By Michael E. Russell
To the readers who have missed the Investing 101 column by Ted Kaplan, I have spoken to his lovely wife Elizabeth and will try to follow in his footsteps.
To say that present times are challenging is an understatement. Supply chain issues, higher gas prices at the pump, heating oil and natural gas prices are expected to increase by 60% this season. We have seen shortages at the supermarket and shortages of corks for wine bottles!!! We have housing shortages, federal deficits approaching $25 trillion. We have an economy that is still robust with 10.2 million jobs unfilled.
The 10-year treasury is now at 1.62% and analysts are expecting an increase to almost 3%. We have not seen rates this high in almost 12 years. A key measure of the bond market as quoted in The New York Times expects inflation to increase by 3% per annum over the next 10 years. It appears that the Federal Reserve will have to take major steps to halt this inflation creep.
In spite of these negative factors, investor’s wealth increased by $9.7 trillion, 23.5% for the year!
That being said, the University of Michigan’s survey stated that this has not trickled down to the average family. Their economic outlook shows the lowest confidence in the economy in more than 10 years. What this says is that employment is up, wages are up, but their income in real terms is down. The Consumer Price Index has jumped 0.9% in October, bringing the year-over-year increase to 6.2%. The most in more than 3 decades!
For many investors, according to Randall Forsyth of Barron’s, the growing concerns about rising prices and interest rates present a problem. In this scenario, bonds may not serve as a buffer in the classic 60/40 equities to bonds portfolio.
Morningstar is looking for a 7.5% gain in equities next year while analysts at Bank of America believe the S&P will be flat.
With all the potential negative news out there, I still believe there are stocks with solid dividends that have potential for growth.
A conservative play is New York Community Bank, NYCB. This bank has over 1200 branches with a dividend of 6%.
I believe that the major energy suppliers are attractive at these levels. Energy demand is high and will continue to be so. ExxonMobil, XOM, is currently trading at $63. This is 25% below its 5 year high. It is paying a 5.5% dividend.
In closing, let me wish everyone a healthy holiday season.
Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor.