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Tuesday, February 14, 2017
No one is sure of anything anymore – in investing or otherwise...
Last week, Bloomberg reported that "uncertainty is at record highs." But who says uncertainty is a bad thing? History sure doesn't...
Buying stocks when uncertainty is high is a smart move. And that means right now is the time to own stocks.
Let me explain...
Measuring uncertainty isn't easy.
What does "uncertainty" even mean? It's a feeling, not a number.
The folks at Bloomberg came up with one way to track it – news mentions. Here's what they wrote last week...
Yep... According to Bloomberg, news stories are using the word "uncertainty" more than ever. And the data goes all the way back to 1992. Take a look...
This might not be a perfect measure of market uncertainty. It's not specific to markets... just news in general. But it helps prove a simple point about investing:
We want to buy when others are fearful... when there's uncertainty in the market.
Just look at a few points on the chart above...
First, uncertainty hit a new all-time high in mid-1998. That was during the Asian financial crisis when many Asian currencies collapsed. It was an uncertain time, and it caused a quick fall in U.S. stocks.
But the U.S. market then entered an 18-month bull run – leading to roughly 50% gains.
Next, we saw peak uncertainty in the early 2000s as stocks fell from their highs in the dot-com bubble.
This set the stage for the mid-2000s boom. Stocks nearly doubled in five years.
We've also seen uncertainty rise in recent years... It peaked in 2012 just after stocks corrected due to the debt-ceiling debacle. Stocks have soared by more than 60% since then.
I hope you see the pattern here. Uncertainty isn't a bad thing for stocks.
We want to own stocks when things are uncertain. And based on this measure, uncertainty is at a record high.
So for now, the message is clear: We want to own U.S. stocks today.
"If history is any guide, we should expect much higher oil prices," Brett writes. "And 41% gains are possible over the next two years." OPEC is cutting its oil production – and when that happens, impressive returns tend to follow. Learn more here: One Reason Oil Prices Could Soar to $70 in 2017.
We aren't seeing unbridled optimism in stocks today. And that means even after almost eight years, this long bull market still has further to run. If you think bull markets die of old age, check out Steve's essay: The Age-Old, Old-Age Problem in Bull Markets.
IT'S 'BOOM' TIME IN THIS SECTOR
Today's chart features a sector rising with the price of a critical infrastructure commodity...
As longtime readers know, natural resources go through huge "boom and bust" cycles. Get into the booms early and avoid the busts, and you can make big profits. Today, we're seeing this principle at work in the steel industry...
Steel stocks plunged over the last six years as high global production drove prices lower. But after global demand bottomed in January 2016, prices have improved, and the sector has rallied. Not only that, but China's Ministry of Environmental Protection recently proposed steel production cuts to alleviate smog issues in the country... And steel stocks, as measured by the VanEck Vectors Steel Fund (SLX), have spiked.
SLX shares opened 2.5% higher yesterday and are now trading at 52-week highs. Overall, they are up more than 180% from their January 2016 lows. If China follows through with its proposed production cut, steel stocks will continue to "boom"...