JPMorganChase's buy list

Last Friday,JPMorganChase published a list of sixteen stocks that they feel will outperform the general market in a global recession. The stocks were:

3M Co.
Baxter International Inc.
Colgate-Palmolive Co.
CA Inc.
Devon Energy Corp.
General Mills Inc.
Gilead Sciences Inc.
Google Inc.
Hewlett-Packard Co.
McDonald's Corp.
Merck & Co.
Monsanto Co.
Nucor Corp.
Philip Morris International Inc.
Union Pacific Corp.
Visa Inc

There isn't much surprising about this list. They are all megacap stocks with tons of cash on their balance sheets. It features defensive healthcare and consumer staples companies, some energy plays which will act as an inflation hedge, and commodities stocks that have recently hit 52-week lows.

Do not go out and immediately buy these stocks. They are fine candidates for a watchlist, but don't plunk down your hard-earned cash just yet. It's almost certainly too late for any short-term gain from this list. Besides, this is aimed at institutional investors, many of whom have to be fully invested due to the language in their charters. "outperform" is a relative term and not a guarantee of positive returns.

If you're dollar cost averaging into an index fund or a stock that's already on this list, then buy all means, continue to buy and lower your cost basis. However, please don't feel that you have to open a new position in a stock due to the gravity of this flimsy list.

Buffett writes

In today's New York Times Op-Ed page, Warren Buffett has confessed that he is buying U.S. stocks for his personal account. Again, this is his personal account, not the Berkshire Hathaway portfolio, so he's not getting great deals on preferred shares that pay onerous interest rates. As usual Buffett encourages to take a long-term approach to investing and not be scared by short-term fluctuations. Warning: Buffett is a value investor. He is often early, remember he told people to buy equities back in 1979, three years before the last massive bull market began. Being early can be painful, so don't follow this advice and expect that the bottom is in. Buffett doesn't call bottoms. He doesn't call tops. He just buys when he thinks he's getting a deal and sells when people start getting greedy. The economy is still functioning. The rapture is not on the horizon. Don't let yourself be scared out of stocks. Now is a great time to rebalance. Make a plan, revisit your asset allocation, and stay the course.

Nothing lasts forever even cold November rain

September was awful and October is looking worse. Everywhere I look I see stories about the financial crisis and people wondering if we're going to see another Great Depression. I keep hearing people on CNBC talking about defensive sectors and stocks. This is a totally academic exercise when all equities are getting punished.

There is enough pessimism in the market to choke a horse. So have we reached a point of capitulation? I don't know. I don't care. I'm not a trader.

I've been preach for the last year or so that cash, gold, and Treasuries are fine, so I won't repeat those screeds. Today's post is going to be about psychology. The way to survive this market is change your attitude towards it. Start looking for bargains. Goldman Sachs is trading in the low 80s at slightly under book value. When do you think that will happen again? They are not going down. The Fed and the Treasury have decided that they will "bear any burden, pay any price" to keep the remaining big banks alive. Could it go down further from here? Certainly, maybe even probably, but I'll snap up more shares and wait for the storm to pass.

Another name that I'm looking at is Altria. MO is selling at 4x earnings and under a 1 PEG. This is one of the greatest stocks of all time just being given away. It's also got a 7.1% yield. That's a nice chunk of change while you wait for the market to rebound.

GE is selling at single-digit multiples with a 6% yield. SunTrust Bank is selling under book value. In fact, right now, the cash on the balance sheet exceeds the market cap! It's yielding 7.4%. XOM is in the low 60s. FCX has a forward P/E of 3 and has PEG, P/S, and P/B all under 1. I could go on and on.

I can't guarantee that these stocks won't get cheaper or that ten years from now they will have fully recovered. Anyone who bought GM in the 80s when things really started to look bad has been spent twenty years watching things get worse. So there's always risk, but the risk reward ratio is in your favor when you buy blue chips like these that (unlike GM in the 80s) and hold them until the market comes to its senses.

This financial system is battered right now, but we aren't going back to bartering.

Jim Cramer's dramatic statement

These are the times that try men's souls--Thomas Paine

Amy Winehouse is turning to Scientology. Previously unknown Jim Petruzelli TKOs Kimbo Slice. The most shocking event of all though: Jim Cramer is dissing the stock market.

Jim Cramer went on the Today Show yesterday and advised people to take any money out of the stock market that they will need in the next five years. Why? He sees the possibility of a 20% decline in the Dow and wants to help the little guy get out of the way of a runaway train. I admire his sense of noblesse oblige. It is also refreshing to see a money manager that it's okay to raise cash.

Some will see this as a sign of capitulation, not unlike that famously contrarian indicator "The Death of Equities" BusinessWeek cover from August 13th, 1979. Still, I don't think that Cramer is consistent enough to serve as a contrary indicator. He is of the school of whatever's working. Cramer throwing in the towel is him saying, "If I can't figure this out, I doubt if you can." He's just being honest in his exaggerated manner. Most people should not be trying to time the market. They should ride out the markets short-term fluctuations. He just made a compelling case for investing in low-cost index funds, much better than Buffett did with his bet against Protégé Partners LLC.

Shame on you, CNBC

The last year of coverage on CNBC has featured relentless cheerleading. With every downward thrust of the market, we find a CNBC reporter or anchor talking about the wonderful values being created in the wake of volatility. Well, the bargains kept coming. When they weren't encouraging you to snap up wonderful banks at fire sale prices, they were kvetching about the need for a rate cut or anything that might stave off the impending recession. I turned especially negative on the network in the last month, when they could offer nothing but parroting the breast-beating and wailing of their business friends and sources. The media is supposed to be in impartial conduit, not an unofficial mouthpiece. Were you watching the day Lehman went down? It was funereal. Now that they are past the depression phase of grieving, they have moved on to anger.

The vitriol at Congress for not passing the bailout almost comes through the screen. The Democrats could've passed this bill by themselves, but 90 of them voted against it. Americans overwhelmingly hate this deal. Do we need the $700 billion bailout? Yes. Will we get a deal done? Yes. My problem with CNBC is that they have led the charge in panic-mongering and rapping the knuckles of Main Street Americans for opposing the deal. They are doing Wall Street's light work.

Wall Street is like a panhandler who wants to dictate to you how much you should give him and in what denominations. They're going to get their money. They should try to at least appear grateful.

What now?

Uncle Sam is being especially generous. He has tried thrice to throw money at the problem(Bear Stearns, Fannie Mae/Freddie Mac, AIG) and failed. Now he is going to buy any and everything just about. Chairman Cox of the SEC has suspended shortselling in stocks. Of course, the stock market is eating it up. The question you must ask yourself is, "is it over?"

I don't think it is, but I am often wrong. I venture to guess that you are often wrong as well. So what do you do when your investment outlook is ambivalent? Put on some hedges. Raise some cash. I think that gold is great place to be right now. Or take a look at parking your cash in a more stable currency like the Swiss Franc. There are ETFs that allow you do both of these.

In yesterday's Washington Post, columnist Steve Pearlstein wrote that finally the U.S. was being forced by its foreign creditors to live within its means. Today's actions by the government would suggest otherwise. While, I am not as hawkish as Ann Woolner on this issue, I do want to see some bodies strung up. If you're not going to give me any money personally, can't I at least get a fall guy to tar and feather?

Thanks Hank

I needed the Fannie/Freddie bailout during the last week of August, not yesterday. I shorted FNM at $3.99 on 8/21 and ended up covering at $6.18 on 8/27. I shorted FRE at $2.96 on 8/21 and threw in the towel on 8/27, covering at $4.54, They both climbed higher still that week before cratering yesterday.

I knew a government bailout was coming, so why didn't I stick with the trade? It came down to money. First of all, this wasn't my money; it was my girlfriends and I wouldn't have slept well knowing that I'd lost a large chunk of her account on these two trades. Secondly, I was unwilling to sell other positions in order to meet the margin call. That was really, really stupid in retrospect, I have no idea what I was thinking. Shorting takes a different mindset, one that I'm learning to embrace, especially in this market.