Here’s how the fable goes…

Jim is in the boardroom talking to his three young analysts about where the mutual fund they manage should place its billions of cash, as the firm recently exited some equity positions.

“Where are we going to park those couple of billion we have raised?” Jim asks of the young analysts.

Bobby says, “Let’s not buy bank issued CDs. Banks really haven’t come clean with all their bad loans yet.”

Sammy says, “And let’s keep it out of the eurozone government bonds…they are paying good returns, but if they default, we will never get our money back.”

Joey finally gets up and says, “I’ve been studying the 10-year U.S. Treasury market and can’t believe funds like ours are pouring billions into 10-year U.S. Treasuries paying a paltry 1.9%. Everyone knows the U.S. government has the biggest debt load in the world…that our debt will be close to 150% of U.S. GDP in eight years…that our debt crisis is really bigger than the eurozone debt crisis.”

All faces look to Jim for an answer, “Where do we put our billions in cash?” Jim answers the question quickly by directing that all the cash they have be put into the 10-year U.S. Treasury.

Joey stands up again and says, “Sir, in all due respect, I’m not sure that is such a good idea. I’ve read articles that say the 10-year U.S. Treasury market is a bubble of its own.”

“Sit down Joey,” Jim starts. “Do you know why we don’t buy Italian or French bonds? It’s because we don’t know if we will get our money back. Those Germans don’t want the eurozone countries printing any more money. If a government can’t print money to back its debt, how can a debt-holder like us ever get paid back? Now, 10-year U.S.Treasuries…they are issued by a government that just prints more money when it’s payback time.”

“We live inAmerica, Joey. Land of the free. Our government just prints more money when it comes time to pay back debt. And that’s what we want—a government that doesn’t hesitate to print money to pay back its debt! Look, even the Fed has bought U.S. Treasuries!”

Dear reader, the above may be a fictional account of a conversation between analysts, but I believe it explains why investors throughout the world are flocking to the ironic “security” of the 10-year U.S. Treasury. Fortunately, I’m not one of them.

Michael’s Personal Notes:

My, how industries have changed, how times have changed, how the industries best performing stocks in play have changed.

Yesterday, the iconic 64-year-old Saab Automobile Company said that it was filing for bankruptcy in Sweden. A total of 3,400 jobs are at risk. The company lost $260 million in the first half of 2011. Saab, which was once owned by General Motors Company (NYSE/GM), couldn’t find a solid buyer; not even the Chinese would step in to save it.

Meanwhile, on the other side of the globe, we learn that Saudi Arabia’s Prince Alwaleed bin Talal has invested $300 million in San Francisco-based Twitter Inc., valuing the company at $8.4 billion. Yes, a company with $145 million in expected revenue this year is valued at 58 times its sales!

Saab made cars: machines people use to transport themselves and others from point A to point B. At one time, about 100 years ago, automobiles were considered a breakthrough technology. At the beginning of their industrial life, automaker stocks were the best performing stocks on the market. Today, car stocks are no longer the best performing stocks; they are the market laggards.

Twitter is a social media company that enables its users to send messages of 140 words maximum in length to other members. Twitter has 100 million active users. Social media is part of the Internet, the breakthrough technology of our generation. Social media stocks are now the best performing stocks on the market, selling at huge multiples to sales.

Cars transport people. Social media connects people. Today, the automotive business is crowded and competitive; they are no longer the best performing stocks. Ford Motor Company (NYSE/F) can be had for only six times earnings. Tweeting, seeing what the Kardashian sisters have to say or what Demi Moore just said about her break-up from her boyfriend—now that is “important” and that’s what made Internet/social media the best performing stocks of 2011. But what is even more important is how social media is changing the world.

Didn’t Twitter play a big role earlier this year in citizen uprisings? There is no doubt. Tweeting was used as an “outlet” for dissidents during the various demonstrations in the East in 2011…organized demonstrations that resulted in several dictators being removed after decades in power.

Twitter brought power to the people. Saab, well it was just another car company; its heyday is over. My bet: Alwaleed bin Talal’s investment in Twitter will pay off handsomely when it goes public and joins the ranks of the best performing stocks.

Where the Market Stands; Where it’s Headed:

Stocks remain confined to a bear market rally that started in March 2009. Significant increases in government debt, unprecedented expansion of the money supply, and zero short-term interest rates have kept the stock market alive for 32 months now. While stocks have further upside potential, the bear market rally is getting old and tired.

What He Said:

“I see a deal when it’s a deal. And right now there’s a good “for sale” sign flashing on gold bullion and gold producer shares. In fact, after peaking at the $690.00-an-ounce level earlier this year, gold could be a bargain at its current price of around $650.00 per ounce. As a reader, you are undoubtedly aware of my negative stance on the general stock market and the U.S.economy. As the economic problems continue to brew in the U.S., as these problems develop into others, and as they are finally exposed, what other investment but gold will worldwide investors turn to?” Michael Lombardi in PROFIT CONFIDENTIAL, March 14, 2007. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended in Michael’s advisories gained in excess of 100%.

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