In the last 100 years, this indicator has only been wrong twice… And one of those losses was less than 1%.

Since 1940, this indicator has been infallible… Stocks have risen 22% a year when this indicator says “buy.”

We’ve been hard at work crunching numbers, developing our True Wealth Systems project. We have the world’s deepest historical data sets at our fingertips. And we’ve been testing all kinds of investing systems going back hundreds of years.

Our goal is to find what works in investing, over the long run.

Today’s indicator is incredibly simple: It’s the third year of the presidential election cycle. Stocks have gone up every third year of a presidential election cycle going back to 1940.

[ad#Google Adsense]In the third year of an election cycle, stocks have delivered a total return of 22% a year. For the other three years together – the other 75% of the time – the total return on stocks has been a single-digit percentage gain annually.

Why such a huge discrepancy?

Legendary stock market analyst Jeremy Grantham calls it the “routine Year 3 stimulus.”

Barack Obama was elected in 2008. It’s now 2011… Year 3. The stock market goes up, the theory goes, in anticipation of Big Government stimulating the economy in the coming pre-election year.

We have a double tailwind this year… Grantham says the Year 3 stimulus will be “spiced up” even more by “QE2” – what I call The Bernanke Asset Bubble.

I said this indicator has been infallible since 1940… but what about before then? We tested it back to 1800…

The thing is, until the Great Depression in the 1930s, government stimulus didn’t really exist as we know it today.

In 1929, the lowest tax bracket was less than 1%. And the top tax bracket was in the 20s. Astoundingly, government spending as a percentage of GDP was less than 5% a year until the Depression (NOT including defense spending… which shot up during wars). These days, government spending (including spending by state and local governments) is up over 40% of GDP.

[ad#ChinaBlankCheck]So if Grantham is right, and the routine Year 3 stimulus rally is here, stocks could go up yet again.

Stocks have delivered a 22% total return on average, going back seven decades, during Year 3. We’re in Year 3 now. And stocks are only up about 2% so far. So there’s plenty of room to run, based on history.

This indicator is another example of our True Wealth Systems work… finding things that I wouldn’t believe are possible. So far, in every case, whenever I personally guessed against our systems, I was wrong, and our systems were right…

If this indicator from True Wealth Systems is right, it’s a high probability bet for you to own stocks in 2011.

Good investing,

— Steve Sjuggerud

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Source:  Daily Wealth