Fighting Pessimism with some Buy Ideas

By Travis Johnson, Stock Gumshoe, September 30, 2011

Crazy days, no? The overriding fear among investors seems to be that we’re headed back to something like the Fall of 2008, a “Lehman moment” if Europe doesn’t get its act together and Greece or one of the other weaker pups of the EU actually defaults on their debt … or defaults in some extra-bad way (they’re obviously going to default if by “default” you mean “not pay back all the money” — just as the US is destined to default if you enlarge that definition to include “default by inflation” as we pay back old debts in eventually-less-valuable dollars, but some fear that it won’t be “orderly” and therefore won’t give the banks time to rearrange and survive the ensuing writeoffs).

And, of course, the fear of recession is back in full force — unemployment that continues to be horrible in the US and a likely resurgence of foreclosures are further depressing consumer confidence and will continue to hit US consumer spending, which theoretically-and-eventually causes lower demand for imported products from China, which causes lower demand from China for imported iron from Brazil and Australia, depressing the few growth economies still out there … well, you get the idea. It’s the downside of an interconnected world, when the U.S. consumer catches a cold and European consumers are reaching for the kleenex, the Chinese factory catches bird flu.

But it’s not, of course, really that simple. The world is changing, with emerging consumers everywhere who are creating pockets of rising affluence (or at least “not always hungry,” which seems to be the definition of “middle class” for emerging markets). I think the great fear now is that in the global debate (OK, mostly the US and Europe debate) over stimulus vs. austerity, austerity will win out.

Which might be the better philosophical choice, given our decades of anti-austerity, but it sure should have been made at a better time (you don’t try extra hard to save for your grandchildren when your family’s starving, you save when times are good — or at least, “normal.”) Unfortunately, given our poll-driven world, consumer lust, and lack of leadership, no one says “hey, let’s use these budget surpluses to buttress that awful medicare and social security problem” … no, they kept saying “let’s cut taxes and increase spending” to make people happy. Or at least, to make voters happy.

So what ...

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