South Africa's Rand Makes for Bold Trade

WHAT BEGAN Ayear ago as weakness in select financial stocks has grown into a full-fledged global bear rout that has left virtually no pocket of the equity market unscathed.

Dividend payers and foreign stocks have crumbled alongside high-beta growth names. Indeed, the diversification benefits of international investing are worthless when stocks as an asset class are weak, and the 3% dividend thrown off by products like iShares Dow Jones Select Dividend Index (DVY) are inconsequential when the fund itself drops by 30%. Same goes for covered-call strategies like Madison/Claymore Covered Call & Equity Strategy Fund (MCN) or ING Global Advantage and Premium Opportunity Fund (IGA).

In fact, weakness in major indexes shows just how severe some of the internal damage has been. Beyond the upheaval in banks and financials, there are a ton of well-known and widely owned names at multi-year — and even multi-decade — lows. General Motors' (GM) slump to a 50-plus-year low has received plenty of coverage, but less so has been Home Depot's (HD) retreat to 2003 levels, Pfizer's (PFE) drop to 10-year lows and International Paper's (IP) move back to where it was in 1987.

If you believe, as I do, that long-term strength starts in the short term, then there's simply not much to be excited about right now. Even Japanese stocks like Nippon Telegraph & Telephone (NTT) and Hitachi (HIT), which I continue to own and find relatively appealing, have succumbed to the overall weakness in equities. Nothing is working, save for energy and Goldcorp (GG).

Just about the only positive sign is that the headlines have gotten uniformly dour. Negative stories about oil and the economy dominate the financial press. To that end, the angry bear on the cover of Barron's is actually an encouraging sign.

Still, it's hard to make the case that we've reached a level of extreme pessimism similar to the late 1970s, when Business Week magazine famously announced "The Death of Equities" in its Aug. 13, 1979, issue. And technicians are eager to point out that the market's decline, while severe, hasn't yet culminated in a capitulation sell-off that would indicate a panic bottom.

Markets are constantly changing, and you can be assured that the picture for equities will be very different a year from now. But you need not buy the bottom tick of a move in order to profit from a move. And with virtually nothing working, it would seem the prudent move would be to wait at least a little while longer before diving into the swamp.

Dividend yields aren't the only income options that have been rising lately. Along with stocks, corporate paper of every quality has been hurt, pushing rates up. iShares iBoxx $ Invest Grade Corp Bond Fund (LQD), an ETF that tracks an index of corporate bonds, notched a lifetime low this past week, now yielding over 5%. The high-yield products are tracking lower as well, with iShares iBoxx $ High Yield Corporate Bond (HYG) and SPDR Lehman High Yield Bond (JNK) now yielding over 8% and 9% respectively, along with preferred stock funds like iShares S&P U.S. Preferred Stock Index (PFF) and Flaherty & Crumrine Preferred Income Opportunity Fund (PFO).