Leftovers From Boston
Greg Diamond says the 'bottom is confirmed'... A different view... When the stars align, pay attention... Is a 'sideways market' next?... 'Stock investors hate inflation'... One way to prepare...
We don't always agree...
Our publisher Brett Aitken opened our annual Stansberry Conference on Monday morning with this admission...
Some folks see these disagreements and accuse us of talking out of both sides of our mouth.
As a recent example, if you haven't seen our colleague Greg Diamond's latest market call yet, his Ten Stock Trader subscribers and Stansberry Alliance members can find it here. Generally speaking, we can tell you that 10 months after calling the top for stocks in January, Greg believes the bottom is in.
He explained his reasons in subscribers' Weekly Market Outlook on Monday, and he followed up with more analysis today, writing that "the bottom is confirmed" in stocks and he's getting close to saying the same for bonds. As Greg wrote today...
Does this mean that all stocks will go straight up? No. We'll continue to see increased volatility... There's no doubt about that. But with everything I've highlighted recently, the bear market is over.
At the same time, though, not everyone in our family of editors, analysts, and friends at our corporate affiliates agrees... As we wrote earlier this week, Chaikin Analytics founder Marc Chaikin – living through his 10th bear market – isn't convinced this one is done just yet.
And as Brett said on stage on Monday, "If you ask Dan, you'll get a different view."
You likely know that Extreme Value editor and regular Friday Digest essayist Dan Ferris is warning that stocks could fall another 75% from today's levels... before entering a 10- to 20-year sideways market. You can hear his reasons why here.
These disparate views lead most people to a good question...
What gives?...
In other words, what should a person make of all the different opinions? Who should they follow? It's one of the most common pieces of feedback we hear from subscribers, along with: "You guys send so much stuff. I can't keep up and don't have time to read it all."
Frankly, this dilemma is one of the reasons the Digest exists. Our goal is to be the connective tissue of the company... highlighting our best research and analysis, showing how it relates to the real world, and, importantly, explaining how you can use the information for your portfolio.
What's right for one person could be wrong for another, in the context of different folks' goals, time horizons, or risk tolerances that let them sleep well at night.
This same idea can apply to our annual Stansberry Conference and Alliance Meeting that we just wrapped up last night. Over three days at the Encore Boston Harbor resort and hotel, more than four dozen speakers presented their thoughts to attendees and our livestream audience.
Each brought a different expertise to the stage... from the metaverse, to technical trading, geopolitics, health care, and a variety of other topics. And Stansberry Alliance members got exclusive stock picks and ideas from our editors yesterday on "Alliance Day."
(On a related note, to see all of the presentations, you can buy access to our livestream package. Click here for more information. Recordings will be available starting next week and will remain accessible for 60 days so you can watch them as many times as you want.)
As I (Corey McLaughlin) talked about the conference with Dan for an upcoming episode of the Stansberry Investor Hour, I remembered a strategy for combing through all the publications and recommendations we send out every day...
When the stars align, pay attention...
Our different editors and analysts consider the markets with different mindsets, approaches, and methodologies. So when they reach the same conclusion or takeaway, that's a signal to pay attention to whatever they are collectively saying.
For example, several of our editors landed on the bullish case for energy stocks in late 2020 and early 2021, when many people didn't want to touch this "hated" sector. We highlighted the story on June 2, 2021...
We're talking about when the stars align, so to speak... when, independent of one another, several of our editors' varying research styles all point to the same recommendation.
When this happens, we know it's time to share the news... We want to make sure you don't miss the opportunity...
We didn't make a formal recommendation on energy stocks in the Digest, but we pointed folks to our team's related recommendations in their newsletters and advisories. Since then, the Energy Select Sector SPDR Fund (XLE) – which at the time was already up 42% in the previous six months – is up another 60%. And some individual stocks recommended in Stansberry publications are ahead even more.
This week, a lot of folks were talking about a 'sideways market'...
I heard this idea multiple times over the past three days from different sources. One was Dan, of course. He covers his case in depth in his latest presentation, which you should check out if you have not done so already.
Another was technical analyst Gareth Soloway, president of InTheMoneyStocks.com and one of our special invited guests at the conference this year. On Monday, Soloway warned that stocks may be flat for the next decade.
And that reminded our friend and colleague Jeff Havenstein, an analyst on Dr. David "Doc" Eifrig's team, of something he wrote himself in March 2021... an essay called "Beware of the Market for the Next 10 Years."
As Jeff wrote in Doc's free Health & Wealth Bulletin yesterday...
Scary title, I know. But I wanted subscribers to reset their expectations of the market going forward. The next decade wasn't going to be like the last decade.
He explained that stocks were historically expensive back in early 2021, based on a valuation measure called the cyclically adjusted price-to-earnings ("CAPE") ratio, which accounts for inflation.
In March 2021, the CAPE was at 34. This reading, near a record high, implied modest or negative "real" returns – when considering inflation – over the next 10 years. As Jeff wrote back then...
The chart below looks at the CAPE ratio in various years and the return of the market over the following decade.
If you can imagine an average line, it would be downward sloping. That means when the CAPE ratio is small, market returns over the following decade tend to be higher. The more expensive stocks get, the less they return over the next 10 years...
This chart should make you nervous. Based on history, we should expect to see low to even negative annualized real total returns over the next 10 years.
A year and a half later, stocks have been flat. And real returns are definitely negative. As Jeff wrote yesterday...
Based on the data above, we might be in this sideways market for many years to come. Think about the financial crisis and how it took stocks many years to regain losses.
To top it off, we heard two more experts say the same thing this week...
Meb Faber – co-founder of Cambria Investment Management – raised the idea, too...
On Monday morning, Meb showed historical data going back to the 1800s showing that when inflation is above 4%, the CAPE ratio has fallen into the low teens or single digits. In other words, prices fell substantially lower relative to earnings.
Meb said this happened in wartime periods and the 1970s. "Stock investors hate inflation," he said.
He also showed that while the consensus today seems to be that inflation will go back to "normal" levels, history warns against that optimism. Instead, in advanced economies where inflation tops 5%, it takes an average of 10 years for it to go back to 2%. He said...
I hope it comes down, but you have to be mentally prepared for it not to.
To top things off, we heard Altimetry Director of Research Rob Spivey suggest the same idea. But he drew from another historical perspective: the years following World War II.
Back then, the consumer price index was above 7% for three straight years... The S&P 500 was down 12% the year after the war ended, and the market was flat in 1947 and 1948 as interest rates rose, price controls ended, and supply shortages lingered.
If you're not already preparing for the possibility of a sideways market, it's time to do so. While many individual stocks can do well even in a sideways market, it might be a long time before the broader market goes back to hitting all-time highs.
To me, this makes good sense...
I find it difficult to make a strong case for inflation going back to 2% anytime soon... I won't speculate about an exact number, but it looks like it will be higher than normal in the years ahead.
If the Federal Reserve keeps raising rates, inflation will likely decline. Still, certain parts of our higher-priced world will be harder to shake than others. The Fed may control mortgage rates, but it doesn't have much say about how much oil the Saudis are willing to produce or how much food gets to market.
And if the Fed "pivots" and stops raising rates too early, inflation could stay at current levels or head even higher... It's hard to tell with certainty what will happen, but inflation is a part of the economy and markets like it hasn't been in 40 years. And that will be a headwind for stock prices.
To learn more, a good place to start right now is Dan's recent presentation. He offers a fully allocated solution to help your portfolio survive the 75% drop he's predicting... and a sideways market to follow.
Why Gold Will Go Higher in 2023
Gareth Soloway, president of InTheMoneyStocks.com, speaks with Daniela Cambone at the 2022 Stansberry Conference and Alliance Meeting in Boston. He explains that while bitcoin is a "sleeping beauty" at the moment, gold is his bullish trade for 2023...
Click here to watch this episode of the Daniela Cambone Show right now. And to catch all of the videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 10/26/22): Booz Allen Hamilton (BAH), Biogen (BIIB), Freehold Royalties (FRU.TO), Humana (HUM), Northrop Grumman (NOC), O'Reilly Automotive (ORLY), Rollins (ROL), and ExxonMobil (XOM).
In today's mailbag, thoughts on the Federal Reserve and inflation, which we covered in yesterday's recap of our editors' "Bull, Bear, or B.S.?" panel at our annual Stansberry Conference and Alliance Meeting... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"The Fed is not done raising rates. Inflation is not turning.
"Yes, the Fed may pause due to market and international pressure. Inflation may fall for a bit. But history shows that inflation doesn't end until it's crushed. Any fall in inflation will be temporary unless we actually go through the pain of crushing it. If the Fed lets rates fall without crushing inflation then inflation will return, and the Fed will have to brake harder. And the economy will fall.
"All the talk about the Fed pausing, or even reducing rates, is a combination of hopium, lobbying the Fed disguised as advice, and talking one's own book. It's no better than Cathie Wood's open letter to the Fed. Sorry, Matt.
"The only thing that is certain is that the Fed will screw it all up. They always do. I think only Volcker got it right and we had to have a deep recession to cure inflation.
"Greenspan let leverage go too far in the '90s and kept rates to low in the aughts, then raised rates too much. That first fed the real estate bubble (along with liars loans and all that), then the skyrocketing rates and bad regulation broke the market and got us the great recession.
"Bernanke kept rates too low and monetized the debt with QE. Yellen is a certified idiot, both at the Fed and Treasury. Powell wanted a little inflation, got it, then got a lot more, and called it all transitory. Now he has to put the hammer down to show he's learned his lesson.
"They are making it up as they go along. All their PhDs, money center experience and globalist views keep bringing us disasters. This will not end well." – Paid-up subscriber Mark P.
"Corey, I see much through the lens of politics. I have learned a lot by reading your daily emails...
"[The Fed's] denial of inflation was simply a head fake. Truth be told the rate hikes have to continue the next two years until the 2024 elections so that the real recession lands on the Republican's term of President in 2024. Of course these are big allegations just as crazy as saying that Trump would have been President. I have no crystal ball – merely intuition.
"This is stretching it but could they be wanting to crash the economy to all be Warren Buffett to invest during our worst days?
"You explained to us several months ago that the recession really comes after they stop raising rates. If they are to not have egg on their face, they are going to have to inch their way through the next two years with small interest rates.
"I am amazed how much smoke and mirrors exist with everyone wondering whether it is Bear, Bull, or B.S. I say Bear or Bull, it is all B.S. Our world is not going to be better until everyone chooses ethics over personal gain and everyone who believes in doing right stands up for it." – Paid-up subscriber Dave M.
All the best,
Corey McLaughlin
Baltimore, Maryland
October 27, 2022