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Steve's note: This week, I've showed you why I believe stocks could double over the next three years. As I explained, the market is cheap... and low interest rates will fuel a tremendous move higher. But there's one more force working to drive the market higher. I'm calling it the "Great Migration." And it could push stocks to unimaginable highs... The "Great Migration" Could Lead to a Dot-Com-Style Boom in StocksBy
Wednesday, March 6, 2013
Mom and Pop America are about to buy stocks... big time. And that will kick the market into a major boom phase...
As I've showed you over the last two days, the stock market is incredibly cheap right now. Plus, there's plenty of "rocket fuel" to drive it higher.
And right now, the "Great Migration" of Mom and Pop investors is just getting underway. If you understand this and position yourself correctly, you could make a ridiculous amount of money.
The principle is simple. It is the idea that Mom and Pop America are about to buy stocks... big time. They are about to migrate from ultra-low-interest investments (like cash and bonds) and into stocks.
Mom and Pop don't want to do this, yet. (Heck, they don't want to do it at all.) But over the course of the next three years, they will make the migration. They have no choice.
One by one, Mom and Pop will soon realize that near-zero-percent interest on money in the bank and in bond funds isn't good enough. You can't live on that in retirement... and you need to do something else.
They'll look around to see what they can do with their money... and they will rediscover stocks. They will eventually figure out they've been left with no other options.
At first, this migration will be slow... But it will gain some real momentum once Mom and Pop understand the effect the first two incredible forces I described (low interest rates and low inflation) are having on stocks.
By the end of next year, the Great Migration could get silly. Ultimately, we could see a dot-com-style boom in stocks all over again through 2015.
I don't know how high things will go. But if the stock market rises to 30 times earnings in three years, that's a 168% gain from here. The market went higher during the dot-com boom... and we could see a similar boom here.
To maximize your gains, you need to get there first. And you're still plenty early. The Great Migration has just begun...
It really just started this year. According to Lipper, a global leader in mutual fund research, $25 billion flowed into stock mutual funds in the first five weeks of 2013. That's the biggest inflow in any five-week period since April 2000 – right at the peak of the dot-com boom.
This is a major change...
You see, in the last five years, $1 billion-plus has flowed INTO bond mutual funds (according to the Investment Company Institute, a trade organization). Meanwhile, $500 million has flowed OUT of stock funds.
I can't fault Mom and Pop for investing in bonds... It was actually a great move. As I pointed out in a recent essay, you'd have made a 100% return in high-yield bonds starting from the March 2009 bottom.
But as I explained, the move in bonds is over now. The easy money is gone.
So what should you buy? Let's talk through this...
The first stocks I expect Mom and Pop to buy when they migrate out of cash are the big names... the dividend-paying blue chips.
Their next stop will be Big Tech, like Apple and Google. You can hardly blame them... shares of Apple and Microsoft trade at a single-digit forward price-to-earnings (P/E) ratio. IBM trades at a forward P/E ratio of 11. These names are cheap!
After seeing their success in big, dividend-paying stocks and Big Tech, Mom and Pop will become emboldened... They'll be ready to take on some real risk. And that's when riskier assets like emerging-market stocks will take off.
Again, I am fully aware that any number of things could happen to prove me wrong. I know the entire globe is struggling right now. According to the most recent data, the U.S., Europe, and Japan are all experiencing NEGATIVE economic growth. And that's today...
Looking down the road, a crisis in the U.S. is inevitable... You can't borrow money and print money at the rate we are without consequences. I know these things.
But the facts speak for themselves... Conditions are perfectly lined up for a dramatically higher stock market.
I am excited about this.
Make sure you position yourself to take advantage of it. The ride might be bumpy, but it will be worth it. Be confident in the low rates and the Great Migration, and stay onboard as long as you can stand it.
Good investing,
Steve
Further Reading:
This week, Steve has shared the key catalysts for a three-year rally that could send stocks higher than anyone believes. "We've been handed the playbook," he writes. "We know the plays. We know what the other team is going to do. And we know how they're going to do it – almost exactly." Read Parts I and II of his series here and here.
Market NotesCAN YOU NAME THE WORLD'S TOP-PERFORMING COMMODITY? Quiz time: Which commodity has performed the best over the past 12 months?
Some might guess natural gas. The clean fuel has enjoyed a heck of a rally off its early 2012 lows. Others might guess corn or soybeans. These agricultural commodities have been all over the news.
The correct answer, according to financial research website Finviz, is lumber. Wood has registered a 47% gain in the past 12 months... beating stocks, grains, energy, and everything else.
You might not have guessed lumber would be the winner. But you can probably guess the driver of its rally... It's the huge rebound in the housing market. Like most commodities, lumber was hammered during the credit/housing bust of 2008. But as you can see from the chart below, it's been a heck of a recovery. Prices have surged in the past 18 months... and are sitting near eight-year highs. It's a bull market in wood!
– Brian Hunt
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