Sjug's Big China Thesis Is Slowly Catching On

Sjug's big China thesis is slowly catching on... Investors still aren't interested in Chinese stocks... Another bullish sign for retail... The holiday shopping season could be better than expected... Doc Eifrig: How to make 70% on one of the 'surest bets' in the market... In the mailbag: Why you should join us on Wednesday night...

'One of the greatest investment opportunities I've ever seen'...

Last summer, those were the words our colleague Steve Sjuggerud used to describe Chinese stocks. His reason was simple...

China is the world's second-largest economy, and its stock market is bigger than every other market in the world except the U.S. Despite that, Chinese stocks were all but excluded from world stock market indexes. As Steve explained to his True Wealth China Opportunities subscribers last September...

I never imagined I would see a day where NOBODY was invested in the world's second-largest economy and second-largest stock market. But that's where we are today.

NOBODY owns locally traded Chinese stocks... That is crazy, when you think about it... How can you have a complete, legitimate, world stock market index if you leave out the world's second-largest stock market?

Apple's iPhone operating system is the world's second-largest by market share (behind Google's Android). Would it be right to completely ignore the iPhone when talking about the global mobile-phone market? That's what's happening with China right now.

It's clearly a wrong that needs to be righted. And when it is, it will cause a lot of money – as much as $1 trillion – to ultimately flow into China's stock market. We want to make sure we have our money there first.

But it wasn't just the global indexes that were ignoring China...

Individual investors had absolutely no interest, either. As Steve explained a few months later in the December issue of True Wealth China Opportunities...

Sentiment today in Chinese stocks is even worse than it was in 2014 – when I urged my True Wealth subscribers to buy them. If you followed my advice then, you would have done extremely well. (We sold half of our investment in Chinese A-shares after nine months for about a 100% gain, and later sold the rest for an 83% total return in less than a year.)

Here's what you need to understand today: The worse the sentiment, the higher the potential return. That's because the largest number of people are OUT of the market when sentiment is bad. So you are buying in close to the bottom...

One unique way of sizing up interest in Chinese stocks is by looking at the Internet search results for "Chinese stocks" on Google Trends.

Google Trends shows current search volumes compared with history. A reading of 100 is the highest number of historical searches. Every other point compares searches with that all-time high.

And as Steve explained, this indicator showed almost NO ONE was interested in Chinese stocks at that time...

Search interest in Chinese stocks peaked in 2007... just as they ended a two-year bull market that was good for roughly 500% gains. We saw another spike in interest in 2015... after a triple-digit move in roughly one year.

As you can see from the chart, no one is searching for Chinese stocks today. Investors have given up. They aren't even thinking about the prospects in China. Importantly, this is exactly how those big moves in 2007 and 2015 started.

When the trend gets going, Chinese investors will follow... and prices could soar. We've seen it happen several times. And I'm certain it will happen again. This is maybe the biggest reason I'm so excited to own China right now.

So far, Steve has been proven exactly right...

In June, global index provider MSCI finally agreed to right this "wrong." It announced a plan to begin to include local Chinese A-shares in its global market indexes over the next several years.

As we noted at the time, this is a big deal. Just as Steve predicted, it practically guarantees that a massive amount of money will flood into Chinese markets.

Given these facts, you might have assumed investors would be falling all over themselves to buy. But that wasn't the case at all. Only a handful of financial journalists even reported the news. And investors didn't bat an eye.

Today, months later, this is starting to change. In a report over the weekend, Bloomberg echoed Steve's bullish thesis (emphasis added)...

China's ascension as an economic superstar over the past three-plus decades is out of sync with its heft in global financial markets. But things are starting to change, and investors around the world will feel the difference...

Beijing has also started to facilitate more access to what is the world's second-largest stock market, notably via trading links called connects between Shanghai, Shenzhen and Hong Kong. MSCI's decision in June to start including mainland shares in its global benchmarks was a key development as it will expose a whole new universe of investors to China's stocks.

Admission to global bond benchmarks is also on the horizon – all the more reason investors may want to pay close attention... It's only a matter of time before China's mammoth local markets become global leaders in their own right.

The mainstream media are slowly catching on to Steve's China thesis...

But if you wait until this trend becomes front-page news before investing in China, it'll be too late. The biggest gains will be behind us. That's why Steve has been practically begging readers for the past year to get their money in China first.

Folks who listened have done incredibly well... Steve's True Wealth China Opportunities subscribers are already up an average of 33% so far on the open positions in the model portfolio, with every single position showing a gain. But it's not too late to join them. Steve believes the biggest gains are yet to come.

We also note that sentiment remains on your side. Despite the big rally this year, folks still aren't interested in Chinese stocks. Steve's Google Trends indicator remains virtually unchanged at just 10 today.

You can learn more about a True Wealth China Opportunities subscription right here.

Regular Digest readers know the retail sector has been crushed this year...

The reason is simple: Despite dozens of bankruptcies and thousands of store closures, the U.S. still has far too much "brick and mortar" retail space.

According to real estate research firm CoStar Group, U.S. retailers still need to close nearly 1 billion square feet of retail space – more than 10% of their total property – just to return sales per square foot to average levels.

The sales generated by many stores – particularly those of mid-level retailers like department stores – don't justify their operational costs anymore. And changing consumer tastes and e-commerce growth are only making things worse.

But we've also discussed that this trend is likely stretched in the near term...

As we often preach in the Digest, it pays to be a contrarian. Whenever the crowd is heavily betting one way, it's often a good time to take the other side of that bet.

And today, practically everyone is betting on the "death of retail." As we noted in the September 14 Digest...

As you can see in the following chart, multi-line retailers – the most troubled of the bunch, including department stores and other non-specialty retailers – have been a one-way bet of late. They've plunged nearly 50% over the last few years, and more than 30% this year alone...

But notice the light blue line...

It shows short interest, a measure of how bearish investors are toward these stocks. It is expressed as a percentage of "float," or how many shares are actually available for trading in the market.

As you can see, short interest has more than doubled, from around 12% of float early this year to more than 25% today. This is higher than the previous peak of a little more than 20% in late 2008.

In other words, investors are more bearish on retailers today than they were during the peak of the financial crisis.

This isn't the only reason to believe retail could be due for a rebound...

It appears retailers themselves are getting more optimistic about business.

A survey of the 20 largest U.S. retailers found 80% plan to hire as many or more workers over the holidays this year compared with last year, according to executive-recruiting firm Korn Ferry. And several individual retailers – including struggling names like Macy's, JC Penney, and even bankrupt toy store Toys "R" Us – have recently announced plans to hire more seasonal workers this year, as well.

Shipping volumes also suggest retailers may be anticipating unusually strong sales over the holidays. As the Port of Long Beach, California – the second-busiest container port in the U.S., and a major gateway for trade with Asia – reported last week...

Cargo volume continues to break records at the Port of Long Beach, which moved more containers last month than any September in its history.

The 701,619 twenty-foot equivalent units (TEUs) processed in Long Beach for September – up 28.3% – also resulted in the Port's best quarter ever. In the third quarter (July, August and September), the Port of Long Beach handled 2,114,306 TEUs, as volumes swelled 15.9% over the same period last year.

"Simply put, we are having the best trade months in Port history," said Harbor Commission President Lou Anne Bynum. "Back-to-school merchandise was strong for us, and it looks like retailers are optimistic about the holiday season."

We aren't alone in thinking the 'death of retail' trade could be overdone...

Our colleague Dr. David "Doc" Eifrig agrees. In fact, Doc says that despite what you read in the headlines, consumer spending has remained healthy. As he explained in the latest issue of his Retirement Millionaire advisory, out last week...

Yes, it's true... Malls are dying, at least in their current form. Retailers in general have suffered because of the shift away from brick-and-mortar shopping into e-commerce.

Toys "R" Us, True Religion Apparel, hhgregg, and Gymboree are just a few retailers who filed for bankruptcy in 2017.

Everyone knows this now. And the stocks of retailers show it. Retail, as measured by the SPDR S&P Retail Fund (XRT), is down around 14% since mid-2015.

But this isn't happening because folks stopped shopping. Total retail and food service sales are growing at around 3.2% (after accounting for inflation). That's faster than the broader economy.

And yes, part of that growth is being gobbled up by e-commerce... But 90% of retail sales still happen in person.

Instead, Doc believes some retailers are struggling due to three specific factors...

First, the traditional shopping-mall format has lost all appeal to shoppers.

Second, many poor-quality retailers have lived too long propped up by cheap debt. Others have been bought out by private-equity firms with mountains of leverage. Most of the headline-grabbing bankruptcies you've seen have been private-equity buyouts.

And third, the market is splitting between shoppers who want the cheapest price and those who demand the highest-quality products. This is killing retailers in the "middle ground" – like department stores.

To Doc, the bottom line is obvious...

Many retailers will continue to struggle, and many won't survive. But those who can continue to give consumers exactly what they want will not only survive, they could absolutely thrive.

And this month, he recommended a company that is likely to do just that. He says it's not only one of the surest bets in retail, it's one of the safest, cheapest stocks in the market today. He believes Retirement Millionaire subscribers could earn 70% more over the next few years while taking little risk.

You can try Retirement Millionaire with nothing to lose. We offer a 100% money-back guarantee on the product, no questions asked. Sign up for Retirement Millionaire and get all the details for yourself right here.

New 52-week highs (as of 10/13/17): AMETEK (AME), American Express (AXP), Baidu (BIDU), Biogen (BIIB), iShares MSCI BRIC Fund (BKF), Morgan Stanley China A Share Fund (CAF), CBRE Group (CBG), Global X China Financials Fund (CHIX), WisdomTree Japan Hedged Equity Fund (DXJ), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), iShares MSCI Japan Fund (EWJ), iShares MSCI Singapore Capped Fund (EWS), iShares MSCI South Korea Capped Fund (EWY), Facebook (FB), Barclays ETN+ FI Enhanced Europe 50 Fund (FEEU), Alphabet (GOOGL), KraneShares Bosera MSCI China A Fund (KBA), KraneShares CSI China Internet Fund (KWEB), McDonald's (MCD), Monsanto (MON), Microsoft (MSFT), Nvidia (NVDA), ProShares Ultra Technology Fund (ROM), Seabridge Gold (SA), Stanley Black & Decker (SWK), and Wal-Mart (WMT).

In today's mailbag, a subscriber is confused about cryptocurrencies. As always, send your questions and comments to feedback@stansberryresearch.com.

"Justin, as you mentioned Bitcoin has significant risk... This is in my opinion a pure speculative play. And until I see Doc Eifrig write in Retirement [Millionaire] and recommend a bitcoin stock, I'll sit this one out. Warm regards." – Paid-up subscriber Herman S.

Brill comment: You're absolutely correct, Herman. Bitcoin and other "cryptos" are not "investments," and certainly not for the rent money. As we've mentioned, you could lose every single penny you put into them.

But they also have tremendous upside potential. Cryptocurrencies may be the only asset class in the world today – speculative or not – capable of soaring 1,000%... 10,000%... even 50,000% or more. This means you can literally risk just a few hundred dollars for the potential to earn tens or even hundreds of thousands of dollars.

Yes, they're incredibly risky... But where else in the world can you even dream of making those kinds of returns?

Of course, if you can't afford to lose even a few hundred dollars, then speculating on cryptocurrencies probably isn't for you. But whether bitcoin fulfills its promise to become a true alternative to government-controlled fiat currencies, cryptocurrencies and the remarkable technology behind them are likely here to stay. You owe it to yourself to learn more about them.

Again, we're holding a FREE cryptocurrency event this Wednesday, October 18, at 8 p.m. Eastern time to help every Stansberry Research subscriber get up to speed. Click here to learn more and reserve your spot now.

Regards,

Justin Brill
Baltimore, Maryland
October 16, 2017