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Suddenly, Amazon Doesn't Love Its Moms AnymoreEach year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
For both of their top picks for 2007, Steve Hochberg and Pete Kendall look to ETFs -- the iShares Lehman 1-3 year Treasury Bond Fund (ASE: SHY) for conservative investors and a short position in the iShares S&P SmallCap 600 Index Fund (NYSE: IJR) as a speculation.
The co-editors of The Elliott Wave Financial Forecast explain, "Stock prices have been crashing since 1999 in terms of real money, a fact of which nine out of ten people are unaware. From 1980 to 1999, stocks rose in terms of paper dollars, gold, and commodities. Since 1999, a historic shift out of stocks and into hard cash or 'things' has been underway.
"Relative to gold, the Dow is down 56% and the NASDAQ is off 78%, with new lows made this year. Similar stock market behavior occurred from 1966 to 1980, a time period that included a decline of 50% in the S&P 500 index.
"The Dow is at a new high in nominal terms due to credit inflation, which has allowed the index to stay up because the measuring unit (the dollar) is falling. Historically, whenever a discrepancy between the performance of the Dow in real terms and the Dow in nominal terms develops, the Dow in nominal terms always plays catch up to the Dow in real terms.
"Thus, before the bear market in stocks ends, stock prices should be down in nominal terms too. Safety will be the key to investment success in 2007, so the bulk of one's portfolio should be in cash or cash equivalents.
"One of several ways to accomplish this is to place funds into the iShares Lehman 1-3 year Treasury Bond Fund, which would be our top pick for conservative idea in 2007. This ETF should mirror the price and yield performance of the short-term sector of the U.S. Treasury market and provide a measure of safety to a declining stock market.
"For our speculative play, a short position in the iShares S&P SmallCap 600 Index Fund should do well in 2007. Seven years of small cap outperformance relative to big cap ended in April 2006, with the peak in the small-cap-to-big-cap ratio. The illiquid nature of small cap stocks should offer strong downside potential in the next phase of overall market decline."
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