View Full Version : Best sector?

04-27-2005, 04:11 AM
My friends and I have been trying to decide what is the best sector for your money right now. One is a real estate bull but we all agree he's insane.

Right now I'm having a hard time figuring out where to allocate by 2004 IRA. It's been sitting in cash for a couple weeks.

But I am pretty sure I will go contrarian. I want to identify a sector that has taken a beating over the past five-six years and has lots of stocks with low P/E and hopefully even some dividend payers.

I'm thinking:

Gulp: TECH..
I think it may be ready for another cycle. Nano tech is spurring new chip, biotech, energy and other applications. Is nano finally ready? Electronics have been beaten down so long but everyone is hyping the new world of large distributed intelligent wireless node-networks for things like factories... Walmart went fully RFID recently. Chipmakers could come back. There could be a microelectronics boom in the making and a lot of people seem to think so...

GULP: Autos
GM my god what a disaster, although a 2% dividend rate is not bad for a stock sitting at historical lows. I think the auto industry may resurge on hybrid and fuel-efficiency mania. People will be buying more new cars in the next 5 years as gas prices will probably stay high. I bought a new car and my savings on gas is about half the payment, so my net cost for the new car was really quite low. I"m sure I'm not the only making that calculation. Ford, GM, etc. look like horrible stocks, but the contrarian in me sees potential.

Foreign Utilities? Foreign developing markets are gobbling up energy. They need juice in the grid. Utilities in India, China, maybe even Japan... China is really moving forward on nuclear energy too. Maybe an ETF that specializes in asian utilities?

Speaking of: Japan. All I know is that it's been a bear market there FOREVER. But it's a rich country with highly educated work force and lots of money for R&D. They are currently getting 50% of all global nanotech investment. Real estate is 80% off it's 1988 highs... Also, I think they may decide to junk Article 9 and start buying/building a military again. That's always good for domestic stocks. I don't know a damn thing else about Japan.

And this one is UGLY: TIPS

I'm very , very concerned that we are nearing an period of high inflation. All the economists are giving dire warnings right now because of our insane monetary policies.... All it take is one move like China unpegging their currency. Fed has little choice but to raise rates but it may be too late. .. TIPS would keep me above inflation if it really happens. Between that and having a 30 year fixed mortgage, I should come out ahead during inflation.

Please help.


04-27-2005, 05:24 AM
FWIW supposedly the Chineese central bank has lightened up considerably in it's buying of U.S. pesos according to this column about the credit markets that appears daily in the WSJ. Private foreign investors are buying U.S. treasuries. I'm an Alan Greenspan fan so I have a lot of confidence in him. When you look at the long end of the yield curve one could easily make the argument that the bond market believes inflation is under control. I'd also point out that the yield curve has flattened and the spread between 2 yr treasuries and 10 yr treasuries is something like 61 basis points or so. This is like the smallest spread in 4 years. The flatness of the yield curve indicates the very real possibility of an economic slowdown IMO. Personally I raised cash a while back. Also indicators that I follow aren't particularly bullish and quite frankly they scare the crap out of me. The housing market actually is strong still but I'm not inclined to speculate in real estate markets where the hot money is. FWIW the trouble I have with tech is that the multiples are too high for my taste given their cyclical nature and the cut throat competition between companies. Given that higher oil prices are probably going to be around for awhile, how will U.S. automakers faire if people start shunning gas guzzlers? I read where GM doesn't really make money on the cars it sells and when it is profitible it's due to GMAC financing the cars they sell. May be time to speculate a little on the U.S. automakers. FWIW I'm fairly certain that long term $50+ a barrel for crude isn't fully priced into oil companies. Saw that Valero, a refiner, bought out some smaller refiner the other day. Perhaps some consolidation in certain sectors. The article from the WSJ about what the Chineese are doing:

Newest Buyers of Treasurys Are Fickle

April 26, 2005; Page C4

China's apparent willingness to speed up the loosening of its currency peg to the dollar sparked speculation about what this would mean for the Asian nation's appetite for Treasurys.

But some analysts say bond investors may be missing the bigger point: Asian central-bank demand for Treasurys is already a shadow of its former self.

In recent months, private investors have replaced with gusto official institutions as the driver behind foreign flows into Treasurys. And this class of market participants differs from steady, reliable central banks in a significant way: their investing decisions are driven by price.
[Treasury Yield Curve]

Foreign central banks tend to be less sensitive to the relative value of a security and more keen to channel funds into safer-haven securities no matter what the price. "The significance of going from official to private flows is private flows tend to be capricious," said William Prophet, interest-rate strategist at UBS in Stamford, Conn.

Treasury data show that private investors accounted for $31.5 billion, or 74%, of the $42.5 billion of Treasurys bought by foreigners in February, the largest amount since July 2003.

Historically, private funds have dominated cross-border flows, but the surge in demand from central banks, particularly from Asia in 2003 and 2004, overwhelmed their significance and fueled the belief that low long-term interest rates were the direct result of official foreign buying. The 10-year Treasury yield is still low, but the reasons have become less clear-cut now.

"This year is likely to see significantly less buying of U.S. Treasurys -- and U.S. fixed income in general -- by Asian central banks than in any of the past three years," said Goldman Sachs economists in a report. They project that the central banks of Japan, China, Korea and Taiwan will buy less than $100 billion of Treasurys in 2005, the least since 2001 and about half of that in the previous year.

In trading, shorter-dated Treasurys fell, while longer maturities rose. That narrowed the gap between yields of two- and 10-year notes to the smallest difference in four years, or 0.62 percentage point, from 0.65 point Friday. At 4 p.m., the benchmark 10-year note was down 1/32 point, or 31 cents per $1,000 face value, at 97 30/32. Its yield rose to 4.261% from 4.257% Friday, as yields move inversely to prices. The 30-year bond was up 10/32 point at 112 8/32 to yield 4.563%, down from 4.581% Friday.