You see, most investors gobble the answers up, thinking, “If the Big Money is doing it, maybe I should, too.”

But I read the Big Money poll in exactly the opposite way… I know when the Big Money guys all believe the same thing, chances are great the trade is “full” already.

So if you read the Big Money poll right, it can actually be quite profitable. Let me explain…

In mid-March, Barron’s e-mailed the poll to money managers. About 120 replied, and the results came out over the weekend.

The most hated asset class (not surprisingly) was real estate investments. Only 8.1% of money managers considered themselves bullish on real estate. And the most loved class was Latin American stocks… Only 13.8% of money managers were bearish on Latin American stocks.

The “untrained” reader might take this to mean the right trade is to buy Latin stocks and sell real estate stocks.

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Funny, then, that real estate stocks are now the best-performing sector this year… Simon Property Group – the benchmark real estate stock – is up more than 20% year-to-date.

Meanwhile, the Latin American Discovery Fund, a collection of South American blue chips, is down for the year.

How can this be? The answer is simple…

When all the money managers are bearish, there’s no one left to sell that stock… With only 8.1% of money managers bullish on real estate stocks when the poll was taken in mid-March, there was nobody left to sell real estate stocks. With no one left to sell, they couldn’t go down any farther.

So here’s what happened: On March 14, Simon Property Group traded for around $86. Now – just six weeks later – it’s at $105.

On the other hand, the Latin American Discovery Fund peaked two days before March started, and it hasn’t done much since. It was everyone’s favorite in March… Why hasn’t it gone up? In short, there’s nobody left to buy – only 13.8% of money managers were bearish on Latin stocks when the Big Money poll was taken. Everyone who wanted to buy was already in.

Here’s the key: You have to wait for the extremes in sentiment. The old saying is, “The crowd is wrong at the extremes, and right in between.”

So let’s look at another example from the Big Money poll… One result was as lopsided as I’ve ever seen: Only 3.6% of investors are bullish on 10-year Treasury bonds. That means nearly all money managers believe long-term interest rates are headed higher.

With long-term interest rates currently below 4%, investors think rates can’t go any lower. After all, they haven’t seen them lower than that in their lifetimes.

But they’re ignoring history… Japan’s property bust started in 1990. Interest rates were “normal” then – around 6% to 7%. But as the property bust went on and on, long-term interest rates fell to 3% by 1995… and actually fell below 1% in 2003. Even today, they’re around 1.5%. Incredible!

All the talk is of inflation… and everyone expects interest rates to head higher. But don’t go betting the farm just yet. This trade is already full, and long-term interest rates could surprise you and head much lower. Already, interest rates on 10-year Treasuries have fallen from more than 5% in the summer of 2006 to below 4% now.

If you want to follow the crowd and do the “ordinary” thing, bet against real estate stocks and bet that interest rates will head higher. But by doing the ordinary thing, you’re destined for ordinary returns. If you want “extraordinary” returns, you must be willing to do something extraordinary.

One of my favorite hunting grounds for doing something extraordinary is Barron’s Big Money poll…

Good investing,

Steve

P.S. Talk about doing something extraordinary… In the latest issue of my letter, Sjuggerud Confidential, which came out earlier this month, I recommended a safe bank, with no exposure to U.S. real estate. We’re already up more than 20% – in less than four weeks! And I still think it’s a great buy. To learn more about this idea, click here.

GE is one of the best-diversified and well managed companies on earth, and is seen as a barometer of both the U.S. and the world economies. Its latest earnings report was affected by the expected fall in financial services and a continued strength in overseas earnings. But it also showed a largely unexpected fall in the sales of U.S. medical devises as public and not-for-profit hospitals, suffering massive increases in their borrowing costs, cut back on spending.

The fall in GE’s earnings suggests that recession in America is taking hold across a wider spectrum and is not restricted to sub-prime real estate. As this idea reality finally began to dawn on Wall Street, the Dow Jones Industrials and other broad market indices lost some 2 percent on the day.

As investors lick their wounds, they should also realize that nominal losses in U.S. stocks are really just half the story. So far this year, the American dollar has lost some 7 percent against the Euro and some 10 percent against the Japanese Yen. As more GE-like earnings reports loom on the horizon, and as the dollar continues to slip, holding even blue chip American stocks will remain a risky proposition.

False rally

Not long ago, before the sub-prime debacle (of which Peter Schiff and I had warned of repeatedly) really began to take its toll, the majority of economists foresaw little widespread difficulties in the American economy. However, when Bear Stearns became completely unraveled almost overnight, most of these formerly optimistic observers now belatedly recognized real problems. Their fears have been largely assuaged by the magnitude of the Government’s response.

Using methods that the legendary former Fed Chairman, Paul Volcker, said, “stretched the very limits of its legal powers,” the Fed dramatically rescued Bear Stearns on March 17th. Such was the sanguine sense of relief that investors felt our national economic problem had been largely cured, at a single stroke, by the Fed.

In the four weeks since March 17th, stock markets appeared to rally, on the back of what can best be described as the ‘euphoria of blindness’ to the realty of the systemic economic problem we face in the ‘real’ world.

Credit contamination

Renowned Yale Professor Robert Shiller has shown that from 1995 to 2006 the value of U.S. real estate rose some 30 percent above its century-long value line. Today, the U.S. residential housing stock is valued at some $20.145 trillion, of which more than half is debt! Admittedly, not all this debt is sub-prime. But the sub-prime problem is, as we have long forecast, spreading both upwards and across the real estate field and the credit markets.

As the average consumers’ single most important asset is their homes, the fall in house values is now adversely affecting American consumer confidence. This bodes ill for both the American and the world economy, in general.

The Fed Chairmen, Ben Bernanke, now has an historic opportunity staring him in the face. Should he continue to back the government in disguising the natural economic recession, by debasing the U.S. dollar and so continue to rob every single American citizen of his or her hard-earned wealth? Or should he, at long last, stand up for American citizens and their money by using his ‘independence’ to force our government to adopt sound economic and financial policies?

Cosmetic patches versus radical cures

Recent pronouncements indicate that he has decided to ignore his legal ‘independence’, and instead submit to political pressures and allow the government to silently tax current and future citizens in order to bail out financial and real property. Characteristically, Wall Street appears to applaud the decision, accepting both more inflation and further debasement of our dollar to save themselves, for a time, at least.

The Fed balance sheet amounts to some $800 billion. This sounds like a lot of money and it is. But it is dwarfed by the county’s debt exposure, which includes not just the $10 trillion of residential property debt, but also trillions more in commercial property, auto loans, and credit cards and increasingly vulnerable business loans!

The key question is: Does the government have enough money to finance a bailout of several trillion dollars? The answer, of course, is no. But, although national savings are at an all time low, both the American taxpayer and many ordinary citizens still have some net worth that can be both taxed and eroded by inflation and currency debasement!

Recent pronouncements to extend the regulatory powers (read: funding ability) of the Fed to the really big gamblers, namely investment banks, derivative traders, insurance companies and even to hedge funds (the speculative vehicles of the super rich) and the increasing political talk of ‘help’, indicate that both the government and Congress are now set on a path of higher taxation, inflation and dollar erosion.

For alert Americans, investment attitudes must undergo a sea change. Instead of thinking in terms of return ‘on’ capital, investors will be well advised to think about return ‘of’ capital! Greed should give way to extreme prudence.

It is becoming increasingly clear that any investors, who wish to protect their wealth, should invest in non-dollar denominated financial assets and, where possible, hold them (legally, including paying tax) offshore, in order to avoid any risk of the future imposition of American exchange controls.

As the old song goes, ‘the times, they are a changing’. Soon unfortunately, that refrain will bring smiles only to those who have taken wise protective action with their investments.

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For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

Don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com.