2011 Starts with a Bang!
What a day for stocks! The stimulus for today’s action is clearly Bank of America (NYSE: BAC) and it’s settlement with Fannie Mae and Freddie Mac over mortgage put-backs. The stock shot up 6%. The BAC settlement was for $2.8 billion but many analysts have pegged the put-backs as high as $10 billion. Although the settlement doesn’t completely get BAC out of trouble with Fannie, it’s a very good start and removes a cloud of uncertainty with large banks.
There’s nothing worse the market likes than uncertainty — it’s even worse than bad news. As we go into 2011, I believe a lot of uncertainty that’s kept the retail investors from taking money out of bonds and putting it back into the stock market will be removed. So all of this bodes well for stocks — but be selective about what you buy.
There are still sectors I don’t like and there are definitely bubbles building up. For example, rare earth stocks have skyrocketed in the past 2 months and it may go much higher. Companies like MCP are ones to keep a very close eye on and you’ll want to bail on at the first sight of trouble. Silver, Gold and even uranium stocks are at or near 52-week highs. You’ll need to be very careful with stocks in those sectors because of the volatility. If you want to dabble in volatile rare-earth stocks, I would suggest General Moly (NYSE: GMO) or Lynas Corp (OTC: LYSCF.PK) — which hasn’t had nearly the kind of run-up that MCP has had — but are viable players in the rare earths market.
Lastly, I wrote about BAC back on Oct 21st when the stock was trading at $11.75. It closed today at $14.19. I still like it very much all the way up to $16-$17. I think at $17, you’ll need to take some profits but I would not blame you if you kept it in your portfolio for all of 2011. It’s going to be a nice stock to own when they start raising dividends and when all the clouds of uncertainty evaporate.
Ok, that’s it for now. Happy New Year and happy trading — and as always, do your own due diligence!
