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Three of Your Biggest Investment Questions Answered

By Dr. Steve Sjuggerud
Tuesday, November 27, 2007

Our best customers asked us their most pressing questions yesterday in person...

We're gathered here at what has to be the nicest hotel in Central America – The Fairmont Mayakoba in Playa del Carmen, Mexico. It's our once-a-year free conference for our lifetime subscribers.

We answered questions for the entire crowd yesterday during a panel discussion at the end of the day. I'm sure some of my answers surprised many folks, so I thought I'd share a few of those answers with you today (as best as I remember them)...

Subscriber question: Steve, I'm worried. The dollar is crashing. And it just keeps on crashing. I want to get everything out of dollars. I'm worried now, and I'm worried for my grandkids. What do you think about the dollar now?

Answer: "The dollar is the worst currency in the world..." our good friend Rick Rule says "... except for all of the others."

Rick is absolutely right. If you're going to sell dollars, what currency are you going to put your money in?  The euro?  Now that's a terrible idea...

Porter Stansberry made a good point earlier in the conference. He said that the dollar is an IOU from the U.S. government. But the euro is an "IOU nothing" – it's backed by no one. To me, getting out of the cheap dollar today to put your money into the expensive euro is getting out of the frying pan and into the fire.

This might surprise you to hear, but I think the dollar is cheap.  

I think the euro is expensive. I think the Aussie dollar, the Canadian dollar, and the New Zealand dollar are outrageously overpriced. Of course, they could go higher from here. But I'm not selling underpriced U.S. dollars to buy overvalued currencies.

I made one more point about the dollar... Whenever you hear talk about governments getting rid of their dollars, you know we're close to a bottom in the dollar. You won't find worse traders than governments!

For example, do you remember when gold was below $300 an ounce earlier this decade, and all the European governments made a pact to sell their gold?  The European governments all sold their gold at the bottom of its bear market. They wish they hadn't sold now...

What do we hear today?  The oil countries and some Asian countries are talking about selling their U.S. dollar reserves or dropping their "pegs" to the dollar. To me, this talk of governments selling is like government selling of gold... It tells me we're much closer to a bottom than a top in the dollar.

That's probably not what you wanted to hear about the dollar. But it is what I believe.

Subscriber question: Steve, do you think it'll take 10 years for housing prices to bottom in the States?  The chart you showed of the crash in Japanese real estate makes me think it will.

Answer: Once again, you might not expect to hear this... But compared to just about every other developed country in the world, real estate in the U.S. is simply not that expensive.

Home prices in England are twice that of those in the States... with an average price of more than $400,000. And for that price, you get much less home... you get a smaller house, on a smaller lot, no garage, etc. And it's that way in most of the world – for example, a nice apartment in Tokyo will only be 500 square feet.

I'm not blind of course... I know we have an extraordinary oversupply problem. And that will take a few years to get through. And of course, some pockets (like Miami or Las Vegas) will seriously struggle.

I don't see this as the end of the world, as most people want to. Those who played with fire (the developers, the banks, and the small speculators) are getting seriously burned. But it's only a small percentage of the population. I mean it.

It's like the dot-com bust in 2000 – those who overspeculated got crushed. They got rich, and then they went bust. But most of America didn't participate. I think this is similar, and the media makes a bigger deal of it than it is. Isn't that what the media always does?

In short, banks, developers, and speculators will get the shellacking of their lives. But those who didn't participate – which is most of America – will continue to live in their "regular" American homes. These regular homes appear enormous and cheap to foreigners from any developed country in the world.

Subscriber question: Steve, I know you recommend "trailing stops" but I've been getting hurt in the stock market volatility lately. And I think stops are part of my problem. I don't want to use 'em anymore. Why are you so adamant about these things?

Answer: The idea is simple. I'm trying to make my readers money. An important principle here is to have your losers be much smaller than your winners. I tell readers I like to invest with the potential for at least three times the reward as I have at risk.

Most investors actually invest in the opposite way... As soon as they see a small profit, they take it. But they let losses grow into larger losses... they never cut them.

To explain the 3-to-1 idea a little more...

If you think you can make 300% or more on an investment, then by my 3-to-1 idea you don't "need" a trailing stop. (I'd probably still use a 50% trailing stop though, thinking that if it's gone down that much, my investment idea was probably wrong in the first place.)  However, if your upside is only, say, 75%, then you should limit your "risk" to 25% on the downside. Therefore, you should use a 25% trailing stop.

This is an extremely important concept in making money. Yes, sometimes you'll get knocked out of a "good" trade in a volatile market. But more often than not, you're knocked out of the bum trades, and you keep the good ones... I strongly recommend using trailing stops to help with portfolio management. (Editor's note: Two ways to track them: and 

Looking back on yesterday, I'm sorry, but if you weren't here, you missed it... Based on the quality of the investment ideas presented, the skill of the speakers in presenting those ideas, and the quality of facilities here at the Fairmont Mayakoba, yesterday was about as good a conference day as I've ever been a part of. 

I hope you'll consider joining us next year at our Alliance conference. Last year's Alliance conference in Aspen was hard to beat. Each year has been better than the last. But I think we outdid ourselves by far this year. 

I just want to close by saying thanks to our Alliance subscribers. It was a pleasure meeting so many of you this year. And don't worry... the dollar won't crash, home prices won't crash, and if you stick with your trailing stops, you'll always stay in the money... 

Good investing, 


Market Notes


One of the greatest eras of investor complacency has finally met its end...

Over a year and a half ago, we pointed out how the S&P 500 hadn't suffered a correction since March 2003. We used a 10% decline from the market’s highest point of the previous six months as our "correction definition."  Multiyear periods of this smooth sailing often lull investors to sleep just before a major rout occurs.

We came within a whisker of a correction this past summer when the mortgage debacle sent the S&P down 9.4% in under a month. Now, the army of cockroaches crawling out of the mortgage industry has finally ended the era of investors asking  "what, me worry?"

As you can see from today's chart, the fall rally took the S&P to a closing high of 1,565.15 on October 9. Yesterday, the bellwether index closed just below our 10% mark of 1,408.64... and the correction is on. The next bad road sign? A close below the March 2007 low around 1,375. We'll keep our eye on it...

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