Skousen's Top Opportunities

11/07/2003 12:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen is one busy guy. He is the author of numerous books, including the classic The Making of Modern Economics and he will soon begin teaching at Columbia Business School. He is a director for the Young America's Foundation, the editor of Forecasts & Strategies, and even a former CIA economist. Here's his advice.

"The bull market will continue.  The number one reason is political. The election year cycle is traditionally the best performing market. That’s a big factor. Number two – which is a very important factor I believe is still underplayed by most investors – is the tax cuts. Investors have been waiting for decades for real substantial tax relief and now we have it. A 15% rate on long-term capital gains is the lowest rate we’ve seen in 50 years. The 15% maximum rate on dividends Is extremely powerful.

"Another major factor is that the Federal Reserve has switched policies. For many years, the Fed, under Greenspan, had a policy of fighting inflation. They have now changed to fight deflation. This is a signal to all of us that asset investing – which is real estate, gold, silver, and foreign currencies – are now coming back. And they are coming back with a vengeance. I have been gradually increasing my positions in these areas. This anti-deflation policy is also bullish for the stock market, at least initially, until the consumer price index starts showing steady price increases. We’ve haven’t seen that yet.

"So where do we look for investment bargains? First, let me note that the super-bargains are no longer there. I’m reluctant to give individual stock recommendations, as so many of my favorites have moved up so sharply. But here is one mutual fund here that follows a very clever technique, and it has been incredibly successful: the Masters 100 Fund (MOFQX ). We all know that mutual funds go through cycles. They do well for a while and then don’t. It doesn’t matter what fund you name, they all go through the cycle of having a hot hand and then losing it. The Masters 100 Fund is different. They seek the top 100 individual stock traders in the US. They do this through their website, . The Masters 100 fund then invests in what these 100 traders are doing. Ken Kam, the manger of the Master 100 Fund, tells me that a lot of these top traders are taking profits right now. By the way, hardly any of them are strictly technical traders. Most of them are grounded in fundamental analysis. I think  this is a really good way to invest, because the fund is, in essence, constantly changing its 'managers'. It’s fun to watch. The fund consistently beats the S&P 500. Obviously, there is no guarantee of making money, but it’s done better than the overall market, with less risk.

"Asia is also a very good choice. China has already gone through the roof, so you have to be very careful. We recommend the Morgan Stanley Asia Pacific Fund (APF NYSE), a very broad based, closed-end fund that invests in 50% Japan, and 50% in Hong Kong, Korea, and others. It’s selling at a 13% discount to net assets value. As a Scrooge investor, I always look for discount funds; the discount suggests that investors are not interested, and that’s where you want to buy. It’s a contrarian strategy. The fund bottomed out around $7, and is now around $10. But I believe it is still in the bargain category.

"Meanwhile, the income area is a very dangerous place for investors now. There are virtually no bargains left in this area. The Fed is willing to do anything to fight deflation. That means they are willing to sacrifice for higher interest rates, more inflation, a higher gold price, and even another bubble on Wall Street. As investors, we should take advantage of that, by purchasing gold stocks. Once inflation comes back (first, expect commodity inflation, then producer price index inflation, and then finally consumer price inflation) the stock game is going to be over. At that point you’ll see a lot more action in the asset areas, like gold and silver, and foreign currencies.

"I am bullish on foreign currencies, and like the like the Aberdeen Income Fund (FAX NYSE). It is showing strength because the Australian dollar is a commodity-based currency. The Australian dollar, which has been hurt for many years, is now making a comeback. The New Zealand dollar is even better and I recommend the Kiwi Income Property Trust, which trades on the New Zealand exchange and yields 9%. My forecast is that one year from now, interest rates are going to be higher. One of the best way to benefit is through Prime Rate funds. If interest rates go up, the dividends are linked to the prime rates, so your dividend goes up. Moreover, investors suddenly become more interested in these closed-end funds, and so they bid up the price.  Kemper Senior Income Fund (VVR NYSE) is the prime rate fund I am recommending. It is yielding 5½ to 6%."

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