The Stock Market Says Trump Could Win
The stock market says Trump could win... 'Prepare to be surprised on Tuesday'... Don't hold your breath on OPEC... Janet Yellen won't stop... Porter: The best opportunity I've seen in my career...
Is the stock market predicting a Trump victory?
According to Sam Stovall, chief investment strategist at equities-research firm CFRA, history suggests the odds of a Donald Trump presidency may be higher than many folks believe. As he explained to financial-news network CNBC yesterday...
Going back to World War II, the S&P 500 performance between July 31 and October 31 has accurately predicted a challenger victory 86% of the time when the stock market performance has been negative.
The S&P 500 has been negative in eight election years over that time. And Stovall notes all but one – in 1956, when Adlai Stevenson ran against then-President Dwight Eisenhower – ended with a non-incumbent-party win. This year, the S&P 500 fell 2.2% from the last trading day of July through October 31.
A Trump victory would certainly come as a surprise to many... Most mainstream media polls show a small (but narrowing) lead for Hillary Clinton, but real-money bets continue to heavily favor the Democrat. Political-betting website Betfair currently puts Clinton's chance of winning at 72.2%.
Of course, real-money bets were famously wrong about this summer's "Brexit" vote... so we wouldn't rule anything out just yet. Stovall apparently agrees... "I would say on face value it's saying prepare to be surprised on Tuesday," he said.
Don't hold your breath on OPEC members coming to a consensus...
Elsewhere in the market, West Texas Intermediate ("WTI") crude oil – the U.S. benchmark for prices – fell nearly 4% to a new five-week low on Monday... its biggest one-day move since September.
On November 30, the Organization of the Petroleum Exporting Countries ("OPEC") will meet to discuss a production cut originally agreed to in September.
But the market is growing less convinced that OPEC members will be able to reach a deal. In the meantime, several non-OPEC members – including Russia, Brazil, and Mexico – have already refused to even consider cutting or freezing production until OPEC comes to a consensus. As analysts from investment bank Goldman Sachs noted...
The lack of an agreement so far has pushed oil prices sharply lower, with weakening oil fundamentals warranting oil prices in the low $40s a barrel in our view, if OPEC is unable to deliver a convincing agreement... Even if the fear of such low prices leads OPEC to deliver an agreement on November 30, we reiterate our view that the odds of it succeeding are low.
This shouldn't come as any surprise to regular Stansberry Research readers. Our in-house resource expert Matt Badiali has been all over this story for months.
In February, Matt called the proposed deal between Russia and Saudi Arabia "worthless." As he explained in the February 17 issue of our free Growth Stock Wire e-letter...
The problem is, the one country that could massively increase oil production – Iran – hasn't agreed to the deal yet. The deal is contingent on Iran's agreement. And if you know anything about Iran and Saudi Arabia's relationship, you know this deal is already in doubt.
Matt ultimately noted that if the Russia/Saudi deal was contingent on Iran, it was "dead in the water already." Sure enough, when OPEC members met in Qatar in April to sign the agreement, Iran was a no-show. Then, in late August, when rumors began circulating of another OPEC deal, Matt told readers not to pay it any mind...
The same thing will happen this time because of one key factor: Iran is still a member of OPEC. As we've told you before, the relationship between Saudi Arabia and Iran is terrible, and Iran isn't about to agree to restrict oil production right now after 35 years of sanctions.
So even if the Iranians attend the meeting (they bailed out of the last one), the oil-supply situation isn't going to change.
At that time, he predicted that oil prices would continue to remain volatile over the next few months, barring a sea change from OPEC. And so far, he has been exactly right... WTI crude prices have moved in a wide range between $43 a barrel and nearly $52 a barrel over the last two months. Matt shared his latest thoughts on crude in a private e-mail this morning...
It's amazing what the market will fall for. This is the third or fourth time we've seen this idea brought up. OPEC swears it's going to freeze production. The oil price jumps... And OPEC producers hit record production levels. Then the wheels come off... Iraq changes its mind. Iran won't show up to the meeting. The simple fact is that these countries are cash starved. They can't afford to cut production at the current prices because their citizens will riot.
When the economy slows in the U.S., companies go bankrupt. In the Middle East, governments get overthrown. OPEC created this mess in the first place when it decided to defend market share instead of oil prices. Now, it has lost control of the price... and there isn't enough market share to go around. So we're seeing massive deficits. According to Bloomberg, Saudi Arabia has the largest budget deficit of the 20 largest economies.
The architect of the current oil glut, Saudi Arabia, badly wants higher oil prices. But the only route to it (cutting production) is a non-starter. It's going to take more pain before we see OPEC actually make a deal. And it won't be a "freeze at existing production levels" deal. It will have to be measured production cuts across OPEC to get supply down meaningfully. That's when oil prices will recover. Don't hold your breath.
Janet Yellen learned a dangerous lesson from Alan Greenspan...
On Monday, Bloomberg shared a story about Federal Reserve Chair Janet Yellen's early career... and in the process shed some light on what we can likely expect from her going forward.
It was September 1996. Like today, the official unemployment rate was near 5%, a level the Fed considers to be "full" employment. That month, Yellen visited then-Chair Alan Greenspan's office.
She was there to make a case for higher interest rates. She was afraid inflation would begin to soar if they allowed unemployment to fall much further. Of course, you may remember what happened next...
The Greenspan Fed left interest rates unchanged for another year... unemployment eventually fell to a 30-year low of 3.8%... and as Bloomberg puts it, "inflation never really took off." (More on this shortly.)
Now, Yellen finds herself in Greenspan's shoes, as several of her colleagues begin to clamor for higher rates. And it appears she has taken his approach to heart. From the Bloomberg article...
Like Greenspan, the current Fed chair is resisting pressure to lift benchmark borrowing costs, opting instead to give the economy room to run. The Federal Open Market Committee is widely expected to hold policy steady for a seventh-straight time at its two-day meeting starting Tuesday.
"She saw back then what a high-pressure economy can do," said former Fed Vice Chairman Alan Blinder, who served at the central bank with Yellen from 1994 to 1996 and later co-wrote a book with her entitled "The Fabulous Decade: Macroeconomic Lessons From the 1990s."
In other words, while the Yellen Fed may agree to another small rate hike in December, it's likely to keep interest rates low far longer than virtually anyone expects today.
There's just one problem... Remember that quote about inflation not "taking off" back in the late 1990s? This is technically true... But only because of the way the Fed measures inflation.
To the Fed, inflation is not an increase in the supply of money and credit (as it is traditionally defined). Instead, inflation is measured by an increase in the prices of things consumers buy.
Under this definition, they were correct. Consumer prices remained relatively stable. Instead, the Fed's easy money was directed into assets, which helped fuel the speculative bubble in stocks.
The Fed, of course, denies this fact... Which is why it remained blissfully unaware as it helped create a similar bubble in housing in the mid-2000s... and yet another in the credit markets over the past several years.
Don't expect the Fed to pull away the punch bowl anytime soon, consequences be damned.
Porter: The best opportunity for speculative gains I've ever seen...
By now, most Digest readers have likely heard we're launching a brand-new service this month...
Stansberry's Big Trade will show you how to protect yourself and profit as the Fed's latest bubble inevitably pops.
In fact, Porter believes this is the single best opportunity for huge speculative gains he has ever seen in his career. He believes the gains could dwarf those subscribers made in the last crisis, when he famously predicted the demise of Fannie and Freddie, General Motors, and others.
Again, Porter will be hosting a live presentation on Wednesday, November 16 at 8 p.m. Eastern time to explain it all... including exactly what happens next, and what you need to do to prepare.
In the meantime, we've also created a special attendees-only mailing list where we'll notify you of any critical updates on this situation.
Access is free for all Stansberry Research readers, but this event is sure to fill up quickly. If you're interested in attending, we urge you to sign up soon. Reserve your spot instantly and make sure you receive important updates by clicking here.
Finally, a correction to note...
In Sunday's Digest Masters Series essay, we mistakenly referred to Jeff Brown's recommendation of Editas Medicine (EDIT) as a "big winner." It's true that EDIT shares soared 150% in the first month of trading. However, shares have since pulled back and are now showing a loss in the Exponential Tech Investor portfolio.
We regret the error. But the essay still highlights the incredible upside potential in Jeff's trading strategies. And as we mentioned in last Thursday's Digest, his Exponential Tech Investor subscribers have booked impressive gains, including 73% in 284 days on Imprivata (IMPR), 239% in 126 days on Twilio (TWLO), 97% in 98 days on Impinj (PI), and 100% in 27 days on Nutanix (NTNX). And Jeff's most recent recommendation is already up nearly 30% since he added it to his model portfolio on October 19.
New 52-week highs (as of 10/31/16): Alliance Holdings GP (AHGP), CONE Midstream Partners (CNNX), and iShares MSCI Global Metals & Mining Producers Fund (PICK).
In today's mailbag, Stansberry's Investment Advisory analyst Bill McGilton responds to a reader's question about one of our favorite whipping boys. Send your questions, comments, and concerns to feedback@stansberryresearch.com. As always, we can't provide individual investment advice, but we read every e-mail.
"Quite a while ago Porter wrote that General Motors was in big trouble... But GM seems to be cruising along and there has been no additional comments about GM forthcoming. Has he changed his opinion?" – Paid-up subscriber Joel G.
Bill McGilton comment: Short answer – no.
It's true that GM reported record quarterly sales and profits last week. But its stock is down 5% since then. Investors are finally starting to see what we see: peak U.S. auto sales and trouble in the subprime market...
After six years of growth, it's now clear that GM's U.S. auto sales will fall this year. They've now fallen for the last two quarters... and they continue to decline despite the company's increased use of incentives and subprime lending. Meanwhile, subprime delinquencies and loan losses are now at levels not seen since the last financial crisis. To make matters worse, used-car prices are falling, meaning expected recovery rates are also falling.
Combine the higher delinquencies with lower recovery rates, and you have a recipe for disaster for GM. We're still short. We'll provide a full update on GM in this month's issue of Stansberry's Investment Advisory, due out this Friday.
Regards,
Justin Brill
Baltimore, Maryland
November 1, 2016