February 16, 2010 (Daily Finance) — The global appetite for U.S. financial assets slowed markedly in December and demand for federal debt fell by a record amount as China dumped more than $34 billion in American IOUs, the Treasury Department said Tuesday.

If demand for U.S. debt continues to wane, it could get more expensive for the U.S. to fund its record deficits because it would have to offer higher interest rates to entice buyers.

China cut its holdings of Treasury securities for a second straight month, making Japan the biggest owner of Treasurys , according to government data. Japan’s holdings of Treasury securities stood at $769 billion in December, while China’s came to $755 billion, down from $790 billion held in November. Total foreign holdings of Treasury securities dropped by $53 billion in December, breaking the old record of a $44 billion decline set in April 2009.

“This data is only going to add to second guessing of Chinese behavior and raise concerns that they are not showing much enthusiasm for U.S. dollar paper,” Alan Ruskin, chief international strategist at RBS Securities, told clients.

Net foreign purchases of long-term securities were $63.3 billion, the Treasury said, down from $126.4 billion in November. Net foreign purchases of long-term U.S. securities were $82.2 billion, comprised of $62.6 billion in net purchases by private foreign investors and $19.6 billion in net purchases by foreign official institutions.

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There certainly wasn’t much controversy over the answer to yesterday’s question …

How do you adjust to major fundamental events that are clearly carved in stone when you have no way to know WHEN they’ll impact the markets?

The vast majority of our readers agreed: Fundamental analysis can tell you WHAT’s likely to happen. But it can rarely pinpoint WHEN it’s likely to have an impact.

An even bigger problem: Wall Street experts — whether using fundamental or technical analysis — utterly FAILED to warn us of the most important turning points of the last decade:

They led investors headlong into the Tech Wreck of the early 2000s … and then they did it AGAIN in the Housing Bust of the late 2000s.

So here’s my big question for the day:

Can you EVER trust Wall Street to anticipate major market turns? If so, when? Are they now leading investors into a brand NEW trap?

Just click this link to leave a comment and let me know what you think. I look forward to seeing you there!

Best wishes,

Larry

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If there was ever a time to have a growth portfolio that gives you BOTH a powerful offense AND an impenetrable defense … THIS IS IT!

Mere days after Obama released his 2011 budget estimates calling for the largest deficits of all time …

Even as Washington is busy gearing up for its next record-shattering spending, borrowing and printing binge …

The newest unemployment reports show an increase in job losses … the Dow has plunged by over 200 points … and the Nasdaq is down nearly 50 points.

And adding to the frenzy, Moody’s Investors Services has warned that the greatest debt juggernaut in history is about to have some very serious, unintended consequences:

According to Moody’s, if Washington doesn’t slash these deficits — and fast — America’s triple-A credit rating is in grave jeopardy!

This does not threaten short-term Treasuries maturing soon. But it does raise serious doubts about long-term bonds.

Moreover, if the credit rating of the U.S. government bonds are suspect, imagine the disaster possible in junk bonds!

Last year, Wall Street pitchmen pawned off an all-time record of $147.7 billion-worth of junk bonds to investors … and already this year, they’ve dumped $11.7 billion in more junk on investors in a single week. 

That’s another all-time record high — mostly in companies that were so close to death a few months ago, they couldn’t even fog a mirror!

The handwriting is clearly on the wall: 

This bond market bubble is destined to burst just like the tech and housing bubbles before it. 

And when THIS bubble bursts, it will automatically drive long-term interest rates sky-high — pure poison for an economy in as delicate a condition as ours is now.

THIS, dear Reader, is THE most important fundamental economic shift looming in the United States today.

So the big question is no longer “if” the bond market bubble will burst … or “if” the resulting interest rate spike will kill the U.S. recovery … or “if” U.S. stocks are vulnerable …

Rather the big question that remains — the one that economists can never seem to answer — is “WHEN will this fundamental shift hit the fan?”

Which brings us to today’s question-of-the-day: 

How do you adjust to major fundamental events that are clearly carved in stone, when you don’t know WHEN they’ll begin to impact the markets?

Just click here and use the “comments” area to share your thoughts with us.

I’ll see you there!

Best wishes,

Larry

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This is getting exciting …

Today, I’m going to take the first step towards helping you build the optimum growth portfolio for 2010!

First, though, let’s take a look at some of the insights and ideas readers posted on my blog in response to yesterday’s question of the day:

What portion of your portfolio do you have invested in commodities and natural resources?

Which commodities do you prefer?

And what instruments do you use — commodity ETFs, commodity stocks, futures, other?

With very few exceptions, most of our readers seem to be bullish on commodities for 2010. The primary area of disagreement is how much of a growth portfolio should be allocated to resource investments …

Gary F. is one of the more cautious commodities investors to weigh in: “Approximately 20% of my self-managed portfolio is in commodities,” he writes. “Natural gas and distribution infrastructure ETFs and MLPs are a significant part of these holdings.”

Rob seems to be twice as bullish on commodities as Gary: “I currently have approx. 40% of my net worth in commodities.”

And Walt P. has invested nearly ALL of his money in just one sector of the commodity market — energy. His words: “I spend probably 80% of my available investment capital in oil & gas.”

Could this really be
the optimum growth portfolio
for 2010?

Over the past week or so, we’ve seen how our readers are structuring their portfolios across all the major asset classes. On a scale from one to ten (ten being the most bullish), I’d guess our readers give U.S. stocks a “two,” while ranking foreign stocks — largely in the BRIC nations — a solid “eight.”

They give fixed-income investments about a “four” and currencies rate a “seven.” Precious metals rank a solid “nine” while commodity investments get an “eight.”

Judging just from this response, you might calculate that, according to our readers, the optimum portfolio for 2010 might look something like this:

U.S. Stocks: 5%

Fixed Income: 11%

Currencies: 18%

Commodities: 21%

Foreign Stocks: 21%

Precious Metals: 24%

But please — do NOT rush out and restructure your portfolio this way!

Because by doing this exercise, we also discovered logical and logistic flaws in this reasoning — some of which could prove extremely costly …

For one, our readers freely admit that many of their portfolio-building decisions are based on “gut feel” and not on a consistent methodology for spotting asset classes with the greatest profit potential and least risk.

We also discovered that, as I count it, about half of our readers have invested most or nearly all of their money in only one or two asset classes — notably precious metals, commodities or foreign stocks, for instance.

But that leaves them extremely vulnerable to sharp declines in those areas, even if the declines are temporary.

And yesterday, we uncovered another danger when one reader pointed out that he had invested a small percentage of his money in gold five years ago — but because gold has skyrocketed in price, it now represents a much larger percentage of his portfolio, exposing him to more risk than he bargained for.

After all: How DO you know when to take your profits in one asset class — and then redeploy that money in other areas to maintain a rational allocation of your resources given the current environment?

Or as William put it, “This is the smartest investment advice of anything I’ve heard in 30 years. We should never lose sight of … being too heavy in one area due to past performance or bias.”
Which brings me to today’s question-of-the-day:

If you could start from scratch to build the ultimate growth portfolio for 2010 …

If your goal was to rationally diversify your capital over the most promising asset classes for the year ahead …

Where would you begin? What would you need? How would you proceed?

NOW, we’re getting there: This is really where the rubber meets the road!

Just click here and use the “comments” area to share your thoughts with us. And as always, I’ll add my own thoughts and answer as many questions as I can.

Best wishes,

Larry

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For the past week or so, I’ve been meeting our readers here to talk about how a prudent investor might build the optimum growth portfolio for 2010.

It’s a crucial question: Diversifying your money across the asset classes that are most likely to surge in the months ahead can make all the difference in the world. It helps ensure that all the items in your portfolio works together synergistically to boost your profit potential and cut your risk of loss.

So far, we’ve examined U.S. stocks … foreign stocks … fixed income investments … precious metals … and foreign currencies. Today, I need you to weigh in on our final asset class: Commodities.

First, though, let’s take a look at some of the answers to yesterday’s questions:

Do currency ETFs have a place in your portfolio?

Which currencies — the U.S. dollar, Canadian or Aussie dollar, euro, Japanese yen, Chinese yuan, Brazilian real or others — are you most bullish on right now?

What percent of your total investment capital do you invest in currencies?

At least one-third of our readers flatly reject the idea of diversifying a portion of their money into currencies …

William B. lacks the confidence to include currencies in his portfolio: “To be honest, I am not confident enough to invest in currencies with my level of expertise and have no currencies in my portfolio. I would include the Brazilian real if I were to invest in that market.”

Eugene agrees: “I am convinced that one can profit handsomely in [foreign] exchange,” he writes. “But that is too speculative for me. I’ll leave that to the Big Boys!”

But at least two-thirds of our readers disagree, saying that currencies can and should play an important role in a well-diversified portfolio:

According to Mike M, “Currencies, as of the past two years have been a part of my portfolio as a means of diversification. By trading currencies, I have broadened my knowledge on macro-economic and global situations, thus allowing for better decisions to be made regarding my trades.”

James P., who says he’s “all into currency,” writes: “I like currency ETFs and the likelihood of the dollar rising for now against the euro and British pound.”

Rachel D. says, “I have about 20% invested in currencies. I believe that the Norwegian krone and the Canadian dollar will do well this year.”

Gerard M., who also invests 20% of his portfolio in currencies, writes, “Currency ETFs are the answer to those of us not adept at the ‘currency’ market. I favor Brazil, China, Australia and Canada, the latter two for their commodity stash.”

Once again — remarkably well-informed insights and ideas!

And tomorrow, we’re going to summarize ALL of your responses to each of the asset classes we’ve examined — and begin the process of constructing the optimal growth portfolio for 2010.

First, though, I need your answers on our final asset class:

What portion of your portfolio do you have invested in commodities and natural resources?

Which commodities do you prefer?

And what instruments do you use — commodity ETFs, commodity stocks, futures, other?

Your answers will go a long way towards helping me help YOU build a more profitable portfolio for 2010.

Simply click here and use the “comments” area to share your thoughts. I’ll add my own thoughts as well.

Best wishes,

Larry

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I really struck a nerve here on Friday!

Hundreds of our readers jumped online to answer the question of the day:

Is this the time to load up on gold, silver and other precious metals … or not? Why?

How much of your portfolio have you invested? Do you plan to buy more in the months ahead?

Which are your favorites? Gold? Silver? Platinum? Palladium?

Surprisingly, a few of our readers are precious metals skeptics:

“I don’t see gold soaring this year as a lot of experts expect,” says David Y., “because I feel, as long as other currencies around the world are in trouble, the U.S. Dollar will stay about where it is or even get a little stronger. Foreign investors will still have faith in the U.S. dollar and gold will stall.”

But the vast majority are clearly bullish on precious metals in 2010 and beyond:

Eric agrees that gold prices will retreat, but sees that as a reason to buy: “I believe gold will drop further as a knee-jerk reaction to the idea that we have commodity deflation. This is, in my opinion, a good time to load up on physical gold as a dollar hedge. I like to keep 5% of my assets in physical gold.”

Jay is looking for profits of up to 36% or more in gold over the next three years: “Just about every major industrial nation is inflating its currency. They are promoting growth of money supply over fighting inflation. With Ben at the helm, the price of gold in dollars will continue to climb. I expect gold at $1,200 by the end of 2010 and over $1,500 by the end of 2012.”

Scott V.R. is a super bull with almost a third of his money wrapped up in precious metals: “If you have the guts to live with the fluctuations, it is time to load up with metals. As long as the government keeps printing money and banks continue to be net buyers instead of sellers, we will continue to see gold and silver as a safe haven. I have about 30% of my portfolio divided between mining stocks and bullion. Mostly gold and silver and a little platinum.”

Phil, who also says he has about 30% of his money in gold and silver, couldn’t agree more: “The recent price pullbacks present a buying opportunity. I favor silver as a two-way bet: Its uses are primarily industrial but it is also regarded as a bullion commodity so it will tend to go up with gold. Plus demand exceeds supply and that is unlikely to change.”

Speaking of silver, it seems to have attracted quite a fan club, lately:

Al in Arizona: “The current ratio of silver to gold is 66 to 1. This will continue to grow closer, making silver a better deal than gold. Any silver under $20/ounce is a steal. It’s destined to go up 20% in three months. Load up now.”

Gerald says that longer term, silver could soar 250%: “If the gold/silver ratio ever moved back to the more traditional 20/1, silver would need to move up about 2.5 times its current level.”

Marilyn G. seems to prefer palladium.

“Well,” she writes, “I don’t know why palladium is going up so nicely, I only know it is. But my thinking is, since palladium is the sister metal to platinum, might not car makers substitute palladium in future catalytic converters for expensive platinum?”

Judging from these and hundreds of other enthusiastically positive responses, it’s clear that, among our readers, precious metals rank highest of all the investment classes we’ve discussed so far. I’d guess about a NINE on a scale of one to ten.

My view: No matter how good an asset class may sound — in theory or in practice — NEVER overinvest. Keep your money spread out over all FIVE asset classes. And if the conditions are ripe for major declines, consider also playing the downside.

Tomorrow, we’ll take a look at how our readers define the optimal growth portfolio for 2010 — but first, I have one last asset class I want to cover: Currencies!

New ETFs make investing in euros, yens, pounds and other currencies — either for moves UP or DOWN — as easy as buying stock in IBM or Microsoft. And we’ve all seen how dramatically the U.S. dollar can fall — or rise — against them.

So what do YOU think? Just click here and post a comment to answer today’s “Question of the Day:”

Do currency ETFs have a place in your portfolio?

Which currencies — the U.S. dollar, Canadian or Aussie dollar, euro, Japanese yen, Chinese yuan, Brazilian real or others — are you most bullish on right now?

What percent of your total investment capital do you invest in currencies?

As always, I’ll add my own thoughts to yours. And then, we’ll move on to the next major step — to build an optimal growth portfolio for the year ahead!

Best wishes,

Larry

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Dear Reader,

Our topic all week long has been: How do YOU build the optimum growth portfolio for 2010? And so far, we’ve covered THREE major areas: (1) U.S. stocks, (2) foreign stocks and (3) income investments.

That’s why, yesterday, we asked …

Do FIXED-INCOME INVESTMENTS have a place in your portfolio? For income, safety or a proxy for cash?

And if so, what kinds do you own? U.S. Treasuries? Corporate bonds? Municipals? Short-, medium- or long-term maturities?

What other kinds of income investments do you like?

Your responses are, as before, either intriguing or exciting …

Carole seems to be a dyed-in-the-wool Treasury investor: “I am currently holding U.S. Treasuries (Mutual Fund) long, medium and short term equally. I plan to move away from the long term and emphasize shorter term on these.”

Norman W. is totally OUT of U.S. Treasury bonds:  “The FED will have to raise rates,” he says. “However, even before that I believe foreign demand for our bonds will dry up.

“International bonds are an option. The U.S. dollar should resume its slide in the second quarter of this year, thus inflating yields on international bonds.”

Plus, with interest rates so low, I was not surprised to see that many investors have moved from U.S. Treasuries to higher yielding (and higher risk) investments …

Jimmy B. swears by annuities: “Much of my funds are in Fixed Indexed Annuities that have no downside other than inflation’s effect but if the index goes up the return can be reasonably good.”

Tom D. writes “I prefer quality dividend-paying stocks that pay decent and consistent yields. I prefer stocks that are for “basic needs” like energy, utilities and consumer staples. If the stock prices decline, the yields increase.”

Coleman G. comments “I found WisdomTree International Dividends Ex-Financials (DOO). It seems to have exactly what the income seeking investor wants: The highest dividend-paying stocks from around the world, including the U.S., except for financials (which means these companies must make a PROFIT and then give some of that profit via DIVIDENDS to shareholders).”

Warren W. reports that he owns “… High-yield corporate bond funds, funds that own convertible securities, foreign and emerging market bond funds … and a Senior Debt Fund.”

Overall, if I’d have to rank our readers response, it looks like a third to one-half are income investors and that 80% or more count on vehicles other than U.S. treasuries for their income portfolios. 

So, in terms of building a great portfolio for 2010, our readers seem to be giving Treasury bonds a pretty low rating, probably a one or a two on a scale of one to ten.

Now, it’s time for today’s question:

Is this the time to load up on gold, silver and other precious metals … or not? Why?

How much of your portfolio have you invested? Do you plan to buy more in the months ahead?

Which are your favorites? Gold? Silver? Platinum? Palladium?

Your answers will go a long way towards helping me help YOU build a more profitable portfolio for 2010.

Just click here and leave a comment to share your thoughts. I’ll add my own thoughts over the weekend or on Monday.

Best wishes,

Larry

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The action on my personal blog is heating up — to say the very least!

All this week, we’re getting our readers’ ideas on how to best structure the optimum growth portfolio for 2010. On Monday, most of our bloggers told us they’re bearish on U.S. stocks. So yesterday, we asked …

How would you rate FOREIGN stocks in the current environment?

Which countries do you feel will provide the greatest profit potential with the lowest risk in the first half of 2010?

Once again the wide variety of opinion and the depth of knowledge of our readers was impressive:

William W. is skeptical: “Nearly every investment pundit on the planet is touting the advantages of emerging market investments,” he writes. “That makes me nervous.”

Warren W., who says he is invested in Indonesia and China, is cautious: “Their fundamentals are better and the companies operate in markets with more potential for growth than the U.S. However, until foreign markets truly uncouple from U.S. markets, you’re stuck with ownership of good companies that cannot escape the gravitational orbit of the U.S. markets.”

Barry B. is cautiously optimistic as well: “I think foreign stock vitality depends upon where you are talking about. My overall view is that most of the emerging Asian nations will do best because:

1) They are not saddled with huge debt, either personally or nationally …

2) They are hard working with minimal expectations of what they are “entitled” to and …

3) They have a desire to become “middle class” as we once knew it, which equates to sacrifice and being long-term investment minded.”

Charles M. agrees, and points to the profits he’s making as proof: “I believe that China and India are the two best areas to be invested in right now. China is wide open and I have been following suggestions by Tony Sagami and doing quite well. In India, I invested in Tata Motors in March 2009 and have a 400 percent increase.”

Stephen A. expands on Charles’ theme: “The only place to be invested is where people have money to spend. That is no longer the United States. Demographically China and India have the largest growing middle class. Asia also has the largest manufacturing base. The best gains will be in those companies that produce products and materials for these growing giants.”

Don is solidly in the foreign stock camp and has obviously done his research: “Brazil, China and India are the best areas for growth … as well as resource stocks, oil, gas, minerals [Canada and Australia] and water resources. Also the demand for food will grow, so add fertilizers.”

Bill M. offers an intriguing possibility that few investors consider — PERU: According to Bill, “Peru is one of the strongest of the South American economies and is frequently overlooked as most focus on Brazil and Argentina. Peru has massive natural resources — lots of gold, silver, oil and natural gas.”

Overall, I’d have to say that the majority of our readers are bullish on foreign stocks — so on a scale of one to ten (with ten being most bullish), I’d say that …

The consensus seems to be that
foreign stocks rate about an EIGHT
as growth investments in 2010.

In other words, our readers are saying that they would likely prefer a portfolio that contained substantially more foreign stocks than U.S. stocks in this environment.

Now, on to my NEXT big question: What do you do for income?

More specifically, which fixed-income investments do you prefer?

Sure — the safest ones are paying bupkis right now. But for many — especially retired investors and those approaching retirement, the return OF their money can often be more important than the return ON their money.

So do fixed-income investments have a place in your portfolio? For income, safety or a proxy for cash?

And if so, what kinds do you own? U.S. Treasuries? Corporate bonds? Municipals? Short-, medium- or long-term maturities?

What other kinds of income investments do you like?

Your answers will go a long way towards helping me help YOU build a more profitable portfolio for 2010.

Just click this link and leave a comment to share your thoughts. Early tomorrow, I’ll add my own thoughts.

Best wishes,

Larry

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I sincerely hope you’re taking time each day to take part in this all-important conversation: Just the insights and investment ideas readers have given us so far could have helped you avoid serious losses and make more money in recent years!

The topic this week is, “What would the optimum growth portfolio for these uncertain times look like?” — and many of your fellow investors are diligently posting very thoughtful and detailed responses.

Yesterday, for instance, we took a look at the first of the major asset classes available to investors today: U.S. stocks. The question of the day …

Is this a good time to be buying or holding U.S. stocks and equity funds?

Hundreds of responses from our readers poured in …

John D. seems to feel that the answer is a definite “Yes.”  “Weakness in the dollar is bullish for U.S. stocks,” he says.

Juan is taking the middle road: “Sadly, the U.S. financial future looks grim for the next three to five years to me. Investing in the U.S. now seems pretty dangerous,” he says.

“Still, there will be some great U.S. companies that will make their own homeruns, no matter what. The Apples, Microsofts, and even Goldmans of the U.S. economy will make it happen once again.”

Fernando C., on the other hand, wouldn’t touch any U.S. stock with a ten-foot pole: “I am not in any stocks,” he says. “I am 20% short, and 80% in cash.”

And Michael S. goes even farther: “I think this recovery is a smoke screen,” he says. “The current bull market is nothing more than a bear trap.”

“In direct answer to your question — sell in February!!!!!”

Overall, though, the general consensus seems to be that …

On a scale of one to ten
(with ten being the best),
U.S. stocks seem to rate about a
“TWO” as growth investments today.

Most of our readers feel that U.S. stocks may be OK for a small percentage of your money — perhaps the tech leaders Juan mentioned or a U.S.-based resource stock or two.

But for most, the overall U.S. stock market poses significant risks — including the risk of a double-dip recession. For growth with safety, they prefer to look beyond U.S. stocks.

So today, we’re going to move on — and see what our readers think about investing in FOREIGN stocks for growth. The question of the day:

How would you rate foreign stocks in the current environment?

Where in the world are you investing now? Which countries do you feel will provide the greatest profit potential with the lowest risk in the first half of 2010?

Your answers will go a long way towards helping me help YOU build a more profitable portfolio.

Just click here and use the “comments” area to share your thoughts. Early tomorrow, I’ll add my own thoughts.

Best wishes,

Larry

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Dear Investor,

Wall Street will tell you that the #1 key to investing is picking the golden needles in the stock market haystack.

Not true! Today we have new investment vehicles that make ALL FIVE major asset classes available to everyday investors — and stocks are just ONE of those asset classes.

So your first decision is not which STOCK you should buy, but which ASSET CLASS is likely to make you the most money going forward!

Instead of stocks, for instance, you couldinvest your money in gold or foreign currencies to insulate yourself from the long-term deterioration in the dollar. 

You could choose energy and natural resources to harness the economic explosion in China and other resource-hungry emerging markets.

Or you could play it safe with U.S. Treasuries or even cash.

Heck, you could even put money in all of the above.

Clearly, your alternatives are FAR broader and far more POWERFUL than a typical broker would have you believe!

So to help you sort out the question, “How do you build the optimal portfolio for times like these,” I’m going to spend the next few days with you looking at each of the major investment options available to you …

And we’ll also consider how they could work together to help make this one of your most profitable years ever.

Our first stop on this potentially profitable journey: The U.S. stock market.

Our question of the day: 

Is this a good time to be buying or holding U.S. stocks and equity funds? 

On the one hand, the economy still appears to be recovering. The index of leading indicators (LEI) is making new strong gains. And the Dow is up a whopping 67% in the last ten months alone — a powerful move. Could there be MORE of that kind of life left in the U.S. economy and stocks?

Or is the stock market already running out of gas? Does the Republican victory in Massachusetts mean that this recovery — bought and paid for by Washington — is going to run into new roadblocks, sputter and die? And if so, will that bring back the bear market sooner than virtually anyone expected?

As you know, I have my views. But what is your take?

More importantly, what is your stake? Are you fully committed to stocks right now? Just holding small or modest positions? Totally out of the market?

Your answers will go a long way towards helping me help YOU build a more profitable portfolio.

Just click here and use the “comments” section to share your thoughts. Early tomorrow, I’ll add my own ideas, some of which you may find surprising.

Best wishes,

Larry

P.S. Due to overwhelming response here on my blog, I cannot personally respond to each and every one of your comments. However, I’ve recruited two of our best analysts, Amber Dakar and Mandeep Singh Rai, to help me reply to your postings.

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