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Big Profits Come in Small Packages

By Jeff Clark
Thursday, August 3, 2006

Where’s the best place to be invested once the Fed stops raising interest rates?
 
The easiest and most obvious answer is large cap pharmaceutical stocks. This makes sense because the Fed usually stops raising rates just as the economy starts to slow down. And the pharmaceutical sector performs well in a slowing economy.
 
But the easiest and most obvious answer is wrong.
 
In fact, the last time the Fed stopped raising rates - back in January 2001 - the pharmaceutical sector actually lost 1% over the next eight months.
 
That’s better than the 8% loss the S&P 500 suffered over the same time frame, but it’s hardly awe-inspiring. (Yes, the market actually falls when the Fed stops raising rates – but that’s a topic for another day.)
 
Another obvious answer is the biotech sector. Stocks in this sector have no earnings, and really no hope for earnings. But the potential for a dramatic breakthrough discovery is enough to convince investors to stick with this sector in difficult economic times.
 
And, just like with the pharmaceutical stocks, the biotech sector performed better than the broad market in 2001. But the sector’s 2% gain in eight months fell short of even money market returns.
 
If you really want to make big money when the Fed stops raising rates then you need to think small – really small.
 
You need to think nanotechnology...
 
Nanotechnology stocks exploded higher almost immediately after the Fed stopped raising rates back in 2001.
 
There wasn’t a nanotechnology index back then. But if you take a look at the performance of the individual stocks that make up the current Merrill Lynch Nanotechnology Index (NNZ) you’ll see some really stunning returns.
 
Shares of FEI Corp. (FEIC) gained almost 100% in eight months. MTS Systems (MTSC) was up 85%. Kopin Corp. (KOPN) rallied 60%.
 
Of course, not every nanotech stock blasted higher. Several of them languished along with the S&P 500.
 
But if you picked just one or two of the right ones, then this tiny sector generated huge profits.
 
And, it’s poised to do it again.
 
When the Fed stops raising rates this time around, the place to be is nanotech. My Big Trend Report portfolio currently holds three nanotechnology stocks and I’ll be adding another one next month.
 
I’m expecting terrific gains from all of them.
 
Best Regards & Good Trading,
 
Jeff Clark




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Market Notes
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The bad times continue for eBay… back on the New Lows list and down 50% from highs. Now at 32 times trailing earnings.
 
In The News: Bill Miller’s collection of mistakes makes for a horrible 2nd quarter.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1223.12 -0.1% +10.6%
Oil 38.22 -0.2% -0.3%
Gold 139.11 +0.8% +22.3%
Silver 29.51 +3.2% +62.6%
US-Dollar 79.17 -1.3% +4.3%
Euro 1.33 -0.8% -10.4%
Volatility 18.02 +0.1% -15.2%
Gold Stocks 590.99 +1.6% +25.5%
10-Year Yield 2.94 -2.7% -15.5%

World ETFs
Symbol Price
Change
52-Wk
USA 122.76 -0.1% +10.6%
Canada 30.56 +0.2% +18.0%
Russia 21.98 +0.2% +17.2%
India 37.92 +0.2% +19.4%
Israel 16.76 +0.4% +10.4%
Japan 10.69 +0.5% +7.0%
Singapore 13.71 -0.2% +18.1%
Taiwan 14.92 +1.0% +20.2%
S. Korea 57.19 -0.2% +21.5%
S. Africa 72.26 +0.5% +29.7%
China 43.84 -1.3% -3.3%
Lat.America 53.21 +0.1% +9.2%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.74 +0.1% +20.2%
Big Pharma 63.99 -0.2% -3.2%
Internet 72.58 +0.7% +25.0%
Semis 16.18 -0.3% +26.4%
Utilities 31.19 -0.3% +1.8%
Defense 18.47 -0.3% +8.9%
Nanotech 10.08 +0.5% +1.3%
Alt. Energy 10.24 +1.6% -2.0%
Water 18.62 +0.7% +13.8%
Insurance 16.08 -0.4% +19.0%
Biotech 20.56 +0.1% +26.6%
Retail 19.59 -0.6% +26.6%
Software 24.65 -0.6% +22.7%
Big Tech 53.85 0.0% +22.1%
Construction 13.20 +0.8% +14.8%
Media 13.73 +0.7% +24.7%
Consumer Svcs 67.38 0.0% +23.4%
Financials 55.01 -0.1% +5.7%
Health Care 63.90 -0.6% +1.2%
Industrials 63.51 -0.1% +19.3%
Basic Mat 74.64 +0.4% +27.8%
Real Estate 55.35 +0.1% +21.8%
Transportation 91.39 -0.4% +23.9%
Telecom 22.65 +0.3% +16.8%