A Bull Market in Everything
Editor's note: The "Melt Up" is in full swing...
Our colleague Steve Sjuggerud has been following the story closer – and longer – than anyone we know.
In today's Masters Series essay – originally published in the February issue of True Wealth Systems – Steve tells readers about the first Melt Up of his professional career... explains why the current bull market is so "hated"... and offers one important warning...
A Bull Market in Everything
Twenty-five years ago, I experienced my first "Melt Up" as an investment professional...
It. Was. Awesome.
And then...
It. Was. Awful.
There's nothing like actually putting your hand on that hot stove to really feel the fire. And I was right in the middle of the fire...
In late 1993, I was a young stockbroker in the U.S., specializing in international stocks.
I didn't know it yet... but man, oh man, I was in the right place at the right time.
It might sound hard to believe, but the big story in 1993 was China... Investors absolutely had to get in.
As a young stockbroker, I quickly learned that you basically never get incoming calls from strangers looking to open an account with you.
Never, that is – except when it's late 1993 and you can buy "China plays" in Hong Kong for your customers. Then you are Mr. Popular! The phone is ringing for you – multiple times a day.
We had "new leads" – potential customers – calling us like you can't imagine.
We had no idea – but we were in the middle of a Melt Up in Hong Kong stocks.
Our group of young brokers was giddy coming to work every day. We were making more money than any people in their twenties probably should.
For us, in the middle of it, it felt a bit like bitcoin probably felt in late 2017. Everybody wanted in. And we were the ones who could get you in...
In early 1993, the Hang Seng Index – Hong Kong's main stock index – was in the 6,000s. By December, it was approaching 12,000.
In November, and particularly December, it felt like the market was going up every single day.
Then January arrived... And the market started going down!
The market lost about 10% of its value in a month. All the talk was of a correction...
"Is it over?"
Heck no! The phones kept ringing. People who missed the December run-up scrambled to buy in January.
And then... by February, the market started going down. The phones were ringing. But it started to feel like the opposite of November and December...
February was awful. It felt like the market went down... on every day of the month.
It wasn't easy to track your Hong Kong holdings back then. We didn't have the Internet. So customers would call... every day. And I'd have to give them the bad news... every day.
Customers wanted to "double down" to "lower their average cost." They were certain China would run back up. But they were wrong.
The grim reality set in. The late-1993 China Melt Up turned into the 1994 China "Melt Down."
I wanted to hide under my desk. My monthly income – which was all commission based – fell roughly 90%. And it stayed there for about nine months. It was awful.
I went from the top of the world to, well, nearly broke.
I learned a few emotionally scarring lessons from that experience:
- A Melt Up is a fantastic ride on the way up. It is downright awful on the way down.
- I want to be on board for the good times of a Melt Up. I want to have a plan to avoid the Melt Down.
Since then, I have lived and traded through countless Melt Ups. If you are willing to buy any asset class, in any country – like I am – then you will see the pattern repeat itself. You will recognize the signs.
With all that experience, I can ride comfortably through them – both on the upside and on the downside.
(To be honest, my pulse still does quicken a bit on the upside. And it still hurts a bit to follow those trailing stops on the downside. But I know it's all part of it, and that I'm doing the right things to capture the biggest gains in the Melt Up.)
Today, my friend, for the first time since 1999, we are in a Melt Up in U.S. stocks.
Heck, the S&P 500 was up nearly 6% in January alone.
But this isn't a U.S.-only phenomenon...
Right now, we're seeing a bull market in everything.
Stocks outside America boomed in 2017 for the first time in years.
Europe... Japan... China... South Korea... They ALL soared. And they've continued to soar into the new year.
What we're seeing today is exactly how a Melt Up plays out...
Stocks stop grinding higher and begin to outright soar. You reach a "November 1993" moment in Hong Kong stocks (which scars me to this day), or a "late 1999" moment in U.S. stocks (which you are probably more familiar with).
With every tick higher, investors become more excited. Many have already missed most of the gains from prior years. And so they reach the next step... They're scared of missing the next leg higher in the markets, so they buy.
New money floods the market as investors finally get off the sidelines. That pushes stocks to newer and higher highs.
The cycle continues as more gains bring more dollars into stocks – again pushing prices even higher.
Big professional money managers – these guys are supposed to know better – are not immune to this cycle. They start to realize that, if they play it safe, they will underperform. Their clients will complain. So they start buying late in the game.
You can see it in stock prices and you can feel it in the recent headlines. Investors are finally catching on to what's happening. They're getting more and more excited to own stocks.
Sentiment is shifting. Investors are quickly becoming bullish. And that's shifting a bull market into its final stage, a full-blown Melt Up.
It's happening right now. And it's causing a bull market in everything.
So, what do we do as investors?
Should we see the craziness for what it is, and step aside? Or should try to capitalize on it while the getting's good?
My answer – and the answer of the True Wealth Systems (TWS) computers – probably won't surprise you.
You already know what I think we should do... We need to put money to work in the highest upside opportunities, but we also need to be willing to sell (and not second-guess it) when a time like my year of 1994 arrives for us.
So our plan is simple...
We want to own stocks. We want to maximize our upside potential in this Melt Up.
Investors Are Sprinting Into the Market
The current bull market that started in 2009 is the most hated boom I've ever seen.
Stocks have soared for years... But folks have insisted on focusing on the bad news. They were always looking for a reason to sell. And reasons were there...
At first, it was the debt ceiling and U.S. government credit downgrade in 2011... Then it was the crashing oil price and soaring dollar in 2014... Then it was election uncertainty in 2016.
There have been consistent reasons to sell. But investors seem to be over these hang ups today. They're finally moving back into stocks... And in a big way.
Last week, Bank of America Merrill Lynch reported that investors bought $33.2 billion of stocks over the prior week. That's the largest inflow of new money into stocks since 2013.
Interestingly, the majority didn't go into the U.S. market. Investors seems to have caught on to the global portion of the Melt Up...
While $7 billion moved into U.S. stocks, another $6 billion moved into Europe, and $8.1 billion moved into emerging markets. And that's the largest recorded weekly move into emerging markets.
Sentiment is certainly shifting. The days of ordinary investors being scared of stocks seem to be over. Instead, folks are pouring money into the market.
This is worrisome for us as contrarian investors. We want to own what others aren't even considering... what the crowd hates the idea of buying.
Right now, global stocks are the popular bet. But that doesn't mean they can't move higher...
The Melt Up environment tells us that investor euphoria is exactly what will push prices higher. And we want to be on board for those gains. But again, we want to do it smartly...
This month, all five of our indicators are in "green light" mode. There's no need to panic or worry. This bull market is healthy.
That means we want to put money to work. We want to take some risk, and set ourselves up for hefty profits in the Melt Up.
But we have to make one thing clear...
The Melt Up Won't be a One-Way Move Higher
The last U.S. Melt Up saw an enormous boom in prices.
The Nasdaq Composite Index soared 130% from January 1999 to its peak in March 2000.
It was a fantastic time to own stocks. A triple-digit gain in a little more than a year – in an entire index – is not something that happen often.
But it wasn't a one-way move higher.
This is an important point... Investors that don't understand it will likely be scared out of stocks before the biggest gains unfold.
You see, the past two years' gains have lulled investors into a false sense of security. Stock market volatility continues to bounce around near-record lows. And it's been years since we've seen a meaningful fall in stocks.
The S&P 500 fell 12% in fall 2015. It recovered, and then fell another 10% at the beginning of 2016. Since then, we've barely seen any decline in prices. (Editor's note: From January 26 to February 8, the S&P 500 fell 10%. It has since recovered most of those losses.)
It feels good to never see downside. And it's easy for folks to expect that what has been happening – higher prices with no corrections – is normal.
This isn't normal. Stocks go up and down – even during a Melt Up.
In fact, stocks went down a bunch of times during the last Melt Up. You wouldn't know it by looking at this chart, though...
It looks like a one-way ride, right?
That wasn't the case, though. The Nasdaq Composite actually had several big falls during this boom. The chart just hides them because the overall gains were so large.
The Nasdaq Composite actually had five roughly 10%-plus declines during its final push higher. Take a look...
These falls were quick and painful. They all happened in a month or less. And believe me, a 10% decline in a month is tough to swallow.
It makes you question what's going on. It makes you question if the Melt Up is over.
Today, folks are used to a one-way market. But corrections are normal – even in the Melt Up.
Don't be surprised if the market falls 10% this year – it could even happen more than once. It's nothing to worry about as long as our indicators stay green.
Of course, we'll protect ourselves. We'll sell when our systems say "sell." And we'll buy when they say "buy."
The Melt Up won't be a one-way move higher. But as of this month, the uptrends are fully in place. The boom is underway. So it's time to put money to work.
Good investing,
Steve Sjuggerud
Editor's note: Regular Stansberry Research readers know Steve is a conservative person by nature... And he doesn't often make outlandish guarantees. But he's so confident in the Melt Up that he's willing to give you a free year of his work if he's wrong. Learn more about this incredible offer – which is only available for the next few days – right here.