Categories

Investing Observation & Opinion

Tools

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


    Time To Rethink The Rupee
    Banks Will Keep Doing FX Stuff That Got Them In Trouble
    Chinese Stock Bubble Frenzy Returns; US Futures Flat Ahead Of Today’s Pre-Holiday Zero Volume Melt Up
    This October The World Will Change — ‘China Is Preparing For Something Big’
    What Bitcoin’s History Means For Its Future: Q&A With Nathaniel Popper, Author Of ‘Digital Gold’
    Invest Like The Best: Seven Buffett And Lynch-Inspired Stock Buys
    Apple Watch Orders Fell Sharply After The First Day And Haven’t Grown Since, A Shopping Data Firm Says
    Lean Times For The Diet Industry
    A Chinese App That Steals WiFi Passwords Just Raised $50 Million
    This Tech Company Had A Blockbuster First Day Of Trading Following IPO
    Google Maps Just Got Way Better
    $1,397 An Hour! Top Paid McDonald’s Execs
    Lumber Liquidators Plunges As CEO Resigns
    Pain And Pleasure: IPOs
    Seven Stocks Are Like Giant Piggy Banks


    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.

    U.S. Drivers Yield ‘Swing’ Oil Demand Crown To Saudis
    Stocks Get That Friday Feeling As Stimulus Trumps Growth Concern
    Wal-Mart To Bring In-house Some Sourcing Handled By Li & Fung
    Charter In Talks With Time Warner Cable Over Bid Likely Above $170 Per Share: WSJ
    HP Sells $2.3 Billion China Unit Stake To Forge Partnership With Tsinghua Unigroup
    Bank FX Fine Scorecard (Follow Along At Home!)
    New Archeological Discovery Suggests Our Ancestors Evolved Far Earlier Than Previously Thought
    China Is Lending The World’s Most Indebted Company Another $10 Billion
    The Tech Portfolio Built To Beat The Market
    What’s The Plains All American Stock Price After The California Oil Spill?
    This Startup Valuation Chart Shows The World’s Most Valuable Startups
    How To Play Yahoo! Inc. Stock After Tuesday’s Sell-Off
    You’ll Never See A Better Moment To Invest In China
    Here’s The Real Scoop On Apple Watch Demand
    The War On Big Food
    The BP Oil Spill Killed A Lot Of Dolphins
    Another Hong Kong Stock Disaster As Goldin Loses $25 Billion
    This Is The Latest $1 Billion Tech Company To IPO
    Cancer Charities Agree To Dissolve Amid Fraud Claims
    KFC Is Making Plans To Get Back On Top In The U.S.
    Best Buy Profit Beats On Strong Demand For TVs, Smartphones
    CVS To Buy Pharmacy Services Provider Omnicare For $10.1 Billion
    Futures Lower As Fed Rate Hike Seen Further Out
    Lenovo Annual Profit Up 1 Percent, Missing Forecasts, Amid China Smartphone Competition
    Deutsche Telekom To Consider Partner For T-Mobile US
    Shares Subdued By Mixed China, Euro Zone PMI Data
    Small Food Makers On Fast Path To U.S. Store Shelves, Threatening Big Producers
    Five Banks To Plead Guilty To Criminal Rigging Charges, Pay $5.6 Billion For Manipulating Markets
    The Market’s One-Sided Game Of Chicken
    Delayed Fed Rate Hike May Not Help Stocks
    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.