Now Is Not The Time To Be Aggressive (DD, GIS, PEP, K)

Yesterday, the existing home sales number came in much worse than expected, delivering a 2.2% decline compared to analysts' estimates of a 6% increase. Today, the new home sales number delivered another bombshell, dropping a record 32.7% in May to the lowest level in at least four decades. To be fair, a significant contributing factor in the decline of home sales is the expiration of the first-time home-buyers tax credit, but observers had not anticipated such a precipitous decline. Single family home sales tumbled to a 300,000 unit annual rate, which is the lowest level since the series started in 1963. "The previous two months were revised down, so the lift from the tax credit was less than we previously realized. We are getting a little nervous," said David Sloan, an economist at 4Cast in New York. It is starting to look increasingly likely that their will be a double dip in housing, which may threaten the entire economic recovery. Today, The Federal Open Market Committee is set to release its rate decision and accompanying statement on the outlook for the economy and inflation at about 2:15 p.m. EDT. Ahead of this report, the markets have been surprisingly stable, with the Dow falling only around 3 points to 10,290. In light of the problems in housing, and other bearish leading indicators, however, investors need to reduce risk right now, at least in the near term. Now is not the time to be aggressive. Another downturn in the housing market has the potential to rock the markets, which are already reeling in light of the European debt crisis. Furthermore, if there is not a meaningful uptick in unemployment, another recession could be on the horizon. In particular, the consumer discretionary and financial sector could be in for precipitous declines in the coming weeks and months. Investors looking to protect themselves should focus on raising cash, gaining exposure to gold, and allocating capital to high-quality, dividend paying, defensive stocks. Among the names to look at are DuPont DD, a blue-chip with a 4.42% dividend yield, General Mills GIS, PepsiCo PEP, and Kellog Company K, to name a few.