A Dramatic Turn for the Better... Time to Buy Stocks
By Dr. Steve Sjuggerud
Friday, March 20, 2009
In last month's True Wealth newsletter, I laid out our "script" for making money this year...
I told my subscribers to "think of it as a checklist to know what inning we're at in the game and how much longer the game will take."
In short, a month ago, things looked pretty bad. But today, we're back on "script." Based on the script, you want to own stocks, right now. Take a look...
The True Wealth Script for Economic Recovery
• Investment-grade corporate bonds rally first,
• then stocks rally. Around the same time,
• the price of copper recovers.
• The CILI (aka "Silly") Recession End-icator goes up for three months. This is a ratio of "coincident economic indicators" to "lagging economic indicators." Dennis Gartman, one of my favorite newsletter writers, pointed out this indicator has called the end of recessions with remarkable accuracy for 40 years.
• The recession ends.
• Consumer confidence indexes rise.
• Housing begins its recovery.
Corporate bonds are the starting point. They always rally first. LQD is a basket of bonds issued by companies like Johnson & Johnson, Wal-Mart, and IBM. As long as it remains above its lows, we know America's most important companies are keeping up with their debts.
Investment-grade corporate bonds (as measured by shares of LQD) bottomed in October. They're up about 16% since then. They had a nice rally, and they've held it. So Act I of the script is complete. (If shares of LQD fall to new lows, which I don't expect, the script starts over.)
Stocks just got back on script. They fell below their November low, and bottomed on March 9. Stocks are now up 14% since their closing low. That's a big cushion from new lows. I think Act II is complete.
The price of copper bottomed in December at $1.25. Copper is used in automobiles, housing, power lines, electronics, appliances, and just about everything else around you... so its price immediately reflects economic activity. As I write, copper is close to $1.80... That's up 44%! Act III is complete.
That's as far as we've made it in the script. The rest of the indicators don't say that we're out of recession yet. But you shouldn't wait until the end of the recession to buy stocks. Legendary investor Jeremy Grantham explained it best recently:
In June of 1933, long before all the banks had failed or unemployment had peaked, the S&P rallied 105% in six months... The market does not turn when it sees a light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.
To make the biggest gains here, we have to own stocks well before the script has completely played out. Now is the time in the script you want to buy stocks.
Good investing,
Steve
P.S. The April issue of True Wealth comes out after the market closes tonight. Inside, I'll show you exactly what to do with your money right now. I'll share with you specific recommendations for how to take advantage of this "dramatic change for the better."
If you're a subscriber to my newsletter, look for the latest issue in your inbox tonight. If you're not yet a subscriber, click here to get started on a risk-free trial subscription. |
|
THE FED HAS MAGICALLY PUSHED IYF ABOVE $34
Today, we've got an update on our friend IYF. The government just pushed it above our $34 "line in the sand."
As you'll recall, IYF is a basket of America's biggest financial firms... and its November low of $34 per share is a critical level. Watching IYF trade below $34 is like watching a child play in a junkyard... No good can come of it. This week's giant inflation effort boosted investors' faith that America's financial firms will survive... and boosted IYF above $34. Short term, it's a bullish sign for stocks and bonds.
Long term, though, the Fed's big funny-money party is a big problem. It will drag out the painful but healthy destruction of bad businesses and nonperforming loans. It will allow dead wood slow the system for years. And when you get down to the facts, money printing is an immoral theft from society's earners and savers.
But hey, folks... politicians can't worry about the long term. That's for the other guy and the next generation. Politicians have to promise free health care, free mortgages, free credit, and zero carbon to everyone who believes they should be able to vote themselves their neighbor's bank account. That's how you get reelected these days.
 |
|
 |
 |
American International Group funneled over $90 billion of taxpayer bailout funds to various U.S. and European banks, but the biggest beneficiary was politically connected Goldman Sachs Group Inc.
Suspicions of potential conflicts of interest and favoritism have been fueled by $12.9 billion AIG paid to Goldman Sachs – where then-Treasury Secretary Henry Paulson had previously worked as chief executive – in the months after the insurer was rescued by the government last September.
"People see that the guys that ruined AIG are getting paid more money, and that creates outrage," said Porter Stansberry, managing director of Stansberry & Associates Investment Research. "If you want to be outraged, be outraged that the counterparties got paid out full value."
"The person that should be subpoenaed is Hank Paulson. How do you go from running Goldman Sachs in '05 and '06 and making all of these bets with AIG's financial products unit and then end up in the government guaranteeing those bets and not have a conflict of interest?" Stansberry asked.
– Reuters
The Federal Reserve announced Wednesday it will start buying long-term government bonds, its latest step to try to lift the country out of recession.
The Fed said it will buy up to $300 billion in long-term Treasury securities over the next six months.
At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25%. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most – if not all – of next year.
– Associated Press
|
 |
|
|
The Next Big Disaster Will Be Insurance Stocks
Thursday, March 19, 2009
This Major World Currency Is About to Plummet
Wednesday, March 18, 2009
Read This Before You Refinance Your House
Tuesday, March 17, 2009
This is Your Imperative as a Red-Blooded Profit-Seeking Investor
Monday, March 16, 2009
It's Time to Buy into This Rally
Saturday, March 14, 2009 |
|
