An Angry Nation

An extraordinary day in Washington... An angry nation... Congress is likely going 'bluer'... What to make of the Georgia results... Max Keiser's bitcoin price prediction for 2021... A bubble 'that is beginning to look like a real humdinger'... Protect your portfolio from the 'Melt Down'...

The scenes were extraordinary...

We planned on starting today's Digest with news about Congress, specifically the Senate seats being decided in Georgia. But instead, we have little choice but to lead with the major news of the day...

A group of protestors breached the Capitol building in Washington, D.C., this afternoon, shortly after officials started counting Electoral College votes to certify the 2020 presidential election results.

The Senate and House of Representatives chambers were both evacuated... Politicians and reporters on hand were locked down... And we watched the pictures with frustration – and sadness – about the inevitability of it all.

Nobody is happy. Everybody is angry.

Republican House Minority Leader Kevin McCarthy, who said he talked with President Donald Trump as Capitol police tried to get things under control, went on live TV and said...

Nobody supports this... This can never happen again... We all have a responsibility here. Let's never take it to this level ever again.

All of this has broader implications than we're prepared to get into today as the news develops. But longtime Digest readers know that in many ways, it's simply a manifestation of a lot of themes our editors have talked about over the years...

We're an angry nation. Trust has been broken – for so many reasons. Just a few days ago, we wrote about some of them (which come from our founder Porter Stansberry's prescient book, The Battle for America).

We'll have much more tomorrow. But for now, let's move on to what we originally planned to talk about today...

Assuming Congress goes back to work...

It looks like it will be "bluer" than it was a few days ago...

The anticipated Georgia "runoff" elections haven't been made official yet, but as we write with most of the votes in and another eye on Washington, it looks like the Democrats will take both of the state's Senate seats...

That would give the party control of both houses of Congress – although "control of Congress" has a different meaning today.

But the likely new makeup of the Senate and the House in a few weeks, if we ever get there, does have implications on the economy and the markets... And we'll see them play out in the days, months, and years ahead.

The "progressive" economic agenda proposed during Joe Biden's presidential campaign is now more in play. We're talking about things like expanding Medicare, higher taxes on the rich... and of course, more stimulus...

Like we said in November ahead of and after the presidential election, these Senate races aren't likely to decide if more fiscal stimulus happens... but they can give us clarity on "how much" and "how soon?"

Today, the answers look like "more" and "sooner"...

On newsworthy days like today, when market 'catalyst' events are in the spotlight...

We first turn to our Stansberry NewsWire team for their take on what's moving the market. (We hope you follow this free service right here, too.)

Today, NewsWire editor C. Scott Garliss handicapped the results from Georgia in a private message to us.

In short, Scott says he isn't convinced that any unexpected legislation is coming to Congress, at least not soon. And he thinks President-elect Biden is "going to have a very difficult time hiking taxes, especially in his first year." From Scott's note...

Not much is going to change in the Senate. There will be investors who are going to panic at first because they've been worked up by the media. The moderate Democrats in the Senate like Joe Manchin (West Virginia) are going to keep things in check.

Assuming Democrats take both Senate seats from Georgia, the Senate will be split 50-50. And in the event of any ties, Democrat Vice President-elect Kamala Harris would become the deciding vote, per Senate rules. That makes it easier for Biden to move through Cabinet nominees and other presidential nominations.

But this isn't exactly a green light on a "blue wave"...

In the Senate, the procedural "filibuster" – which allows the Senate to end debate on a bill if a three-fifths majority agrees – means that any major legislation will likely require 60 votes (in other words, at least 10 Republican senators) to advance. As Scott says...

At the end of the day, the Democrats have a slim majority in the House and could wind up with the same in the Senate. It's still going to require compromise to get things done.

But Scott says that Biden's – and if she's confirmed as U.S. Treasury secretary, Janet Yellen's – primary economic focus will be on more stimulus spending and job growth via an infrastructure bill that could pass within the Senate and House (where Democrats have an 11-seat majority).

That means we can expect more of the same macroeconomic backdrop we've seen in earnest since March...

We may not like it, but that means continued pressure on the U.S. dollar. That compounds our existing problems in the longer term, but it can be good for stocks in the near term...

It also likely means rock-bottom Federal Reserve interest rates and "easy money," which kicks our economic "can" down the road, grows our debt nightmares... but juices the economy and keeps the "Melt Up" burning higher in the meantime.

All that said, in the very short term, Scott believes that Democrats grabbing control of the Senate could spook some institutional investors into selling. And as you might recall, he spent 20 years on Wall Street before joining Stansberry Research... so he knows how these folks tend to operate. As Scott wrote to NewsWire readers this morning...

Wall Street money managers are worried this could lead to increased taxes and regulations domestically. As a result, it's causing investors to take money off the table in the S&P 500 and Nasdaq Composite indexes this morning.

S&P 500 futures are off 0.33% to 3,706 while Nasdaq futures are off 1.57% to 12,592.

At the moment, this feels like an overreaction. But, the result has added a new element of uncertainty to the picture. Wall Street money managers and traders were anticipating a Republican victory in at least one of the seats.

And while that outcome has yet to be determined, they're unsure of what will happen.

So, their natural inclination is to shoot first and ask questions later. That means take money off the table now in case the worst-case scenario plays out. Then, you can always invest those same funds again later if your fears prove to be unfounded.

"Big Tech" names like Apple (AAPL), Facebook (FB), and Amazon (AMZN) all finished down roughly 3% today. Search and data giant Alphabet (GOOGL) fell about 1% on the day.

In the next few days...

Don't be surprised if shares of the big-name Big Tech stocks that have carried the broader markets higher for the last year in particular sell off some throughout the rest of this week.

Scott isn't convinced that substantial regulation of these companies will actually happen, saying that was "election cycle talk" and that Democrats are typically friendly to these organizations. But he says that's not the point today...

A number of the television pundits have been looking for a big volatility event, saying the market is overvalued. This is it. As a result, the shorts are going to test the wherewithal of holders of technology stocks over the next few days because they've been the high fliers.

And here's another short-term impact to watch... Cannabis Capitalist editor Thomas Carroll says "this is a best-case scenario for cannabis policy" and that the moves of stock prices of the industry leaders should reflect it.

We've outlined the backdrop for the "green wave" over the past few months, most recently a few weeks ago... And this wave – and the collection of top-quality stocks that Thomas recommends in his publication – just got a boost from the Democrats' presumed victories.

The North American Marijuana Index ended today up more than 13%.

Meanwhile, as we wrote on Monday, bitcoin's price continues to head to the moon...

Since we published at 6 p.m. Eastern time on Monday and as we write today, it's up another 13% to new highs of more than $35,000.

(As we also said, citing Crypto Capital editor Eric Wade, you should be prepared for a pullback, too. Short-term traders Ben Morris and Drew McConnell of DailyWealth Trader also discussed bitcoin's "overbought" positioning based on the technicals on Tuesday.)

Broadly speaking, though, the likelihood of more fiscal spending certainly isn't fodder for any bitcoin bears.

In fact, just like all of this could lead to more fuel for our colleague Dr. Steve Sjuggerud's "Melt Up" thesis, it's more support the "anti-Fed" bitcoin trade concept we shared from noted bitcoin bull Max Keiser in Monday's Digest...

If you missed it, in a fantastic interview with our editor-at-large Daniela Cambone, Keiser – the host of RT's Keiser Report and a leading voice in the crypto space – compared Wall Street investors piling into bitcoin today with the way George Soros and Stanley Druckenmiller "broke" the Bank of England in 1992, forcing a devaluing of the pound.

Today, we're excited to share Daniela's subsequent interview with Keiser, released on our YouTube page just yesterday. In this exclusive interview, Keiser, one of the most influential people in the crypto space, reveals his coveted and highly anticipated forecast for bitcoin...

Two years ago, Keiser forecasted bitcoin to end 2020 around $28,000... And the crypto ended up closing the year at $29,000. Today, using his "special formula," he's making more bold predictions about where the prices of bitcoin (and gold and silver) are going in 2021...

Given his track record alone, you owe it to yourself to listen. But Daniela and Keiser talk about much more in a fascinating interview. Be sure to click here to get all the details.

Moving on, if everything feels a bit 'too euphoric' to you today, you're not alone...

We've noted here that stock valuations are stretched, to put it very mildly. And things like the recent run of SPACs (special purpose acquisition companies) has some people making comparisons to the dot-com bubble...

There are nuances involved beyond the surface observations that we won't get into now...

The point we do want to make, though, to end today, is to make sure you are prepared for when the party ends... By the party, we mean when the fiscal policy from Congress or monetary policy from central banks can't keep the market going higher anymore.

Even the World Bank, in its outlook for 2021, is warning about this. It said this week...

To support economic recovery, authorities also need to facilitate a reinvestment cycle aimed at sustainable growth that is less dependent on government debt.

You hear this from our editors all the time because it's critical advice...

The time to prepare for the unexpected is now, not later, no matter what you hear from anyone else. To this point, we read noted investor and GMO co-founder Jeremy Grantham's latest investor letter with great interest earlier this week...

Like many great pieces of writing, it explained what I (Corey McLaughlin) believe a lot of people feel about today's market. I suggest you take a look at the entire piece, too, for free right here. Among other things, Grantham wrote...

All bubbles end with near universal acceptance that the current one will not end yet...

Grantham wrote about the context of 1929 and about his experiences trading around the 1989 bubble pop in Japan, the end of our last two market bubbles... and the Fed's role, in particular... as well as the similarities – and even worse, differences – to today.

In 2000, Grantham explained that then-Fed Chair Alan Greenspan and the central banks were "predicting an enduring improvement in productivity and was pledging its loyalty (or moral hazard) to the stock market."

In 2006, as Grantham wrote, former Fed Chair Ben Bernanke believed that "U.S. house prices merely reflect a strong U.S. economy" as he perpetuated the moral hazard... And Grantham said the bank's message was, "If you win, you're on your own, but if you lose, you can count on our support."

Grantham also says that current Fed Chair Jerome Powell and all three of Powell's predecessors have all worked with this ethos. More from Grantham's investor letter...

[They] claimed that the asset prices they helped inflate in turn aided the economy through the wealth effect. Which effect we all admit is real. But all three avoided claiming credit for the ensuing market breaks that inevitably followed: the equity bust of 2000 and the housing bust of 2008, each replete with the accompanying anti-wealth effect that came when we least needed it, exaggerating the already guaranteed weakness in the economy. This game surely is the ultimate deal with the devil.

Grantham points out that "the mantra of late 2020 was that engineered low rates can prevent a decline in asset prices. Forever! But of course, it was a fallacy in 2000 and it is a fallacy now." His letter continued...

All the promises were in the end worth nothing, except for one; the Fed did what it could to pick up the pieces and help the markets get into stride for the next round of enhanced prices and ensuing decline. And here we are again, waiting for the last dance and, eventually, for the music to stop.

Grantham says today we're in a bubble 'that is beginning to look like a real humdinger'...

He says the strangest feature of this bull market is how unlike every previous great bubble it is in one respect...

Previous bubbles have combined accommodative monetary conditions with economic conditions that are perceived at the time, rightly or wrongly, as near perfect, which perfection is extrapolated into the indefinite future. The state of economic excellence of any previous bubble of course did not last long, but if it could have lasted, then the market would justifiably have sold at a huge multiple of book.

But today's wounded economy is totally different: only partly recovered, possibly facing a double-dip, probably facing a slowdown, and certainly facing a very high degree of uncertainty. Yet the market is much higher today than it was last fall when the economy looked fine and unemployment was at a historic low. Today the P/E ratio of the market is in the top few percent of the historical range and the economy is in the worst few percent.

This time, more than in any previous bubble, Grantham says investors are relying on central bank's easy money being in place indefinitely, which we've repeatedly pointed out that the Fed has essentially telegraphed...

This has in theory a similar effect to assuming peak economic performance forever: it can be used to justify much lower yields on all assets and therefore correspondingly higher asset prices. But neither perfect economic conditions nor perfect financial conditions can last forever, and there's the rub...

We're cautious as well...

For all the bullish tailwinds in the market today, not the least of which is more "money" supply floating around the world than ever before, and a continued roll out of a COVID-19 vaccine (though that's happening about as slow as we expected), it would be foolish to expect the good times to last forever...

By that, we mean stocks going on a one-way road up higher.

Over the very long run, sure, stock prices are richer than they were 100 years ago... But they're also more expensive. And in the shorter term, a 100-year run (or even 20 years of past performance) doesn't help much today...

To go back to the party analogy, if you're concerned about the long term, or even the morning after, it can be better to leave a little early and not be like the overserved person who doesn't realize he or she has overstayed his or her welcome (or where they are)...

With any Melt Up, which we're seeing play out today, there are double-digit pullbacks along the way to a euphoric top... And then, of course, there's always a Melt Down. With this in mind, we like how Grantham ended his recent letter. It spoke to our independent heart...

So, don't wait for the Goldmans and Morgan Stanleys to become bearish: it can never happen. For them it is a horribly non-commercial bet. Perhaps it is for anyone. Profitable and risk-reducing for the clients, yes, but commercially impractical for advisors. Their best policy is clear and simple: always be extremely bullish. It is good for business and intellectually undemanding.

In other words, think for yourself...

And one of the things on our mind today is what someone wise said a long time ago about the first rule of investing...

"Never lose money."

We would add some more detail to that and say, more precisely... Don't lose more money than you are knowingly willing to risk. To do this, it is critical to understand how much money you are willing to risk... and to do that, you must know your "why."

Most investors, and especially new ones, never do this, get burned quickly, and walk away from the game altogether. That is not what you want to do.

We'd rather follow the great four pieces of timeless advice that our Director of Research Austin Root provided to start the new year... because investing – in yourself or a great opportunity – is one of the best things you can do.

But we can't think of anything that comes with "no risk" attached. With that in mind, you've heard us here in the Digest, including today, describe Steve's Melt Up thesis.

Well, it's in full throat right now. In fact, just yesterday, Steve wrote in his free DailyWealth e-letter that "market euphoria is here"... what he means by that... and why you need to be aware of it today.

In short, Steve is warning every individual investor today about the Melt Down, and he's suggesting how you can prepare for it with stocks making continued highs.

We can't share all of Steve's message here in the Digest, but we do want to tell you he is sharing a very practical way to protect your portfolio, or any single investment.

Think of it as knowing how to leave the "party" at the appropriate time.

Click here for all the details right now.

New 52-week highs (as of 1/5/21): ABB (ABB), Analog Devices (ADI), First Majestic Silver (AG), Alexco Resource (AXU), Bunge (BG), Siren Nasdaq NexGen Economy Fund (BLCN), Curaleaf (CURLF), ProShares Ultra MSCI Emerging Markets Fund (EET), Eagle Materials (EXP), Fortescue Metals (FMG.AX), Fortuna Silver Mines (FSM), Futu Holdings (FUTU), Harrow Health (HROW), JD.com (JD), KraneShares Bosera MSCI China A Fund (KBA), KraneShares MSCI All China Health Care Index Fund (KURE), KraneShares CSI China Internet Fund (KWEB), MAG Silver (MAG), New Pacific Metals (NUPMF), OptimizeRx (OPRX), Osisko Gold Royalties (OR), Flutter Entertainment (PDYPY), Southern Copper (SCCO), Sabina Gold & Silver (SGSVF), Scotts Miracle-Gro (SMG), Trulieve Cannabis (TCNNF), and ProShares Ultra Semiconductors Fund (USD).

In today's mailbag, Extreme Value editor Dan Ferris answers a question stemming from his year-end Digest for 2020. Do you have a question or comment? Please e-mail us at feedback@stansberryresearch.com.

"Dan, thank you for your thoughtful writing. When I read 'via negativa,' I think of the Catholic admonition to 'avoid the near occasion of sin.'

"Our youngest son is a freshman music major at Benedictine College in Atchison, KS. He plays piano, organ and guitar and also sings. He has a thought of becoming a college choir director someday. While home on Christmas break, he expressed interest in obtaining a minor in finance, which I endorsed wholeheartedly. I told him that it would be useful no matter where life takes him.

"I also told him that my favorite financial writer, you, was a music major. I am wondering if you have any advice for him that I could pass along. Thank you again for generously sharing your insights." – Paid-up subscriber Dominic R.

Dan Ferris comment: Dominic, my only advice is very simple, but easily the No. 1 financial skill required for investment success...

Spend less than you make. Save money.

Most financial problems are solved or avoided by spending less and saving more. No lasting financial success is possible without doing so.

If your son always – and I mean always – spends less than he makes and invests in a truly diversified portfolio for the long term – no trading! – it will be hard for him to avoid accumulating a modest fortune, maybe even a not-so-modest one.

Tell him to save regularly, however much he can afford, even if it's only $5. The key is building the saving muscle, not the amount. He can always save more later.

Also, tell him to avoid credit cards. They're financial poison.

If he can do those two simple actions without fail, every month, year in and year out for the rest of his life, he'll grow in wealth.

All the best,

Corey McLaughlin
Naples, Florida
January 6, 2021