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Happy Holidays and Happy New Year !

From tomorrow, we have holiday shutdown at work. This is only way to get many folks in valley away from their work and computers. Overall this holiday season and December in particular is shaping up very well. Let's look at few factors to feel positive about new year.

Politics:
This may be one of the most productive few weeks in US congress history. President Obama after getting shellacking in Nov elections bounced quickly by taking pragmatic approach and got three key victories:


  1. Tax-deal - while republicans must be happy that they got their wish of extending tax-cuts for wealthy, real winner is President and American Economy. With one swoop, economy got back-door stimulus of over $800 Billion. Who would have thought this could happen so soon
  2. Repeal of "Don't ask, Don't tell" policy - this is also significant victory for Obama since this was one of his election promise and it was overdue
  3. Ratification of Start Treaty - this was another major foreign policy win for President. Again getting support from 13 republican senators was a small coup in itself
So after all, split government is good for getting things done in Washington !

Economy and Markets:
Latest economic indicators are all pointing to strong Q4 finish to 2010. Q3 GDP came in at revised 2.6% - not bad considering many economists were worried about "double-dip". If recent shopping trends hold up for rest of 2010, I am predicting Q4 GDP growth to come above 3% (maybe closer to 4%). Stock markets already pricing in strong Q4 GDP growth and hence it is up over 6% in December. Most likely it would keep inching upwards for rest of 2010 and could have strongest December since 1991. That would set nice foundation for start of earnings season in Jan.
Fed's QEII is definitely helping but looks like Fed may have to evaluate how long to continue on QEII. They may not publicly announce but they may slow down overall buying. Overall DOW would cross 12000 sometime in 2011 and may even cross 12500.
So how does one position in these times. There are couple of ways:
  • If you have holdings of good long-term stocks which you believe still has upside left, go for selling "covered calls" strategy. For more details, check out one of my earlier post 5 Rules of Earning Steady Return from Stocks
  • Cash-out 50% from your winners so you will have some "dry-powder" in hand
  • Check out some of the "out-of-favor" sector stocks. e.g. 
    • For profit education sector: COCO ($4.6), CECO ($20), APOL ($38)
    • Regional banks: HBAN ($6.6), RF ($6.6), SNV ($2.5)
    • Dividend paying companies: AGNC ($29.75 with 19% yield), CIM ($4.2 with 16% yield)
    • Energy sector: SD ($6.9), MMR ($15)
Wish you all Happy Holidays and Happy New Year !

/Shyam

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