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Why EVERYTHING Is Up and Will Go Higher StillBy
Saturday, October 9, 2010
EVERYTHING is up!
Gold is hitting all-time highs. Stocks just had one of their best Septembers on record. Oil is near two-year highs. Everything is up.
But why?
Today, I'll tell you why in simple terms... and I'll share with you why the fun should continue.
The story in the investment world today is this: We have two possible economic scenarios, and both are bullish for all investments...
The first situation is simple: The economy recovers, and all investments go up... Corporate earnings grow, and that pushes up stock prices. Commodity prices go up, too, as a growing economy increases demand for commodities.
The second situation is also simple: The economy falters, so the government pulls out all the stops to "ignite" it. The popular term for it today is "quantitative easing," which is everything from "printing money" to buying investments with the goal of propping up their prices.
Under the second situation, investors know the government will prop things up... so the downside is limited. Federal Reserve Chairman Ben Bernanke is a determined fellow. And he has repeatedly said he's willing to throw the kitchen sink at the economy to keep it from faltering again. Ben's essentially promising to eliminate the downside risk.
Investments go up under this scenario, as investors want to get OUT of cash in the bank and INTO, well, anything else... stocks, gold, commodities... you name it.
Scenario No. 1: Everything goes up.
Scenario No. 2: Everything goes up.
See, you can't lose...
Ah, but wait.
There is a pesky scenario No. 3. Nobody wants to consider it. It's when the government throws the kitchen sink at the economy – and it STILL doesn't recover.
I've been writing on this theme a bit to my True Wealth subscribers... The headline to my August issue was "A Potential Bull Market in Everything." I said "potential" because most investments weren't clearly in an uptrend yet. But they are now.
In DailyWealth on September 2, I didn't mince words. My headline was: "There's a 98% Chance Stocks Will Be Higher in 90 Days." Stocks went on to have their best September since the Great Depression.
Today, the picture is still the same. It's even better... almost ideal...
Stocks are reasonably cheap. They're in an uptrend. And the news is less bad. But people are still not super bullish, yet. This is a moment when you want to own stocks – and just about everything.
Right now, the likely outcomes are scenario No. 1 or scenario No. 2.
If we even get a whiff of scenario No. 3, we're not worried... Our trailing stops will get us out of our positions before we know trouble is here.
For now, it's a bull market in everything. And that should continue.
Get on board.
Good investing,
Further Reading:
The last time people were this down on the U.S. economy, it boomed for 16 straight years. "People were ridiculously optimistic when they should have been most scared. And right now, they are scared," Steve writes. "With history as our guide, it's probably a time to be optimistic." Read more here: The No. 1 Reason for Optimism Today.
"Investors are pulling money out of stock funds," Tom wrote recently, "even though stocks are offering one of the best deals of the last 50 years." Tom's got three picks with earning yields around 10% right now. Learn more here: Don't Buy Bonds... Buy This 8% Investment Instead.
Market NotesCHART OF THE WEEK: THIS RATIO IS BACK NEAR THE BOILING POINT Right now, the contrarian trader faces a big dilemma: What's left to buy that hasn't already soared on the back of the government's giant "E-Z-Credit" program?
Fortunately, our favorite commodity – natural gas – is still cheap.
Natural gas is a vital fuel that heats our homes and powers electrical plants. It also trades in a ratio to its energy cousin, crude oil. Sometimes oil gets cheap relative to gas. Sometimes gas gets cheap relative to oil.
A big glut of new gas supply drove this oil/gas ratio to a super-cheap "boiling point" reading of 24:1. We've since backed off the burner a bit, but with oil soaring and natural gas near its lows... the ratio is about to hit a high for the year.
The only way to make big money in the commodity markets is when you can get assets on the cheap. Contrarians take note: "Natty" is still a buy.
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Stat of the week
259%
Increase in KOL, a basket of stocks in the major coal-producers, in the last 19 months.
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