Which investment strategies worked for most of last year?
Buy the dollar; sell the euro.
Buy Treasury bonds; sell emerging market and junk bonds.
Buy U.S. stocks; sell foreign ones.
Buy inverse commodity ETFs; sell oil and energy. And while you’re at it: Avoid Brazil, Russia, Europe, and South America like the plague!
I embraced many of those strategies, and made some good money for subscribers and readers by doing so. My anti-euro stance was well documented here in Money and Markets, for instance.
But so far in 2015, I’ve been advocating a new strategy. You could sum it up as: “Buy what you sold, sell what you bought!” I’ve been doing so because we’re seeing a “Big Reversal” in several markets — one driven by massive extremes in sentiment, valuation, policy, and positioning.
|Sentiment at the turn of the year was overwhelmingly bearish on the energy sector.|
The energy market is a prime example. Sentiment at the turn of the year was so ridiculously bearish on anything related to energy, you couldn’t find a bullish story or bullish investor if you tried.
The general consensus was that Saudi Arabia was hell-bent on destroying every competitor it could … the collapsing global economy would crush demand … and the entire U.S. shale oil and gas industry was going to go broke. That, in turn, would lead to massive, multi-billion dollar losses for anyone holding energy sector stocks or bonds. So run for the hills and don’t look back.
My research showed that we had reached an extreme akin to what happened in the energy patch in 1985-86, as well as in the Great Recession. So I said it was time to start buying, and in my energy trading service that’s exactly what we did. We’re now sitting on several double-digit open profits … and I believe there’s more to come!
Or how about foreign and emerging market bonds and stocks? I hated them for the longest time. But valuations got so compelling, and sell offs got so aggressive, that in January I couldn’t take it anymore. I started nibbling in my interest rate trading service. Sure enough, those investments are now rising sharply in value.
Then there’s the currency market. In my Safe Money Report I recommended one of the biggest positions in years in a double-inverse euro ETF last spring. My belief was that the euro currency would crater as the economy over there would underperform the economy here, and the European Central Bank would ramp up QE even as our Federal Reserve faded to the background.
Sure enough, that’s what transpired — and we racked up juicy gains! But as of a few weeks ago, I’d had enough as I sensed the move was entering its terminal phase. I told my subscribers to bag the last of their gains, and now the euro is showing tentative signs of stabilizing — and the dollar is showing signs of topping out!
Bottom line: So far in 2015, it has paid to buy what you sold, and sell what you bought, in 2014. I think that strategy will continue to work for some time, and I recommend you adopt it as your own!
Until next time,