A 'Stealth' Bull Market Is Now Underway

Market extremes are growing... Record bets on stocks, bonds, and commodities... Sjug's incredible streak... Why rates could be headed lower again... A 'stealth' bull market is now underway...

There are "extreme market positions in all asset classes"...

So says a recent note from analysts at French bank Société Générale. According to them, these extremes – in markets including U.S. Treasury bonds, small-cap stocks, crude oil, and copper – are a logical result of Trump's election victory in November...

Investors expect his proposals to cut taxes and boost government spending will lead to higher growth and inflation... while they believe his proposals to rework trade deals and impose tariffs could benefit small-cap, domestically focused companies over others.

But the analysts also note this "extreme positioning inevitably raises the question of whether investors have run ahead of themselves."

This should sound familiar to regular Digest readers...

We've highlighted the super-bearish extreme in Treasurys, and the super-bullish extremes in crude oil and small-cap U.S. stocks.

And we warned these extremes suggested that a reversal in these "Trump Trades" were likely.

Of course, our colleague Steve Sjuggerud has been all over these trends, too...

In fact, his recent calls on Treasurys in particular have been nearly perfect...

Back in June, Steve noted speculative sentiment in the Treasury market had risen to its most bullish extreme since at least 1998... meaning investors loved bonds to a degree not seen in nearly 20 years.

As we often say, when everybody is betting one way, it's often a good time to consider taking the opposite bet. But Steve wasn't ready to make the trade just yet. As he wrote at the time in his True Wealth service...

For the first time in, well, as long as I can remember – I finally expect a meaningful move higher in long-term interest rates.

Today, we are at an 18-year extreme in our advance-warning indicator. If history is any guide, then long-term interest rates are about to go higher...

In both 1998 and in 2012, our advance-warning indicator was a couple of months early. So we are not going to pull the trigger and bet on higher interest rates just yet. Instead, we are going to wait for the uptrend in long-term interest rates.

Buy the ProShares UltraShort 20+ Year Treasury Fund (TBT) when interest rates start to go up.

By mid-September, the uptrend Steve was waiting for finally appeared, and he told subscribers to buy TBT... just before Treasurys suffered one of their worst monthly declines in history.

But just two months later in November, Steve noticed something unusual...

The bullish extreme had completely disappeared.

The reason for betting on higher rates was no longer present... So he recommended selling TBT, locking in a 19% gain in just two months.

Finally, last month, Steve noted that speculators were again betting heavily in one direction...

Only this time, they weren't bullish... Following November's election and the Trump Trade plunge in bonds, they were now incredibly bearish on Treasurys. They expected rates to keep rising. As Steve explained in the December 23 issue of our free DailyWealth e-letter...

Interest rates soared in recent months... to a multi-year high. Most people expect that trend to continue. But chances are good that long-term interest rates will fall, not rise, in 2017...

Long-term interest rates have been falling for decades. Ten-year U.S. government bonds paid roughly 5% in interest a decade ago. Today, they pay around half that. Despite the long-term downtrend, most people are convinced that rates will head higher from here. They think we've seen the ultimate bottom.

Folks said the same thing three years ago. Interest rates bottomed in the summer of 2012 at around 1.5%. They doubled to around 3% by the end of 2013. Hitting 1.5% had to be the ultimate bottom in rates, right? Wrong.

It was wrong back then for the same reason it's likely wrong today: Most people believed it. This is the crux of using sentiment in investing – when everyone believes in one outcome, the opposite tends to happen. That is what's happening in the government bond market today.

Which brings us to today...

Since Steve's call for lower rates last month, the yield on the benchmark 10-year Treasury has fallen from nearly 2.60% to as low as 2.31%. But Steve doesn't believe this move is over yet. He shared his latest thoughts on the situation in today's DailyWealth...

The story is timeless. I've seen it over and over again in the investing world. And it typically leads to the same outcome... When the majority of investors bet one way, the opposite tends to occur. That's what I explained last month. And it's already working out. The fall in interest rates is here.

Again, interest rates on 10-year government bonds have already fallen from a high of 2.60% last month to 2.36% right now... And since lower rates mean higher bond prices, that resulted in a quick 5% gain in the prices of long-term bonds.

The chart below shows the recent upswing in the iShares 20+ Year Treasury Bond Fund (TLT), which holds a basket of long-term U.S. government bonds. Take a look...

As Steve explained, the trend of lower long-term interest rates is likely to continue for one simple reason...

Despite the recent move in interest rates, sentiment is even more extreme today than it was when he issued his call last month. More from Steve...

This indicator had already broken out to a multi-year high when we wrote about it last month... And it has since hit an all-time high.

We saw a similar extreme... at the end of 2013. Over the next year or so, 10-year government bond rates fell from around 3% to less than 2%. And shares of TLT rallied 25% over the same time.

The crowd is still predicting higher long-term interest rates. Last month, I predicted the opposite – I predicted that we would see lower long-term interest rates. I got it right... and the latest numbers tell me the trend of lower long-term interest rates will likely continue.

But predicting lower interest rates isn't the only big call Steve has made of late...

In the January issue of his elite True Wealth Systems advisory, Steve highlighted a huge opportunity that 99% of investors have missed. From the issue...

The U.S. media aren't paying attention. And most U.S. investors have no idea what's happening. But our True Wealth Systems (TWS) computers caught it. As usual, they're paying attention to what everyone else missed.

Most folks were either distracted by Trump or enjoying their holidays... spending time with family... and tuning out the markets. But the TWS computers are always on. They don't take time off at the holidays. They don't watch football. They are on alert, 24/7.

This month, they've alerted us to what could be a major theme in 2017, and it's our top investment story this month.

In short, Steve says a "stealth" bull market in European stocks is now underway, and he believes the upside potential is enormous...

Specifically, European stocks ended 2016 with a monster move higher... And that was enough to move both of these systems into "buy" mode... According to our systems, the bull market is starting now. Our upside potential is triple-digits. You want to get on board, right now.

Like many TWS opportunities, this one was off my radar a bit... I got sucked into the news cycle too, and I hadn't noticed the powerful move in Europe.

Our TWS computers didn't miss it, though... They're constantly scanning dozens of global markets... finding the bull markets that no one else sees. And right now, they see a stealth bull market starting in Europe.

Steve says European stocks also meet his three favorite investment criteria today...

They're cheap... they're hated... and following last month's rally, they're now in an uptrend for the first time in years. But incredibly, he says there's an even bigger reason to be bullish on Europe today. More from the issue...

Think along with me for a minute... Let's think about two different investments... We'll call them Investment A and Investment B. A and B are similar... but not identical. They generally move up and down together... But they don't track each other perfectly.

For example, if your neighbor's house goes up in value, then chances are yours went up, too. It's not a one-for-one move, of course. But there is correlation there. One might move ahead of the other in the short run. But over the long run, the differences typically aren't huge. If asset prices are generally going up, then your house and your neighbor's are going up in value.

Investment A and Investment B are not houses, but over long periods of time they have similar returns – they are correlated. The next chart shows an example of this situation. The returns don't exactly match each other month over month, or even year over year. But over a couple of decades, things even out. Take a look:

As Steve noted, it wouldn't matter which investment you bought in this situation. Over the long term, you'd expect to earn similar returns in either.

Of course, as you might have guessed, that chart shows the relationship between U.S. and European stocks...

Investment A is the S&P 500 Index, which tracks blue-chip stocks in the U.S. And Investment B is the EURO STOXX 50 Index, which tracks blue-chip stocks in Europe.

As you can see, the long-term returns for both markets are similar. But while these markets move together over longer periods of time, they can diverge over the short term. And this can set up incredible buying opportunities. As Steve explained, this is exactly what has happened over the past several years...

The difference is incredible! We all know what has happened in the U.S. market since the end of 2008... The S&P 500 is up roughly 150% (not including dividends) over the past eight years. It has been a monumental bull market.

But what most folks don't realize is that European stocks have been completely left behind... The EURO STOXX 50 Index is roughly flat over the past eight years, while U.S. stocks more than doubled. (To make sure we're comparing apples to apples, both indexes show the price returns in U.S. dollars.)

That's a shocking result when you consider the first chart... These two investments usually track each other over the long term. But that hasn't happened in recent years. The extent of Europe's underperformance is extreme. It's unlike anything we've seen in history.

According to Steve's research, this extreme suggests European stocks are likely to soar over the next few years...

We're in uncharted territory today. The U.S.'s outperformance has never been anywhere near this large. But history's less extreme examples point to big gains ahead in European stocks...

2002 was the last time the U.S. outperformed by nearly 50 percentage points over eight years. What happened next? A massive multi-year bull market in European stocks... If you'd waited for the uptrend before buying, then you would have bought European stocks in mid-2003. By late 2007, you would have made 172% gains. U.S. stocks returned just 74% over the same period.

A similar opportunity appeared in late 1998... And European stocks jumped 64% in 18 months back then.

Today's opportunity is more extreme than either of those cases.

Steve believes European stocks could offer triple-digit upside over the next few years...

But he believes investors can do even better... He has found two specific investment vehicles that could return multiples more than simply buying the major European indexes. Investors who buy them today could make a fortune over the next 12-18 months.

You can get immediate access to all of Steve's research on European stocks – including his two favorite ways to profit from this trend – with a subscription to True Wealth Systems. This elite service typically costs $3,000 per year.

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New 52-week highs (as of 1/18/17): American Express (AXP), short position in Hertz Global (HTZ), Northern Dynasty Minerals (NAK), and Shopify (SHOP).

In today's mailbag, another subscriber shares his 2016 results... and several more send comments and questions about Stansberry Portfolio Solutions. Send your notes to feedback@stansberryresearch.com.

"I ended 2016 up 134% from where I started on 12/31/2015... I used the TradeStops program and did a lot of comparing... Believe me. I'm not rich but thanks to Stansberry Research and all the other companies you've helped me to be exposed to, I had my best year ever. Not only that, if I'd obeyed my stops, I'd have done even better on 3 stocks in particular... .one went thru the roof and I thought it was going higher, didn't understand 'stops' yet and back it came. Anyway, that's my feedback. Take care." – Paid-up subscriber James R.

"Just want to add my voice to those thanking you for developing Stansberry Portfolio Solutions. You are always thinking from our perspective, truly doing for us what you'd want if the roles were reversed. This is a great plan at a fair price. I can't take advantage of it, but it confirms my lifetime commitment to Stansberry products and the wonderful people in your organization. Thanks." – Paid-up subscriber George M.

"Maybe I'm dense or blind but for the life of me, I don't see the Portfolio pages. I am an Alliance Member so I believe I get access to them... I think. Where are they? Thanks." – Paid-up Stansberry Alliance member Chris P.

"Hello, I have watched your presentation. When will the Stansberry Portfolio Solutions be published?" – Paid-up subscriber Tom H.

Brill comment: To ensure all Stansberry Portfolio Solutions members receive our initial recommendations at the same time, we will be launching this product early next month. All members – including Stansberry Alliance members – will automatically receive access at that time.

In the meantime, if you've been on the fence about joining Stansberry Portfolio Solutions, this means you still have a few days to decide before we close this product to new members. As we mentioned yesterday, you can find a full list of frequently asked questions about Stansberry Portfolio Solutions right here.

"You keep saying you want more feedback. Well, I've sent you some several times, and you don't ever print it. So why would I?" – Paid-up subscriber Bruce F.

Brill comment: Apologies, Bruce. We're certainly not ignoring you. Perhaps we missed them, but we see no other e-mails from you in the past several months. What's on your mind?

Regards,

Justin Brill
Baltimore, Maryland
January 19, 2017