Fears of a Correction Return
Volatility surges higher (again)... Fears of a correction return... Checking in with Doc Eifrig... Introducing the 'Melt Up Millionaire' project...
We hope you enjoyed the break...
After a few days of relative calm, the market is getting jittery again...
All three U.S. stock indexes fell more than 1% today. And volatility – which had pulled back from last week's multimonth highs – surged more than 32%...
Once again, the moves are being blamed on concerns out of Washington...
Last week, it was fear of conflict with North Korea. This time, it's fear of conflict in the White House itself. As the Wall Street Journal reported last night...
President Donald Trump's comments faulting both sides in Saturday's deadly white nationalist protest in Virginia rattled his staff and risk setting back his policy agenda in Congress, lawmakers and administration aides said.
Mr. Trump's top economic adviser, Gary Cohn, was upset by the remarks and the trajectory of a news conference Tuesday that was supposed to showcase the White House's infrastructure plans, aides said...
John Kelly, the newly minted White House chief of staff who was brought in last month to impose discipline in a fractious West Wing, was also frustrated to see Mr. Trump equate the white nationalists... with the actions of counterprotesters, an administration aide said.
Some of the GOP president's allies said Mr. Trump's foray into the combustible politics of race will make things tougher as Congress confronts a series of difficult legislative challenges, including lifting the nation's debt ceiling, passing a budget and changing the tax code.
We remain cautious...
But it's not because of what's going on in D.C. After all, the market brushed off many similar concerns last fall as stocks surged higher. Why do they suddenly matter now?
The reality is simple: The market was long overdue for a correction... and the recent turmoil is a convenient excuse.
Stay long, but stay "hedged." We could see further downside before Steve Sjuggerud's "Melt Up" resumes.
Of course, longtime Digest readers know Steve hasn't been alone in his bullish stance...
Our colleague Dr. David "Doc" Eifrig has also remained consistently bullish on stocks over the past eight years. In the latest issue of his elite Retirement Trader advisory, published last Friday, Doc shared his latest thoughts on the market. From the issue...
Lately, my phone has been ringing off the hook... Friends want to know when the crash is coming. With the market constantly marching higher, folks are getting worried.
I don't blame them. This has been a long bull run. Valuations have hit levels that justify concern.
These are facts. But as Doc explained, folks who are worried right now about a crash – about a "Melt Down" – are missing the big picture. More from the issue...
This mindset is riddled with flaws. If it describes you, you need to change your thinking immediately.
Let's look at the risks on the table. Could the market undergo a 10% or even 20% correction from here? Absolutely. It's overdue. One could start tomorrow. I don't doubt that for a second.
As for a bigger downturn, I'm less worried. The table below shows all market corrections greater than 30% over the last 60 years...
1987 -33.5% 2000-2002 -49.1% As you can see, the declines are few and far between... It's unlikely we'll see a correction like the ones we saw in the dot-com bubble or the financial crisis anytime soon.
As Doc noted, history's major tops have coincided with a recession or economic slowdown. But for now, the economy continues to grind along.
Right now, employment is extraordinary...
Inflation is barely picking up...
And growth is slow, but steady...
In short, we aren't seeing signs of stress in the economy yet. And until we do, Doc says he isn't worried about a bigger downturn.
This means folks who are trying to protect their portfolios today should be preparing for a correction – a pullback of 10%-20% or so – rather than a full-fledged Melt Down. And Doc says this requires a completely different mindset...
To completely dodge this pullback, you'd have to time the market perfectly... Realize that you aren't going to sell at the exact market top and buy back in at the exact bottom. No one does that consistently.
And if you do go and sell all of your positions, you'll have to pay taxes on your gains. Now, you have to be even more precise on your market calls to make trading around a correction profitable. The tax man has handicapped you.
The lesson here: You can't trade your portfolio around 20% corrections.
In other words, like us, Doc recommends hedging your portfolio, rather than trying to time the market. This can be as simple as raising a little cash, to shorting certain stocks, to more sophisticated strategies.
For example, in the issue Doc showed Retirement Trader subscribers an advanced – yet surprisingly simple – trading strategy that sounds almost too good to be true. Doc says using this strategy will protect your existing stocks against a market decline... allow you to profit from the upside of stocks... and prevent you from paying a big tax bill on your profits. He calls it the "Eifrig Hedge."
You can learn more about the Eifrig Hedge in the August issue of Retirement Trader. Click here to learn more about a subscription.
Introducing the 'Melt Up Millionaire' project…
One last note before we sign off today...
For the past few weeks, Steve has been working overtime on something special.
You see, he's more convinced than ever that the Melt Up is now underway. He believes many new stock-market millionaires will be minted over the next 12 months...
And he wants to do everything he can to ensure YOU are among them.
Click here to learn more about Steve's "Melt Up Millionaire" Project now.
New 52-week highs (as of 8/16/17): American Express (AXP), Alibaba (BABA), iPath Bloomberg Copper Subindex Total Return Fund (JJC), Coca-Cola (KO), NVR (NVR), Procter & Gamble (PG), and Tencent (TCEHY).
In the mailbag, more on negative-interest-rate policy (or "NIRP"), and "life support" for electric carmaker Tesla (TSLA). What's on your mind? Let us know at feedback@stansberryresearch.com.
"Rogoff is a fraud and NIRP is a fraud – an even bigger fraud than the already fraudulent and unconstitutional power of the Fed to create money out of nothing. The point is that in the last crisis rates were taken down from 5.25% to 0.25% and while it is true to say that was a fall of 5% nominally, it was a rate of fall of 95.2%. The equivalent from the current rate of 1.25% is a fall to 0.06%. If rates are dropped a nominal 5% that means the Fed rate would be -3.75%! Crazy – this will destroy people's savings and destroy capital and collapse the entire system. In the words of John McEnroe: 'You cannot be serious!!!'" – Paid-up subscriber Steven I.
"Holman Jenkins, opinion writer for the WSJ, wrote a piece last week about California fully replacing the Federal rebate subsidy for electric cars. There is only one possible recipient under the pending legislation – Tesla. Tailor-made for them, the rebates can even easily be larger than the Federal ones they are replacing.
"California is going all in to support this zombie, which means it will last longer – and waste even more money – than Porter thinks. That's the reason Tesla can offer 8 year bonds at 5.3%. They will be backed by the full faith and credit of the State of CA. (Even though CA cannot print money, like the Federal Reserve; supposedly 40% of whose holdings are comprised of Fannie Mae and Freddie Mac MBS's.)" – Paid-up subscriber Barry Hatfield
Brill comment: Is that the same California with $1 trillion of unfunded pension liabilities?
Regards,
Justin Brill
Baltimore, Maryland
August 17, 2017