Another Sign the Bond Bull Market Is Dead

BOJ confirms: The easing will continue... Another sign the bond bull market is dead... Eisman predicts a 'golden age' for banks… Dalio 'doubles down' on Trump... 'If you haven't read Ayn Rand lately, I suggest that you do'... Sjuggerud sounds the alarm... This demonstration will shock you...

This morning, the Bank of Japan ("BOJ") stood pat...

As expected, Japan's central bank kept its monetary policy unchanged at its latest meeting. It maintained short-term rates at negative 0.1%, and it continues to target a 10-year Japanese government bond yield of 0%.

The bank was slightly more optimistic than it has been recently, noting "Japan's economy continues to recover moderately as a trend." But BOJ Governor Haruhiko Kuroda quickly dismissed speculation that Japan could soon join the Federal Reserve and raise interest rates. As news service Reuters reported...

Kuroda offered an upbeat view of the economy but sought to douse market talk the central bank may soon consider raising interest rates, vowing instead to keep policy loose to achieve the BOJ's 2% inflation goal.

Kuroda also said he did not see recent yen falls as a problem for Japan's economy, saying that a weak currency helps accelerate inflation by boosting import costs and in so doing raise inflation expectations – a crucial element in the BOJ's plan to beat economic stagnation.

"We are still distant from our 2% inflation target. It's therefore appropriate to continue with powerful monetary easing," Kuroda told a news conference on Tuesday.

Kuroda also said that despite the recent rise in interest rates around world, the BOJ does not plan to raise its target for the 10-year Japanese government bond yield until inflation picks up... even if this causes the yen to weaken further against the dollar...

It's absolutely not the case that Japanese government bond yields are allowed to rise in tandem with overseas long-term interest rates, or that (any such rise in Japanese yields) would prompt us to raise our yield targets.

After years of unsuccessfully fighting deflation, the BOJ believes it may finally be on the right track... Don't expect Kuroda to act until or unless inflation moves much higher.

Speaking of the rise in interest rates...

We note the yield on the benchmark 10-year Treasury is just days away from creating a bullish chart pattern that hasn't happened anytime during the entire 35-year bull market.

As Jon Krinsky, chief market technician at MKM Partners, explained in a note over the weekend (courtesy of The Reformed Broker financial blog)...

Earlier this year, 10-year yields traded below the low of last year (1.64%), and are currently above last year's high (2.50%).

Should they close above 2.50%, it would represent a bullish outside year for yields. Since yields peaked in 1981, that has never happened. That would add to the thesis that we have seen an end to the secular bull market in bonds.

As always, we would never recommend basing your investment decisions on a single indicator or chart. But this rare pattern would be one more big sign that the long bull market in bonds is over.

Another notable name has become bullish on Trump...

Financial analyst Steve Eisman believes Trump could unleash a "golden age" for banks and financial stocks.

If you're not familiar, Eisman was the subject of the bestselling novel and Oscar-winning film, The Big Short, and was a keynote speaker at our recent Stansberry Conference & Alliance Meeting in Las Vegas. As financial-news network CNBC reported yesterday...

"I think the financial system is going to be at least partially deregulated" under the presidency of Donald Trump, he said on CNBC's "Squawk Box."

"I think over the next couple of years there will be more leverage, and this will be a golden age of investing in financial stocks," added Eisman, whose bet against the subprime mortgage market prior to the 2008 financial crisis was depicted in the 2015 movie.

Eisman said he is "as long as I can be" on financial stocks. He said he started buying the day after the election and has bought more since.

Of course, regular readers know Eisman isn't alone...

Several big names turned bullish on stocks and the U.S. economy following Trump's victory last month.

Shortly after the election, Ray Dalio – the brilliant founder of Bridgewater Associates, the world's largest hedge fund – said he believes Trump could set off a "major reversal" that could last for years.

Yesterday, Dalio shared his latest thoughts on Trump, and it was clear his view has only strengthened. As he wrote on social-media network LinkedIn...

Now that we're a month past the election and most of the cabinet posts have been filled, it is increasingly obvious that we are about to experience a profound, president-led ideological shift that will have a big impact on both the U.S. and the world.

This will not just be a shift in government policy, but also a shift in how government policy is pursued. Trump is a deal maker who negotiates hard, and doesn't mind getting banged around or banging others around. Similarly, the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.). They also have different temperaments and different views that will have to be resolved.

Dalio said the shift under Trump could be even more significant than those in the U.S. under Reagan or in the U.K. under Margaret Thatcher, and suggested readers brush up on their Atlas Shrugged to get a sense of what's coming...

Regarding economics, if you haven't read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power...

By and large, deal-maker businessmen will be running the government. Their boldness will almost certainly make the next four years incredibly interesting and will keep us all on our toes.

Again, it's still too early to tell if Trump will be able to do all he has promised, but more and more smart investors believe it's likely. We would be foolish not to consider it, too.

In the meantime, we continue to believe a "Trump Trade" reversal is likely...

As we've discussed in recent Digests, the big rallies in stocks and the U.S. dollar have become extremely stretched to the upside... while the declines in bonds and precious metals have become extremely stretched to the downside.

A correction in stocks and the dollar – and a rally in bonds and precious metals – is likely, at least in the short term.

But we aren't the only ones who believe so...

Longtime Digest readers know our colleague Steve Sjuggerud has been among the most outspoken bulls over the past several years. Time and again, Steve told his subscribers to stay long... He told them the bull market wasn't over... and stocks were likely headed higher still.

But today, for the first time in years, Steve is getting cautious...

Now to be clear, Steve still doesn't think this bull market is finished just yet. But he, too, believes the recent rally has gone too far, too fast... and a correction is likely.

In particular, he notes one of his most-trusted indicators is sending a big short-term warning sign today. As he explained in our free DailyWealth e-letter this morning...

This indicator tells us that the stock market is getting "overly loved" by investors – and this is a bad thing. You see, typically when a market gets "overly loved," it often struggles to rise (at best) or even falls (at worst) over the following three months or so.

"Overly loved" is not a technical term, of course. It's a simplified way of describing investor sentiment...

If you've read my writings in the past, you know that I want to buy an investment when it's HATED. (For example, you would have wanted to buy U.S real estate in 2011, when it was hated, as opposed to 2007, when it was loved.)

As Steve explained, one of his favorite ways to track sentiment in an asset class is tracking the "shares outstanding" of exchange-traded funds ("ETFs")...

When investors get excited about an asset class, money flows into its ETFs. When a LOT of money flows in, those ETFs have to create more shares. And this is where the problem comes in right now...

"In the past few days, we've noted that several of the major-index ETFs have taken in their largest daily inflows of the year," my friend Jason Goepfert of SentimenTrader.com wrote this week. That includes the funds that track the S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the Nasdaq-100 Index (QQQ)...

Jason explained that the shares outstanding in all of these major ETFs "have seen rapid growth in the past week. The past several weeks, actually. Over the past 30 days, the funds have grown their shares outstanding by more than 13%, the second-fastest pace of the bull market."

What does this mean? Steve says it's a strong indication the market is likely to struggle in the next few weeks to months...

I don't think this means we're at the end of the great bull market. I don't think it's time to sell everything and batten down the hatches. To me, this probably means that we're near the end of the Trump rally... that it's time for the Trump optimism in stocks to burn off.

Stocks will likely take a break and let all of this investor optimism wear off a bit... before the bull market resumes in full again.

Again, Steve doesn't think this is a reason to get bearish. He believes the bull market still has further to run.

But if you're considering adding to long positions in stocks (or short positions in bonds), you'll likely find better opportunities in the weeks ahead. And if you've not yet taken our advice to "hedge" your portfolio – via select short sales or small positions in cheap put options like we've recommended in Stansberry's Big Trade – this could be a great time to do so.

It's also a great time to review your portfolio...

And confirm you're managing risk appropriately.

As regular Digest readers know, this includes using proper position sizing and having a well-defined exit strategy – such as a trailing stop loss – for every position you own.

Many investors believe it's what they buy – which stocks or funds – that determines their investment success. But the reality is often far different...

For most investors, it's how much you buy, and when you sell it, that is far more important. And this isn't just conjecture...

Our friend Dr. Richard Smith – founder and CEO of TradeStops – has done the research. The results are astounding. Using good risk-management strategies – which is as easy as clicking a few buttons with Richard's TradeStops software – can result in literally tens of thousands of dollars in additional profits on the same investments you already own.

As we noted yesterday, Richard recently sat down with several real Stansberry Research subscribers to show them exactly how it works. We guarantee you'll be shocked at how much money some of your fellow subscribers have been leaving on the table. Click here to see for yourself.

New 52-week highs (as of 12/19/16): Automatic Data Processing (ADP), American Financial (AFG), Axis Capital (AXS), Black Stone Minerals (BSM), ProShares UltraShort Euro Fund (EUO), Cedar Fair (FUN), Microsoft (MSFT), PNC Financial Warrants (PNC-WT), Sysco (SYY), Travelers (TRV), and W.R. Berkley (WRB).

The feedback on our big Friday Digest announcement continues to flood the mailbag... and Porter answers a couple of the most common questions we've received about Stansberry Portfolio Solutions so far. We'd love to know what you think, too. Let us know at feedback@stansberryresearch.com.

"Porter love the idea. Just one question? As a paid-up Alliance member for about 5 years will, I get this service included? Merry Christmas and Happy New Year to the Stansberry Family. P.S. I was recently at a Christmas cocktail gathering with some clients and one client who happens to be the Head Trader of [an asset management firm]. We were just talking and I mentioned Steve Sjuggerud's mantra (Cheap, Hated, and in an Uptrend) and he got a snicker out of it... He is also a Lifetime member. We had quite the discussion over the quality of Stansberry Research. Keep up the good work. I am all consumed by you guys." – Paid-up Stansberry Alliance member J.T.

Porter comment: Of course... As I hope you well know by now, anything we publish will be available to Alliance members.

"Porter, it seems to me that one of the most important things we can do as we move from childhood to adulthood is to learn that we are ultimately responsible for ourselves. Life consistently delivers surprises; some are good and some are not. Whether consciously or not, we all take on risks with every decision we make. By accepting responsibility for our decisions, we learn from our mistakes. Those that don't take personal responsibility blame back luck, our government, and other people. Typically they don't learn. As you've said 'there is no teaching.' I think both of us know where Peter G. fits.

"As for your advice on gold, I've been reading your Investment Advisory for about four years. After thinking through how to allocate some of our assets to gold, I purchased NovaGold at $2.20. In line with your thoughts, I considered this investment to be like a long term option on the price of gold. My information shows NovaGold bottoming at $1.90 in early 2014. It's been as high as $7.29. It now sits at $3.85 at the close today (about a 33% annual return). Again, with your help, I have learned how volatile the miners can be, but my reason for investing remains intact. In fact, I feel even stronger about my choice to invest three years ago.

"As for your portfolio concept, it sounds good. But, I wish I could have accepted your invitation to become an Alliance member just days ago. I considered selling NovaGold, which would have more than funded the purchase. Perhaps by this time next year, I'll buy in. I still like reading as much as I can afford from you and your associates. My job is to stay on budget and manage our portfolio.

"I will likely continue to build my own portfolio given my specific financial situation. That's why I think the Alliance membership would be best. Nevertheless, I look forward to hearing more about Portfolios. There's no way I would expect you to do any more than continue to give me a set of investment ideas to consider and a great education along with them. I am responsible for understanding myself and my financial picture. I don't recall delegating that responsibility to you. Best to you and your team in 2017. Let's have another great investment year." – Paid-up subscriber Carl S.

Porter comment: Carl, I'm moved by your letter. What a wonderful testament to what we do and how real investors should use our work.

"I am hoping that you will keep your excellent newsletters and analysis intact after January 11. I value your insightful commentary on various investments. I really do not want you telling me how to invest my money... Your commentaries do allow me to consider investment opportunities that I might have overlooked. A holistic portfolio-based approach would not be of interest to me." – Paid-up subscriber David D.

Porter comment: Of course! We will continue to serve our subscribers in as many ways as we can... And we don't intend to tell anyone what to do with their capital, only to provide more details for those who want it.

"I feel Peter's pain. I have been there and done that. I can absolutely state that most of my losses have been a result of poor asset allocation. It is easy to think that you have figured out the big picture in one area and bet the farm. For example, even at this moment, I am over weighted in GOLD positions. I absolutely believe that gold has a bright future. The problem is my timing. I have thought this for several years. The problem is my timing is still off. I still believe that Gold will spike and make a fortune for everyone who has a position in miners and physical gold. The problem is 'when'?

"One of the many things that Stansberry Research has done for me is help me realize that I should not bet the farm on my convictions. When I feel strongly about a position, then maybe, yes, maybe, take a double position. For Gold that means maybe, maybe 20%, instead of 10%. I am that person that has a hard time just wanting to put 20% of my investment capital into a trend that I think is a guaranteed win, if I can just wait. At the moment, I have come to terms with that and BECAUSE of Stansberry, I have had a lot more cash than usual sitting around so I am buying gold related resources at today's bargain prices.

"I have nothing but praise for your service. It is excellent research, sound advice, prudent asset allocation, and I can think of no other service that even remotely has educated me and disciplined me as Stansberry Research. So from the bottom of my heart, I thank you and ask you to keep up the fantastic work that you do. Season's greetings and peace to all at Stansberry Research." – Paid-up subscriber Mitchell F.

Porter comment: Wow. Thanks, Mitchell.

"This is what I have been waiting for! There are at least 40-50 buy or short recommendations to consider from the newsletters [I receive], and the analysis of each recommendation is so persuasive that it is difficult to actually construct the portfolio I need. I look forward to the January 11 announcement. What a great way to begin 2017. Thank you Porter for looking out for your subscribers." – Paid-up subscriber Tom D.

Regards,

Justin Brill
Baltimore, Maryland
December 20, 2016