The Best Time to Buy in a Generation
Editor's note: Steve Sjuggerud never imagined he would see anything like it...
But in mid-2011, he saw the "perfect storm." U.S. stocks, housing, and gold all traded at values not seen in a generation. And Steve didn't want anyone to miss this opportunity...
Today's Masters Series is adapted from the June 2011 issue of his True Wealth advisory. As you'll see, he laid out his case for why it was the ideal time to buy. And of course, everyone who listened to Steve's advice nearly nine years ago is sitting on massive gains right now...
The Best Time to Buy in a Generation
Nobody will believe me... But I'll make the case today, anyway.
Right now, June 2011, is the best time to buy in a generation.
With the exception of the March 2009 bottom in some cases, the values I'm seeing today in U.S. stocks, housing, and precious metals trades are the best I've seen in my entire career.
You would have to go back more than a generation to find values this good.
I never imagined we'd see all these things come together at the same time in my investing lifetime. Right now, we have:
- Major stocks trading at record-low valuations, while we have near-zero interest rates.
- House prices more affordable than ever, with record-low mortgage rates.
- Gold investments that are record-cheap, during a bull market in gold.
We also have a fearful public, which is good because it means the peak is not here yet. And we have a sputtering economy, which is good because we have a government that is committed to keeping interest rates near zero for a long time.
It's a "perfect storm" of opportunity.
To spare you the suspense, opportunities abound. Let's get started...
You Are Your Own Worst Enemy
I strongly believe you can make a lot of money if you're willing to step up and buy now.
But I can guarantee most people won't. They're too afraid.
I saw it firsthand a week ago. I was face to face with hundreds of subscribers at an investment conference in San Diego. The worries I heard were endless!
Just about every question from investors boiled down to the same concern:
"I'm too worried about [fill in the blank] to invest."
You can "fill in the blank" with whatever you want: the national debt, the U.S. dollar, energy prices, a potential recession, the jobs situation, politicians... whatever.
But the reality is, all these things are just excuses...
They're just excuses for you to hide... for you to NOT put your money to work.
"But these things are real, Steve." Yes, I know... The thing is, you could have used these identical excuses at just about any time over the last 20 years.
In True Wealth, we haven't hidden. We have put our money to work...
In March 2009 (the month the market bottomed), I became incredibly bullish on stocks. True Wealth subscribers have been buyers of stocks and all kinds of investments since then. We bought U.S. stocks, Hong Kong stocks, Russian stocks, Japanese stocks, Argentinean farmland, biotechs, homebuilders, real estate trusts, gold miners, and more.
We've been invested for most of this fantastic run in stock prices over the last two years. And it's not over... not by a long shot.
But you are certainly welcome to pick your own "fill in the blank" and sit on the sidelines...
Nobody will fault you. I'm sure you have a good story about your own "fill in the blank" worry... a good reason why you're sitting on your hands. You can tell it to people at cocktail parties. They'll nod in agreement when you tell them what you're doing, mostly because you just gave them another "fill in the blank" excuse they can use, too.
Meanwhile, you won't make any money. In fact, you'll lose money by sitting on the sidelines...
Don't forget these two things: The bank is paying you 0% interest. And yet inflation is around 3% a year. So while your bank account balance may look the same, you're losing 3% of your wealth a year (at least!) due to inflation by sitting in cash.
I'm thankful I faced a "wall of worry" at the investment conference because there's an old saying in the markets...
Bull Markets Climb a Wall of Worry... Bear Markets Sail Down a River of Hope
The Wall of Worry tells me there's a lot more upside potential here in stocks. Once the Wall of Worry is gone, the peak in prices is here. And once the River of Hope is gone, the bottom is here.
The easiest way to visualize this is with the real estate bubble...
We climbed off the Wall of Worry in real estate around 2005... That was when everyone talked about real estate and how real estate prices have never gone down in America. People thought house prices could continue to go up 10% or more a year... defying the basic laws of population growth, economic growth, gravity, and everything else.
But once people thought house prices couldn't fall, that was it... The Wall of Worry was gone. And at that moment, the bull market in house prices peaked.
Since 2006, we've sailed down a River of Hope in housing...
At first, people hoped prices would bounce back so they could sell at the peak price. Then, they hoped prices would bounce back enough that they wouldn't sell their houses for less than they paid for them. Next, they hoped the bank wouldn't take them away.
Now, hope is gone in real estate. House prices are down by one-third. And people have given up. Based on one of the oldest rules of the market, since the River of Hope has run its course, the bottom should be near. And that brings us to our first idea this month...
U.S. Residential Real Estate: Now the Best Deal in Recorded History
Now is literally the best time in recorded history to buy a house in America...
Right now – today – U.S. real estate is the most affordable it's ever been. Ever.
When I say "affordable," I'm looking at three things: house prices, mortgage rates, and incomes.
With the Housing Affordability Index near 200, the median family has 200% of the income necessary to buy the median home (or more specifically, to qualify for a conventional loan on the median home). It's easy to see where we are now...
Right now, as you know, house prices are sitting near new lows for this cycle, down by roughly one-third (depending on who's counting). And right now, mortgage rates – after ticking above 5% earlier this year – are all the way down to 4.5% again, near all-time lows.
So it's simple: With the worst house-price crash in American history, combined with the lowest mortgage rates in history, you can now afford more home than ever.
Meanwhile, hope is gone. Everyone thinks housing is hopeless. The River of Hope has reached its end. That is when a bear market ends and a new bull market begins.
At the conference, some speakers spoke woefully of the large supply of houses for sale. That will take care of itself in time. Others bemoaned the certainty of higher interest rates in the future, which would hurt housing. But they shouldn't be so certain...
Twenty years ago, Japan faced a housing bust similar to ours. Japan's government has cut interest rates to near zero and printed money. And long-term interest rates in Japan currently sit around 1%.
Even rising interest rates won't kill housing... In the 1970s, interest rates were rising, and house prices outperformed stock prices.
The story is simple. House prices have fallen more than ever. And mortgage rates are lower than ever. If you can buy a house now (and want one), do it. Now is the best time in American history to do it.
U.S. Stocks: The Cheapest They've Been in 20 Years...
With the exception of the bust of late 2008 through early 2009, U.S. stocks are now the cheapest they've been in 20 years.
It might be hard for you to believe... But it's absolutely true.
The classic measures of stock market value are the price-to-earnings (P/E) ratio and the price-to-book (P/B) ratio. Let's take a look at those for a moment...
Right now, the stock market (as measured by the S&P 500 Index) is trading at a forward P/E ratio of 13.5... With the exception of the bottom in 2008-09, we haven't seen a P/E ratio that low since 1990-91. And on a P/B basis, stocks are trading at a ratio of 2.3... Once again, except for the 2008-09 bottom, this is a level not seen in 20 years.
So stocks are nearly as cheap as they've been at any time in the last 20 years. But it's actually much better than that...
You see, back in 1990-91, stocks had a whole lot of competition for your investment dollars. Interest rates were ridiculously high... Junk bonds paid 20% interest. High-quality corporate bonds paid 10% interest. And you could earn 8% on a CD at the bank.
Back then, why would people put money in the stock market when they could earn 8% to 10% and take on next to no risk? A lot of people did put their money in the bank, so stocks stayed cheap.
Today is a much better story for stocks. Yes, back in 1990-91, stocks were just as cheap as they are today... But today, interest rates at the bank are basically zero.
In short, stocks have no competition like they did back then. And that's the crucial thing to understand.
Good investing,
Steve Sjuggerud
Editor's note: We can't rewind the clock to the early days of this historic bull market. But we don't need to, either... The final stage of the Melt Up is just starting. And according to Steve, if you miss out on what's next... you're likely missing out on the biggest gains.
We haven't seen Steve this worked up about a prediction in quite a while.
He recently hosted a special Melt Up event to detail exactly why he's so convinced that this rally will continue... what you should do now to take advantage... and how you'll know the right time to "get out" with huge profits in hand. If you skipped the big event, you're in luck... We've put together a replay with everything you missed. Watch it right here.