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Stocks Are Near All-Time Highs... But It's NOT Time to Sell

By Dr. Steve Sjuggerud
Thursday, January 31, 2013

Oh, man, this sure seems scary... doesn't it? 
 
•  
Stocks are near all-time highs.
 
•  
Individual investors are suddenly piling back into the markets (for the first time in over a dozen years).
 
•   Stocks are on track for their best January since the 1980s.
 
The news in the U.S. stock market is all TOO good. Is this the top in stocks? Heck, shouldn't you expect a correction in stocks, at least? 
 
History says "yes." But I disagree...
 
I think stocks will ultimately soar to higher levels than anyone can imagine thanks to the Bernanke Asset Bubble...
 
History makes a strong case against me... Let me briefly explain: 
 
The main index of stock prices (the S&P 500 Index) is near all-time highs, above 1,500, as I write. Stock prices have made it above 1,500 just twice in the past. And both times, it ended badly...
 
In March 2000, at the peak of the dot-com bubble, the index poked its head above 1,500. Exactly one year after that peak, the index was more than 400 points lower. Investors got hammered.
 
In October 2007, it climbed above 1,500 again. Then the credit crisis hit. Less than 18 months later, stocks had lost over half their value. The index fell from over 1,500 to below 700. Investors got hammered again.
 
And now, here we are once again... The index has poked its head above 1,500. Stocks have soared, up over 100% from their 2009 lows.
 
Is this the top? 
 
Is the Bernanke Asset Bubble that I've been writing about for years finally peaking, right now? 
 
I don't think so.
 
Seriously...
 
I think the market will ultimately go much higher from here – higher than anyone can imagine, believe it or not.
 
I have been saying that for years. I've been explaining that Federal Reserve Chairman Ben Bernanke's zero-percent interest-rate policy and enormous money printing will fuel a "bubble" that will propel asset prices higher.
 
I've been right so far. And importantly, thanks to Bernanke, the conditions that will cause stock prices to keep going higher are still in place.
 
An interest rate hike by the Federal Reserve will be your first sign that we are getting into late innings in this great bull market. And I know Bernanke will raise interest rates at some point. (It could happen even sooner than he has promised.)  
 
But I don't expect him to raise rates soon. And even when he does, I expect stocks will continue to rise for a while.
 
Let me briefly explain these two things...
 
Bernanke will raise interest rates... 
 
•  
Once it appears that economic growth is roaring (it is currently falling, the latest number was -0.1%)...
 
•  
When it appears that unemployment has fallen to a reasonable level (it has not yet)...
 
•   Or when it appears that inflation is getting out of control (inflation was a modest 1.7% in 2012).
 
So in short, Bernanke has no need to raise rates – for a while.
 
And even when he does raise interest rates, investors will be excited... at first.  
 
You see, rising interest rates will be an indicator that our economy is getting better... that we have exited our slump that started with the credit crisis and the housing bust. And when the economy is getting better, corporate earnings will get better, fueling higher stock prices.
 
Yes, stock prices are near all-time highs. But we have plenty of room to go higher...
 
Today is a lot different than the dot-com bubble of 2000, for example. Back then, EVERYONE was in stocks, and stocks had become outrageously overpriced.
 
Today, neither of those are the case.
 
I fully expect individual investors will continue to pull money out of banks and bonds, and put it into the stock market, driving stocks to levels higher than anyone else is talking about.  
 
It is simply a rational response to our zero-percent-interest world.
 
I could go on and on. Hopefully, you get the idea...
 
The Bernanke Asset Bubble is still in place. It could ultimately turn out to be the greatest bubble in the history of investing.
 
We will of course experience corrections in stock prices along the way. But you don't want to bail on the Bernanke Asset Bubble yet... This is only "middle innings" – and the biggest gains come in the last innings.
 
So please, don't sell yet... the best of it is still in front of us.
 
Good investing, 
 
Steve




Further Reading:

"At first, the 'Bernanke Asset Bubble' was mostly a U.S. thing," Steve says. "But by mid-2012, 'Bernanke Fever' began to sweep the world. That's handed us our investing playbook for 2013, and set us up for even bigger gains..." Learn more about this once-in-a-lifetime opportunity here: Our 2013 Investing Playbook: The Global Bernanke Asset Bubble.

Market Notes


GOLD STOCKS ARE READY TO RIP HIGHER

Traders take note: Gold stocks are ready to "rip" higher...
 
Longtime readers know we're fans of trading gold-mining stocks. Gold miners aren't great businesses to hold for the long term. But they do experience short-term booms and busts... which can be traded for quick profits.
 
The right time to buy gold stocks is when everyone hates them... and when they are "overstretched" to the downside. The sector is down 20% from its September high... and many of the "golds" are hitting 52-week lows. The sector is hated. And as you can see from the chart below, it's overstretched to the downside.
 
Today's chart shows the ratio of the big gold-stock fund (NYSE: GDX) against the price of the big gold bullion fund (NYSE: GLD). The declining line shows gold stocks are getting cheaper relative to gold itself. Due to the recent selloff, gold stocks have hit a multi-year low against gold. It's just a matter of time before they "pop" back higher.
 
– Brian Hunt
 
 Gold Stocks (GDX) Vs. Gold on the Three-Year Chart

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