Don't Let This 'Relief Rally' Fool You

The big 'wave' is getting closer... Don't let this 'relief rally' fool you... Greg Diamond is on high alert... Classic reading on the 'best business in the world'... A market insider's newest exposé...

We owe you an update on the big 'wave'...

Our colleague and technical trader Greg Diamond has been tracking the big "wave" that he has been anticipating to hit the U.S. stock market soon...

Readers who have followed along with us the last several months are aware that Greg has been saying 2022 would be a year of "volatility," and that was even before war broke out in Eastern Europe, or anything else that has happened in the past three months... which is a lot.

As Greg puts it, given his technical-analysis approach that strictly focuses on price behavior, he's never sure about the "why," but has a pretty good feeling about the "what" and the "when" enough that he can make trades based on his calculated expectations.

Late last year, Greg said U.S. stocks could "top" by February or March... and he was concerned about a strong sell-off from there... And recently, he has been eyeing an even bigger "wave" that could break further down (or up)...

So far, he has been spot-on with his advice in what has been a wild year in stocks... So, with another important potential inflection point coming up, I (Corey McLaughlin) want to give all paid subscribers another update on his outlook today...

As we wrote in the March 1 Digest, Greg was targeting the time period after the Federal Reserve's March meeting to be the next indication of whether or not stocks would run higher in the next few weeks and months, or fall lower...

That meeting happened last week... The central bank did as was expected, raised interest rates a little, and so far, stocks have largely rallied.

Notably, the tech-heavy Nasdaq Composite Index is up more than 10% since last Monday... and the benchmark S&P 500 Index was up at least 1% in five of the last six days before today.

Does this mean Greg is packing up his "bear market" plans... and it's time to go "all bullish" again?

As I will explain today... not exactly.

In short, don't be fooled by this 'relief rally,' Greg says...

As Greg wrote to his subscribers in his Weekly Market Outlook on Monday...

At the beginning of March, I noted a relief rally was likely taking shape. It took a bit longer than I expected, but we saw this take off last week and it may last a bit longer into this week.

For definition purposes, a "relief rally" can be considered a rally within a longer downtrend... Often when more folks think the "worst is over" is when it ends up proving otherwise.

We saw a rally begin last week and continue through the first two days of this week. Today, it cooled off, with each of the major U.S. indexes down close to 1%. If this is the beginning of the end of the rally, it could be the start of another, bigger leg down for stocks...

As Greg told his subscribers on Monday in what might sound like a startling warning ‒ which is exactly why it's important...

In the simplest of terms, this relief rally – this wave – is the last rally to the start of a major downtrend.

If I'm correct, the decline that comes next will make the move down from the start of the year to last week feel like a spring picnic.

It will be painful for most.

But if I'm right, it will be profitable for us.

More on this in a moment, but first, while Greg does not talk about the "whys," and focuses on price behavior and patterns, I will address the news because it serves as the backdrop to the market action...

The markets have had good reason to be volatile lately...

There's inflation and the Fed, of course, and uncertainties about how high and long inflation may stay at these historic levels. We've covered those angles (probably too – much if you want more, tell us)...

Then there's the war in Ukraine... which is still happening after a month... I sense that many folks might unfortunately be becoming numb to the pictures and reports out of Eastern Europe, and still remain blindly optimistic for a quick resolution...

For instance, we see reports every day talking about negotiations between officials from Russia and Ukraine for a cease-fire, but to me, the stories feel empty... Meanwhile violent, bloody fighting is still happening on the ground and the threat of nuclear weapons is in play.

It's hard to imagine a simple end to the conflict, with multiple Ukrainian cities already bombed to bits, the European Union hatching plans to ditch its Russian oil supply, and NATO just today saying more troops will be sent to countries near Russia's western border...

There's a lot of unresolved questions... That said, the direction of the stock market isn't necessarily directly tied to the outcome of war in Eastern Europe... It matters, for sure. You're seeing that in the oil markets, for example...

As Stansberry NewsWire analyst Daniel Smoot reported today, oil prices popped 5% today, in part because of the failed peace negotiations between Russia and Ukraine. As Daniel wrote...

The deadlock has reinvigorated fears that oil and natural gas availability will tighten in the coming months. And with sanctions anticipated to continue, the global supply will likely remain constricted for quite some time.

Higher energy prices can eat into economic growth, of course... which might make a bear think stock prices could head lower too. But that's not a given by any means.

Whichever way the trend ultimately breaks for U.S. stocks over the next few weeks, the big wave Greg has been preparing for is coming. If it's somewhere over the horizon in the ocean, most people on the beach can't see it, or worse, don't even know to look for it or what it will look like when it comes...

What you could do now...

In his Ten Stock Trader service, Greg has been eyeing up several trades to ride this wave wherever it goes... He recommended two bearish bets on tech stocks to subscribers earlier today.

But all folks with money in the market can take something from Greg's warning...

He says stocks could keep going higher from here, sure, but don't be fooled by the recent rally either. We're still in a downtrend, and it could last longer than many people imagine.

There is one simple thing you could do today... If you're "out over your skis" in a single position in your portfolio – particularly if they're high "beta" – now might be a great time to take profits from last week, trim the position, and use the cash for a lower-risk opportunity.

And, in general, the good news is there's money to be made, or protected – potentially a lot of money – no matter what happens next. Greg showed that today with a pair of bets he made on prices going down. As he told subscribers today...

Since stocks are rallying into this week and within the larger downtrend set in motion from the start of the year, this is a setup I must trade from the short side.

I could be incorrect in this analysis, but as I noted on Monday [in the Weekly Market Outlook], this is a setup I can't NOT trade.

You may think I'm giving away so much information here that you don't need to subscribe to Greg's trading service... but I've seen the feedback from his subscribers and the amount of work he shares every single day (and at times in the middle of the night).

We're only scratching the surface of the amount of insight, instruction, and education he offers... including multiple intraday updates and detailed trading recommendations as soon as he sees that it is time to pull the trigger.

For example, today Greg also shared an idea about a potential bond trade (existing subscribers can read that here) that might be worth putting into action over the next week.

As Greg wrote...

The last time I had this inclination was right before COVID-19 in January and February 2020. We know how that turned out. So I'm on high alert [for this trade] once again.

If you don't already follow Greg's work in Ten Stock Trader or have access to it as an Alliance member, click here for much more information on his approach and how you can get started with a subscription before the next big wave comes.

Moving on to more about the 'best business in the world'...

Yesterday, we highlighted that Warren Buffett's Berkshire Hathaway (BRK-B) had just bought a company that our Stansberry's Investment Advisory research team recommended nearly two years ago...

It's an insurance company, specifically a property and casualty (P&C) insurance and reinsurance company, Alleghany (Y)... the kind of P&C company that Buffett and a few other wildly successful investors have made fortunes owning over the years.

I hope yesterday's message was enlightening about how great these businesses are to own... in bull or bear markets... and how their business models are often overlooked in terms of the investable cash they produce... and can reward shareholders with.

But we did miss an opportunity to share even more timeless context about P&C companies, as one subscriber, Brian D., pointed out to us last night...

Surprised you never mentioned Porter's P&C essay, it is still worth reading. Or maybe it was before your time.

The work that Brian is referring to, written by our founder Porter Stansberry, was actually in the back of my mind the entire time I was working on the insurance part of yesterday's Digest.

It was, yes, "before my time," meaning before I was on the payroll at Stansberry Research, but I've long been aware of Porter's team's work on P&C stocks and we still recommend them... Anyone worth a penny in this industry should...

As we mentioned yesterday, Porter and our research team have recommended P&C companies nearly two dozen times in the 20-plus-year history of our flagship Investment Advisory newsletter... and consider the industry the "best business in the world."

And, yes, Porter's essays on the topic are classics... and "still worth reading," as Brian says.

We could republish them word-for-word today... and they would be as relevant as they were last decade. So, this is all a long way of saying, here's a link to one I had in mind yesterday, the February 23, 2018 Digest...

Porter told the story of a relatively little-known man named Shelby Davis...

At the age of 35 in the mid-1940s and washed out of a political-speechwriting career, Davis found himself working at a desk as the deputy superintendent of insurance for the state of New York.

We imagine it is as exciting as it sounds, but Davis turned the job into good fortune...

He used his access to the insurance statements of the country's top companies to see that they were basically minting money with their business models... then he did what should be an inspiration to all individual investors. As Porter wrote...

Shelby Davis is the only investor I know of who actually became a billionaire solely through the long-term ownership of passive interests in public companies. Yes, plenty of investors have used other people's money and lots of trading to become wealthy in the markets. But Shelby was using his own money. And he didn't do any trading. All he did was hang on. He almost got wiped out in the early 1970s bear market ('73 to '74) because he routinely employed as much margin as his brokers would allow, but he survived the storm. By the early 1980s, he was on the Forbes 400 list of the richest people in America.

What did Shelby Davis invest in? Insurance stocks.

But as Porter wrote...

Not just any kind of insurance stocks... he specifically bought property and casualty ("P&C") insurance companies that focused on unregulated insurance markets.

These are the companies we talked about yesterday... not auto insurance companies, for example.

They are heavily regulated and need to invest their "float" – the premiums they collect before paying out claims – wisely to cover underwriting shortfalls.

But P&C companies, like Alleghany, which Buffett just bought for $11.6 billion, have a much more potentially lucrative business model. As Porter wrote...

Some insurance companies, the ones that focused on unregulated sectors of P&C, could earn far more in premiums than they had to pay out in claims. For these companies, capital was flooding in the door and staying. These firms had a completely legal way to virtually steal enormous amounts of money by routinely overcharging, by large amounts, for the insurance they were providing.

Thanks to Davis' circumstance working in the insurance department for the state of the New York – and making the most of his opportunity – in 1947, he bought a dozen insurance stocks with borrowed money, retired from government, and set up a small brokerage firm. As Porter continued...

He was trying to get other investors interested in these companies – because nobody on Wall Street understood the economics of these businesses. Among the investors Shelby met with was Benjamin Graham – the famous value investor and mentor to Warren Buffett. Shortly after Shelby purchased his portfolio of insurance stocks, Graham decided to follow him into one of the companies in his portfolio, a company called Government Employees Insurance. You know the firm today as GEICO, a wholly owned subsidiary of Berkshire Hathaway (BRK-B).

The rest is the stuff of history that echoes through today's Berkshire Hathaway meetings and Buffett's decisions. Davis became rich... and within 10 years, Graham had made 200 times his capital and he retired, too, living off GEICO dividends.

Within 25 years, he'd made 500 times his money...

As Porter wrote, Graham was an active investor and money manager for three decades, but GEICO was what made him, and in the same way now Buffett, famously rich – and thanks to the help of the lesser-known Shelby Davis...

As Graham said about the deal: "In 1948, we made our GEICO investment and from then on, we seemed to be very brilliant people."

The thing is, if identifying these companies were so easy, why doesn't everyone invest in them and nothing else?

Good question. Probably because insurance companies aren't something you generally get excited about – until a terrible event happens and you are "covered"... or are not.

In general, P&C insurance companies are far from the first investment most people make, but they probably should be.

We explained why yesterday...

The key to everything about these insurance businesses – their "float" is not easily measurable. It doesn't show up in U.S. Securities and Exchange Commission ("SEC") statements... and in traditional accounting float is considered a liability, which it is, instead of the asset that it can be.

In short, you need to know how to value these companies, but it's not straightforward nor is the information easily available.

That's why nine years ago, we built a system that was capable of analyzing the entire insurance industry to see which companies made for the best investments.

In 2012, our colleague Bryan Beach, a former auditor and corporate controller and current editor of our Venture Value newsletter, began building a proprietary database, called our Insurance Value Monitor, which ranks the industry's best stocks...

We've shared that research with subscribers ever since in our flagship Stansberry's Investment Advisory newsletter... Existing subscribers to our Stansberry Data monitors can find the current ranking list and how we use it here...

And, as we said yesterday, our team is preparing to recommend another P&C stock in the next issue of Stansberry's Investment Advisory, which is due out on April 1... Stay tuned for that.

Finally, today, a chance to listen to another wise guy...

Our friends over at corporate affiliate Empire Financial Research have an exciting event planned for tomorrow night. It's a chance to hear from one of the best-known investigative journalists in Wall Street history...

Herb Greenberg has written for the Wall Street Journal, Fortune, and MarketWatch, among other places. He also spent a decade at the San Francisco Chronicle...

Herb has done great work for decades on a variety of stories exposing the ugly side of Wall Street, but he's probably most widely known for his investigation of Valeant Pharmaceuticals, whose stock cratered 90% after his reporting on its business model...

Executives from other companies he exposed, Media Vision and Tyco, for example, ended up in prison.

On a related note, Herb this week joined our colleague Dan Ferris on the Stansberry Investor Hour podcast... and shared the "best death threat" he ever got.

I was excited to learn a few months ago that Herb recently joined Whitney Tilson's team at Empire Financial... He's been writing essays in the free Empire Financial Daily e-letter and has helped contribute to other publications.

Herb has been gearing up to share his latest exposé...

Tomorrow, March 24, at 8 p.m. Eastern time, Herb will join Whitney on camera to talk about this story... and how everyday investors can use the information as a "backdoor" moneymaking opportunity 20 years in the making.

This is the kind of shakeup that folks on Wall Street hope you'll never figure out, but Herb's going to spoil that and deliver the message for the benefit of individual investors... It's worth checking out and listening to one of the most trusted names in financial journalism.

The presentation is totally free... and Herb and Whitney will also be giving away a recommendation at no cost to viewers – Herb's favorite stock to buy today – simply for showing up. They just ask that you sign up in advance, so you don't miss anything. You can do that here.

The Best Death Threat I Ever Got

On this week's episode of the Stansberry Investor Hour podcast, Dan welcomed veteran financial journalist Herb Greenberg...

Herb, now a senior editor at Empire Financial Research, shared his process for empowering everyday investors... as well as stories from his career revealing the ugly parts of Wall Street... and the new project he is working on today...

Click here to listen to this episode right now. And to catch all of the podcasts and videos from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 3/22/22): Bunge (BG), Berkshire Hathaway (BRK-B), Nucor (NUE), Palo Alto Networks (PANW), Pure Storage (PSTG), Travelers (TRV), and W.R. Berkley (WRB).

In today's mailbag, more feedback on Dan's Friday Digest about movie-theater chain AMC Entertainment (AMC) deciding to buy a gold mine… Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Is it 'possible' that just perhaps Hycroft may have plans to sell the abandoned mine, which apparently has lots of gold, making it indeed a potentially highly profitable investment by Sprott (and AMC)?" – Stansberry Alliance member Tom P.

Dan Ferris comment: It's possible, but if you owned a string of movie theaters and your CEO came to you and said, "I just bought you a shuttered, uneconomic gold mine whose management has no specific plans to get it running, and we're going to be diluted 5X starting the day it is announced," what would you say?

Hycroft's condition is only one questionable aspect of this deal. The other is the runup in Hycroft's share price before the deal became public knowledge and the SEC filing to sell $500 million in shares – starting the day of the AMC/Sprott announcement. The filing was not announced in a press release or anywhere else.

Even if AMC does get bailed out of Hycroft somehow, would you ever want one penny of your capital to be part of a questionable deal like this?

I hope not.

"The investment in Hycroft sounds a lot like Porter's recommendation of that gold company, SUKR, a few years ago!" – Paid-up subscriber Tim S.

Corey McLaughlin comment: SUKR! That's another classic... Hey, now that you mention it, April Fools' Day isn't that far away...

For the unaware, SUKR was short for "Sucker," and was the ticker for a fictional gold-mining company "recommendation" gag, featuring a lead character named "Usherwanti DerVeeboten," in our pages many, many years ago.

Some people loved it. Some missed the joke and were angry... like a trader at Citigroup's equity-trading desk in New York who called Porter's office demanding to know why they couldn't find "SUKR" listed on any market in the world... True story.

All the best,

Corey McLaughlin
Baltimore, Maryland
March 23, 2022