A 7% Gain if You Followed This Advice

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Publisher’s Note:

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If you followed the advice I put forth in Survive & Prosper on August 15, just over a month ago, you’re likely sitting on a nice little gain of about 7%. That’s more than double the return you’d have earned simply investing in the S&P 500 (SPY), which is up a respectable 2.8%.

I’ll be honest… I’m really tired of reading everyone’s speculative guesses on the Fed’s next move. I partly blame the Fed for being more mouthpiece than policy-maker – all in the name of “transparency,” right? And I partly blame the mainstream media pundits, for obsessing over the “will he or won’t he?” taper question instead of offering investors keen, actionable advice.

I remember pondering, just briefly, the Fed’s likely next move last month, when I wrote this Ahead of the Curve piece, in which I recommended: “Sell gasoline (UGA), Buy T-bonds (IEF).”

I began at the Fed’s dual mandate: maximum employment and stable prices (read: keep inflation in check). And knowing the Fed’s failure, so far, in fixing the job market I started searching for signs of inflation. Had I found any, I would have concluded the Fed’s taper plans were at least partially warranted.

But instead of finding signs of inflation… I found deflationary trends in almost all markets, except for gasoline. And that observation turned into the opportunity to earn a nice 7% gain over the past month.

Here’s the ratio chart (gasoline : T-bonds) I had on my screen at the time.

See larger image

These ratios – with a commodity market in the numerator and T-bond prices in the denominator – are great real-time inflation indicators, as I’ve written about before.

When I looked at corn, wheat, crude oil and gold… all the ratios pointed to a clear conclusion: deflation. Yet gasoline was the outlier, showing the only pocket of inflation I could find.

I concluded that deflation, indeed, was the dominant trend… and that it was only a matter of time before gasoline prices fell in line – falling under the weight of deflationary pressures that were already keeping a lid on corn, gold and oil prices.

And that’s exactly what happened.

Since I recommended betting against gasoline prices (i.e., selling short), the U.S. Gasoline ETF (NYSE: UGA) dropped 7.4%. Meanwhile, I recommended buying the iShares 7-10yr Treasury bond ETF (NYSE: IEF), which is down just 0.5% over the same time.

That’s put the net gain on this trade at 6.9%.

Not bad for a month’s worth of “work.” Now, take your profits and go buy a (now cheaper) tank of gas.

Why Winners Keep Winning (And Losers Keep Losing)

If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.

Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”

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  • The stock market is NOT perfectly efficient
  • Passive investing can be MORE risky than active investing

You CAN beat the market… you just need to use the right strategy!

Get your own FREE copy of the latest report from Chief Investment Analysts, Adam O’Dell, “Why Winners Keep Winning (And Losers Keep Losing)”

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.