|Andrew Gordon Reporting: Baltimore, MD. Thursday December 10, 2009|
Phony bubbles give you outsized returns. And there's one now staring you in the face. It's gold.
Buying and selling gold is all about fear, says IDE's Steve McDonald. People buy the yellow stuff on fear that things will get worse. And they sell even faster on fear that gold is in a bubble. Right now, they're selling. Look at this chart...
That makes gold unpredictable, says Steve. But it also gives investors great prices to get on board gold's climb up the charts and make big gains.
IDE's Rusty McDougal is a self-confessed gold bug. And he thinks talk of a bubble is nonsense. Rusty (who edits Resource Windfall Speculator) says, "I wish I had an ounce of gold for every time some casual observer has barked out... BUBBLE. There is no gold bubble.
"Gold would have to trade somewhere near $2,400 to be as high in actual dollars as it was in 1980. It's somewhere near half that now.
"Gold's gone up hard and fast, but that doesn't automatically put it in bubble territory. It did the same thing in March 2008 when it went just over $1,000. It also went up hard and fast in May 2006 when it reached $720."
Rusty says you can now use that "unpredictability" to your advantage. Gold is dipping. It's a good time to buy.
Another Winning Bond Trade
At a fraction of the risk, boring bonds can make 5-6 times the profit that the stock market is giving you.
Steve says that corporate bonds are the most undervalued and misunderstood investment asset in North America. They regularly give you annualized returns of 50% or more. How can bonds do that? Here's a typical example from Steve's Bond Trader portfolio...
The Bond Trader recommended a Weyerhaeuser bond last March at around 97.5. In bond talk, that's $975 for a bond that will pay you $1,000 at maturity and 6.75% in interest while you hold it.
Weyerhaeuser's bonds are rated BBB, which is investment grade, not junk.
Two week ago, Weyerhaeuser announced that they would buy back the bond now for $1,062.50 instead of at maturity (2012) for $1,000.
Here's how the numbers shake out...
Bondholders who bought the bonds when they were recommended by Steve last March get $87.50 ($1,062.50 minus $9,750) in capital gains for each bond plus $19.50 in interest.
That's a total of $107 per bond for the original $975 investment.
Since the bond was held for only nine months, that's an annual return of around 14.6%.
And here's what's really great about investment-grade bonds. They've had a 99.7% safety factor over an 80-year period. Yep, they went bad only 0.3% of the time. Where else in the investment world can you get those odds and make double-digit gains?
Protecting Gains and Maxing Profit
It's not that hard to make money – and lots of it – in choppy markets. Nervous investors never find out. They flee the market to protect what gains they've made. If you do that and the market continues its climb, you've left money on the table. And who wants that?
So how can you stay in the stock market and still protect the profits you've made so far this year? Steve McDonald has the perfect solution...
All you have to do is set up a 10% trailing stop on your holdings. If the market goes south, your holdings will sell off automatically as they hit that 10% point. This does two things. First and foremost, it protects your profits. Second, it gives you cash to buy back into the market at a better price.
Say you bought McDonald's in early March for $51.85. You could have made as much as 24% if you had timed the peak it hit a couple of weeks ago. But if you'd put a 10% trailing stop on it, you're still holding on to the company. Since peaking, the company is down 6.1%. Your profit has slipped to 16.9%. With a 10% trailing stop, it can slip no further than to a 12% profit. Here's what that could mean for you...
It's nice when you don't have to sweat out whether to sell or not to sell. A trailing stop takes all the emotion out of the decision. And it gives you the opportunity to stay in a market you may not quite trust to go up. Because you could be wrong.
We Need More Truth Tellers
We need more Paul Volckers. As the Fed chief for Ronald Reagan, he reined in runaway inflation in the early 80s. He knows how to cut through all the Washington crap and get to the truth. What he said yesterday should be bronzed and hung up in Obama's oval office... "I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth – one shred of evidence." He went on to say that the biggest innovation in the industry over the past 20 years has been the cash machine. Ain't that the truth!
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