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This Is One of the Great Buying Opportunities of the Last 30 Years

By Porter Stansberry
Thursday, November 13, 2008

As longtime readers of my advisory can tell you, I haven't been bullish on the stock market in years. 

In fact, for the last couple years, I've been warning that stocks, in general, were vastly overpriced. Investors were too complacent. They had too little fear. By February 2007, I was explicitly warning that stocks had become too expensive to buy safely and we were near an important peak in the stock market.

It turns out that was very close to a huge top in asset prices. Stocks, bonds, commodities, foreign currencies all peaked over the next several months.


It was easy to see this peak coming with three key points: the number of stocks trading at reasonable prices (a lack of value), the amount of insider buying in the stock market (a lack of knowledgeable buyers), and the spread between emerging-market bonds and U.S. Treasury bonds (a lack of fear). Reviewing these key data points today shows we're building an important bottom instock pricesAnd it's why I'm telling everyone I know that this is one of the great buying opportunities of the last 30 years.

According to Bloomberg (the most comprehensive database on securities), 2,424 U.S.-listed equities now trade with enterprise values (market cap minus net cash) that equal less than 10 years of operating earnings, a price that's extremely cheap given the low interest-rate environment.

Looking through the list of cheap stocks, several great businesses jump out: ExxonMobil, Wal-Mart, Microsoft, Johnson & Johnson, McDonald's, etc. Any reasonable evaluation of the market would find plenty of safe and cheap stocks... thousands more than you would have found a year ago at the market's peak.

What about insiders?

Brian Heyliger covers insider buying and selling for my firm Stansberry Research. He follows corporate insiders on a full-time basis. He tells me insiders are buying more than ever.

Last month, the insider buy-sell ratio – which measures insider sentiment – reached its most bullish extreme in the last decade. Throughout this bear market, the ratio of buys to sells has been steadily increasing. In June, the ratio was in the high thirties – anything over 35% is bullish. But since then, the ratio doubled, hitting 63% in October... a level I've never seen before.

What about that lack of fear?

My favorite measure of fear is the spread between emerging-market debt and U.S. Treasury debt – the so-called "risk spread." Institutional investors consider U.S. Treasuries a "risk-free" asset. Emerging markets have much lower credit ratings, higher inflation, and a much greater risk of defaulting on their debts.

Investors normally demand much higher interest rates from emerging-market economies. But... in big bull markets, near the very top, investors become so complacent, they begin to assume holding emerging-market debt is tantamount to holding U.S. Treasuries. Looking back historically, you can see this spread is a great indicator of global tops and bottoms in stock prices. And as you can see below, after reaching a record low spread, this indicator is now moving back into bullish territory.

The World Returns to Normal
Munis Are Selling at a Huge Discount

In about a year, we've moved from a period of complete complacency to absolute terror. Paradoxically – and this is hard for most people to understand – you want to be a buyer of equities when everyone else is panicking.

None of these factors mean that stocks have to go up or that they will. No one can predict the future – but you don't have to be perfectly right to do very well in the market.

Yes, our economy is struggling right now with huge problems. Enormous risks threaten America's leadership in the world, the dollar's status as the world's reserve currency, our energy supplies, the rule of law in this country, etc. But all of these risks – all of them – existed a year ago, when stocks were almost 100% higher, on average. And all of these risks will exist 10 years from now, when stocks have gone up three or four times from their averages now.

To do well as an investor, you have to buy when stocks are cheap. And stocks only get cheap when most investors are afraid. So you have two choices: You can refuse to invest in stocks, or you can learn to buy stocks heavily when their prices offer you a reward for taking smart risks. That moment is right now.

Good investing,

Porter Stansberry

Market Notes


The "world's best brand" is becoming worth a little bit less each day.

As we covered a few months ago, most folks consider Google the world's best brand. It's revolutionized access to information and consumers. Heck... the company is so good, it became its own verb.

Good as it is, Google is an advertising business. And when companies conserve cash in an economic crisis, ad budgets are the first thing to get slashed. Google is also hugely popular with mutual-fund managers. When investors get disgusted with these managers, they ask for their money back... so popular stocks like Google are sold to raise cash. This is why Google just broke the $300 barrier as predicted... and why it's going even lower.

Looking at how the weak economy is hurting Google – the most effective, most targeted marketing avenue in the world – one has to wonder... is it also hurting less effective media like newspapers, cable TV, and radio?

Answer: Let's just say we know why one of the world's greatest investment analysts, Jim Chanos, is betting against most of America's radio and cable companies.

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