These Three Key Assets Could Save You If History Repeats

A fitting start to 2020... 'Readaptation is the price of longevity'... Two jobs for investors starting today... Our 1929 moment... These three key assets could save you if history repeats... Global reserve currencies don't last forever... The hardest currency on Earth...

Looking back, we couldn't have kicked off 2020 in a more fitting way...

On January 2, in the first Digest of the year, my (Dan Ferris) colleague and Extreme Value analyst Mike Barrett wrote an incendiary – and highly prescient – essay.

We called the issue, "Three Warning Signs of the Next Great Depression." In it, he showed the parallels between the period just before the Great Depression of the 1930s and today.

My colleague Corey McLaughlin touched on Mike's essay briefly in Monday's Digest, but I want to go a little deeper today. While regular readers know I'm not someone who makes predictions, it's always a good time to prepare for the worst... And we'll do that today.

In Mike's essay, he issued the following warning...

Don't underestimate the potential for economic "contagion," or for the problems of economies to spread like a contagious disease.

More than four months later, we know Mike was eerily spot-on with his warning...

Now, of course, no one – not even Mike – knew back in January that COVID-19 would turn into a pandemic that infected millions of people worldwide. But as he also wrote in that Digest...

Where the economic crisis [in the 1930s] originated is irrelevant. What's important is that once the match was lit, it quickly turned into an international inferno because economic conditions were weak everywhere.

The global economy is once again weak today.

The COVID-19 pandemic, and the government responses to it, are the "match" this time. These events caused an unprecedented shutdown in the global economy and a massive 34% nosedive in the benchmark S&P 500 Index at a faster pace than ever before.

The more I look around, the more I believe Mike's warning should be repeated frequently right now. Investors should also heed philosopher George Santayana's oft-quoted warning...

Those who cannot remember the past are condemned to repeat it.

That famous quote appears in Santayana's early 1900s book, The Life of Reason. And even more fitting for our discussion, it's in the same paragraph as another one of his gems...

In a moving world, readaptation is the price of longevity.

Combining Santayana's two pithy statements, investors have two jobs starting right now...

1. Learn some history.
2. Use what you learn to help you readapt to the present.

What history should you learn?

That's easy...

Mike warned of the similarities between January 2020 and the period before the 1929 crash. So now that his fears have been realized, you should look at what happened following the Great Crash of 1929. Eventually, you'll want to study the whole period from 1929 to 1945...

Notice how the roaring boom of the 1920s ended in a crash, which augured in a steep, brutal three-year bear market. A long depression followed, which led to a massively destructive global war. That resulted in a new order among world powers, with the U.S. ascending to dominance and the once-powerful British empire fading into the background.

Investing in stocks was tough throughout this entire period – and beyond...

A huge bear market from 1929 to 1932 cut the value of the stock market by nearly 90%. The Dow Jones Industrial Average fell in eight out of 17 years from 1929 to 1945. And even worse, it didn't eclipse its September 1929 peak until 1954. Talk about a lost generation.

Besides the Great Depression, the U.S. experienced another brutal recession in this span, with the Dow falling about 47% in 1937.

I believe the March market crash may have been our 1929 moment...

Our period of 10-plus years of tumult and change ending in a new world order may lie just ahead.

Investors who can imagine and prepare for big changes ahead will come out on top. Others will be left behind... And many will lose everything.

Even if you don't believe that my worst fears will be realized, you should at least remember what legendary investor and author Howard Marks said in his June 2019 memo titled, "This Time It's Different." Mike quoted excerpts from this memo in his January 2 Digest, including this from Marks...

In recent years, the U.S. has simultaneously experienced economic growth, low inflation, expanding deficits and debt, low interest rates, and rising financial markets. It's important to recognize that these things are essentially incompatible. They generally haven't co-existed historically, and it's not prudent to assume they will do so in the future.

It's not prudent to assume those perfect conditions will return. Yet, as parts of the U.S. start to ease their lockdowns and with the stock market more than 25% off its March 23 bottom, a feeling of anticipation and cautious optimism might seem justified.

Investors focused on positive COVID-19 developments love to hear good news. And what former U.S. Food and Drug Administration Commissioner Scott Gottlieb said on Twitter yesterday certainly qualifies as that...

We're seeing a sustained decline in [COVID-19] deaths nationally, another indication that the U.S. epidemic is slowing.

But are we really out of the woods yet?

A similar mood of returning optimism took hold after the 1929 crash...

The stock market bottomed in November and rallied nearly 50% through April 1930.

Paul Warburg, one of the Federal Reserve's original governors, said in January 1930, "Happily we have now turned our backs on the events of this unfortunate episode."

Even after the rally died out in April 1930, it was too difficult for anyone to imagine anything but good times ahead...

In June 1930, New York Central Railroad President P.E. Crowley said, "I cannot believe that this country of ours, with its huge consumption and its enormous capacity, can long remain in a state of depression. I believe... that we have turned the corner."

And Coca-Cola President R.W. Woodruff said in August 1930, "The general slump in business, in my opinion, has been greatly exaggerated."

Investors feeling optimistic today should remember that rally from late 1929 into early 1930. It failed as the bear market in stocks continued for another two years. Take a look...

I find it hard to believe that we can shut down the whole globe... cause an enormous crash in the stock market... experience negative oil prices... take a huge hit to global gross domestic product... and see huge unemployment... all without deep, long-lasting consequences.

But if you prepare properly, your portfolio will be ready for anything, including higher stock prices.

I'm not predicting the next Great Depression. Instead, I'm suggesting that you prepare your portfolio for a wide variety of outcomes, which includes ongoing economic struggles and financial upheaval.

I'm finding new equity bargains for my Extreme Value subscribers... But my knowledge of history tells me that I should also heed the warnings of both Mike Barrett and George Santayana by preparing for tough times ahead, too.

To readapt to this world, you should own more than just stocks and bonds...

Beside those staple investments, you need three key assets that will very likely save you – and possibly make you a sizeable fortune – in the next few years. Those key assets are...

1. Cash
2. Gold (and silver)
3. Bitcoin

Cash will increase in value if we get a prolonged recession or depression. Cash is the absolute king in such periods. It's what everybody needs and wants, but few people have.

Unfortunately, most investors treat cash like oxygen. They never think about it until they're running out of it.

Don't do that.

Right now, I recommend putting roughly 20% or more of your liquid net worth in cash. It'll mute the damage of any future market declines, while setting you up to buy some good bargains in the aftermath.

Next comes gold and silver...

Many Stansberry Research editors have recommended holding gold and silver repeatedly in the past year or so, including me (on many occasions). And many of you have taken our advice, like Stansberry Investor Hour podcast listener Bill T., who wrote in recently to say...

I wanted to thank you and the rest of the Stansberry gang for recommending gold over the past year or so. I'm really glad I got in when I did.

Gold is up roughly 15% so far this year, and gold stocks are up even more... But I hope Bill T. keeps holding on to his gold positions because the biggest gains likely still lie ahead.

Gold has been a store of value through good times and bad for 5,000 years. Why would it stop now? It will likely continue to fulfill that role for many generations to come.

I've recommended four different ways to invest in precious metals in Extreme Value. That includes my No. 1 recommendation of the past 20 years...

This stock is up 19% so far this year and a phenomenal 67% since the March 23 stock market bottom – dramatically outperforming the overwhelming majority of global assets. I can't imagine any investor going through the next five or 10 years without owning this gold stock, which I fully expect to be a 10- or 20-bagger during that time.

Another big change happened early last century that bodes well for gold's future...

The U.S. dollar replaced the British pound as the world's reserve currency. Today, roughly 60% of global foreign exchange reserves are in U.S. dollars, about 20% are in euros, with the Japanese yen and British pound each making up roughly another 5%. The point is, most global commerce is done in U.S. dollars nowadays.

But global reserve currencies don't last forever...

Historically speaking, they tend not to last too long at all. According to the American Institute for Economic Research, the U.S. dollar is the sixth global reserve currency since about 1450. That's roughly one new global reserve currency every 100 years.

And here's the thing... the U.S. ascended to global reserve currency status starting about 100 years ago. It's highly likely that anyone my age or younger will see the end of the U.S. dollar as the global reserve currency.

That's why you want to own gold. And it's also why you want to own bitcoin. I can envision a world in which gold and bitcoin eclipse the U.S. dollar as global reserve currencies.

Bitcoin is the hardest currency on Earth...

It isn't anybody's liability, like all the central bank-controlled fiat currencies. Those currencies can be printed in infinite amounts. But bitcoin is much different...

It's mined into existence by computer programmers. And once 21 million bitcoin exist in the world, the programmers will never be able to create another one. It's in the computer code.

Governments can't print it. And new bitcoin are created at a slower and slower rate over time. Right now, we have around 18.4 million bitcoin in the world. And unless the bitcoin network protocol changes, it'll take until around the year 2140 to mine the remaining 2.6 million.

Like gold, governments can't destroy bitcoin's value. And you can store your bitcoin offline in a safe, secure hardware wallet that can't be accessed by any computer. You could carry billions of dollars' worth of bitcoin in your pocket, without any sort of hassle.

Try getting that much cash or gold across a border some time! In many countries, you'd be detained and possibly jailed as a criminal for trying to do something like that.

And the upside is tremendous, too...

Right now, all the bitcoin in the world is worth just $174 billion at its recent price of about $9,500. If bitcoin displaces just a tiny fraction of U.S. dollars in foreign exchange holdings worldwide, its price could soar 100-fold.

If you have a $100,000 portfolio, you could buy just $1,000 worth of bitcoin (a single bitcoin can be divided into tiny increments) today. You're risking just 1% of your entire portfolio... for a chance at doubling your portfolio's value over the next decade or two.

That's an insanely attractive proposition.

If George Santayana were alive, I bet he would own some bitcoin. His knowledge of history would tell him that currencies come and go... and his desire to adapt to a changing world would cause him to look ahead and consider what might be the next up-and-coming currency.

Cash, gold, and bitcoin...

By all means, I encourage you to keep investing in the equities of great businesses when you find them at attractive prices. We've done that again this month in Extreme Value. (If you're not already a subscriber, you can sign up for 20% off the regular price right here.)

But keep history in mind, and look at how the world is changing today...

Keep plenty of cash and gold, and hold at least a small portion of your net worth in bitcoin. It could save you a lot of pain if history repeats... and it might even make you a fortune.

New 52-week highs (as of 5/14/20): Agnico Eagle Mines (AEM), DocuSign (DOCU), Franco-Nevada (FNV), JD.com (JD), KraneShares MSCI All China Health Care Fund (KURE), NetEase (NTES), Scotts Miracle-Gro (SMG), Victoria Gold (VGCX.TO/VITFF), and Wheaton Precious Metals (WPM).

In today's mailbag, feedback on yesterday's "BYOT" Digest and a "thank you" note. As always, send your questions and comments to feedback@stansberryresearch.com.

"I use a similar strategy [as mentioned in yesterday's Digest] but make it a little safer and more lucrative by buying half the position I want in the stock, selling a put at a slightly lower strike price to get the other half of the position if the price drops, and selling a call at a slightly higher strike price to get more money.

"This has worked well for me and allows some gain if the stock price increases while providing more option premium to offset a lower stock price." – Paid-up subscriber Steve M.

Jeff Havenstein comment: Steve, I love this strategy. For those who don't know options, this can sound a little messy. But assuming a one-half position is at least 100 shares of stock, you're effectively selling an out-of-the-money covered call and also selling an out-of-the-money naked put.

Because you're selling two different options, you receive two premium payments at the beginning of the trade. That buffers your downside even more. And with market volatility still high, these premium payments can add up quick. Thanks for writing in.

"I am 60 years old and up until this year, I have never owned a stock. I am a lifetime member of Stansberry and have been for several years. I enjoy the articles as they are informative and highly entertaining.

"I finally bought my first stocks (Square) at Porter's (I believe) recommendation for up to $70.00 per share. The same day I bought them, I received the order from Stansberry to sell the Square stocks as the price plummeted. As it turned out, I purchased them for $45.36 per share, and almost immediately they shot back up. As of today, they are over $75.00 per share.

"Now I will watch my trailing stops and act accordingly. Thanks for the good work guys." – Stansberry Alliance member Mark M.

Good investing,

Dan Ferris
Vancouver, Washington
May 15, 2020