Getting Shelter Before the Storm

Reviewing the five inflection points... Cash, gold, silver, and bitcoin... Finding the right stocks now... The most dangerous inflection point... Getting shelter before the storm... 'The 10-Stock Inflation Protection Portfolio'...

In my most recent Digest, I showed you five cyclical trends at or near major inflection points...

1. The Great Bull Market that started in March 2009

2. The growth/value cycle

3. The emerging markets/U.S. stocks cycle

4. The commodities/stocks cycle

5. Inflation.

In today's Digest, I (Dan Ferris) will make a few suggestions about how to prepare for the major inflection point that appears to be upon us...

I've recommended many times to hold a truly diversified portfolio. The basic elements of that portfolio are...

• Stocks

• Plenty of cash

• Gold and silver

• Maybe a little bitcoin

Let's quickly walk through cash, gold, silver, and bitcoin...

Then I have several thoughts about the kind of stocks you want to own in preparation for whatever lies ahead, especially if I'm right about the five inflection points...

Cash is the ultimate diversifier among all your portfolio assets... The 2008 financial crisis taught us not to trust anything priced in dollars as a hedge against dollar-denominated assets... The only real hedge are the dollars themselves.

Cash is like oxygen... Nobody thinks about it until they don't have enough. Then they can't think about anything else. During downturns, too many folks sell out their entire portfolios at just the wrong moment.

Holding plenty of cash provides the confidence you need to avoid such a catastrophic loss... Cash is a great medium of exchange. It's real money.

You can count on cash to maintain value over short periods of time. But it's a lousy long-term store of value...

For that, we turn to gold... Gold has been an excellent long-term store of value for thousands of years. And that has not changed...

It appears to be underperforming as inflation has risen significantly over the past year. However, long term, gold is roughly a 50-bagger since 1971 when it was officially detached from the U.S. dollar.

I would also recommend holding some silver. It, too, has been around for thousands of years. Since its 1971 low, it has been a 17-bagger, and has also soared to two breathtaking cyclical spikes, one in 1980 and another in 2011...

It wouldn't surprise me if we saw another spike within the next decade.

Bitcoin is new ‒ less than 14 years old... Bitcoin has been a good store of value in its short life, as long as you are able to hold on through extreme volatility... But it is a terrible currency.

A currency needs short-term price stability ‒ and bitcoin does not have that...

If you need to set aside $500 to make a payment next week, you don't want to put it in bitcoin. If you have $500 that you'd like to see grow in value over the next 10 years, bitcoin is a good choice.

Holding plenty of cash ‒ and some gold, silver, and bitcoin ‒ will prepare you well for inflation and for a bear market. Whether you're ready for the other inflection points that I've listed above depends on what stocks you own...

So let's talk stocks...

A quick reminder... I don't recommend selling all of your stocks just because you think we're in a massive bubble... You should hang onto great businesses.

For example, Mike Barrett and I have recommended stocks like Costco Wholesale (COST) and Starbucks (SBUX) to Extreme Value readers. Their share prices might not go up in a bear market...

But remember when the prices of Walmart (WMT) and McDonald's (MCD) went up in 2008... while nearly every other stock fell?

There are no guarantees, but Costco and Starbucks have that kind of potential... They're two of the greatest businesses in the world. They might end up surprising you with how well they perform in a bear market.

Costco has an affluent customer base that might prove more resilient in a market downturn. Starbucks' coffee is expensive, but when people can't afford to take a vacation or replace an aging vehicle... they might be OK with spending a few dollars on their favorite Starbucks drink.

You can't predict when a bear market will begin... and it's unlikely most people will even know they're in one until long after it has begun.

That's why I say prepare, don't predict... Much money has been lost anticipating downturns that never arrived.

So, while I don't recommend selling great businesses, I do recommend unloading the speculative garbage you may have accumulated over the past couple years as the S&P 500 Index more than doubled off its March 2020 COVID-19 lockdown-induced bottom...

Various bubbles have burst, and last week, even the mighty Meta Platforms (FB) (formerly Facebook) was down 26% in one day after a disappointing earnings report...

Of the five cyclical trends listed above, inflation is the most dangerous...

Bear markets are painful, but they don't last forever... And they'll wind up being the greatest buying opportunities of your investing career.

Inflation is more of a problem... It can inflict severe damage on stocks and bonds, and it can last much longer than the average bear market.

Perhaps worst of all, it is the only one of the five trends that never really goes away. Your dollars lose a little bit of value every year, even when inflation is low...

Gold, silver, and bitcoin will protect you against inflation over time... The value of your cash will suffer, but that won't stop it from doing its job ‒ allowing you to scoop up bargains in a bear market.

But the tricky part is preparing your equity portfolio for inflation.

You could take an easy route by adding a gold stock fund to your equities. You could do this with the other equity cycles I listed, too...

You could buy value stock, commodity, and emerging-markets funds... You could also target specific commodities and specific emerging-market countries this way.

But I have found a much better way to prepare you for inflation, help you outperform the S&P 500 and Nasdaq Composite indexes in a bear market, and exploit the commodities/stocks and value/growth inflection points... This better way also provides a small amount of emerging-markets exposure.

I found this better way by looking through the Extreme Value portfolio and selecting 10 stocks that would help investors prepare for an extended bout of higher inflation... in addition to exploiting the other cyclical inflection points.

I call it the '10-Stock Inflation Protection Portfolio' ('IPP')...

I am sharing the specific 10 stocks with Extreme Value readers, but I can tell you a little bit about them here in today's Digest...

The 10-Stock IPP contains my No. 1 recommendation of the last four years, which I also believe is the best gold stock on earth... It's a royalty-like business run by the best management team in its industry.

Unlike gold-mining companies, this business has tiny capital-spending requirements. It doesn't have to build mines or employ armies of unionized workers... When I first recommended it, I told readers it had 20-bagger potential.

The stock has doubled since then, so it still has 10-bagger potential ahead...

I've also included a small royalty company that you've probably never heard of, which I believe will one day rival royalty giants like Franco-Nevada (FNV) and Wheaton Precious Metals (WPM)...

It could even become larger, because it invests in a market that's five times the size of the gold market. And it's run by the best capital allocators in the royalty space...

Gold mines usually don't produce for more than a couple decades. But this company's royalties are on mines with enough resources to continue to produce for hundreds of years. And one key mine has more than 1,000 years of production.

And, these mines aren't gold. They contain the essential building blocks of the modern world... Without them, we'd live in caves.

In addition to these traditional inflation plays, I've included four infrastructure-related stocks that serve industries like power generation, road construction, energy, and homebuilding... They're also essential pieces of modern life, without which we simply cannot maintain a high standard of living.

Finally, I've included a business that is like a royalty on the commercial-insurance industry... Most people don't think of insurance stocks when they think of inflation protection, but it makes sense.

Hard assets like real estate, factories, and product inventories all have to be insured. As their replacement cost rises, so do the premiums required to keep them covered... Whether there's a bear market or not, this company's clients still need insurance... Once again, it's selling an essential component of modern living.

Like I said before, you could find a few safe funds...

You could buy gold and silver bullion funds to hold gold... You could put together a few mining funds... You'd probably do OK if inflation stayed high... You probably wouldn't do that great if it didn't though.

Likewise, you could put together a basket of value, commodity, and emerging-market funds to take advantage of the cyclical moment we've reached... Of course, if those trends don't play out as I expect, you might not make much money at all.

Or you could assemble a portfolio of some of the greatest businesses in the world... They've done very well – some for several decades, one for 125 years – and have generated excellent shareholder returns through all kinds of economic environments.

I don't make predictions, but I've done a decent job of alerting Extreme Value readers to big changes in the market... In April 2008, I told them to short Lehman Brothers... I also told them to avoid bank stocks.

Five months later, we were in the depths of the great financial crisis, Lehman was bankrupt, and Extreme Value readers made a quick 82% profit... From 2008 and 2012, 465 banks failed, compared to just 10 in the five years before 2008.

I also reiterated my ongoing recommendation of Walmart and other high-quality businesses that month, as the type of stock you should own when a crisis was unfolding... Walmart rose 21% in 2008, when just about everything else got obliterated.

My Spidey sense tells me we're at a similar crossroads in the financial markets today... And to get through the next several years with your capital and sanity intact ‒ and then make money on top of that achievement ‒ you will need to take specific steps that I've outlined in today's Digest...

• Sell speculative garbage stocks and hold plenty of cash.

• Hold gold, silver, and a little bitcoin.

• Find stocks that are more likely to thrive if higher inflation persists and a bear market materializes... but are unlikely to perform poorly if neither of those risks happens.

• Understand which stocks are likely to soar as value, commodity, and emerging-market stocks outperform the S&P 500... but are unlikely to perform poorly if the trends don't emerge.

If you're an Extreme Value reader, check out my new special report called "The 10-Stock Inflation-Protection Portfolio"... It's available on the subscribers-only Extreme Value web page right now.

If you are not, I suggest you keep reading...

Because what happens next is going to an absolute disaster if you're not prepared.

That's why I just gave the most important interview of my life... on camera with journalist and gold expert Daniela Cambone.

We talked about the 10 stocks discussed above... and about a very specific plan for what to do right now – today – to protect your hard-earned savings...

It's simple to get started... and I expect this hard asset plan to absolutely crush the overall market over the next five to 10 years.

Trust me – you do not want to miss this opportunity. It's going live tomorrow...

Just keep an eye on your inbox around 10 a.m. Eastern time tomorrow, February 8, for the subject line, "Your inflation game plan."

I'll spell out everything and you can claim a copy of my all-new "10-Stock Inflation Protection Portfolio."

New 52-week highs (as of 2/4/22): Alcoa (AA), Continental Resources (CLR), Freehold Royalties (FRU.TO), Raytheon Technologies (RTX), Shell (SHEL), United States Commodity Index Fund (USCI), W.R. Berkley (WRB), and SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

In today's mailbag, feedback on Part I of our annual Report Card. Stay tuned for more grades from our publisher Brett Aitken this week... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Your honesty and transparency are what set Stansberry apart, as well as the excellent investment gains. Having tried (and ultimately canceled) other investment letters, I can testify that they can't match your commitment to putting the subscriber first. And becoming an Alliance member is still the best investment I've ever made." – Stansberry Alliance member Al H.

"I appreciate the Report Card so much. Shows accountability." – Paid-up subscriber Jeanne B.

"Compliments to you on the Report Card. I agree with the scores, but feel you are a little unfair in giving the Commodity report an "F".

"I believe all newsletters should be based upon performance versus their 'peers'. Your scoring is somewhat like comparing the performance of a good college football team to the Los Angeles Rams. They might get hammered, but still performed relatively well.

"Commodities have been in a funk for the past few years, and your team has done a comparatively good job. 'F' is harsh." – Paid-up subscriber Tom L.

Good investing,

Dan Ferris
Eagle Point, Oregon
February 7, 2022