In the last two years, I’ve:

• Gone long the dollar when it was in the tank…
• Shorted oil near its peak…
• Shorted the big move to Treasuries on the heels of the credit crisis…
• And, most recently, shorted gold at $918 an ounce.

At the time of recommendation, each trade was extraordinarily unpopular, prompting some folks to flat out question my sanity. And yet, taking the dissenting opinion made money each time (the jury’s still out on the shorting gold trade.)

How’d I find the wherewithal – and nerve – to do it?

David Dreman – The Father of Contrarian Investing

I’ve been under the tutelage of David Dreman, known as “The Father of Contrarian Investing,” for many years.

Dreman literally wrote the book on contrarian investing. (If you don’t own a copy of his latest work – “Contrarian Investment Strategies: The Next Generation” – get one!)

In the book, he lays out his straightforward, time-tested investment philosophy to consistently outperform the markets: choose cheap investments that other investors hate.

Sounds too simple to be true, I know. But like any trading genius, Dreman’s track record underpins his investment philosophy…

• Since inception in 1988, his flagship large-cap value fund’s average annual return of 9.2% beats both the S&P 500 and Russell 1000 Value index by a full percentage point. His small-cap value fund has performed even better.
• Since inception in 2003, it has trounced the Russell 2000 Index (the benchmark for small-cap investments) and the S&P 500 index by more than seven percentage points.

Investing in Small Caps Predictions Ring True…

Recall, in January I predicted small cap investing would shine this year because they always do coming out of recessions. And this time has been no exception.

• From the March 9 bottom, small-cap stocks are up 50%, compared to 40% for large-caps stocks.
• And using history as our guide, we can expect more of the same ahead – small caps to trump the gains of their larger-cap peers for at least three more years.
• Thus, not capitalizing on this disparity would be foolish.
• Furthermore, the recent rally has increased stock valuations virtually across the board, so finding winning stocks will require increasingly more investment skill.

And that’s where Dreman comes in… No one on earth is better at unearthing small-cap value investments than he has been.

So how does he do it?

• First, he exploits the fact that the U.S. stocks with the lowest 20% of price-to-earnings ratios returned 16.8% per year from 1920 to 2004 – four percentage points better than the market as a whole. He buys nothing but such undervalued stocks.
• That said, he doesn’t just focus on the “cheapness” of a stock to determine its worthiness. “We don’t like dogs,” says Dreman, adding that, “All our stocks are financially strong, have high yields and earnings growth faster than the market.”
• He pays great attention to the stock filtering process, as well. Specifically, Dreman looks for companies with market caps between $300 million and $2.5 billion. Those are then screened based on their respective P/Es.
• Stocks with P/E ratios greater than the market get discarded, immediately (Dreman is innately opposed to paying a premium for growth). And the remaining companies (those with P/E ratios below the industry median) must possess an above average dividend yield, low leverage, low price-to-book and price-to-cash flow ratios, strong management teams and a catalyst that could spur future growth.

The result is typically three to four stocks in each industry group, with only one or two making the final cut.

Collectively, Dreman uses this investment process to construct a portfolio of 95 to 100 stocks from 50 different industry groups, with a 1% weighting to each. Such a small position size means that a single security can’t sour the overall portfolio performance. Which adds another layer of downside protection. (Deep-value stocks are inherently less risky than high-flying, high P/E growth stocks, anyway).

So clearly, Dreman does much more than simply buy small cap companies that investors have discarded, or ones in the midst of tough times. As he puts it, “We look for reasonably strong companies on the whole.”

But to really put his words into perspective, let’s consider a recent purchase…

Dreman Invests In Small-Caps With Aaron’s Inc.

Last year, Dreman added Aaron’s Inc. (NYSE: AAN) – a small-cap company that allows consumers to rent-to-own plasma TVs, household and office furniture and computers, without any credit checks.

Most investors looked at that business model, cringed and sold the company’s stock, causing it to lose 33% in 2007. After all, could you get any riskier than catering to consumers with poor or no credit during a credit crunch?

Dreman, of course, is too smart to fall for that. This guy can sniff out his prey from a mile away. He knew the current credit freeze was about to push previously credit-worthy buyers away from Best Buy and right through Aaron’s front doors. And with the stock trading at a historically low valuation below 11 times earnings, it was a no-brainer.

Sure enough, with an uptick in demand, Aaron’s earnings jumped a solid 19% last year alone.

And the stock defied the market, rallying 39% in 2008 while everything else took a bath. This year, it’s tacked on another 25%, thanks to a 55% jump in earnings in the first quarter.

Bottom line, small cap stocks can be some of the most profitable investments in any market. Should this market pull-back continue, consider this another great opportunity to pick up some attractive small caps.

But like Dreman, I recommend you stay away from dogs at any price.

Source: Investing in Small Caps: Why it Pays to be Contrarian

Here at Notes we spend the best part of the day combing the little-known world of contrarian investing for money-making ideas the mainstream has overlooked.

We call it the underground, because the kind of market intelligence we dig up can’t be found in the mainstream press. And many of the ideas that circulate in this hidden world actually take advantage of mainstream manias and hysterias to bag big profits.

Small-cap expert Marc Lichtenfeld at The Smart Profits Report says the secret to this profit-income combo is to look for that rare flower: small-cap stocks that pay solid dividends. Now, most investors don’t look to small-caps for income potential. But although most small-caps recycle profits back into the company growth, a number of small-caps do pay dividends…

Owning dividend-paying stocks generates income and improves a portfolio’s return over the long-term.

However, it’s hard to find good small-cap companies that pay dividends. Smaller companies usually pour any excess cash back into the business to help it grow, rather than distributing it back to shareholders.

In fact, of more than 7,400 stocks with market caps under $1 billion, only 1,356 pay dividends. And if you want a meaningful dividend yield – let’s say 3% – the number decreases to less than 800.

I further whittled down the list to companies with high current ratios, low debt, and profit expectations to help ensure that dividends would continue to get paid.

I also stayed away from companies that paid a very high dividend. Companies with yields approaching 10% or higher may find those payouts unsustainable if business continues to be difficult.

Yes, if you want a higher potential reward, you do need to take on more risk. But buying stocks with sky-high dividends is riskier than those with solid but more sensible yields.

Readers should take note that the Nasdaq and Russell (small-cap indexes) have risen 58% and 67% from their lows. So it makes sense to take a more defensive position in small-caps right now. Marc has taken the pain out of choosing the right growth-income balance stocks with three rock-solid picks in this sector…

1. WD-40 Company (NASDAQ: WDFC): The company makes everyone’s favorite industrial lubricant – WD-40 – plus household cleaners and other products. Through the first nine months of its fiscal year, it generated $18 million in profits and boasts $36 million in cash versus $21 million in debt. Earnings per share are expected to grow 13% in fiscal 2010.

Current dividend yield: 3.4%

2. American Ecology Corporation (NASDAQ: ECOL): The firm handles America’s hazardous waste. Not a great business if you’re the guy with the rubber gloves moving barrels of the stuff. But not bad if you’re an investor – particularly a new one, given that the shares have endured a beating over the past year.

ECOL is profitable, has $24 million in cash and no debt. Over the first six months of 2009, it generated $17 million in cash from operations. So far it has paid out over $6 million in the form of dividends.

Current dividend yield: 4%

3. CDI Corporation (NYSE: CDI): The company provides engineering and information technology staffing services. With so many businesses cutting jobs, it’s had a tough time over the past year. But it’s still profitable, with earnings per share expected to nearly double next year. It has $77 million in cash, no debt and generated $10 million in cash from operations.

Current dividend yield 3.6%.

You’re probably wondering why a bearish newsletter like Notes would recommend buying real estate. After all, we’ve just experienced one of the severest real estate crashes in history.

House prices are in the gutter. Taxi drivers the world over are bemoaning the fact. And you can’t open a newspaper without reading about homeowners “upside down” with their mortgages.

Of course, it’s because of the almost universal hatred of real estate that we feel it may be worth investing in right now. Here at Notes, we believe that being a contrarian investor is the best way to make money in the markets. And that means being greedy when others are fearful and fearful when others are greedy.

The Wikipedia entry for contrarian investing defines a contrarian as someone who “attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong.”

A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricing in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company’s risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains. Conversely, widespread optimism can result in unjustifiably high valuations that will eventually lead to drops, when those high expectations don’t pan out. Avoiding (or short-selling) investments in over-hyped investments reduces the risk of such drops. These general principles can apply whether the investment in question is an individual stock, an industry sector, or an entire market or any other asset class.

Our motto here at Notes is much simpler to understand. As far as we see it, you’re either a contrarian or a victim.
Underground investor Steve Sjuggerud reckons it’s now almost time to buy residential real estate. This from Friday’s DailyWealth:

If you own rental properties and are looking to unload them, you may get a nice tax break out of it, says tax expert Raife Neuman.

When I was a child I could never sit still on a long road journey. I was always asking, “Are we there yet? Are we there yet? ARE WE THERE YET???” My father would always reply “Nearly, son… Nearly,” even though we were still miles from our destination.

This is exactly how the financial markets seem to me right now. It’s been more than two years since the credit crisis kicked off, and I’m getting itchy in my seat: I want to be back out there playing with the other financial (whizz) kids. But it feels like the end of this current rocky road is still on the distant horizon.

Wall Street wants you to believe things improving… that we are on the road to recovery… and that “green shoots” are starting to appear in the economy. Call me a cynic, but I’m just not convinced.

Wednesday’s central bank actions on both sides of the pond signal that we are NOT there yet. In the US, the Fed left its interest rates on hold… and dangerously close to the zero bound. And it announced that it expected economic activity to remain weak for “some time.” The Fed is also continuing with the $300 billion Treasury repurchase plan (its massive and highly experimental money printing operation).

Meanwhile, the European Central Bank launched its first ever 12-month loan auction (at the 1% benchmark rate). This will pump a whopping €442 billion into the banking system.

With the credit markets still broken, the European banks snapped up the funds. Over 1,000 banks took part. It’s no wonder. Who would say no to a 12-month loan at just 1% when you can lend to Joe Public at over 10%? There’s an arbitrage trade I’d like a piece of… in any market.

To be a true contrarian there has to be a consensus view. And at the moment, market participants are all pulling in different directions. The ‘experts’ are busy trying to call the end to the slowdown. And they’re hoping it sticks. Meanwhile, the the Fed and the Treasury continue to hose the economy down with extra liquidity. This is a brave new world. And an extremely dangerous one for rookie investors or investors reaching retirement or who are already retired – one false move in this type of market could prove fatal.

The Fed’s recent policy message should have resulted in a stock market rally. Bernanke & Co hinted at the much anticipated return to inflation (“the prices of energy and commodities have risen of late”) but then washed all the momentum out of this trade by saying “the Committee expects that inflation will remain subdued for some time”.

Markets hate nothing more than uncertainty. And until we have a more harmonious voice either direction from governments and policymakers this turmoil is going to continue. So I’m burying that impatient kid in me for now and sticking to the safe stuff. And so should you: stick to cash, gold and investment grade fixed income for now.

This from Ted at Investor’s Daily Edge:

The stock market is still in panic mode; investors have lost too much and are dumping their stocks in an attempt to salvage what little money they have left.

The more they sell, the worse the market gets. The worse the market gets the more they sell. It’s like a nightmarish game of dominoes.

Granted the new giant stimulus package, a bigger round of rescues, and the largest deficit financing of all time are going to have an effect on this economic crisis. Some of these policies will help, but they may also backfire and aggravate the crisis. Just don’t count on the government to bail you out.

Unfortunately, it looks like the stock market will actually get worse before it gets better. Please don’t try to pick a bottom, bottom picking in this bear market is extremely risky so be careful. Wait to see a sustained recovery before stepping back into stocks.

Here are a few reasons to be bearish:

• GDP declined 6.2% in the fourth quarter and GDP will probably have a similar decline in the first quarter of this year. This is a much bigger drop than most experts were forecasting. And there is evidence that the decline is accelerating.
• U.S. consumer spending is dropping like a rock and this is killing the economy. Consumer spending accounts for about 70% of total economic activity in America.
• The media is extremely negative. Every time you turn the nightly news on, you see financial disaster everywhere. The news loves to report that more people are being laid off, more businesses are going bankrupt, real estate is going lower, etc. All this negativity scares people into selling their stocks and spending less.
• Government borrowing is exploding and this will have dire consequences including higher inflation.
• We are witnessing the collapse of a mountain of debt in the private sector and the public sector may be next. Many governments around the world could end up defaulting on their debt, which would have severe economic repercussions.
• The number of troubled banks is increasing and the amount of toxic assets on their books is continuing to expand rapidly.

The bad news is there is no growth engine, at the present time, to pull us out of this economic slump.

So what are we supposed to do now?

You need to protect your nest egg and protect yourself against further losses. Get your money growing again and protect your capital by cutting your losses. Lower your exposure to the stock market by selling off the poor performers and diversifying into contrarian investments like natural resources including gold and silver. Just use common sense and stay flexible with a well-balanced portfolio.

You should have at least 10% of your assets in gold and silver as an insurance policy. All of my indicators suggest these hard assets will soon move to new record highs. In fact, I think gold and silver are in for an extended bull market even as most stocks face an extended bear market.

You should also think about doing put options or shorts on weak companies. You can make a tremendous amount of money as a company’s stock declines. A good service to look at is Andrew Gordon’s Red Flag Insider. His service has performed extremely well in this bear market.

This economic crisis may not be over for years, but after the selling wave in stocks is over — I expect to see a major rally take place, with the Dow gaining back 50% or more of its losses in just months. So be prepared and I will keep you posted on how to play it.

Source:  Is Dow 5,000 a Possibility?

But Eric says TIPs buyers must be cautious: a prolonged spell of deflation would be devastating to both prices and yields.

More from The Rude Awakening:

Everyone knows that a deflationary deep-freeze is paralyzing the global economy. Everyone also knows, therefore, that inflation is as good as dead. The sellers of stocks know it; the buyers of long-dated Treasury bonds know it; and the sellers of TIPs (Treasury Inflation-Protected bonds) know it better than anybody. When so many financial market participants are certain about anything, a forward-looking investor might want to challenge the thesis…and try to make a few bucks in the process.

The nearby chart shows quite clearly that prices of long-dated Treasury bonds (as represented by the iShares 20+ Treasury Bond ETF – NYSE:TLT) have been soaring, whiles the prices of TIPs (as represented by the iShares Treasury Inflation Protected ETF – NYSE:TIP) have been falling. Most long-dated TIPs have tumbled 15% in less than two months. Evidently, investors want nothing to do with inflation protection, but will stampede to obtain DE-flation protection.

But is deflation such an utter certainty that investors should be scooping up 10-year Treasury bonds that yield a near-record-low 3.11%?  To rephrase the question, is inflation such impossibility that investors should be unloading 10-year TIPs (Treasury Inflation Protected) that currently yield 2.40%, but could produce a vastly greater return if inflation heats up?

We ask these questions, not because we believe a deflationary episode is unlikely, but rather, because we do not believe that an inflationary episode is impossible. Investors in long-dated Treasury securities seem to have convinced themselves that inflation has been “deep-sixed,” not just for the next two or three years, but for the next 10 to 20 years as well.

The cost of taking the other side of that trade has never been cheaper. But TIP-buyers beware!…The other side of the trade is not without risks. A potent deflationary trend would depress the value of TIPs, both in absolute terms and relative to conventional Treasuries.  In such a circumstance, TIP prices could fall… a lot.  At maturity, of course, the TIP-buyer would receive at least “par” for his bonds.  But no investor wants to wait a decade or more to see the return of his capital.

[To better appreciate the virtues and vices of a TIP of security, consider the following brief primer: http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm]

As noted above, the conventional 10-year Treasury bond yields 3.11%, which is 71 basis points more than the 10-year TIP yield of 2.40%. The TIP-buyer accepts yield penalties like these in exchange for the comfort of inflation protection.

But comparing current yields is only one small part of the calculus that leads an investor to either buy or shun a TIP.  The most important aspect of the comparative analysis is the “implied breakeven inflation rate.”  In other words, what would the average inflation rate need to be during the life of a given TIP to make it a better buy than a conventional Treasury of the identical maturity?

During the last decade, the implied breakeven inflation rate for a 10-year TIP has fluctuated around 2% – meaning, if the inflation rate averaged less than 2% during the life of the TIP, a conventional 10-year Treasury bond would have been a better buy.  On the other hand, if the inflation rate averaged more than 2% during the life of the TIP, the TIP would have been the better buy.

Lately, a very strange thing has happened in the TIP market: breakeven inflation rates have collapsed to all-time lows. The 10-year TIP, for example, is pricing in a razor-thin inflation rate of just 0.3% per year during the next 10 years.  I.e, if the inflation rate averages more than 0.3% per year during the next 10 years, the buyer of a 10-year TIP at today’s prices would be better off than the buyer of a conventional 10-year Treasury bond.  The inverse would also be true.

Let the reader decide, therefore, whether the average U.S. inflation rate will exceed 0.3% per year during the next decade. But before deciding, let the reader also do enough homework about the quirky world of TIP securities to avoid making unintended errors.  One of the easiest – and costliest – errors a TIP-buyer could make would be to underestimate the capital-destroying potential of a severe deflation.  If the Consumer Price Index were to decline sharply for a sustained period of time, the price of a long-dated TIP would also decline sharply.  Furthermore, the current yield provided by the TIP would decline at the same time – a deflationary double-whammy.

Thus, the TIP buyer’s world is very simple: inflation = good; deflation = bad. But therein lies the appeal of these unique securities as well.  Inflation is rarely a good thing for the value of a financial asset, but it is a good thing for a TIP.

When the central banks of the world flood the global monetary system with titanic quantities of credit and currency, an inflationary uptick does not usually trail far behind.  And when the US Federal Reserve pours so many trillions of dollars into the US financial system that an $800 billion bailout seems like nothing at all, an inflationary uptick becomes increasingly likely.

TIPs are risky, but inflation is devastating.

Source: Beat the Rush; Sell Treasury Bonds Now

More on contrarian investing from Penny Sleuth:

Contrarian thinking is an important ingredient to investment success.

Running against the crowd often produces investment success…but not always. The essence of a contrarian investment approach is, as author Humphrey Neill memorably put it, “When everyone thinks alike, everyone is likely to be wrong.”

“Everyone” in Wall Street parlance usually means derisively “the crowd” or “the herd.” Market lore is replete with tales of the madness of crowds and the follies of following the herd. Most people like to think they are not part of the multitude, yet by definition, most people are.

Today, as we gaze back at a market peak that looks more magnificent with the passage of time, we have plenty of fresh evidence that contrary thinking is good for the portfolio and good for the soul. Contrary thinking in early 2000 would have saved you a lot of money. But that is the nature of markets. Booming markets foster illusions; bear markets pull back the curtain.

Contrary thinking helps pull back that curtain before the crowd does — before it’s too late. What everyone knows is not worth knowing, as the old saw goes. Yet the crowd is not always wrong. The great myth about contrarian thinking is that it consists of simply betting against the crowd. The art of successful contrary thinking is in its astute application.

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Your Chance to Grow Rich AGAIN Starts Right Now

It’s no secret that the volatility we see in the markets right now is completely unheard of.

Triple-digit swings in the market now happen in mere hours…rather than months or years.

Just this past Friday alone, the DOW moved over 1,000 points!

And then, on Monday, it made a massive 936-point gain, the largest one-day point gain in history.

Here’s how you profit from it…

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Under the Big Top

The great boom of the late 20th century was built on a lie. In retrospect, it is easier to see. Broadly speaking, the lie was simply that we could get something for nothing or that a new era had repealed the old laws of economics. In this aspect, the lie was probably as old as the oldest of human civilizations, told repeatedly over thousands of years. But the late-20th-century American bubble was perhaps novel in its size, scope and sheer ambition.

Under this big tent thrived a circus of bad ideas — that stocks were less risky than bonds, that the art of central banking had become a science that could eliminate recessions forever and that stocks were always a good investment, no matter the price paid for them.

All of these fallacies and more have their counterparts in the bubbles and booms of earlier epochs. There are new twists and variations on the theme, of course. Each historical episode is by nature a unique human experience, forever buried in the flux of time. Nonetheless, in its essentials, the late-20th-century boom had all the familiar markings of its siblings and cousins.

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The “Chafee Royalty Program” That Turned Every $1 into $50…

In 2002, the same royalty “paycheck program” that paid out $50 for every $1 invested…decided to shut the door to new “members.”

In 2008, that door is open again…and it just got easier than ever to “make money while you sleep”…

But there’s no telling when it could close again… So you’d better collect your own “Chaffee Royalties” right now…

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What a Wicked Web

Understanding the phenomenon of booms and busts is the beginning of successful contrarian investing. To do this, we’ll need to look at broader trends in the financial markets. In particular, the relationship between capital, money supply and interest rates. Like a spider’s silvery web, a pull or a tug on one thread sends telling vibrations throughout.

The consequence of tinkering with any one is to upset all three. As a result, money supply and capital are often confused for each other, and low interest rates are viewed as a laudatory policy goal or achievement. The consequences, however unintended, are ignored. The important distinctions and roles each of these influences plays in a market economy are often neglected.

This foggy view of capital results in repeated episodes of crisis. Wide-scale malinvestment, or investing capital in ways later prove to be unprofitable, is the defining characteristic of booms, caused by a disruption in that nexus between capital, money and interest rates. Crisis is the result of that later inevitable reckoning when such booms are found to be unsustainable.

This boom-and-bust cycle is endlessly fascinating and instructive. At Capital & Crisis, we regularly look at the stock market, the bond market and the economy in general as we navigate our way through the perilous investment waterways of today’s markets. And we won’t hesitate to go against the crowd.

Source: Contrarian Thinking

Investors rely on predicting the outcome of events. Causation. If this happens, then that will.

But what if randomness and uncertainty were the real movers and shakers of future events? It’s a scary thought. But it’s one that could make you a wiser investor.

It’s all in the Ludic fallacy theory of controversial polymath Nassim Taleb.

We deeply need to be assured it will all end up one way or another. Depression or bounce? Recession or depression. Up or down. The problem is we ignore the random because it is abstract, not logical, and therefore takes more effort to uncover.

Taleb’s exposition of the Ludic fallacy [from Wikipedia]:

We love the tangible, the confirmation, the palpable, the real, the visible, the concrete, the known, the seen, the vivid, the visual, the social, the embedded, the emotional laden, the salient, the stereotypical, the moving, the theatrical, the romanced, the cosmetic, the official, the scholarly-sounding verbiage (b******t), the pompous Gaussian economist, the mathematicized crap, the pomp, the Academie Francaise, Harvard Business School, the Nobel Prize, dark business suits with white shirts and Ferragamo ties, the moving discourse, and the lurid. Most of all we favor the narrated.

Alas, we are not manufactured, in our current edition of the human race, to understand abstract matters — we need context. Randomness and uncertainty are abstractions. We respect what has happened, ignoring what could have happened. In other words, we are naturally shallow and superficial — and we do not know it. This is not a psychological problem; it comes from the main property of information. The dark side of the moon is harder to see; beaming light on it costs energy. In the same way, beaming light on the unseen is costly in both computational and mental effort.

Or take Taleb’s “black swan” events. This from the first chapter of his book The Black Swan: The Impact of the Highly Improbable.

Before the discovery of Australia, people in the old world were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence. The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the coloring of birds), but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is one single (and, I am told, quite ugly) black bird. [...]

Think of the terrorist attack of September 11, 2001: had the risk been reasonably conceivable on September 10, it would not have happened. If such a possibility were deemed worthy of attention, fighter planes would have circled the sky above the twin towers, airplanes would have had locked bulletproof doors, and the attack would not have taken place, period. Something else might have taken place. What? I don’t know.

Is this why crashes blindside investors? We buy into the narrative of Wall Street… and then the inconceivable comes along and knocks it down.

At Contrarian Profits, we like to think we at least question that narrative. Poke fun at it. Turn it on its head.

Not just for the fun of it.

But because it might, now and again, beam a light into the darkness.

According to a report on MSNBC, Cramer told Ann Curry on TODAY Monday: “Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.”

The Big Picture blogger, Barry Ritholz, says Cramer’s strong sell recommendation could be a strong buy signal for contrarian investors.

As I have said in the past, I don’t like to harp on any one person. I also don’t want to be a Cramer stalker. But DAMN if that headline doesn’t smell like a giant buy signal.

The market down 30%, the VIX spiking to 56, and Cramer giving a panicky SELL on TV this morning. We have a 9,500 downside target, and the likelihood of an emergency action makes us want to get long — at least for a trade . . .

We are putting a toe in the water here.

Click on the following link to watch Cramer’s sell recommendation.

This from The Sovereign Society:

Triple-B corporate bonds, a.k.a. the lowest tier of investment-grade debt, now yield more than 7%. In fact, these credit spreads versus Treasury debt sit at their widest in more than a decade.

While investment-grade bonds continue to stumble for the moment, long-term, these gems will offer the best values over the next 12 months as markets eventually stabilize and credit fears subside.

Many non-financial issuers don’t need bank credit to fund operations and don’t suffer from a liquidity crunch. But many financial firms require ongoing credit, especially now, after a 14-month-long credit crisis.

In September alone, corporate bonds have been pummeled. They’re down almost 10% in some cases and posting their single largest monthly decline since 2001.

One of the more popular investment-grade exchange traded funds, LQD (NYSE:LQD), or the iShares iBoxx Investment Grade Corporate ETF, has plunged 11% in September, pushing its effective yield up to 5.6%.

Bigger bargains beckon in closed-end funds.

Many investment-grade closed-end corporate bond funds traded on the NYSE trade at discounts exceeding 12% of net asset value. Their effective yields are now in excess of 8.5%. Some of these funds, however, use leverage to augment returns.

At some point busted credit markets, including investment-grade corporate bonds and convertible bonds, should benefit from liquidity flowing into these markets again.

I would, however, continue to avoid junk bonds since the broader economy is still weakening and many more weak companies are bound to default on payments over the next six months.

You still have time to pick and choose your investment-grade bond options. You don’t have to be the first bottom-fisher. As lending spreads eventually tighten again and other credit indicators begin to normalize later this fall, you can start buying into these bargains.

I’ll keep you posted on credit stress indicators over the next few weeks. Meanwhile, there’s no rush to start buying.

Source: Big Values in Investment-Grade Corporate Bonds