Love That Kool-Aid

We'll have the answers just as soon as this uncivil Red/Blue election is out of the way. Common sense and medium-run odds argue that the answer to all of the above is no. But technical charts, ample liquidity and overoptimistic earnings models point to a near-term yes.

What's a prudent 401(k) participant to do? Since the market seems determined to oscillate in a downwardly sloping trading range, it seems especially prudent to profit from up-legs starting near the bottom of that range, like the one that may have begun last week. So after a tranquil six-month hiatus in slowly depreciating cash, I find myself instinctively positioning my portfolio accordingly.

Nothing crazy, you understand. I'm steering clear of domestic growth stocks, even though these high-beta beauties are destined to lead the next speculative ball. The risks for this category seem unnecessarily high, given the possibility of a) a Kerry victory b) another deadlocked election and c) another terrorist attack.

Plus, growth stocks tend to do better in periods of rapid growth (see 2003), whereas the economy seems headed for a quarter, or two, or four, of expansion at a 3% annual rate, at best. And if you expect corporate America to go on a hiring binge in the teeth of a decelerating profit cycle and worrisomely costly oil, then I've got some weapons of mass destruction to show you.

So the first thing I did was to deploy some 35% of my cash into a diversified international fund. This category was very good to me last year, and I expect it to remain a core holding in times when I'm willing to own stocks at all.

Comparing portfolio statistics for the Fidelity Diversified International Fund (FDIVX) and the Fidelity Growth Company Fund (FDGRX) makes clear that overseas growth stocks remain quite a bargain relative to their U.S. rivals. Morningstar shows the FDIVX selling at less than half of the FDGRX price-to-cash-flow ratio, while offering a much more meaningful dividend yield and a comparable long-term earnings growth projection. SmartMoney.com's data, licensed from Lipper, also show the foreign fund with a huge valuation edge over its domestic alternative. Tellingly, this edge holds up even if we compare the foreign fund to an S&P 500 proxy like the Vanguard 500 Index (VFINX).

The massive U.S. current-account deficit must be worked off in one of two ways: either (and preferably) via a sharp depreciation of the dollar, or else through a sharp rise in U.S. interest rates. Neither scenario looks very promising for U.S. stocks, though a dollar slump would at least cushion the pain with an earnings boost for multinationals and other exporters.

With that in mind, I've also coated my portfolio with gold leaf, by devoting a new Roth IRA to shares of the leading gold producer Newmont Mining (NEM). I'd previously shied away from buying individual stocks, in part because my employer requires me to hold them for six months, which can seem like an eternity in our troubled times. But a combination of long-term dollar bearishness and a recent mining sell-off made Newmont just too tempting to pass up. The company has stumbled abroad, hit by pollution controversies in Indonesia and Peru that drove its shares close to a key long-term chart support. The stock has rebounded since, but still seems a bargain hedge against higher inflation and the declining dollar. I'm hoping to add to my holdings on future dips.

But though foreign stocks and gold producers might be desirable long-term holdings, neither would be particularly likely to benefit from a short-term U.S. rally in the event of a clean and decisive presidential election. So I've also held my nose and stuck another 30% of my portfolio into Fidelity Dividend Growth (FDGFX), a dreary bargain bin filled with some of this year's biggest disappointments, from American International Group (AIG) to Fannie Mae (FNM). Microsoft (MSFT), Pfizer (PFE), Cardinal Health (CAH), Wyeth (WYE) and Clear Channel (CCU) also figure among the top 10 holdings. With dogs like these in the fold, the downside seems pretty limited at this point.

Also, Fidelity has not (yet) imposed a short-term redemption fee to dissuade me from dumping this fund at the first hint of trouble, even if that trouble comes in the next 30 days. In periods of subpar market returns, flexibility and dexterity matter, much as the various financial intermediaries would like to turn me into an inert buy-and-holder fattening up their margins.

So here I sit, with 35% of my retirement stash in overseas stocks, 5% in a gold miner and 30% in U.S. fixer-uppers, the latter strictly as a short-term trading ploy. The other 30% is staying in cash, pending better buying opportunities. Now more than ever, owning stocks seems akin to gambling. And there's no reason to bet the farm.