6 Investments for Nouriel Roubini's 'Less Gloomy' Outlook
Is it just me, or has the permanently glum Nouriel Roubini become a softy? The good professor has received more accolades than any other analyst or economist for predicting the demise of market-based securities in 2008, never mind the horrific calls he made the following year:
- In April 2009, near Dow 7,950, Roubini predicted the markets would retest the March lows of Dow 6,500. They never did.
- In July 2009, near Dow 8,100, he described the market's run as nothing more than a bear rally. Yet the Dow rose 38% over the next nine months.
- In October, near 9,700, Roubini called for a bearish 10% to 20% pullback. Not only was he six months early, but the market's selloff went to 9,700 from 11,200. The current cyclical low is essentially at the same spot where Roubini made his bearish call...six months earlier. You can't be much more off than that.
In truth, I am not giving Roubini a bad time; rather, this is more of a condemnation of fortune-telling and the mainstream media's need for heroes. Nobody has any idea what will happen — it's the greatest certainty of all.
I'm not suggesting we always dismiss the ideas espoused by intellectuals. Just that you have to be open to the possibility that a thinker will be wrong. And not just in the arena of market-based investing.
I've watched Roubini pile on top of every crisis since 2008. He did not anticipate the investment markets rebounding from the sovereign debt fears, so he softened his stance on sovereign debt. He did not anticipate markets recovering from the U.S. "soft patch" either. In fact, Roubini all but assured a double-dip recession.
(Granted, the National Bureau of Economic Research declared Monday that the recession ended in June, meaning "any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007.")
Now, with each passing week, the prophet keeps shifting his stance. Second-half GDP will grind to a halt? Well, that's not the same as a double-dip. And in his latest commentary, he's placed the double-dip possibility at 40%. Mr. Gloom is less and less gloomy with each passing day.
Roubini's 'Smart Stimulus' Call
When Roubini has been wise enough to get out of the prediction game, he has put forward some sensible medicine for the ailing economy.
For instance, he is advocating for a "payroll tax break" that would get more money into the hands of employees immediately and encourage employers to hire, as they'll be paying less for new employees. Since it's not a prediction of impending doom, however, his call for smart stimulus isn't likely to generate much in the way of front page headlines.
And if you read between the back page headlines for Roubini's "payroll tax break," you can see he has hope for the U.S. economy after all. That's why you should get your "buy list" ready for cash you may still have on the sidelines.
Here are three ETF areas that deserve attention when respective ETFs pull back 3 to 5 percentage points from intraday peaks:
1. Small-cap emergers: Smaller economies have lower correlations with one another and/or large economies. The same can be said about small companies in those smaller economies.
Essentially, you will be able to enhance portfolio gains and lower risk by including small-cap emerging stock ETFs. The relative strength demonstrates a likelihood of continued percentage performance. Meanwhile, the lower correlation gives better diversification.
Consider WisdomTree Small Cap Emerging Markets and Market Vectors Small Cap Brazil .
2. Telecom: The valuation of the industry as a whole is magnificent, but this isn't a valuation-based market. Okay, fair enough, but take a look at relative strength and you'll recognize telecom as the strongest of the 10 U.S. sectors.
It gets better, too. The yield is second only to the slower-moving utilities, and if you're looking for a recession-resistant arena, know that telecom equipment and wireless services were among the very few to grow during the 2008-09 downturn.
Consider Vanguard Telecom and iShares Global Telecom .
3. : If the U.S. stock market rallies in the fourth quarter, you know it won't do it without its Nasdaq champ, Apple . On Friday, when Apple fell slightly, we still saw $645 million flow into buying on the weakness.
ETFs with heavy exposure to the big AAPL? The Internet Architecture Fund as well as First Trust Nasdaq 100 Technology .
Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned.
Certified Financial Planner Gary A. Gordon, MS, is the president of Pacific Park Financial, an SEC-registered investment adviser in California. He has more than 20 years of experience as a personal coach in “money matters,” including risk assessment, small-business development and portfolio management, and has taught finance in Mexico, Singapore, Hong Kong, Taiwan and the U.S. He wrote the draft copy for "Maverick Investing," a McGraw-Hill publication, and writes commentary for Seeking Alpha in addition to ETF Expert, for which he also hosts the ETF Expert Radio Podcast.