the world's developed economies that would power a stock market rally big enough to make up for those losses.
My take on the market for the next 12 to 18 months: Avoid risk when the payoff isn't sufficient; when you can, with caution, play the big relief rallies after massive sell-offs; and try to make steady money in the stocks of the world's developing economies your bread and butter. (For some suggestions on picks in those markets when the time is right, see my columns on the next rally's leaders and emerging markets. )
You don't have to follow that strategy. Maybe you've got a better one.
And you don't have to buy into my talk of time bombs and major stock market routs.
But you should at least make sure you're familiar with the downside case before you decide on your strategy through the end of next year.
Here are the three bombs I'm most worried about in that time period:1. The Fannie Mae and Freddie Mac money pit You know those signs you see in antique stores: "You break it, you buy it"? Well, I wish Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) had followed those rules. The banking and mortgage industries broke these two mortgage financing machines, but taxpayers have bought them. Now all that remains is figuring out how big the bill might be.
Estimates are all over the block, from the merely frightening to the downright terrifying.
Fannie Mae and Freddie Mac are in the business of buying and guaranteeing mortgages originated by banks and mortgage companies. The idea is that these two companies (once government agencies and then, in theory, private companies with publicly traded stock) would buy mortgages from the original mortgage lenders, providing those mortgage lenders new money to lend. In concept, Fannie and Freddie then would be able to resell their mortgages to income investors or, by guaranteeing the loans, allow the original mortgage lenders to bundle mortgages into securities and resell those securities themselves.
See where the trouble lies? If the original, underlying mortgages turn out to be bad enough that borrowers default on their payments, Fannie and Freddie are stuck paying a lot of interest to the investors who bought the mortgages they sold. The arrangement also puts Fannie and Freddie on the line for a lot of guarantees.
The two companies own or guarantee about 53% of the country's $10.7 trillion in mortgages. And after bailing out these entities in 2008, taxpayers own about 80% of the companies.
Now if you think taxpayers got a bad deal when they bailed out Citigroup (C, news, msgs) or American International Group (AIG, news, msgs), wait until you hear what kind of deal the Bush administration struck with your money in the case of Fannie Mae and Freddie Mac. In exchange for giving up 80% of their companies to taxpayers, the pair got unlimited federal credit lines. So far, they've drawn down $145 billion, but that isn't the end of the story. Borrowers continue to default on their mortgages, and the companies' obligations continue to grow.
Continued: What will the final bill be?More from MSN Money and MoneyShow.com
1 | 2 | 3 | next >
Check out Jim's top stocks for the next 12 months.
Read how to invest with Jubak's showcase portfolio.
Follow the long-term portfolio from Jim's book "The Jubak Picks."
See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Staying diversified with Domestic Dividend paying stocks, Domestic short term Bonds, Foreign Stocks in Major companies, Real estate, (even your home counts here), Bank CDs or money market shares, Gold, Silver, platinum or other precious metals could lesson the chance of a total wipe out and give you an edge if one really comes back strong. What percentages? Here you would need a crystal ball or time machine to really know but I look at risk and reward. If you are already getting a fixed pension or Social Security for life, then treat that as a money market or returns from a CD investment. This is my personal preferance based on my risk tolerance, age and Pension returns and my Social Security entitlement.
Insured CDs, Social Security and fixed pensions. 40%
Domestic Bonds.................................................. 15%
Domestic Stocks................................................. 20%
Foriegn Stocks ................................................... 5%
Precious metals in Safe deposit Box (real assets) 5%
Equity in real estate, (Home)................................ 15%
______
Total equities, investments and Cash equivalents 100%
If any 3, other than the Cash equivalents lost half their Value, I would only be down by 25% and that would be tolerable in the short term. Over time, they would return as long as you don't sell short.
If your pension loses money because it is invested in stocks and bonds, but you are not drawing from it, it would only be a paper loss as long as the plan remains solvent. If you have already been drawing from the plan for 5 years or more, your benefits must be guaranteed even if they reduce them to future retirements of other participants. If the Plan becomes insolvent, the the Federal Pension Guarantee will Pick up part of it.
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