The No. 1 Way to Prepare for the Market's Awakening Today

When I realized COVID-19 wasn't going away... The market is sleepwalking... Two key indicators tell the true story of the economy... The No. 1 way to prepare for the market's awakening today... The ultimate guiding hand in the gold market...

'Maybe we'll get lucky,' I (Vic Lederman) wrote to end my missive...

As I typed out the long text message, I knew it was already too late...

It was February 26. And I was penning a rather fiery rant to my colleague and boss, Steve Sjuggerud, editor of True Wealth.

Just 16 days earlier, on February 10, I told Digest readers that this episode was likely just the latest hiccup in the historic bull market. I believed stocks would keep heading higher.

However, in a roughly two-week span, the data changed. And I was forced to change my mind with it.

Of course, I'm talking about coronavirus (COVID-19). In the past two months, it has continued to spread... reaching roughly 200 countries and regions around the world.

It has "officially" infected more than 3.1 million people worldwide, killing more than 218,000. The real numbers will be sorted out in the coming years by data scientists.

Just before I wrote to Steve about my changing view, Germany reported cases with no apparent link to China. The country had entered the so-called "community spread" phase.

That's when I realized that this was most certainly not a contrarian opportunity...

I warned Steve that domestic and international flights were ongoing. And as long as people could continue to move around, COVID-19 wasn't going away.

Still, I hoped that the U.S. would not join Germany so soon...

That evening, news reports out of California said that someone had tested positive for COVID-19. However, authorities couldn't identify how the person had contracted the virus.

Here in the U.S., we had also arrived at the "community spread" phase. And just hours after my first text message to Steve, I wrote him again: "Well, that didn't take long."

True to form, Steve remained optimistic. But he's not one to fight the trend... So as the market continued lower, we listened to our stop losses and exited our positions accordingly.

Still, my last Digest weighed on me...

Sure, it included some hedging language. In the essay, I said, "Look, I'm not saying coronavirus isn't a big deal. It is." Looking back, though, it clearly wasn't enough.

But as they say, hindsight is 20/20...

At the time of my previous Digest in February, it appeared that the world still had a chance at containing the virus. That's why I urged folks to ignore the headlines and stay invested.

Now that we know that wasn't the case, we can only look to the present and the future...

So in today's Digest, I want to discuss the market's movement in recent weeks. As you know, despite countrywide lockdowns and widespread uncertainty, stocks are rallying higher.

However, as you'll see, I believe there is significant volatility ahead...

I'll highlight two key indicators that tell the true story about the state of our economy right now. And even better, I'll show you that it's never too late to prepare for what's coming.

Let's begin with where we are now...

Plain and simple, the market is sleepwalking...

The benchmark S&P 500 Index peaked at 3,386 on February 19. After plunging into a bear market, it fell as low as 2,237 on March 23 – an incredible drop of 34% in about a month.

But over the past five and a half weeks, it has charged up off those lows... The S&P 500 closed today at about 2,940. That's 31% higher than its bottom. It's only 13% below its February peak.

And investors appear to be growing less fearful, too... The Chicago Board Options Exchange's Volatility Index – the market's so-called "fear gauge" – has steadily declined after surging to more than 80 in March. It's down to around 31 as we go to press.

Apparently, that's all it takes to "price in" a major catastrophic financial event.

At least, that's what you're expected to believe. Think about it... We're enduring the most widespread shutdown in modern times. It's an unprecedented level of disruption.

And yet, we're expected to believe that a 13% decline from the peak prices it in...

Give me a break. It's ridiculous.

Now, I can already hear the chorus saying, 'But Vic, it's going from bad to less bad'...

I get it.

That's a comforting interpretation. It makes the path to normal look a lot less winding.

But that's just not where we are yet...

If you just look at the key data we have, you'll know that's not the case. So let's do that. I believe you'll see, as I do, that the market is sleepwalking... and that we need to prepare.

It will wake up one day soon. And when it does, we'll see a major return to volatility.

That means we're in darn dangerous times right now. And the choices you make today will have outsized effects on your future.

We'll use two key indicators to help us determine the state of the economy...

The first key indicator is unemployment...

Folks, it should be pretty clear by now that it's bad out there...

In Florida, I live in one of my city's nicer neighborhoods. My immediate neighbors are working from home. And for us – especially weird financial analysts like me – life is mostly the same.

Working from home saves a lot of time. And I'm more productive than ever.

But I'd be a fool to not see the signs of stress all around my local community. In fact, I'm seeing one that I've never experienced... not once in my life... until the past month.

We've had multiple people going through our neighborhood, door to door, looking for work. One man even told me that he'd work in exchange for diapers for his kids if we had them.

He was desperate. And that desperation is dangerous.

I don't know if any of these folks found work. But I do know that their circumstances aren't unique to our area. The Federal Reserve's chart for "initial" jobless claims looks broken...

Normally, each of the humps leading up to and through the gray recession bars since the 1970s would look like mountains. Today, they look like ant hills. And the long, vertical black line on the right... the one shooting straight up to the sky... that's where we are today.

It looks like a data error. But it's not. New unemployment claims in the U.S. are so much higher than they've ever been that the chart looks like it must be incorrect.

We have never experienced a spike in unemployment like this. And it'll take time to get back to normal. Even if the virus went away tomorrow, normal wouldn't return tomorrow.

Virus or not, we now have a staggering number of people out of work. And there's no switch that President Donald Trump or any governor can flip that'll send them all back to work.

It takes time for people to get comfortable again after a crisis. It won't be different this time. And it will take time for the businesses that survive to get back up to speed, too.

The problem is, the market is sleepwalking. It hasn't noticed the unemployment issue yet.

Estimates put unemployment at roughly 20%. That's about double the peak unemployment rate we saw during the housing crisis more than a decade ago. In fact, it's almost more than double the rate we've seen during any crisis... since the Great Depression.

But the government still sees it as roughly 4%. And as far as I can tell, the market is acting like we're still at 4% unemployment.

The government reporting such a low unemployment number isn't a conspiracy. It's just that the crisis has unfolded faster than the reporting schedule... The U.S. Bureau of Labor Statistics won't release the official unemployment rate for April until May 8.

Eventually, the reality of this unemployment situation will catch up with the market...

After all, you've heard that it's a "consumer-driven economy." And let's be honest... it's hard for consumers to drive the economy when 20% of them are out of work right now.

That's just reality.

The market hasn't woken up to it yet. And you need to be prepared before it does.

That brings us to the second key indicator – oil...

Like it or not, our economy runs on oil. When things are going great, we use a lot of it.

We use it for shipping goods across the seas... We use it for traveling by plane... We use it for our daily commutes... And we use it in trucks to fill our stores with things to buy.

In the U.S., petroleum and natural gas make up roughly 67% of our energy consumption. Add in coal and you'll get to 80%.

So you can talk about the future of renewable energy all you want. But in reality, our society runs on nonrenewable forms of energy. There's no getting around it.

Now, with that in mind, you've probably heard that the oil industry is in crisis. And it's true.

As the crisis started to unfold, some experts tried to blame the construction of exchange-traded funds ("ETFs"). And the media tried to tell the public it was all about the eccentricities of the futures market.

While they're partially correct, it doesn't tell the full story...

The crisis in the oil industry is very real. And as a consumer, that should get your attention...

You see, we already covered the most important fact – our economy runs on oil.

But today, we have way too much of the stuff. We have so much oil around the world now that we're running out of places to put it. And that has sent prices plummeting.

Think about it this way...

Imagine someone wanted you to take delivery of 100 tanker trucks full of oil. However, you don't have anywhere to put them. Would you pay for this privilege of owning 100 tanker trucks? Or would you make the "seller" pay you for the hassle of figuring out what to do?

The answer should be obvious... You'd need to be compensated.

The oil market is getting darn close to this scenario today.

That probably sounds pretty crazy. And it should... Markets aren't supposed to work like that. The buyers are supposed to do the paying. But we're stuck in a vicious cycle today...

The simple fact is, oil consumption is way down. It's literally the fuel that runs the economy. And right now, the economy is parked on the side of the road taking a breather.

Unfortunately, taking a breather isn't an option for oil producers.

Sure, they can cut production a bit... But in general, they have to keep producing oil. It's how they feed their families. And for most of them, it's all they know how to do.

Where are the markets in all of this? You guessed it... They're sleepwalking.

The economy is telling us, "I'm doing so poorly that I don't need the fuel that runs me." And the market is just pretending, "Maybe we're about to go back to normal."

Nothing about this is normal... The market will wake up sometime soon. And there's no way of knowing how hard it will fall as it tries to catch itself. You must be prepared.

So... how can you prepare for the market waking?

Don't worry, I'm not going to tease this out...

You need to hold gold.

And you need a guiding hand to help you get in at the right moment.

Now, I'm sure that as a financial-newsletter reader, you've heard plenty about gold over the past few months. It's the newsletter writer's favorite hedge. (It's in the Digest a lot, too.)

But please, don't ignore what I'm saying today...

Based on history, gold is a safer bet than you might realize. And as I'll show you in a second, during crises, you have a longer opportunity to get into gold than you might realize.

That's because gold is a fickle friend in a crisis. It's slow to respond, and it moves with a mind of its own.

Like in all markets, timing is critical. But not in the way you might expect when it comes to gold. And that's exactly why you need a guiding hand in the gold market at a time like this.

Let's use the housing crisis as an example...

If you bought gold and held for the two years following the stock market's peak in 2007, you would've made about 40%. In the meantime, the S&P 500 dropped 30%. Take a look...

As you can see, gold was the big winner!

But I know what you're thinking right now... "Vic! We've missed that. The current crisis is already a few months in play. We can't get in at the peak anymore."

You're right. You can't go back in time to February 19 and hoard as much gold as possible.

However, most people forget that gold runs on a different clock than the crisis. It seems strange at first. But once you stop to think about what drives gold prices, it makes sense...

Gold responds to interest rates and the real returns that are out there in the market...

As a result, its performance compared with the market can seem downright strange. But that doesn't mean it isn't still working in your favor if you miss the market's peak...

You see, the Federal Reserve tries to stimulate the economy with low interest rates. However, as Steve told readers of his free DailyWealth e-letter yesterday morning...

The long-term effect is quite different... Remember this Fed action makes money cheaper. And over time, it literally makes our money worth less.

That's a big part of why gold's price action can seem so strange in a crisis... and a recovery.

The thing is, even if you had waited for six months into the housing crisis, gold was still the better bet... It would have returned about 25% over the next two years. Meanwhile, the market suffered... The S&P 500 lost more than 10% of its value over the same period.

And the results get even stranger...

If you missed the bottom in stocks by six months and then bought gold in September 2009, you still would have clobbered the stock market over the next two years. Take a look...

That's right... By then, the market had started its recovery on its way to an 11-year bull market. But gold was still the right choice to own for the next two years – by a wide margin.

The takeaway is clear...

Right now, thanks to two major economic indicators, we know the market is sleepwalking.

The soon-to-be massive official unemployment rate shows us that the "driver" of the economy, the consumer, is out of work. And the oil glut shows us the economy has come to a standstill.

While everything seems to be moving along smoothly now, the market will eventually wake up from its sleepwalking. And as an investor, you need to be prepared before it does.

Fortunately, in this instance, gold transcends ideology...

If you believe we've already seen the bottom in the market, gold is still a good bet to outperform – at least in the short term. And if you believe the market turmoil is just getting started, you have an incredible opportunity to defend against it by buying gold today.

Earlier, I mentioned it's critical to have a guiding hand to help you get into gold at the right moment...

And I believe my colleague John Doody is that guiding hand.

As a college economics professor for almost two decades, John became interested in gold due to an innate distrust of politicians. He was concerned over their habits of debasing the currency via inflationary economic policies.

After developing his own innovative method of finding undervalued gold-mining stocks, John left teaching to launch his Gold Stock Analyst newsletter in 1994. And his results speak for themselves...

From 2001 to 2019, John's model portfolio returned a cumulative 923%. It beat the major gold exchange-traded funds... and nearly doubled the return of the S&P 500 in that span.

On Monday, John and his business partner, Garrett Goggin, sat down with Stansberry Research Publisher Brett Aitken for a "Gold Rally Kickoff Call." They shared their latest thoughts on gold, including why they believe it could soon hit $3,000 per ounce – or more.

If you missed this special videoconference, you can still watch the free replay right here.

New 52-week highs (as of 4/28/20): Alamos Gold (AGI), Calibre Mining (CXB.TO), General Mills (GIS), Sandstorm Gold (SAND), and Belo Sun Mining (VNNHF).

In today's mailbag, more messages about Porter's "Big Lie" Digest. Do you have a comment or question? Send it to feedback@stansberryresearch.com.

"Kind of a belated response to Porter, I know, but some of the recent letters chastising him have riled me up enough to write.

"I absolutely agree with you, Porter! Pay no attention to your critics. Can you imagine what it would have been like for those who fought a revolution to insure the rights we all enjoy now (and seem so willing to give up) if they would have had to listen to these simpering fools. I can hear them shrieking – if we fight the British we'll all die or be wounded! Our doctors and nurses will be overwhelmed! Our hospitals will be inundated with the wounded and dying and the system will implode! How can you be so selfish! Why do you care only about yourselves!

"Great Scott! How did we become such a nation of cowering sheep??? I don't have the answer, but I'm happy to know that men like Porter still exist." – Paid-up subscriber Korte Y.

"I'm a physician and several physicians I work with completely agree with you. The overwhelming majority of people that are testing positive have mild symptoms. Most aren't even being tested. What is being told to the public and forced upon them is not scientifically or medically sound, it is pure politics.

"This is like a daily experiment by political leaders to see how much they can infringe on our rights & liberties and eviscerate the constitution before people push back if they do at all.

"I'll tell you this much though, the hardest core supporters of this are supporters of big government control and just like they are the majority of the media and academia, they are most of medicine. Those reporting on overwhelmed hospitals and ERs are in error. They aren't even testing people. In fact, they are furloughing nurses & docs because of lack of work. I believe we will soon have the income equality they so desire if this isn't ended soon." – Paid-up subscriber Jeff S.

"Hello Porter, I live in a forest of MSM parrots who seem incapable of thinking for themselves and locked down in fear. The mask lecturers, social distancing snitches and off the media narrative re-educators. I feel more isolated in my beliefs everyday... even before covid. Anyway, I had to tell you your article was brilliant and I loved reading it. Keep up the great work and miss listening to you on a podcast.

"PS: longtime subscriber and first time emailer. Thought you might want to know I started reading your research with no money. Taking your advice, along with some other good investments over the past 10 years, have constantly grown my annual income and now have a net worth about 850,000. Thank you!" – Paid-up subscriber Dan B.

"Hi Porter, Your latest analysis is spot on. The control weenies won't like it, of course, but what you said has to be said. It follows the science of mathematical statistics. Read that you 'following the science' spouting governors, mayors, etc. Stop quoting the 'models'. Any of us who have worked in that field all know that accuracy is not one of their main features. Garbage in is garbage out." – Paid-up subscriber Al R.

Good investing,

Vic Lederman
Jacksonville, Florida
April 29, 2020