Fourth, pundits come on the air all the time and fret about how a weak dollar could hurt the stock market. Ignore them. The weak dollar causes our companies to get acquired at bargain prices by companies in countries with stronger currencies, especially those denominated in euros. Look for major companies like U.S. Steel, Alcoa, Colgate-Palmolive, Weyerhaeuser, and the stumbling Yahoo to be bought in 2007 by overseas entities taking advantage of a declining greenback.
Finally, the ongoing decline in housing and the worries about car manufacturers should cause the Federal Reserve to cut its base interest rate to as low as 4 percent, from its current 5-plus level. That will bring more money into the stock market, where the rates of return will make the risk-free rewards of cash seem paltry.
How can you take advantage of all of this? You can take the shotgun approach and buy your favorites among the above candidates for acquisition. But I think even better is the rifle approach. Pick, to extend the metaphor, the original arms merchants for all of these deals: the investment banks. The teams from Goldman, Morgan and the like will all get fat vigs from these deals.
Some would say it’s tough to come into this market after its double-digit returns. To them I would say, it’s only now that we have gotten back to where we were six years ago. In other words, you ain’t missed nothing yet.