The Safest Places to Invest for 2011

I have no idea what will happen in 2011. None whatsoever...

But who would?

Main Street has just about given up on Wall Street, withdrawing some $77 billion from mutual funds.

We've watched as Bernanke lied to us about dollar monetization and inflationary threats...

We witnessed the Fed pump billions into the pipelines, the fight over health care, Greece's implosion, imbecilic actions in D.C., stupidity on trading room floors, unrest in Europe, dollar devaluations... and so much more.

And someone is supposed to know what's coming next?

As we say goodbye to 2010, here's what the smart money seems to be betting on:

• Commodities will continue to explode. Gold will rally to $1,500. Silver will break $30... again. Copper will nail new highs. And oil could easily run amok above $100 a barrel again.

• Coal will spike higher. FBR Capital just upped 2011-2012 coal prices by about 9.5% and 5.8%. "Part of our steam-coal price forecast is tied to higher exports and raising our natural-gas price forecast to $5.50 per thousand cubic feet (Mcf)," they said. And there's news of power plant coal shortages in China, which supports higher demand. Buy if you haven't yet.

• Rare earth stocks will skyrocket on supply-demand issues. China is increasing tariffs, and there's no end to low export quotas out of China... Molycorp (MCP), Rare Earth Elements (REE), the Rare Earth ETF (REMX), and our $1.50 Greenland stock will pick up momentum. Buy rare earths now.

• Housing will not recover — not until 2014 at the earliest. And banks will suffer. Mortgage troubles are rising as prices continue to fall in vulnerable markets; there aren't enough buyers to pick up the overhang, declines, or coming foreclosures. Even RealtyTrac doesn't see a recovery until 2014. And don't forget that mortgage rates will rise again in 2011, dampening any demand and cutting back on affordability.

• The agflation threat will continue to increase your food bills, and send trades like Market Vectors Agribusiness ETF (MOO) to $60.
  

• Unemployment will not improve much.

• Dogs of the Dow stocks will put in another positive year.

• European countries have much to resolve. Countries cannot continue to be bailed out without economic support. If bailouts continue, the euro will come under further pressure.

 Let's look at a couple of these in further detail.

The 2011 Dogs of the Dow

It's time to buy into the Dogs of the Dow theory again.

This is when investors buy the 10 Dow stocks with the highest dividend yields, cash out by the next year's end, and repeat. And in practice, the theory isn't too shabby...

Take a look at the Dogs of the Dow track record:

• In 1996, they were up 29%.

• In 1997, they were up 22%.

• In 1998, they ran up 11%

• And in 1999, they ran up another 4%.

• In 2000, they were up 6.4%.

• In 2001, they were down 5% and down another 9% in 2002 — both of which still outperformed the major indices in tough market times.

• Despite the bear market of 2000 to 2002, Dogs of the Dow raced 29% higher in 2003.

• By 2004, they ran up 4.4%, giving back 5% by 2005.

• By 2006, Dogs of the Dow ran up 30.3%.

• In 2007, the Dogs came in with flat returns.

• In 2008, they fell 38.8% as compared to the Dow's 31.9% loss.

• In 2009, they flew 16.9% higher, as compared to the Dow's 22.7% rise.

• For 2010, so far the Dogs are up about 14% vs. an 18% rise in the Dow.

Now here's the logic: The Dow holds 30 big blue chips. When you buy these stocks with the highest yields, you're buying the high quality companies that are out of favor on Wall Street — making them bargains.

To profit well from the theory, invest in equal amount in each of the 10 stocks...

The 2010 Dogs of the Dow included:

• AT&T Inc. (T), which returned about 9% this year.

• Verizon (VZ), which returned 16%.

• DuPont (DD), which returned 49%.

• Pfizer (PFE), which lost about 1.5% this year.

• Kraft Foods (KFT), which returned about 17%.

• Merck (MRK), which returned about 3%.

• Chevron (CVX), which returned 18.5%.

• McDonald's (MCD), which returned 27%.

• Home Depot (HD), which returned 23%.

• Boeing (BA), which returned this year.

Not too shabby for 2010...

As for 2011, here's the likely list:

• AT&T (T) with a 5.84% yield

• Verizon (VZ) with a 5.72% yield

• Merck (MRK) with a 4.21% yield

• Pfizer (PFE) with a 4.19% yield

• Kraft (KFT) with a 3.76% yield

• Johnson & Johnson (JNJ) with a 3.49% yield

• DuPont (DD) with a 3.38% yield

• Intel (INTC) with a 3.35% yield

• Chevron (CVX) with a 3.26% yield

• General Electric (GE) with a 3.18% yield

The Dogs are one way to go.

Water cooler talk

As for my colleagues, they have a few ideas as to what 2011 will bring for the markets...

Green Chip Stocks guru Jeff Siegel recently wrote:

Despite my palpable disgust for the Washington machine and all those who fund it — and despite my rather pessimistic social, political, and economic outlook for 2011 — I still believe there a few opportunities that will pay off quite well for us as we head into the next year.

These include, but are not limited to:

• Gold – I'm particularly interested to see what happens after the Hong Kong bullion exchange launches the first international gold contract denominated in renminbi next year.

• Rare Earths – From steel production to car manufacturing, rare earth supply crunches are no illusion.

• Oil – Although I'm not particularly fond of the black stuff (nor the thieves and liars who keep us addicted to it), you're kidding yourself if you don't think $100 oil is right around the corner.

• Real Estate – I'm on the fence with real estate, but my colleague Chris DeHaemer makes a very compelling case for a 60% annual return here.

• Chinese solar and wind – While the domestic solar and wind industries got a one-year lease on life for a few bread crumbs' worth of subsidies (compared to what coal and oil will continue to get), China has basically bankrolled its solar and wind industries. As a result, China solar and wind manufacturers now dominate the global market. We sold our souls (and an opportunity for massive domestic job growth) for cheap labor. And although solar capacity will continue to grow rapidly in the U.S., the big money for investors will be found primarily in China. Because guess what? A massive chunk of our solar growth will be facilitated by cheap, made-in China solar panels."

Chris DeHaemer, editor of Crisis & Opportunity, believes, "The market is topping out. We will have a 10% correction by March."

Alternative Energy Speculator's Nick Hodge tells us, "Inflation protection is the name of the game. Commodities, agriculture, metals... Buy anything that's price increases as the dollar goes down."

And The Wealth Advisory's Steve Christ believes:

The markets will remain range-bound, trading between 1100 and 1300 on the S&P over the course of the next year. As charts indicate, that would be similar to the way the market behaved in the in that aftermath of the dot-com fiasco.

For DOW watchers, that puts our expected range roughly between 10000 and 12000 — extending the mid-range of sideways trade going all the way back to the turn of the century. As for the bulls arguing for a quick return to the bubble heavy highs, I just don't see it.

Needless to say, it promises to be another interesting year. Not bad… not great… but somewhere in between.

As for me, as long as the Fed is involved — printing more money — hyperinflation will become reality.

The market will continue to rage higher, as Main Street continues to suffer from housing, unemployment, and utter chaos at the Fed.