The Crisis Protection Program
Editor's note: Today, we're kicking off a special holiday series on the crazy year that was 2020...
The weeklong series will continue through next Sunday in lieu of our regular Digest and Masters Series fare. In addition to serving as a valuable reflection on the past 12 months, it's a way to give our publishing team some well-deserved time off for the holidays.
Fitting for this unusual year, this is not a "normal" year in review...
From the historic dive early in the year to the stock market hitting new highs again over the summer and all that came with the pandemic, we're re-sharing memorable Digest essays that encapsulate what happened in our world and the markets... And importantly, in this series, we'll provide a valuable look-back at how our editors guided readers along the way.
We'll begin today with what happened to the markets in March, when an unknown invader called the "coronavirus" reached our shores. Adapted from our March 6 and 9 Digests, this essay details our advice on how investors could protect their portfolios from times of crisis... including one we see on the horizon today.
The Crisis Protection Program
In a way, it seems fitting that an actual virus might kill this bull market...
After all, regular Digest readers know we've pounded the table for years about how the Federal Reserve has spent the better part of the past decade artificially boosting the economy's immune system...
It has gotten to the point where interest rates may be headed to zero... and Fed officials are now suggesting entirely new remedies to fight a recession, such as buying stocks themselves on behalf of the country...
Boston Fed President Eric Rosengren said as much during a speech on Friday (March 6)... The question (not in these exact words) was: What could the central bank do after emptying all the medicine out of its interest-rate cutting and U.S. Treasury-buying hypodermic needle (our colleague Dan Ferris' analogy)?
Rosengren said...
We should allow the central bank to purchase a broader range of securities or assets.
For some reason, that statement tempered another down day for the major U.S. indexes on Friday (as if the world has learned nothing from Japan's stock-buying failures).
In any case, the "stable" times didn't last long.
Panic triggered the circuit breakers this morning...
The benchmark S&P 500 Index fell more than 7% on today's open (March 9), triggering a mandatory trading halt on the New York Stock Exchange to give investors time to digest what was going on...
And well, that was a lot...
Oil prices tanking... The coronavirus spreading... Major global markets down... Credit markets rattling... New-age trading platforms like Robinhood crashing.
We said aloud this morning, quoting Lloyd Christmas (Jim Carrey) in the movie Dumb and Dumber, "We've got no food. We've got no jobs. Our pets' heads are falling off!"
Trading stopped for 15 minutes this morning. And this evening... applying the commonly used 20% down definition for a "bear market"... we're mere percentage points away from the end of the record-long bull market...
As of today's close, the S&P 500 has fallen more than 18% from its most recent high of 3,386 on February 19. It was down 7.6% today. If the index closes at or below 2,708.92, we'll be in bear market territory.
On the other hand, if the bull keeps running, it will be an epic comeback.
Meanwhile, in just 10 trading days, the Dow Jones Composite Average went from its 52-week high to a 52-week low...
That's the fastest move on record, going back to the 1930s.
Blame it on the social media era, an unexpected "Black Swan" event, or the other shoe dropping on a decade of "easy money" policies. But no matter what... things are happening fast, and it's hard to keep up and keep perspective. (Hence the circuit breakers.)
Oil prices took their biggest dive in 30 years today, the result of escalation of the conflict between Russian President Vladimir Putin and Saudi Arabia's leadership that we wrote about in Friday's Digest. (It will be a good week to head to the gas station.)
Dallas Fed President Steven Kaplan said last week that the Fed's "emergency" rate cut was more about the troubling credit markets, as we've long warned about. The White House might get involved with fiscal policies to help things.
And the stats about coronavirus keep getting worse...
According to Johns Hopkins University here in Baltimore, the virus – for which a vaccine or treatment still does not exist – has now infected at least 113,000 people over 111 countries. And it has killed close to 4,000, roughly 75% of the deaths coming in China's Hubei province, ground zero for the outbreak.
It all sounds ominous and possibly overwhelming, but hopefully you can take a breath and keep perspective.
As "Mr. Black Swan" himself – writer and former options trader Nassim Taleb, who made the phrase famous in his 2007 book – said earlier today in a video from his home about the world's reaction to the coronavirus...
It is rational for society to be panicking. It is not rational for you and I to be panicking.
On days like today, the words of our founder Porter Stansberry ring in our heads...
Our job is to give investors the information we'd most want if our roles were reversed.
That's why we've repeatedly preached here – especially over the last month...
Stick to a plan based on your investment goals, use tools like stop losses, and make sure you're adhering to proper asset allocation (maybe buy some "chaos hedge" assets like gold, which held up today)...
In other words, when it hits the fan – when the inevitable bear market happens – make sure you're prepared so that your portfolio doesn't completely fall apart.
Our Director of Research Austin Root touched on this guidance in a special note he sent to every single one of our Stansberry Research subscribers today. (You can read it in its entirety here.) Austin wrote, in part...
While we don't want you to blindly sell great companies at bad prices simply because it looks like everyone is doing that... you should make sure your financial house is in order and not overextended.
Now is not the time to be "out over your skis" with your portfolio. Don't buy into this dip if you can't afford to. And sell some things if you must. (On a more positive note, now may be a GREAT time to go through with that mortgage refinance – rates have never been lower.)
He also urged readers not to panic...
We've seen big drops in the market before, and we'll see more after this one.
Stocks tend to move wildly in the short term as the world tries to assess new information and reprice companies to fit what it learns.
While others rush to snap decisions, we encourage you to stop, take a deep breath, and focus on making the best long-term decisions for you.
As for the short term, we checked in with our resident technical trader Greg Diamond...
Anyone who has been following the Digest or Greg's Ten Stock Trader over the last few weeks knows he has absolutely nailed the "key levels" amid all the volatility we've seen.
And this morning – and over the weekend, in fact – he updated his readers once again, saying that although we may see a "relief rally" soon, he's bearish moving ahead. Greg told us in a private e-mail this morning...
The long-term setup is clear... Only a [S&P 500] close above 3,400 will kill this bear. Meaning the bigger trend is down unless that level is broken.
The lower high last week at 3,130 in the S&P 500 is gigantic. The levels to watch ahead of this secondary high is 2,865 to 2,905 and then 2,985 to 3,005.
The 200-day moving average sits at 3,051. That's another big level to watch.
Greg said the next two weeks will be critical to which direction the broader market may be headed, and that he expects the Fed to step in and do something...
From a timing perspective, the rest of March will be important on a Fed-induced rally.
We saw the market sell off on a 50 basis point "emergency cut" in interest rates. Another cut won't matter much either. Any rally that falls short of 3,130 into the end of March is a selling opportunity.
In my opinion anything the Fed does short of quantitative easing or outright buying stocks will do little to change the bear structure now in place. They are stuck between a rock and a hard place.
Our colleague Dr. David 'Doc' Eifrig and his research team said sometimes the best move is to do nothing at all...
Doc and his team published their regularly scheduled issue of Advanced Options today (March 9). But amid the market volatility, they didn't force a trade. From the issue...
We'd love to tell you we know what will happen. In a sense, that's what you're here for. You want someone to help you navigate markets and make money.
But what you really need is someone who will protect your money like it is their own.
That's what we're doing today. We could make predictions with false confidence if we wanted to – but your capital would be at risk.
Sometimes not losing as much as everyone else is a win itself...
At the same time, our DailyWealth Trader gang pounced on a few buying opportunities...
Editors Ben Morris and Drew McConnell told readers around midday...
You'll make better decisions if you keep a cool head.
This isn't the end of the world. In fact, all this craziness could create some incredible buying opportunities...
With that in mind, they recommended placing a trio of "stink bids." These are orders to buy an asset at a significantly lower price.
Because your buy price is so low, you don't necessarily expect a stink bid to be filled...
But if it does get filled – in a flash crash scenario, for example (the ones that mandatory "circuit breakers" are designed to prevent) – you'll likely be rewarded handsomely and quickly. As Ben and Drew said...
This drop could be your best opportunity to profit all year.
Let's also talk about portfolio 'insurance'...
As we wrote to you earlier this week, every asset (well, besides bonds) has been taking big hits recently. And yet, Bill McGilton closed out a 230% gain for his Big Trade subscribers.
Now, Bill's subscribers have bagged a third triple-digit gain over the last two weeks...
In addition to the winner on cruise-line operator Royal Caribbean (RCL) we reported on Tuesday (March 3), Bill's subscribers made 119% on subprime lender and retailer Conn's (CONN) on February 25. And on Thursday, he recommended that subscribers bag a 132% gain on restaurant chain Cheesecake Factory (CAKE).
CAKE might be a great and creative stock ticker, but it's a bad time if you want to make money in the restaurant stock.
The hysteria and fear around the coronavirus are reaching all-time highs. (We just saw a headline that said people are stealing face masks and other medical equipment from New York hospitals.) But the market doesn't necessarily care what we think...
The point is, the recent gains Bill has banked speak to a critical investing principle...
In volatile times like these, owning some properly allocated portfolio "insurance" – like the defensive hedge plays Bill recommends in Big Trade – can make a huge difference in preserving and even growing your wealth.
These positions might take some time to pay up. But just like your car or health insurance, you don't want to try to buy them after you get in an accident or get sick... from someone sneezing on you or otherwise.
[Editor's note: The reshared content from our March 6 and 9 Digests ends here. From here on out, we're passing along a way to protect yourself from the next crisis on the horizon, as we see it today...]
Fast-forwarding to the end of December, as we wrap up 2020, here's one more option to consider...
It comes from our colleague Mike DiBiase, editor of Stansberry's Credit Opportunities... Regular Digest readers know Mike from his warnings on the impending "credit collapse" that he and our research team are expecting.
Mike most recently shared his detailed thoughts on the serious trouble facing the U.S. economy and most businesses in early November 2020.
You see, Mike likely watches the credit and debt markets closer than anyone else we know. And right now, he's warning of a critical inflection point, one that will wipe out many companies...
With the blows to our economy from COVID-19 and the subsequent response to the pandemic, Mike explained that a wave of bankruptcies is coming in the months and years ahead... and has actually started happening. As Mike wrote in the November 5 Digest...
According to credit-ratings agency Standard & Poor's (S&P), 124 U.S. companies have defaulted on their debt so far this year.
The default rate has steadily climbed from 3% at the start of the year to around 6% today. That means 6% of all U.S. corporate borrowers have defaulted over the past year.
But it's going to get much worse...
S&P currently predicts that the default rate will rise to 12.5% by next June. That would be the highest default rate since the Great Depression in 1932. A 12.5% default rate means that another 240 companies in the U.S. will go bankrupt over the next year.
And as Mike explained, that's a conservative estimate...
By his count, a default rate between 12.5% and S&P's pessimistic forecast of 15.5% would work out to between $100 billion and $250 billion in defaulted debt – and worse, billions of dollars of credit losses for unsuspecting investors. As Mike noted...
It would be the worst period for corporate defaults that we've ever seen.
It's a terrible thing for a lot of Main Street workers and the folks in the corporate offices, of course... The scene we saw back in late August at a local Modell's Sporting Goods store in its final days before closing, for instance, was downright sad.
You probably know it's best to stay away from investments in these companies today... And you're right.
But the thing is, smart, long-term investors actually get excited during these periods...
In fact, some of the world's greatest investors wait for moments like this. They're not scared of a recession or a "credit collapse"... far from it.
Experts like Warren Buffett, John Paulson, and Wilbur Ross pounce by putting their cash to work in an investment that's little known to most individual investors. But as our founder Porter Stansberry has said over the years, you owe it to yourself to at least become familiar with this idea...
This is a sophisticated investment. And if you understand and use it correctly, you will not only survive the coming crisis, but you'll also have the potential to boost your profits outside of stocks, with a shot at equity-like gains... and with far, far less risk than putting your money to work in individual stocks.
You just have to know where to look and what to do... That's where Mike comes in. I will spoil the suspense for a moment...
We're talking about bonds, but not just any old bonds...
The investments that Mike identifies drop to incredibly attractive prices – a fraction of their value – primarily because of the nuances of how this market works.
Like we said, most investors simply don't understand this less-traveled area of the financial markets... or that these investments are simpler to access than you might think. But we're here to tell you, it's worth making time to learn all the details...
Mike recently put together a brand-new special report that gets into much more about how everything works... It's called "The Complete Guide to the Coming Credit Collapse," and it can be yours with a subscription to our Stansberry's Credit Opportunities newsletter.
Not only does Mike outline and detail everything you need to know about the nuts and bolts of the "debt dam" that's about to break, but he also shares precisely how you can make a killing during it.
Best of all, you can get a single year of Stansberry's Credit Opportunities today for 50% off what it would normally cost. It's the best price we've EVER offered for this research.
And it's all possible thanks to a deal we made last summer with one of our subscribers who retired at age 52 in part because of this strategy. Click here right now for the full story. (And existing Stansberry's Credit Opportunities subscribers, you can access Mike's latest research right here.)
All the best,
Corey McLaughlin
Editor's note: As experienced investors know, the time to prepare for a crisis is before it happens. And Mike shows investors how to do exactly that in our Stansberry's Credit Opportunities service...
As we mentioned today, Mike describes his strategy as one that some of the world's greatest investors use in times of crisis. It's an overlooked part of the market that can deliver outsized returns with much less risk than stocks.
If you're interested in learning more, you're in luck. As we close out 2020, we've arranged for a special offer to our Stansberry's Credit Opportunities newsletter. Click here for the details right now.