Ralph Waldo Emerson once wrote that "nothing can bring you peace but yourself." Yet right now, the US markets appear to have exchanged self-reliance for dependence, and need European leaders to contain their financial crisis that has festered and grown for two years.
"They have to be more proactive not reactive. Until they figure out how to contain it we're going to have these sell-offs continuing," says Sarat Sethi, Portfolio Manager and Equity Strategist at Douglas C. Lane & Associates. "They have to come with blanket reform. They can't do it piecemeal. People will find holes in it."
And holes we've found. Concerns that started with Greece, Portugal, and Ireland spread to Spain and Italy. Now today comes fear that they've infected markets like Finland and Austria. What once was a fear about sovereign solvency has now shifted to a panic about bank insolvency, with virtually every single European bank selling off.
Add to the that our own economic data concerns of rising inflation, high unemployment, and further weakness in housing and manufacturing reports, and you've got all the ingredients for a sell-off like today's.
So how do you handle days like this? "You definitely don't hit the panic button and sell. You have to look at your portfolio and the companies you own.. and see where there's going to be opportunity down the road in 3 to 5 years because we know we'll get through this in maybe 12 months or 24 months," Sethi advises.
More specifically, Sehti says it's a chance to "trade up" into world class multi-nationals that have no, or low-cost debt and a pile of cash. "Look for the good management teams." he says. "Maybe now I can buy some companies like Danaher (DHR) on the industrial side which is world class. Or maybe I can start putting money into companies that are going to grow globally, like a Pepsi (PEP). I get a good dividend, I get to grow. This is when you do the trade-up for some better companies."
Sethi says market multiples and earnings are probably both going to "come down a little bit" more, and thinks the economy should be able to deliver "very low growth" and avoid recession. As a result, he says it's a good time to take some money of the table in the Energy sector "because that trade is over now, especially since demand is going to come down and you've had a lot of speculation."
As for gold, everybody's favorite safe haven of late, be "really careful...it's no longer an investment, it's beginning to be a speculative position." Instead, Sethi likes the "completely out of favor" Auto sector which he says is not only selling at really cheap multiples but has lots of cash, especially Ford (F).
Let us know what you're doing today, selling or riding out this storm?