Well, here we are... just a couple of days before the dreaded sequester kicks in.
To hear the president tell it, we'll be eating rotten hamburger that costs $7.50 a pound because there won't be enough meat inspectors, and planes will be falling out of the sky due to a lack of air traffic controllers.
To hear the Republicans tell it, if the government doesn't cut $85 billion in spending RIGHT NOW, Treasury bonds will immediately fall to junk status with 7% yields.
House Speaker Boehner says the House has already passed two bills that would avoid the sequester, and Senate majority leader Harry Reid, well, I guess he's still taking his nap...
Why won't anyone tell the truth — that the entire sequester debate is a farce?
I mean, we're talking about $85 billion in spending cuts for a $15 trillion dollar economy.
Will $50 billion out of a $500 billion defense budget really cripple us?
Walter Cronkite and the Twitter Government
There's a lot of blame for “sequester fear” to go around here. It's easy to point fingers at the childish back-and-forth sniping in Congress and the Administration.
I blame the Internet.
The Internet-era media as a whole has been reduced to a clipping service, pushing out headlines and quick blurbs that serve as “news.” (Why read a whole article if you can get the gist of a story from Twitter in just 56 characters?) It's all about being first. Substance is irrelevant.
So, CNN and Bloomberg blast out apocalyptic headlines all day and night, because they're terrified they'll lose your attention and, with it, ad revenue.
This is what the Internet has done to us.
It's information overload. Our appetite for news is now at the fast-food level: quick, easy, and with very little value.
I grew up in the 1970s. Walter Cronkite was on every night in our house. And you're darn right we trusted him. Walter Cronkite had perspective. He had an education. And I always felt he took his job seriously, that it was his sacred mission to deliver the day's important issues to his fellow Americans.
Where would Walter Cronkite be in today's Internet media, where being the first to deliver headlines is goal #1 — insight, accuracy, and perspective be damned?
No doubt he's rolling over in his grave.
American society is grappling to assimilate the information overflow the Internet makes possible: Facts, opinions and outright lies fly at us so fast, the lines are blurred. Which is which? There's no time to wonder, here comes another one!
Overwhelmed, many Americans choose to simply believe what they believe, regardless of new information. So Obama is a socialist born in Nigeria, and Mitt Romney is a polygamist.
I have no doubt that, in time, we as Americans will manage to retake our worldview from the Internet.
But in the meantime, I consider it my sacred duty to let you know how I view the current stock market situation, especially in light of the imminent sequester.
Because right now, many investors are being scared out of profits by what amounts to diversionary tactics. And today I'm going to give you some news you can use about one such profit opportunity...
What are the Fund Managers Doing?
Right now, fund managers are not worried about the sequester. These guys (and gals) need to beat the S&P 500 over the next 10 months.
They are well aware that corporate profits will move further into record territory in the months ahead. They know the housing market is likely to continue to improve. They see the manufacturing numbers getting better.
Mutual fund managers and hedge fund managers know there's $3 trillion in cash sitting on corporate balance sheets. They know there's another $7 trillion sitting in savings accounts, money market accounts, and Treasury bonds. And perhaps most important of all, they know Fed Chief Bernanke is not going to raise rates until late 2014 (at the earliest).
Do you think these fund managers are avoiding stocks because of $85 billion in government spending cuts? Not bloody likely!
I find it much more likely that fund managers and other institutional types are using the current sequester fear factor to work prices up and down while they add stocks to their portfolio.
I'm currently focused on one such stock that is a hedge fund favorite, has been run down better than 10% in the last five days, and has a significant upside catalyst that's just two weeks away...
The stock is Bank of America (NYSE: BAC). It currently trades around $11.10. Just a week ago it was over $12.
Brian Hicks and I recommended Bank of America to our Wealth Advisory readers back in November at $9.10 a share. It's been up as much as 36%. (The total Wealth Advisory portfolio is up 21.72% so far in 2013, after a 19.8% advance in 2012.)
Bank of America is a favorite among the hedge fund crowd; in fact, 23 hedge funds have Bank of America as a top 10 holding.
Why? Because they think there's a lot of value in the stock.
Bank of America has a tangible book value of around $13.50 a share. (That's the “brick and mortar” value, if you sold all the buildings and assets.) The company has been raising Tier 1 Capital at a furious pace over the last couple of years. It has a higher Tier 1 Capital ratio of any large American bank: $128 billion, to be precise. And the market cap is currently $119 billion.
Bank of America has the highest earnings growth forecast for 2013 of any large American bank.
And the Fed releases its latest stress test results on March 7...
Dates to Remember
March 7. That's the day the Fed announces the results of the most recent stress tests. Given the amount of Tier 1 Capital it has raised, Bank of America should be the odds-on favorite to pass.
March 14. This is the big one, when the Comprehensive Analysis and Review (CCAR) is released. This is the analysis by regulators that will decide if BofA is allowed to hike its dividend.
Right now, BofA pays a measly $0.04 a year. Some analysts think BofA will hike the dividend $0.16 a share. We think BofA may be allowed to pay as much as $0.20 a share.
It is this news that will very likely send Bank of America shares above $13...
You will want to buy Bank of America before Friday's sequester nonsense.
After that, it may well be a steady move higher for BofA shares.
An 18-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.