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The developments at Lehman Brothers are making the options market swirl in general, according to Rebecca Darst of Interactive Brokers.
"In general, the brokerages, en masse, took a hit to morale on Lehman's ongoing struggle to survive, but if you take a look at the volatility developments, it certainly was most interesting in Merrill Lynch ," she said on CNBC's "Squawk Box " Thursday morning. "We saw a lot of seesaw action in Merrill Lynch options yesterday; actually, at one point, late in the morning, implied volatility on all Merrill Lynch options (check options here) blasted through those mid-July highs. ... There's still a large, large risk premium being priced into the options on Merrill, twice as many puts trading as calls. ... People are getting very defensive on Meriill." (See her full comments in the video)
Of all the places to put money to work in Europe, the pharmaceutical sector is the most promising, a technical analyst told CNBC Thursday.
Investors should start positioning their portfolios ahead of the expected rebound in economic activity, Michael Yoshikami, founder, president and chief investment strategist at YCMNET Advisors said Wednesday.
It's best to focus on companies that have "global theme and management tailwinds," Yoshikami told CNBC Asia.
Paul Hickey is founder of Bespoke Investment Group, and the strong dollar has him looking for a powerful market rally. He's come up with a list of stocks he thinks will be riding that rally.
"Typically, when the dollar rallies, one thing you can count on is, stocks to rally," he told CNBC. "The average performance of the S&P 500 during dollar bull markets is about 86 percent."
While the dollar is at a 52-week high, the S&P 500 is at a 52-week low, positioning it for that big surge.
So which stocks does he especially like?
His first pick is Amgen.
"The stock has pulled back, but in their most recent earnings report, they had great guidance," Hickey said. "We think this pullback is just a short-term pullback before it continues higher."
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He also likes Ross Stores.
"It's a discount chain," he explained. "The economy is not too strong, so you get the trade-down buy consumers, and this stock has been a steady performer; it's exposed to the U.S. market, and that's what we want to look for here.
Also on his list is General Mills.
"You wouldn't think that General Mills and FedEx would have much in common, but just as FedEx raised guidance because of lower fuel costs, the lower commodities in this third quarter should help companies such as General Mills as well," he said.
The next president will likely make changes that could dramatically affect your portfolio. Tax changes are especially likely.
Two financial strategists offered CNBC tips for creating an election-proof portfolio.
Hal Rogers, a retirement strategist with Retirement Services, takes the estate/retirement plan approach: Since we can't know who'll win, we need to take advantage of strategies that work under existing laws -- strategies that will work regardless of who wins.
1. Take Some Cap Gains Now
Selling winners and limiting tax exposure are two moves that always make sense, but make more sense now with capital gains rates likely to change under McCain or Obama.
2. Beware Fewer Benefits for Heirs
The government may get rid of the "step up in basis" rules, which means any inherited investments (stocks, real estate, etc.) could have dramatically more capital gains exposure than under current laws. This is something a tax-hungry president could do easily.
Example: Now, if you buy at 10 and sell at 15, you pay tax on 5. But if you give it to your son at 15 and he sells at 15, no tax. They will change this.
3. Estate Tax May Not Die in 2010
Under current legislation, in 2010 the credit against estate taxes will be unlimited. There will be NO estate tax! With the current downturn in the economy and resulting tax revenue decrease, it's not likely Congress will leave this as is.
As of right now, the estate tax credit (in effect the exemption) is $2 million. In January 2009 it will be $3.5 million, and in 2010 it will be unlimited.
4. Company Stock Exemption May Disappear
This is a little-known, little-used tax exemption that a new president may eliminate. Currently, the rule (net-unrealized appreciation or NUA) allows holders of certain company stock to take that stock out of their 401(k) without paying taxes.
The stock is taxed on its cost basis. If you got it for free, perhaps as a company match, it has no cost basis. No cost, no tax!
But this only works if you take it from your 401(k) and put it, for example, in a brokerage account. If you roll it over into an IRA this exemption is lost. Many people make this mistake when they change jobs.
In any case, the NUA provision could be eliminated by a tax hungry president.
Dean Barber, founder, president and chief investment officer of Barber Financial Group, takes the investment approach based on the uncertainty the election adds to the current economy.
1. Stay Away from Discretionary Stocks
Avoid areas like retail. Go to staples, like P&G , for example. The consumer will cut back on spending. So anything consumer related will be volatile.
2. Sell Out of High-Dividend-Paying Stocks
There's been so much emphasis on capital gains. But the special tax rate for dividends, also 15 percent, will likely go away too, whichever side wins.
3. Get on the Short End of Bonds
Commodities prices have fallen, but are still likely to rise. And rising inflation will be a threat whether it's a Democrat or a Republican in the White House.
4. Get Out of the Market for a Time
Be prepared for higher taxes across the board. If that happens, you want to get out of the market for some period of time. If consumers slow spending and consumers are 70 percent of GDP, that will lead to corporations needing to produce less, which will lead to layoffs. And if government has a smaller tax base, it must raise taxes. You can keep contributing to your 401(k), but put it in short term bonds. Otherwise take dramamine, close your eyes and hang on.
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Disclosure informatfion was not available for Rogers, Barber or their companies.
Four-star fund manager Peter Klein says it's time for stock market investors to put some money into aerospace and defense.
His Fifth Third All Cap Value Fund is up an average of 7.74 percent per year over the last five years.
"For the kind of stocks that I'm recommending, you have an outsourcing play," he told CNBC. "These companies have to consolidate, and they have to source out a lot of their internal maintenance operations, inventory operations, so I'm looking for that to continue."
His first pick isAAR.
"It's a billion-dollar sales company...posting pretty strong earnings," he explained. "Unfortunately, it's got caught in a crossfire with all the FAA grounding of planes because of inspections. Although they've had strong growth, there's a fear that's going to be reduced."
He also likes Teleflex.
"This is a multi-industry play, about 25 percent in aerospace, in terms of engine repair, but the big theme here is that this company has had a transformational acquisition," he said. "Fifty percent of its earnings are going to be coming from the medical area."
CNBC's Defense Stocks in the News:
- Northrop Grumman
Jan Lambregts, Asia head of research at Rabobank International, sees further dollar gains over the next 6- to 12-month horizon.
He told CNBC exactly where he believes the euro/dollar and dollar/yen combinations will be. Watch the video for his currencies predictions.
ETFs -- Currencies and Commodities:
- iShares FTSE/Xinhua China 25 Index
- CurrencyShares Euro Trust
- CurrencyShares Australian Dollar Trust
- PowerShares DB Commodity Index Tracking Fund
- Energy Select Sector SPDR
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"I very rarely like to make stock recommendations," hedge fund manager William Ackman of Pershing Square Capital Management told CNBC. "I'll point out an 'interesting opportunity.'"
"Long's Drugs is trading at a nickel above a cash tender offer that CVS is holding open to acquire the company," he said.
Oil at $300?! Charles Maxwell, Weeden & Co. senior energy analyst, told CNBC about the market forces that could push oil prices way, way above recent highs.
Investing in Oil:
(Click on tickers for company news/headlines)
United States Oil Fund
PowerShares DB Oil Fund
Goldman Sachs Crude Oil Total Return ETN
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Telecom stocks: aye or nay? Two strategists offered CNBC their takes on telecommunications now.
Charlie Smith, chief investment officer of Fort Pitt Capital Group and co-manager of the Fort Pitt Capital Total Return fund, declared, "Yes to telecom."
"People are not going to want to do without their cell phones, their high-speed wireless," said Smith. (See his stock recommendations, below.)