Could This Trigger the Next Correction?
Our first-ever bitcoin event is about to begin... Trump changes his mind about the next Federal Reserve chair... Could this trigger the next correction?...
This is it...
Less than two hours from now, we'll be kicking off our first-ever bitcoin and cryptocurrency event. We hope you're as excited as we are.
As regular readers know, many Stansberry Research analysts, including Porter himself, have been skeptical of "cryptos." But that is starting to change. Even the skeptics admit the upside potential is incredible.
But if you're going to speculate in cryptos, you need to know what you're doing. These digital assets are extremely volatile, and they can make even junior gold miners look like boring blue chips by comparison.
That's why Porter will be sitting down with two of the most successful cryptocurrency experts in the world to explain everything you need to know, including how these assets work... why you should (or shouldn't) consider speculating in cryptos... and exactly how to get started today. They'll even answer any of your remaining questions in an extended Q&A session, and share a little-known strategy that could dramatically increase your upside potential.
Even if you have no interest in buying cryptos today, you owe it to yourself to learn more about this new – and potentially world-changing – asset class.
Though it's too late to pre-register for this live event, you're still able to join us. Visit www.stansberrybitcoin.com before 8 p.m. Eastern time to grab your spot. We hope to see you there.
Regular Digest readers know the U.S. stock market is getting a little 'frothy'...
As we noted last week, several short-term indicators suggest investor sentiment has reached a bullish extreme. History suggests a pullback or correction is likely.
Of course, we've seen similar extremes over the past year or so. But despite plenty of "reasons" to sell off – including threats of nuclear war with North Korea – the market has continued to march higher. We haven't seen a pullback of even 5% in nearly a year. Volatility has fallen back to historic lows.
So what could finally trigger a correction? As always, we have no crystal ball. But today, we'll offer a guess...
Earlier this month, we noted that we could soon see a big shakeup at the Federal Reserve...
President Trump is expected to choose a new Fed Chair to replace Janet Yellen – whose term expires in February – before the end of October.
As recently as last week, former Fed Governor Kevin Warsh was considered the favorite to win the job. But that has suddenly changed, as a new candidate has taken the lead. As Bloomberg reported Monday...
Stanford University economist John Taylor, a candidate for Federal Reserve chairman, made a favorable impression on President Donald Trump after an hour-long interview at the White House last week, several people familiar with the matter said.
Former Fed board governor Kevin Warsh has meanwhile seen his star fade within the White House, three of the people said. They would not say why but Warsh's academic credentials are not as strong as other candidates, and his tenure on the Fed board has been criticized by a diverse group of economists ranging from Scott Sumner to Nobel laureate Paul Krugman.
Trump gushed about Taylor after his interview, one of the people said. The president has always been prone to hiring people with whom he has a good relationship.
If you're not familiar, Taylor created an economic equation known as the 'Taylor Rule'...
While the details are beyond the scope of the Digest, the Taylor Rule is essentially designed to automate monetary policy decisions. In simple terms, this equation uses real interest rates, price inflation, and economic output to calculate an appropriate short-term interest rate.
While the Fed does use the Taylor Rule as a guide for setting rates, those decisions are ultimately decided by a vote from Fed officials. But Taylor himself has often argued that the Fed may be better off using the rule rather than its more subjective approach.
Why does this matter?
Because the Taylor Rule currently calls for substantially higher interest rates. In fact, as you can see in the following graphic, the rule suggests short-term rates should be nearly 3.5%, almost three times higher than they are today...
This would be a huge increase in rates... And it would represent a dramatic "tightening" in monetary policy.
It would be a massive headwind for stocks... it would likely trigger a bond-market panic... and it could even tip the U.S. economy back into recession.
To be clear, this is anything but certain...
Trump could easily change his mind again. If Taylor were to become the next Fed chair, it's unlikely he would be able to convince other Fed officials to adopt this approach. And if he could, it would almost certainly be a gradual adjustment.
In other words, even if Taylor does become the next Fed chair, we don't expect a dramatic change in monetary policy... or a sudden end to the "Melt Up."
Still, simply the possibility of such a hawkish change at the Fed could be enough to finally rattle the market.
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New 52-week highs (as of 10/17/17): AMETEK (AME), Biogen (BIIB), CBRE Group (CBG), Eaton Vance Enhanced Equity Income Fund (EOI), Facebook (FB), Alphabet (GOOGL), Johnson & Johnson (JNJ), McDonald's (MCD), ProShares Ultra Health Care Fund (RXL), and ProShares Ultra S&P 500 Fund (SSO).
In the mailbag: Worry... anger... and more on "cryptos." As always, send your questions, comments, and complaints to feedback@stansberryresearch.com. Good or bad, we read them all.
"If the NFL, Hollywood, fake news, the US dollar, the US congress, the US government, et al, et al, status quos are losing the confidence of the American people, will the US stock market be far behind once the curtain is pulled back on it, too?" – Paid-up subscriber 
Allen Whitmore
"Your nothing more than bottom feeders! D sjug asks for $2500 for top uranium stocks two yrs ago which have done nothing! U ask for $5000 to teach ppl how to buy bobds which have done nothing! Your ripp offs! Take me off your list!" – Paid-up subscriber Brace L.
Brill comment: We think you're confused, Brace. Steve Sjuggerud did recommend a position in uranium stocks. But it was back in January of this year, not two years ago. And it was in his True Wealth advisory, which costs just $199 per year, not $2,500.
Now, to be fair, True Wealth subscribers did stop out of this recommendation for an 18% loss back in May... But this was one of the few "misses" Steve has had over the past two years.
By our count, Steve's True Wealth portfolio currently holds 22 open positions recommended since January 2016. Only two of these are currently in the red, and 16 out of 22 are up by double digits, including gains of 69%, 41%, 19%, 47%, 72%, 34%, 21%, 59%, 31%, and 23% as of yesterday's close.
As for our bond advisory – Stansberry's Credit Opportunities – that has "done nothing," we also believe you're mistaken... Since we launched this service in November 2015, Porter and his team have closed 10 positions – including nine winners – for an average gain of 25%, or 33% annualized. Porter's bond portfolio holds another nine open positions. Of these, just two are currently down – just 1%, we might add – for an average open return of 8%, or 13% annualized. Altogether, Stansberry's Credit Opportunities subscribers have earned average returns of 16%, or 23% annualized, across all actionable recommendations to date.
That's a heck of a return in the "boring" bond market. We suspect most investors didn't earn anywhere near that in stocks over the same period. Even more impressive, Porter's team managed this feat during a period where corporate-bond yields sit near record lows and most bonds are far too expensive for them to recommend. When the credit cycle finally rolls over and yields begin to move higher, this strategy will perform even better.
"I am very happy to see the number of subscribers that are extremely wary of investing in the cryptocurrencies; it confirms Teeka's and Tama's thoughts that there is no bubble yet and won't be until everyone is jumping in. Of course, this also lines up with Steve's investing philosophy that when no one is interested in an investment it may be worth looking at. I have been invested in some of the cryptos for about a year and am very happy with the results." – Paid-up subscriber David Read
"As a counterpoint to all the cryptocurrency skepticism, here's my personal experience. I put $20k of speculative money into several cryptos in November 2016. Eleven months later I've withdrawn $80k, still have $300k at work, and can now play with house money. If you think cryptos are a Ponzi scheme, maybe I'm just a lucky early adopter. But if you think cryptos will change the world much like the internet did, then it's still early days in an ongoing boom." – Paid-up subscriber George W.
Brill comment: Thank you for the note, George. Don't get us wrong... As your experience shows, the upside potential in cryptocurrencies can be incredible. Risking just a small portion of your portfolio can result in almost unbelievable gains. For many readers, it could be life-changing.
But it's important to remember that cryptos don't move in a straight line forever... For example, bitcoin lost more than 80% of its value between late 2013 and early 2015, before moving higher again. And many smaller cryptocurrencies are even more volatile.
We'll assume you only speculated with money you could afford to lose, and you wouldn't have worried as your $20,000 shriveled to nearly $3,000 over those 13 months. But experience shows most folks – particularly those who bet far more than they can afford to lose – inevitably panic and sell near the bottom.
We'd also remind you that while the Internet did go on to change the world, those who invested near the end of the dot-com bubble didn't make out so well. Most of those popular internet stocks ultimately went to zero... But even the best of the bunch – stocks like networking giant Cisco (CSCO), chipmaker Intel (INTC), and others – were dead money for years or even decades after.
We suspect the cryptocurrency boom has further to run, but we can't know for certain. This is why risk management is absolutely critical.
Again, we hope you'll join us to learn more about safely speculating on bitcoin and other cryptocurrencies tonight. Visit www.stansberrybitcoin.com just before 8 p.m. Eastern time.
Regards,
Justin Brill
Baltimore, Maryland
October 18, 2017