Equities and Real Estate Trump Bonds and Commodities as Investments

Paul Dykewicz

LAS VEGAS–Astute stock pickers still have good investment opportunities, despite uncertainty about when the Fed will follow through with its stated plan to begin tapering its easy-money policies, several investment professionals said here at FreedomFest yesterday.

Investors overreacted when they recently began to pull out of stocks and abandon bonds in response to Federal Reserve Chairman Ben Bernanke’s talk about scaling back on the central bank’s efforts to keep interest rates low, said Chris Versace, editor of the PowerTrend Profits investment newsletter.  The economic growth that needs to occur before Bernanke’s tapering begins is nowhere close to taking place, Versace said.

Bernanke laid out a scenario under which tapering would occur and the economy is not improving sufficiently to trigger those changes, Versace said.

Versace added that he is starting his 20th year of working with stocks and he is convinced that bull markets always exist but the “trick” is to identify them and take action to profit.

“I am a stock guy,” Versace said. “I think they are a fantastic vehicle.”

However, there also are “time horizons” for owning certain stocks, Versace said.
“Several years ago, Apple was a stock to be owned,” Versace said. Now, Apple’s prospects are more uncertain, he added.

“You need to be proactive in what you are doing” as a stock investor, Versace said.

For example, investors need to consider average daily trading volume before entering into exchange-traded funds (ETFs), cautioned Versace, who also writes ETF PowerTrader, a weekly trading service.

ETFs that are trading at low daily volumes may be similar to “roach motels,” in which “you can get in but you can’t get out,” Versace said.

Bond investing is tough right now with the talk from Fed officials causing interest rates to creep up, said Lenore Elle Hawkins, partner with San Diego-based Meritas Advisors, a wealth management firm.

To squeeze out heightened profits with bond investing, leverage can be used but it comes with risk, Hawkins said.

“The problem with leveraging is it makes things really volatile,” Hawkins said.

Bernanke realized the markets were getting too tightly wound when he made his comments about tapering, Hawkins said.

“If you want to invest in bonds, stick to those of short duration right now,” Lenore said.

She cautioned against buying gold even though the price has fallen to the point that some investors consider it a speculation worth taking.

“Everyone doesn’t know anymore that gold is money,” Hawkins said.
Gold peaked right when the Fed’s quantitative-easing (QE) “infinity” was launched, Hawkins said.

Risk takers have an opportunity to pick up reduced-price gold mining stocks, which may be worth buying, Hawkins said.

But Hawkins agreed with Versace that the area offering the “best opportunity” right now is equities, especially those that have high payouts.

“Companies that paid out a high percentage of retained earnings were the higher growth stocks,” Hawkins said.

“We don’t want to be in investments that depend on political decisions,” said Andrew Schiff, director of communications and marketing at Euro Pacific Capital Inc. “We want to invest in businesses that have strong fundamentals.”
But equity investors need to be selective.

Certain countries are not favored right now, while the S&P 500 is fueled by quantitative easing, Schiff cautioned.

“If you look at stocks, not as speculative investments, but as income producing investments, you are going to do fine,” Schiff said.

Russell Gray, co-host of the “Real Estate Guys radio” program, was the lone panelist who favored real estate as his preferred investment right now. One of the key attractions to real estate is that it offers a hedge against inflation.

If an investor gains appreciation on a property due to a rise in market values, that benefit is a “bonus,” Gray said.

Of course, real estate markets vary, based on locale, Gray said. Local laws also factor into the valuation of real estate.

For example, real estate laws in New York are favorable to the tenant, while laws in Texas are favorable to the owner.

If hedge funds dump properties, investors will enter the picture to buy the property. For that reason, Gray said a house that is paid for in any market has real value.

Plus, the variability of real estate prices does not affect investors much if they are content to keep collecting rent checks from tenants, Gray said.

Paul Dykewicz is a seasoned journalist who is the editorial director of the Financial Publications Group at Eagle Publishing and the editor of the Eagle Daily Investor website. He also edits five monthly investment newsletters, Forecasts & Strategies, Successful Investing, High Monthly Income, Alpha Investor Letter and PowerTrend Profits, as well as a number of time-sensitive trading services.

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