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More Musings
Picture the well-educated, aggressive, up-and-coming junior executive with a regularly rising salary and a handsome year-end bonus to look forward to. For a few years, he has been on a fast track with his firm and, in this time, he has learned to live well, perhaps too well.
Cautious with his earnings when he first started out, the rapid build-up in wealth soon led to reckless, out-of-control spending. Long gone are any savings amassed in more conservative times, and now he is saddled with exorbitant debt. Really living well beyond his means.
He has an expansive, expensive, downtown condo; a fast car (pick one: Porsche; Lamborghini; Ferrari); expensive made-to-measure suits; and a strong penchant for fine dining and exotic holidays.
Unfortunately, our unfrugal friend worked for Lehman Brothers and the September 2008 melt-down saw him lose not just his year-end bonus but, indeed, his job and his means of supporting his extravagant lifestyle. He has a mountain of debt and no quick, easy way to extinguish it.
The point of this staged scenario is to liken it to that of the United States of America, and to many Euro-Zone countries. They have way too much debt, high unemployment, reluctant consumers, hesitant corporate spending plans, and a banking fraternity walking the thin red line.
Within this context, the near-term outlook for equities has to be less than sanguine.
Our recommendation is to sell into a sustained rally and, if you must be in equities and want to ride out the storm, to emphasize only quality. Pick the leading company in the chosen industry.
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