As Dow drops below 7,000, are there safe havens?
Blame Warren Buffett's comment that the economy will be in a "shambles" for the rest of the year. American International Group Inc.'s (AIG) posting the biggest corporate loss in history doesn't help either, nor does the fact that the insurance giant needs yet another bailout.
And the drumbeat of bad news from financial companies continues. HSBC Holdings, Europe's largest bank, is doing a mammoth rights issue and exiting the U.S. consumer market. PNC Financial Services Group Inc. (PNC) cut its dividend by 85 percent. Asian and European markets tanked as well.
Can things get worse? Of course they can.
"I think earnings are going to get worse," said Mark Demos, a portfolio manager with Fifth Third Asset Management, which has about $18 billion in assets, in an interview. "Estimates are too high or the second half of this year and 2010." He expects 2010 to be no worse than this year.
The markets are in free-fall and investors are panicking. Demos argues that investors simply don't have any patience left.
"The S&P 500 index sits at 14 times trailing earnings," writes Jack Hough on SmartMoney.com. "Turns out, 14 was the average P/E for stocks over 126 years ended 1998. Since then, they've averaged 21 times earnings. So we're back to normal, but there's nothing to say we can't drop well below it for a while. During four separate, multiyear stretches since 1872, stock P/Es averaged single digits."
The news ahead is not going to be pretty. Friday's job report is expected to be dismal. Money managers are snapping of precious metals as a hedge against the 47 percent decline in the S&P 500 over the past year. Gold, though, may not be the way to go. Bloomberg News notes that silver is trading at its biggest discount to gold in 13 years and that investors expect "the best annual return for silver since the Hunt brothers' bid to corner the market in 1979."
Oil prices are rebounding as OPEC price cuts appear to be taking hold. Gold has hit $1.000 an ounce, proving that it continues to be a safe haven as it has throughout history during troubled economic times.
Consumer confidence continues to be shaky as unemployment climbs near eight percent. Two stocks which have outperformed the market during the economic slump, McDonald's Corp. (MCD) and Wal-Mart Stores Inc. (WMT), are down today. Though these safe havens are not so safe today, Peter Jankovskis, co-chief investment officer of OakBrook Investments L.L.C. of Lisle, Illnois, likes both stocks because of their strong cash flows.
"The immeidate outlook is not for recovery in the short rum," he said. "I am shocked by the fact the focus is not on stimulating the economy but on pushing a big government agenda."
About the only thing that investors can be certain of is more uncertainty.