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Stay Long StocksBy
Saturday, November 20, 2010
In the September 1 DailyWealth, my headline was "There's a 98% Chance Stocks Will Be Higher in 90 Days."
The simple message was this: Investor pessimism was so bad at that time, it couldn't get any worse... So it was time to buy.
We nailed it... The day that story came out, stocks started to soar. And stocks didn't stop for a breather for the entire months of September and October.
But now a big change has happened...
Investor sentiment has shifted 180 degrees since September 1. Today, every type of investor is wildly optimistic about stocks.
So what should we do? If the situation is the opposite of September 1, does that mean it's time to sell?
No.
I could be wrong, of course. But I believe it's worth it to hang in there. Let me explain...
Investors have finally figured it out. They now believe Fed Chairman Ben Bernanke will keep printing money until someone takes the keys to the printing press away from him. So they're no longer scared.
Based on many recent surveys, investors of every stripe are bullish. You name it – portfolio managers (as measured by the Merrill Lynch survey), newsletter writers (as measured by the Investor's Intelligence survey), and individual investors (as measured by the AAII survey)... they're all super optimistic.
Typically, when everyone is optimistic, it means everything good that can happen is already priced into stocks... it means you're set up for a near-term peak in stock prices. But not always...
Extremely bullish sentiment does not always mean we're at a top... particularly if you've got a strong bull market, which I believe this Bernanke Asset Bubble Market is.
In a particularly strong bull market, we often DON'T see a major change of direction in stocks when optimism reaches a peak... Instead, we just see a correction. How long and how deep will the correction be? Whatever it takes to wipe out all the latecomers and short-term traders – any investor without conviction.
Here at DailyWealth, we have conviction... the same as we've had for months.
Our position is that Bernanke will keep printing money to save the economy. And the asset bubbles he creates will cause some investments to soar beyond what anyone can imagine. That is the beginning (and the end) of the story.
We want to stay on board this story for as long as we can stand it (or until our trailing stops kick us out). So far, so good...
Hopefully, you've collected big gains in the last few months. In my True Wealth newsletter, I am more than willing to give back some of those gains in the short run, in order to stay on board for the long run.
It's not all roses, of course. These artificial asset bubbles will end badly – some day. But that day is possibly years down the road.
In the meantime, you could make a ridiculous amount of money. The key to making the gains and pocketing them is understanding this will end someday. If a dot-com mentality ends up taking hold down the road in the Bernanke Asset Bubbles, we can't get smug. We can't think prices will soar forever.
We will have to sell someday. And we will. When? We don't know... Right now, we're taking what we're given. We're playing a game of chicken with the Fed. It could go on for years.
We want to stay in the game as long as possible. But we will get out. Trailing stops are one way to hang in there as long as possible and still get out before the Big Bust is upon us.
The conditions have been absolutely perfect to make a lot of money in the market in the last few months. And we have taken full advantage of it.
They're less perfect now, with so much optimism among investors. But with the Bernanke Asset Bubble in full swing, it's worth it to hang in there.
Good investing,
Steve
Further Reading:
You can read Steve's spot-on call in full, here: There's a 98% Chance Stocks Will Be Higher in 90 Days.
Market NotesCHART OF THE WEEK: "CHINDIA'S" BLUE-SKY OIL CONSUMPTION PICTURE Our final entry in "Chindia" week is the most incredible chart in the commodity business. It's the biggest reason to be bullish on energy over the coming decades...
When sizing up China and India's potential demand for crude oil, it's helpful to know how much oil each person uses per year in modern, developed economies like the United States and Japan. After all, Chindia's goal is to move up into this "big boys" economic club.
Our final chart reveals that if Chindia gets anywhere close to this club, it's going to consume an astounding amount of oil...
Our chart below displays the annual per capita oil consumption in the United States, Japan, China, India, and Mexico. The United States represents high levels of oil consumption... Japan and Mexico represent moderate levels of oil consumption... and China and India represent the low end of oil consumption.
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Stat of the week
25%
The increase in price of soybeans in 2010. Last week, soybeans hit a new 26-month high at $13.50 per bushel. In The Daily Crux
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