A 17-Year Extreme in Gold

A remarkable milestone for U.S. stocks... A new record for the S&P 500... A 17-year extreme in gold... More signs of a bottom in precious metals... Big news: A brand-new World Dominator is 'on sale' today...

Get ready to break out the champagne...

The bull market in U.S. stocks is about to pass a remarkable milestone.

Tomorrow will mark 3,453 days since the benchmark S&P 500 Index hit its last bear market low at 666 on March 9, 2009. By most counts, this will be one day longer than the 3,452-day rally from October 1990 through March 2000, officially making this longest-running bull market in U.S. history.

We say "most" because the 1990 bear market fell 19.92%, which is just shy of the 20% peak to trough loss that officially defines a bear market. While most market historians "round up," those who disagree place the start of that bull market three years earlier, in December 1987. By that count, the 1990s bull market would stretch to a mind-boggling 4,494 days.

Regardless, this bull market still has some catching up to do by another measure...

The S&P 500 would need to rally another 20% to nearly 3,500 to surpass the 1990s bull market's 417% total return as the best-performing in history.

Of course, if our colleague Steve Sjuggerud is correct about the "Melt Up," that's not out of the question. In fact, as we write, the S&P 500 has just joined several other notable indexes – including the tech-heavy Nasdaq Composite Index, the small-cap Russell 2000 Index, and the Dow Jones Transportation Index, among others – at a new all-time record above its January high.

Only the Dow Jones Industrial Average has yet to do so. The Dow is currently about 735 points, or a hair less than 3%, from a new all-time high, as of midday trading today.

Elsewhere in the market, the evidence for a significant bottom in precious metals continues to mount...

Earlier this month, we noted that sentiment – as represented by the weekly Commitments of Traders ("COT") report – had become incredibly bearish. As we wrote in the August 7 Digest...

Both large speculators and money managers – both of which tend to be wrong at extremes – are currently as bearish as they've been in decades.

Money managers are currently holding the largest net-short position on record... surpassing the previous record set in December 2015, just before the four-year precious metals bear market ended.

Meanwhile, large speculators – who rarely hold a net short position in gold – are holding their second-smallest net long position in decades. The only time their net long position was smaller? You guessed it, December 2015.

Since then, these extremes have only grown even more extreme...

According to the latest COT report published Thursday, large speculators have now gone net short gold for the first time since December 2001, just before gold began a 10-year, 600%-plus bull market.

In addition, commercial traders are now holding their smallest net-short position since late 2001. Unlike speculators, these folks are generally considered the "smart money." They use the futures markets to "hedge" their business exposure to price fluctuations, rather than to bet on higher or lower prices.

As a result, these traders tend to hold a significant net short position most of the time. When they don't, it means they're unusually confident prices will move higher (or at least are unlikely to fall much further)... And history shows they're usually right.

But these aren't the only extremes we're following today...

Yesterday, we learned that investors have been dumping gold-backed exchange-traded funds ("ETFs") like there's no tomorrow. As Bloomberg reported...

Gold is hitting new milestones of misery.

Exchange-traded funds tracking the metal have bled assets for 13 consecutive weeks, the longest run in five years, investors have placed the biggest gold short on record, and bullion's chief foe – a strong dollar – is extending its market grip.

"The long suffering holders of ETFs have finally given up hope of the yellow metal returning to its former glories and have decided there is better protection in the dollar, the stock market and pretty much anything other than gold," David Govett, head of precious metals at Marex Spectron, said by email. "I can only say that gold, as a safe haven, has been a massive disappointment this year."

Unlike future contracts, ETFs are widely held by individual investors. And this is the exactly the type of capitulation we'd expect to see from the general public near a significant bottom.

As regular Digest readers know, our colleague Steve Sjuggerud agrees...

In fact, as he explained in this morning's edition of our free DailyWealth e-letter, the article itself could be a great contrarian indicator...

"Gold Investors 'Give Up Hope' as Biggest Short in History Builds," Bloomberg news reported yesterday... The first sentence in the article was, "Gold is hitting new milestones of misery." I LOVE to see this...

Being a contrarian investor does NOT mean you always do the opposite of what "the crowd" is doing – at least, not if you want to make money. Always going against the crowd doesn't work.

Instead, before you can even consider going against the crowd, you have to wait for the crowd to reach an extreme position. "The crowd is wrong at extremes, and right in between," they say.

I don't know where this phrase comes from... But I heard it more than 25 years ago, when I first became an investment professional. And it's proven to be right countless times. It is the main rule of contrarian investing.

But Steve also reminded readers that extreme sentiment alone is typically not enough for him to recommend a contrarian trade...

I don't just buy BECAUSE something is extremely hated.

I did that early in my career, and I got burned. Investments that seemed extremely hated would fool me. They would go on to be even more hated... And I would lose money. So I started doing something different.

Now, I wait for confirmation on my idea. I look for the trend. If something reaches the point where it's hated, I wait for the uptrend before going in.

Yes, I know... I will never get credit for calling the bottom to the day. And yes, I will miss out on the first few percentage-point gains off the bottom. But I won't get stuck on a sinking ship.

In that same August 7 Digest, Steve noted that we were approaching a 'back up the truck' moment in precious metals...

That remains the case today. But he's still waiting for one final signal to get back in: the start of an uptrend. As he explained in this morning's DailyWealth...

If you are a contrarian, this might look like the moment you've been waiting for... Gold is extremely hated. Except, my friend, we don't have the start of an uptrend yet. So I can't go in and buy like I want to – yet.

The bottom could be here today... Or gold could get even more hated. We won't know until the uptrend returns. By not buying today, could I miss out on getting in at the bottom? Yes. But I am OK with that.

Gold is incredibly hated. It is at the point that contrarians love. When extreme moves like this are exhausted on the downside, huge gains can follow on the upside. To take advantage of it with less risk, wait for the uptrend, and then buy. We are not there yet.

Switching gears, our colleague Dan Ferris just shared some big news with his Extreme Value subscribers...

In short, for the first time in years, he is recommending shares of a brand-new "World Dominator."

Longtime readers are no doubt familiar with the term, which Dan coined back in 2005. These are the No. 1 companies in their industries. They're run by world-class management teams... reward shareholders in the form of big, growing dividends and share buybacks... gush free cash flow... maintain pristine balance sheets... and more.

Dan's track record of identifying World Dominators at attractive prices has rightfully earned him a loyal following...

One of these companies – alcohol titan Constellation Brands (STZ) – holds the No. 4 spot in the Stansberry Research Hall of Fame, published at the bottom of every Digest.

Another – payroll processor Automatic Data Processing (ADP) – is currently the best-performing open recommendation across all Stansberry Research publications, up 406% as of yesterday's close.

In total, the World Dominators Dan has recommended over the years have generated an average annualized return of about 15%. That's more than double the S&P 500's 6.6% average return over the same time period.

Of course, the only problem is that these companies are relatively rare...

And thanks to the nine-year bull market, the vast majority of World Dominators that Dan has identified have long become too expensive to recommend to new investors.

But recently, Dan found an exception. You see, the company he recommended in the August issue of Extreme Value recently went "on sale." Shares hit a multiyear low earlier this summer.

That's enough to scare most investors away. But as Dan explained, therein lies the opportunity.

We've been watching the business since earlier this year. Its share price has declined recently on a string of bad news. For many stocks, that's the kiss of death. But not for a World Dominator like this.

The recent sell-off is overblown. It simply allows us a golden opportunity to buy into a name-brand company with excellent growth potential, a stellar capital-return program, and a product that many of us interact with every single day.

Even with a conservative valuation model, we could easily see 40%-50% upside from this stock in the next couple years.

As Dan noted, the biggest growth opportunity for this World Dominator comes from abroad...

This company currently does the vast majority of its business in the U.S. But a recent partnership with one of the major players in China's "new economy" could add a significant boost to the company's bottom line, ultimately providing "stronger digital engagement, driving customer loyalty, and leading the company back to positive same-store sales growth."

Best of all, Dan expects the firm to buy back more than 20% of its outstanding shares within the next two years... an incredibly aggressive move for a blue-chip company.

Ultimately, Dan expects investors to make between 10% and 20% returns per year over the next four or so years...

As he explained...

This could be a fantastic opportunity to pick up a World Dominating brand name just prior to a reinvigoration of growth.

It's either a good opportunity to earn a nice return for a few years, or an insanely great opportunity to compound your money at high rates for the better part of a decade. Either outcome is acceptable, and we take very little risk in recommending the stock at current prices.

This would be a noteworthy recommendation in any market environment. But it's even more impressive considering that Dan believes most stocks are priced for low, single-digit or even negative returns over the next several years.

But we should also note that this isn't the only opportunity Dan is incredibly excited about today...

He also recently went on record to say that he expects a different stock he recommended earlier this year to become the first 20-bagger in Stansberry Research history. If he's right, that would turn every $5,000 investment into nearly $105,000.

In fact, he says he would bet every penny he owns that this recommendation will become the top Stansberry Research recommendation of all time. So it's no surprise that he's calling this "the No. 1 stock recommendation I've made in my 20-year career."

If you know Dan like we do, you know he's as conservative an investor as they come. He doesn't "do" hype... and he wouldn't make a claim like this if he didn't truly believe it.

But don't take our word for it... Dan put together a brief presentation explaining all the details. If you're interested, please don't delay... This presentation will go offline tomorrow at midnight Eastern time. Simply click here to see it now.

New 52-week highs (as of 8/20/18): Blackstone (BX), Blackstone Mortgage Trust (BXMT), Eaton Vance Enhanced Equity Income Fund (EOI), Fidelity Select Medical Technology and Devices Portfolio (FSMEX), Ingersoll Rand (IR), iShares U.S. Aerospace and Defense Fund (ITA), ProShares Ultra Health Care Fund (RXL), SPDR S&P Dividend Fund (SDY), and Sysco (SYY).

In today's mailbag, more great feedback on Doc's Friday Digest essay... and two readers weigh in on yesterday's issue. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com.

"Thanks Doc for asking about 'our story.' Parents taught us wisdom about money, their formula was Give, Save, Pay Debts... if anything was left Add to Savings.

"My Dad and Mom were born in 1907 and 09 respectively and went through hard times on the Kansas, Oklahoma and Texas Prairie's as they migrated looking for better jobs. The [Permian] Basin in West Texas would provide excellent, well paying jobs for generations of our family to come.

"Born in 1943, I grew up in the Oil Patch where jobs were plentiful. Had odd jobs before I was ten and began building my account at our local Credit Union. Paid my way through College, graduating with Zero Debt and a 3.5/4.0 GPA which got me an attractive offer from a Fortune 500 company in Chicago, a thousand miles from home.

"My rules for Wealth Building were these:

1) Kept a detailed Budget so we always knew where we stood financially. 2) As income rose we kept same standard of living and increased savings/investments. 3) Eight years in became the Company's #1 Sales Rep with $250K in commissions. Yes the Dale Carnegie Course helped. 4) Invested 50% of income in Growth & Dividend Stocks and Real Estate. 5) Learned basic Puts and Calls from my Broker, doing at least one trade per week, until premium matched my annual commission income. This allowed me to quit work if I wanted to. 6) Networth exceeded $1 million before age 30. 7) Retired and returned to Texas at age 44 with liquid investments of $7.2MM, not including Real Estate. 8). Have not changed the formula my parents gave me of Give, Save, Pay Debts and Invest. 9). Taught my 2 Sons and their wives and my Grandchildren the same formula my Parents taught me. 10). Became a Registered Investment Advisor and ran my Financial Services Firm for 20 years. Retired for the second time ten years ago. My Daughter in Law now runs the Firm.

"Thank God everyday for my Parents who taught me how to manage money. Blessings to you Doc." – Paid-up subscriber Ron S.

"Would you please send Monday's Digest [about Venezuela] to Alexandria Ocasio Cortez?" – Paid-up subscriber Richard C.

"Gentlemen, in [yesterday's] Stansberry Digest, you reported we are getting closer to the point where you may issue a warning for your subscribers to get out of stocks. My question is, do you mean for us to get out of all of our stocks or just certain stocks. I have invested in some China Opportunities recommended by Dr. Steve Sjuggerud and some Extreme Value recommendations by Dan Ferris. I am new at this and am unsure of how to proceed if I receive your warning. Any clarification you can share with us would be appreciated. Thank you." – Paid-up Fred L.

Brill comment: Not exactly, Fred. While we believe yield curve inversion is a major "get out" warning for stocks, we don't consider it an immediate sell signal. As we've discussed, it's a leading indicator that has historically given us between six and 18 months warning before the real trouble arrives.

So rather than sell stocks immediately when this signal occurs, we simply recommend becoming more cautious. As always, we're unable to give individual investment advice. But generally speaking, this means following your stops closely, raising cash as you stop out, and becoming much more selective with any new investments you make.

Regards,

Justin Brill Baltimore, Maryland August 21, 2018