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I remember early 2005 as if it were yesterday. I was brainstorming with Martin Weiss, my mentor and the founder of Weiss Group, about how we could warn subscribers about the looming housing- and mortgage-market crash.
We had already published monthly issues and online articles. We had already laid out our case for why the Federal Reserve, other Washington agencies and the major Wall Street firms were dead wrong about how bad things were going to get.
But I wanted to go a step further. So I said: “Martin, we have to give subscribers something more. We have to name names. Tell them exactly which stocks they should dump — before it’s too late.”
He agreed. So in our April 2005 issue of Safe Money Report, we published a list of 25 companies and said: “Avoid the following stocks. If you own them, sell. If you don’t, stay away.”
What happened next? What did those housing, finance and interest rate-related stocks — identified through my extensive research and knowledge of the rate markets — do?
No less than 23 of those 25 stocks subsequently tanked — by an average of 62.8 percent.Some of them, like New Century Financial, General Motors and Fremont General, went broke. Others were acquired or merged out of existence — often for just pennies or dimes on the dollar.
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| The disaster is starting to unfold, with many housing stocks falling to 10- or 11-month lows. |
Anyone who failed to heed my advice lost their shirt, shoes and socks. But any of my subscribers who were prescient enough to sell those stocks short, a speculative bet on falling stock prices, had the opportunity to rack up more than 60 percent in gains. That’s enough to turn $10,000 into $16,280, even as the housing, mortgage and stock markets collapsed.
I’m not bringing this up to tout my achievements. No, I’m mentioning this because many of the same forces that crushed the stocks in my original list are at work again today.
Interest rates are surging like crazy, with the benchmark 10-year Treasury yield hitting a two-year high of 2.82 percent just this week. Many housing markets are swept up in an “echo bubble,” fueled by rampant, reckless investor buying. Wall Street is mistakenly counting on the Federal Reserve — which just spent the last few years fueling wild, out-of-control speculation by keeping monetary policy way too easy — to deftly navigate us out of this mess.
It’s not just a disaster waiting to happen, it’s a disaster that’s already starting to unfold. Many housing stocks have fallen to 10- or 11-month lows. Many mortgage-related companies are plunging in value. And almost every class of bonds is sinking.
Consider this: Of 14 taxable bond-fund categories tracked by Morningstar, all but three are showing losses on the year. Funds that invest in long-term, high-grade government bonds — supposedly among the safest assets — have posted an average loss of 11.5 percent. And every single municipal-bond-fund category is down, with losses of up to 6.3 percent.
But my Safe Money fixed-income strategy — which involved riding “bond alternative” investments while they were working, and staying in short-term securities until it was time to unload almost all of them — paid off handsomely. Subscribers had the opportunity to pocket profits, some in the double digits.
That’s not all. In January, I recommended an investment that rises in value when bond prices fall. As of earlier this week, that investment was showing open gains of more than 10 percent.
So, given the fact that we have some of the same crushing forces at work now that we did in 2005, I’ve decided it is high time to produce a new list of 25 “Portfolio Poison” stocks in a special report titled “25 Stocks to Dump Now.”
Like last time, these stocks could prove deadly to your wealth. They’re exposed to all the corrosive market forces at work now, forces that are likely to get much worse over time. If you own them, I think you’re playing with fire — and my advice now is the same as it was back in 2005: “If you own them, sell. If you don’t, stay away.”
These are treacherous times, and I urge you to take the proper precautions while you still can. So be sure to click here to find out how to get my special report, which will be available Monday, August 19, by noon eastern time.
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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The house of cards: the debt market, the dollar, the housing market and the all mighty stock market. The party is over folks. Play the short side if you have the courage. As a former bond trader I can tell you the handwriting is on the wall.