Weekly Update

A number of leading experts believe the market is oversold and expect the bulls to take charge again. Their sentiment may be buoyed by recent good news, including a 17% drop in oil prices over a one year period; the Fed’s potential move to extend “Operation Twist;” China’s lowering of its reserve requirement, and Europe’s apparent willingness to begin pumping more capital into the Eurozone market. If you can handle the possibility of the Dow dropping an additional 10%, begin cautiously buying securities of firms with a domestic business concentration. Otherwise, remain in cash, short/intermediate bond funds, consumer staples, telecommunications, and utilities.

Thus far this quarter, short and intermediate term bonds have been a safe haven against losses, but I do not suggest chasing long-term or high-yield bonds (Note that Loomis Bond recommended earlier this year is a multisector fund with holdings in international and high-yield bonds). Basically, overweight corporates and stay short. Alternatively, if you are seeking more beta, analyze mortgage-backed securities. You may want to consider Annaly Capital (NLY), Invesco Mortgage Capital (IVR), and iShares Barclays GNMA Bonds (GNMA).

The following is a breakdown of fixed income positions I have recommended in 2012:

According to Andrew Osterland’s Investment News article last week titled, “Bond fund managers expect the party to end soon,” over $78 billion was invested in bond funds during the first quarter, but 10-year treasuries are yielding less than 2%. In addition, investments in bond funds have doubled since 2008 to more than $2 trillion. Osterland quoted Dan Fuss, manager of the Loomis Sayles Bond Fund (LSBRX).  Fuss, one of the most highly regarded fixed income experts in the business, believes that the bull market in bonds is coming to an end.

The bottom line entering this week’s action is to be very cautious. Personally, as a growth investor, I am currently holding over 33% in cash. On pullbacks, I will slowly add cash to large dividend-producing securities that do not have a significant exposure to Europe.