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Peter Brimelow
Dec. 13, 2010, 12:18 a.m. EST
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Is a stock-buying panic possible?
First Take "º
Dow close to new bull-market high
By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) "” An apocalyptic hard-money letter says party on "” for now.
When I last checked with the Aden Forecast, the well-argued service edited by Costa Rican-based sisters Pamela and Mary Anne Aden, they were making one of their periodic tacks in the face of market conditions. ( See Oct. 18 column.)
The Adens expect a hyperinflationary collapse "” but they also have great respect for the Federal Reserve's ability to stave off the end, short-term. And they concluded that market action was telling them the Fed has succeeded, again.
This combination of strategic insight and tactical flexibility has worked. Over the past 12 months, the Aden Forecast is up 17.9% by Hulbert Financial Digest, versus 12.6% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the past three years "” which includes the Crash of 2008, remember "” the letter is up 6.55% annualized versus negative 5.86% annualized for the total return Wilshire 5000.
And the Adens' success is sustained. Over the past ten years, the letter was up an annualized 9.79%, versus 1.95% annualized for the total return Wilshire 5000.
Recently, the Adens explained their thinking on market signals. They began conventionally enough:
"It's important to remember that the markets lead. They look ahead. They're not reacting to what's currently happening, but to what lies ahead and for now they're telling us that better times are coming."
Then they took an unusual twist:
"Also important, the markets usually take a more near-term view, looking out to the next few quarters or so. And they often don't focus on the underlying fundamentals, especially when it comes to the very long mega trends, which overpower the near-term trends. But megatrends take years or decades to evolve. In the meantime, other factors will come to center stage, as we're currently seeing [with Fed stimulation]".
S&P 500 (1 YEAR)
Right now, the Adens think near-term trends are positive for stocks:
"Stocks are looking good"¦This positive action will be further reinforced if the Dow Jones Industrials also reaches a new high by rising and staying above 11440"¦.For now, the stock market is bullish and 10 of our 14 U.S. and global stock recommendations are either at or near new highs. Plus, the market has room to rise further, so continue to hold. If you want to buy new positions, buy PowerShares QQQ /quotes/comstock/15*!qqqq (QQQQ 54.61, +0.12, +0.21%) , PowerShares Dynamic Software Portfolio /quotes/comstock/13*!psj (PSJ 25.19, -0.02, -0.08%) , iShares MSCI Mexico Investable Market Index Fund /quotes/comstock/13*!eww (EWW 61.16, +0.61, +1.01%) and SPDR Consumer Discretionary Select Sector ETF /quotes/comstock/13*!xly (XLY 37.58, +0.02, +0.05%)
But the Adens do see signs their "mega trend" is impacting bonds:
"Bond investors are seeing inflation ahead and there's a good chance the bond bubble is coming to an end. Today, for instance, the 30-year yield closed at 4.44%. The 80-month average, which identifies the mega trend, is now at 4.54%, so the yield is only 10 basis points below it. We're watching this very closely as a sustained rise above 4.54% would confirm the onset of much higher interest rates in the years to come."
And they think the "mega trend" has definitely arrived for gold:
"The gold price is incredibly strong above $1340 and as long as it stays above this level, we could see higher prices. A decline to the $1300 level would take the froth out of the rise, but even then it would only be an 8% decline. The point is, a 10-15% correction would actually be healthy, but times are not normal and we must watch it closely."
What would the Adens' "mega trend" mean for stocks? It's grim. They write:
"We expect gold to continue higher in the years ahead as its mega rise evolves, [but] stocks probably won't. At some point, we suspect the rise will stall and it's quite possible that the sideways action since 2000 could end up being a big top that precedes a huge stock market decline.
"Time will tell. But this is a scenario that cannot be ruled out considering the big picture fundamentals, like the debt load and its repercussions in the years ahead."
Peter Brimelow has been an editor at Barron's, Fortune and Forbes and is the author of "The Wall Street Gurus: How You Can Profit From Investment Newsletters."
After hitting a new bull-market high on Nov. 5, the stock market has carved out a narrow trading range. In trading today, the Dow is on the verge of breaking out above that range, which some technical analysts say would re-confirm the market's uptrend.
22 min ago11:55 a.m. Dec. 13, 2010
"Peter Brimelow: "?Huge' stock market decline coming, but not yet http://on.mktw.net/ebYAu1" 1:08 a.m. EST, Dec. 13, 2010 from MKTWBrimelow
"Peter Brimelow: Is a stock-buying panic possible? http://on.mktw.net/e7fuyJ" 12:50 a.m. EST, Dec. 9, 2010 from MKTWBrimelow
"Peter Brimelow: Is gold in a perfect (bullish) storm? http://on.mktw.net/dUccaD" 4:00 a.m. EST, Dec. 6, 2010 from MKTWBrimelow
"Peter Brimelow: Are China letters canaries in coal mine? http://on.mktw.net/fN5YCz" 2:39 a.m. EST, Dec. 2, 2010 from MKTWBrimelow
"Peter Brimelow: Ruff Times is top performer http://on.mktw.net/hgtJpq" 10:54 a.m. EST, Nov. 29, 2010 from MKTWBrimelow
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