A 'Contrarian' update...

The market can go up or down from here... I'm prepared either way...

In today's Digest Premium, S&A Editor in Chief Brian Hunt explains why he thinks the central-bank-fueled boom could last another year or two. And he discusses several aspects of investing that are much more important than guessing the market's direction.

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A 'Contrarian' update... A political crisis in Turkey... On a plane to Johannesburg... True Wealth Systems says 'buy'... When the Fed cuts interest rates, this market soars...

 We'll begin today's Digest with a special dispatch from S&A Global Contrarian editor, Kim Iskyan.

S&A Global Contrarian is a new advisory service that's currently in developmental "beta" mode and available only to S&A Alliance members. (If you're interested in becoming an Alliance member and receiving all of our advisory services – except Phase 1 Investor – for life, you can call our sales team at 888-863-9356.)

The concept behind Kim's letter is simple... He's going to provide "boots on the ground" research from some of the most blown-out, beaten-down markets in the world. That's why we call it Global Contrarian. Most investors recoil at just the name of these places.

 Before we continue, let me tell you a bit about Kim...

If you joined us in Singapore for our Alliance meeting, you saw Kim present on Russia. He's an expert on the area. He worked for an investment bank in Russia in the 1990s. And he ran a hedge fund in Russia in the 2000s.

Kim has also worked on a Wall Street trading floor. He helped build the stock market in Kyrgyzstan. He helped develop the financial markets in Armenia. And he worked for a global asset manager in Ireland during the "Celtic Tiger Boom" of the late '90s and early 2000s, when the nation's economy exploded, growing more than 9% a year.

So Kim has seen booms and busts on a global scale. And now he's bringing that knowledge to our subscribers.

 Yesterday, Kim sent us an update on Turkey. The predominantly Muslim European nation is experiencing a political crisis... And its stock market and currency are getting crushed. It's a classic "contrarian" setup. From Kim Iskyan:

Turkey is in the midst of a political crisis... The stock market is down 11% since mid-December. The country's currency, the lira, is down 8%. In trading today, it hit an all-time low against the U.S. dollar.

Reading the papers, it sounds bad for the country's 76 million people, who live at the intersection of Europe and the Middle East... At risk is nothing less than "the economic progress built on a decade of political stability in Turkey," says the Wall Street Journal. It's the prime minister's "biggest political crisis for years," warns the Financial Times.

In my experience, these sorts of events – and the resulting run-for-the-hills commentary – create fantastic contrarian opportunities for investors who can stomach volatility.

Briefly... On December 17, prosecutors in Turkey announced a major anticorruption investigation, focused on bribery, gold smuggling, and corruption in government tenders. Police arrested the sons of three cabinet ministers, a number of government officials, the head of one of the country's biggest banks, and a big real estate oligarch. Just before the new year, Prime Minister Recep Tayyip Erdogan named 10 new ministers to his cabinet.

Meanwhile, Erdogan denounced the probe as a political plot against his government, spearheaded by the country's president, Abdullah Gul, with the aim of forcing him out of office.

The president – whose post is largely ceremonial – and the prime minister are former allies and are from the same party... But Gul has his eye on becoming prime minister himself. Erdogan, who has been prime minister for more than a decade, doesn't intend to go quietly. (He has also denounced the corruption investigation as a foreign plot... and even seemed to threaten to expel the U.S. ambassador for daring to comment on the whole affair.)

Meanwhile, Turkey's macroeconomic situation seems shaky. It has a large current-account deficit. That is, the value of its imports exceeds exports by a large margin. That's one of the most reliable precursors to an emerging-market meltdown... But Turkey's current-account deficit has been around for a while and hasn't hurt anyone yet. Its low savings rate and reliance on short-term money flows (especially from foreigners) is a bigger problem... but one with a long fuse.

The financial media view emerging markets in general – and Turkey, in particular – as vulnerable to the U.S. Federal Reserve "tapering" its stimulus programs. And because Turkey is no small fry – its economic output of $800 billion makes it one of the largest emerging markets – a hiccup in Turkish markets could drag down neighboring markets as well as other developing economies globally.

I asked our friend Paul Mampilly, an experienced analyst and former hedge-fund analyst who has looked at Turkey for a while, what he thought. Paul pointed to declining inflation, falling interest rates, and capital injections into the Turkish money markets by the country's central bank as positive factors that outweigh the negatives.

Is Turkey's political crisis close to an end? The country is facing a number of elections in coming months. It will hold municipal elections in March and presidential elections likely over the summer. Early parliamentary polls could be held in the autumn. That suggests that the political noise isn't going to end.

But at a certain point, investors will probably start to tune it all out and recognize the value in Turkey's market. The country's stock market index is trading at a forward price-to-earnings ratio of a little more than 7x. Many other emerging markets trade for nearly twice that multiple. Also, earnings in the stock market (about half of which is made up of financial-services companies) are expected to grow in 2015 at nearly twice the rate of emerging-market companies overall.

One of Paul's favorite stocks in Turkey is the country's dominant mobile phone services provider, Turkcell (NYSE: TKC). It's cheap, sits on a lot of cash, and is down 22% from highs in October. If the lira weakens more, the stock price might suffer... but the chances are good that the price will be higher in a few months than it is now.

For investors looking to get broader exposure to Turkey, another option is the Turkish Investment Fund (NYSE: TKF). This closed-end fund holds a basket of Turkish stocks and trades at a small discount to net value of those assets. The iShares MSCI Turkey Fund (NYSE: TUR) is another option that offers broad exposure to the Turkish stock market.

Valuations are low... Sentiment is poor... And at some point, Turkey's political noise will become part of the background. Turkey is setting up to be just what we like to see at S&A Global Contrarian.

 Kim left the States today for Johannesburg, South Africa.

South Africa is plagued by political instability, poverty, and poor infrastructure. But as you may know, it's also a global hub for mining.

It produces around 80% of the world's platinum. South Africa mines for gold, aluminum, palladium, nickel, and most other metals. It's one of the largest coal exporters in the world... It also accounts for around 5% of the world's polished-diamond production, based on value.

As you can see from the following chart of the SPDR S&P Metals & Mining Fund (XME)... global mining stocks had a horrid year in 2013...

 But Kim is there to ferret out the values. While on the ground, he's meeting with a metals analyst, platinum producers, political and economic analysts, the CEO of the stock exchange in neighboring Zimbabwe, etc... In other words, he goes to the source to get the best possible information before making investment recommendations. It's the only way you can confidently invest in these volatile markets.

Alliance members will be the first to receive updates from Kim's travels.

 Kim isn't the only S&A analyst who's bullish on foreign stocks. As we outlined in yesterday's Digest, Steve Sjuggerud is recommending a basket of foreign stocks that's trading for five times earnings and yielding around 5% (that compares with 19 times earnings for the S&P 500).

 We obviously can't tell you the exact foreign stocks Steve is recommending. That wouldn't be fair to his subscribers... But today, we will tell you about one particular Asian market that Steve says is about to boom. In True Wealth Systems, Steve sizes up this market with three simple signals. And right now, all three signals are saying this market is a "buy."

True Wealth Systems, if you're not familiar, is an advisory service Steve launched based on sophisticated, computational models. Steve, along with a Ph.D. in mathematics and several analysts, spent years and nearly $1 million building custom analysis software, a backtesting program, and a charting program. And he has constructed safe, successful trading systems using these incredible tools.

 True Wealth Systems includes dozens of these systems for different markets across the globe. For example, Steve has a "10/20 rule" for investing in the Asian market I mentioned earlier.

Over the past 30 years, Steve has found that if you buy this market when it's trading for less than 10 times earnings and sell when it's above 20 times earnings... you make money. Today, this market is trading for 10 times 2013 earnings – 35% cheaper than U.S. stocks.

 This market is prone to large booms and busts. And today, it is beginning an uptrend Steve believes is the start of a major boom.

Finally, when the Federal Reserve is cutting interest rates in the U.S., stocks in this country soar.

As you can see from the chart below, from 1985 to today, the Fed has dramatically cut interest rates four times. And each time, this Asian market, which we've labeled "Market X," has vastly outperformed U.S. stocks.

 If you bought the market each time the Fed cut interest rates between 1985 and 2008 and sold when Steve's signals told you to get out... you'd have been up 114% at the end of that period. But since the Fed last cut rates in 2008, this market is only up 5%...

 As I said above, all three of Steve's indicators for this country are flashing "buy." Over the past 30 years, when all three of his signals have flashed "buy," this Asian market has risen at a compound annual rate of 37%. And Steve believes this market is ready to soar again...

Out of respect to Steve's True Wealth System subscribers... we can't reveal the name of this market here. To learn more about True Wealth Systems and access the name of the market Steve is recommending today, click here...

 New 52-week highs (as of 1/6/14): Abbott Laboratories (ABT), Altius Minerals (ALS.TO), Dolby Laboratories (DLB), Kohlberg Kravis Roberts (KKR), Medtronic (MDT), Marvell Technology (MRVL), and Virginia Gold Mines (VGQ.TO).

 In today's mailbag, a couple happy subscribers write in with their success stories. Send your e-mail to feedback@stansberryresearch.com.

 "Just to add to your stack of 2013 success stories, I was up 51% for the year, with a balance of WDDGs, put and call options, and a speculation here and there. The breadth and depth of your research is outstanding and the results most reassuring." – Paid-up subscriber Dave Rutherford

 "While I have not 'followed' any of the recommendations so far [in S&A Global Contrarian], I do very much like the product. I hope to see it continued." – Paid-up subscriber Joe Matchette

Regards,

The market can go up or down from here... I'm prepared either way...

 Right now, two of our top analysts – our founder Porter Stansberry and True Wealth editor Steve Sjuggerud – have similar views on the market... but with an important difference.

Porter and Steve both agree the Federal Reserve's monetary experiment will end badly. They just disagree on the timing.

 Porter has written that he thinks we're on the verge of huge selloff and a bear market. Steve believes this bull market can run further... for another year or two.

I (Brian Hunt) lean more toward Steve's belief that the market will rise from here. Trends caused by massive central bank easing tend to last longer than most anyone thinks possible.

 A lot of people also point to the large money flows into equity mutual funds in 2013 as a contrarian signal. There was a huge amount of money that flowed into equity mutual funds in 2013. A lot of people see that one-year inflow and say, "Well, it's getting really frothy."

But if you look at the flow of capital into and out of equity-focused mutual funds over the last 25 years, you see large inflows in the early to mid-90s. Those flows continued for years and helped propel a massive bull market. Money kept flowing and flowing and flowing. The stock market kept going up and up and up.

It's also important to remember that there were very high equity-fund flows in 2003 and 2004... and stocks kept running through 2005, 2006, and 2007. My point here is that by itself, 2013's big inflow isn't cause to raise a contrarian flag.

 The good news is, you don't have to predict whether the market is going up or down. You can recognize that the trend is up. Traders can buy a position in stocks and set a tight stop loss. If the market goes down, you get out and lose just a little bit of money. If the market goes up, you ride the winner and set a trailing stop. Long-term investors in great businesses can simply hold their shares and collect dividends.

I don't need to predict where the market is going one way or the other. I just recognize assets that are likely to go up, and I take my position. If the market turns against me, I'm out quickly. So for me, trying to determine where the market is going is less important than using smart exit strategies and position sizing. Having said all this, my bet is that the market keeps running higher.

– Brian Hunt

The market can go up or down from here... I'm prepared either way...

In today's Digest Premium, S&A Editor in Chief Brian Hunt explains why he thinks the central-bank-fueled boom could last another year or two.

And he discusses several aspects of investing that are much more important than guessing the market's direction.

To continue reading, scroll down or click here.

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