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The Time for 500% Gains Has
Finally Arrived

By Dr. Steve Sjuggerud
April 8, 2008

On January 9, 2006, shares of homebuilder Beazer Homes closed at $80.95.

Exactly two years later, on January 9, 2008, the shares closed at $4.99 – a fall of 94%.

"They've fallen that much, eh?" legendary speculator Doug Casey said last week at our private gathering on Jekyll Island. Even Doug – who's made a career out of making hundreds of percent returns on left-for-dead investments – didn't know they'd fallen this far.

If Doug didn't know they'd fallen that far, then most investors don't know it.

Here's the thing... Not only did homebuilders get obliterated... they're coming back. Shares of Beazer have already more than doubled since January 9.

Homebuilders have a history of getting obliterated, then and making ridiculous gains. You just need to know when to buy them. I'll give you a hint... You buy them now!

The Datastream Homebuilders Index started on January 2, 1973, at a value of 100. By the end of 1974, the Index stood at 13. Shares of homebuilders as a group had lost 87% of their value in two years. (Sounds like Beazer Homes now!)

As the chart shows, shares of homebuilders jumped from 250 to 1,600 – more than 500% – after the 1982 recession. They jumped 500% again – from 400 to 2,000 – as we came out of the 1990-1991 recession. The big gains come quick... It takes about two-and-a-half years.

Here are the biggest worries I hear from people who are reluctant to invest in homebuilders: "There's simply too much supply of homes." And "Consumer confidence is terrible."

Funny thing here, though... When these two things are terrible, it's the perfect time to buy shares of homebuilders.

Take a look at the chart of consumer confidence:

When consumer confidence crashes, homebuilders soar
UltraShort Oil & Gas ProShares

When consumers are worried, homebuilders start to take off. You can see a similar effect with when the supply of new homes is high...

Extraordinary gains come when new home supply peaks
UltraShort Oil & Gas ProShares

The reason these two indicators work is quite simple. When things look terrible, people sell their homebuilder shares. But when the outlook goes from bad to less bad, the shares soar. (Longtime readers know I believe The Secret to 1,000% Gains is to buy when things go from bad to less bad. We're there now!)

Everyone thinks it's the end of the world. Meanwhile, you've got every government agency in Washington trying to save the homebuilders. A phrase I've heard a lot recently is Washington is "Socialize the losses, and privatize the profits."

Whether you agree with that policy or not, homebuilders will be a huge beneficiary. In other words, things have gotten less bad in the homebuilders.

Related Articles

Profiting from the Fed's Secret Meetings

Buy Stocks Now: It's a One-Way Bet

Homebuilders are incredibly cheap (down 90% in some cases), they're hated, and now we've got a definitive uptrend!

I can't say it much more emphatically... If you're interested in hundreds of percent gains over the next two to three years, it's time to buy homebuilders!

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.

Sign up today to read more investment ideas from Steve Sjuggerud.

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THE BEST WAY TO LOSE MONEY IN STOCKS RIGHT NOW

After a long search yesterday, your editor in chief found the No. 1 way to lose money in stocks right now: betting against oil.

The past few years have seen the rise of ETFs that allow speculators to make bets against sectors like energy, technology, and financials. A recent entry to the game is the UltraShort Oil & Gas ProShares (DUG).

ProShares introduced this "inverse fund" in February 2007. It makes big money when oil stocks fall and loses big money when oil stocks rise. Since inception, this bet against ExxonMobil, Transocean, and Schlumberger has plummeted. The current rally in all things related to oil, coal, and natural gas has sent the fund to an all-time low.

All assets boom and bust, so we're sure this fund will be a winner someday. For now though, DUG is getting battered the old fashioned way: going against the trend... in this case, the trend of record cash flows moving toward the companies that dig, drill, refine, and transport fossil fuels. Take that, tree huggers.

UltraShort Oil & Gas ProShares


Citigroup Inc., the largest U.S. bank by assets, is seeking as much as $5 billion for its first infrastructure fund as the company targets utility and airport assets, three people with knowledge of the plan said.

Securities firms are looking to satisfy investors' appetite for investments in toll roads, airports, and ports, which typically provide predictable revenue even when economies sour.

Credit Suisse Group, Goldman Sachs Group Inc. and UBS AG are among banks which started such funds in the past two years as the pace of infrastructure mergers almost doubled to $340 billion between 2005 and 2007, according to data compiled by Bloomberg.

– Bloomberg

Global economics and the housing bust are throwing a relentless string of problems at the mom-and-pop sawmills and logging companies that make up much of the nation's hardwood lumber industry.

Large furniture makers have abandoned the U.S., a growing number of raw logs are being shipped overseas for processing, and changing consumer tastes and construction downturns have slashed demand for hardwood flooring, trim and red oak, long the dominant species.

The result has been rising unemployment for forestry workers and a sharp decline in hardwood production. Government statistics show production has dropped from 12.6 billion board feet in 1999 to about 10.7 billion last year.

U.S. Forest Service economist Bill Luppold expects production to dip further, to perhaps 10.5 billion board feet or less this year.

"I don't even think the numbers demonstrate how bad it is," Luppold said. "We haven't seen this amount of decline year in and year out since the early part of the (20th) century."
– Associated Press

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