A Change in the Market No One Seems to Have Noticed

A change in the market no one seems to have noticed... A weaker dollar is coming... Emerging markets quietly moving higher...

It's the bull market nobody's noticed...

The few subscribers diligent enough to read every Friday Digest – even the Friday Digest published before this long holiday weekend – are about to be rewarded for their dedication. You see, a huge bull market has begun in a sector that has been left for dead. And nobody is paying attention... yet.

Where's the 'crowd' in today's stock market?

The most popular recent winning trade is the so-called "FANG" stocks – Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) – and other similar technology and media plays.

Today's market is very reminiscent of the big tech and telecom boom of the late 1990s. Instead of worthless dot-com companies, today's debt bubble is pushing up worthless "virtual currencies" – hundreds of them. The outcome will be the same, trust me.

Most investors buying the FANG stocks for the first time today and those buying virtual currencies are going to take a beating. Just like folks who piled into tech stocks in 1999... and just like folks who piled into real estate and commodities in 2007.

Investing late isn't smart. Investing late into what's wildly popular is deadly.

No, I don't have a crystal ball...

I can't tell you when the punishment will start. But I can tell you how it will finish. The leading names will fall more than 50%. And the fringe stuff will go down 90% or more. Most of those virtual currencies will end up being the punch line to a bad joke. Or they will be completely forgotten in less than five years.

And here's something else that's remarkably similar to the market action I last saw in the early 2000s... Gold is suddenly outperforming stocks, and commodities have rallied, too.

And nobody – and I mean nobody – is paying attention.

Since the end of 2015, when the credit markets contracted and Glencore (the world's biggest commodity-trading firm) almost went bankrupt, the world's big commodity businesses have been grinding higher and higher.

Specifically, gold is up 14% this year. This year will probably be the first time since 2011 that gold outperforms stocks.

But that's not the most important move...

The real foundation of the world's commodity markets is copper... The metal goes into everything that the modern world needs. Copper is up more than 50% from its lows in late 2015. And nobody has noticed yet.

The resulting returns in commodity-based stocks and commodities have dwarfed the stock market. Since the end of 2015 the S&P 500 is up 20%. Glencore (GLEN.L) is up 254%. Freeport-McMoRan (FCX), the copper giant, is up 115%. Rio Tinto (RIO), one of the largest commodity producers in the world with huge iron ore production, is up 66%. That's three times more than stocks over the last 18 months in a huge, low-return producer of Stone Age commodities.

Here's another way to see how quiet the bull market in commodities has been...

Glencore has outperformed ALL of the FANG stocks over the last two full years.

Glencore: 180%
Facebook: 95%
Amazon: 94%
Netflix: 72%
Google: 55%

Another sign of a new bull market in commodities: Russia and Brazil's stock markets are booming...

Russia is up almost 50%. And Brazil is up 70%. These economies are largely driven by commodity prices. Even with oil prices continuing to be depressed, their stock markets are still booming. But nobody is talking about these trends. And virtually zero "big name" investors have bought, yet.

Not a single notable hedge-fund manager owns Glencore or Rio Tinto. The only well-known investors who owns Freeport-McMoRan is Carl Icahn – who, ironically, became interested in the company because of its oil assets, which have weighed heavily on the company's balance sheet. Nobody is buying Russia or Brazil right now, either.

Do yourself a favor...

If you don't own any commodity-related companies right now... sell off 50% of your exposure to U.S. technology and any of the big highfliers you've got. Reallocate 20%-30% of your portfolio into this emerging commodity bull market. Buy only the highest-quality names – like Franco-Nevada (FNV) for gold, Freeport-McMoRan for copper, and Glencore for base metals. Don't forget to add some of the new critical commodities, too, like lithium. (SQM is the big producer.)

The only commodity I'd make sure to avoid right now is oil. There's just too big of a glut as U.S. production and reserves continues to increase at historic rates.

If my colleague Steve Sjuggerud is right and this bull market continues to head higher, investors in these commodity plays will be the surprising winners. These stocks are a smart way to add a lot of "alpha" – that's return in excess of the market's return – to your portfolio today, without taking on the risks of investing "with the herd."

One more thing... don't tell anyone...

The longer this bull market stays quiet, the better for us.

New 52-week highs (as of 8/31/17): Apple (AAPL), AbbVie (ABBV), Aflac (AFL), ProShares Ultra Nasdaq Biotechnology Fund (BIB), iShares MSCI BRIC Fund (BKF), Bristol-Myers Squibb (BMY), Berkshire Hathaway (BRK-B), Celgene (CELG), WisdomTree Emerging Markets High Dividend Fund (DEM), Euronet Worldwide (EEFT), First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS), iShares Nasdaq Biotechnology Fund (IBB), PureFunds ISE Mobile Payments Fund (IPAY), iShares U.S. Aerospace and Defense Fund (ITA), iPath Bloomberg Copper Subindex Total Return Fund (JJC), KraneShares E China Commercial Paper Fund (KCNY), McDonald's (MCD), iShares MSCI China Index Fund (MCHI), Microsoft (MSFT), iShares MSCI Global Metals & Mining Producers Fund (PICK), ProShares Ultra Technology Fund (ROM), ProShares Ultra Health Care Fund (RXL), ALPS Medical Breakthroughs Fund (SBIO), Shopify (SHOP), Guggenheim China Real Estate Fund (TAO), Verisign (VRSN), and short position in Brinker International (EAT).

In today's mailbag, a longtime subscriber writes in for the first time... and another inquires about our recent fishing contest. Send your notes to feedback@stansberryresearch.com.

"Dear Porter, I have been a loyal paid-up subscriber to several of your services over the past several years. While I have tested some of the higher-end products, they never seemed right to me and I've stuck with 3-4 of your more entry-[level] newsletters.

"I do not mind the aggressive and creative marketing that you employ at Stansberry. While others may complain, they are weak minded and do not understand business. You need to sell subscriptions and grow your user base in order to continue re-investing in your products. I get that and appreciate that you are constantly innovating and trying new things, both on the product and marketing side of the business.

"If people cannot listen to your marketing and simply ignore it or say no if not interested, then they really don't have the discipline to be a good investor anyway, and you are better off chasing them away with your advertising tactics than risk them suing you for losing money when they cannot follow your instructions about risk management and position sizing.

"What spurred me to write today is a recent offer that I received for your Stansberry's Investment Advisory product. It has been on my radar for a while now since I read a few issues during your Flex Account Open House several years ago. The price was always just a little too high for me to consider, until you sent me an offer the other day that I couldn't refuse.

"I was very happy to sign up for a 2 year introductory subscription to SIA at an extremely fair price (actually probably unfair to you, but very fair to me the customer). But what really blew me away was that as part of that subscription you also sent me, totally unexpectedly, a free 60 day trial to Dr. Smith's TradeStops premium product. I have been intrigued by the marketing behind that product for some time now, and the fact that you unexpectedly gave me a free trial as part of signing up for SIA was really amazing.

"This is the kind of customer service that you should be proud of. I do not know if I will stick with the TradeStops program after my 60 day trial, but I will tell you what – there was 0% chance that I signed up for TradeStops without the free trial, and now that percentage has definitely gone up.

"Thank you for everything that you do at Stansberry, I appreciate all the views and teachings that you put out there. And the entertainment factor makes it fun and something that I would not want to give up.

"Consider me a very satisfied and happy customer and just wanted to let you know that you're doing a great job. Regards." – Paid-up subscriber A.G.

Porter comment: My pleasure! Thank you for your business and your trust. I don't take it for granted...

"Porter, I saw lots of hype about your entry into the White Marlin Open, but I don't recall seeing anything about what your results were?" – Paid-up subscriber Don Smallwood

Porter comment: We did pretty well, Don. We caught a qualifying tuna, which got us back to the weigh station for the fifth time in three tournaments. Didn't finish in the money, though...

Regards,

Porter Stansberry
Baltimore, Maryland
September 1, 2017