The Next Phase of the 'Melt Up' Is Here

Knowledge beyond his years... This is what the 'Melt Up' is all about... Cash is pouring into U.S. stocks in record numbers... The craziness doesn't stop there... Look at what happened during the 1999 Melt Up... The next phase of the Melt Up is here... Don't miss Dr. Steve Sjuggerud's urgent update...

Christon 'The Truth' Jones didn't panic during the depths of the March 2020 market crash...

In fact, Christon was one of the few folks to sweep in with a bullish mindset on stocks back then. While countless others feared what COVID-19 would bring, he went into buy mode.

And he didn't bet on just any old stock either... You see, Christon went long electric-car maker Tesla (TSLA) through a single options contract.

As we now know, the stock market rallied off its March 2020 bottom... It was hitting new highs by the summer. So Christon's big bet turned into an incredible trade...

After bottoming at a split-adjusted price of around $72 per share in March, Tesla roared back to more than $400 per share in mid-August. As a result, Jones netted $78,000 on that one options contract.

It's a trade that anyone would love to have under their belt. But to this point, I (Chris Igou) have left out a crucial part of this story...

You see, Christon is only 14 years old.

Now, I must admit, Christon isn't a normal 14-year-old kid...

He actually has several years of investing under his belt...

When Christon was 9 years old, he found a YouTube video explaining why e-commerce giant Amazon (AMZN) was a good opportunity. And he was so excited about it that he convinced his mom to let him buy shares.

That was just the start... He bought several stocks after Amazon. Soon, his mom started teaching him about options contracts. And now, at 14 years old, he has already coached more than 1,000 people on how to trade options.

So when Jones went long Tesla last March, it wasn't his first experience in the market.

I'm not taking anything away from Christon's success to this point...

He has knowledge beyond his years. He had the guts to go long Tesla as the market crashed in March 2020. And he profited as stocks roared higher into the summer.

But while Christon's big winner is partly due to his years of experience even at a young age, today's "Melt Up" environment is exactly what makes these kinds of trades possible. And his story will certainly help fuel the craziness from here...

This is what the Melt Up is all about...

Gains like those that Christon made last year are inspiring folks who've missed the rally to get in now... before it's too late.

We've seen a record amount of new trading accounts opened over the past year. More people are trading than ever before. And when the GameStop (GME) fiasco took off earlier this year, it seemed like nearly everyone was paying attention to the stock market.

This is the crowd that we tend to see near the peak of a Melt Up. They're the last group to arrive at the party. They're also why the final inning of the Melt Up can lead to some of the biggest gains of the entire bull market.

Now that we're seeing this Melt Up mania play out with loads of new investors, there's only one more thing to look for... new money flowing into the market.

We have the new investors that show up at the end of a bull run. Now we want to see them putting money to work...

There's no question that Christon's success is extraordinary. But when a market Melt Up truly gets underway, life-changing gains become much more common...

More people are chasing that dream today than we've seen in our lifetimes. This is helping fuel the final inning of today's Melt Up. And it's sending cash pouring into U.S. stocks...

In fact, the largest inflows into U.S. stocks in history are happening right now...

According to recent data from Bank of America (BAC), this new money is flowing into the market right now. As an article from news service Reuters noted earlier this month...

Equity funds have attracted more than half a trillion dollars in the past five months, exceeding inflows recorded over the previous 12 years, according to data from BofA, which has likened the stampede to a "melt-up" in markets.

The article even gives a nod to the massive inflows signaling a Melt Up. And it's absolutely right...

The data shows that more than $570 billion has poured into these funds since November. That's more than the $452 billion seen in the last 12 years combined.

This is exactly what we want to see play out in a Melt Up.

More folks are trading stocks than ever before. The S&P 500 Index is up about 87% from its March 2020 bottom. And new investors don't want to miss what could be next... They're piling in at an incredible pace to avoid missing out on any potential future gains.

Things are getting kooky. But the craziness doesn't stop there...

You see, investors are partially funding this buying frenzy using record amounts of leverage...

Investors had borrowed $814 billion against their portfolios as of late February, according to data from the Financial Industry Regulatory Authority ("FINRA").

You can see what I mean by looking at "total margin debt." Folks obtain margin debt from their brokerages to buy stocks and other securities.

A brokerage can lend up to 50% of the initial investment. And the account holder uses the securities he owns as collateral for the loan.

During a bull market, margin debt tends to rise. That makes sense... As the value of securities goes up, investors can borrow more money to buy even more securities.

But today's levels are well above just a steady increase. Look at the chart below...

Notice the most recent spike in the upper-right corner of the chart. Total margin debt is up an incredible 49% over the prior year.

Now, I want you to take a closer look at the previous chart...

This kind of jump in borrowing happened near the end of two other major bull runs... The most recent jump happened back in 2007 before the financial crisis. And the other jump occurred during the Melt Up of 1999.

Folks use leverage like this to boost their upside potential.

But adding the extra leverage doesn't come without added risk...

When a bear market arrives – and it always does – the ensuing value loss in securities will trigger "margin calls."

That means those folks who borrowed from their brokerages will need to add more cash to their accounts as the value of the securities they hold decreases. If they can't meet the margin calls, brokerages can liquidate other positions in their accounts to recoup the loans.

Today, stocks are heading higher. That means the extra leverage is helping these new investors to boost their gains and drive the Melt Up. But eventually, things will turn against them... And when that happens, it could lead to painful losses on the flip side.

I'm not here to scare you off, though...

Remember, this is exactly what we want to see during a Melt Up. The big gains at the end of a Melt Up are possible thanks to euphoria like what we're seeing in the markets today.

As a result, some of the biggest gains are likely in the final six to nine months...

A Melt Up never ends quietly. The biggest gains often happen in the last few months of the rally.

For example, in the final nine months of the 1999 Melt Up, stocks didn't just dribble higher... They skyrocketed.

Just take a look at the following chart...

As you can see, technology stocks – one of the biggest winners in the Melt Up – were up more than 100% in the last nine months of the 1999 Melt Up. Meanwhile, biotech stocks and semiconductor stocks – two other big winners during Melt Ups – were both up more than 200% over that span...

We can't know for certain how long today's Melt Up will last. But history shows that we want to own stocks during the final leg higher.

We could see 50%... 60%... or even 100%-plus gains before the peak arrives.

In short, the Melt Up peak is getting closer and closer...

We're seeing all the signs we expect to see in the final inning of a Melt Up...

New retail traders have poured into the market. We're seeing record inflows of cash right now. And these traders are using amounts of debt like we haven't seen in years to help fund the buying frenzy.

So what you do as an investor over the next six to nine months could greatly alter your financial future...

That's why my friend and colleague Dr. Steve Sjuggerud is putting out an urgent update about his Melt Up thesis.

Regular Digest readers know that Steve has been bullish – and right – about the U.S. stock market for nearly the entire 13-year bull run.

He has correctly predicted the Melt Up that we're in today. And he has led his subscribers to several triple-digit gains as a result... including one stock he recommended last October that has soared roughly 370% since then.

This Thursday night, April 29, at 8 p.m. Eastern time, Steve plans to lay out his latest game plan...

He'll highlight exactly when he believes the Melt Up will end... and what upside potential we could see in the coming months. Plus, Steve will also share how you can protect the gains you've already made in the Melt Up before the inevitable "Melt Down" arrives.

As I said, the next six to nine months could be the most important of your entire investment career... So I hope you won't miss Steve's important announcement this Thursday night.

It's absolutely free to attend. We only ask that you save your spot ahead of time right here.

New 52-week highs (as of 4/26/21): Altius Minerals (ALS.TO), American Homes 4 Rent (AMH), American Express (AXP), Bunge (BG), CBRE Group (CBRE), Corteva (CTVA), Eagle Materials (EXP), SPDR EURO STOXX 50 Fund (FEZ), Comfort Systems USA (FIX), Alphabet (GOOGL), IQVIA (IQV), Nuveen Preferred Securities Income Fund (JPS), Mosaic (MOS), Microsoft (MSFT), Intellia Therapeutics (NTLA), ProShares Ultra S&P 500 Fund (SSO), Seagate Technology (STX), United States Commodity Index Fund (USCI), Visa (V), Vanguard S&P 500 Fund (VOO), and Westlake Chemical Partners (WLKP).

We have a variety of messages in today's mailbag – including votes on who won the great bitcoin versus gold debate between Michael Saylor and Frank Giustra... responses to the idea of a "toilet paper indicator" for inflation... and our colleague Dan Ferris answering a question about hell. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Michael won, hands down. He articulated the case for Bitcoin and the damage happening with Central Bank policy and printing. Frank, rather than defending gold just continued to swipe at the case for cryptocurrency. Didn't feel like Frank did much research on what the entire crypto ecosystem is as the superior vehicle for the future and proved it by his lack of focus on the case for holding gold." – Paid-up subscriber Karen G.

"I believe Giustra won the debate. He made a telling point in commenting on Saylor's assertion that crypto advocates would recruit others to speculate on these 'currencies.' Saylor made crypto's future sound too much like a pyramid scheme or a pump and dump tactic. That said, I have a small investment in bitcoin, not as a way to get rich, but as a prudent hedge against inflation." Paid-up subscriber Jim B.

"Who won the Bitcoin v. Gold debate depends on what your objectives are.

"Bitcoin is a speculation (maybe a good one) for those who are hoping to get rich, but it is not a store of value. It is too volatile and is totally untested in a bear market.

"Gold is a store of value with low volatility and negative correlation to other financial assets. It is insurance for those who want to preserve their wealth. But it is not going to make you rich (except possibly for mining stocks, which are another form of speculation).

"So both won the debate, but for different audiences." – Paid-up subscriber Greg O.

"I enjoyed Corey McLaughlin's piece on Kimberly-Clark as a 'toilet paper indicator' of inflation. Most of us buying paper, or steaks at Costco, or trying to build a home, or buy a car (new or used) are well aware that inflation is not coming: It has arrived.

"But out here in the West, paper products used to be made from chips left over from turning logs into lumber. They used to be burned and were not really a driving force of price. This matters because it's recently been pointed out (Bloomberg) that landowners are not receiving much more money for their logs than a year ago. Yet, the price of lumber for a home has gone up tens of thousands of dollars in the last year. Times four. Maybe it's because COVID caused a disconnect in supply and demand that's properly working itself out through price, or as McLaughlin's contractor said, 'Prices are just going higher... after manufacturers saw what people were willing to pay in the still-booming housing market.'

"Who is making bank on the four-fold increase in timber prices? Which 'commodities' Kimberly-Clark and Procter & Gamble say are driving up the cost of tissue? Could it be that corporate America knows people received 'stimmy' checks and want a bigger piece of it, gettin' while the gettin' is good? I guess we'll see when earnings reports are published...

"I cancelled my building project because estimates for all materials and labor were going up faster than we could get bids back from subcontractors. My general contractor pointed at two trucks in the driveway. 'Bought the white one for $48,000 seven years ago. The new one next to it cost $70,000.' Inflation has arrived, or has really been here a while but was hidden by suppression of disposable income for the majority of America." – Paid-up subscriber Erik D.

Corey McLaughlin comment: Thanks for the note, Erik. We'll keep watching and sharing what we hear and see about inflation. The truck example is a good indicator, too.

"I spent 30 years in the wood products business. It often was boom or bust. Back in the '70s and '80s, it took 1.7 to 2 million housing starts to get all the mills to go balls out.

"But what we do have today is building bigger houses. Partly because people off the right and left coasts are selling pretty high and moving into red state country where things are less expensive. Add to that so many are working remotely and need a little extra office space. And they don't have all the travel costs due to commuting. Here in N. Idaho we've seen our new in 2017 house almost double in price.

"The number of sawmills is down, there was a lot of fire damage last year, and lumber brokers will find out where the top is as soon as they can. But they will work overtime to flood the market again, which of course will force prices down. I have heard prices 4x normal. Crazy." – Paid-up subscriber Glenn M.

"Well, lumber may be at all-time highs, but the landowner who sells the timber is not getting more for his/her timber. It would stand to reason that the large corporations buying the raw logs at the old low price and then selling for the new inflated price are the beneficiaries of this phenomenon. Another example of the rich get richer and the poor get poorer. The poor simply have not caught on to the game, so they continue to vote for the party that promises (both), but never delivers. Bernie Madoff, or should I say, Jerome Powell lives on!" – Paid-up subscriber Danny H.

"Dan, I really enjoyed your last writing which highlighted the simple genius of Amazon's success. However, I had to laugh out loud (even though not possibly comprehending) when you referred to the 'ninth circle of Hell' in the story of the pastrami scam. Please expound on what the ninth circle of Hell is really like! Absolutely love your humor!" – Paid-up subscriber Jim E.

Dan Ferris comment: In hindsight, I probably should've said the "fourth circle of hell"... where those guilty of excessive greed are punished.

The ninth circle of hell is a frozen lake where the perpetrators are buried in the ice for what they did. It's for those folks who betrayed and/or killed family, country, guests, or God.

Good investing,

Chris Igou
Jacksonville, Florida
April 27, 2021