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The Next 10 Years Should Be Very Good to Stocks

By Dr. Steve Sjuggerud
Friday, December 12, 2008

"The stock market is presenting you with one of the great buying opportunities of your lifetime – perhaps the greatest. Stop trying to pick the bottom."

That's what 41-year market veteran Steve Leuthold, of the Leuthold Group, just told his clients. "The most difficult decision is not what to buy," he says. "Just buy!"

Leuthold is one of our favorites, primarily because he doesn't follow the crowd... even when it's to the detriment of his own business.

For example, for much of the last decade, he's been bearish on stocks. Clients don't line up to give you money when you're bearish. But Steve launched the Leuthold Grizzly Fund in June 2000, near the top of the stock market bubble. The Grizzly Fund is up nearly 80% this year.

He was right to be bearish this decade. As he told his clients, stocks lost as much over the last 10 years as they did from 1929 to 1939, which was "the worst 10-year performance in U.S. stock market history."

That's not the only big, contrarian call Leuthold has been right on...

Back in 1980, when inflation and interest rates were running in the mid-teens, Leuthold went against the crowd. He predicted interest rates and inflation would fall to 5% and 3%, respectively. He was so confident in his idea in 1980, he literally wrote the book on it: The Myths of Inflation and Investing. And he was right.

Leuthold is now extremely bullish: "With your personal funds, this will prove to be a great time to buy an index fund (Lord, forgive me), locking it up for ten years."

Why 10 years? Here's what Leuthold discovered: Every time the stock market has been down for a 10-year period (like over the last 10 years), stocks followed that loss with at least a triple-digit percentage increase over the next 10 years.

The market has already priced in the next Great Depression. If that doesn't arrive (and we don't expect it to), stocks will soar.

In short, this is not a time to get out of stocks. This is a time to buy. According to Leuthold, it doesn't matter what you buy. As he suggested, you could hardly go wrong with an index fund.

But if you're looking for a specific stock idea, how about shares of Warren Buffett's Berkshire Hathaway?

On November 20, the stock traded below its most-recently stated book value. By my numbers, the last time it did this was back in 1984. The stock nearly doubled a year later.


It's fallen close to book value a few other times: in August 1982, when it doubled in a year. Then again during the 1987 crash... and it soared over 50% a year later. Finally, in March 2000, when the stock jumped by over 50% by the end of that year.

Last month, I told readers of True Wealth to watch for an uptrend before buying Berkshire. Well, the stock hit our "buy" price a few weeks ago... And it's up 13% already.

You don't need to get the timing exactly right. Leuthold says it's time to buy for the next decade...

Good investing,


Market Notes


As we mentioned yesterday, one of our favorite "rebound" trades is off to a strong start... the Gold Miners ETF (GDX) is up 18% in just the past week. But there's something much bigger than a simple "rebound" happening here...

Rising gold stocks signal that all the fake money the government is shoveling out to imprudent borrowers, lenders, and carmakers is producing inflation. This sort of thing happened big time in the 1970s. The government had a war and huge social programs to pay for. Their costs exceeded tax revenues, so truckloads of paper money were printed to pay for them. Double-digit inflation and soaring gold prices were the result. 

We know reading about "inflation vs. deflation" is a great cure for insomnia. But folks who had their money on the wrong side of this one were wiped out in the '70s. It's vital to your family's finances to know if inflation is eroding the value of your cash savings.

That's why, in 2009, we'll be updating you on a few simple "inflation hounds," like the GDX. If this hound is "barking," it signals inflation is trespassing on the lawn.

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