John Paulson Says Buy Stocks, Sell Bonds

At the end of last week, the market ripped higher presumably from hedge fund manager David Tepper's comments when he said he likes equities here. Now add to the mix another well known manager in John Paulson. His hedge fund Paulson & Co of course made billions from his bet against subprime as detailed in the book, The Greatest Trade Ever. Given his success, everyone now latches onto his every word, hoping for advice.

Paulson did divulge some of his latest views at a lecture for New York's University Club. Simply put, he said to buy stocks and sell bonds. His favorite stocks are blue-chips with dividends such as: Johnson and Johnson (JNJ) and Coca Cola (KO). Playing on his 'recovery' theme, he also continues to like Bank of America (BAC), Suntrust Banks (STI), and Regions Financial (RF). To see what he's been buying and selling, check out Paulson's portfolio in our newsletter: Hedge Fund Wisdom.

Equities

He says to simply replace low yielding bonds with higher yielding stocks. A 10 year Treasury yields around 2.6% and so stocks with earnings yields of 7-8% are much better options. While Paulson did not mention these names, a quick scan pulls up companies with even higher earnings yields such as Medtronic (MDT) at 9.43%, ConocoPhillips at 10.52%, and Microsoft at 8.53%.

Gold

We've examined John Paulson's gold fund in-depth in the past, and so it should come as no surprise that the hedge fund manager thinks the precious metal is headed higher. He says that gold (currently around $1,200) could hit $2,400 on monetary expansion alone and even $4,000 with significant inflation. His hedge funds offer a fund share class denominated in gold and Paulson himself has 80% of his assets in this class. Additionally, given his inflationist bent, Paulson thinks the US Dollar will fall and that yields on Treasuries will rise. He has been buying 5 and 7 year calls on the 30-year bond yield. We've seen numerous hedge funds put on this type of trade before.

Housing

Lastly, Paulson thinks this is the best time to buy a home in fifty years, exclaiming that, "If you don't own a home, buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home." Great, isn't that just the type of mentality that created the housing bubble in the first place? We realize he is using hyperbole to illustrate his point, but still. Given his prominence in the investing world these days, some people might actually take him literally. For more notes on Paulson's talk, head to Zero Hedge and to Forbes.

In terms of recent position movement from hedge fund Paulson & Co, we detailed their activist position in NovaGold Resources (NG) and sale of Centamin Egypt position.

Diversification Is Dead: Free Special Report From MarketClub

The team over at MarketClub have put together a special report entitled, "Diversification is Dead." Adam, the president of MarketClub says that he's been a big fan of diversification but he questions the common perception that it lowers portfolio risk. You can receive the free 10 page .pdf document here.

Jeremy Siegel: 2010 Good For Stocks, Bad For Bonds

Wharton finance professor Jeremy Siegel last month sat down for an interview in the Knowledge @ Wharton newsletter. The talk delves into his view on the markets for 2010 and he believes it will be a good year for equities and a bad year for bonds. He also believes interest rates will go up. Once investors get over their initial fear and realize that such an increase would mean the economy is recovering, Siegel thinks we could see 10% equity returns.

His pessimism on bonds is due to risk premium dissipating, interest rates rising (causing bonds to lose value) and he does not like any long-term bonds in 2010. However, he did like corporate bonds and 'risky corporates' a little bit as well. This is not the first time we've seen this overall stance as Bank of America was out saying to overweight stocks and underweight bonds.

Below you'll find Siegel's thoughts and his market outlook for 2010:



You can download the .pdf here.

Siegel also recently sat down with Bloomberg to talk about the recent pullback in the markets. Here's the video:



Siegel definitely feels stocks are the superior choice to bonds for this year. With that in mind, head to the list of top stocks held by hedge funds for a few ideas (or crowded trades if you look at it that way).
For more outlook and insight regarding the markets for this year, head to the ten investment themes for 2010.

Pick 1 Stock For 5 Years: Results

First off, sincere thanks to everyone who submitted a pick via the blog, our twitter page, or email. It was a great response as we received hundreds of replies and have been busy sorting through them. The question was simple: If you had to own only 1 stock for the next 5 years, what would it be? Since many of the hedge funds we track on the blog are centered around stockpicking, we thought it would be fun to see what readers had in mind for long-term picks of their own.

As you can imagine, we received the full gamut in terms of answers but definitely noticed a few themes in the responses. Firstly, when it comes to 'buy and hold,' blue chip stocks are the name of the game. By far and away, the largest amount of entries centered around well established blue chip companies that have a proven brand and often pay a dividend. Secondly, two sectors received the most votes and those were: technology and energy. Readers definitely see those two arenas as areas of long-term growth and sustainability it seems.

Without further ado, onto the results. We'd first like to toss out a few honorable mentions that received a lot of votes, but not quite enough to land in the top 10. Some of those stocks include: Cree (CREE), Exxon Mobil (XOM), Leucadia (LUK), Range Resources (RRC), Johnson & Johnson (JNJ), Monsanto (MON), Transocean (RIG), Berkshire Hathaway (BRK.B), FPL Group (FPL), and Verisk (VRSK).

And here are the TOP 10 PICKS, with the #1 pick being the stock that received the most entries:

10. A123 Systems (AONE)

9. BHP Billiton (BHP)

8. JPMorgan Chase (JPM)

7. Google (GOOG)

6. BYD Company (Hong Kong: 1211)

5. General Electric (GE)

4. Philip Morris International (PM)

3. Walmart (WMT)

2. Goldman Sachs (GS)

1. Apple (AAPL)


So there you have it, Apple easily had the most votes as many think this technology giant has become the next Microsoft (MSFT) in terms of dominance. Sticking with technology, there were also a lot of votes for Google (GOOG). The blue chip names that received a lot of entries as we referenced earlier were WMT, GE, and PM. It was also interesting to us to see heavy support for some recent IPO's in Verisk (VRSK) and A123 (AONE). Readers definitely think these freshly public companies have bright futures. Also, while energy was a strong theme with picks like RIG, XOM, we also saw strong voting for plays in the 'green' energy category like BYD and AONE. Lastly, the theme of financials was strong as many people decided that they wanted to own Goldman Sachs (GS) as they've emerged through the crisis as heavyweights, with votes also trickling in for JPM.

Overall, very interesting results and thanks again for participating! Hopefully in five years we'll be able to check back in on this post and see who had the magic crystal ball to pick the right stock. After all, the point of this exercise was stockpicking for the long-term. Who will win? We'll have to wait and see. In the mean time, make sure you check back with us for our constant coverage of hedge fund portfolios and the like.

What Stock Would You Buy For The Next 5 Years?

It's a simple question, yet it really takes a bit more thought if you're forced to pick just one. Over on our twitter account, we posed a question: If you had to buy and hold only one stock for the next 5 years, what would it be? We're talking individual companies here, not ETFs, not indices, just straight up stockpicking.

We thought it would be a fun exercise to gather everyone's responses and then compile the results in a post. So, out of sheer curiosity, let's have it. You can click the 'comments' link below this post, you can email us, or you can @marketfolly us if you're on Twitter. We'll keep track of all the answers and will reveal the results on Friday. You've got 2.5 days to come up with the perfect stock for the next 5 years. Go!

Best Performing Stocks In 2009

Great bit of research from Bespoke Investment Group that shows how crazy things are getting in the markets thus far in 2009. So far, there are 15 stocks up 100% or more and 73 stocks that are up 50% or more. Below they list the top performing stocks thus far in 2009.

(click to enlarge)

Chart Watchlist (Technical Analysis)

Wanted to post up a nice video for those of you interested in technical analysis. The following video is a weekly watchlist of various stocks that look interesting on the charts, courtesy of OptionAddict.net for the week of 4/27/09.

The video highlights trading ideas for various stocks from a technical perspective. It looks at breakouts, breakdowns, support/resistance, as well as various patterns such as ascending triangles, etc. It definitely highlights some stocks to keep an eye on for the week for those who like to trade on technicals.

RSS & Email readers may need to come to the blog to view the video. Enjoy:

Zecco.com Offers Free Trades All of October!

Well, looks like Zecco.com continues to expand their reputation as the brokerage that offers free trades. Their latest promotion is free trades (both equity and options) for the entire month of October. Yep, that's right. Trade all you want for free in any account type. I'm a long time user of Zecco, and have to say I'm quite impressed with this. Traders can save a bunch of money on commissions with this promotion.

Here's the message from the CEO regarding the promotion,

"To show our appreciation for your loyalty, we have decided to make October a 100% unlimited free trading month. This means that between October 1st and October 31st you can make unlimited equity and options trades commission-free. As far as I know, this has never been done in the history of the brokerage industry, until now. But then again, we are seeing things in the market we never would have believed, until now."

And yes, for those of you without an account, this applies to new accounts as well. Taken from their FAQ,

"If I open a new account, can it get free trades too?

Yes, once your new account is funded, it will receive unlimited stock and options no-commission trades in the month of October."

So, sign up for an account now to get free trades. And, to those of you wondering what happens after the October promotion is over? Well, you still get 10 free trades a month thereafter, as long as you've got $2500 in your account. And, after you've used up your 10 free trades, its only $4.50 per trade after that, which is easily still one of the cheapest rates in the business. Zecco is really pushing hard to be the lowest-cost brokerage in the industry. It's tough to beat 10 free trades per month, not to mention free trades (equity and options) for ALL of October. I'm impressed.

Go get yourself 100% free trades for all of October, and then 10 free trades a month thereafter!

Full Disclosure: Zecco.com is an advertiser on this site, but they did not pay for this post. I am already a Zecco user and am making this post voluntarily to let readers know of this damn good deal.