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The Last Cheap Asset Class TodayBy
Wednesday, July 22, 2009
The recession is DEFINITELY over. There's just one asset class left to rise...
In the March 20 DailyWealth, I said we were through the first half of myEconomic Recovery Script: 1) Corporate bonds had bottomed, 2) the price of copper had bottomed, and 3) stocks had bottomed. So I said, "It's time to buy stocks." Stocks rallied huge – 40% since March. But the Script wasn't over until this month... Two things signal the end of the recession in our Script: 1) a spike in consumer confidence and 2) a spike in the "CILI" ratio. Consumer confidence hit an all-time low in February at 25.3. Then it soared... As of June 30, it's at 49.3. And earlier this week, the "CILI" ratio gave us full confirmation the recession is over. The CILI ratio is a ratio of "today" versus "yesterday," so to speak. Specifically, it's a ratio of the Coincident Indicators ("today") to the Lagging Indicators ("yesterday"). (The Conference Board puts out these indicators. You can visit www.conference-board.org for more details.) When today starts looking better relative to yesterday, we're finally out of the woods. A rising CILI ratio says things are getting less bad. Back in March, I said we needed to see the CILI ratio rise for three straight months. As of this week, we got what we were looking for...
So the recession is over. No doubt about it. The Script nailed it. Now that it's over, you won't believe what goes up next... Look, last year, people thought the bond market was ending as we knew it. Then it recovered dramatically. Next, by March, people thought the stock market was going to fall indefinitely. Then it, too, recovered dramatically. Now people think housing will never recover... But consider this: Housing prices from San Francisco (down 48%) to Miami (down 46%) have crashed. In the bubble markets of Phoenix and Las Vegas, home prices are down over 50%. Meanwhile, mortgage rates are near record lows. So U.S. housing is more affordable than it's ever been. Corporate bonds are no longer the bargain they were. Stocks certainly aren't. Today, the last cheap asset class is housing. I didn't expect we could burn through the Script so fast. But we did. My Economic Recovery Script has been remarkably accurate so far... And according to the Script, things are about to get less bad in housing. I, for one, am going to start making some lowball bids on residential real estate in my area (on the Florida coast). In the latest issue of my newsletter, True Wealth, I describe how I plan to do it and how I hope to make a few hundred thousand dollars of gains after tax. My friend, we are out of recession. And our Economic Recovery Script says housing is about to recover. It's been right all along... so bet against it at your own risk. Good investing, Steve
Further Reading:
The Great Recession Is Definitely Over! Where to Now? Market NotesPIPELINE STOCKS HAVE FORMED A NEW UPTREND
After going temporarily crazy last year, pipeline stocks are finally acting like they "should."
In normal times, a pipeline investment is a good friend to the income investor. There's no exciting "high growth" story... They simply collect fees for transporting natural gas and other fuels across America. They also have a special corporate structure (called an "MLP") that allows them to pass most of their earnings along to shareholders. For much of the period between 2000 and 2008, pipelines acted like boring income investments should. No drama... just steady share price appreciation and dividends in the 5%-10% range. But like all assets, pipeline shares were obliterated last fall. The benchmark Alerian MLP Index fell 51% in just six months. But as you can see from today's chart, pipeline shares are acting like they should again. The Alerian Index has rebounded to reach a nine-month high and currently yields around 8.5%. And get this: These companies have Washington, D.C. on their side. Only clean energy – like natural gas – can flow through those pipes. |
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