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The biggest investment bubble today may involve one of the safest asset classes: U.S. Treasuries. Yields have plunged to some of the lowest levels since the 1940s as investors, fearful of a sustained global economic downturn and potential deflation, have rushed to purchase government-issued debt.
"Get out of Treasuries. They are very, very expensive," Mohamed El-Erian, chief investment officer of Pacific Investment Management Co., warned recently. Pimco runs the country's largest bond fund, Pimco Total Return.
Treasuries offer little or no margin of safety if the economy unexpectedly strengthens in 2009, or the dollar weakens significantly, or inflation shows signs of reaccelerating. Yields on 30-year Treasuries easily could top 4% by year end.
The counterfeiting syndicate was huge. It had a larger production facility than Microsoft has in Europe, the Middle East, and Africa combined. The group distributed fake copies of 19 Microsoft products in 11 languages and 36 countries.
It's a long-held joke (with a great deal of truth in it) that there was only one legal copy of Windows in China, and all the rest were pirated. Microsoft's competitive advantage is that it's the incumbent operating system of choice, and that its products are well protected by U.S. intellectual property law.
Now that China is showing some respect for Microsoft's intellectual property, the company should make a lot more money in that country going forward. In addition to its competitive advantage, Microsoft has a pristine, triple-A balance sheet and gushes free cash flow.
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By Tom Dyson Monday, January 5, 2009 This 27-Year Bull Market Ended Last Wednesday -
Where to Find the Best Deals in Gold Bullion
By Jeff Clark Saturday, January 3, 2009 Where to Find the Best Deals in Gold Bullion -
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By Dr. Steve Sjuggerud Friday, January 2, 2009 A True Story: It Happened to Us... It Could Happen to You -
Why January 20 Is Next Year's Most Important Date For Investors
By Tom Dyson Wednesday, December 31, 2008 Why January 20 Is Next Year's Most Important Date For Investors -
A Scary Lesson from Christmas Break
By Dr. Steve Sjuggerud Tuesday, December 30, 2008 A Scary Lesson from Christmas Break
This Year's Triple-Digit Trade
By Dr. Steve SjuggerudTuesday, January 6, 2009
When emerging markets get going, they can go nuts. I think 2009 could be one of those "nuts" years for emerging-market stocks...
When I started my career in 1993, I specialized in international stocks, particularly Asian stocks.
The "king" back then was a guy named Mark Mobius. He ran the Templeton Emerging Markets Fund (he still does). Check out some of the returns on Mobius' fund over the years:
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Mobius just about doubled investors' money in four different years. In three of the four years before Mobius doubled his investors' money, his fund lost value.
Last year was the fund's worst year ever... It lost over half its value. Emerging-market stocks in general lost more than 50% last year. Now they're cheaper than ever.
Importantly, they're cheaper today than they were before each of those near-triple-digit runs above.
When emerging-market stocks get cheap, they're usually on the brink of disaster. They've borrowed too much and then they have a massive currency crisis. But right now, emerging-market countries are in surprisingly good shape.
To show how cheap emerging markets are, and how much money you can make, take a look at this table of Hong Kong stocks I published in a recent issue of True Wealth:
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As you can see, in late 2008, Hong Kong stocks got as cheap as they've been in the last 25 years. Back in 1984, Hong Kong stocks were cheaper... and they rose over 100% in just 12 months.
It's time to get exposure to emerging-market stocks, if you don't already have it. Investors have doubled their money when the time was right.
It's happened before... and we have the conditions right now for it to happen again.
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
THE EMERGING-MARKET TRADE IS BREAKING OUT
Another note on the "long emerging markets" argument... we're seeing breakouts all over the place.
A "breakout" is a simple tool you can use to make a fortune trading stocks, currencies, and commodities. It's when an investment's price action changes course and goes from terrible to good... and it's often a great signal to buy a beaten-down asset. Let's take a look at the past year in the Brazilian ETF (EWZ) to see what one looks like.
Brazil is loaded with rich farmland, fresh water, iron mines, and oil deposits... so its stock market moves up and down with the price of commodities. It's also a speculative emerging market, so it got crushed last fall. It fell from $100 a share to $30 in just five months.
But as you can see from today's chart, Brazil is breaking out of the trading range it's been in since October. The selling pressure is exhausted. Shares are moving back up as buyers return to the market. It's not just Brazil... most emerging markets are behaving the same. This rebound trade is looking good!
