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    Where We Are Now In Our Stock Market ‘Script’

    Our stock market "script" is still on track.

    I’ve been calling it the "Great Migration." As my regular readers know, it is the idea that Mom and Pop America are about to buy stocks… big time. They can’t live on zero percent interest. Out of necessity, they will migrate away from ultra-low-interest investments (like cash and bonds) and into stocks.

    And that will kick the market into a major boom phase.

    Our investing script is a three-act play. We’ve already made some pretty big gains in "Act I." And I keep looking ahead to "Act II." But we’re not there yet. Let me update you on where we are today.

    The "Bernanke Asset Bubble" is shorthand for my long-term theory that asset prices — namely U.S. stocks and U.S. housing prices — can and will soar to unimaginable heights, thanks to the Federal Reserve’s commitment to printing money and keeping interest rates at zero for years.

    The first stocks Mom and Pop America will buy when they migrate out of cash are the big dividend-paying blue chips: big-name stocks like Johnson & Johnson, Pfizer and Merck. That’s Act I.

    Mom and Pop have stuck with this trade. And so have my True Wealth subscribers. They’re up 124 percent on these stocks through the ProShares Ultra Health Care Fund (RXL). RXL’s largest holdings are Johnson & Johnson and Pfizer, each making up more than 10 percent of the fund.

    We’re well into Act I. But I keep looking ahead to Act II and Act III, where Mom and Pop will take on more and more risk. I keep thinking that we must be near the end of this period of "safe" stock-buying, as these stocks have run up a lot.

    Our script says the next step for Mom and Pop — Act II — will be to take on a bit more risk and buy Big Tech stock names (like Apple). I still believe these stocks will be the next to soar. But that hasn’t happened yet.

    Big Tech stocks are dirt cheap today. The median forward price-to-earnings (P/E) ratio of the top eight holdings of the Dow Jones Technology stock index is just 11. That’s crazy cheap. And it gives us an enormous upside opportunity when Big Tech stocks finally take off.

    While I’m personally looking forward to Act II getting underway, we’re not there yet. Safe, dividend-paying healthcare stocks are moving higher, while technology stocks are still behind.

    Once Act II is in full swing and Mom and Pop see profits on both their big safe names and their Big Tech names, they’ll really start to get back into the stock market. Once they start to believe that they can’t lose money in stocks, we will move on to Act III in our script.

    In Act III, Mom and Pop start buying speculative stocks, like emerging markets (such as India and Russia) and small mining companies.

    Today, the Act III trades are incredibly cheap.

    Take emerging markets, for example. The table below shows just how cheap the Act III emerging-markets trades are right now.

    Country

    P/E

    Dividend Yield

    P/Book

    Russia

    6.8

    3.9%

    0.7

    India

    11.2

    1.6%

    0.7

    China

    12.7

    2.1%

    1.9

    Based on history, we have a legitimate shot at hundreds-of-percent returns, once these trades get going.

    But we are not in Act III today. These trades — just like gold and commodities stocks — aren’t ready for us yet.

    Mom and Pop are not into Act III yet. They’re not into Act II yet. They have not upped their risk tolerance yet. If anything, their risk tolerance has fallen lately. It will happen. But not today.

    So for now, we need to sit tight on our Act II and Act III trades.

    In my True Wealth newsletter, we’re focusing on our Act I trades. That means safe, dividend-paying stocks, like healthcare.

    I strongly believe in the Bernanke Asset Bubble. I strongly believe Mom and Pop America will keep allocating more and more money to the stock market. And I strongly believe we will see another dot-com-style boom in stocks, ending with soaring stock prices in speculative sectors like emerging markets and small mining companies.

    We are not there yet, though. We are still in Act I.

    Be patient. Play it smart. Make sure you have money ready for the big boom.

    I could be wrong, of course. The script could change along the way. But this has been our script for months, and it has been right so far.

    Good investing,

    — Steve Sjuggerud

    This article was originally published on April 29, 2013, at DailyWealth.com.

    Dr. Steve Sjuggerud is the founder and editor of one of the largest financial newsletters in the world, True Wealth. Since inception in 2001, True Wealth readers have made money every year with safe, contrarian investment ideas. Steve did his Ph.D. dissertation on international currencies, he's traveled to dozens of countries looking at investment ideas, and he's run mutual funds, hedge funds, and investment research departments. Steve's investment philosophy is simple: "You buy something of extraordinary value at a time when nobody else wants it. And you sell it at a time when people are willing to pay any price to get it." It's harder than it sounds, but Steve continues to be able to do just that for his readers. Click here to learn more.

    | All posts from Dr. Steve Sjuggerud

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