One of the worst starts in history…

As we discussed yesterday, analysts believe years of super-low (and even negative) interest rates and growing potential losses in the debt markets are driving the declines. But there are likely other factors as well...

For example, Bloomberg Business recently reported that the large sovereign wealth funds ("SWFs") of oil-rich "Gulf" countries – Abu Dhabi, Kuwait, Qatar, and Saudi Arabia – could be playing a role as well.

SWFs act like giant government-run hedge funds. Altogether, SWFs – which also include the funds of Norway (the world's largest), China, Russia, and a handful of smaller others – own an estimated 5%-10% of all assets in the entire world.

Care to guess what the Gulf SWFs' largest holdings are?

According to Bloomberg data, these funds have more than 30% of their equity holdings in banks and financial stocks... and most of those are in Europe.

The crash in oil prices means these countries are running deficits for the first time in decades. Their governments – particularly Saudi Arabia's – are dependent on oil revenues to fund the extensive welfare programs that keep them in power.

It's too soon to know for certain, but it's likely these countries' SWFs could be selling stocks to help make up the difference. If that's the case, there could be a lot more selling to come...

According to the latest data, European banks have lost nearly $250 billion of market value so far this year. But these SWFs still hold an estimated $700 billion of European stocks that could eventually be up for sale.

Of course, this is just one potential driver of the recent declines. But it's a great example of how debt problems can spread between markets that otherwise don't appear to be connected at all.

This is the "contagion" Porter has warned about so many times.

We should mention JPMorgan CEO Jamie Dimon made headlines last night by buying 500,000 shares of his company's stock – worth more than $26 million – with his own money.

While the sum isn't "pocket change," even for a CEO like Dimon (it's nearly equal to his yearly salary), it's not a massive purchase, either. The $26.6 million represents an increase of just 8% in his existing holdings of stock, worth more than $350 million.

To us, it feels more like a calculated move meant to reassure markets than a big vote of confidence.

Earlier this week, hedge-fund manager Kyle Bass – famous for making a fortune betting against subprime loans during the last crisis – said Chinese banks could be in even bigger trouble...

In a letter to investors on Wednesday, Bass said the current crisis could ultimately cause losses in Chinese banks up to five times bigger than those seen in U.S. banks during the mortgage crisis...

For comparison, U.S. banks lost just $650 billion of equity during the last crisis.

Bass said he expects the massive losses to force the Chinese government to dramatically devalue the yuan...

He also warned that China's foreign currency reserves have already fallen "below a critical level." He said his firm estimates China has just $2.2 trillion at most, compared with the $3.3 trillion officially reported by the government last month...

Finally, this morning also brought Greece back to the headlines. On a day when tens of thousands of Greeks rioted to protest pension reforms, new data showed the Greek economy has officially fallen into recession again.

On a brighter note, two traditional "safe haven" assets – U.S. Treasurys and gold – have been soaring while other markets fell.

Yields on the benchmark 10-year Treasury note have been falling so fast, they're on pace to set a record low next month. (Remember, yields fall when bonds rise.)

Yields have plummeted nearly 40 basis points in just the last three weeks – a huge move in the Treasury market – from more than 2% as low as 1.56%. It's now less than 40 basis points from the all-time low of 1.379% set in July 2012.

Meanwhile, gold has been booming...

Yesterday, gold made its biggest intraday gain since November 2008, and is now up 17% so far this year. According to Reuters, gold is on pace for its biggest quarterly gain in at least 30 years.

Data from Bank of America Merrill Lynch analysts show investors moved money into gold and silver at one of the fastest rates since the financial crisis.

After such a big short-term rally, we'd expect gold to consolidate a bit before heading higher again. But it's a positive sign to see gold soar while other assets – including other commodities – fall.

It suggests the long four-and-a-half-year bear market could finally be ending. It also suggests folks are scared... and are beginning to see gold as real money again. As Robert Michele, Chief Investment Officer at JPMorgan Asset Management, told financial news network CNBC yesterday...

It's unusual to hear a high-ranking Wall Street figure speak so openly. But he's not the only one suggesting the Federal Reserve and other central banks have made serious mistakes...

In a note late last week, former International Monetary Fund ("IMF") economist Stephen Jen predicted that "the period of central bank 'shock and awe' operations is likely to be behind us."

Taking a page from Porter, he then added, "This will be the year that 'gravity' will overwhelm the central bank policies."

Earlier this week, Bank of America analyst Michael Hartnett published a damning report on the "success" of the past eight years of central bank "easing."

Hartnett noted that since Bear Stearns went bankrupt in early 2008, central banks around the world have cut rates 637 times... purchased $12.3 trillion in assets... pushed yields on $8.3 trillion of government debt to 0% or less... and pushed negative interest rates on 489 million people living in the eurozone, Switzerland, Sweden, Denmark, and Japan.

And yet despite these unprecedented actions, the global economy is still slowing... and markets around the world are on the verge of a new bear market (or already in one).

Even the Wall Street Journal has joined in...

In an article last night, it accused the central banks of creating a "doom loop"... a vicious cycle where "low and negative interest rates continue to weaken the profitability of banks in the U.S. and [Europe]"... and "that, in turn harms sentiment and the economy itself, which spurs still more negative-rate actions."

All of a sudden, it seems the world is losing faith in the power of central banks. Or as financial blog Zero Hedge put it, "2016 is shaping up to be the year that everyone finally comes to terms with the fact that the monetary emperors truly have no clothes."

By now, we hope every Stansberry Research reader is prepared for a serious market decline.

Hopefully, you're holding plenty of cash and gold, and are prepared to take advantage of the incredible, once-in-a-decade opportunities that are likely to come.

But if you still haven't heeded our advice, we urge you to take action immediately.

This afternoon, we published the fourth module in our seven-part 2016 Bear Market Survival Program.

Through the first four modules, we've detailed everything you really need to know about holding cash and gold, profiting from distressed debt and distressed equities, and taking advantage of "special situations" that inevitably arise in bear markets.

The next two modules will cover "hedging" your portfolio with short-selling and safely buying the best capital-efficient businesses. We'll wrap it all up in Module 7, where we'll show you how to put all these strategies together to create the ultimate "bulletproof" portfolio. Click here to join now.

New 52-week highs (as of 2/11/16): short position in Citigroup (C), SPDR Gold Shares Fund (GLD), Kaminak Gold (KAM.V), Lundin Gold (LUG.TO), NovaGold Resources (NG), OceanaGold (OGC.TO), short position in Santander Consumer USA (SC), and short position in Zions Bancorporation (ZION).

Several subscribers weigh in on this year's Report Card. What's on your mind? Let us know at feedback@stansberryresearch.com.

"I'm a lifetime subscriber also to Casey and Agora. Your report cards are honest, thoughtful, and useful and hugely confidence-and-loyalty inspiring. Keep it up." – Paid-up subscriber Leigh A.

"Good morning, as you mentioned below, would you please send me some greater detail on how you calculated the 'annualized returns' and the 'weighted S&P 500 return', for my own edification?

"When calculating annualized returns I generally understand that if I bought and held a stock for 1 month, then sold for a 5% return, my annualized return would be 60% (5% per month * 12 months). Is that correct? How would you do that for a stock that has been held for 4 years, divide by 4? When comparing to a 'weighted S&P 500 return', does that mean that you are comparing each stock pick individually to the S&P for the length of time that stock was held, then produce an annualized return?

"Thanks for everything y'all do to provide me an excellent financial education. I may not know very much, but it's a lot more than what I used to know!" – Paid-up subscriber Matt Oliver

Brill comment: Matt, your annualized return calculations aren't exactly right. A 5% return in one month would actually result in a 79.6% annualized gain. Here's why...

As a simple example, suppose you started with just $100. After one month, you earned 5% (or $5). You now have $105, not the original $100.

In the second month, you earn 5% of $105 (or $5.25, bringing your total to $110.25). In month three, you earn 5% of $110.25 (or a little more than $5.51... bringing your total to $115.76).

At the end of 12 months, you have around $179, rather than $160. You can calculate it for yourself using the following formula:

Annualized Return = (initial investment + gain) / initial investment ^ (365/number of days held) – 1

For the first example, this would be:

[($100 + $5) / $100)] ^ (365/~30 days) – 1

Regarding your question about weighted return, the answer is simple... Our newsletters don't start a time period fully invested. They add recommendations over time.

For the bull market, which lasted slightly more than three years, our analysts were adding more and more recommendations over time. As they did, they were adding annualized and average returns... but they weren't fully invested for that entire time frame.

So instead, we looked at what your return would have been for each position if you had invested in the S&P 500 instead and held it for the same period of time.

This year, for the first time, we also did something different. Because the market peaked on May 15, 2015, we also broke down the returns to see how our analysts performed since then.

It's already clear that some of our analysts are likely to perform much better than others during a bear market.

If you agree with Porter's views, you will likely want to follow the analysts who have proven they can perform well in periods of market decline.

For a limited time, you can sample all of our services – including Porter's five favorite publications for a bear market – for yourself. Click here to learn more.

"What is Porter looking at when he is reviewing the Venture returns? A++?? I have been in this investment since the third stock recommendation and most of the investments are down and several are down substantially. I have to imagine that every other Venture investor is as confused as I am by Porter's evaluation. I understand these investments are speculative and Biotechs are getting beat-up across the board, so I don't have an issue with Venture's recommendations I just have no clue where Porter got his numbers." – Paid-up subscriber Lynn H.

Brill comment: We aren't massaging the numbers...

While biotech stocks have pulled back recently, Stansberry Venture editor Dave Lashmet wisely locked in gains by selling half-positions on several of his big winners. That advice let readers take their initial stake – their upfront risk – off the table. But even with the recent declines, he's still holding double-digit gains in nearly half of his open recommendations.

It's also important to realize that several of the stocks that are currently showing losses are still likely to turn into big winners for Venture subscribers.

Each is currently developing potential blockbuster drugs or is likely to be bought out at a big premium by Big Pharma companies desperate for new revenue streams.

Seeing these stocks fall during market corrections isn't fun, but it's natural for the high-risk, high-reward stocks Dave covers. These stocks are incredibly volatile. But that doesn't change their promise.

The key to profiting in the sector is finding the right companies – those with a high probability of massive success – and holding on until that success is realized. Of course, this is easier said than done...

For most investors, this means hoping a small handful of big winners makes up for a huge number of misses. But not so for Dave... His 83.3% win rate over the bull market – and 62.5% win rate since the correction began – is unheard of anywhere else in the industry.

Still, even Dave isn't perfect... Profiting on more than 80% of his recommendations means he's "striking out" almost 20% of the time.

That's why Stansberry Venture uses a different approach from many of our other services. Dave recommends smaller position sizes and doesn't use stop losses.

The reason is simple: Because these stocks are so volatile, this approach allows you to weather that volatility without being forced to sell at the wrong time.

For example, Dave compares selling a promising biotech stock simply because of a market decline to the classic blunder by Ronald Wayne...

If you're not familiar, Wayne was an engineer who partnered with Steve Jobs and Steve Wozniak to start Apple Computer in 1976. He received a 10% stake in the company, but sold his stake just two weeks later for $800.

As part of a legal partnership, all three men would have been liable for any debts incurred by the others. Unlike Jobs and Wozniak who were in their 20s and just starting out, Wayne was older and owned a modest estate. He sold his stake because he got cold feet... he was afraid creditors would seize his assets if the company didn't make it.

Of course, we all know what happened... Apple went on to become the biggest company in history. Had he held on to his 10% stake, Wayne would be one of the richest men in the world today.

Again, if you'd like to learn more, you can try Stansberry Venture for yourself – along with every other service we publish – without paying the usual subscription cost. Just click here to learn more.

Regards,

Justin Brill
Baltimore, Maryland
February 12, 2016