Is today’s rally in stocks something you can count on and invest in with profitable results?

Or is it likely to end soon — most likely, just as you put YOUR money on the table?

Among the thousands of investors flocking to Las Vegas for the Money Show this week — in workshops, during cocktails and around the hotel’s gambling tables — this is the big question being asked over and over again.

It’s the same question debated on Yahoo! Finance, CNBC, and in the halls of big Wall Street firms.

It’s also the same question I hear from friends in Germany, Japan, Russia, China, Brazil and even Vietnam.

Everyone wants to know. Many venture to guess. But no one has an unimpeachable answer.

So let’s zero in on …

What We DO Know about the U.S.

Stock Market with Reasonable Certainty

First, we know that it’s going up, making new all-time highs and doing so consistently. Regardless of what dangers may lie below the surface or beyond the horizon, that’s obvious and undeniable. It’s a trend.

Second, we know that such trends are driven by economic forces — whether known or unknowable — that perpetuate themselves. Like objects in motion, they tend to stay in motion. Like politicians in power, they want to remain in power. And as long as all that continues, there’s money to be made.

But we also know that most stocks are going up for all the wrong reasons:

Reason #1. Flight capital.

Global investors rush into U.S. stocks not because the U.S. economy is particularly strong (it definitely isn’t!), but primarily because other economies are unusually weak AND uniquely dangerous: Greece, Spain, Italy, France, and even Germany — not to mention hot spots in the Middle East.

Reason #2. The “nothing-better” syndrome.

With interest rates at their lowest levels in history, many yield-seeking investors view U.S. stocks as the only place to go. That’s why solid stocks with reliable dividends — seen as “bond alternatives” — have been among the outstanding performers.

Reason #3. Central bank money printing.

The U.S. Fed is printing $85 billion per month and has promised to continue until unemployment falls dramatically, an event not likely anytime soon.

Adjusting for the size of its economy, the Bank of Japan is printing at the equivalent of double that rate, also promising to keep it up for years to come.

Even the European Central Bank, which was traditionally more conservative due to Germany’s fears of hyperinflation, has thrown in the towel and joined the party.

Here’s the key: The central banks are using this torrent of paper money to BUY financial assets and stuff them in their own balance sheet — mostly bonds and mortgage-backed securities, but also stocks and other investments that, until just recently, had forever been taboo for central banks.

Is this the first time in history a central bank has gone to these lengths to goose up the economy or help keep politicians in power?

No.

* In the German Weimar Republic, the Reich bank printed trillions of marks into the ashes of World War I …

So did the Kuomintang’s Bank of China after World War II, and  …

* Ditto for the Bank of Brazil under President Kubitschek to finance his master plan for the construction of a grandiose new capital, Brasilia.

But those were idiosyncratic idiocies that were largely isolated; they were not replicated globally.

Today, what’s totally unprecedented is that ALL the major central banks of the world have checked into the same insane asylum …  and all of them seem to agree that THEY are the “new normal.”

Meanwhile, what’s even more ironic is that it’s the former money-printing champions of the world that are now watching this new insanity from the sidelines with the most fear and disdain:

* German central bankers who have protested powerlessly from day one …

* Chinese central bankers who have piled up the biggest hoard of paper currency (U.S. dollars) in the history of money …

* And even Brazilian central bankers who complain bitterly about wave after wave of unwanted dollars — and euros — washing up on their shores.

But here’s what’s even crazier …

The “new normal” central bank

psychotics of the U.S., Europe and Japan

are running out of assets to buy!

Their first “buy” targets were new government bonds issued to finance federal budget deficits.

But now, despite deficits which are still close to the largest in history, they’re printing so much money, they can’t find enough supplies of new bonds. So like car buyers shopping for out-of-circulation models, they’re now buying previously-owned merchandise in the used bond market (the so-called secondary market).

What’s even more alarming is that, for many months now, the U.S. central bank in particular — the Federal Reserve — has been loading up with bonds that are not even issued by the U.S. Treasury Department — bonds, that, by rights, should be off limits to the Fed: Mortgage-backed securities.

Remember: These were the instruments that drove the housing boom and fueled the housing bust. These were among the main things that were called “toxic assets.”

Has everyone forgotten that term?

Does everyone have the same mental block regarding the fact that the assets central banks are stuffing into their balance sheets today are the same kind of toxic assets that sunk the world’s largest banks and poisoned the balance sheets of thousands of financial institutions just a few years ago?

Fortunately, not. There is actually a small minority of voices that remember …

Richard Fisher, president of the Federal Reserve Bank of Dallas, has just warned his fellow central bankers to slow down its purchases of mortgage-backed securities, or else. In fact, at this rate, he says, the Fed could soon be buying ONE HUNDRED PERCENT of that market, which can only lead to “disruption” (his euphemism for disorder and disaster).

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, is so worried about the risks of the Fed’s money printing, he’s boldly breaking from this peers and advocating they pull back as early as next month.

But these soft voices are being drowned out by the cheers on Wall Street.

Worse, Ben Bernanke and his solid core of supporters at the Fed are thumbing their noses at them; at best, damning them with faint praise.

Your Big Dilemma

This convergence of strange forces presents you with a very unique dilemma:

* You have some of the biggest profit opportunities in many years as long as the money printing continues and markets continue moving higher, plus, at the same time …

* We will have to confront some of the most frightening future outcomes in history, when and if central bankers ultimately stop rolling the printing presses.

Our job at Weiss Research is to guide you through this mine field. And it’s not nearly as difficult as it may appear.

There ARE some simple ways to find stocks that have relative safety, as we have pointed out here repeatedly. It’s called safety-first stock ratings, and we happen to be the ones who developed the only ones.

There are very simple, tried-and-tested tactics you can use to help avoid future losses, and they all tie back to a single four-letter word that most of Wall Street seems to shun: SELL.

There is also a unique, wonderful investment that, in today’s whacky world, most people consider not to be an investment at all: CASH.

And fortunately, when the time is right, we can also use a previously beloved tactic that most investors have unfortunately learned to hate: HEDGES.

We give you specific buy-and-sell instructions in our investment newsletters and services. But we also give you valuable guidance and empowerment tools in our free reports and articles, such as those highlighted below.

Good luck and God bless!

Martin

After an odyssey that lasted more than a year, my wife and I finally got over the finish line this week. We finally closed on the purchase of our new house.

We’ll be unpacking boxes and figuring out which light switches control what for a while. But we couldn’t be happier with the place and are looking forward to spending a lot of years there together with our children.

So why am I bringing this up here? Because I believe our real estate experience has a few lessons about market conditions that are worth sharing. That’s especially true if you are in the market to buy, sell, or refinance a home!

How the Housing Market

Got to Where It Is Today

I’ve been closely following the mortgage, interest rate, and real estate markets since the late 1990s for my job. I’ve also bought and sold a few houses … and rented a variety of units in between. So if you don’t mind the pun, you could say I’ve been around the real estate block a few times.

If you’ve been thinking about buying a home and will stay put for many years, now could be a good time to take the plunge.

Back in the early-to-mid-2000s, no one was more vocal than me about the threat of a real estate and housing market collapse. I could see how rampant bidding wars, out-of-control speculation, incredibly reckless mortgage lending, over-pricing by developers and sellers alike, and more were setting the stage for an epic disaster.

Sure enough, that’s what we got!

In the aftermath of that implosion and the Great Recession that followed, I saw that many of the excesses had been rung out of the real estate market. The hottest housing markets collapsed in value, restoring rationality to home-price-to-income ratios. And the cost of owning a home became much more competitive with the cost of renting one, after a few years where owning made no financial sense whatsoever.

So I gradually shifted to a more neutral stance on housing. I mentioned as early as 2010 that conditions appeared to be stabilizing in some locales and that SLOWLY but surely, we would see the market bottom out. That too is what occurred.

By early last year, I was confident enough in the outlook — and in a position personally with my wife and family — to make the leap and get back into the market. We settled on new construction and signed our contract last spring, closing a few days ago.

What You Need to Know about Sales,

Construction, Pricing, Financing, and More!

So what happened in the intervening year? What boots-on-the-ground insight can I share with you to make YOU a smarter buyer, seller, or mortgage shopper?

First, recognize that builders are playing catch up these days. Many of them failed — or were pushed to the brink of failure — during the bust. They stopped buying lots, mothballed developments, fired workers, and/or lost many subcontractors to bankruptcy.

Now, they’re seeing increased demand again. But they’re lacking a substantial inventory of finished homes to sell, and a pipeline of lots under contract and development. They’re trying to get production ramped back up again, but many former tradespeople have moved on to other jobs. That means you should expect a longer construction timetable if you’re buying a new home.

Second, pricing IS firming up at the ground level. Our builder raised prices twice for incoming buyers over the past year, and so have others in this area. We’re not talking about 2003-2004 style insanity, where my last builder was hiking prices so much, so fast that I thought he was going to run out of toner printing out new pricing sheets. But it is happening. Sales activity is also picking up.

Third, home loan rates are incredibly low versus what I’ve experienced in the past. But the tougher mortgage financing process you’ve been hearing about isn’t just hype. It’s reality! The difference between the qualification, verification, and closing process now and several years ago is striking.

Even if you have great credit, a solid job, decent down payment, and substantial reserves, you should be prepared for a lot of back-and-forth with your lender and its underwriting department. And you should be ready to sign more papers at closing than you would have ever thought possible!

As a result, you may be at a disadvantage as a financed buyer versus a cash buyer. You may also end up locking in a mortgage rate, then find you can’t get to the closing table before that lock expires. So as a buyer, you may need to bid a little higher to avoid losing your target property to someone else. And as a mortgage borrower, you may need to go with, say, a 60-day lock versus a 30-day or 45-day lock, to avoid getting stuck with a higher-than-expected loan rate and payment.

If there is a risk to the housing market going forward, it’s the increased participation of investors rather than core buyers. I’ve discussed that issue before, and do believe that many of those investors are making overly optimistic projections about future rental demand and rent growth. It’s all part of the easy money-induced search for yield.

But even there, I don’t believe that the burning of these investors will lead to a new, full-scale housing crash on par with what we saw in the mid-2000s. That’s another reason I was confident enough to own real estate for the first time in a long, long time.

After all, I’m not looking to flip the house or rent it out. I’m planning on staying put for years. And I locked in 30-year, very-low-rate conventional financing, steering well clear of the kind of high-risk toxic mortgages that blew people up a few years ago. Indeed, if mortgage rates go up (as I expect them to), it won’t change my payment at all!

So keep all of this in mind if you’re trying to figure out how to price your home as a seller, if you’re evaluating whether to buy, or if you’re shopping for a loan. Best of luck if you decide to take the plunge!

Until next time,

Mike

A recent Wall Street Journal article caused a stir in financial markets this week. “Fed Maps Exit From Stimulus” proclaimed the headline written by reporter Jon Hilsenrath, who many believe has the inside scoop on Federal Reserve policy.

Indeed the Fed’s foray into quantitative easing … now in its fourth installment (QEIV) since the depths of the financial crisis in 2008, has been widely credited with elevating stock prices. With the Dow Jones Industrials surging above the 15,000 mark, it makes sense why investors might be concerned about the Fed removing the punch bowl and spoiling the easy money bull market.

As shown in the chart below, the stock market’s rally since the 2009 lows has tracked nearly in lock-step with the Fed’s unprecedented monetary expansion.

Click for larger version

And it’s not just the Fed; this monetary parlor-game is global …

The Bank of Japan (BOJ) has launched yet another asset purchase program to boost its ailing economy and stock market. There have been so many stimulus plans from the BOJ leading to so many false-starts in Japan over the past two lost decades that I’ve lost count. Perhaps this time it’s different.

If the Fed is too quick to curtail QEIV, it certainly has the potential to disrupt stock and bond markets.

Even the normally stoic European Central Bank threw in the towel recently and cut benchmark interest rates in hopes of stimulating its way out of a deepening recession. In fact, after recent interest rate reductions by South Korea, Australia, and Poland, the total number of global central bank rate cuts now stands at 510 worldwide since 2007 … and counting!

The world is awash in a sea of easy money, so much that it’s hard to imagine stocks continuing to rally without this stimulus. Naturally, the Fed’s eventual exit strategy is a matter of intense interest, not only to U.S. investors, but to markets around the world, which often take their cues from U.S. policy.

But this epidemic of anxiety about the end of easy money may be much ado about nothing.

Fed Bound to Keep the Money Flowing

Several Fed officials have recently made public comments about a potential exit strategy, and have openly spoken about “dialing back” the Fed’s current $85 billion per month in asset purchases, perhaps as soon as later this year. Not wanting to abruptly spoil the party, Richard Fisher, President of the Federal Reserve Bank of Dallas clarified by saying: “I don’t want to go from wild turkey to cold turkey.”

If the Fed is too quick to curtail QEIV, it certainly has the potential to disrupt financial markets, causing gyrations in stocks and bonds.

Should the Fed wait too long however, the inflation genie could slip out of the bottle, and the Fed will find itself hopelessly behind the curve in combating expectations of higher prices.

If the choice is between the Fed acting too soon, or too late, my money is on the punchbowl staying put for awhile.

The Fed is closely watching two flawed government data sets to determine monetary policy:

• The unemployment rate — now at 7.5 percent and declining, but it’s clear the Fed would be more comfortable with a lower jobless rate

• The rate of inflation — currently 1.5 percent, which is well below the Fed’s 2 percent comfort zone.

In other words, judging from the Fed’s preferred monetary policy indicators, flawed as they are, it seems clear they are bound to err on the side of easy money.

Click for larger version

The outcome of the Fed’s next monetary policy meeting in June may be watched more closely than usual, but I doubt the Fed will call an early end to QEIV anytime soon. My bet is the Fed will indeed end up well behind the curve.

Interviewed on CNBC yesterday, hedge fund manager David Tepper, who correctly turned ultra bullish on stocks when the Fed launched QEIV last year, believes concerns about an end to stimulus is overblown.

He explained that fears the Fed will end easy money is “a backwards argument.” In fact, he hopes the Fed does begin to curtail its bond buying sooner rather than later, because that would mean the private sector is healthy enough to drive the economy on its own, without need of artificial stimulus from the Fed.

Surely the Treasury Department can find better ways to invest taxpayers’ money than buying Treasury bonds at or near record low yields … and record high prices.

Good investing,

Mike Burnick

In my April 10 Money and Markets column, I explained that the first building block all successful investors must have to grow their next egg is a Better Investment Model. This means kicking the concept of luck to the curb and fine-tuning your investment process so you can confidently apply it to any future investments you make.

In a perfect world, you’d want a model that is easy-to-understand, accurate and comprehensive, and will show the expected return from an investment using some basic inputs.

Well, the model I’m about to give you does exactly that! It’s powerful and elegant, yet simple to understand. You should add it to your investor tool kit because when properly applied, it can lead to great financial reward.

This one model can tell you more at a glance than reading multiple financial publications or spending countless hours on the Internet, sifting through information that is of little or no value.

When investing, you want to eliminate as much guess work as possible.

3 Factors to Determine Your Returns

This model has three — and only three factors. And these three can be used to determine the return on any investment you own. It doesn’t matter whether it’s a stock, a bond, a mutual fund, a currency holding, or a commodities contract.

The three factors are:

(1) Current yield

(2) Growth rate

(3) Revaluation or change in P/E multiple

All three factors are expressed as a percentage. And all you have to do is add them together to get your expected total return number. And better yet, you’ll know one of the factors — current yield — at the time of the investment. So you only have to estimate the growth rate and revaluation percentages.

Note however, that currencies and commodities have just one element and that’s revaluation; non-dividend paying stocks have two elements — growth and revaluation; bonds have two elements — yield and revaluation.

So the model can be used for anything, it’s just that certain financial instruments don’t have all three factors.

Now I’ll give you an example to help you understand how this model works. Let’s do a quick analysis to estimate the annual total return you might expect from United Technologies (UTX).

Technologies is a $54 billion conglomerate with business operations serving primarily the construction and aerospace markets. Otis elevators, Carrier air conditioners, Pratt & Whitney engines, and Sikorsky helicopters are key United Technologies product lines.

Morningstar reports that with roughly 20 percent exposure to the emerging markets, United Technologies has growth tailwinds, which should help the firm grow in the event of slow growth in the U.S. and Europe. A number of United Technologies’ businesses are still below their peaks from 2008 with ample room to grow sales and net profits.

Today, United Technologies has a dividend yield of approximately 2.2 percent and trades at a price-to-earnings ratio of about 14.2. Let’s say that we expect earnings to grow at 12 percent over the next year and the P/E multiple to expand to 16.5.

Using the model I described above, we get the following estimated annual return:

Current Yield: 2.2 percent

Growth Rate: 12 percent

Revaluation: 16.2 percent (a change in the P/E multiple from 14.2 to 16.5)

Total Estimate Return: 30.2 percent

That’s all that is required! Add the current yield, the growth rate, and the revaluation percentage together and, presto, out pops an estimate of the total return for the investment — in this example, it’s 30.2 percent for UTX.

United Technologies is currently on my watch list for inclusion in The Park Avenue Society’s Elite Eight Portfolio. The Elite Eight is the best-of-the-best, cream-of-the-crop larger cap stocks selected from a Nifty Fifty list of the highest-quality, best rated U.S. stocks.

Of course there is much more to picking investments than estimating your return, nonetheless, it’s an excellent starting point.

Would you like to follow along as my team and I use this same model as part of our overall strategy for investing America’s wealthiest families’ money in these tricky times?

Just click here now to learn how you can shadow our every move.

Best wishes,

Bill

Even if you’re a novice investor, you’re probably familiar with the age-old saying, “Sell in May and go away.” In short, it means that the May through October season each year is often a dead period in the markets.

In fact, imagine you had invested $10,000 in the Dow Jones Industrial Average on May 1, 1950, then took your remaining money out of the market on October 31, and repeated this process every year. Care to guess what your initial investment would be worth today?

$9,608. That’s right, all you would have to show for 62 years of stock market investing would be a net loss of $392.

Conversely, if you had held your money out of the market during that May through October period each year, and just invested in the Dow Industrials from November 1 through April 30, your results would be quite different. Your initial $10,000 investment in 1950 would now be worth approximately $870,443!

And what if you had let your initial investment ride, putting $10,000 into the market on May 1, 1950 and then forgetting about it for the intervening years? You would now be sitting on about $726,000, not including dividends. An excellent return, yes, but not quite as spectacular as it would be if you followed the seasonal investing strategy.

Demand for natural gas is bound to surge this summer.

Seasonal Investing in the Major Asset Classes

So the adage “Sell in May and go away” does seem to hold true, at least for stock market investing. The pattern may be self-perpetuating at this point, but for whatever reason, trading volume does tend to slow dramatically around this time of year. Historically, the month of May is flat, with a zero percent return in the broad indexes.

But what about the other major asset classes?

Well, currencies typically don’t offer much relief for investors looking for yield during the summer months. The U.S. dollar tends to do well only from January through April each year, is generally flat in May and June, and then trends marginally lower from July through December.

Meanwhile, different commodities follow different seasonal patterns. Gold tends to peak in May, move lower through August, and then pick up again in September when the Indian marriage season kicks off.

Crude oil prices, like stocks, tend to stall in May. But oil is notoriously unpredictable and volatile, so seasonal patterns don’t always hold in that market.

However, other energy commodities do tend to follow seasonal patterns. For example, natural gas prices tend to rise during the summer months in the northern hemisphere, because natural gas is used to power most air conditioners.

Natural gas has been an interesting market to watch over the past few months. It has outperformed other commodities for most of this year, but prices have pulled back over the past couple weeks. That pullback may set the stage for a major rebound, especially if this summer is as hot as predicted.

A Natural Gas Play for the Summer Months

If you’re looking for what should be solid returns over the next three months or so, you may want to consider the ProShares Ultra DJ-UBS Natural Gas ETF (BOIL). This exchange-traded fund has two-times leverage. So for every 10 percent gain in natural gas prices, BOIL is designed to rise 20 percent.

Click for larger version

As you can see from the chart above, BOIL recently touched its 200-day moving average, and appears to be reversing higher from that level now.

So if the pattern holds, investing in this ETF may actually help you pay the air-conditioning bills this summer!

Best wishes,

Douglas Davenport

A few days ago, a colleague I was talking to asked me if I foresaw the world ever entering a stage of war that could be called World War III.

My answer shocked him. I told him — in no uncertain terms — that WWIII has already started.

Naturally, he had a lot more questions. So I started at the very beginning with him.

I told him that WWIII wasn’t going to be a traditional war in the sense of WWI or WWII.

Instead, I told him to make a list of every possible type of war he could imagine, and check them all off as being part of WWIII.

He struggled with this, and needed a bit of help. So I proceeded to make a list for him.

WWIII, I said, would take the following form …

International military conflict. Probably between China and Japan. Check.

Civil war. In many different parts of the world. Check.

In the Middle East, in Africa. Even in Europe, as the European Union disintegrates and the northern, richer countries of Europe are pit against the indebted southern countries and the periphery of the Union (Greece, Bulgaria, Spain).

Financial warfare via currency devaluations. Check.

Government confiscation of assets and rising taxation against the people. Check.

Increased terrorism and jihadist movements as well as domestic terrorism. Check.

When you have governments against governments and governments against people, you get two of the nastiest set of conditions possible.

North Korea pressing the button on South Korea. On Japan. On the United States. Check.

Israel taking out Iran’s nuclear facilities. Check.

Massive domestic social unrest in the United States and other countries around the world. Check.

Cyber-espionage between countries. Check.

Cyber-espionage by governments against its own people. Check.

Capital controls as governments deal with their debts. Check.

Further losses of liberty and privacy. Check.

Continued epidemic of shootings around the world as citizens go off the deep end. Check.

Corporate wars over natural resources. Check.

And more!

Place a check mark next to all of the above, I said, and that’s what WWIII is going to look like.

I told my colleague I didn’t mean to scare him, or anyone else for that matter. I’m just being realistic.

Further, I told him …

“When core governments realize they’re broke and their very existence is at risk, like what’s happening now in Europe, Japan, and the United States — you get two of the nastiest set of conditions possible …

1. Governments against governments.

2. Governments against the people.”

I’ve been studying what I call the Cycles of War for nearly 35 years, and WWIII is just beginning. I presented my updated results at the Weiss Wealth Symposium in January and shocked nearly everyone in the audience.

Click for larger version

I wrote about them in my February 18 column in Money and Markets. And my March 25 column.

I also showed everyone this chart here, based on thousands of years of data and all known war cycles, synthesized together by a specialized, unbiased computer program designed to look for and forecast regular periods in human civilizational conflict.

And I warned that the Cycles of War will turn up massively in March of this year. That’s what that arrow on the chart “You Are Here” points to.

And that’s what happened. Late March is precisely when North Korea cranked up its saber-rattling to a new level. And in April, European leaders confiscated depositor money in Cyprus. That’s no accident.

These things are happening, they are real, and most importantly, they are just the beginning of a trend that will not top out until 2019 — as you can see from the chart — at the earliest.

So what should you do to protect yourself and your loved ones?

Should you build a bomb shelter and cabin in the boonies and arm yourself to the max? Stock up on months’ worth of food and water?

That’s not my kind of thing. But if people want to do that, they should.

Then I shocked my colleague again, when he asked me how I was preparing. I told him that I thought the best defense of all “was making money, and lots of it.”

That’s the solution I said. It’s not running off into the woods and arming yourself with ammo, food, and survival strategies. That is fine for some people, but for others, it’s simply not practical.

Instead, in my world, money is the best defense AND offense. Period.

And since that’s where my skills lay — in protecting and growing wealth when most investors are losing their shirts — that’s where I spend most of my time.

For instance, the bear market in gold and commodities is not over yet. So I’m making money on the short side of those markets as most other investors get caught up in the wrong interpretation of the current fundamental trends.

Later, when gold and silver bottom, I’ll be buying up all the bargains from the die-hard bulls who are bleeding all over the place.

I’m also getting ready to position my portfolio for what will turn out to be the “Last Great Bull Market in Stocks You Will Ever See.”

After all, it’s not unusual that stock markets can perform exceptionally well when there’s a war environment underway, whether a traditional type of war or the kind I spoke of that’s already started.

The fact of the matter is that equity markets can …

1. Be a hedge against inflation and currency devaluations.

2. Profit from flights of scared capital running out of traditional types of investments, especially sovereign bonds that are going bust.

3. Pay better rates of returns in dividends and royalties than most other investments can do in today’s environment.

And, very importantly …

4. Become a safe haven just like gold often is.

We’ve already entered that stage for the stock markets, just as I’ve been warning. The move up in the Dow to over 15,000 has shocked almost everyone.

But mark my words: You ain’t seen nothing yet for the Dow. It’s headed to well over 20,000 … and probably to as high as 31,000 over the next several years.

And almost no one will understand it or profit from it because they will be stuck in the traditional economic models that say stocks cannot go higher when governments are going broke and the world is in such turmoil.

I say the opposite: Stocks will go higher precisely because governments are broke and precisely because the world is in turmoil. That’s what has happened before and that’s what’s going to happen again.

Until next week …

Best wishes,

Larry

P.S. For more on how I am planning to make more money in the next three years than I’ve made in the last 10, why not take out a subscription to my Real Wealth Report? Your financial future is at stake, and the least you can do to protect it is hear “the rest of the story” — as Paul Harvey would say.

I think it’s your ticket to wealth protection and financial growth. And it’s a mere $89 a year. Click here to join now.

It’s a well-known fact that “getting in on the ground floor” is one of the best ways to make big investment gains.

But, here’s the problem: Most of the time to “get in on the ground floor” of a company, you have to be 1) well connected, 2) already rich, or 3) very, very lucky.

Simply put, it’s not something most of us have the opportunity to do in private companies or other investment ventures.

But, there is a way we can “sort of” get in on the ground floor — and it’s in a place you wouldn’t expect — the stock market.

Now I know what you’re thinking …

By the time a company does its initial stock offering — its IPO — the opportunity to get in “on the ground floor” has passed. But frequently companies that issue their IPO to less fanfare than a Facebook or Google, offer investors another opportunity to get in on the ground floor.

Click here to read the full article …

I get it. I understand the reluctance to embrace this rally. I see it in the statistics week in and week out, which show much less money flowing into stocks than you might expect given the market’s performance.

Me?

I believe healthy skepticism IS warranted almost all the time. You don’t want to just chase the latest market fad, or throw money aggressively at any old lousy stock just because it’s going up.

At the same time, you don’t want to just ignore or avoid a market move like this entirely. I believe there ARE ways you can generate relatively safer yields and capital gains in this environment.

Indeed, I’ve been sharing several strategies with you — ones that are already delivering handsome profits. I trust you’ve been following along, taking advantage of them, and are happy with the results.

My Safe Money Report readers, for instance, just bagged a gain of 16.4 percent in only four months on one company active in the food industry. Several other consumer staples, utilities, and other recommendations are showing handsome double-digit open profits. And my “bond market alternative” plays are up nicely as well.

[EDITOR'S NOTE: Not a Safe Money subscriber yet? Want to get your hands on these kinds of gains? Then just click here.]

Where Opportunity Can be Found

in the Back Half of the Year!

So what can you do to potentially make the rest of 2013 as rewarding as the first half has been? How can you participate in this move, without abandoning your senses and going hogwild with risk?

First, I think you need to keep investing in the sectors that are leading this market — health care, utilities, and consumer staples. The global economy is far from robust, and that makes these stocks attractive. The reason: They can generate reliable sales and earnings growth no matter the economic backdrop.

For instance, I recently added a fresh play in the drug sector that yields more than 4 percent. The stock also just broke out of a multi-YEAR downtrend, thanks to a series of corporate restructuring moves and optimism about promising new products.

Investing in sectors such as health care — that generate reliable earnings growth regardless of the economic backdrop — could prove to be very rewarding.

Second, I see a few industries, sectors, and stocks that are attractive due to SECULAR tailwinds, rather than cyclical forces. In other words, they’re in their own private bull markets, and don’t need a booming global economy to chug along.

Take the natural gas sector. It was beaten down mercilessly in the last few years thanks to the sinking price of the underlying commodity. But demand is now rebounding, the supply glut is easing, and new gas finds in parts of the U.S. and overseas are helping some companies coin money!

One producer I just took a shine to broke out to a new high several weeks ago, and it’s been consolidating those gains ever since. I believe its next big move could be right around the corner, and that’s why I added it to the model portfolio.

Third, I believe there are only a select few corners of the bond market worthy of your money. Think short-term securities, and corporate notes versus government bonds.

Why?

The Federal Reserve, the Bank of Japan, and other global central banks continue to throw gobs of money at the bond market. They’re buying up anything and everything that isn’t nailed down, and are showing little regard for quality or valuation. That raises the risk of serious future losses. And with yields on many kinds of debt so paltry, you’re not being paid enough to compensate.

Ready to get more specific advice and names? Then take Safe Money for a spin by clicking here or calling 1-800-291-8545. Or at the very least, consider exchange traded funds or mutual funds that invest in sectors like staples, natural gas, or short-term corners of the bond market.

You can start by searching on a site like the Vanguard Group by clicking here. Then filter by sectors or asset class by checking the boxes you’ll find in the upper left-hand corner of the page.

Happy hunting!

Until next time,

Mike

I’m often asked what I think are the most common, most ruinous mistakes that investors make. Unfortunately, there are a lot of them.

There are things such as risking too much money on a single trade or investment … not using protective stops … not using disciplined money management … trading too often … not doing your homework … taking on too big a position in any market … not diversifying enough … and so forth.

Over time, I will explore each and every one of the above in greater detail, and more, to help you learn how to become a better investor and trader.

But in today’s special column, I want to cover what I think is the most dangerous mistake investors make, bar none.

It’s having a set of preconceived notions

about what markets can and can’t do.

The fact of the matter is that markets can do whatever they want to do.

If you don’t understand a market, it’s not the market’s fault; the fault lies with your analysis.

Markets are never wrong. Markets are never irrational.

They are what they are. And if you don’t understand a market, it’s not the market’s fault; the fault lies instead with your analysis.

For instance, have you ever heard someone say “a market is defying all logic?”

Or that a market is “disconnected from its underlying fundamentals?”

I’m sure you have. I hear those kinds of phrases all the time on shows such as Bloomberg and CNBC, especially in the current environment where stocks keep moving higher and very few have a solid understanding of why.

Or where gold has crashed despite all the seemingly bullish fundamentals.

I see plenty of experts make such statements too. But the fact of the matter is that …

Markets NEVER defy logic.

And they never defy the fundamentals.

Only people defy logic. Only people can make such statements about fundamental forces as well, because when a market is allegedly defying fundamentals, what it’s really doing is operating on fundamental forces that the analyst or investor simply hasn’t figured out yet.

I fully realize that what I’m talking about here is hard to grasp at first. But if you take the time to think deep and hard about what I’m saying, you will elevate your trading and investing to a whole new level. Markets are never wrong. Only people are.

Especially dangerous for most traders and investors is

getting caught up in the various “market myths” that are out there.

For instance, how many times have you heard that rising interest rates are bad for the stock market, and that declining rates are good for stocks?

If you’re like the average investor, you’ve heard that theory literally hundreds, if not thousands, of times before. Tune into any media show today, and I’m sure you’ll hear it at least once, if not more.

Most stock brokers, and the majority of analysts and newsletter editors espouse the same causal relationship between interest rates and stock prices.

But the fact of the matter, the plain truth, is that there is no “standard relationship” between interest rates and stock prices. Period.

Consider the period from March 2000 to October 2002, where the Federal Funds rate declined from 5.85 percent to 1.75 percent, and the Nasdaq plunged 78 percent. Put simply, stocks and interest rates went down together! Exactly the opposite of what most would expect.

Or the period from March 2003 to October 2007, where the Federal Funds rate more than tripled and rose from 1.25 percent to 4.75 percent …

And the Dow exploded higher, launching from 7,992 to 13,930 — a 74.2 percent gain! Stocks and interest rates went higher together!

The fact of the matter is that the relationship between interest rates and stock prices varies considerably depending upon a host of factors, including the value of the dollar and where the economy is in terms of the economic cycle.

But the bottom line is this: Never assume anything and never, ever get caught up in conventional thought about a market or you will most likely lose your shirt.

Let’s look at another market myth. Almost everyone believes that gold and the dollar cannot go up together.

And so, they also believe that the dollar and gold can’t go down together.

But that’s completely inaccurate. There have been plenty of times when the dollar and gold have gone up together … and there have also been plenty of periods when they have gone down together.

In fact, in the not-too-distant future we are probably going to see another such period for gold, where it and the dollar go higher together.

In fact, when the European Union really disintegrates, which is not that far off, that’s probably exactly what we will see: A mad rush of European money into the dollar and into gold and out of the euro.

Yet most analysts and investors will probably be caught flat-footed. They’ll see the dollar soaring, and will get their clients and subscribers out of gold, at the worst possible time!

Or consider another big myth, that rising oil prices are bearish for stocks. That’s a bunch of mostly baloney too.

The fact of the matter is that there have been plenty of times when rising oil prices were bullish for stocks … and where falling oil and energy prices were bearish. Exactly the opposite of what most conventional thought tells you.

Or consider the normal view about a country’s widening trade deficit. The common theory is that a widening trade deficit is bad for stock prices and a narrowing deficit is good.

But history proves that it is entirely wrong, and nothing more than a myth.

Fact: From 1976 to 1998, the U.S. trade deficit ballooned from $6.08 billion to $166.14 billion, and guess what? The Dow Jones Industrials went from 848.63 to 9,343.64!

In truth, the relationship between the trade deficit or surplus and stock prices is exactly the opposite of what most pundits claim.

Or consider the myth about corporate earnings that says they have to rise for stock prices to continue higher. But from 1973 to 1975, the combined earnings of the S&P 500 companies rose strongly for six consecutive quarters, yet the S&P 500 Index fell more than 24 percent.

Moreover, according to research conducted by analyst Paul Kedrosky, since 1960, the average annual return on the S&P 500 was greatest when earnings were falling at a clip of 10 percent or more …  while the smallest returns on the S&P 500 occurred when earnings were growing at up to 10 percent per annum!

In other words, rising corporate earnings does not guarantee rising stock prices, by any means. Nor does falling corporate earnings guarantee falling stock prices!

Here’s another myth that drives me nuts …

Most advisors and investors will tell you that lower-priced stocks — I’m talking say, less than $10 — are risky and not solid companies to invest in.

But that’s total baloney. Heck, if you had invested just $5,000 in Microsoft (MSFT) when it was just $2 a share, you’d have $82,475 today. Or $5,000 in Apple (AAPL) in 1997 and it’s worth a whopping $706,428 today.

There are many myths or biases out there about the relationships between economic fundamentals and markets, about stocks, or between markets and other markets.

But the fact of the matter is that almost all of them are exactly that: Myths, and nothing more.

The bottom line: To avoid making the biggest investing and trading blunders …

1. Never assume anything when it comes to the markets …

2. Question everything, and most of all …

3. Think independently!

Stay tuned and best wishes,

Larry

If you are a regular reader of Money and Markets, you know I’m a big fan of technical analysis when it comes to investing. I find it an indispensible tool for tracking financial market trends. In fact I just wrote about a simple yet effective trend-following indicator (see: Why the Trend is Still Your Friend).

Today I’d like to expand on this topic by taking a closer look, not at the overall market, but at relative price trends within the S&P 500. Recently, I’ve noticed a potential shift in trend that could influence your asset allocation toward stocks.

The S&P 500 has climbed the proverbial wall-of-worry this year, up an impressive 13.9 percent year-to-date through the end of last week. Most investors would consider that a great YEAR for stocks … and we’re only in the second week of May!

Tracking relative price trends within the S&P 500 can help you see a possible shift in trend.

But one potential red-flag I, and many other market watchers, have noticed in recent weeks is the strong performance by defensive sectors, including: Healthcare, up 20 percent year-to-date, and Consumer staples, up 18.9 percent!

Traditionally, these defensive sectors tend to show leadership closer to the end of a stock market advance, warning of a potential downturn ahead. Meanwhile, cyclical sectors including technology and energy stocks and especially basic materials have lagged in performance (see chart below).

Click for larger version

Perhaps these differences in relative strength among the sectors can be explained by the current slow-growth environment in the world economy. There’s not a lot of global growth to go around. And aside from emerging markets, the U.S. is one of the few bright spots.

In such a climate, it makes sense why stock investors might be attracted to defensive stocks and sectors. Another factor could be dividends. Consumer staples and healthcare stocks offer attractive dividend payouts, in some cases higher than the yield offered on government and corporate bonds. For yield-starved investors, this is an important factor.

Still, for this stock market’s uptrend to continue, I would expect this rally to broaden out to more economically sensitive sectors, which have lagged so far this year.

But we may be in store for a reversal in sector relative strength, if recent performance is any indication. The stock market may have reached an inflection point, as cyclical sectors are beginning to outperform defensives.

Last week alone, the Technology sector soared 4.66 percent higher, although the sector is second-to-last in performance this year.

Energy stocks in the S&P 500 were up 2.95 percent last week, the second-best performing sector, but energy is up just 10.8 percent year to date, behind all but three other sectors.

Click for larger version

As you can see in the chart above, with earnings season now winding down, technology is the best performing sector over the last two weeks, with energy in second-place. In fact, the top-six in performance are cyclical sectors, while Healthcare is the worst performing group, down 1 percent.

I believe this shift in sector relative strength has a lot to do with first-quarter earnings results. In fact, 79 percent of companies in the energy sector have reported first quarter earnings ahead of estimates, while 71 percent have beaten top-line sales expectations. That’s the best combined “beat rate” (when both sales and profits beat estimates) in the S&P 500 this quarter!

There is an easy way to keep tabs on relative strength between cyclical and defensive stocks, and see at a glance which is leading the performance derby.

The Morgan Stanley Cyclical Index (CYC) includes a diversified basket of 30 U.S. stocks from economically-sensitive sectors of the economy, including 3M Co. (MMM), Caterpillar (CAT), and Dow Chemical (DOW) among others.

Meanwhile, the Morgan Stanley Consumer Index (CMR) includes stable, consumer focused stocks; most of them from the healthcare and consumer staples sectors including: General Mills (GIS), Johnson & Johnson (JNJ), and Merck (MRK).

Click for larger version

Using technical analysis software (free at StockCharts.com) you can graph the ratio of CYC relative to CMR for a quick-and-easy gauge of how cyclical stocks are performing relative to defensive stocks.

As you can see above, cyclicals outperformed in 2012, but there was a definite shift in relative performance in favor of defensive stocks beginning this January. Since April however, cyclical stocks (especially energy and technology) are once again outperforming.

Investing is always a game of relative performance. When making asset allocation decisions for your portfolio, you must always compare one asset class against another … or one stock’s performance relative to others. That’s why it’s so important to keep tabs on trends in relative performance.

Good investing,

Mike Burnick