The financial world didn’t get its relief yesterday. The bailout plan and any accompanying reprieve just weren’t in the cards. The Dow tumbled and investors rushed to the exits.
I’m not going to harp on the bad news again, I’m sure you’ve heard it all by now. That’s because opportunity is knocking right now.
I will say the bailout plan, or some form of it, will be formalized and approved. Too many politicians have too much riding on it. And then all will go back to normal…for a few days.
We could even get a nice bounce in the markets following the new (and therefore better?) bailout plan that eventually gets approved. If by some miracle the door is slammed shut on banking problems by a swipe of the pen, the next door will open. I’m afraid, what is behind the next door is a lot uglier: the economy.
That’s what really matters here. The economy…it’s always the economy. When bailout euphoria hit the markets a few weeks ago, we focused on what matters most. Although the U.S. is technically not in a recession yet, we’re headed for one. The looming recession is reducing demand for everything, profits are getting squeezed, and some very smart money is quietly buying some highly undervalued stocks. And we can buy right along with them.
In fact, the big money shopping spree has quietly sparked a mini bull market that no one is talking about. Some of these companies have watched their share prices increase 20% to 50% in just the last few weeks. It’s takeover time and I expect plenty more takeovers for these ultra-safe, high-dividend paying stocks over the next few months.
Right now it seems almost no companies (or their share prices) are immune from the downturn. But some very big money is taking a completely different view. Over the past few weeks Canadian income trusts have become private equity darlings and the trend is only getting stronger.
The Canadian government didn’t help matters either. It declared the special tax breaks afforded to shareholders of income trusts would be eliminated in 2010. This announcement took the income trust holders by surprise and sent the value of them plummeting between 30% and 50% in a day. Most have fallen further since. But now they’re starting to roar back to life.
You see, most income trusts are not in terribly exciting industries. They’re not going to develop the next Blackberry, make a run at Google’s market share, or anything of the sort. They are, however, some of the most basic businesses that will survive the worst of economic times.
Some leading income trusts have sound businesses in tuna processing, lumber shipping, grain silo operation, and food shrink-wrapping. Not even close to any great cocktail party conversations starters.
That’s the beauty of them though. They are not complicated businesses.
