Despite Market Doldrums, Some Sectors Shine

Oracle (ORCL) and Sun Microsystems (JAVA), for example, are two large-cap technology stocks whose correlation has broken down in recent months. A rising tide tends to lift all boats, and in the midst of a roaring technology bull market, these stocks moved in near lockstep. But when the asset class, namely Nasdaq, is rather trendless, you've got to be more cognizant to pick the right horse, in this case Oracle.

A similar pattern can be observed in shares of General Electric (GE) and IBM (IBM), both members of the Dow Jones Industrial Average. Obviously the companies operate in two varied industries. But for asset allocation purposes they are often classified in similar fashion: large-cap, blue chip, multinational stocks. When those stocks are in favor, as they were in 2006 and 2007, just about everything of that ilk enjoyed a bid. In the absence of a clear bull market, however, stocks that "should" move together often diverge based on their own economic realities.

It's for this reason I believe one is advantaged by focusing on sectors or investment themes with uniformly strong price action as opposed to finding the proverbial needle in the haystack.

For example, the recent outperformance of coal stocks has been accompanied by a broad rise in the entire group. From Arch Coal (ACI) to International Coal (ICO) to Fording Coal Trust (FDG), it's tough to pick a loser when an entire sector is on the move. The same thing goes for railroads like Burlington Northern Santa Fe (BNI), Union Pacific (UNP) or Kansas City Southern (KSU). All are uniformly strong.

After a lifetime of work in show business, McMahon had at one point amassed a fortune, including real estate holdings estimated at $200 million. Details are sketchy, but one would assume that if he had the liquidity available he'd likely be keeping his mortgage paid. The house is now on the market for $5.75 million. (See the listing.)

It's worth nothing that, given the altruistic populism now fashionable in politics, it's not inconceivable that public tax dollars could somehow end up bailing out McMahon, a wealthy man who, in an election season, is just another honest, hard-working American voter caught up in the subprime crisis.

What makes his financial difficulties even more surprising to me is his age: McMahon is one of the shrinking number of Depression-era entertainers whose memories of economic hardship should have fashioned a lifetime of prudent saving and living beneath one's means. You'd expect Michael Jackson to blow his fortune...but Ed McMahon?

Roughly 9,000 banks failed during the 1930s. And although we're nowhere near a Depression in this modern era, the recent price action in regional banks like Webster Financial (WBS), Regions Financial (RF), Huntington Bancshares (HBAN) and SunTrust Banks (STI) would suggest that just as the previous generation born into tough times is passing on, a new one is likely just coming of age.

The perilous state of many U.S. financial institutions suggests, at the very least, bank failures are set to rise sharply. Combined with increased foreclosures and a weaker currency, it's likely a new generation of Americans will soon learn the same prudence and economic conservatism their grandparents grew up with.

Hitachi (HIT), Nippon Telegraph & Telephone (NTT) and Ricoh are among the names worth a good look along with low-profile funds such as WisdomTree Japan SmallCap Dividend (DFJ) and WisdomTree Japan High-Yielding Equity (DNL), both of which which focus on high-yielding Japanese names.

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Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund held positions in many of the securities mentioned.