Blogging Stocks returns suggest money markets a better bet

Posted Jul 13th 2006 9:03AM by Peter Cohan
Filed under: Major Movement, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), eBay (EBAY), General Electric (GE), Time Warner (TWX), Wal-Mart (WMT)

The stocks we cover here at Blogging Stocks have had a lousy run since the beginning of May when we opened for business. Money market funds might be a better buy.

During a period of poor overall market performance -- for example, the S&P 500 fell 4% -- our stocks: Apple Computer, Inc. (Nasdaq: AAPL), eBay, Inc. (Nasdaq: EBAY), General Electric (NYSE: GE), Google Inc. (Nasdaq: GOOG), Microsoft Corporation (Nasdaq: MSFT), Time Warner Inc. (NYSE: TWX), Wal-Mart Stores, Inc. (NYSE: WMT), and Yahoo! Inc. (Nasdaq:YHOO) -- have fallen an average of 6%.

With short-term interest rates rising, it seems clear that money market funds -- which yield almost 5% -- are a better bet than the average stock.

Here are some reasons to avoid equities:

Political uncertainty -- in Iran, Iraq, North Korea, Israel/Lebanon -- drives up the price of oil which drives up costs and hurts stocks;
Deficits and debt are high at the government and consumer levels -- this causes interest expense to crowd out a growing share of spending on consumer goods as interest rates rise. This will slow economic growth and corporate earnings;
Inflation and interest rate uncertainty -- with a new Fed chief, investors are not sure what to expect. This will increase volatility because investors will be reluctant to take long-term positions in stocks; and
Housing decline -- air is coming out the housing bubble which had been a source of equity for strapped consumers. Foreclosures are likely to rise and job-creating new construction should slow. This will put a damper on economic growth which will hurt earnings growth.

And the eight stocks we cover don't offer much solace. However, if you were to pick two to bet on -- they would be Google and Yahoo. Here's how our eight have performed since May 1 -- from best to worst:

Google +5%
Yahoo +4%
Wal-Mart -1%
GE -3%
Time Warner -5%
Microsoft -6%
EBay -21%
Apple -24%

In the current investing climate, I would hesitate to commit funds even to Google and Yahoo because a slight stumble in earnings results or guidance could slam these stocks.

If you enjoy sleeping at night, it may make sense to bet on a relatively safe investment whose yield rises along with interest rates.

I am neither long nor short shares of Apple, eBay, Google, Microsoft, Time Warner, Wal-Mart, or Yahoo. I own shares of GE. For more about me, click here.

Tags: declines, market, money markets, MoneyMarkets, stocks

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Reader Comments (Page 1 of 1)

7-13-2006 @ 9:21AM

PAUL CHIAMPA said...

We finally and unfortunately have the wake-up call for the morons who have had their foolish heads buried in the sand for 18 months. Political problems beyond US/Iraq blew up right in front of all of us. The Bulls on Wall St never saw this coming, I guess. An escalation of bloodshed in the Middle East in the form of Israeli attacks in Lebanon will have brutal implications for the market. Oil prices will skyrocket much higher even past 80 dollars per barrel. The US economy will be slowed even further with Tech stocks getting the full brunt and they make up 60% of GNP.
The Nasdaq Composite has been in a freefall for a while so this is nothing new.
T-Bills which yield 5% aint a bad option.
None of you hot shots out there have never seen a bad market let alone a Bear Market. Well folks you're gonna see one now.

7-13-2006 @ 4:52PM

Roger said...

Oh wise one, where are your hard earned dollars invested?
T Bills? What a fantastic idea now, but you sound like the kind of guy who sits on his hands, and revels in bear markets, to say I told you so to people who risk their money, and provide liquidity to markets. Calling those people morons is a dead giveaway.
Please advise us all of the market turn before it happens, ok? Oh, you only wait for soemthing to be half over before you make comments?
As far as never seeing a bad or bear market, who are you talking to, people born in the last 5 years? The NASDAQ is off 60% in that time.
Perhaps you are the moron.

7-21-2006 @ 6:11AM

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7-24-2006 @ 12:26AM

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