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Tuesday, December 10, 2013
"The economy is growing at a speedy 3.6% annual rate!"
"Unemployment is the lowest it's been in five years!"
All the economic news out now is good...
The problem is, "good" news about the economy is typically bad news for the stock market... as I will explain today.
Don't get me wrong here...
I still believe stocks can go much higher from here. It's just that all the good news about the economy is just another sign to me that we're in the later innings of this great stock-market run.
It's true, the news has been good lately... The economic growth number and the unemployment rate are just two of many ways to see this.
The financial media has been positively giddy about this "good" news... You see, newscasters seem to assume that a good economy will translate into higher stock prices. The newscasters' logic is that companies will make more money in a better economy, and that will translate into higher stock prices.
Unfortunately, the newscasters have it all wrong...
Their logic makes sense. But in reality, things don't work out that way...
Truth is, stocks prefer bad times...
Looking back over 60-plus years of data, the best returns in stocks have come if you would have bought when the economy was NOT growing, and held for the next 12 months.
Stocks returned 21.1% per year if you had bought when the economy was NOT growing (when GDP growth was 0% or less) and held for 12 months. (Zero-percent-or-worse growth only happened 12% of the time.)
On the flip side, if you'd bought when the economy was doing great (growing at 6%-plus), then you would have done relatively poorly in stocks... Stocks were only up 5.6% per year when the economy was booming.
So what do you want? A booming economy? Or one in recession?
If you're looking to make money in stocks, you'd prefer a recession. That's when you get the best deals, and you have the most upside potential.
The financial media will keep cheerleading for a booming economy... Little do they know, the big money in stocks doesn't happen when the economy is soaring. You make the big money in stocks by buying in recessions.
We are out of recession now. So based on history, the really big gains in stocks might be behind us this time around...
However, there's still room to run... We are not to the "boom" stage just yet... where the economy is soaring and everyone is excited about stocks – at precisely the wrong time.
I will do my best to let you know when we are in that stage... and when to worry.
We are not there yet! Stay invested!
P.S. We're safe for now... but I've already started to prepare for the next stock-market crash. In fact, I recently attended a closed-door meeting at the New York Stock Exchange... where details of the next crash were revealed. You can get the full story right here.
If you missed the huge run-up in U.S. stocks, Steve has some good news for you... A similar situation is setting up somewhere else. "You have a second chance at making big gains – starting now," he writes. Get all the details here.
WHEN IT COMES TO GOLD STOCKS, "RENT, DON'T BUY"
Today's chart makes the case for a "rent, don't buy" attitude toward gold stocks...
Many investors don't realize it, but gold stocks don't make for great long-term investments. Unlike great businesses like Coca-Cola and McDonald's, gold stocks don't sell brand-name products for premium prices... they sport thin profit margins... and they must continually invest huge amounts of money to replace the reserves they dig out of the ground every year.
Those business attributes make gold stocks one of the market's biggest "boom and bust" sectors. When gold prices rise, gold stocks can soar hundreds of percent. But when gold prices decline, gold stocks can suffer huge falls. That's why we urge readers to see gold stocks as a trading vehicle, rather than a long-term investment vehicle. We say "rent, don't buy" this sector.
You can see what we mean in the chart below. It displays the past 12 years' trading in the benchmark HUI gold index. Since 2002, this index has enjoyed several huge rallies... and suffered several huge falls. These moves can be great for trading, but not great for long-term investors.
In The Daily Crux