I like doubts. And worries. And people talking about economics on TV... people who've never had a real thought about economics in their entire lives. Or as my friend Bill Bonner says, "economics never crossed their minds..." You see, when everyone believes nothing can go wrong – like they did from 2004 until late 2007 – that's when you have to be careful. And a few weeks ago, volatility dropped out of the market. It was like 2006 all over again. That's scary. But now? Fears of "deflation" have returned. Stocks don't go up every day anymore. That's a good sign, believe it or not. Remember, nothing is more dangerous than euphoria. Nothing is more valuable than pure panic.
Who do I listen to when it comes to economics and market forecasts? A few people... One is Steve Leuthold. His track record is unmatched. And so is the quality of his analysis. (You won't find him on CNBC, by the way.) Leuthold told Bloomberg the S&P 500 will hit 1,350 next year as the economy continues its recovery: "There's pretty good momentum, and the market psychology is right," said Leuthold. "The market's turned up before the economy did. Now, the economy is improving. It might be a little better than most think. It ain't wonderful, but it's a lot better than it was."
How bullish is Leuthold? He has 72% of his $4 billion fund in stocks, including large positions in technology and foreign banks. How bullish is your neighbor? Probably not very bullish. Which one do you bet will be right? That's easy.
There's just enough bad news to scare people a little: Employers cut 263,000 jobs in September – the largest cuts coming from construction, manufacturing, retail trade, and (surprisingly) government. Analysts expected a 175,000 decrease. The latest round of cuts pushes the unemployment rate to 9.8% and brings the total jobs lost since the start of the recession in December 2007 to 7.6 million. What most people don't realize, though, is employment is a lagging indicator. Unemployment will continue to rise well into the recovery.
We wrote it, did you buy it?
We are at a historic moment. Today, tax-free government bonds pay A WHOLE LOT MORE interest than taxable government bonds. We have never seen anything like this before...The value has reached the point of ridiculousness. Today, when you compare a bond paying 5% tax-free interest to the alternatives (like earning a taxable next-to-nothing yield elsewhere), then you see how attractive these bonds are... You want to own the tax-free bonds – provided they're safe. – Steve Sjuggerud, February 2009, True Wealth
Steve recommended his readers buy PowerShares Insured National Muni Bond (PZA), which was paying a tax-free dividend of more than 5% (the taxable equivalent of around 7.5%). Municipal bonds have soared since Steve's recommendation, and True Wealth readers are up more than 15% on the trade – and still collecting a tax-free 5% dividend.
In the same issue, Steve recommended the Managers Fremont Bond Fund (MBDFX) – a fund managed by Bond King Bill Gross that charges zero sales fees. So you get the expertise of the world's best bond investor for free.
Gross has said on many occasions his strategy for his flagship PIMCO Total Return Fund was to buy bonds the government wants before it bought them – making his investors money on the run-up after the government poured in. He carried that strategy into MBDFX, as the fund's largest holding was government-guaranteed mortgage-backed bonds. Steve wrote of the fund:
You see, the government wants to buy mortgage-backed bonds to help push mortgage rates down. When the government steps in to buy, prices will go up. So the value of your bonds will go up. Bill's doing exactly what he promised... He's "buying what they're buying, only getting there first."
Readers have made nearly 14% on this trade and are currently collecting a healthy 4% yield.
In his latest issue of True Wealth, Steve told readers the hard trade right now is to not sell... Everyone wants to lock in small, quick gains, but the big money will be made letting your winners ride. He then recommended the "harder trade," a sector bet that has paid off huge in the past. In the early 1990s, this sector soared 1,347%, turning every $100,000 invested into nearly $1.5 million. Since 1983, this sector has had four separate triple-digit bull markets – with the average gain at 565% in 2.5 years.
This sector is as cheap as it's been in a decade, but no one is paying attention to it... And it just broke into a major uptrend. Steve says this trade is a speculation, but if it hits "you may never have to work again." To learn more about True Wealth, and gain access to Steve's latest trade, click here...
New highs: Managers Fremont Bond Fund (MBDFX), Vanguard Inflation Protected Securities (VIPSX), Markel Corp 7.5% Senior Debentures (MKV).
In the mailbag... Just how fast is our fast lane? Keep the e-mails coming: feedback@stansberryresearch.com.
"LOVE, LOVE! jeff clark's most recent report – My Million-Dollar Trading Algorithm." – Paid-up subscriber Steve Buege
Porter comment: Thanks, Steve. Anyone else who wants to learn more about Jeff Clark's newest report, click here.
"Please, PLEASE tell me you ment 150MPH not kph. I do 130kph daily travelling to work daily in Canada in my Ford Ranger. I get passed by girls in Honda Civics doing 140-150kph daily. I hope, I really hope it was a slight typo otherwise you spent a lot of money for a whole lot of nothing. Heck, my grandmother who is 78 does 120kph on the same freeway in a Sable. Ouch! Hehe. Glad you had fun though. I just prefer mine at 260kph or faster ;-)" – Paid-up subscriber Mike
Porter comment: No, our top speeds were around 150-160 kph. But you need to understand something about Porsche's track: It is designed to mimic the top half dozen corners in racing around the world. Basically, it has no straightaways – just corner after corner. It's not a speed track, but a handling track. And believe me, going through a corner at more than 100 miles per hour is flying.
Regards,
Porter Stansberry and Sean Goldsmith
Miami, Florida, and Baltimore, Maryland
October 2, 2009