A Few Lessons in Bear Market Survival
Live from Boston... Marc Chaikin's market wisdom... A few lessons in bear market survival... Handicapping the market's next move... 'The markets are high on hopium'... Why the world is not ending...
Day Two of our Stansberry Conference just wrapped up...
And it marked another full, thought-provoking schedule here at the Encore Boston Harbor hotel and resort. More than a dozen speakers talked about everything from the future of the metaverse and cryptos to geopolitical forecasting and short-term trading strategies.
Frankly, there was a lot to take in and hours of great information and insight we could highlight today. But I (Corey McLaughlin) want to focus on just one point – bear market survival.
It came up first thing this morning from someone we could listen to about markets all day long...
That's Marc Chaikin, founder of our corporate affiliate Chaikin Analytics. He has worked in the markets for more than 50 years, with some of the biggest names on Wall Street. He has developed tools that are available on every Bloomberg Terminal in the world today.
And for the last decade or so, he has run his own business and developed tools for everyday investors.
In short, when Marc talks, I listen. And when he took the stage bright and early at 8 a.m., he once again delivered a generous helping of timeless market wisdom.
Marc walked attendees through the tool he created, the Power Gauge, and how folks can use it to find buying opportunities and avoid big losers. But as he put it, he wasn't speaking to sell anything, but primarily to educate... and that he did.
A few lessons in bear market survival...
If you're new to this bear market thing and still have big questions about how to navigate one, few folks out there are better to take guidance from. Marc has been there, done that. As he said on stage today...
I've survived nine bear markets. This is my 10th. And we're still standing.
Included in that simple statement is, really, the first lesson of bear markets... Survive them. As Marc said, you have to protect your capital above all else. And he does that by adhering to stop losses and following the signals his Power Gauge gives him.
This powerful tool blends a variety of indicators and information – stuff Marc picked up during his Wall Street career – into one simple "bullish" or "bearish" rating. You can easily apply that rating to tens of thousands of stocks and exchange-traded funds.
Without giving too much away in fairness to Marc's paying subscribers, I can tell you the Power Gauge rating is a blend of about 85% fundamental analysis (like earnings metrics) and 15% technical analysis (like moving averages).
This is for a deliberate reason, and it's Marc's second bear market survival lesson...
My mantra from the first bear market that I saw in 1969 was that fundamentals drive the market, but emotions drive the market to extremes. For me, for over 50 years on Wall Street, the path to profits has always been to combine fundamentals with technicals.
Some of the most successful advisers have adopted that approach. They may not talk about the technical side because they want you to think they're straight down-the-middle fundamentalists. But anybody who has survived a bear market has looked at technical analysis and incorporated that into the process.
Along with having this plan in place, Marc's now analyzing how much longer today's bear market may last...
Handicapping the market's next move...
Since 1945, there have been eight drawdowns in the S&P 500 Index of between 20% and 40%, lasting on average 12 months with an average loss of 27%... and averaging 15 months to get back to new highs. We've been in the ballpark of this "regular" bear market lately.
But like a lot of folks, the question on Marc's mind is, "Will things get worse?"
As he pointed out to attendees, U.S. stocks have also endured three larger and longer bear markets in the past 77 years. In these cases, the S&P 500 dropped 51% on average over 23 months... and took roughly five years to recover. As he said...
The question I'm asking every day is: Are we in that sweet spot of eight bear markets that averaged a 27% decline, or are we in that ugly period like we were in 2000, or 1973 or 1974, and 2008, where the market takes a bigger hit?
There's really no way to know, but there are some guideposts that we can look at along the way.
One of those guideposts is a market phenomenon we've mentioned before in the Digest – capitulation. In other words, when it seems like everyone is giving up, that's a sign of a bottom. Marc said we haven't seen this yet...
Could this bear market end without capitulation? Sure. Is that likely? I don't think so.
The second guidepost is another common topic here... the Federal Reserve. Marc pointed out that every bear market since 1955 has ended only when the central bank lowered interest rates. So far, Fed officials have only suggested they will pause hikes in 2023.
That's an important distinction, as Marc pointed out...
The markets are high on hopium. They're hoping the Fed will take their foot off the brake.
He's seen this story before...
Be patient, Marc said. Rallies within long bear markets are common...
And, eventually, the trend will turn. For example, on the bullish end of things, he shared a stat that tracks market bottoms that hit during midterm-election years. Since 1908, "you get a rally of between 30% and 50%," he said. "The question is from what level?"
Our main takeaway from Marc's analysis is that you shouldn't spend time trying to nail the market bottom to the day. If a trend changes, it will be clear soon enough... and his Power Gauge system is identifying bullish and bearish stocks and sectors all the time anyway, presenting opportunities to buy or warnings to sell.
To learn more and hear all of Marc's presentation – and get access to all of the action from the conference here in Boston – grab a livestream ticket. This package includes recordings of all of our speakers for 60 days, meaning you can watch them even if you missed them the first time... and as many times as you want.
Today's lineup covered a wide variety of topics...
As I mentioned earlier, the metaverse was part of the discussion. Matthew Ball, CEO of venture-capital firm Epyllion, delivered a crash course on the innovations in that space and where it could be headed.
Eric Wade, our Crypto Capital editor, followed and updated folks on the state of cryptocurrencies... including a telling statistic showing that despite bitcoin's sell-off over the past years, the number of bitcoin addresses has actually increased over the same span.
Later, Marko Papic, chief strategist of Clocktower Group and a geopolitical-risk expert, talked about "how the world is not ending," which he noted is a contrarian take today. That was his point...
Just because there's risks out there doesn't mean you should be bearish. Be wary of anyone who tells you geopolitics is the reason you should not be in this market.
First, he said geopolitical conflicts can actually create actionable investing opportunities. For instance, certain commodities might be taken off the market in one country, or one company in one country might benefit from a foreign competitor's misfortunes.
Moreover, Marko disputed the popular opinion today that the world is becoming "bipolar," or the U.S. versus China, or the West versus the rest. He doesn't think China is capable of making it happen for a variety of reasons, including...
China depends on the goodwill of the rest of the world to keep buying their stuff.
And Marko also offered his take on the war in Ukraine, saying it is "entering stasis."
It's not going to get better, he said, and it's not going to get worse. And he thinks Russian President Vladimir Putin needs to wrap up the war soon because it has become increasingly unpopular at home.
Tonight, we're looking forward to a special presentation from Colonel Jonathan Shaffner, who works out of the Pentagon.
Tomorrow we close out the conference...
We have several panels of Stansberry editors lined up on growth, value, and macro investments.
And attendees will hear from Empire Financial Research founder Whitney Tilson, bestselling author William Cohan, and former Fed official Andrew Huszar, who is a self-described "confessing quantitative easer."
Sounds like our kind of guy.
The Fed Is Paving a Path of Destruction
Hugh Hendry, founding partner of hedge fund Eclectica Asset Management, sat down with our editor-at-large Daniela Cambone for an exclusive interview here in Boston. In it, Hendry shared several big warnings for the economy ahead...
Click here to watch this episode of the Daniela Cambone Show right now. And to catch all of the videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 10/24/22): AutoZone (AZO), Covenant Logistics (CVLG), Freehold Royalties (FRU.TO), Huntington Ingalls Industries (HII), Humana (HUM), Northrop Grumman (NOC), O'Reilly Automotive (ORLY), Schlumberger (SLB), Texas Pacific Land (TPL), and ExxonMobil (XOM).
In today's mailbag, feedback on yesterday's report on the first day of the Stansberry Conference... and messages for our Ten Stock Trader editor Greg Diamond, who said in his Weekly Market Outlook yesterday for paid subscribers and Alliance members that he has gotten bullish. We'll have some more on that in the Digest later this week... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Scott Galloway almost got it right with his simple definition of a metaverse as 'a 3D rendering of the World Wide Web.' A metaverse is really 'a 4D rendering of the World Wide Web' where time is the missing 4th dimension." – Stansberry Alliance member Nick A.
"Greg, Your admission of purposely avoiding social internet sites [in Monday's Weekly Market Outlook in Ten Stock Trader] explains why I've migrated to your letters more frequently. You say what you think, recommend actions without lengthy reasoning and produce results without elaborating on the successes. I can read yours in less than three minutes and act or not act without wading through the muddy reasoning you probably struggle with before writing your brief letters.
"Thank you for producing commendable success and saving my time." – Stansberry Alliance member Wayne S.
"Greg, I would love to be with you and become bullish, but three things are preventing me from siding with you that this bear market is over:
"1. The consumer is broke and piling up credit card debt like crazy
"2. Financials aside, most companies are entering an earnings recession with no visibility where any earnings growth are actually going to come from
"3. The Fed isn't letting the rate rises run through the economy, it is still raising rates with no intention of stopping
"Until these three things change, in my opinion, the market hasn't come close to bottoming. So while my heart is with you, my head is with Dan Ferris." – Stansberry Alliance member Alan K.
All the best,
Corey McLaughlin
Boston, Massachusetts
October 25, 2022