Pensions, the public sector and the euro are no-go areas.
Most tipsters like to recommend stocks to buy, rather than to sell. Most analysts and fund managers like to highlight sectors and markets that are set to perform strongly, rather than flag.
Fair enough, but in these troubled times, it is also worth highlighting some areas to avoid. I've come up with three of them, and I'm sure there are plenty more.
Companies with big pension bills
As Phil Oakley writes here, debt is the enemy of the equity investor, especially when the economy is depressed. If we tip into deflation, debt becomes a deadly enemy.
In July, Pension Capital Strategies warned that a growing number of FTSE 100 companies are at the mercy of their pension schemes. Ten companies have total disclosed pension liabilities greater than their equity market value, and in the case of British Airways (LSE: BAY), BT (LSE: BT-A) and Invensys (LSE: ISYS), more than double their market value.
In its report here, Pension Capital Strategies names the 15 FTSE 100 companies with the most significant pension scheme liabilities, a list that also includes BAE Systems (LSE: BA), National Grid (LSE: NG), Aviva (LSE: AV), Royal Bank of Scotland (LSE: RBS), RSA Insurance Group (LSE: RSA), Lloyds Banking Group (LSE: LLOY) and Rolls-Royce (LSE: RR).
Deflation will only make a bad situation worse, because debt spirals in real terms, whereas inflation whittles it away. Some analysts fear we are on the brink of serious deflation, others predict rampant inflation, while some think we will get both. If you're in the deflation camp, check the pensions liability and other debt levels across your portfolio, to see how heavily you are exposed.
Don't expect many of your holdings to be in positive territory. Only five companies disclosed a pension surplus in their recent annual report and accounts, while 80 disclosed deficits. In the past 12 months, total disclosed pension liabilities across the FTSE 100 have risen from £378 billion to £434 billion. Worst offender BT has disposed pension liabilities of a whopping £43 billion.
Debt is never attractive at the best of times, and these aren't the best of times.
Companies with public sector exposure
We all know the public sector is heading for a vicious bout of slash and burn, but it's easy to forget that this will also send many private companies crashing down in flames.
The coalition Government's austerity measures are already leading to corporate failures and job losses, even before the pain has really begun. The number of businesses supplying goods and services the public sector going bust has leapt 47% in the last year, according to accountancy firm Wilkins Kennedy.
In the first six months of this year, 168 businesses in the health and social services, education and defence sector went bust, up from 114 in the first six months of 2009. Yet corporate insolvencies as a whole actually fell by 5% over the same period.
Wilkins Kennedy points out that a "private sector ecosystem" has grown alongside a rapidly expanding public sector over the last 15 years, but now the good times are over, recruitment, outsourcing construction and marketing companies in particular are feeling the pain, and the public sector spending review in October will only up the agony. It isn't just the cuts, hanging around for spending decisions does just as much damage.
Businesses already suffering include social housing group Connaught (LSE: CNT), consulting and business services group Mouchel (LSE: MCHL), care home operator Southern Cross Healthcare (LSE: SCHE), schools IT company RM Group (LSE: RM) and Cable & Wireless Worldwide (LSE: CW), which issued a profit warning in June following the first announcement of cutbacks.
Euro-based investments
Currency movements are notoriously difficult to call, but I can't see much good news in the pipeline for the euro zone. The EU's €750bn shock and awe rescue package may only have delayed the inevitable, as the GIIPS (the polite term for PIIGS) continue to splash and flail in a sea of debt, and drowning looks ever more likely.
There is one great reason to invest in Europe, of course, and that's Germany, which is benefiting from a massively undervalued currency relative to its economic strength. I bet Japan wishes they had the euro right now, as its exporters battle to survive the rising yen. On second thought, I'm sure they don't.
Northern and southern Europe are two very different fiscal fiefdoms, chained together by the same currency. It's a marriage made in hell, and if it doesn't end in divorce, they will only continue to make each other's lives a misery.
Sterling has already risen against the euro, and now trades at €1.22 against lows of €1.13 back in January, when I expressed the contrarian view that The Pound Will Rebound. That's a rise of more than 8%. Caxton FX expect to see the pound hit €1.25 or even €1.27 this year.
Others disagree, and continue to back Europe. Last week, Nomura said company earnings and currency momentum has recently favoured the UK but that is set to reverse in favour of continental Europe, especially after Chancellor George Osborne's cost-cutting blitz kicks in.
So maybe I'm wrong, and maybe Germany will agree to let southern Europe inflate its way out of its debt worries, but I believe the euro zone sovereign debt crisis still has a long way to run.
More from Harvey Jones:
> Harvey has an interest in Aviva, RBS and Lloyds.
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