How Well Do You Spend Your Money?

What to make of this week's pullback... The key level to watch in stocks... Our annual Stansberry Conference is going virtual... How well do you spend your money?... Poor John...

Before we get into today's Digest, a brief housekeeping note...

Our colleague Dan Ferris, who has been penning excellent Friday Digests this year, is off today... so you're stuck with me (Corey McLaughlin).

If you're itching for more from Dan, though, be sure to catch the latest Stansberry Investor Hour podcast, which went live earlier this week.

Dan's guest is Stansberry NewsWire analyst Mark Putrino, who has worked as a head trader at three different institutional hedge funds and money-management groups.

Mark is a veteran technical trader who wrote in the NewsWire on Wednesday that the markets, particularly tech stocks, were overdue for a correction. (We shared Mark's post in that evening's Digest.)

And if you've been watching the markets over the past two days, you know that we've just seen what could be the start of that correction...

The three major U.S. indexes head into Labor Day weekend riding two days of weakness...

Since Wednesday's close, the benchmark S&P 500 Index is down about 4%, the tech-heavy Nasdaq Composite Index has dropped more than 6%, and the Dow Jones Industrial Average has fallen almost 3%.

On the surface, this may look like March-type stuff. But as we noted on Tuesday and Wednesday, we've seen "froth" in the market recently, in tech stocks like Apple (AAPL) and Zoom Video Communications (ZM) and the lightning rod that is Elon Musk's Tesla (TSLA).

Stocks like these indeed led the way down to end the week, with Apple most notably down 8% on Thursday and down nearly 8% again this morning before rallying throughout the rest of today's trading to finish about even on the day.

We'll know soon if this is just a healthy "breather" or develops into a longer downturn. But so far, not all stocks have been down in this week-ending stretch. Bottom-feeders like the cruise lines and airlines are up... and so are a sampling of others in various sectors.

As we wrote earlier this week, don't get complacent. Now is not the time to be chasing stocks or making wild speculations, especially with money you want or need immediately.

Things might be choppy this month...

Stocks have recovered to pre-pandemic highs, but a lot of "fear" remains in the market. As we wrote on Wednesday, historically, volatility really never went away since it spiked in March.

The Chicago Board Options Exchange's CBOE Volatility Index ("VIX"), referred to as the market's "fear gauge," has been above its median since March.

Over the past two days, this measure of expected volatility in the S&P 500 has jumped about 15% to 30, a level that many of our editors consider an indicator of massive fear.

So we need to make an important distinction here...

In one way, with the supply and demand dynamics of many stocks, we're back where we started in February.

In this NewsWire post from earlier today, Mark noted that SPDR S&P 500 Fund (SPY) – the exchange-traded fund ("ETF") that tracks the benchmark index – is trading around a key inflection point.

This key point is $340 per share. It has marked "resistance" this year, a level where demand for this ETF has topped out. As Mark wrote today...

The $340 level is critical for SPY because it has been important resistance historically. As you can see in the year-to-date ("YTD") chart, it was the peak in February. It was also resistance from August 11 through August 21...

The test is whether or not the $340 level converts to support.

At the same time, things are different than they were at the start of the year...

It's a unique circumstance to see stocks hitting new highs (which was happening as of two days ago) with investor fear also at high levels. It's also unique to have trillions of dollars' worth of new Federal Reserve-created liquidity in a low-interest-rate market along with a damaged, still-recovering, and uncertain economy.

Plus, as much as we like the fact that the Fed's balance sheet hasn't grown over the past few months, the idea and reality of no further stimulus – which is the status quo – may weigh on stocks in the short term... yet also strengthen the U.S. dollar.

As NewsWire editor C. Scott Garliss wrote today, Democrats and Republicans are still about $700 billion apart on a new stimulus agreement, although both sides have moved from their starting points. As Scott said...

If the two sides can agree to another round of stimulus funding, it would support the economic rebound, domestic equity markets, and likely put further pressure on the dollar.

If not, it would increase investor concerns around economic stability and weigh on the markets. No deal could also create a short-cover rally in the dollar on the thinking it would dwindle the supply of available money.

It might be even more important – in down days in the market – to keep perspective, too.

Even with the recent pullback, the major indexes are still trading at the same value as they were roughly two weeks ago.

Apple closed today at higher than the split-adjusted price it did on August 20. E-signature software company DocuSign (DOCU), even after dropping by a double-digit percentage today, still finished at roughly $216 per share... above where it closed last Friday. As someone put it on Twitter, "We're at levels not seen since last week."

If you're in this for the long term, the overall trend is still up. But in the short term, watch that $340 level in the SPY... or similar support levels in other indexes, like $150 in the small-cap iShares Russell 2000 Fund (IWM).

If "support" breaks down at these levels, it means stocks could drop even lower.

While we're on the topic of perspective, we want to make sure you've heard about our annual conference this year...

Like a lot of previously intended in-person events in the COVID-19 times of 2020, our Stansberry Conference is going virtual this year.

It will be held in roughly one month – on Monday, October 5, and Tuesday, October 6.

We'll miss the in-person experience of Las Vegas, of course. Some of the best things about conferences are the conversations you can have in the hallways outside the meeting rooms or around town, but the spirit is still the same as ever...

We have a fantastic lineup of speakers who will share big ideas on the economy and the markets today.

Our founder Porter Stansberry will be there, as will True Wealth editor Dr. Steve Sjuggerud, Retirement Millionaire editor Dr. David "Doc" Eifrig, Gold Stock Analyst editor John Doody, and the rest of our team.

They'll be joined by more than a dozen exciting guests from a variety of backgrounds, like former Fox News anchor Trish Regan... former presidential candidate Ron Paul... our friend and Empire Financial Research founder Whitney Tilson... former Texas Gov. and Secretary of Energy Rick Perry... Todd Buchholz, the managing director of the legendary Tiger hedge fund... and Nigel Marsh, whose "TED Talk" on work-life balance remains the company's most viewed video ever outside of the U.S.

The keynote address at this year's event will feature Michael Lewis. He has published 15 books – several of which have gone on to become New York Times bestsellers – on topics ranging from baseball and the way markets value people, to the legal but highly questionable practice of high-frequency trading and corruption that has often followed.

Both of his sports narratives, The Blind Side and Moneyball, went on to become Oscar-nominated films. And two of his most popular releases, The Big Short and Boomerang, are narratives set in the global financial crisis.

Lewis also wrote Liar's Poker, a Wall Street story based in part on his own experience working as a bond salesman for Salomon Brothers.

Personally, I'm really looking forward to hearing from Lewis...

I read Moneyball shortly after it first came out in 2003, and I still remember stories from it.

For the uninitiated, the book chronicles the then-unusual data-analytics approach that the small-market Oakland Athletics team was using to evaluate professional baseball players... and make the most of their limited budget.

At the time, the Athletics kept shocking baseball observers by winning more games than expected with a roster of names that were overlooked in many cases... but in which Athletics General Manager Billy Beane saw value.

Lewis, who will sit down with Porter on the first day of the conference, saw the bigger trend here and what it could mean in sports, and any business really, that started to take data more seriously. In the preface, Lewis writes (with my bold emphasis added)...

As early as 1999, Major League Baseball Commissioner Allan H. ("Bud") Selig had taken to calling the Oakland A's success "an aberration," but that was less an explanation than an excuse not to grapple with the question: how'd they do it? What was their secret?

How did the second poorest team in baseball, opposing ever greater mountains of cash, stand even the faintest chance of success, much less the ability to win more regular season games than all but one of the other twenty-nine teams?...

These were the questions that first interested me, and this book seeks to answer.

That answer begins with an obvious point: in professional baseball it still matters less how much money you have than how well you spend it.

There's a reason Lewis is one of today's most sought-after social commentators.

This is clearly an idea that translates directly to the investing world...

It gets us thinking about a few questions, not the least... What good is a lot of money if you lose most of it? And where are the best places to make the most of your money today?

Lewis didn't ask any of these questions specifically in Moneyball, but it's not a stretch to make a connection. He's a former bond salesman, after all.

A baseball general manager, who Lewis featured heavily in the book, knows how every dollar is spent on his major league roster (high-quality stocks) and in the minor league on prospects (speculations). He's the fund manager of a multimillion-dollar portfolio.

Practically, Moneyball also inspired a lot of so-called "numbers geeks" to get into baseball, and revolutionized the way players are analyzed and developed. Today, every Major League Baseball team has an analytics department. Back in 2003, it was rare...

I spoke earlier this year with one of the folks in professional baseball today who was inspired by the book – Baltimore Orioles Assistant General Manager Sig Mejdal.

Mejdal is a former NASA engineer, sleep scientist, blackjack dealer, and generally incredibly smart guy who knows his numbers. Fifteen years ago, at age 39, he left his job at NASA to pursue a career in baseball after reading Lewis' book.

Since then, Mejdal has been a key part of building World Series-winning teams like the St. Louis Cardinals and Houston Astros and was featured in another baseball analytics book himself, Fantasyland.

And if you think we've already talked too much about baseball, get this... After I stopped talking to Mejdal about a number of things, including how Moneyball inspired him to get into baseball, the conversation turned to finance...

Specifically, he asked me what I thought of Gregory Zuckerman's book, The Man Who Solved the Market. Eagle-eyed readers may remember that our colleague Alan Gula wrote a fantastic Digest in July about how to find your "edge" in investing, in which he mentioned this very book.

This is all to say we're excited about our annual conference, virtual or not. It's an opportunity to invest in yourself, which we learned a long time ago might be the best approach of any.

Our editors and guests will all reveal their best, biggest, and most urgent investing ideas... live. They'll break stories and opportunities you wouldn't be able to find anywhere in the mainstream financial media.

Plus, you won't have to pay any travel costs this year. You can watch all of this from your computer or phone. You'll also have access to on-demand breakout sessions and interactive booths where you can virtually meet, one-on-one, with any of our exclusive sponsors.

We hope you'll join us. Find out how to reserve your spot for this year's event right here.

Finally, one more 'shoeshine boy' story to end the week...

We mentioned a few of these on Tuesday and Wednesday, referring to what the famous patriarch Joseph Kennedy allegedly said just before the 1929 crash, "If shoeshine boys are giving stock tips, then it's time to get out of the market."

Today's story comes courtesy of Jeff Havenstein, an analyst on Doc's team. Jeff wrote in an essay published Thursday in Doc's free Health & Wealth Bulletin about the anecdotal exuberance he was seeing in the market, too, via his good friend John...

Back in December 2017, John kept asking Jeff questions about bitcoin. We've heard many similar stories to this one. It was just a couple days before bitcoin peaked at more than $19,000. As Jeff wrote in the Health & Wealth Bulletin this week...

You see, John is my proxy to the everyday investor. He works for a software company in California, owns shares of the company he works for through his employee stock purchase plan, and has a slight interest in the broader stock market...

When John asks me if I think he should buy more of his company's stock, I get nervous. When he asks me if he should take some profits off the table, I turn more bullish.

This week, Jeff again heard from his friend John. They were talking about arrangements to head to another friend's wedding this weekend, when John "abruptly switched the conversation to stocks," Jeff wrote, "and what he said scared me." More from the essay...

First, he talked about how great his company was doing and how the stock has been skyrocketing. It's a cloud software stock, so it's part of the tech sector that's soared lately...

He then told me that he recently opened up a new brokerage account and bought two new stocks.

I asked him what he bought. And he told me that he put some money into Apple and then some obscure software company with a $2 billion market cap. I've never heard of the company before... And it's literally my job to look at stocks all day. I even asked our senior analyst if he's heard of this company. His response was, "Nope, never heard of it. Sounds made up."

So Jeff asked his friend why he bought those two stocks. He figured there had to be a good reason...

He told me that he bought Apple because he "wanted to own it for the long term" and because shares were "more affordable after the stock split." He said he bought the small software company because he "heard his friend talking about it, and it's up more than 200% this year."

We know shares get cheaper after a stock split, but the total value of Apple is just the same pie split up into a new number of pieces. And as it turns out, Jeff found that the smaller company is a typical software stock. It has little profits, high revenue growth, and an expensive price tag – trading at 13.5 times sales.

Jeff said he truly believes that many investors out there have a similar mindset to John. They see the gains in the stock market, and they want in. Specifically, they see the boom in tech stocks and feel the need to buy...

I don't throw the word "bubble" around lightly. But we're getting close to one.

"Nice story," we told Jeff yesterday.

"Thanks," he replied back, "Poor John."

Are Republicans or Democrats Better for the Markets?

Stansberry NewsWire editor C. Scott Garliss and Jessica Stone discuss what party influence means for U.S. stock market performance.

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and follow us on Facebook, Instagram, and Twitter.

New 52-week highs (as of 9/3/20): Sabina Gold & Silver (SGSVF).

A quiet mailbag today... We'd love to hear your latest thoughts on the markets. As always, you can send your comments and observations to feedback@stansberryresearch.com.

A final note before the weekend begins... Our "virtual" offices and the markets are closed Monday for Labor Day. We'll be back with our regular Digest fare on Tuesday. Until then...

All the best,

Corey McLaughlin
Baltimore, Maryland
September 4, 2020