Sometimes it’s easy.
Sometimes, to paraphrase the great Jim Rogers, the stock market’s moves are so clearly telegraphed, it’s a simple matter of stooping over to pick up the profits that are just laying there.
Now is one of those times.
I’m well aware that right now, many investors are paralyzed by the fiscal cliff. And I’m equally aware that the Fed’s easy money policy has convinced many investors that runaway inflation and the collapse of the U.S. dollar are right around the corner.
But ask yourself this…
What currency is the U.S. dollar going to collapse against? The euro? The yen? The yuan?
Compared to Europe, China, and even Japan, the United States is a bastion of sound fiscal and monetary policy.
What’s more, because of the Fed’s emphasis on clarity, we know exactly how long the Fed will keep interest rates low and continue with quantitative easing.
Last week, Ben Bernanke told us point blank that interest rates will not rise until unemployment drops to 6.5% and inflation hits 2.5%.
According to the green line on this chart from the Hamilton Project, that could take another two and a half years!
I’m not going to tell you this is the correct way to fix the U.S. economy.
There’s no credible evidence that quantitative easing is helping people get jobs.
But I can tell you the Fed’s policies will send the stock market much higher.
David Tepper: Keep It Simple
David Tepper is one of the best hedge fund managers out there. His firm made 134% in 2009. He added another 34% in 2010. He lost 5% in 2011. And he’s rumored to be up better than 25% this year.
All in all, he’s nailed it since the financial crisis.
And his investment thesis has been extremely simple: The stock market likes cheap money, and so long as the Fed is providing cheap money, stocks will go higher.
There’s no reason to debate this.
There’s no gain in railing against the Fed. Lamenting bygone days of a strong U.S. dollar and a positive trade balance won’t bring them back. You either make money in the current environment, or you don’t. Period.
Personally, I will choose to make the money when conditions are ripe. And certain stocks are absolutely dripping with profit potential right now.
Again, the reason is very simple…
Inflation will show up in commodities, certain consumer goods, and asset prices long before it shows up in the Fed’s measures of inflation like the CPI and, more importantly, wage inflation.
It’s critical to understand that wage inflation is the one measure of inflation that really gets the Fed nervous. And I don’t think it’s revolutionary to suggest it’s going to be a while before we see any significant wage inflation.
In fact, many economists don’t believe wage inflation starts to kick in until unemployment hits 6%.
Right now, the “official” unemployment rate is 7.7%, and if you count the “shadow” unemployment (i.e. people who have basically given up looking for a job) the number is significantly higher.
I’m not glad about this. I’m not cheering the Fed on. And I’m not certainly welcoming inflation…
As one of my colleague’s likes to say, “I’m just calling it like I see it.”
The Easiest Gains for 2013
David Tepper doesn’t do anything fancy in his portfolio to consistently beat the market…
He likes tech stocks like Apple (NASDAQ: AAPL) and Qualcomm (NASDAQ: QCOM), and he has a big position in the Nasdaq ETF (NASDAQ: QQQ). Tepper also likes the financials like AIG (NYSE: AIG) and Citigroup (NYSE: C).
Remember though, Tepper is investing tens of billions of dollars. That means he’s limited. He can only buy big companies with tons of stock outstanding and millions of shares traded a day; he can’t buy the stocks with the best upside.
So David Tepper’s going to miss the easiest gains of 2013.
There are a handful of stocks that are going to take the New Year by storm.
These are small, dynamic companies. And they are likely to double their earnings in 2013.
They’re producing the most vital product in the world today: oil.
And they are sitting on more oil than all but a few investors realize. They are bringing it to market faster than anyone thought they could.
There’s a perfect storm brewing for small oil stocks in 2013…
Commodity inflation will push oil prices higher. Asset inflation will push stock prices higher.
That’s what the Fed wants, and it’s what the Fed is going to get.
The only question is: Are you going to get yours?
Have a safe and happy holiday,
Briton Ryle
for Energy and Capital
