Why I'm calling for a 'Melt Down' in 2021... But don't sell everything just yet... Use stop losses – and actually follow them... A surprise winner of the last Melt Down... The one asset you must own in the coming Melt Down...
Editor's note: We're taking a break from our usual Digest fare for the rest of this week...
Instead, we're turning things over to our colleagues Dr. Steve Sjuggerud and Vic Lederman.
Over the next three days, Steve and Vic will help you figure out what to do with your wealth when the "Melt Up" ends. As you'll see, that could happen sooner than you might think...
'The Melt Down Will Arrive – Here, in 2021'...
That was the headline of my most recent True Wealth issue. And anyone who has read my work over the past decade knows this is a major shift for me...
I (Steve Sjuggerud) have been bullish – and right – on the stock market for nearly all of the last 12 years. As investing guru Meb Faber said, "Nobody has been more bullish and more right about the U.S. stock market since March 2009 than Steve Sjuggerud."
I am proud of that.
But at the same time, I truly believe the crazy speculation that we've seen grip the market in recent months will end the "Melt Up" that's underway. We're in the final innings.
Today, I'll briefly share why that's the case. And more importantly, I'll show you the asset class that's primed to perform incredibly well in the ensuing "Melt Down."
Let's get started...
The February 'Global Fund Manager Survey' from Bank of America Merrill Lynch hit it on the head...
It said, "The only reason to be bearish is... there is no reason to be bearish."
There is far more to that sentence than you might think. You see, that's the exact situation you tend to encounter before markets peak. Specifically...
Markets peak when there is nobody left to buy. That is all you need to know.
Unfortunately, we are getting close to that point right now... And that is exactly what makes this year different than previous years.
I have personally gotten texts from rock stars... pro surfers... and my kids' friends. They all want to get in on the game.
Yet none of them were interested in the markets a year ago. Heck, none of them were even interested in stocks or investing just two months ago, at the start of this year.
That's the kind of sentiment you see at a market top. And while it doesn't mean the end is here right now, it does tell us that it's darn close...
It's why I expect the Melt Up to peak – and the Melt Down to begin – in 2021.
But before I go any further... you also shouldn't sell everything just yet.
The 'Greater Fool Theory' is in effect right now...
That means the way you make money in today's market isn't by making good decisions... Instead, you make money by waiting for a "greater fool" to come along in the future and pay more than you just did.
There aren't many more people left to buy, in my opinion. We're down to those new investors who are putting more and more money to work.
That's not enough to keep the bull market going forever. But it does mean prices can still rise from here...
You never know just how high a boom can go on. As the saying goes, "Markets can remain irrational longer than you can remain solvent." That goes for booms, too.
You want to be on board for as much of it as possible... no matter how stupid it gets. But you also must be prepared to sell when you hit your stop losses.
Think about that now... Make sure you have stops in place. And please, follow them when the time comes.
Those stop losses are the only thing that will prevent you from giving up more – or even all – of your gains in the coming Melt Down.
I've seen this happen throughout my career. Folks get a taste of the easy money that a Melt Up brings... and they think they can do no wrong.
They start off small early on. Then, they go big later... at the worst possible time. And instead of being disciplined (who needs discipline when everything goes up!), they ride their favorite stocks all the way down.
It has happened before, and it'll happen again. The only way you can be sure that you won't be a victim is by forming a plan now...
Put stops in place and stick with them!
I know what you're probably wondering, though...
If the Melt Up will end in 2021... what should we own during the Melt Down?
Longtime readers of my work won't be surprised by my answer. That's because my answer is the asset class that I've personally poured money into over the last decade...
Real estate.
I began buying real estate in a big way at the start of the last decade. We were coming out of the housing bust, and the deals available in north Florida were too good to pass up.
I bought empty lots... a home while standing on the courthouse steps... hundreds of acres of industrial land... and a couple of trophy properties along the Intracoastal Waterway.
I've sold a few of those properties since then... But the proceeds were always rolled into new real estate. And property remains the largest portion of my investible net worth today.
That might seem odd if you know me as "Mr. Melt Up." That's certainly how I've made my name in recent years.
I own stocks as well. But as incredible real estate deals kept coming available, I kept buying. And while the deals in real estate today aren't as good as they were a decade ago, there's still plenty of money to be made.
But a wait a minute... How does that tie into the Melt Down?
Easy...
Housing was a clear winner as stocks crashed during the last Melt Down...
I'm not talking about the 2008 collapse.
That was an economic collapse that caused a stock market decline... It wasn't a Melt Down like I expect to see this time around.
Instead, this Melt Down could happen as the economy grows. But it will happen because animal spirits have simply gotten too far ahead of reality.
The last time we saw this happen was the dot-com bust in the early 2000s. The recession that happened in 2001 was barely a blip compared with 2008 – or even the COVID-19 recession of early 2020.
Yet, the tech-heavy Nasdaq Composite Index – "ground zero" for the craziness going on at the time – crashed more than 80%.
Meanwhile, housing prices began a seemingly nonstop march higher over the same period.
It's a bit hard to believe really, but housing doubled from early 2000 to late 2005. The Nasdaq was down 50% over the same period. Take a look...
It's odd to think of housing as a "safe haven" asset. That crown usually goes to bonds, gold, or even collectibles. But as the chart above shows, housing was the safe place for cash during the last great Melt Down that happened at the start of this century.
I expect we'll see something similar this time around. And it's why I don't plan to sell any of my real estate even with a Melt Down looming... Instead, I'm looking to buy more.
You need to think about how you can take advantage of this situation today...
I'm not talking about real estate stocks either. Those will likely go down with the ship even if housing does well in the coming years... It's just how the stock market works.
Instead, find a way to get some money into physical real estate or private deals now...
Historically, I never had a good way to share those kinds of deals with my readers. I could talk about how I bought a house on the courthouse steps until I was blue in the face... But I knew few folks would follow my lead.
That all changed last summer when I launched my True Wealth Real Estate product...
It allows me, for the first time, to share institutional-quality, private real estate deals with my readers. These deals are similar to the ones I'm doing myself, but on a larger scale...
So far, for example, we've shown how to invest in one of the top office buildings in St. Petersburg, Florida, a brand-new warehouse development near Atlanta, and an apartment renovation project in Miami. And those are just a few of the real estate deals we've found in this service.
The average expected internal rate of return (IRR) – which you can think of like an annualized return – for the nine deals we've recommended so far in True Wealth Real Estate is 19.2%. And we'll have no trouble finding deals in the 15% to 20% IRR range from here on out.
To me, this is the best way to get money into physical real estate investments if you don't want to really roll your sleeves up and work. These deals are simple to understand for investors and highly vetted. I urge you to click here if you're interested in learning more.
My colleague Vic Lederman has headed the ship at True Wealth Real Estate since it launched last June...
He's going to get into more of the details about these incredible opportunities over the next two days in the Digest. But I'll leave you today with this...
The Melt Up is here. And it feels great. But don't get suckered into thinking this is the new normal... It will end badly. And you've got to be ready to sell when the time comes.
When it does, you'll want to move your money to higher ground...
History tells us that real estate is one of the best places to do it. It's what I'm doing myself. I urge you to do the same. And again... you can click here to learn more about how we're hoping to help you along the way.
New 52-week highs (as of 3/16/21): AutoZone (AZO), Comcast (CMCSA), Formula One Group (FWONA), Intel (INTC), Liberty SiriusXM Group (LSXMA), Invesco S&P 500 BuyWrite Fund (PBP), Starbucks (SBUX), Trulieve Cannabis (TCNNF), Trip.com (TCOM), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).
In today's mailbag, more of your thoughts on the American Rescue Plan. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"First thought: Yikes, here comes inflation. As a newly retired person in my late 60s, how is my fixed income going to last another 30+ years!
"Second thought: The gall of them to add so many non-COVID items into the bill.
"Third: If Biden really means let's work together, he should not let any legislation go through without bipartisan buy-in. To reclaim collaboration, or working across the aisle, then a new norm has to be built of collaboration. If Dems and Rep KNEW nothing would pass unless a compromise/collaboration bill, then they would get down to doing it. Someone has to make them work together. It is too polarized for anyone to do on their own. Sadly." – Paid-up subscriber Barbara B.
"I loved your book, The Battle for America, because it was right on target. The separation of classes and elimination of the middle class basically has caused what we are seeing today. When tax cuts to the rich just increased the separation of classes further, it led to extremes in politics and government.
"The bill to save the poor was inevitable. It was also needed but maybe not that extreme.
"I believe the bill could have been included with infrastructure and some form of work for a significant check or education for a significant check might have been a little better than giving away money.
"The very wealthy billionaires did not need to get richer. Most of their families have been enabled and many of their kids are production-less bodies that do not appreciate what they have.
"Ultimately this bill is good and 75% of the American people agree. That will help to perhaps bring back the middle class. Secondly, the tax money that will be received from people spending again will help pay for some of the government doling out these funds.
"If one party can give $2 trillion to the rich why can't another party give $2 trillion to the poor? Seems only fair." – Paid-up subscriber Gary C.
"Since the Democrats are just using this as an excuse to print money that will go to almost everything BUT helping Americans who need it the most, I am completely against it. That being said, we just learned from our accountant that we were eligible in 2020 to get the payments (we did not receive because they were looking at our 2019 return), and would therefore be receiving a reduction in our taxes to the tune of $3,600.
"We had said all along that if we got anything from the government we would donate it to our favorite charities. I don't go on Facebook anymore, so I won't be 'bragging' about it, like one reader suggested, but I do hope that by donating the money it will actually go to help someone who really needs it, as we do not.
"I did read an article that talked about how you could spend the money on things that would 'trigger' the Left, like buying guns, and that idea appealed to me. But now I think I will just stick with my charities!" – Paid-up subscriber Dyana H.
"I appreciate your observations on the Rescue Plan. I am also concerned about the direction of our country. I am a 75-year-old retiree who lives on a lake in Indiana, north of Indianapolis. I trade for income which I learned from Stansberry. I know most of this money will go to pay off the special interest groups, unions and states poorly managed by Democrats. Maybe some will help businesses destroyed by the government. Some poor folks will get help paying the higher gas bills they will now have thanks to the current administration's policies..." – Paid-up subscriber Jim K.
"All, whatever the details of the fiscal stimulus, the bottom line is that the government is the cause of the breakdown of the economy. It was the government ordering lockdowns that destroyed cash flow and engineered all of the bankruptcy's and unemployment. It is, therefore, the duty of the government to fix it... in this case, by blowing deficits and giving out handouts to replace the cash flow they destroyed. Is it a good idea? No, but neither is sending the economy into a freefall and causing civil unrest just because you don't like President Trump.
"There will be no end to the declining middle class, the growing wealth gap and the increase in poverty until mass immigration and offshore outsourcing are both ended. Free trade is a failure that impoverishes a country because private industry cannot compete with the government-subsidized corporations of foreign countries. Free trade has exposed America to this weakness and the resulting sucking-sound of jobs going overseas means a rising population of residents in America is competing for a dwindling pool of jobs and opportunities inside America.
"Trump had tried to transition America away from this globalist position, first, with tax and regulatory cuts to stimulate the U.S. economy and then with tariffs and other regulations to counter the political interferences of foreign governments inside the U.S. economy... Now, we are back to the continued destruction of the middle class, to the war economy, to weakening government finances until American collapses from a civil war sometime in 2025." – Paid-up subscriber O.P.
"Thanks for the opportunity to share my thoughts.
"I think we are seeing the natural progression of something we've long put off fixing, which is the phenomenon of the career politician. Allowing that to happen is, in my opinion, the root cause of the situation unfolding before us today. It's not a new idea, and it wouldn't solve everything, but would be a very good start.
"And I'm not just talking about term limits, I'm talking about eliminating all the perks that come with being a politician. They need to start living under the same rules of the people they are supposed to be serving. After all, if you're truly serving the people, wouldn't you want to create the best possible situation for them, and want it for yourself as well?
"Of course the truth is much different. And what did we expect to happen? We've allowed them to set their own salary, effectively insider trade, accept outrageous 'gifts', and create their own set of rules in countless ways. Can we rationally expect human beings, given these abilities to stop? Change their ways? Grow a conscience? Of course not, but we can recognize the inevitable and change the system. Again this is not a new idea. The founding fathers warned of this and many, many people in between have warned of it since.
"The difference today and the reason why the 'radicalness' appears to be moving so much quicker these days is this unholy alliance between the career politicians, the decimated traditional media, and the new information brokers and speech monitors. It's very interesting to consider the traditional media in particular. It has been the internet after all that destroyed them and forced them to sell out, and it's been the internet, in this case the new media, that's repurposed the traditional media into a propaganda tool and a very effective tool indeed.
"This situation leaves the American People in a very difficult position – we cannot trust anyone. The fray leaves us dazed and confused, which is of course the goal. If we don't know what's going on and don't know what to trust we will be hesitant to act for change. Even as we watch the country be radically transformed right before our eyes, we've been mesmerized by the fray and are rendered impotent.
"Throw a pandemic on top and you've got today. The combo is terrifying. Especially for people that do not have the means to insulate themselves and protect themselves. And I'm not talking about the poor. Of course they always have it bad and no one likes talking about them at all.
"The difference today is the people with 'good' jobs, the people that make ~ $120,000 or less, they feel it too. They are realizing that $120,000 ain't what it used to be and they don't have the money to pay for their lives. They open their eyes and realize they don't own their home, they have enormous credit card debt, no real savings and are a layoff away from utter ruin. These people can't invest in gold or bitcoin, Docusign or Amazon, investment properties... they've got kids to raise, school to pay for (or try to pay for), car payments to make, family vacations to take. They realize they're in a hole they'll never get out of.
"The sum total is an often crushing anxiety – which is by design. Other human beings are purposely creating these circumstances for their own benefit.
"Trump was on the right track in many ways – far from perfect, of course – but on the right track. And I'm not the only one thinking along these lines and that gives me hope. I have not lost hope and I have not lost sight of what America can be.
"Thanks again for this opportunity." – Paid-up subscriber John E.
Good investing,
Steve Sjuggerud
Jacksonville, Florida
March 17, 2021