It's been a volatile couple of weeks. Investors have been held captive to the headlines -- which by nature are dynamic and unpredictable. Traders, with nowhere else to hide, flocked to the safety of precious metals and sold pretty much everything else. Treasury bonds and stocks have both been hit in recent days.
Here at home, the politicos in Washington have danced ever closer to the Aug. 2 debt ceiling deadline with seemingly irreconcilable positions on taxes and spending. And across the Atlantic, the sovereign debt contagion that pulled down Greece, Ireland and Portugal started to threaten core countries like Spain and Italy. Scary stuff.
That all changed on Tuesday as stocks and other risky assets screamed higher as these two political uncertainties -- the U.S. debt ceiling and the new Greek bailout -- move toward positive resolutions. And that sets the stage for the resumption of the medium-term uptrend I've been writing about in my columns and blog posts lately. Here's why and how to take advantage.
Politico is reporting that leaders of both parties in the Senate are moving towards a $4.7 trillion budget deal that would embrace many of the action items recommended by President Barack Obama's deficit commission last December. The tax code would be simplified. Entitlement spending would be cut. And deductions for health, charitable giving, homeownership and retirement accounts would be reformed.
This is a fantastic sign that big problems can still be met with big solutions in Washington. At the same time, Senate Minority leader McConnell's "backup plan" remains on the table as well. A default next month is becoming a more and more distant risk.
In Europe, the tension between Germany and the European Central Bank over what lies ahead for Greek bondholders appears to be diminishing thanks to some new ideas. Germany wants to see bondholder participation since it's critical for getting Greece back on the path of fiscal sustainability.
One idea is for the $1 trillion eurozone bailout fund to be given authorization to purchase discounted Greek bonds in the open market -- tantamount to a voluntary debt restructuring for those who sell at the discounted price. The money will be raised by the AAA-rated bailout fund issuing its own bonds.
Another is for a bank tax to be levied on European banks to pay for the Greek bailout. This accomplished the same thing as a debt restructuring: Transfers wealth from the private sector to the Greek treasury. But it allows the ECB to continue to justify accepting Greek bonds as collateral for emergency loans, something that's critical to keeping Greece's financial system afloat.
A definitive solution is expected at a meeting of European officials on Thursday.
Adding to the good news has been solid earnings reports from bellwethers like IBM (IBM) and JPMorgan (JPM) -- reminding people that the corporate sector is still enjoying record profitability in this environment.
For investors, especially those who had been on the sidelines, now's the time to "risk up" again. At the broad market level, I recommend the Nasdaq QQQ Trust (QQQ) to gain exposure to the strength being demonstrated by mega-cap tech stocks like IBM and Intel (INTC).
At the sector level, energy and materials stocks are the place to be. Natural gas and coal in particular look strong. I've recommended fast moving energy exploration outfit Hyperdynamics Corp. (HDY), Arch Coal (ACH), and the First Trust Natural Gas ETF (FCG) to my newsletter subscribers. All are still good to go and will be added to my Edge Letter sample portfolio -- which you can use to view my recommendations in real-time here.
I found Hyperdynamics, Arch Coal, and the First Trust Natural Gas ETF with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Editor's note: Fidelity sponsors the Investor Pro section on MSN Money.
Disclosure: Anthony has recommended HDY, FCG, and ACH to his newsletter subscribers.
Check out his new investment advisory service, The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up.
The author can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
The tax code would be simplified. Entitlement spending would be cut. And deductions for health, charitable giving, homeownership and retirement accounts would be reformed.
GREAT STICK IT TO THE MIDDLE CLASS SOME MORE
GE PAYS NO TAXES YET I LOSE ALL MY SKIMPY DEDUCTIONSPITCHFORK AN TORCHES TIME!
If this guy says "the bulls are back, baby"", it's time to get out...
Where do these idiots come from?
'Adding to the good news has been solid earnings reports from bellwethers like IBM blah blah blah" -- reminding people that the corporate sector is still enjoying record profitability in this environment." .... ONLY AFTER OUTSCOURCING JOBS AND LAYING WORKERS OFF AND ALSO CUTTING WORKER BENEFITS etc. etc. Why don't the real facts be written up all the time instead of this obvious propaganda????
today it is the bulls are back
tomorrow it is an unexpected balloon pop
the monkey jumps when its washington string is pulled
HEY! no worries...europe is fixed now..um..what? well, they fixed it then, too sort of..temporarily
yea, and the housing starts are way up! Almost back to "pathetic level".
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