5 reasons to invest in 2012

Thu Jan 19, 2012 11:05am EST
 
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By John Wasik

(Reuters) - If you want to be optimistic about investing this year - and there are plenty of reasons to be - you need to understand the tale of two economies.

One narrative is the recovering U.S. economy: Robust corporate profits, increased manufacturing, slightly more hiring and continued global demand. The other story tells of a hobbled euro zone, a possible slowdown in China and the prolonged misery of the U.S. housing market.

Which tale do you choose to believe? I'm loath to forecast which scenario will dominate because both will play out in varying degrees. The euro zone downgrades last week(link.reuters.com/pyw95s) are certainly going to reverberate in the markets, so if you're over-exposed to European debt and stocks, pare back. In any case, you should be upgrading your portfolio to grab growth and income while reducing risk.

Keep in mind that my observations are not predictions and based on my Totally Oscillating Algorithmic Sentiment Trends (TOAST) strategy. That is, things change quickly and you need to figure out how much money you can afford to lose in an ever-volatile market. Here are some trends worth noting:

1. HOUSING

Housing will still be hurting, but could be jump-started. While Ingo Winzer's National Economic Outlook (www.localmarketmonitor.com/) is generally optimistic, he doesn't see a U.S. housing rebound. "The evidence is now pretty clear that a sustained economic recovery is underway, although housing markets won't feel much benefit until next year," Winzer writes.

He sees rough patches where there's poor local economic health in Atlanta, North New Jersey, Fresno, Indianapolis, Kansas City and Philadelphia. This could change if the White House, the Fed and banks allow widespread refinancings or principal writedowns for underwater homeowners or those in foreclosure. Mortgage rates are still at generational lows.

2. STOCKS SHOWING A BUY SIGNAL.   Continued...