By Dr. Steve Sjuggerud Tuesday, February 1, 2011
In the last 100 years, this indicator has only been wrong twiceâ€¦ And one of those losses was less than 1%.
Since 1940, this indicator has been infallibleâ€¦ Stocks have risen 22% a year when this indicator says “buy.”
We’ve been hard at work crunching numbers, developing our True Wealth Systems project. We have the world’s deepest historical data sets at our fingertips. And we’ve been testing all kinds of investing systems going back hundreds of years.
Our goal is to find what works in investing, over the long run.
Today’s indicator is incredibly simple: It’s the third year of the presidential election cycle. Stocks have gone up every third year of a presidential election cycle going back to 1940.
In the third year of an election cycle, stocks have delivered a total return of 22% a year. For the other three years together the other 75% of the time the total return on stocks has been a single-digit percentage gain annually.
Why such a huge discrepancy?
Legendary stock market analyst Jeremy Grantham calls it the “routine Year 3 stimulus.”
Barack Obama was elected in 2008. It’s now 2011â€¦ Year 3. The stock market goes up, the theory goes, in anticipation of Big Government stimulating the economy in the coming pre-election year.
We have a double tailwind this yearâ€¦ Grantham says the Year 3 stimulus will be “spiced up” even more by “QE2” what I call The Bernanke Asset Bubble.
I said this indicator has been infallible since 1940â€¦ but what about before then? We tested it back to 1800â€¦
The thing is, until the Great Depression in the 1930s, government stimulus didn’t really exist as we know it today.
In 1929, the lowest tax bracket was less than 1%. And the top tax bracket was in the 20s. Astoundingly, government spending as a percentage of GDP was less than 5% a year until the Depression (NOT including defense spendingâ€¦ which shot up during wars). These days, government spending (including spending by state and local governments) is up over 40% of GDP.
So if Grantham is right, and the routine Year 3 stimulus rally is here, stocks could go up yet again.
Stocks have delivered a 22% total return on average, going back seven decades, during Year 3. We’re in Year 3 now. And stocks are only up about 2% so far. So there’s plenty of room to run, based on history.
This indicator is another example of our True Wealth Systems workâ€¦ finding things that I wouldn’t believe are possible. So far, in every case, whenever I personally guessed against our systems, I was wrong, and our systems were rightâ€¦
If this indicator from True Wealth Systems is right, it’s a high probability bet for you to own stocks in 2011.
FRAC IT, BABY!
As you may have noticed from our “new highs of note” yesterday, the picks and shovels of the oil industry are ripping right now.
“Oil services” is the general term used to describe firms that perform and produce all sorts of “niche” products and services for giant oil companies like ExxonMobil and Saudi Aramco. It’s a diverse bunch, ranging from companies like Bristow Group (helicopter services), to ION Geophysical (seismic field testing), to National Oilwell Varco (manufacturing oil rigs), to big blue-chip Schlumberger (almost everything).
One big trend tucked into this idea is the emerging business of horizontal drilling and fraccing. These incredible technologies have unlocked the natural gas trapped in U.S. shale fields. In just a few years, the U.S. has gone from being natural gas poor to boasting the world’s largest reserves. Now, Asia and Europe are desperate to use these technologies to achieve similar increases in their domestic reserves.
This development has sent Matt Badiali’s S&A Resource Report holding CARBO Ceramics to an incredible uptrend. As Matt told us last year, CARBO is a world leader in the vital “frac ammo” needed to access these fields. The stock is closing in on a 100% gain for his readers. The “frac boom” is hereâ€¦ it’s going to last for decadesâ€¦ and it’s good for companies like CARBO.