By Justin Dove
Anyone can make an investment forecast. But few forecasters like to have past prognostications put under a microscope. At Investment U, we do it anyway. And with the year drawing to a close, this is a good time to do it.
First up on the chopping block is Chief Investment Strategist Alexander Green. We scrutinized our archives – as you’re welcome to do – to review his investment calls for 2011… and also got his thoughts on the best places to put your money to work now.
What we learned startled and surprised us. Last January, you may recall, prominent financial analyst Meredith Whitney was making national headlines with her prediction that 50 to 100 American cities would go bust in 2010 and municipal bond defaults would amount to hundreds of millions of dollars. Many pundits agreed – and the muni bond market sold off hard on the news.
Alex scoffed at the idea that this was the “next big crisis” and recommended readers pounce on the bargains developing. In particular, he recommended the Nuveen Insured Municipal Opportunity Fund (NYSE: NIO) as a great way to play it.
As I write, the fund (including tax-free dividends) is up 10 percent for the year, easily outpacing the far-riskier S&P 500. (And Alex opines that the fund – with its current tax-free yield of six percent – is still worth buying at current levels.)
Alex has also been a table-pounding bear on the euro all year. The currency just dipped below $1.40 last week, hitting a 52-week low. Forecasting a decline in the euro may look obvious now. But that’s only because cracks in the European monetary union are now clear to everyone. Yet most pundits this year were calling the decline of the dollar (not the euro) a “no-brainer.”
It didn’t work out that way. And Alex’s recommendation to buy into the Market Vectors Double Short Euro (NYSE: DRR) worked well, handing readers another double-digit gain. Alex insists that there are more dark days ahead for euro-holders and recommends holding this fund for further gains in the weeks ahead.
Perhaps the most unpopular call Alex made all year was his forecast that gold had gotten ahead of itself and the spot price was overdue for a significant correction.
We got plenty of mail from readers insisting that Alex “just didn’t get it.” And while it’s a bit early to determine the long-term trend in gold, the short-term action is no longer in doubt. Gold has plunged over 15 percent from the highs of mid-August. And Alex insists the worst isn’t over. He recommends that readers restrict their gold holdings to five percent of their liquid assets.
Of course, no one gets every call right. And Alex is forthright about one forecast that hasn’t panned out at all. He has persistently banged the drum about a developing bubble in U.S. Treasury bonds. Yet yields have only fallen further, driving Treasury prices still higher. Last week, the yield on the 10-year bond fell to two percent, a record low. Thirty-year bonds yield less than three percent, still another record low.
We checked in with Alex to see if he was ready for a mea culpa. The answer was no. And he had this comment to add:
Treasuries are more of a bubble than ever. Yet no one can make a rational estimate about when irrational behavior will end. Eleven years ago, Internet and technology shares soared higher than anyone thought possible. In the real estate mania six years ago, prices became completely untethered from fundamentals… or even reality. A couple years from now, Treasury-bond buyers will slap their foreheads and say, ‘what the heck was I thinking.’
He expects Treasury bonds to be among the worst performing assets in 2012.
But what about the best performing?
Alex notes that equity investors have yanked tens of billions from equity funds over the last few weeks and put them in money markets yielding essentially zero.
A big negative, right? Surprisingly, no. Heavy equity fund redemptions are among the best contrarian indicators. And right now, he insists, this one is ringing like a fire alarm. Despite the gloom and doom that prevails today, he expects stocks to give surprisingly good returns in the year ahead.
And in his next column, he’ll explain exactly why.
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