Steve Sjuggerud (The Right Side):

Dear Reader,

“We made three thousand dollars just yesterday in gold,” a family member told me this week.

“I know your friend Porter says buy. And I haven’t heard you tell anyone to sell. But it’s starting to feel like the dot-com days… I’m getting worried.”

This family member should have reason to be concerned… Yes, he scored big in the dot-com boom – at first. But he later gave back much of the gains.

What did he do wrong? He had no plan. He didn’t know when to sell.

So… when do you sell once you’re in a dot-com-style bubble?

First off, while it may feel like a bubble to you in gold, I think we’re just getting warmed up. The dot-com bubble peaked in March 2003. Remember, at that point, stock trading was the talk of dinner parties. We’re not quite there yet.

Also, you don’t need to believe Armageddon is near… that deficits and debt will destroy America… to believe gold will go up. Beyond the Chicken Little scenarios, we have plenty of reasons to own gold that have proven to make you money in the past. I’ve covered a few of those in recent issues of DailyWealth:

· You’d have made 17% a year in gold using a modified version of my friend Meb’s system.

· You’d have made 15% a year in gold using the “gold versus currencies” strategy.

· You’d have made 18% a year in gold using real interest rates as an indicator.

If you own gold when at least one of these systems says “buy,” chances are, you’ll do very well. All three of those are in “buy” mode right now.

OK, so when is the exact, optimal moment to sell your gold? The first two systems will get you out in plenty of time before it busts. Another idea is to use a trailing stop.

Click here for the rest of Mr. Sjuggerud’s analysis for The Right Side at Fleet Street Invest, UK.

Leuthold also knows how to invest in stocks – his his Grizzly Short Fund (GRZZX) has been top of the stock funds over the last 12 months.

If you stick with Steve Leuthold’s advice, says Steve Sjuggerud in DailyWealth, you’re be well on your way to bumper profits…

Greetings today from Minneapolis, Minnesota – home of one of DailyWealth’s favorite investment advisors, Steve Leuthold…Mr. Leuthold never ceases to amaze us. He’s done it for 30 years now…

Today, one of his mutual funds is the best-performing U.S. stock fund over the last 12 months. It ranked No. 1 on Morningstar’s list of 19,500 mutual funds – an exceptional performance.

And nearly 30 years ago, he wrote the exceptionally prophetic book The Myths of Inflation. Back in 1980, contrary to every other prognosticator out there, Leuthold was optimistic. He predicted inflation would fall to 3%. He predicted oil prices would calm down. And he predicted stocks and bonds would perform well. It was just brilliant stuff.

It was so brilliant that, after reading it, DailyWealth’s own Tom Dyson felt compelled to fly into Minneapolis just to meet with Leuthold’s contrarian research firm, the Leuthold Group. On my trip to the “North Country” this year, I chose not to bother the Leuthold guys. Instead, I’m in the Minneapolis airport, headed home after a quick vacation with my wife and kids. (My father grew up in Northern Wisconsin, and my parents now have a lake house there. My wife and I brought the kids up for a few days.)

A few years ago, Steve Leuthold made a huge bet on commodities. He bought tons of commodities… literally! Leuthold was the only fund manager I’m aware of who was actually stockpiling tons of base metals in warehouses.

He recently just closed out his fund’s position in commodity-related stocks with something like a 450% return in just a few years. (I don’t have the stats on this trade with me here in the airport… But trust me, the returns were exceptional.)

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Leuthold not only got the call right on commodities, he got the trade right, too. He really maximized his profit…

He was bold enough to take a big position when nobody else wanted to. And then he had the stomach to hold on for a long time, when other value investors would have gotten scared out of the trade.

Leuthold also brilliantly took a big short position in financial stocks in his Grizzly Short Fund (GRZZX). That bold position pushed the Grizzly Fund to the top spot in stock funds over the last 12 months.

So his Grizzly Fund is at the top of the list now… But Leuthold makes bets in both directions. So maybe another of his funds will be No. 1 down the road. (For more on Steve Leuthold and his funds, click here.)

He told Barron’s, “Our valuation models are indicating that there is not a huge amount of downside risk” in stocks right now. But as far as I know, he doesn’t have a big call at the moment. According to Barron’s, Leuthold is currently “neutral” on the markets. It’s not for a lack of looking… Leuthold just spent weeks traversing China sizing up its investment prospects.

The DailyWealth list of legitimate “market experts” is surprisingly short. One of the few names on that list is Steve Leuthold.

He’s done his homework and made prescient calls for 30 years… from calling the end of inflation in 1980, to stuffing warehouses with commodities a few years ago, to betting against financials lately.

When you see comments from Steve Leuthold or the Leuthold Group, stop and listen. You’ll probably hear some great advice…

Source:  The Best-Performing Stock Manager in America This Year

A few years ago here in DailyWealth, I shared what I called the “Generation Switch” idea… You see, investment themes move in cycles – or “generations” – that last about 17 years or so.

One generation gets enamored with an investment idea, and it soars beyond reason. Then it busts, and the next generation gives up on it forever. You can see it in the table from a few years ago: Triple-digit profits one generation, losses the next:

100 YEARS OF INVESTMENT GENERATIONS Generation Commodities (CRB Index) Stocks (S&P 500) Years 1914-1930 -14% 159% 16* 1930-1947 244% -30% 17 1947-1965 -18% 503% 18 1965-1981 123% 35%^ 16 1981-1999 -9% 1054% 18 1999-2016 ? -? 17 * Data starts in 1914, so we don’t have 17 years of data ^ While stocks had a small positive return for 1965-1981, if you adjusted the number for inflation, it would be negative

This one simple table would have made you rich…

If you’d have sold your stocks and bought commodities at the end of 1999, you’d have made bigger profits than anyone you know this decade.

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Commodities are up by triple digits since the end of 1999, and stocks are down in that time. The scary thought is… if the pattern holds, we could see stocks underperform until as late as 2016.

In my newsletter True Wealth, we wait for opportunity… We buy things that are cheap, hated, and in the start of an uptrend.

I don’t think we’ll have to wait until 2016… but we haven’t seen the uptrends yet. It’s an understatement to say it’s an ugly market out there. We’re simply doing our best to avoid catching falling knives.

It’s best to wait for the falling knife to hit the ground and come to a stop before carefully picking it up. By waiting for the uptrend, we might miss the first 20%-25% of a move… but it’s completely the right way to go now. We can’t know where the bottom is.

Right now, I’m seeing more cheap and hated opportunities than I ever have in my career. That’s what I’m excited about. And that’s the positive thing about bear markets… They create value.

Many investments around the world are as cheap as I’ve seen them. Investors coming into the market in the next few years will get in at good values. And chances are, they’ll make money.

I can’t go back and save people who didn’t read my writings back in 2000, when stocks were expensive. (In my January 2000 newsletter cover story, I said, “We are at the peak of most likely the greatest financial mania that will ever be seen in our lifetimes and quite possibly the greatest ever witnessed.”)

But I can tell you today, in 2008, stocks are as cheap as they’ve been in a long time. While they can (and likely will) get cheaper, I am excited. For the first time in many years, we’re seeing once-in-a-generation values.

Source:  The One Positive Thing About This Bear Market

If You Think Obama Will Be President, Buy These Bonds

By Steve Sjuggerud

In my 13-year investment career, I’ve found there’s one thing you can always count on to stir up investment opportunities… the government.

For instance… back in 2002, we bought an investment I called “virtual banks” in my True Wealth advisory. These types of banks borrowed money at low rates, and lent it out at high rates through government-guaranteed loans. Leverage ensured they could pay us safe, double-digit dividends.

We held the position a little over three years, and made more than 50%… all because the government guarantees many of the mortgages in America.

And take gold…

Gold coins, gold stocks, and gold ETFs have all made terrific gains in the past few years. Much of the gain has come from the flight out of paper money and into real assets. People simply don’t trust governments to manage their currencies…

Today, I’m going to tell you what could be the best government opportunity you’ll hear about this year: Muni bonds.

Tax-free municipal bonds are more attractive than they’ve been in half a century, as I’ll show. And if you think Barrack Obama will be elected, then they’re even more attractive. Let me explain…

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Municipal bonds are very simple to understand. When a state needs to build a new toll road, for example, it issues a municipal bond to get the money to build it.

The U.S. government gives investors an offer they can’t refuse on municipal bonds… Investors don’t have to pay income taxes on the interest they earn on their bonds. So when interest rates are 6%, then tax-free municipal bonds ought to pay about 4%.

That’d make them about “equal” for high-end taxpayers. Once you pay taxes on your 6% interest, you’re left with about 4%. In essence, you’re no better or worse off with 6% taxable interest or 4% tax-free interest.

But today, we have a crazy phenomenon… Tax-free municipal bonds pay more interest than taxable bonds.

It’s true… Tax-free municipal bonds are paying about 4.6% tax-free.

Meanwhile 10-year Treasuries are paying closer to 4.2%, taxable. This makes no sense…

We’ve hardly ever seen this in history. And right now, the opportunity is as good as it’s ever been. It could get even more attractive…

If Obama is elected, the biggest investment winner could be tax-free municipal bonds.

You see, without a doubt, Obama will be raising income taxes on high-income families. For example, if your income is $1 million, and he raises income taxes by five percentage points, that’s an additional $50,000 in income tax you’ll pay.

High-income families will have a huge incentive to find ways to get tax-free income. And they’ll discover something many of them have never even looked at before: Municipal bonds… That’ll drive prices up significantly higher.

Of course, as the prices of bonds soar, you’ll have to pay taxes on those capital gains when you sell the bonds… but that means you made more money while collecting high returns tax-free. It’s a good problem to have!

If you’re interested in this idea, my advice is to find an ETF that bundles together a lot of individual muni bonds. Money manager Van Kampen has several good issues that do this for investors. Click to see a full list of Van Kampen’s muni funds.

According to Van Kampen’s website, you’d need to earn 8.8%-9.25% in a taxable account (at the highest tax rates) to equal what Van Kampen is paying out on several of its funds (around 5.7% tax-free). You can find other muni-bond funds by typing “municipal” into the search box at www.etfconnect.com. This is a great website for information on ETFs.

Where are you going to find a safe, taxable 8.8% to compete with 5.7% tax-free? I don’t know… and it’s my job to find these things. That tells me it’s time to buy municipal bonds!

Source: If You Think Obama Will Be President, Buy These Bonds

The AAA annual Fourth of July travel forecast says different, according to the The Washington Times. It says record gas prices and soaring airfares will deter few Americans from traveling over the holiday weekend.

DailyWealth editor Steve Sjuggerud says be skeptical about anyone who claims to know where the price of oil or gas is going. But considering that oil has shot up tenfold in the last ten years and gas has only risen fourfold, Steve is surprised that we’re not already seeing higher gas prices.

“First, nobody knows where the price of oil or gas is headed.” You should be extremely skeptical of anyone who says otherwise. “But here’s what I do know…” Then I shared with him some simple math:

To give you some perspective, I put together this chart:

You think gas is expensive now? Consider this:

The chart shows the price of a barrel of oil on the left scale, versus the price of a gallon of unleaded gas on the right scale.

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Adjusted for inflation, the price of unleaded gas had been relatively stable – around $2 a gallon – for nearly two decades. The price of oil adjusted for inflation had been somewhat stable as well… around $30 a barrel since 1986.

Then, boom! The price of oil shot higher. Yes, the price of gas has doubled from $2 to $4. But that’s nothing compared to oil’s massive moonshot.

When you realize that the biggest part of the price of gas is the price of oil… then you can easily see how the price of gas can go higher from here.

Here’s where your gas money goes…

Refiners, distributors, convenience stores, you name it, they’ve been squeezed trying to get you gas cheaply. {Exxon (NYSE: XOM) is actually getting out of the service station business!}

The high price of oil is what’s done us in. Quite frankly, knowing what we know about the price of oil, I’m surprised we’re not paying even more for gas now.

“When will we get relief from the high gas prices?” I wish I could be more optimistic with my friend the car dealer, and with you. But I have to be honest…

When I size up the two pictures above, my simple answer to you is “not soon.”
Source: The Real Numbers Behind High Gas Prices

From March 2007 to March 2008, Exxon’s profit margin was just 10%. Meanwhile, its income tax rate was about 43%.

Compare this with Microsoft: Microsoft’s (NASDAQ: MSFT) profit margin was over 28%. And Microsoft’s tax rate was under 30%.

Microsoft makes a much bigger profit margin than Exxon. And it’s taxed way less. Heck, if anyone deserves an “excess profits tax,” it’s Microsoft, not Exxon, right?

Do you think Microsoft’s Office software is outrageously expensive? And if so, is the right solution to tax Microsoft more? Does that fix the problem for consumers?

Right now, people just want to hear that the government is doing something to fix high gas prices. Many people naively believe the gas stations and Big Oil companies like Exxon are gouging them.

But calling for a windfall tax on Big Oil is among the dumbest policies you can possibly support… and there are a lot of dumb ones to consider.

Steve Sjuggerud

Source: The Dumbest Tax Policy You Could Possibly Support

The spread of yields between investment grade corporate bonds and treasury bonds is at its highest since 2002. Soon after that point came a sharp correction back to the long-running average.

A similar adjustment now, says Steve, will make someone a lot of money. He’s calling it a “once-in-a-generation opportunity”…

Someone Will Make a Lot of Money on This Market Anomaly

By Steve Sjuggerud

In the latest issue of True Wealth, I shared with subscribers “The Next Big Thing(s) – Nine ideas for a difficult market. “To me, it’s exciting to be able to have that many unique opportunities to share. That’s the biggest unseen benefit of the rough market we’ve had over the last 12 months.

The nine ideas I shared come from all over the globe, in all kinds of investments (stocks, bonds, and whatever else). So they’re not all correlated… If one doesn’t work, another will more than make up for it.

And I believe a few of those ideas will turn out to be “life changing” investments. The opportunities are that good. Most of them are “once in a generation” trades.

Today, I want to share with you yet another possible once-in-a-generation opportunity…

Right now, “investment grade” corporate bonds are as cheap as they’ve ever been, relative to Treasury bonds.

The only time we saw a similar anomaly in the last 50 years was in October 2002. It was a great buy signal…

In less than eight months, “boring” investment-grade bonds soared 19% in price. And don’t forget, the bonds were paying more than 7% (compared to just 4% in Treasury bonds)… So you’d have picked up a good amount of interest in addition to your capital gains.

Today, we’re seeing a nearly identical situation… Investment-grade corporate bonds are paying more than 7%, while Treasury bonds are paying around 4%. Take a look at the chart and you’ll see what I mean:

There’s another way to put the trade on… You could do it hedge-fund style, where you buy LQD and make the equal and opposite bet against Treasuries. One way to bet against Treasuries is through the ProFunds Rising Rates 10 (RTPIX), which will profit if Treasury prices fall.Again, I’m not bold enough for these trades yet. The trends are against me so far. And with all the turmoil in anything related to borrowing money, I can’t recommend getting in right now.

But it is an extraordinary anomaly… one we should only see once in a generation. Soon, we will have a safer moment to capitalize on it. Someday, someone will make a lot of money here. We’ll do our best to pick the right time to get in…

Source: Someone Will Make a Lot of Money on This Market Anomaly

Take one of the real “blue chips” of the rare-coin world… the $20 Liberty, made over 100 years ago. It has just under an ounce of gold in it.

Back in 1989, the wholesale cost to dealers on this coin (graded “mint state 63,” or MS63) hit $1,600. The price of gold on that day was $366 per ounce. So in late May 1989, a dealer had to pay 4.4 times the price of gold to buy this coin.

Today – nearly 20 years later – the wholesale price on this coin is a hair above the price of gold. There is practically no “collector’s premium” over the price of gold. It is ridiculous.

This is even more ridiculous: Some investors are buying South African gold Krugerrands and U.S. gold coins minted yesterday. These coins have no chance of trading at a premium to their melt value – they’re in near-infinite supply. The mints can simply make more of them to meet demand.

But if you’re buying MS63 graded $20 Liberties, you’re pretty much just paying the cost of getting it graded and the dealer markup. You’re paying nearly the same price as you are for modern gold coins.

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At that price, sell your Krugerrands. They’ll never go up in value. They’ll always be worth the price of gold. Take those proceeds and buy some rare coins!

As I said, I think the $20 Liberties and similar coins are an incredible bargain right now. But when a bull market finally takes hold in rare coins (we’re overdue… it’s been 20 years!), these “low end” rare coins aren’t what take off. The rare stuff is what really zooms.

The last three rare-coin bull markets have seen gains of 348%, 1,195%, and 665%. When they do take off… prices go nuts.

Right now, the rare-coin market can’t get any lower… Dealers are hardly making anything on these coins as it is. And the price of gold has sneaked above $900 again. In my newsletter, I’m returning our gold coins to a “buy.”

If you’re completely new to coins, then I suggest you read the new brochure that coin legend David Hall has posted on his website (www.davidhall.com) called “Long Term Wealth Builders.”

David works with coin dealer Van Simmons. Van has taught me more about making money in coins and collectibles than anyone. He’s more than a coin dealer… he’s a mentor of mine.

You can’t pick up the phone and call Warren Buffett for advice on stocks… or Bill Gross for advice on bonds. But the rare coins and collectibles world is small enough that you can pick up the phone and chat with the most knowledgeable man I know in collectibles. (You can reach Van at 800-759-7575 or info@davidhall.com.)

I am absolutely flabbergasted at how cheap rare coins are right now, trading closer to “melt value” than ever. You can make money in two ways here… If the price of gold goes up… or if the “collector’s premium” goes up (heck, it can’t go down from here).

My suggestion is to stick with a dealer you’re certain you can trust (Van is who I do business with)… and for the most potential for profit, buy a few exceptional coins instead of a large handful close to melt value.

It’s not often you can buy an asset when it’s the cheapest in its recorded history. But that is the case, right now, in rare gold coins. Whether you buy or not, you’re doing yourself a disservice if you don’t at least consider the idea.

Good investing,

Steve

Source: Don’t Hold Gold… Buy This Instead

Believe it or not, these “boring” names soared in the early 1970s, reaching a dot-com style peak in 1972.

In 1972, Coke sold for 46 times earnings. And Disney was even more expensive, at 71 times earnings. Then, both stocks lost three-quarters of their value in two years. And these are just two examples. Similar losses occurred throughout the Nifty Fifty.

Looking back on the situation, Forbes magazine said:

The delusion was that these companies were so good, it didn’t matter what you paid for them; their inexorable growth would bail you out.

Obviously the problem was not with the companies but with the temporary insanity of money managers – proving again that stupidity well-packaged can sound like wisdom. It was so easy to forget that no sizable company could possibly be worth over 50 times normal earnings.

But investors soon forgot what Forbes said about earnings, and history repeated in 1999. Coke and Disney soared to over 40 times earnings. Once again, people thought these companies were so good it didn’t matter what you paid for them. But once again, they were wrong…

Today – nine years later – the share prices of Coke and Disney are down. But business at both has grown dramatically… meaning it just might be time to pile money into the Nifty Fifty stocks again…

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Even though its stock price is lower, Disney earns 3.5 times as much as it did in 1999. And Coke’s earnings have doubled.

So with earnings soaring, and the stock prices stagnant, these old Nifty Fifty shares are now cheap again – Disney sells for a price to earnings (P/E) of 13.6 times forward earnings and Coke for 17.

It’s not just Coke and Disney… Earnings for the New Nifty Fifty Index (NFT on www.bigcharts.com) as a group have increased by over 100% since 1999… But the index is down since 1999. As a result, valuations have been cut in half… They’re cheap!

To explain just how cheap, Bloomberg lists the forward P/E ratio of the overall stock market at 16.25 (that’s the S&P 500). But the forward P/E of the New Nifty Fifty Index is only 12.79.

It’s hard to believe the Nifty Fifty won’t return to a premium to the overall market for one simple, brutal reason: Most companies won’t be around in 25 years. But I’d sure bet that in 25 years, families will still take their kids to Disney. And folks will still drink Coke.

I sincerely believe that, after nine years of terrible performance, the New Nifty Fifty stocks will beat the overall market over the next few years, as they simply work their way back to a premium to the overall stock market.

However, I can’t fully endorse buying up all these household names just yet. As you can see from this chart of NFT, the uptrend just isn’t there yet.

I have been burned fighting the trend in the last year. I won’t buck it.

So, do I believe it’s time for the New Nifty Fifty to soar again? Yes. We should be just about there… But wait to see the uptrend before jumping in.

Good investing,

Steve
Source: Time for the Famous Nifty Fifty to Soar Again?

“But the big banks are about to get a whole lot cheaper.”

Andrew should know. He’s the CFO of a publicly traded bank. He knows how banks work… He’s the one who decides what the bank does with its money. He explained how it’s feast or famine now in the banking business… It’s feast if you’re a small bank, like his. And it’s famine if you’re a big bank.

Andrew is so optimistic about small banks, he’s just invested a chunk of his own savings in shares of tiny regional banks.

But he won’t touch the big banks like Citibank.

He says beyond the problems you already know about, the big banks have two more crises ahead of them – commercial real estate loans and credit cards. Let’s take a look at both…

When it comes to commercial real estate, banks are about to get hit with defaults here… You see, when a big bank makes a huge construction loan, it gets two years worth of interest payments in advance. Well, for many of those loans made at the top of the market, those two years are coming up.

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As Andrew explained, this could mean trouble… The big construction loan might have been made to build a shopping center to serve a new neighborhood… The problem is, that new neighborhood was either never built or it didn’t sell well. Therefore the shopping center was either never built or it has no tenants. Now, there’s a real chance the developer will walk away from the construction loan.

Andrew figures big banks are in big trouble with their credit cards, too…

That’s because homeowners got used to taking a line of credit out on their home – a home-equity line. But once the real estate market turned, instead of cutting back on spending, homeowners turned to their credit cards.

Andrew told me the big banks moved too slowly here… It took ‘em a while to realize what was happening. Now they’ve pulled in those lines of credit. But Andrew thinks they were a few months too late.

So beyond the liquidity crisis… beyond the subprime crisis… beyond the housing crisis… the big banks have two more crises coming: commercial real estate loans and credit cards.

The opportunity here is in the tiny banks instead.

Andrew says the big banks have tightened up their lending standards so much, they’ll hardly make a loan. So Andrew, with his smaller banks, can make “slam dunk” loans all day… like jumbo loans to people with excellent credit and big down payments.

While it’s a worst-of-all-worlds environment for the big banks, the high-quality small banks – ones that simply stick to taking deposits and making safe loans – are in an ideal situation…

The small banks have less competition (mortgage lenders have disappeared and big banks aren’t taking their customers). Now they can charge higher interest rates – and make bigger profits.

So is it time to buy bank stocks?

According to my banking insider, Andrew, it’s time to avoid the big bank stocks… and back up the truck on the little ones that simply take deposits and make safe local loans.

Good investing,

Steve

Source: Time to Buy These Tiny Stocks?