It’s Going to get Worse. Much Worse.

I’ve discussed the issue of equity investment returns (i.e. stocks, bonds, mutual funds) in the long term and whether lower returns are the new normal.

I don’t consider myself a doomsday kind of guy. But I do like to keep my expectations in check. And questioning the “rule” of 10-12% market returns is how I like to do just that. Paul Farrell at seems to agree when he states:

Warning: More bad news ahead. Welcome to a bleak second half 2010, worse for 2011.

And, yes, I understand pundits like to tout historical stock market returns of 10-12%. So, if you wait long enough, the bad times iron themselves out. But this may depend more on luck as I’ve previously addressed.

Farrell goes on to describe how today’s headlines are all, well…bad. It’s hard to look and not see bleakness in newspapers nor online. In his opening anecdote, Farrell begins his morning by reading…

…Gary Shilling’s new Insight newsletter, just before I head for the kitchen to make my wife’s breakfast. Gary’s “Mid-Course Checkup” doesn’t raise my spirits. Sure, he’s got bragging rights. His January forecasts are still on the money. But don’t you just hate guys like him? Brilliant. Honest. Great track record.”

Trying to find the silver lining in a cloudy stock market, Farrell offers some recommendations.

Buy Treasury Bonds: Stay with this big winner. Stockholders hate them, but this is a safe haven in the coming deflation storm on into 2011.

Score: Stocks-0. Bonds-1. But if you have to buy securities (stocks), then stick with the income producing genre.

Buy Income-Producing Securities: Still viable. Stock market’s gone nowhere for 12 years, says Shilling. Pick selective income-producers: utilities, drugs, telecoms, hi-grade munis, preferreds, etc. Buy direct or ETFs.

And, as a third investment…

Buy Consumer Staples and Foods: Less volatility than S&P 500. Hey, you gotta eat, brush teeth, wash your clothes. Good bet in good and bad times.

Now, this one is interesting. I’m guessing most people (myself included) don’t fully understand the magnitude of this statement. Why would I buy consumer staples? Because they’re going to get expensive, really expensive. As he referred to above, deflation erodes our purchasing power. Hmm. Now that’s something to think about.

Read the rest of Farrell’s recommendations and cute references to Eat, Pray, Love at

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