Finally, a Positive Sign for Gold Stocks
Finally, a positive sign for gold stocks... A big reversal in 10-year Treasury notes... Complacency returns... New 10-year lows in the VIX... What to do with stocks now... The biggest prediction of Steve Sjuggerud's career...
We begin today with a little good news for precious metals bulls...
Investors are dumping gold-mining stocks like never before.
According to Bloomberg data, investors pulled $778 million from the VanEck Vectors Gold Miners Fund (GDX) – the world's largest gold-stock exchange-traded fund ("ETF") – in the week ending April 28. This is the largest weekly outflow on record.
Investors also pulled $217 million from the SPDR Gold Shares Fund (GLD) – the world's largest pure gold fund – last week. This was the largest outflow of any commodity fund over that period.
Why is this good news?
As longtime Digest readers know, precious metals – perhaps more than any other asset class – are susceptible to dramatic and rapid swings in investor sentiment. And we can use these extremes to our advantage...
When folks are downright giddy about gold and silver, it's often a bearish sign... It means the rally has likely gotten ahead of itself, and at least a short-term correction is likely. Likewise, when investors turn bearish, it's often a great time to buy.
Last week we noted that the sector was getting a little "frothy." According to the U.S. government's Commitments of Traders ("COT") report, speculative traders had become incredibly bullish on silver, in particular. We warned that a further pullback was likely as this sentiment extreme wore off.
Today's news is a sign this is already happening. And while we're still not ready to give the "all clear," we're one big step closer to the bottom.
Speaking of sentiment extremes, we've seen a major reversal in the U.S. government bond market...
Just a few months ago, speculative traders were holding an all-time-record short position on benchmark 10-year U.S. Treasury notes.
But remember... because bonds and interest rates trade inversely, a big bet against 10-year Treasurys was also a big bet on higher interest rates. This bearish extreme suggested bonds were likely to move higher, while rates moved lower. And that's exactly what happened...
Since then, rates have drifted lower. They've fallen from as high as 2.6% in early March to around 2.3% today...
Though the move in rates has been relatively small, speculative traders have had a huge change of heart over the same period. They've quickly gone from as bearish as they've ever been... to as bullish as they've been in at least five years. In fact, as you can see in the following chart, they're now even more bullish on 10-year Treasurys than they were last summer...
You likely remember what happened next... Interest rates soared more than 70%, from less than 1.5% to nearly 2.6% over the next five months.
Remember, the COT report – like all sentiment data – is not a precise timing tool. Extreme sentiment can always get even more extreme before finally reversing.
But the latest data suggest the recent rally in Treasurys and decline in interest rates is closer to its end than its beginning... And the next big move in interest rates is likely to be higher.
Elsewhere in the market, complacency has returned...
Last month, we noted volatility was finally moving higher again. As we wrote in the April 12 Digest...
The stock market's "fear gauge" – the Volatility Index (VIX) – has now jumped back above 15 for the first time since November's presidential election...
As regular readers know, this move has coincided with growing doubts about the "Trump Trade," as well as rising geopolitical tensions...
Of course, we have no crystal ball... We can't say for certain if fear is finally returning to the market. And we don't know if these events will lead to the first significant correction in stocks in over a year.
So much for that...
As you can see in the following chart, volatility has completely reversed since last month's move higher...
Yesterday, the VIX closed at just 10.11. This is its lowest level in more than 10 years.
Again, we can't know when volatility will finally move higher and a significant stock market correction will begin. But we know it is simply a matter of time. As we noted in the February 1 Digest, after the VIX closed below 11 for the first time in years...
As you can see in the chart above, if there's one certainty in the markets it's this: Periods of market calm and complacency (when the VIX falls into the teens or lower) are always followed by periods of volatility and fear (when it leaps past 20).
Our advice remains the same...
Now more than ever, it's critical to follow proper risk-management strategies like position sizing and stop losses. When the market finally reverses, this will protect your hard-earned capital.
In the meantime, stay long stocks... And don't be afraid to put new money to work in high-quality opportunities.
Yes, the broad market – and many individual stocks – are expensive today. But valuation alone is not a reason to sell. There's simply no telling how long the bull market could run.
If our colleague Steve Sjuggerud is correct, the biggest gains could still lie ahead...
Steve believes this final stage of the rally – what he's calling the "melt up" – is starting. He predicts the stodgy Dow Jones Industrial Average could more than double to 50,000 or more before it all ends... And many individual stocks could do far better.
This is an incredible claim, no doubt... But as regular readers know, no one has called the eight-year bull market better than Steve. Time and again, as stocks pulled back and most investors panicked, he reassured his readers, "Don't worry"... "Stay long"... "The bull market isn't over yet." We certainly wouldn't bet against Steve today.
But he says the biggest gains aren't likely to come from U.S. stocks.
In fact, he says your best shot at life-changing gains today isn't in the U.S. at all... it's in China. Steve says investors who buy the right Chinese stocks could easily see returns of 500%-1,000% over the next several years.
Better yet, three recent events have convinced him these gains are more certain – and likely to come more quickly – than even he originally believed. He's now encouraging ALL Stansberry Research readers to put at least a small portion of their money into this idea right away.
Of course, we know many folks are cynical or downright fearful about investing in Chinese stocks. But Steve says this is largely because most investors – particularly those in the U.S. – have been misinformed. You see, he's been there himself and he says much of what we see and hear about China in the mainstream media is outdated or inaccurate.
Tomorrow night – Wednesday, May 3 – at 8 p.m. Eastern time, Steve is holding a live "emergency briefing" to explain it all.
This event, titled "Everything You Thought You Knew About China Is About to Change," is absolutely free for all Stansberry Research readers. Attendees are under no obligation to purchase any of Steve's research. He'll even give you one of his favorite China recommendations – for FREE – just for showing up.
He's only asking you to do one thing in return...
Put aside all of your preconceived notions about China and Chinese stocks, and come with an open mind... Steve guarantees you won't regret it. Click here to reserve your spot now.
New 52-week highs (as of 5/1/17): Apple (AAPL), AMETEK (AME), Alibaba (BABA), iShares MSCI BRIC Fund (BKF), Morgan Stanley China A Share Fund (CAF), CommScope (COMM), Ctrip.com (CTRP), Quest Diagnostics (DGX), Eaton Vance Enhanced Equity Income Fund (EOI), iShares MSCI Singapore Capped Fund (EWS), Facebook (FB), Cedar Fair (FUN), Alphabet (GOOGL), JD.com (JD), Nuveen Preferred Securities Income Fund (JPS), KraneShares CSI China Internet Fund (KWEB), Microsoft (MSFT), AllianzGI Equity & Convertible Income Fund (NIE), PowerShares S&P 500 BuyWrite Fund (PBP), ProShares Ultra Technology Fund (ROM), Shopify (SHOP), Tencent Holdings (TCEHY), and Verisign (VRSN).
The feedback on Porter's Friday Digest continues to roll in. Let us know what you think at feedback@stansberryresearch.com. Good, bad, or ugly, we read it all.
"You really should send copies of your Part 2 of your warnings about the credit cycle to each Member of Congress, Senators, Fed Commissioners, Treasury Officials, Wall Street Bankers, and DNC and RNC, Fanny and Freddie, all Higher Education Presidents, for starters. Tell them it is required reading because they were the ones that allowed or caused the problems, and they are the only ones who can save us from the predicted outcome. Send a copy to President Trump as well, even though he didn't cause it, only benefitted from it greatly. Meanwhile, I am following your advice with a smile... " – Paid-up subscriber T.K.
"Dear Porter, I admire how you tried to be nice to 'Money Shot' but you are correct – the guy is a Moron. He didn't use trailing stops or he wouldn't have lost all his money. You offered him a free subscription – great kindness shown. You didn't need to take his crap. I do a solid, consistent 15% to 30% per year in the accounts I manage using option techniques and advice I learned from your team. I subscribe and use TradeStops and position sizing. Thanks to you and your team! Keep up the good work!" – Paid-up Stansberry Alliance member Tom A.
"Porter, et al, the April 28 Digest was one of the best examples of your ability to explain to non-financial professionals a complex topic. It is great reading. James Altucher says ignore the financial press. I think he is right. One will never get an analysis like you provided from CNBC or similar outlets. The talking heads will argue back and forth about a topic and at the end the listener is left without a clue what is the truth. Keep up the good work. Thank you." – Paid-up subscriber Pete Johnson
"Really, you resorted to name calling with a guy who called you 'scum' over a recommendation that you say you did not make (I can only assume that you did not, I do not know, I haven't read everything you have ever wrote). Seriously?!?! Is this grade school?? Are you that juvenile? But what is most astounding is that you published it for all to see, meaning that you are proud of having lost your cool and control of the conversation. A bit of advice that I learned a long time ago; 'he who loses his control, loses.'" – Paid-up subscriber Joe J.
"Porter, I had already intended on being a subscriber for life, but your two-part reply (in 'You're Welcome, You Moron') to the jacka** who accused you of recommending BTU had me a) laughing out loud in a coffee shop and b) silently reaffirming my commitment to Stansberry Research. Bravo for knowing when to be a gentleman AND a fighter." – Paid-up subscriber John Calabrese
"The guy writing about BTU was rude and wrong, but I don't see that answering in kind was at all professional. Porter should have more restraint. As George Bernard Shaw once said: 'I learned long ago, never to wrestle with a pig. You get dirty, and besides, the pig likes it.' One man's respectful opinion." – Paid-up subscriber Ira Cotton
"I waited a full 24 hours to make sure I still thought this was funny. It is. As I wrote to one of my fellow subscribers, 'That's good sh*t right there.' I miss Porter's bleeped-out F-bombs on the old (free, T-Rex) Stansberry Radio podcast. 'Look, a**hole' brought it all back. I find this more entertaining than even PJ O'Rourke. Any random sample – including your subscribers – will contain whiners and idiots. Keep publishing them for entertainment value. Any reason to spray beer out my nose during happy hours on Friday is welcome." – Paid-up subscriber Bill H.
"Porter: As one who has prospered from the education and investment recommendations of Stansberry Research, I thank you also for publishing the verbal beatings you receive in the mailbag. It is obvious that many blame you for losing money on investments that you never recommended but are accused of having recommended.
"I worry about myself that I find these exchanges so entertaining. It confirms however, the thesis of an interesting book I once read that is more about how we humans 'remember' things than the title would suggest. The book is entitled 'Stumbling On Happiness' by Daniel Gilbert. Despite what the description on Amazon says about the book, what I took away (remembered) from the book is how our memories are not very reliable. We remember only one or two specifics about an occurrence and then build a 'reality' around it. That 'reality' is really our own fantasy. If I haven't accurately described the book, I think it supports my contention.
"Apparently, some of your detractors have experienced the same with your investment recommendations. They never present evidence of your bad recommendations. There is no citing of the publication it appeared in. Rather, they 'remember' when you recommended... ! I realize you don't need the likes of me sticking up for you. But I just wanted you to know that even a highly successful investment newsletter writer such as yourself might want a cheering section to shout down the boo birds." – Paid-up subscriber Randy T.
"Thank Porter for his entertaining newsletter please!!" – Paid-up subscriber Gerhard V.
"Porter, I looked back in my emails and online as an Alliance Member I have access to them all... Literally both of the analysts [that recommended BTU] said that it was a bear market and it was speculative in nature. If 'Moneyshot' (what a stupid name) can't understand 'bear market' [and] 'speculative trade'... then the chump should go buy CD's cause he is too dumb to be in the markets..." – Paid-up Stansberry Alliance member Wade B.
"Someone at your group did recommend BTU. I'm not sure who or when. But I took a shot at it since the argument for BTU seemed good. Since I don't have a farm, I didn't bet it, but the results as you well know weren't good. Whatever the case my loss isn't your fault. I make the decisions about my money, using the advice from various sources. Whatever the results, the decision to buy or not, or sell or not, is mine. Your track record is too good to not pay attention. Thanks for your insights." – Paid-up subscriber Marshall S.
"For what it is worth, I follow position sizing religiously and use stop losses to control the backend. It works and I sleep well at night. I never sell until you guys tell me to sell or the stop forces me out. Frankly, I am not smart enough or disciplined enough to do it on my own, so I follow the rules. Thank you, because I am making money. Keep it up!" – Paid-up subscriber Terry C.
"In the defense of the person that complained about Peabody Coal, I'm sure he knew the risk was great but sometimes so are the rewards only not in this case. I had a 5% investment of $2500 and it was doing great for a few weeks up over 200% but it dropped so fast and if you have to work for a living you don't have the time to watch it closely and it went from a few bucks to 0 in less than 2 days. Well some time I don't even have time to check my stocks for a week.
"Even though he was a little harsh you were even harsher, and I'm pretty sure I read a recommendation on coal somewhere in one of the new letters. BTU had already been through bankruptcy and had (don't know the correct term) re-formed its company and the future looked good. Then in 2 days it was gone like a ghost." – Paid-up Stansberry Alliance member F.H.
"Hi, Porter. You certainly know anyone in your position who actually encourages comments is also encouraging criticisms, and some of those criticisms will surely be unfair, without basis in fact, just plain dumb, or some combination of those things. I appreciate that you tried to be nice to the Moneyshot Moron. You did well, but you could have done better.
"If you are a better man than he is (and I am inclined to believe you are), you need to be always better, not merely sometimes better or at first better. I was saddened to see you lower yourself to his level of name-calling etc. You don't need to stoop to that. I have a Scripture reference for you. It is Proverbs 19:11. The King James Version has the best English rendering." – Paid-up subscriber Charles M
"Dear Porter, I love the work you and your team do and I love the results I'm able to achieve with your help. I also realize there are many people out there that would take an uncut diamond and throw it away, simply because they did not recognize its underlying and as yet, unrealized value. It seems to me, the service you are offering is to point to what you see as uncut gems and then leave it to us to pick them up or not.
"Thank you for your reply to Mr. Moneyshot reminding us all that we are the ones responsible for what we choose or don't choose, what we do or don't do and any resultant outcome. Based on your long ago recommendation I became a TradeStops Premium member and find using your services integrated with the ones provided by TradeStops have helped me enormously guard against the kind of catastrophic results Mr. Moneyshot reports.
"Thank you for the kindness in your first reply. It says a lot about you and your service to be kind, even in the face of a Mr. Moneyshot. As a prolific reader of your work and Alliance Member it is clear to me that Mr. Moneyshot's note to you clearly points out his confusion, misunderstanding and unfortunate ill-mannered thinking. I hope for Mr. Moneyshot's sake that he only 'shot' a part of his money so he has the opportunity to heed your advice and approach professional advice as a professional investor." – Paid-up subscriber Bob
Porter comment: Agreed all around. And honestly, my unkind reply was in the spirit of entertainment and encouraging our subscribers to give us the benefit of the doubt when asked directly about our records.
It's not often I'm called a liar. Think about it: All of my work is published and available on our website. How could I lie about it? Why would I try? Saying I've written about a stock when I clearly haven't seems like more than just poor manners – it indicates someone is deliberately ignorant.
What does comedian Ron White say? "You can't fix stupid."
Regards,
Justin Brill
Baltimore, Maryland
May 2, 2017