A Dramatic Turn For The Better: Time To Buy Stocks

In last month’s newsletter, I laid out our “script” for making money this year. I told my subscribers to “think of it as a checklist to know what inning we’re at in the game and how much longer the game will take.”

In short, a month ago, things looked pretty bad. But today, we’re back on “script.” Based on the script, you want to own stocks, right now. Take a look…

The True Wealth Script for Economic Recovery

Investment-grade corporate bonds rally first,
then stocks rally. Around the same time,
the price of copper recovers.
The CILI (aka “Silly”) Recession End-icator goes up for three months. This is a ratio of “coincident economic indicators” to “lagging economic indicators.” Dennis Gartman, one of my favorite newsletter writers, pointed out this indicator has called the end of recessions with remarkable accuracy for 40 years.
The recession ends.
Consumer confidence indexes rise.
Housing begins its recovery.

Corporate bonds are the starting point. They always rally first. iShares iBox Invest Grade Corp Bond ETF (LQD) is a basket of bonds issued by companies like Johnson and Johnson (JNJ), Wal-Mart (WMT), and IBM (IBM). As long as it remains above its lows, we know America’s most important companies are keeping up with their debts.

Investment-grade corporate bonds (as measured by shares of LQD) bottomed in October. They’re up about 16% since then. They had a nice rally, and they’ve held it. So Act I of the script is complete. (If shares of LQD fall to new lows, which I don’t expect, the script starts over.)

Stocks just got back on script. They fell below their November low, and bottomed on March 9. Stocks are now up 14% since their closing low. That’s a big cushion from new lows. I think Act II is complete.

The price of copper bottomed in December at $1.25. Copper is used in automobiles, housing, power lines, electronics, appliances, and just about everything else around you… so its price immediately reflects economic activity. As I write, copper is close to $1.80… That’s up 44%! Act III is complete.

That’s as far as we’ve made it in the script. The rest of the indicators don’t say that we’re out of recession yet. But you shouldn’t wait until the end of the recession to buy stocks. Legendary investor Jeremy Grantham explained it best recently:

In June of 1933, long before all the banks had failed or unemployment had peaked, the S&P (^GSPC) rallied 105% in six months… The market does not turn when it sees a light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.

To make the biggest gains here, we have to own stocks well before the script has completely played out. Now is the time in the script you want to buy stocks.

Subscribe by RSS Subscribe by Email