The 'Bubble Spotter' Turns Bullish

We're making a rare exception... A huge sign of the top... The 'bubble spotter' turns bullish... 'This time seems very, very different'... Great news for Sjug's 'favorite trade of 2017'... Porter's radio show is back... Introducing Stansberry Investor Hour...

We're making a rare exception...

We'll begin today with an important announcement... Due to overwhelming demand, we're doing something we've rarely done in our 18-year history.

As you may have seen, our friend Dr. Richard Smith recently made an incredibly generous offer to all Stansberry Research subscribers. The terms of the offer were simple...

Try TradeStops for yourself for a full 60 days. If you don't love it, simply cancel and receive a full refund. If you decide to keep it, you'll lock in one of the biggest discounts he has ever offered, and receive a $1,000 credit to use on any Stansberry Research service you'd like.

This offer officially expired on Wednesday, May 31.

Unfortunately, due to the Memorial Day holiday, it seems many of you weren't aware of this opportunity. So we're making an exception...

We're extending this offer to give you one last chance to "test drive" TradeStops for yourself, absolutely risk-free, for 60 days.

If you aren't 100% convinced that TradeStops can help you make much more money while taking far less risk, let Richard know and he'll refund every penny. And if you decide to remain a TradeStops subscriber, you'll lock in the same massive discount off the usual subscription cost... And you'll still get a $500 credit to use on any Stansberry Research services or fees.

Click here to start your risk-free TradeStops trial now.

'This time seems very, very different'...

Oh boy... One of the world's best-known value investors has apparently "thrown in the towel."

Jeremy Grantham is the founder and chief strategist of top money-management firm GMO. He has made some big calls on both sides of the market – including calling the bottom in stocks in 2009 – but he's best-known for his bearish warnings.

He famously predicted the bubble in Japanese assets in the early 1990s... the bubble in technology stocks in the late 1990s... and even the bubble in U.S. housing a decade ago.

As recently as two years ago, Grantham was starting to get cautious about stretched valuations in U.S. stocks. As we noted in the June 25, 2015 Digest...

In a speech at the Morningstar Investment Conference in Chicago yesterday, Grantham said many stock valuation indicators are approaching "bubble land," but he's not getting bearish yet. "No bubble has ever broken until individuals pour money into the market," he said, noting that many investors pulled money out of the market following the financial crisis and are still avoiding stocks today.

Grantham also pointed out that the last round of Federal Reserve rate hikes from 2004 to 2006 didn't end the bull market in stocks.

While he believes the market is headed higher, he did admit it was becoming more difficult to find good places to invest today.

Since then, valuations have continued to rise...

In fact, by several measures U.S. stocks are now more expensive than any other time outside of the dot-com bubble.

Surely, Grantham has only become more concerned today, right? Not exactly. As the Financial Times reported on Thursday...

"I've dedicated my life to financial bubbles, and I don't think it is a bubble," he told the Financial Times. "This is the broadest market of all time... That is not the nature of a bubble"...

He laid out the case for why "this time seems very, very different" in his quarterly letter to investors, pointing out that despite some wild swings in recent decades... U.S. price-to-earnings have averaged over 23 times since 1997, compared with nearly 14 times in the preceding decades, when he started his career.

Most notably, Grantham has apparently abandoned one of his core beliefs...

That is, his long-held stance that market values always "revert to the mean" eventually. More from the article...

"A dedicated value investor like me eats, breathes and dreams mean reversion. It's very hard to see when the world has changed," he said. "But my job description is to think about markets and not to be a member of a cult"...

Arguing that this time is different, and valuation metrics have climbed to a long-term new average, is near sacrilege for many value investors...

Mr. Grantham admits his new tone gets "groans from fellow value investors" where it has "rattled a lot of cages", but argued that previously dependable rules have to be re-examined and some even cast aside, given that the "world has changed."

In simple terms, Grantham says globalization, increasingly "monopolistic" U.S. companies, and super-low interest rates have pushed corporate profit margins above their long-term average. This in turn has pushed valuations to new highs.

This is likely true. However, Grantham argues these trends are likely to continue for years or even decades... meaning valuations will remain high – or even move much higher – indefinitely.

Now, Grantham may be right...

U.S. stocks – particularly tech stocks – are getting a little frothy. But we don't yet see all the telltale signs that accompany the peak of a speculative bubble.

Stocks could continue higher... And valuations could become even more extreme. As regular Digest readers know, this is exactly what our colleague Steve Sjuggerud has predicted with his "Melt Up" thesis.

But we'll happily take the other side of his "mean reversion" bet. We suspect history will prove this time isn't really different after all... And expensive markets will eventually become cheap again, just as they always have.

Speaking of Steve, another one of his recent calls is playing out as planned...

In addition to his Melt Up recommendations, regular readers know Steve is incredibly bullish on China. But you may not realize he has also been bullish on Japan.

In the December issue of his True Wealth newsletter, Steve highlighted the huge opportunity setting up in Japanese stocks, calling it his "favorite trade of 2017."

In short, Steve knew that Bank of Japan Governor Haruhiko Kuroda – Japan's version of Fed Chair Janet Yellen – was worried that Japan was falling back into deflation. And Steve was sure Kuroda wasn't going to let that happen.

In fact, Kuroda himself said as much. As he told a group of business leaders last November, "Extremely powerful economic stimulus measures are being implemented, both on the monetary and fiscal sides."

Where have we heard that before?

Kuroda was taking a page out of former Fed Chairman Ben Bernanke's "playbook," and doubling down on easy-money policies. And he promised to continue these policies until inflation moved much higher. More from Kuroda's speech...

Given that the inflation rate in Japan has been lower than 2% for a long period, it is necessary for the public to experience the process whereby the inflation rate actually exceeds 2% before converging to the 2% target. Through such experience, the perception that annual inflation will be around 2% will take hold among the public.

In simple terms, Steve told his subscribers that Kuroda would achieve this by doing two things: keeping interest rates at zero (or lower), and by printing money.

Regular Digest readers know Kuroda has made good on the first part of that plan...

As we noted in the December 20 Digest, Japan's central bank hasn't budged much on that front. Today, the Japanese 10-year bond yields a measly 0.04%. Meanwhile, two- and five-year bond yields sit at -0.17% and -0.12%, respectively.

And as news agency Reuters reported yesterday, Kuroda has clearly fulfilled the second part as well...

The Bank of Japan hit a new milestone as its balance sheet topped 500 trillion yen ($4.48 trillion), roughly the same size as that of the Federal Reserve, having more than tripled since it started aggressive stimulus in 2013...

Data from the BOJ showed its total assets rose to 500.8 trillion yen at the end of May, compared to 425.7 trillion yen a year earlier. It was 164.8 trillion yen when Governor Haruhiko Kuroda took the helm in March 2013...

The BOJ's balance sheet almost matches the $4.51 trillion held by the U.S. Federal Reserve and amounts to more than 90 percent of Japan's gross domestic product (GDP), by far the highest ratio among the world's top four central banks.

In other words, Japanese investors are being penalized for having money in the bank or in bonds...

This, of course, should be great news for Japanese stocks. As Steve explained in the December True Wealth issue...

Kuroda wants interest rates of 0%. And he wants inflation rates of 2%. He is going to "overshoot" on both of these. He won't be happy until inflation is over 2% and interest rates are at less than zero.

When you think about it, what he wants is for the typical Japanese investor to lose money (compared with inflation) by leaving his money in the bank. He is forcing money out of cash and out of bonds. What can Japanese investors do? Where can the money go?

One sure place is the stock market...

We've already seen how this story played out in the U.S...

In 2009, Bernanke unveiled his first wave of quantitative easing. Since then, the benchmark S&P 500 has risen more than 200%. Now we're starting to see it play out in Japan.

Today, Japanese stocks broke out... The Nikkei 225 rose 1.6% to 20,177.28... breaking the 20,000 mark for the first time since July 2015.

Readers who took Steve's advice are already up 10% in a little more than six months.

Back by popular demand...

Finally, we'll close today with some big news.

For a couple years now, we've heard two questions again and again:

"What happened to Porter's weekly radio show?" and "Are there any plans to bring it back?"

In short, despite the show's tremendous popularity, Porter was forced to take a hiatus when he stepped back in as CEO of Stansberry Research in 2015. And he just wasn't sure when (or if) he would be able to return.

But today, we're happy to announce Porter's show is back... with a brand-new name – Stansberry Investor Hour – and a brilliant new co-host, Buck Sexton. If you're not familiar, Buck is a former intelligence officer for the CIA who hosts a weekday talk-radio show, syndicated on more than 100 stations around the country.

If you liked Stansberry Radio, you're going to love Stansberry Investor Hour. (And if you never had the chance to hear Porter "unfiltered" on his previous show, you'll soon understand why it was so popular.)

Our meeting with an "Enemy of the State"...

The second episode of Stansberry Investor Hour was just released this week, and it's not to be missed... It features one of the most vilified people in the world: WikiLeaks founder Julian Assange.

Assange speaks with Porter and Buck from the Ecuadorian embassy in London, where he has been holed up for the past five years, receiving asylum from trumped-up charges in Sweden.

In the interview, Assange discusses how and why the mainstream media employs its three biggest weapons to publish secrets with impunity... the real reason President Trump terrifies not just Democrats but also the Republican establishment... why he is annoyed the Russians are taking credit for his leaks... and much more.

Whatever your politics or views on Assange, we guarantee his interview will be the most fascinating thing you hear all week.

The easiest way to listen this episode – and every future episode – of Stansberry Investor Hour is to "subscribe" to the show in iTunes right here. (If you're an Android user, you can subscribe right here.) As always, it's absolutely free of charge.

New 52-week highs (as of 6/1/17): Aflac (AFL), AMETEK (AME), Becton Dickinson (BDX), Blackstone (BX), Global X China Financials Fund (CHIX), First Trust Nasdaq Cybersecurity Fund (CIBR), Quest Diagnostics (DGX), Euronet Worldwide (EEFT), Eaton Vance Enhanced Equity Income Fund (EOI), iShares MSCI Japan Fund (EWJ), Fidelity Select Medical Equipment and Systems Fund (FSMEX), iShares China Large-Cap Fund (FXI), PureFunds ISE Mobile Payments Fund (IPAY), Nuveen Preferred Securities Income Fund (JPS), McDonald's (MCD), iShares MSCI China Index Fund (MCHI), Monsanto (MON), AllianzGI Equity & Convertible Income Fund (NIE), Annaly Capital Management (NLY), Paysafe (PAYS.L), PowerShares S&P 500 BuyWrite Fund (PBP), ProShares Ultra S&P 500 Fund (SSO), Guggenheim China Real Estate Fund (TAO), Travelers (TRV), Two Harbors Investment (TWO), Invesco High Income Trust II (VLT), Verisign (VRSN), Weight Watchers (WTW), ProShares Ultra FTSE China 50 Fund (XPP), and Direxion Daily FTSE China Bull 3X Fund (YINN).

In today's mailbag, more kudos for P.J... And a subscriber is worried about Doc. Send your questions, comments, and concerns to feedback@stansberryresearch.com.

"[I] hope P.J. sent this to every Congressperson that will accept his communications. It hits the nail right on the head, IMO. The constipation of Washington in dealing with what's important rather than the partisan bickering, accusations, and petty, childish behavior, has become absurd... Great editorial." – Paid-up Stansberry Alliance member Dave S.

"What happened to Doc Eifrig?? Haven't heard or read anything by Doc in quite some time. Is he sick or did he just shut-up??? Thanks." – Paid-up subscriber Ben Yarber

Doc comment: I've retired twice already. I don't get to take it easy once in a while? And maybe we're just giving other folks a chance to "catch up."

But seriously, we've been putting out as much research as ever... I'm still publishing my regular issues of Retirement Millionaire, Income Intelligence, and Retirement Trader for paid-up subscribers and Stansberry Alliance members.

And about a year or so ago, my team and I launched a free daily e-letter to get the word out about the best ways to make your retirement better...

We call it Retirement Millionaire Daily. It's packed with secrets, health tips, and investment strategies that I guarantee you can use right away. If you're not receiving it in your e-mail inbox every weekday afternoon around 3:30 p.m. Eastern time, sign up here.

Regards,

Justin Brill
Baltimore, Maryland
June 2, 2017