A Record-Breaking Streak for Stocks
A record-breaking streak for stocks... It's official: The 'Melt Up' is finally here... Investors are jumping back into stocks in a big way... Sjug updates his 'script'... Will tax reform be a 'sell the fact' event?... Your last chance to become a charter member of Crypto Capital...
This year has already been one for the record books...
Regular Digest readers know stocks have closed at record high after record high in 2017. In fact, the benchmark S&P 500 Index has set 62 all-time highs so far this year. That's good for third best in history, behind just 1995 and 1965, according to market-research firm Bespoke Investment Group.
Meanwhile, volatility has all but disappeared... Prior to this year, the CBOE Volatility Index (or "VIX") – considered the market's "fear gauge" – had only closed at 10 or lower nine times in its 27-year history. It has nearly quadrupled that number this year. The VIX has closed below 10 an incredible 34 times and counting... has traded at a record intraday low of 8.84 in July... and closed at a fresh all-time low of 9.19 just this month.
But the records don't end there...
As of Friday's close, the S&P 500 had gone 242 days without a 3% intraday decline, breaking the previous record of 241 days set in 1996.
Perhaps most impressive, stocks just completed a rare "trifecta"...
As Steve Sjuggerud noted in this morning's edition of our free DailyWealth e-letter, the market closed at a record daily high every day last week... closed at a record weekly high every week for the past six weeks... and closed at a record monthly close every month for the past seven months.
According to our friend Jason Goepfert, publisher of the excellent SentimenTrader service, "That combination has never been seen before in market history."
Now, these records alone aren't necessarily a reason for concern...
But they have coincided with an important shift in the market. For the first time in a decade, individual investors are jumping back into stocks in a big way. As Steve explained...
U.S. equity funds just attracted their largest inflows in 18 weeks.
As Reuters reported on Friday, $7.5 billion flowed into stock funds last week alone. Where did individual investors put all this money?
"Tech stocks attracted a bumper $1 billion, the largest inflows in 38 weeks," the article stated.
My friend, this is more evidence that the "Melt Up" is FINALLY 100% here... the market's last big push higher.
Individual investors are FINALLY buying stocks. And they're not looking for the "safe" plays. They're buying tech. They're taking on risk. This is what happens in the late stages of a bull market.
This is exactly what Steve has been predicting for years...
Time and again, he has said that this long bull market wouldn't end until everyone was bullish on stocks again. These moves suggest that the Melt Up is now underway... and the most explosive gains are still ahead.
But – and this is important – Steve also believes the risk of a near-term correction is rising. As he explained...
Here's the thing: Markets fluctuate. Sounds simple, I know. But markets go up... And markets go down.
We've had five record days... six record weeks... and seven record months. After that record run, you might start to believe that markets don't go down. But they do...
So I want you to be prepared for a market correction.
To be clear... Steve has NOT changed his mind about the Melt Up...
But he is updating his "script" to reflect these moves. He now expects we'll see some type of market correction in the near term, followed by "crazy" new highs as the Melt Up resumes. And this means we could soon see one more great buying opportunity. More from Steve...
When this market goes down – and it will – that move will scare people... Everyone on CNBC will start saying, "This is the end." Your friends (who just got on board buying tech stocks this week) will likely sell.
You will stand alone... But you will know what's going on. You will not panic. You will stay strong. You will remember that markets fluctuate. They go up... And they go down. And you will take advantage of it.
I suggest using the upcoming down move in the markets as one final opportunity to buy the stocks you want – before the big final push higher in the Melt Up.
Will tax reform be a 'sell the fact' event?
Speaking of a correction, our colleague Greg Diamond – analyst for the Stansberry NewsWire team – believes the "trigger" could come from an unlikely event: U.S. tax reform.
You see, after months of speculation, it appears President Donald Trump and the Republican Congress may finally be close to passing the first major changes to the tax code in decades. As Bloomberg reported yesterday...
House and Senate leaders laid out an ambitious schedule for drafting and releasing tax legislation over the next few weeks – a set of deadlines that must be met to try to achieve President Trump's goal of delivering major tax-rate cuts by year's end...
Last month, Trump and Republican congressional leaders released a framework for tax legislation that would cut tax rates for individuals and businesses. The corporate tax rate would drop to 20% from 35%, while the seven individual tax rates would be condensed to three or four. The final decision would be up to Congress...
In the House, [House Freedom Caucus Chairman Mark] Meadows made clear that members feel some pressure to deliver. "I don't want to give any finite numbers, but I fully expect us voting on this by the middle to third week" of November, the North Carolina Republican said... Meadows said there's more pressure for his conservative group to "negotiate a little bit more generously" after Congress's failed attempts to repeal and replace the Affordable Care Act this year.
As we've discussed, tax reform could be a boon for the U.S. economy in the long run...
But Greg believes it could cause some unexpected volatility in the near term for a couple reasons.
First, he notes that the big rally in stocks since the November presidential election suggests much of this news is already "priced in" by the market. He believes it could be a classic "buy the rumor, sell the fact" event, where the market peaks when tax reform is finally passed.
More important, two unusual comments from Federal Reserve officials last week suggest tax reform could create unintended consequences for global markets. As he explained to NewsWire subscribers last week...
The comments from two Fed officials regarding their objections to tax cuts, on the same day no less, were shocking to me...
New York Fed President William Dudley said changes to the tax code would be "ill-timed." Dallas Fed President Robert Kaplan said stimulus-oriented tax reform "could harm the economy."
So I started digging, as this just made no sense. Sure enough, I found an article highlighting dollar-funding shortages.
As Greg explained, this just means foreign investors are having trouble accessing U.S. dollars today. But thanks to unprecedented central bank manipulation, this is potentially a serious problem (emphasis added)...
The grand experiment of central banks pushing interest rates to record lows (and negative in some places) has forced investors to search for yield. To invest in the U.S., foreign investors must hedge currency exposure and need access (liquidity) to U.S. dollars.
When the Fed printed trillions of dollars into the global economy, dollar funding and liquidity wasn't an issue. In fact, most of that printed money went overseas. Now things are changing...
The Fed is reversing course. It is now removing liquidity from the system (reducing its balance sheet) and hiking interest rates at the same time. Tax reform – specifically a corporate tax cut – could cause billions of dollars held overseas by U.S. companies to come flowing back home. The potential is there for a vacuum of dollars out of overseas markets...
I believe the Fed is aware of this... which is exactly why the Fed officials made the comments they did. I think they are fearful of the combination of tax reform and balance-sheet reduction.
Should this dollar-funding issue escalate, it would be a shock to the financial system on a short-term basis at a minimum. With all-time-low volatility, cash levels at record lows, and equities at all-time highs, the conditions are ripe to shake out a few weak hands.
Greg recently recorded a short video presentation on this situation for Stansberry NewsWire subscribers. If you'd like to learn more, you can view it for free right here.
One last note before we sign off today...
By now you've likely heard that our colleague Tama Churchouse – editor for our corporate affiliate, Stansberry Churchouse Research – has just launched a brand-new cryptocurrency advisory, Crypto Capital.
But if you've been considering trying this research for yourself, we urge you to act soon...
Until tomorrow night at midnight, you can still become a charter member of Crypto Capital and lock in a massive 45% discount off the regular subscription price. After that, the price will go up substantially. Click here for all the details.
New 52-week highs (as of 10/23/17): Berkshire Hathaway (BRK-B), WisdomTree Japan Hedged Equity Fund (DXJ), Euronet Worldwide (EEFT), iShares MSCI Japan Fund (EWJ), Intel (INTC), iShares U.S. Home Construction Fund (ITB), Johnson & Johnson (JNJ), Microsoft (MSFT), Travelers (TRV), VF Corporation (VFC), and Wal-Mart (WMT).
Another busy day in the mailbag: Comments on the "Melt Up"... more on "evil" George Soros... and another question about cryptocurrencies. What's on your mind? Let us know at feedback@stansberryresearch.com.
"The 'Melt Up' is here, indeed! My copilot started commenting on the market each day and the flight attendant wants to know how she can get in the market." – Paid-up subscriber Tom Wagner
"You mention that you will lose a lot of subscribers because of [Friday's] Digest. I have no idea why. Well that's not true, I know that a lot of people let emotions get in the way of rational thought.
"I think that Soros is great threat to liberty, not only because of his support of Hillary, but the billions of dollars that he spends to destroy the freedom of his fellow Americans via various despotic causes. But what that would have to do with an article about his investment prowess, and why it would cause people to unsubscribe is completely different. Soros has the money to give to the despotic organizations that he does because he is/was a brilliant investor. Can't argue with that.
"I only wonder if the irony that you mention in your article is that he made his fortune on the premise of an open society even as he spends billions to bring the rest of us under the control of a central authority." – Paid-up subscriber Joe J.
"Porter, I am a man of the faith, Catholic. If you're familiar with the faith, our Lord fasted for forty days in the desert and was tempted by the devil. Satan said to him, 'Bow down and worship me and I will give you all the riches, power and pleasures of this world.' Our Lord told him to be gone. This life is not all about money. I am not opposed to making money or getting wealthy, however, it can become quite dangerous. It becomes an end to a mean.
"These men are all very wealthy and could do great things for humanity. I don't believe they do. They want all to think that they are generous but they're not. Is Soros' 'donation' to some charity like organization controlled by him with lucrative tax benefits? Come on Porter, can anyone like Gates truly say that they can't give away their fortune fast enough? That is the most laughable and ridiculous statement ever to be spoken. They are an important part of the 'Deep State' that Bonner cites so frequently.
"This life is about meriting heaven. Love God with your whole heart and mind – and prove it. Those with wealth can practically buy their way there with generosity and charitable works. Most don't. I truly hope that you're not amongst them. I would enjoy meeting you some time because I admire your drive and points of view. Maybe some day. Have a great weekend." – Paid-up subscriber Gregory Hall
Porter comment: Greg, I admire your faith and I'm sure you're a reasonable and intelligent man.
My point about Soros – and I encourage you to do your own research and your own thinking – is that he made his money in about the hardest and most competitive way possible: He bet his capital, day after day, in the financial markets. He bet big. He won big. That's no different than betting your capital on a new technology or a new marketing campaign. But most people in business don't have to bet their company every year. Soros did.
Now, making your money the hard way doesn't mean you're "right." And it doesn't mean you're a good person.
I happen to disagree with Soros on just about every political question. But I greatly admire the work and the capital he's invested in helping to build civic organizations in Eastern Europe. He's spent billions and billions of dollars trying to give the people there a "civil" voice – a way to effect change without violence. Those efforts dwarf the amounts he spent on politics in the U.S. But you'd hardly know it, thanks to the highly politicized press here.
And even if you never agree with me about the nobility of those efforts, you should at least be willing to learn what Soros figured out about the markets and about the way human society is organized today.
"Hello and thank you for such great information. My situation is simple... my money is in a rollover [retirement account]. I don't have much money outside of the rollover. Is there a way to buy Bitcoin through a rollover like Ameritrade? I just don't have the funds outside of that account." – Paid-up subscriber Gerard R.
Brill comment: Unfortunately, there aren't any good options to buy bitcoin or other cryptocurrencies through traditional brokerage accounts at this time. There is one "fund" available that offers exposure to bitcoin. However, it doesn't accurately track the price of bitcoin, and it trades at a massive premium to net asset value (or "NAV"). Folks buying this fund in recent months have been paying as much as $2 for every $1 of bitcoin this vehicle holds. This is foolish, and we can't in good conscience recommend you do the same.
But remember, this isn't an asset class where you want to "bet the farm," anyway. Cryptos aren't investments. They're speculations... and you can easily lose every penny you put into them.
On the other hand, the upside can be incredible... This means you don't have to bet big to earn huge potential returns. Even a few hundred dollars is enough. And with all due respect, if you don't have even a few hundred dollars of disposable income available, then speculating in cryptocurrencies may not be right for you.
Regards,
Justin Brill
Baltimore, Maryland
October 24, 2017