Categories

Investing Observation & Opinion

Tools

  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts


    Tougher Rules Can’t Repair Banking’s Broken Culture
    Macy’s Is Taking On Amazon With Same-day Delivery In 17 Cities
    Here’s What Google’s Secret Car Company Is Called
    These Are The Winners & Losers In Obama’s Plan To Slash Carbon From Power Plants
    Gold Futures Look To Get Off The Mat
    The Tell: Apple’s Stock Drops Below 2 Bearish Technical Thresholds
    Investors Are ‘Stock Market Socialists’
    Silicon Valley’s Favorite Meal-replacement Drink, Soylent, Is Now Bottled And Made Of Algae
    Pimco Says SEC Probing Its Total Return Exchange-traded Fund
    Skyfall! Apple’s Stock Breaks 3 Key Levels
    Former Bank Trader Convicted In Libor Scandal
    Will Siri Voicemail Transcription Revive Apple’s Shares?
    The Hidden Danger In The Most Popular 401(k) Fund: Correction
    China Stock Exchanges Step Up Crackdown On Short-selling
    Shire Goes Public With Proposed $30 Billion Baxalta Tie-up


    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

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    Alibaba Hires Former Goldman Banker Evans As President
    Stock Futures Lower As Investors Await Earnings, Data
    Aetna Profit Beats As Government Plans Expand
    Brazil Presents Another Hurdle In Monsanto’s Bid For Syngenta
    U.S. DoJ Probes Deutsche Trades Worth Billions
    As Oil Falls Below $50, Analysts Eye ‘mid-price’ Era
    Another One Bites The Coal Dust – Alpha Natural Files For Bankruptcy
    WTI Crude Crashes To $45 Handle — Lowest Since March
    Citadel Barred From Trading In China After Regulator Accuses “Automated Trading” Unit Of Manipulation
    The Tide Has Turned And These Charts Predict The Next Stop
    What America Would Be Like Without The Federal Reserve
    Why Goldcorp Is A Buy Today
    Buy This Small-Cap ETF For Market-Beating Gains In 2015
    Here’s What Will Fuel The Commodity Prices Rebound
    Fat CEO Pay And Stock Buybacks Threaten Your Portfolio
    Gold Dips As Metal Searches For An August Spark
    Oil Majors, U.S. Dollar Point To Lower Prices
    Jinko Solar’s Triple Play – Value, Growth, And Profitability
    DuPont CEO Ellen Kullman Fails To Deliver On Promises
    Opening Salvo From AT&T And DirecTV: $200 Monthly Promo
    Long, Hot Summer Could Persist On Wall Street
    Buffett, Musk To Spark A Lithium Boom
    Meet The Most Successful NRI Businessman You’ve Probably Never Heard Of
    Immigration Judges Are Burning Out Faster Than Prison Wardens And Hospital Doctors
    What Is An Artificial Ingredient, Anyway?
    Fiat Chrysler Recalls 332,000 Dodge Chargers Due To Air Bag Issue
    Tyson Foods Warns Full-year Profit May Fall Short Of Forecast
    U.S. Stock Futures Little Changed Ahead Of Raft Of Data
    German Carmakers Buy Nokia Maps To Fend Off Digital Rivals
    Western Companies Look Hard At China As Growth Slows
    Read more from Investing...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sources


    close[X]

    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.