A Major Rally Could Be Starting Now

One of the world's most important assets is breaking out... Why the U.S. dollar could be headed even higher... Crude oil is back above $50... Steve Sjuggerud: A major rally could be starting now... How to make triple-digit gains in oil today... P.J. O'Rourke on the bright side of the 2016 presidential election...

The U.S. dollar is breaking out...

The dollar has been on a tear. As you can see in the following chart, the U.S. Dollar Index hit a fresh six-month high yesterday...

It's now up more than 5% from its 52-week low, and more than 2% this month alone. This is a large move for a major currency. But there could be much more upside ahead...

As our colleague Ben Morris explained earlier this week in our free Growth Stock Wire e-letter, the dollar appears to be "breaking out" of a longer-term pattern.

The next chart shows the dollar over the past two years. In this chart, you can see that the dollar has been bouncing around in a narrowing range since late November. Chart readers call this narrowing range a "wedge"...

When an asset breaks out of a wedge, it usually does so in a big way.

As Ben noted, a confirmed breakout could send the dollar significantly higher. This would be a big headwind for precious metals and other commodities. And – as we discussed yesterday – it would be one more reason to believe the correction in gold and silver has a bit further to run.

Ben agrees. He expects gold and silver to fall to their long-term "support" levels near $1,200 per ounce and $16 per ounce, respectively. But he also thinks this could offer a fantastic, low-risk buying opportunity...

If that happens, it will likely be a good time to add to gold and silver positions. You can use a relatively tight stop when an asset trades near strong support. If it continues falling, you sell for a small loss. If it holds support and rises, you profit.

If gold and silver break through their support levels, you'll likely want to wait for strength before adding exposure. And as always, follow your stop losses.

If the dollar continues to rise and gold and silver don't fall, it will be an impressive sign of strength. It will likely mean that the correction is over for the metals. Again, it will signal a good time to add to gold and silver positions (if you want more exposure).

Finally, if the dollar comes back down into its wedge and breaks down, we'll reassess the markets. It would be bullish for gold and silver. For now, though, the best move is to wait and see.

Crude oil jumps back above $50...

One commodity that has defied the recent dollar rally is oil.

Late last week, West Texas Intermediate ("WTI") crude – the U.S. benchmark for oil prices – moved back above $50 per barrel for the first time since early summer. The rally followed yet another round of rumors that members of the Organization of Petroleum Exporting Countries (OPEC) are closing in on a deal to cut production.

Earlier this week, WTI jumped again after Russian president Vladimir Putin said his country – currently the world's largest oil producer – was willing to join the production cuts, too. As Putin told an energy conference in Istanbul on Monday, courtesy of the Wall Street Journal, "We believe freezing or even reducing oil production is the only way to save the stability of the energy sector."

Of course, much like OPEC, what Russia says and what Russia does are often much different...

The Journal notes that Russia failed to keep similar promises to cut its production following the September 11 terrorist attacks in 2001 and the 2008 financial crisis.

More important, Putin may not be able to afford to cut production even if he wanted to... Oil and gas exports account for about 40% of the government's revenue.

And already there are signs Putin is hedging his earlier comments...

In a speech yesterday, he spoke only of a production freeze, not a production cut. He also expressed doubt that the agreement would hold. As the Journal reported last night...

"If the OPEC countries manage to agree among themselves about a production freeze, we will join in that decision," Mr. Putin said at an investor conference in Moscow. "The only problem as of today is an agreement between countries, and it is no secret that that is between Iran and Saudi Arabia."

Regular readers know we've been skeptical. As we discussed in the September 29 Digest, just after the latest deal was announced, there are a few important things to keep in mind...

First, while OPEC members have technically agreed to make cuts, they won't be meeting to discuss how they'll actually do this until later this year... In other words, they haven't actually agreed to any specifics yet... and history suggests these negotiations will be contentious.

Second, even if the agreement holds, the size of the proposed cuts (200,000 to 700,000 barrels per day) may be too small to have much of an effect on prices in the near term.

Finally, it's important to remember OPEC only accounts for a little more than one-third of global oil production. Even if it can successfully cut output and push prices higher, other major producers may step up their output to take advantage.

On Wednesday, OPEC reported that its total oil production rose in September to an eight-year high of 33.4 million barrels per day, up from August's 33.2 million barrels per day.

In other words, despite supposedly coming to an agreement to reduce their production from August's lofty levels, OPEC members produced even more in September. And the increase last month is nearly as much as the minimum cuts they promised in August.

We remain skeptical that they will reach any significant deal. Of course, that doesn't mean oil prices are certain to decline from here.

You see, despite the rhetoric from OPEC members, we suspect virtually no one actually believes a deal will get done. Yet prices have continued higher. Even this week's news of record production in September wasn't enough to push prices significantly lower.

It's an old Wall Street adage that when an asset refuses to fall on bad news, it's often a bullish sign. It can mean the news is already "priced in," and even the slightest hint of good news can send prices much higher.

It's too soon to say if that's the case today, but oil has clearly been trending higher. And our colleague Steve Sjuggerud believes there could be much more upside ahead...

Sjug calls a bottom in oil...

Steve points to two big reasons why higher oil prices are likely.

First, he says oil now meets his three favorite investment criteria... It's cheap, it's hated by investors, and it's in an uptrend. As he explained in the October issue of his True Wealth Systems advisory...

You might think that your investment has hit rock bottom if every headline you see is shouting about how terrible it is. But believe it or not, there IS something even worse than being hated... and when you see it, you know it's time to get serious...

If you're a longtime reader, you know I look for "hated" investments... "Cheap, hated, and in an uptrend," that's my mantra. You've heard it from me a hundred times. However, there is actually a status that is worse than being hated... And that's dropping out of the news altogether after being hated...

The truly optimal time to buy is when a hated investment has been out of the news for a long time. And then – when nobody is talking about it anymore – it quietly starts an uptrend. That's when the biggest percentage gains can happen. That's the setup we want to see.

While oil has been cheap for some time, Steve noted that it took much longer for investors and the media to "throw in the towel"...

The price of oil fell from $100 a barrel to $50 in the second half of 2014. Now you might think that a 50% fall in six months would mean that oil was hated – and that it might be time to buy. But oil was still all over the television news at the time.

The price of oil had crashed – but oil had not yet fallen out of the headlines. Far from it.

Now, Steve says, the situation has reversed... The oil sector is still cheap. But despite the recent rally, most investors remain uninterested.

But this isn't the only reason he's bullish today...

Oil is back in "double bull" mode...

Steve also noted that his True Wealth Systems computers have confirmed a "double bull" signal in oil for the first time in more than two years. The details behind these signals are beyond the scope of the Digest, but you really only need to know a couple things...

First, Steve has two different systems that track the oil market in different ways. And history shows that oil's biggest gains come when both systems are in "bull mode" at the same time. Second, the longer oil goes without one of these double-bull signals, the greater the gains have been. Here's more from Steve...

It has been exactly 26 months since we've seen a double-bull signal from our oil systems. That's a rare drought. And history shows that it could mean a major increase in the price of oil.

We've only seen a similar drought one other time in history... That was in early 1999... Back when oil traded for far less than $20 a barrel. More important, early 1999 was the beginning of a multi-decade boom in oil prices. Take a look...

Oil prices increased 122% in less than 18 months after the last drought in double-bull signals. And they ended up increasing more than 700% over the next decade.

How to make triple-digit gains in oil today...

To be clear, Steve isn't betting on another 700% rally, but he says it would be "foolish" not to believe higher oil prices are likely...

Today, we are in double-bull mode in our oil systems. And it has been more than two years since that last happened. This is the perfect setup for higher oil prices.

Steve has identified one investment opportunity in particular that could absolutely soar as this double-bull signal plays out. He says triple-digit upside is possible based on today's specific conditions.

To be fair to his subscribers, we can't detail the specific recommendation here. But Steve has agreed to release the research behind this recommendation for free.

This research is typically reserved for readers who pay up to $3,000 a year to read True Wealth Systems. But Steve is so bullish about this opportunity that he is "unlocking" this research for all Stansberry Research readers... and offering a 100% risk-free opportunity to get the name of his latest recommendation.

You can read Steve's research immediately by clicking here. (This link does not go to a video presentation – it will take you directly to an excerpt of Steve's latest True Wealth Systems issue.)

New 52-week highs (as of 10/12/16): American Financial (AFG) and short position in Hertz Global (HTZ).

In today's mailbag, a problem in last night's Digest... and joy and confusion about the bond market. Send your notes to feedback@stansberryresearch.com. And be sure to read to the bottom of today's Digest for the latest essay from contributing editor P.J. O'Rourke.

"I'm trying to subscribe to [Jeff Clark's trading service], but the link takes me back to the beginning of the essay, not a way to subscribe. Please advise." – Paid-up subscriber Peter D.

Brill comment: Thank you for letting us know, Peter. Last night's Digest featured our colleague Jeff Clark's latest thoughts on the gold market, and included a link to learn more about Jeff's proprietary gold trading strategy.

Unfortunately, it appears this link did not work correctly for some subscribers. We apologize for any inconvenience. You can access the correct link right here. And again, it does not lead to a long video presentation.

"I took to heart the opportunity to learn about bonds from the work that you and your analysts published last year. And I sorta understood them. I purchased a few bonds (up 34.5%). Then I took a graduate financial management class... and learned in depth about capital market theory and a lot about debt, valuation, and interest rates. Now... I see bonds as the goldmine they can be. Yes, the risk/reward setup is different than equity... and better! I'd encourage everyone to learn more about bonds, and to sign up for Stansberry's Credit Opportunities!!

"Yes, they are more complicated than pushing a button and making a stock trade. But when you can make a killing and sleep well at night... that is my formula for a good investment." – Paid-up subscriber Bryan D.

"In your Digest article from October 11, entitled "Risky Junk Bonds Are Getting Riskier" you wrote...

'If you do nothing else with our work on these topics, at the very least make sure you don't own any junk-bond funds or mutual funds – or any funds that are even allowed to buy these kind of assets. They're going to get smoked. And investors won't be able to get any of their money back. They'll be trapped for the entire downturn. (See what happened to Third Avenue's Value Credit Fund last year for an example of what I mean.)'

"I have been seriously mulling over whether to register for the Stansberry's Credit Opportunities. Thanks! You just saved me the hefty membership fee. I can only conclude that it would have been a mistake. Seriously, how do you square the above financial recommendation with the fact that Stansberry sells Stansberry's Credit Opportunities!!!" – Paid-up subscriber Vic Quintanilla

Brill comment: With all due respect Vic, you clearly haven't been paying attention...

We see you've been a subscriber for several years now... meaning you've also had access to this publication – the Stansberry Digest – which is included at no cost with every Stansberry Research subscription.

This means you've received at least a dozen Digests that have answered your question in detail – including several Friday Digests from Porter himself – in the last year alone. Porter even spent an entire week writing a five-part Digest series explaining virtually everything you need to know about the bond market, and the right way to buy high-yield (or "junk") bonds.

What else would you have us do, Vic? Clearly, Porter is right when he says, "There is no teaching, only learning."

Again, the difference between buying bond mutual funds and exchange-traded funds and buying individual corporate bonds at a discount is huge. And as you just read in the subscriber note above, once you learn the correct way to buy bonds, you may be tempted to give up stock investing altogether.

Regards,

Justin Brill
Baltimore, Maryland
October 13, 2016

Six Ways This Hot Mess of a Presidential Race Will Change American Political Campaigning Forever

By P.J. O'Rourke

Leaving aside whatever the awful outcome of the 2016 election will be, the campaign itself has sunk to the level of the "food fight!" scene in the movie Animal House... except less funny.

We wish we had a candidate with as serious and intelligent a statement to make as John Belushi when he stuffed his mouth with cottage cheese, pressed on both cheeks, and said, "I'm a zit."

But it's too late now (in several ways) to nominate John Belushi. This campaign is – thank goodness – almost over. The only good thing about it is that it's going to change American politics for the better.

Because American politics can't get any worse!

At the very least, I can count six ways our political system will improve as a result of this abomination...

1. The primary-caucus-convention process for choosing presidential candidates is headed for the recycling bin.

In 2016, the state primaries and caucuses might as well have been made up of 50 monkeys throwing darts at a random list of rich, old white people.

The caucuses were coffee klatches for folks who need to get a life. Only a little more than a quarter of eligible voters bothered to cast ballots in the Democratic and Republican primaries, and half of them voted for someone other than Trump or Hillary.

And the conventions were just bad infomercials – unlike the kind that send you to the phone to buy the product, they send you to the phone to call the Better Business Bureau.

But what will a recycled primary-caucus-convention process look like? Expect a bunch of states and the federal government to pass laws about this, and then watch them overturned in an endless series of court appeals.

Republicans and Democrats may think they're a vital part of the U.S. government, but actually they're private organizations with no more Constitutional standing than motorcycle gangs. Maybe in 2020 we'll select our presidential candidates with fists, knives, and tire irons in the parking lot of a biker bar.

And I take that back about how things "can't get any worse." This is something nobody should ever say about American politics.

2. The candidates, however, will get better.

Or at least, they'll get better behaved. On our 2016 hike through the electoral forest, we encountered nothing but dangerous bears. Dangerous and disgusting. Bears do you-know-what in the woods.

Next time, we're headed straight for the safe and hygienic Scout camp. Our future candidates had better be good Scouts. I got out my old Boy Scouts Handbook (circa 1958) and looked up The Boy Scout Law. How do our Democratic and Republican candidates measure up?

A Scout is:

Trustworthy: Ha!
Loyal: Hillary, maybe, but only to Bill, and for all the wrong reasons.
Helpful: They both help themselves to everything in sight.
Friendly: With friends like these...
Courteous: Ha, ha, ha!
Kind: Kind of what?
Obedient: Not to the law of the land, in Hillary's case, while Trump is maybe a little more obedient to tax and bankruptcy laws than is good for him. And neither show any signs of governing in a way that obeys the laws of economics.
Cheerful: One of them will be on election night.
Thrifty: Not with our tax money.
Brave: Well, there's the story Hillary tells about being under fire in Bosnia. And Trump courageously attended the New York Military Academy.
Clean: Dunking these two would leave a ring around the bathtub.
Reverent: Does worshiping at the altar of themselves count?

3. The better candidates better have some substance.

Except in times of war or severe financial crisis, Americans are usually not issue-oriented voters. We vote less for a candidate's policy positions and more for who a candidate seems like as a person. But that was before this election got personal.

In 2016, we got to know the major candidates too personally. Hillary, Trump, and Bernie Sanders were real "personalities." And so were the Three Stooges. Picking our president has been like choosing between Larry, Moe, and Curly.

And none of our presidential candidates had a cogent word to say about the two most important issues, the issues upon which the entire fate of America depends.

The federal deficit is a deluge that should send any Noah into a frenzy of ark-building and animal-pairing. (Except nowadays, zoning restrictions and federal wildlife-breeding permit-application bureaucracy would probably prevent that.)

The national debt has overflowed its banks (especially the Federal Reserve one) and the damage caused by the debt flood will make the most hysterical global warming alarmist's predictions about the rising sea level seem like a leak in an inflatable kiddie pool.

4. Campaign style as well as campaign substance will be transformed.

The 2016 presidential campaign busted the myth that American politics is controlled by big-money campaign donors. For example, this year the Koch brothers had about as much influence on the election as the National Pork Producers Council has on Middle East peace negotiations.

Sanders built a formidable campaign machine based on supporters still living in their parents' basements sending him contributions of approximately the value of tie-dyed head hankies, used hacky-sack footbags, and the stems and seeds from the bottom of their medical-marijuana prescription baggies.

Trump got most of his campaigning done on the cheap by making a public spectacle of himself. He could set his pants on fire knowing that reporters and camera crews would have to cover the blaze.

Hillary did have the traditional big-bucks backers. But she didn't need them. She could have gotten to exactly where she is in the polls today for free by tweeting everything that's on YouTube about Trump.

5. The media will get a spanking.

Watching the media during the 2016 presidential campaign was like tuning into the Weather Channel to see what was happing with Hurricane Matthew only to find that all the forecasters were talking about was how great the surfing conditions were off the coast of South Carolina.

For the next election, the networks will get all serious and solemn, like a PBS special about endangered tree frogs. Therefore, nobody will tune in, and the only news anybody will get will come from Twitter.

6. The Baby Boomers will be kicked out of American politics at last.

As of November 8, we will have elected four Baby Boomer presidents in a row. Enough already with this spoiled, selfish, foolish, egotistic, indulged, entitled, morally lax, ethically loose, big, fat "Me Generation" (to which I confess I belong).

Our act is getting old. We're getting old. Time to make way for new talent.

Think how much more pleasant and less frightening this election would be if the choice were between two bright, well-educated, hard-working, happily married young people, who have been completely overshadowed by Baby Boomers hogging the limelight. Specifically, by Baby Boomers who are their parents.

Ivanka Trump versus Chelsea Clinton.

We wouldn't have to wince and close our eyes and plug our ears and hold our noses when they debated. It would be a polite exchange of views. Because – imagine this – they're friends.

Regards,

P.J. O'Rourke