posted on 28 January 2017
by William Patalon, Money Morning
Money Morning Article of the Week
Strategists at Bank of America Corp. (NYSE: BAC) are calling it "The Icarus Trade," a reference to the story of the boy who ignored warnings and flew too close to the sun - and plunged to his death when his feather-and-wax wings melted from the heat.
The Bank of America prognosticators are using this tale from Greek mythology for the post-inauguration prediction that they're making: a parabolic "melt-up" that carries global stock prices up another 10% in a continuation of the "Trump Reflation Rally" - followed by a total market "meltdown" later this year.
A week after Trump's inauguration and the S&P 500 is up more than 1.3%, while the Dow has zoomed well past 20,000 to sit 1.6% higher than it opened on Inauguration Day.
So it seems like the markets are headed toward fulfilling Bank of America's dramatic "Icarus Trade" prediction…
Well, we think it's dead wrong, thanks to a bold call by Stealth Profits Trader Editor D.R. Barton, Jr. And if you caught my interview with him this past Sunday, you'll know exactly why.
You see, his prediction is almost the exact opposite of what the folks at BoA are predicting. Although it's no less dramatic, D.R. believes there's lots more upside in store than what the doomsayers are predicting.
So now that we know how the markets will play out, let's look at the best stocks to buy to capitalize on this…
There's No Bear Out There
If you missed him last weekend, I'll get you caught up on where D.R. stands on which way the markets will go.
He predicted the rally we're enjoying now, but his charts show that stocks will stumble. On that much, at least, we agree with BoA.
But here's the big (and profitable) difference: D.R. doesn't think that stumble will signal a meltdown at all.
In fact, after that temporary pullback, he's predicting stocks will rally anew.
The bottom line: Investors who "buy the pullback" will earn double the profits, or better, of folks who wait for the rebound.
Double the gains of the market - "2× returns" in the vernacular of Wall Street - are the foundation that fortunes are built on. D.R. told me during an hour-long Q&A session we conducted a week ago:
I've known and worked with D.R. for quite some time and can tell you that he has a pretty great track record when it comes to predictions.
But I'm showing you these totally divergent predictions for a reason: I want to illustrate the uncertainty that hangs over this market, and this economy, like a heavy fog. That fog seems to grow denser by the day, and sometimes by the hour - as political controversy that's been brewing since last week escalates here in the United States, and financial, economic, and political threats intensify overseas.
And yet somehow - and some way - investors like you and I must find a way to navigate this mess.
We want to avoid losses - calamitous big ones and nagging small ones - to be sure.
But we also want to keep making money.
And there's no reason why we can't.
So today, at the end of Trump's first full week in office, here's a plan for doing just that. Consider it an update of our "Trump Era Investing Guide," a way to spotlight the very best stock plays as, depending on whom you ask, Trump settles into - or completely upends - the White House.
Here's Where the Rally's Biggest Profits Will Be
Here then are four investing "mantras" to keep in mind - and the opportunities that accompany them. And know this: While we followed some themes that I'm sure you're hearing lots about, we've also carved out some that are really unique.
The same holds true for our actual investment picks.
Here they are…
And two of our favorites are water-equipment vendor Pentair Plc. (NYSE: PNR) and General Electric Co. (NYSE: GE), which is poised to be a major player in the infrastructure sector of today… and of tomorrow. In power generation - the component of the "today" infrastructure that makes the world go - GE's Alstom unit accounts for one-third of the world's power-generating capacity. In the infrastructure sector of tomorrow, GE is using its Predix software business to create a "backbone" for the Industrial Internet.
With Alibaba, "you ain't seen nothing yet." That e-commerce giant is keying on East Asia - destined to be the new nexus of the global economy. There are worries about Asia, I know, but in that region especially, you have to think long term: Back in 1985 - when the global economy was "only" worth around $19 trillion in real terms - North America, Western Europe, and Japan accounted for two-thirds of all global growth. Back then, China and the rest of emerging Asia accounted for a mere 18%. Global growth was faster then - about 4%. Fast-forward three decades, and this whole relationship has flipped 180 degrees. Now, two-thirds of "real GDP" ($114 trillion) is due to China and emerging Asia - with the former "Big Three" only accounting for 29% of the total. Go East - it's where the money is now, and where it will be in the long term.
If stocks sell off here in the U.S. market, many investors will flee. Gold offers a nice safe haven, as it always has.
Now, it's true the entire precious metals market is out of balance right now. In fact, it's an anomaly I've only seen twice in my entire adult life. I've given my Private Briefing readers a trade that could bring some of the biggest metal "windfall" profits to date when the market snaps back to equilibrium.
But here's the good news: The market doesn't have to be in balance to make gold a smart buy, because there are a number of potential "triggers" that could send gold prices higher. Take the U.S. Federal Reserve, which is now tightening credit. Since 1986 - so we're talking about 30 years of data here - central bank rate increases have sparked lockstep gains in gold.
Then there's the supply-demand effect. As uncertainty surges, investment demand for gold could surge as high as 40 million ounces per year - a level not seen since 2005, Jeffrey Christian, managing director for CPM Group in New York, told The Financial Post. That added demand - when combined with ongoing annual central bank purchases of as much as 10 million ounces - will help ignite a gold rally. And because miners shuttered mines and slashed exploration efforts during the sector recession, this demand will peak just as production starts to fall. Gold could soar as high as $2,000 an ounce by the end of the decade - but the rally will start now. Christian said:
Things might seem "up in the air," but I believe these are really exciting times - especially for the well-prepared investor.
Consider the words of the United Kingdom's legendary wartime Prime Minister, Winston Churchill. He once said that
That's been true in that past, and it will be so forever.
Investors need to ignore any near-term turbulence - and there will be some - and focus on the big opportunities there will be in the long run. If you find it tough to take to heart - or if something that seems "really bad" plays out in the markets - just keep this in mind:
Think back to 1900, when the U.S. economy was a paltry $20.7 billion (nearly $500 billion in today's dollars).
And then think about all that we've traversed in the 117 years since.
There were two World Wars, Korea, Vietnam, and the two Gulf Wars, along with numerous other conflicts and the Cold War. There was a Great Depression and a Great Recession, two severe financial "panics" (1907 and 1910-'11), and the Savings & Loan crisis. Global superpowers have come and gone.
Look, I could easily cite other "events, scandals, and scares," but that wouldn't change the fact that today, the U.S. economy is approaching $18 trillion in value.
That makes the tale I've just shared the greatest "comeback story" of all time.
And the patient opportunists have always profited - as will you.
Money Morning Editor's Note: Bill is making sure all of his paid up Private Briefing subscribers get instructions so they know how to trade the rare "Gold Anomaly" going on right now. This potentially volatile trade could be hugely profitable, and you can learn more about it by clicking here.
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