Two Things Porter and Steve Agree on Today
More on this week's big 'controversy'… Two things Porter and Steve agree on today… Why an 'inverted' yield curve is so dangerous… The first signs of a new bull market…
Editor's note: The Stansberry Research offices will be closed on Thursday and Friday for Thanksgiving. We'll resume our usual business hours on Monday, November 27. We hope you enjoy the holiday.
Despite this week's big 'controversy,' regular Digest readers know Porter and Steve Sjuggerud are in agreement about two critical things...
While they disagree on when the current "Melt Up" will end, they both believe it will be followed by a "Melt Down" of historic proportions.
They also agree that seeing the U.S. Treasury yield curve turn negative – or "invert" – will be a strong signal that the boom is ending. As Steve explained in yesterday's Digest...
Porter and I published the exact same chart on Friday. We both said it's a major "get out" warning for us...
The chart shows us that when we get an inverted yield curve, stocks peak and a recession is around the corner...
Porter says it could turn negative by early next year. I think that day happens in 2019 or even 2020. Only time will tell... But whenever it does happen, don't take it lightly. Bear markets happen a lot faster than bull markets. And great bear markets tend to follow great bull markets.
The reason this signal is powerful is simple and intuitive...
Suppose a friend asks to borrow some money. In general, the risk that you won't be paid back in full increases the further out in time you agree to lend. In other words, all things equal, your risk is much lower when lending to him for a week than for 20 years.
The same idea is true in the bond and loan markets. As a result, the longer the maturity of a bond or loan, the higher the rate of interest the lender typically charges to compensate for these higher risks.
This means that under normal circumstances, an inverted yield curve – where short-term bonds yield more than long-term bonds – should never occur. It's a sign that something isn't "right" in the economy.
Usually, it occurs when the Federal Reserve (which sets short-term rates) and the bond market (which controls long-term rates) disagree about the underlying strength of the economy. And history shows the bond market is usually right.
As Porter noted on Friday, an inverted yield curve is particularly bad for financial stocks...
Remember, banks earn a profit by borrowing short-term and lending long-term. When yields are inverted, banks are less incentivized to lend. (After all, why would you willingly lend money at a loss?) Bank earnings will fall.
But the consequences extend beyond financials alone.
As part of the "fractional reserve" paper money system, banks are a critical "cog" in the modern, debt-fueled economy.
We're already seeing signs of tightening financial conditions. If banks stop lending, credit growth will grind to a halt. And once credit growth stalls, it's only a matter of time before this gigantic financial bubble bursts.
What should you be holding when it does?
Regular readers know we believe a healthy allocation to gold and silver – along with some cash and a perhaps few short sales – is among the best "hedges" you can own today.
But the broad commodities sector could do very well, too. As we noted earlier this summer in the June 7 Digest...
The chart shows the commodities-to-stocks ratio over the past 47 years. This ratio compares commodities – as tracked by the S&P GSCI Commodity Index – with the benchmark S&P 500 Index. The red circles show times when commodities have become extremely expensive relative to stocks. And the blue circles show times when commodities have been extremely cheap compared with stocks.
As you can see, this ratio has now fallen to an extreme rarely seen over the past five decades... In fact, it is now even lower than either of the previous two bottoms...
Today's historic lows suggest "real" assets could once again be set to beat financial assets over the next several years.
This reversal may already be underway...
Despite the continued rise in stocks, this ratio bottomed just days after we published that Digest. And it has been moving slowly higher ever since.
Take another look at the chart above. You'll notice that during the last Melt Up in the late 1990s, commodities began to outperform before the stock market peaked in early 2000.
Of course, we can't say if this is THE bottom. Only time will tell if commodities are entering a bull market.
But we do know for certain that stocks and financial assets are more expensive than ever before. We also know most commodities have been left for dead following a brutal multiyear bear market. And history suggests it's simply a matter of time before they dramatically outperform stocks again.
If you don't own any commodities, it could be a great time to start buying.
New 52-week highs (as of 11/21/17): Amazon (AMZN), Boeing (BA), Alibaba (BABA), Becton Dickinson (BDX), iShares MSCI BRIC Fund (BKF), Blackstone Mortgage Trust (BXMT), Global X China Consumer Fund (CHIQ), Global X China Financials Fund (CHIX), First Trust Nasdaq Cybersecurity Fund (CIBR), CME Group (CME), Cisco (CSCO), WisdomTree SmallCap Dividend Fund (DES), iShares Select Dividend Fund (DVY), Emerging Markets Internet & Ecommerce Fund (EMQQ), iShares MSCI Singapore Capped Fund (EWS), iShares MSCI South Korea Capped Fund (EWY), Fidelity Select Medical Equipment and Systems Fund (FSMEX), iShares China Large-Cap Fund (FXI), Grubhub (GRUB), iShares Core S&P Small-Cap Fund (IJR), ETFMG Prime Mobile Payments Fund (IPAY), iShares U.S. Home Construction Fund (ITB), KraneShares Bosera MSCI China A Fund (KBA), KraneShares CSI China Internet Fund (KWEB), iShares MSCI China Index Fund (MCHI), AllianzGI Equity & Convertible Income Fund (NIE), Naspers (NPSNY), NVR (NVR), Overstock (OSTK), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), Stanley Black & Decker (SWK), Tencent (TCEHY), ProShares Ultra Semiconductors Fund (USD), VF Corporation (VFC), Verisign (VRSN), ProShares Ultra FTSE China 50 Fund (XPP), and Direxion Daily FTSE China Bull 3X Fund (YINN).
In today's mailbag, feedback on Porter's special Monday Digest... big kudos for Steve Sjuggerud... and a longtime subscriber finally takes our advice on precious metals. What's on your mind ahead of the long Thanksgiving weekend? Let us know at email@example.com.
"Dear Mr. Stansberry, this is the first time that I have sent a comment to you but I thought if ever there was a time to do so it was now. Your special Digest Monday night was right on in my opinion (with one exception). And that is the timing of the collapse! I have been investing for myself for about 40 years and if there is one thing I have learn is that 'it is good until it is bad!'
"My father was depression raised in Brooklyn NY and he remembers watching the Empire State building going up in 1931 during the low of the great depression. As a young man it seemed crazy to him but the USA got thru it! The one thing that he taught me over and over is that ALL debt bubbles burst! The HUGE debt bubble we are in right now will burst for sure but no one wants to believe it!! So the 'Boo Birds' come out in droves. I think one of the main reasons you are not able to convince most subscribers that we are in for a VERY bad time is that they do not understand the magnitude of $20 trillion...
"So, we will all have to wait and see, but the worldwide train wreck is coming!! And it will come just as fast as the great recession did, but I think we will get thru the 'teens' before it happens... I am sad for our country and the world because we have a very difficult period of time ahead of us. Thanks again for spelling it all out for us with rational arguments. Maybe some new technology will come alone and save the day!!" – Paid-up subscriber William C. Schreiber
"I have been reading Stansberry Research for more than 6 years now. Last year I become an Alliance member. I consider myself very fortunate to have been educated so much by the tremendous research that Stansberry provides. Doc, Sjug, and Porter all have differing views at times, but I appreciate that. Anyone that can't see the benefit in the fact that these brilliant folks are giving us their true perspective is missing the tremendous value of these publications. As for me, I'm very grateful to have discovered this service and I deeply appreciate the effort of Porter and the rest of the Stansberry team to keep me informed. Thank you." – Paid-up Stansberry Alliance member Nathan M.
"As a retiree with a small portfolio all the back and forth leaves me confused. Should I invest and try to make some money through Steve's ideas or should I try to protect what I have? You are not making this easy for a novice investor. I'll continue to read your various views and try to discern the best path. However, I hope both of you will be on the same page shouting loudly when it's time to get out of the market. With any luck both of you will provide sound guidance on to how to survive (& perhaps thrive) during the ensuing chaos. Thank you." – Paid-up subscriber Patricia Ryan
"Dear Porter, Steve, Doc, Dave, Dan, et al... Please ignore the noise, as well as the subscription cancellations, and keep doing what you are doing, that is to say, stay true to your investing insights, however many that might be!
"All investors do not have the same risk tolerances, the same level of investment experience, the same grasp of the world around us – and they change over time. I, for one, now find my own assessment of my position in each of the before mentioned areas vastly different from when I first subscribed, which was more than just a few years ago. I hope that I'm a better investor, as my portfolio would seem to indicate, but then again, everyone thinks they are a great investor in a rising market.
"One thing I have recognized over the years is that each of you are extremely persuasive with compelling arguments for your advice, whether for an individual stock or the overall direction of the market. That is now, and will always be, why I will remain a subscriber to your letters. I took control of my investments because I believed that no one would better understand my risk tolerances, investment experience, or my understanding is the world than me. So I know I have to make the individual investment decisions, after weighing both the potential risks and benefits.
"Personally, I'm still participating in the 'Melt-up' and the 'Opportunities' elsewhere, but I'm also hedged to mitigate the damage when the market does turn downward and the louder Porter beats the 'Is that a good thing?' drum, the closer attention I pay to the downside protection. I'm one satisfied subscriber. P.S. Your letters are a true 'learning experience.'" – Paid-up subscriber Steve J.
"Hello Porter, for what it's worth, I think you are spot on in [Monday's] Stansberry Digest. And I think it will be even worse than you described, especially in terms of societal disruption. As you well know, the politicians/deep state doesn't give a tinker's damn about the pending social collapse they've created. In fact, I subscribe to the theory that many of them will be quite pleased with their handiwork (widespread rioting, looting, mayhem and murder), so they can then come riding to the rescue. And blow the hell out of what little of our constitutional rights are remaining.
"Having said that, one point if you will indulge me. I've had two careers, naval officer and aerospace manager, and based on hopefully some wisdom I've garnered in those 45 plus years, I suggest that you will catch, retain, and make happy more flies with a dash of honey along with the vinegar. A long-winded way of suggesting that I think you put a little too much of a cutting edge on your prose sometimes. Frankly, it pisses them off. So if that was your intent, please disregard my suggestion.
"All the best, and please don't stop publishing your outstanding work. And for God's sake, pay Dr. Sjuggerud whatever it takes to keep him in the group. You guys are a fantastic team. Best I've ever had the pleasure of reading." – Paid-up Stansberry Alliance member Hal C.
"I want to thank Steve Sjuggerud for the Tencent recommendation way back when it wasn't even heard of. I have doubled my money and will sell half of it today. Thank you Porter for teaching about house money. Because that's what I will have left. I also liked Grant Williams's explanation of what's going on today. Everyone has different views of what is happening just like two sides of a coin. But it is still the coin. By the way, my neighbors just started to get into investing. I recommended Stansberry Research. You all have taught me so much. Thanks again." – Paid-up subscriber TJ
"Giving credit where credit is due... I'd never heard of Tencent before, and was wary of Chinese stocks in general, before subscribing to [Steve's] service several months ago. TCEHY was one of my first buys, based on your recommendation. With a gain of over $16K on this position alone, you can count me as a Very Satisfied and Appreciative Subscriber. Alibaba was another one of your great picks! Thank you!" – Paid-up subscriber C. Smith
"Porter, Steve, and whomever else... I'm such an idiot. I listened to the live [webinar] last October when Steve recommended Tencent and my dumb @$% decided not to buy at the time and wait. Fortunately, however I did buy [Steve's latest China recommendation] a few weeks ago, and I'm happy I did so! Better than nothing, right? Either way, you guys are the trading Gods." – Paid-up "proud" Stansberry Alliance member Matt Eltareb
"I tried out True Wealth on a $49 offer for 1 year. I went back to the beginning of 2017 and read every monthly issue and special report. I loved Sjug's research so much that I went straight for the Lifetime Subscription. He is fantastic and has helped me turn my portfolio around after starting out making some bad choices while I learned the markets. I REALLY appreciate that you offer True Wealth to us little guys. Even without the Lifetime subscription, $199 is affordable and a no-brainer for Sjug's research! I'm the sole bread winner of a family of 4 and investing for a brighter future for your family can be tough waters to navigate alone. From the bottom of my heart, thank you for this product. You got a subscriber for life!" – Paid-up subscriber Erik Franz
"I've finally decided to own some gold and silver. Can you provide the names and contact information of reputable dealers you can recommend with confidence?" – Paid-up subscriber Gary S.
Brill comment: As we often mention, when it comes to plain gold and silver bullion, you want to pay the lowest premiums possible. There are many reputable dealers, so feel free to shop around. However, we can recommend the following companies...
And if you're interested in rare or "numismatic" coins in addition to bullion, we'd also suggest contacting Van Simmons at David Hall Rare Coins...
As always, we receive no compensation for recommending any of these dealers. They've just treated our customers and colleagues well over the years.
November 22, 2017