Malcolm Berko

Dear Mr. Berko: I have a $207,000 IRA with good utilities, drug stocks, consumer staples and food stocks that hasnt done much in a market that continues to go higher. Please tell me why the market is doing so well in the face of all the negative economic news. It doesnt make sense. Im tired of watching my supposedly good stocks stand still and would like you to recommend some aggressive issues that can add some excitement to my portfolio. It seems that I am among the few people who are not making money in the market. W.R. Elkhart, Ind.

Dear W.R.. You are among the many folks who are not making money in this market. Lots of folks are not making money in this market; however, they are embarrassed to admit it, so they lie and tell you theyre making it big. Be mindful that investors seldom tell you about their losses, but often boast of their profits and then lie about how much they made.

There are two powerful reasons for the stock markets success. The first is that the Fed is printing money (close to $4 trillion by the end of 2010) that is flooding the market with liquidity. However, this liquidity is not inflationary (yet) because the banks are not lending. And because it doesnt make sense to allow those trillions of dollars to collect vault dust, they are being used to buy securities.

Now, the value of the 3,066 NYSE issues is $14 trillion. Because the $4 trillion sloshing in the economy represents 30 percent of that $14 trillion in stocks, its no wonder the market reached new highs. But folks like us are not the ones benefiting from a rising Dow; rather, the money center banks and their good old boy pals are profiting. Thats the American way.

The second reason for the Dows climb is low interest rates. Basically, interest is the cost one person pays to use another persons money. The Fed keeps rates low by overwhelming the economy with new money. Because the economy is flooded with cash, and borrowing costs are near zero, investors are more willing to assume extraordinary risks. So in the face of terribly high unemployment, crashing home values, a seriously sick mortgage market, nearly non-existent bank loans, unparalleled real estate foreclosures, a record deficit and national debt, the collapse of municipal pension funds, a state debt crisis, a do-nothing Congress, a shaky European Union, oil exceeding $80 a barrel, a possible decline in our GDP and corporate earnings for the coming quarter what other reason could there be for higher stock prices?

If you want some action, I recommend that you use $30,000 (15 percent of your $207,000 IRA) and invest $6,000 in each of the following issues. They may give you good exposure to potentially high returns. Vanguard Emerging Markets (VWO-$47.26) tracks the 748 common stocks in the MSCI Emerging Market Index. Barclays Capital High Yield Bond (JNK-$40.31) has a $5 billion portfolio of junk bonds and yields 10.80 percent. Neuberger Berman Real Estate (NREAX-$10.70) owns a variety of REITs and property development firms. Gateway Fund (GTECX-$25.55) writes puts and calls against the S&P 500, as well as a basket of similar issues. Akre Focus (AKREX-$11.68) is a small, aggressive mid-cap fund. And Pimco EqS Pathfinder (PTHDX-$9.93) is run by two managers who are good at finding low-priced foreign stocks.

Unlike your utilities, drug and food stocks, these six issues participate in a wide spectrum of choices, giving you a little more zip for your do-dah. And Ill give you a guaranteed maybe that they will continue to do so as long as the market continues to move higher.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at mjberko@yahoo.com .

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