The Biggest Misperception in the Markets Today

And How We'll Make 50%-Plus by Going Against the Crowd

The all-time greatest investors made their money by focusing on one strategy.

It might seem painfully simple. But putting it into action – and being successful – well... that's another story.

It's how Benjamin Graham, the father of value investing, made 20% a year from 1936 to 1956.

It's how Warren Buffett has been successful for more than 50 years... becoming one of the richest people of all time with a net worth of more than $100 billion.

These Wall Street legends did the same thing... They bought good assets at great prices.

We know this idea is important. But what most investors miss is why assets become cheap in the first place.

You see, value isn't the star of the show. It's a side effect of something bigger – something that's fundamental to the core of all markets...

It's about fear and misperception.

Take what happened in the housing market in 2008. A record 2.3 million foreclosures took place that year. Widespread panic was pulsing through the housing market. And it crushed any stocks related to real estate.

Fear was no longer in the back of investors' minds. It was the only thing on their minds.

The idea of "losses forever" took over. And the perception was that things would get much worse.

More people lost their homes as the months went on. By early 2009, the story around real estate stocks was as grim as it could get. Take a look at this headline from March 9, 2009...

If you know your market history, though, you'll notice something right away... This headline ran on the exact day the stock market bottomed.

Homebuilder stocks in particular went on to soar 100% in less than six months. And it was the start of a decadelong bull run... one that ultimately soared to 454% gains.

Importantly, the bad news wasn't over by then. Far from it.

Foreclosures continued to happen after March 2009. In fact, 2009 would top 2008 for the number of foreclosures. So when folks assumed that things would get much worse, they turned out to be absolutely right.

There's an important point, though... Prices don't have to keep falling just because things are sure to get worse. It's actually the opposite.

Real estate stocks were cheap in March 2009 because the news was bad. The expectation for more pain had created incredible value. But at a certain point, the worst was already priced in. And stocks began to rally... even though the outlook remained bleak.

This is what creates the opportunity to buy at great prices. You need investor perception to turn sour enough that all anyone can see is more losses ahead... and investors decide that no price is worth paying for a particular kind of stock. Then, prices fall until they are cheap enough to attract interest.

That's the moment the investing "greats" are waiting for. We want to act when the bad news stops mattering just enough for an uptrend to start.

Today, we're seeing that same kind of misperception in the housing market.

The financial media is screaming that the sky is falling. They'll have you thinking that the next financial crisis is underway... that the housing bubble is bursting and you need to run for the exits.

But even as the bad news keeps rolling in, prices are beginning to rise...

Folks, that's our signal. That's our chance to safely put money to work.

Since investors are giving up on this market, nobody is buying. That gives us a great opportunity to scoop up these stocks for cheap. And our True Wealth Systems (TWS) computers are also giving us the "all clear" to put money to work in this sector right now.

Our upside potential is 50% or more in the coming year. And we could even see triple-digit gains as investors realize today's housing cooldown isn't 2008 all over again.

Let's begin...

The Worst-Case Scenario Is off the Table for Homebuyers

We're in the worst housing market for homebuyers in decades... And it's time to get bullish.

"Why the heck would I be bullish on housing stocks if nobody can buy a house?"

I hear you. Buying a home right now is costly. Rising mortgage rates have made homes less affordable. And prices are falling as a result. It feels like the terrible news will continue for years to come.

But those facts are already pricing in the worst. And it's the market's misperception that things will only get worse from here.

Right now, most folks don't realize that the worst-case scenario for homebuyers is already over...

To gauge housing affordability in the U.S., you have to consider three factors: mortgage rates, home prices, and income.

And if there's one factor that stands out over the past few years, it's mortgage rates.

Rates have gone up so much that the cost of a monthly home payment is up more than 50% over the past few years. And there is a big reason for it...

Inflation was running wild last summer. By June 2022, the U.S. inflation rate was 9.1%. And the Federal Reserve was hiking interest rates at the fastest pace in recent history to prevent runaway inflation.

As interest rates rise, the cost to take out a mortgage goes up. So when interest rates have to go up to bring soaring inflation down, 30-year mortgage rates go up, too.

That's what we saw play out last year. The 30-year mortgage rate hit 6% in June... up from 2.8% in early 2021.

Investors saw this and fled for the exits. One of the biggest losers was the homebuilder sector. These companies make the homes that folks are buying. So, many investors ditch this sector during tough times. That's exactly what we saw in the first half of 2022...

This basket of homebuilder stocks fell 40% over six months last year. That's a massive crash. And it made sense at the time, as affordability fell and the housing market seized up.

Mortgage rates also continued to rise. The 30-year fixed rate peaked at 7.35% in November. And that spooked investors even more.

Folks see the dramatic rise in rates and think the housing market has more pain ahead. But most investors don't see that inflation is finally declining... And that means interest rates don't need to go dramatically higher from here.

Inflation has fallen to 6.5% today. That's still high. But it's a far cry from June's 9.1%... and from the headlines that called for double-digit inflation prints in late 2022.

The nightmare scenario of double-digit inflation is gone. That tells us mortgage rates are unlikely to climb significantly from here. And that means that while things are still bad for housing today, they're unlikely to get worse.

Mortgage rates are also starting to fall back to Earth. The current 30-year average fixed rate is 6.3%. Take a look...

This is where the opportunity comes in. Financial news headlines everywhere are blaring, "The housing bubble is bursting." And they're saying that for many of the reasons I mentioned.

For example, check out this headline from Fortune magazine back in November...

Or this one from the New York Times...

What these headlines won't tell you is that inflation is easing and mortgage rates are starting to drop.

Are 6.5% mortgage rates terrible compared with the sub-3% rates we had in 2021? Absolutely. But they're less terrible than 7%-plus. And most important, the trend is finally working in our favor.

If today's budding uptrend lasts in 2023, we should expect homebuyers to be in better shape than they are today... and in much better shape than folks would have thought last summer.

We may still see home prices drop a little bit from here. After all, we're coming off a multiyear boom. So it wouldn't be surprising if home prices came down slightly as a result.

But remember, just because things are getting worse doesn't mean housing stocks have to fall further. It's exactly what we saw when 2009 beat out 2008 in the number of foreclosures... while homebuilder stocks were up 80% from their bottom in 2009 to the end of the year.

The widespread perception is that there's no way these stocks could do well today. But that idea misses this key shift. And it's why this sector could dramatically outperform in 2023.

Today, we have an incredible opportunity to buy homebuilders again. The sector is beaten down and trading at dirt-cheap prices. It's the same setup that the investment greats used to build their fortunes – in short, you want to buy when there's "blood in the streets"...

A Contrarian's Dream Opportunity... at a Massive Discount

Always hold the door open for the panic sellers...

You never want to be run over by them on their way out. But when the majority of investors have already sold, it's time to get bullish.

That's exactly where we are in homebuilder stocks today. Investors continue to bail out of this market as the housing picture cools off... And that's setting up a contrarian's dream.

The easiest way to see this is through the shares outstanding of the iShares U.S. Home Construction Fund (BATS: ITB).

The fund tracks a basket of homebuilder stocks in the U.S. And thanks to its structure, it can create or liquidate shares based on investor demand.

If folks are bullish on this part of the market, ITB creates more shares to meet new demand. And it can liquidate shares if sentiment sours and investors pull out.

Not surprisingly, the latter has been the trend recently. ITB's shares outstanding have been crashing since early 2022...

This is panic selling in action. Investors have been getting out of homebuilders for the better part of a year... driving ITB's shares outstanding to their lowest level since 2009.

Yes, you read that right... Interest in this sector is at its lowest since the last housing bust.

This is what every contrarian loves to see. The last time homebuilders were this hated, this market soared... jumping 80% in just a few months coming out of the 2009 bottom.

I'm not saying we'll see that kind of rally this time around. But with this many investors on the sidelines, the upside potential is massive.

What makes me so sure? Well, there's another effect we're seeing from the panic selling today. It's the classic fear-creates-value setup... ITB is trading at dirt-cheap prices.

The price-to-earnings (P/E) ratio tells this story. This ratio is a quick and easy way to know how much investors are willing to pay for an asset relative to the earnings it brings in. The higher the ratio, the more expensive an asset is. And the lower the ratio, the cheaper it is.

Right now, ITB trades at a P/E of 7.7. That's a massive 59% discount relative to the S&P 500 Index's P/E ratio of 18.7.

Not many investments trade for a P/E below 10, even after a yearlong bear market. The low valuation shows that investors absolutely hate the idea of owning these stocks... And to contrarians like us, that means the upside potential is huge.

We can compare the fund with its own valuation history to see that. In 2021, ITB was trading at a P/E above 14. That means it's 50% cheaper today than it was during the boom. And it's near the cheapest it has been going back to 2015...

This is what we want to see as investors. We want to buy when nobody else can stomach the idea of getting in... and when valuations are absurdly cheap. We have both criteria on our side right now.

Again, we're following the same value principle that Graham and Buffett used to find success. But we're also adding another layer to account for investor sentiment...

Longtime subscribers know this is how we gain an edge in the markets. It's the final piece of the puzzle that we always want in our favor before putting money to work.

I'm talking about the trend. And with our TWS computers flashing "buy" on homebuilder stocks, we have a green light to take action.

27% Annualized Gains in Homebuilders... Starting Now

Our homebuilders system has returned an annualized gain of 27% since 1965.

If you're a new subscriber, we built our systems in 2011. But by inputting decades of data into them, we can see how they would've worked through history.

A 27% annualized gain is a heck of a result over nearly six decades. Here's a little more of how our homebuilder system works...

By owning this sector during the good times, and avoiding the bad, we can give ourselves a real shot at big gains.

Like all of our systems, we don't always recommend owning homebuilders. This system is only in buy mode 59% of the time. That means the other 41% of the time, we're out of this sector... and for good reason.

Homebuilder stocks can soar. But they can also crash fast... like they did in 2008 when they fell 71%.

Investors holding this sector back then likely lost a lot of money. However, if you had access to our TWS computers at the time, you would have been out of this sector through the worst drawdowns. Check it out...

The green line is when our system would have been in the trade. And the red line is when it would have said to stay on the sidelines.

Notice the two major drawdowns on this chart. One was in the early 1970s, and the other was around 2008. In both cases, our TWS computers would have flashed "sell" through the carnage.

This is why we have such confidence in our system. It can protect us from the really bad times. And it gives us a better shot at outperformance by flashing "buy" only when the odds are in our favor.

Now, we won't be right every time. But our system ensures that we capture the big winners when they happen. And it'll keep us alive to fight another day when the market crashes.

Today, our homebuilders system is flashing "buy." That's because the sector has been soaring since hitting its low in June. Take a look...

This chart tells the story of housing today in the most succinct way possible...

Perception doesn't become misperception until a key moment. That moment is when the facts change, but the way folks view them doesn't.

Right now, the consensus view on housing is a misperception because the underlying data has changed. Inflation and mortgage rates are falling. Things are getting less bad. But no one is accounting for that yet.

They're stuck in their old thinking. And what was once a correct perception has now become a dangerous misperception.

You can see in the chart above that ITB bottomed months ago. And it has been marching higher ever since inflation began to cool... with a major move higher since mortgage rates began their slide.

The headlines tell us there's more pain ahead for housing. But history and today's data show that things are getting less bad... and that this is a great time to own homebuilders.

Homebuilders are dirt-cheap... Nobody wants to own them... And the trend is turning back in our favor. Those factors check all the boxes that the investment greats look for – and more.

With a new multiyear boom in homebuilders likely underway, that could turn into a 50% – or even 100% – gain fairly quickly. Our TWS computers are giving us the green light to buy. And that's why we want to act now.

Here's how we'll do it...

The World in Five Minutes

Our TWS computers raised a clear signal three months ago...

There were very few U.S. sectors in buy mode at the time. But soon enough, the story became much different overseas... We started seeing several new buys outside of the U.S.

Now, it would've been easy to ignore those buys. The overall U.S. market was in sell mode. And most folks don't want to buy stocks overseas during good times... let alone when times are bad.

But several indicators were lining up in favor of one global market. And our TWS computers were flashing "buy." So we recommended buying shares of the iShares MSCI Mexico Fund (NYSE: EWW).

EWW had bottomed in September – a month ahead of the U.S. market. Then, it began breaking out as the U.S. dollar started plummeting. (Remember, a falling U.S. dollar is good for foreign stocks. You can check out our December issue for a full refresher on this idea.)

Our TWS computers were all over this opportunity. And now, we're up 16% since our initial recommendation in November.

That wasn't the only overseas market we recommended, though. The following month, we recommended buying the SPDR EURO STOXX 50 Fund (NYSE: FEZ).

Investors were missing this opportunity entirely. But we saw clear signs that it was a solid shot at double-digit gains. European stocks were trading at dirt-cheap prices. They were also turning higher, backed by a crashing dollar.

So our TWS computers got us in... We're up 12% since we initially recommended FEZ in December.

But the story isn't over yet for these trades... All of the original tailwinds that lined up for these positions a couple of months ago are still here today.

These overlooked markets offer great value and big upside... And our computers are still in buy mode. Both EWW and FEZ remain buys.

Next, we added precious metals to our portfolio for the first time in months. We recommended putting your money to work in ProShares Ultra Gold (NYSE: UGL) and the iShares Silver Trust (NYSE: SLV).

Most folks think that a heavy dose of inflation will send gold and silver higher. However, we had high inflation in 2021 and 2022, and these metals fell. That's why we took a deep dive into what really drives gold and precious metal prices. And one thing was clear...

Since 1973, gold has rallied in 17 of the 20 years that the dollar was falling. That's an 85% win rate.

In 2021 and 2022, the opposite scenario took place. The U.S. dollar was soaring. And it forced gold and silver prices lower.

Since the dollar is down again, our double-long gold trade is up 5% since our last issue. And our silver position is slightly down.

In short, the U.S. dollar is coming off a 20-year high. It's finally falling after rising for two straight years. This trend will likely continue in the coming months, which means both of these trades could go much higher. UGL and SLV remain buys.

We also have a new group of recommendations this month. We've been studying market cycles using a century of data. And as I shared in our recent special reports, the fastest gains aren't behind us, but ahead of us... with the Dow potentially soaring to 150,000 by 2031.

A lot of investors will try to own the biggest names in the market today once they realize what's happening. But those aren't the winners that will lead the next leg higher.

We've selected the names that we believe have the biggest upside potential in the years ahead. I urge you to own all of them today.

Last, our TWS computers are highlighting a new shift today...

Suddenly, it isn't just foreign markets that are in the green. Many U.S. sectors are back in buy mode for the first time in months. Specifically, seven of our U.S. systems are flashing a new "buy."

That puts the majority of our U.S. market in buy mode. So, for the first time in months, we're buying back into the U.S. This time, the best opportunity we see is in the homebuilder market...

The financial headlines are pointing to a housing crisis. Investors are bailing on anything housing-related as a result. They think the worst is still ahead.

They might be right that housing prices could still fall a little in the short term. But they're missing something important: That expectation is already priced in.

In other words, the worst-case scenario for homebuyers is off the table. And history shows that we could see homebuilder stocks rally – even if the bad news doesn't improve right away.

The last time investors hated homebuilder stocks this much was in 2009... right before the sector soared 100% in less than six months.

We aren't calling for that quick of a rally. But we expect to see 50% gains – or more – as a new bull run in homebuilding stocks gets underway.

Don't miss out on this incredible opportunity. Buy shares of the iShares U.S. Home Construction Fund (BATS: ITB) today.

Good investing,

Brett Eversole with Chris Igou
February 3, 2023