'I'll Be Disappointed if We Don't Make 400%'

Trump warns of fire and fury... Safe havens rally... More on the Bond God's big bet... 'I'll be disappointed if we don't make 400%'... How much further could the bull market run?... A 'Melt Up' chart you must see to believe...

Trump fires back at North Korea...

As you've likely heard, tensions with North Korea took a turn for the worse on Tuesday...

On Monday, the country's state-run media warned the U.S. it would "pay dearly" for imposing a new round of U.N. sanctions over the weekend.

Yesterday, the Washington Post reported that the country may have already developed a small nuclear weapon that could reach the U.S. And President Trump had apparently heard enough. As Bloomberg reported...

President Donald Trump ratcheted up his rhetoric against North Korea to an unprecedented level Tuesday, warning Kim Jong Un's regime will face a devastating military strike if it continues threatening the U.S.

"North Korea best not make any more threats to the United States," Trump told reporters in Bedminster, New Jersey. "They will be met with fire, fury and, frankly, power the likes of which this world has never seen before."

It's unclear exactly what Trump had in mind. It's also not clear whether this was a planned statement or simply another off-the-cuff remark. (We will note that Rex Tillerson – Trump's Secretary of State – tried to downplay the seriousness of the situation this morning.)

Regardless, the markets took notice...

Traditional "safe havens" like U.S. Treasury bonds rallied this morning. Gold and silver – our favorite "chaos hedges" – were up sharply. And while U.S. stocks were little changed, volatility jumped higher again.

Is this the start of the first meaningful correction in nearly two years?

Or simply another speed bump on the way to new highs? Unfortunately, it's too soon to be certain. But regular readers know we believe it's simply a matter of time before stocks move lower and volatility moves higher again. As Porter noted on Friday...

How much longer can this go on? No one knows. But for the first time since 2010, we're now hitting levels on our complacency indicator that suggest a market correction is imminent...

This indicator hasn't warned about every correction. (It correctly warned about seven of the last 10.) But it hasn't produced any "false positives," either. In other words, while it doesn't spot every correction before it arrives, when it has told us that a correction is coming, the correction always does. (To be perfectly accurate, one of the resulting corrections only saw a decline of 8.4%. All of the others were in excess of 10%.)

You can see the key threshold level in the chart above. Drops in measures of fear below this level (30) always indicate a correction or bear market within 12 months. We don't know if the warning signal we're getting now means that the "big one" is imminent, or if we are only going to see a "small" correction. But we know something is coming. We know it's coming soon.

'I'll be disappointed if we don't make 400%...'

Yesterday, we noted that DoubleLine Capital's Jeffrey Gundlach – the so-called "Bond God" – also expects a correction.

In an interview with Bloomberg this week, Gundlach said he recently bought put options on the S&P 500 Index. He also said betting on higher volatility is his highest-conviction trade right now.

Gundlach shared more details on the trade in an interview with financial-news network CNBC on Tuesday afternoon. And once again, his comments should sound familiar to Digest readers.

First, he noted that thanks to today's record-low volatility, put options are unusually cheap. As we've discussed, this means it won't take a large decline in stocks to push prices significantly higher...

Gundlach expects his bet for a decline in the S&P 500 will return 400%.

"I'll be disappointed if we don't make 400% on the puts, and we don't even need a big market decline for that to happen," Gundlach said. He said that in his firm's analysis, volatility is so low that it can make a big return by buying put options – bets for a decline – on the S&P 500 for December.

He also confirmed that this bet does not mean he's bearish on stocks. Like us, he believes the bull market likely has further to run. Instead, he said it's primarily a bullish bet on volatility...

"It's not really a bear call on the S&P 500. It's more of a bull call on volatility," he said...

"I think going long the VIX is really sort of free money at a 9.80 VIX level today," Gundlach said. "I believe the market will drop 3% at a minimum sometime between now and December. And when it does I don't think the VIX will be at 10."

Gundlach reiterated his expectations for a snap higher in the VIX once volatility picks up, since hedge funds have piled heavily into bets that volatility will remain low. The investor believes the VIX could double to 20...

How much further could the 'Melt Up' really go?

While we're prepared for a correction in the near term, we've also discussed why we believe the "Melt Up" will continue. In short, we don't yet see the telltale signs that accompany the end of a speculative boom...

Valuations are stretched, but not outrageous... investors are far from euphoric... and the market's "vital signs" remain healthy today.

And yet, we know many readers still aren't convinced.

We understand... Putting those arguments aside, this bull market is certainly getting "long in the tooth." It has already run for more than eight years – making it the second-longest bull market in history – and the major U.S. indexes are up hundreds of percent from their financial crisis lows.

How much longer can the rally reasonably go on? Is Steve Sjuggerud's "Dow 50,000" prediction even possible... or is it just a clever marketing gimmick?

If you're among the skeptics, the following chart is for you. It compares today's bull market with the longest bull market in history. And it suggests Steve's forecast isn't as far-fetched as it may have initially appeared...

As you can see, despite its impressive run, the current bull market is dwarfed in both length and total return... From its post-crash low in December 1987 through the dot-com peak in March 2000, the S&P 500 Index rose nearly 600%. That's more than two times the return of this bull market so far.

You can also see that the two bull markets have followed a remarkably similar trajectory so far. This suggests significant gains could remain ahead.

For example, when compared with the 1987-2000 bull market, today's date would fall in late April 1996. As the folks at Bespoke Investment Group pointed out in a recent note, warnings about "excesses" in the stock market were starting to appear at this time. But it was still seven more months before then-Fed Chairman Alan Greenspan's "irrational exuberance" speech in December 1996... and four years before the bull market finally peaked.

Of course, we aren't saying the current bull market will continue to follow this path. There are no certainties in the market. But it shows that Steve's Dow 50,000 prediction – representing a 100%-plus rally from today's levels – isn't just possible... It has happened before. And again, this was just the blue-chip S&P 500... The tech-heavy Nasdaq Composite Index more than tripled over the same period.

In other words, if you still aren't positioned to take advantage of this possibility, you could miss out on the biggest gains of this entire bull market. Click here to learn more.

New highs (as of 8/8/17): Apple (AAPL), Aflac (AFL), Allianz (AZSEY), Baidu (BIDU), iShares MSCI BRIC Fund (BKF), Emerging Markets Internet & Ecommerce Fund (EMQQ), National Beverage (FIZZ), iShares China Large-Cap Fund (FXI), JD.com (JD), iPath Bloomberg Copper Subindex Total Return Fund (JJC), KraneShares CSI China Internet Fund (KWEB), Lockheed Martin (LMT), iShares MSCI China Index Fund (MCHI), PNC Financial Warrants (PNC.WS), Tencent (TCEHY), Weight Watchers (WTW), ProShares Ultra FTSE China 50 Fund (XPP), Direxion Daily FTSE China Bull 3X Fund (YINN), and short position in IBM (IBM).

In today's mailbag, a tale of lost love... and a longtime subscriber shows it's never too late to take control of your financial future. Send your notes to feedback@stansberryresearch.com. As always, we can't respond to every e-mail, but we read them all.

Really? 'If by law, you are unable to give personal investment advice, then why do you exist? Just to send out worthless emails?' – Paid-up subscriber Jeneen B. (from the August 7, 2017 Stansberry Digest.) I think I was married to her once." – Paid-up subscriber Tom S.

"Good afternoon to all of you... I would just like to take a few minutes and respond to Mr. Stansberry's request [and share] the financial benefits that I have experienced since I've subscribed to his services over these many years.

"I'll begin with some history of how long I have been following Porter's views and advice! I first became aware of Mr. Stansberry through the [Fleet Street Letter] from many years ago. At that time, along with that publication, I received the 'Livingston Letter' from Dr. Livingston. This has been several years ago (how many I am not sure!), but I can tell you that the advice, both financial and health-related was interesting and valuable! This was my first introduction to the 'logic and reasoning' behind investing, other than saving money and placing it into CD's or mutual funds in my employer's plan.

"Through this period, I rode all of the 'ups and downs' of the market and for the most part, I lost thousands of my paycheck contributions! Most of this loss can be attributed to my reluctance to follow any sound investment advice and by me following the old adage of 'buy and hold,' regardless of the market conditions. Needless to say, this did not work out well for me! I ignored Mr. Stansberry's recommendations because I felt that I wasn't capable of understanding all that was required to be a successful investor on my own, in addition to my belief that I was not 'a large enough fish in this investment pond' to take advantage of such ideas. I am not a gambler and the dollars that I earned were too precious to me and my family to ' cast to chance' so to speak!

"The advice that I had received from both Mr. Stansberry's publications and others would have benefitted me greatly – had I applied some thought and effort and followed even a fraction of what I was learning! But I am a loyal soul, and have continued to subscribe to as many of Mr. Stansberry's, Doctor Eifrig's, and Dr. Sjuggerud's publications as I feel that I can afford. Dr. Richard Smith's TradeStops is another service recently purchased and that I find extremely valuable! Through these many years now, I realize that I cannot afford to maintain my financial future without this team's assistance, even though I feel that I still can't jump on every offered service! I would love to immediately, but I have to bide my time and most of all, my income – unfortunately.

"So this brings us up to the present! I am a recently retired police officer and firefighter after 30 plus years, so I am fairly 'long in the tooth' from an investment perspective. I receive a portion of my pension (a divorce short-circuited my financial plans!!!) and so I have gone back to working for another fire department at my ripe old age! I have many interests (including your razor Mr. Stansberry!) that I am reluctant to pursue due to my financial situation, but I have made many sound investments through the efforts of 'The Team' at Stansberry Research. The knowledge that your Team has provided to me and my increasing understanding of how the market forces interrelate are truly PRICELESS! I am nowhere close to being a millionaire, but I have recovered many of the losses that I've previously mentioned and I have a nice Roth that is comprised of your recommendations. This Roth has experienced a solid return for years now! Only one of the stocks is down in the last 4 years...

"I am a proud lifetime member of Stansberry's Investment Advisory... I have also purchased a lifetime subscription to TradeStops, and I am thrilled with this service also! I cannot even conceive investing without Dr. Richard Smith's help. Stansberry's Big Trade will be next – providing this window of opportunity isn't closed from a market standpoint. I've never done options trading and it sounds like fun! (With Stansberry's guidance of course!!!)

"In closing, I would just like to say that had I educated myself years earlier, as I wished that I had, I feel confident that I would be reporting to you all that, in fact, I have a portfolio exceeding a million dollars... I honestly believe that your services are undervalued considering the potential that they possess to anyone who will LEARN the concepts and FOLLOW the plan. I feel honored and fortunate to be a part of this enterprise! Thank you all! P.S. Porter, have fun fishing and take first place, ya hear?!!!" – Paid-up subscriber Matt McDonald

Regards,

Justin Brill
Baltimore, Maryland
August 9, 2017