Three responses to a reader's big-picture concerns

Amid the constant fearmongering and doom and gloom in the media, being overall optimistic on stocks and the U.S. economy is bound to raise some eyebrows...

But if you've followed along with me for the past couple years, starting at the 2022 market bottom, you'll know that's how I've felt. In particular, I have regularly used the word "constructive" to describe my outlook.

That said, I haven't been surprised to see an uptick in a tone of concern in the feedback e-mails I receive from readers – particularly as the election approached.

For example, just before the election, a longtime reader named Jim B. sent me a thoughtful e-mail expressing concerns that I would expect many other readers also have, so I'd like to share it and my response. As Jim wrote:

I'm a Stansberry subscriber, have subscribed to your work, and also Porter and Co. My wife and I have recently retired with enough capital for a comfortable middle-class life for our projected future, according to our long-time, value-oriented financial advisors at UBS.

All of this is based on "business-as-usual" thinking: "markets will correct and maybe go down significantly, but they always bounce back." "Don't bet against the market." "Don't fight the [Federal Reserve]."

But our financial security and comfort will be significantly and adversely affected if there's a 40-50% market decline, especially if it's followed by years of a flat market, let alone evaporating dividends. (We don't have pensions.)

Jim then laid out why he thinks this scenario is very possible – even likely:

I believe there is a high and relatively imminent risk (within 90 days or up to five years) for such a major global disaster. My question, which our financial advisors have no answer for is:

What do we do when we suspect we are close to a major meltdown – of 1929 magnitude?

I've been studying the polycrisis / metacrisis for six years. I don't agree with Porter's ideology, but I do agree with his current assessment – for some of the reasons he does, but also because we are in global, human, spiritual, cultural, AND economic crises. To say nothing about our ecological reality.

And as he continued:

Our primary systems are so complex they can't be "managed," which is the modus operandi of our primary institutions. At best we must learn how to live through our predicament. (Having apparently learned nothing from our COVID experience.)

All of these systems are in inter-connected and inter-dependent. They are all in advanced and accelerating states of decline. Complex systems become highly unstable under these conditions. Relatively minor incidents can trigger a cascade of events impacting ALL systems.

Unlike the '08 banking crisis and the 2020 COVID crisis which were "manageable" and people regained confidence relatively quickly, the crisis I want to prepare for will be deeper and longer. Currently, confidence and trust – in institutions and fellow citizens – is already very low.

Buying gold and Bitcoin I don't see as an "all in" strategy (we own some of each category, but for business as usual diversity reasons). I agree with Porter, cash seems to be a big devaluation risk.

Really looking forward to your thoughts. I suspect we're not alone with this question.

It's a thoughtful question, Jim – thank you.

Before I answer, I want to add a couple of data points that relate to your concerns...

The first is the federal budget deficit, which has widened dramatically (some would say alarmingly) over the past decade. You can see this in the chart below from Creative Planning's Charlie Bilello in one of his recent Week in Charts blog posts:

Somewhat related is the Fed's balance sheet. This has also ballooned in the past 15 years (though it has pulled back a bit in the past couple years), as you can see in this next chart from Bilello from another recent Week in Charts post:

I have three general answers/pieces of advice to Jim (and other readers who share his concerns)...

First, I'll repeat what I wrote in my November 14 e-mail:

I've told my readers dozens of times that it's almost always best to ignore the ever-present gloom-and-doomers who confidently predict that the market is about to crash...

So I loved the chart below that I've recently seen making the rounds again (it was posted by Yale's Steven Kelly last year on the social platform X).

It shows how much investors would have lost from 2010 to late 2020 had they sold the S&P 500 Index and switched into bonds, following the advice of 11 different prognosticators (the numbers would of course be even worse through today, given that the S&P is up 67% since the end date on the chart):

The bearish arguments are so intellectually appealing and emotionally triggering – and there's certainly a time and place for them. (Nothing goes up in a straight line forever, after all!) But I would estimate that the vast majority of the time, it's a big mistake to act on them.

Second, as I've said many times before... Don't bet against America!

We live in a great country and our economy is doing remarkably well – especially when compared to our economic peers. On October 23, I gave a 25-slide presentation at the Stansberry Research annual conference in Las Vegas showing the data behind my argument – you can see those slides right here. For my commentary, see my October 30 and October 31 e-mails.

Third, while I remain constructive on stocks, for someone like Jim, "with enough capital for a comfortable middle-class life for our projected future," my most important message is that you don't need to take a lot of risk.

As I've explained in many prior e-mails, though I don't think stocks are in bubble territory, the S&P 500 is in the top 10% of its long-term valuation range... which historically has meant that the average annual real return over the following decade has tended to be modest – often ranging between zero and 4%.

I tend to be an optimist (oddly perhaps, for a value guy!). So if I were forced to guess, I think the S&P 500, with dividends reinvested, will compound at 4% annually over the next decade.

Well, heck, right now you can buy the world's safest instrument – a U.S. Treasury – and get a guaranteed yield of more than 4.1% for the next 10 years.

I obviously don't know everyone's specific financial situation – and I can't give personalized financial advice, anyway. But a good idea for older folks who are fortunate enough to have enough money saved and/or have income streams from Social Security, a pension, or annuity that allow them to live happily ever after if they earn 4% on their money, is to park as much of it in cash as needed to sleep soundly at night.

This, of course, raises the question: Why not put every penny into cash?

The main risk is if inflation takes off, which is obviously possible... but I think unlikely. If it goes back to 9%, which is where it was as recently as June 2022, folks who own 100% longer-term bonds yielding only 4% will be very unhappy – and maybe even get in financial trouble.

On the other hand, stocks might do better because companies – at least the good ones – can raise prices and therefore continue to grow their profits (and their stocks).

Put simply, over the long term, stocks tend to outpace inflation because they represent ownership in dynamic companies – a business can do different things to adjust prices, increase revenues, and maintain profit margins.

As I and my colleagues here at Stansberry have consistently said, stocks of high-quality companies are incredible drivers of long-term wealth.

Again, thanks for the great question, Jim... and I hope I've given you and my other readers some food for thought.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.