You’ll get income and a chance to ride the wave that usually comes at the end of the quarter, says Louis Navellier of Blue Chip Growth in this exclusive interview with MoneyShow.com.
Louis, you’re just back from Europe. How does it look there versus how it looks here in the US?
Well, ironically, I was in Spain and Italy during the crisis. Life went on, and nobody seemed to know a thing that was going on.
Any riots there?
No, but when you turned on the TV, I did notice the Italian Parliament is a little different. Over there, the politicians like to insult each other face to face versus through different media channels here. They have a little more passion over there.
But the crisis was because the European Central Bank did not want to help Italy and Spain unless they did some structural budget reforms. So after the ECB meeting in August, Trichet (the president of the ECB) basically broke precedent and said that we are intervening, but we are only intervening with the ones that are doing what we want them to do, which was Ireland and Portugal.
Then the other central bankers were insulting each other after the meeting adjourned. What happened is, Berlusconi was very defiant.
He is just defiant, period…right?
Well, he has other problems.
Yes.
Then on Friday, he did a flip-flop. He basically caved, apparently. French President Sarkozy and German Chancellor Merkel got to him, and then on Sunday the ECB started to buy the Italian debt and the Spanish debt.
What happened is because the banks over there hold a lot of their bonds, his yields were going up and his principal was eroding and now the yields are coming back down with ECB intervention, though the principal is being restored.
We did have a banking crisis start in Europe. It was very serious, and when that domino fell, it is hitting our dominos here in the United States, and the more international banks, and the ones that are deemed that might have a lot of government help—like Citigroup (C) and Bank of America (BAC) are really having a hard time.
The only real risk here long term is that the LIBOR rate doesn’t go up. Back in 2008, the price was totally different, with credit-default swaps, leveraged debt, and the commercial paper market collapsing (it was a long story)…but as long as LIBOR doesn’t skyrocket, we’re okay.
That is the London interbank offer, right? What they charge between each other?
Correct. What happened is in 2008, they didn’t know who had the Lehman paper. So no one trusts each other.
We want to make sure that that LIBOR rate doesn’t go up, so the ECB is essentially doing quantitative easing by buying bonds and they don’t say where the money is coming from. Of course, our Fed has come out saying they are not going to raise rates for at least two years.
NEXT: Why the Red Flag Is Waving
|pagebreak|Isn’t that a red flag, though, waving?
It is the reality though. Our feds cannot raise rates for three reasons:
- When you have a problem loan like your home, they give you a 2% mortgage if you don’t take the cash or keys. There are a lot of underwater mortgages that go from non-performing to performing loans that won’t be fixed for years. They have to keep rates low because of that.
- Peter Orszag, the former White House budget director, has pointed out if rates get to 2%, the interest on the deficit will be $900 billion a year. We are well below 1% on the interest that we pay on the debt.
- There are five doves on the Federal Reserve, now led by Janet Yellen, the San Francisco vice chair.
So, you can see the Fed has dissenting votes now, and they are not all happy campers, but that low-interest-rate policy will obviously cause people to seek high-dividend stocks. That weakens the dollar, which will help inflate corporate profits more for the multinationals.
It will probably escalate the stock buybacks, because companies today are borrowing at 2% and 3% in a very healthy corporate bond market and buying their stock back. That boosts their earnings per share. So it does set a very good foundation for the market long term once everybody is done freaking out.
Have we gotten everybody out of the market now? The longs were taken out and the shorts were taken out.
Well this all started on light volume when everybody was gone on vacation. The crisis is so severe, some politicians had to leave vacation, like Prime Minister Cameron from Britain and President Sarkozy.
But it can’t be that bad, because the last I saw Congress was on vacation. I think the President’s still going take a vacation.
I think on a more serious note, August is just a very light volume month. It is just unfortunate, but we had our high-volume selling panic. We had a nice bounce; now we are going to have to retest those lows. The retest might last a few weeks in all candor.
People can buy the high-dividend-yielding blue chips now. For the smaller-cap ones, you might want to wait until the retest.
Volume is going to pick up after Labor Day, and by the end of September you are going to have a lot of buying on quarter-end window dressing. If you remember at the end of June in the second quarter, we had just nine incredible days.
Oh yes, the first part of July was wonderful.
That was because we had corporations buying their stock back. We had a lot of quarter-end window dressing.
The cream always rises to the top. I know they threw the baby out with the bath water, but the good stocks bounce like fresh tennis balls and bad stocks bounce like rocks. We will be able to pick the tennis balls out from the rocks.
