After witnessing a major rally following the Bear Stearns Cos. bailout in mid-March, investment grade corporate credit spreads have risen to multi-decade highs this summer.
Long-term value investors should consider nibbling at these levels because interest rates for many bonds in the non-financial sector now pay attractive inflation adjusted yields.

When the bulls rule, it’s pretty easy to make money in the stock market. That was the case from 2003 until mid-2007. But when the bears come out of hibernation, it’s a very different ballgame.

Since stocks peaked last October global markets have plunged more than 20%. Some bourses in the emerging markets are down more than a third; Chinese stocks have crashed 53% from their best levels last fall, Indian shares are down a third and Russian stocks more than 25%.

The world continues to consume more oil than it can currently supply. The ongoing correction in crude oil prices is opening the door to one of the best entry points for investors in more than three years as most companies trade at or near their 52-week lows and pay some fat dividends in excess of the broader market and Treasury bonds.

The world is not heading into an economic recession and investors should accumulate depressed energy shares now ahead of a major bottom.

Poor Correlation on the Way Up

July 15 increasingly looks like an intermittent or possibly even a bear market low for U.S. equities. Judging by the technical picture painted by homebuilders, real estate investment trusts (REITs) and the U.S. dollar, investors might finally make some money in the stock market over the next several months.

But before getting too hot and heavy consider the state of credit.

If U.S. equities badly trailed international stock markets over the last ten years then it’s quite possible the opposite might be true over the next several years. This is especially the case if the dollar can stabilize from current levels and continue to mount a modest rally.

For the first time this year gold prices are breaking important technical support levels and might decline below $800 an ounce before this painful correction is over. Worse, gold stocks have collapsed since July and now sit at the same levels compared to two years ago.

Since July 15 when U.S. markets hit another intermittent low amid the ongoing credit crisis, the Dow Jones Industrials Average (Dow) has gained 7.2%. But over the same period the most important credit indices have posted declines while others have logged marginal gains. Overall, the broad trend in credit has not been bullish since mid-July, suggesting stocks are luring more investors into another bear market trap.