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Tags: economy

The Fear is Here: Almost Time to Buy

Wednesday, 08 October 2008 01:54 PM

I’ve repeatedly told our Moneynews.com readers over the past 12 months that the U.S. economy would likely grow at a very sluggish pace for the foreseeable future, and that growth in most foreign economies would slow considerably.

In direct contrast, most of the so-called Wall Street “experts” repeatedly told investors over the past 12 months that the U.S. economy was strong, and that economic growth in the United States would improve considerably during the second half of this year.

Those same “experts” advised investors to keep buying both U.S. and foreign stocks because, according to them, “stocks were cheap.” Many of those “experts” strongly recommended investing in commodities and in securities of the BRIC nations (Brazil, Russian, India, and China).

Well, here are the facts:

  • The U.S. economy is about to enter a recession, if it’s not already in one.

  • Economic growth throughout other regions of the world has slowed significantly during the past two quarters.

  • U.S. stock prices, as measured by the S&P 500 Index, have fallen approximately 32 percent since the beginning of 2008.

  • Oil prices have fallen approximately 40 percent from their July highs, while coal prices have fallen 36 percent, and copper prices have fallen 42 percent.

  • The Brazilian Bovespa Index has fallen 39 percent, the BSE Sensex (India) Index has fallen 42 percent, the MICEX (Russia) Index has fallen 58 percent, and the Shanghai Composite (China) Index has fallen 60 percent.

    Now that even the dumbest and least trustworthy of Wall Street “experts” are being forced to admit that countries throughout the world are facing some difficult challenges — and that worldwide economic growth will likely continue to slow over the next couple of quarters — those same folks are telling investors to get out of equities.

    Here’s my simple advice:

    Never, never, never listen to the Wall Street charlatans. Their advice is a recipe for disaster. If you listen to them, you’ll surely lose money, or at best, make very modest returns.

    It’s not that those persons — mutual fund portfolio managers, investment bankers, and economists —aren’t smart. It’s that they don’t have the proper training to give sound investment advice, or they’re more concerned about their own pocketbooks than helping everyday Americans make money.

    Yes, many of those “experts” have degrees in finance and economics, hold reputable credentials such as the Chartered Financial Analyst (CFA) designation, and have MBAs and law degrees from prestigious Ivy League schools.

    Those degrees and credentials are worthless, because the programs that one must complete to receive those designations don’t teach you how to make money in the financial markets. I know that to be the case, because I have taken many of those same courses and been involved in numerous of those programs.

    Meanwhile, most of the so-called “experts” tend to monitor coincident and lagging economic variables, such as employment statistics, industrial production, and retail sales, rather than leading economic statistics. As a result of their focus on coincident and lagging economic statistics, most of the so-called Wall Street “experts” are always late in their analysis. By the time they tell investors to get out of equities, stock prices have already fallen sharply.

    And that’s the exact situation that we’re currently in. For example, CNBC’s Jim Cramer told investors just a few days ago to get out of equities.

    More specifically, Cramer said “Whatever money you may need for the next five years, please take it out of the stock market right now, this week.”

    Back when Cramer was telling investors to buy, last September, I told subscribers to my investment newsletter, The ETF Strategist, to sell stocks short via inverse-index funds.

    More recently, I began advising my subscribers two months ago to hold the majority of their assets in cash-like investments such as money market funds.

    Now, as Cramer is telling millions to get out, I’m getting ready to go long — to buy stocks. Why? Because, my investment models indicate that stock prices in general have already suffered their biggest declines, and that stocks will likely rise sharply over the next 12 to 18 months.

    You see, by the time that most investors and so-called Wall Street “experts” become scared about the direction of the economy and equity prices, well-run companies have already streamlined their operations.

    They have reduced their workforce, cut executive salaries, and sold unprofitable divisions. As a result of those actions, companies are much more efficient. In addition, companies tend to focus on their most profitable lines of business during economic downturns. As a result, their profits tend to improve significantly by the time the economy begins to recover.

    As for the market, once a point has been reached that practically everyone who was considering selling their equity holdings has already done so, there are few sellers left. As a result, stock prices tend to stabilize.

    Bargain-hunting investors then begin to gobble up equities that have fallen to ridiculous prices, and a new bull market begins.

    My models now indicate that the U.S. economy won’t come out of the recession until the third quarter of 2009. Yet my experience suggests that stocks are very near a bottom, and that stocks will begin trending higher by June 2009. Between now and then, however, I expect stocks to trade essentially sideways.

    To recap the most important point: Please, please stop listening to the Wall Street “experts.”

    Instead, stay calm and start thinking about picking up some of the many investment bargains that will likely be presented within the next few months.

    In the November edition of my monthly letter, The ETF Strategist, I plan to provide some specific information on what my models currently indicate. By the way, those models gave a “Sell” signal in July 2007 for only the seventh time in the past 38 years. The last time that model gave a “Buy” signal was in November 2002 — one month after the most recent bull market began.

    If you’d like to be informed of when my investment models give a new “Buy” signal, consider a trial subscription to The ETF Strategist. To get that trial, Click Here Now.

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    I’ve repeatedly told our Moneynews.com readers over the past 12 months that the U.S. economy would likely grow at a very sluggish pace for the foreseeable future, and that growth in most foreign economies would slow considerably.In direct contrast, most of the so-called...
    Wednesday, 08 October 2008 01:54 PM
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