Is The 'Melt Up' Back on Track?
Is the 'Melt Up' back on track?... Yes, it is, says Steve Sjuggerud... 'The Melt Up peaks when there's no fear left'... That's not the case today... Rock-bottom interest rates and money on the sidelines... The stiff tailwinds for real estate...
Is the 'Melt Up' back?...
That question has been on the minds of our colleague Dr. Steve Sjuggerud's subscribers for the past few months... And he addressed the topic directly in the most recent issue of his flagship True Wealth newsletter.
In short, Steve says the answer is yes. As he wrote in True Wealth on June 19...
Two things are crystal clear to me right now:
- It's time to get back into stocks. And...
- The Melt Up is back.
Steve detailed the big reasons why to his subscribers last month...
Take the tech-heavy Nasdaq Composite Index, for example... As we've written many times, it has outperformed the benchmark S&P 500 Index all year long.
Early last month, the Nasdaq flirted with and then started to hit new all-time highs again. It moved back above 10,000... a sign to Steve that the market had put COVID-19 fears in the rearview mirror (even if more cases could happen.)
At the same time, one of Steve's most reliable "bear market" health indicators was flashing a green light. In the simplest English, more individual stocks were going up in price than going down.
So as we noted back in the June 4 Digest, even amid a 40% rally in the major U.S. stock indexes from March's bottom, Steve said it was a safe time to get "back in" stocks and that much more upside remained...
Longtime readers know I always follow the trend. And my friend, the trend is up. Who are we to argue?
This week, Steve gave another update on his Melt Up thesis...
He sat down with our colleague Jessica Stone (who, as we hope you've seen by now here in the Digest and on our YouTube page, interviews our editors on a variety of topics every day)...
As longtime Digest readers know, at the start of the year, Steve expected stocks to continue to hit new highs and eventually reach a peak Melt Up – a period marked by an irrational, greedy investor euphoria, like during the dot-com bubble and the 2008 housing boom – before ending in an ultimate market top.
Then, COVID-19 hit... And instead, massive fear torpedoed a historically long bull market.
As Steve tells Jessica, "We never really reached that point of true Melt Up, where it's just a frenzy and everybody is crazy for stocks." And we're not there now, according to Steve...
People at the end of the Melt Up are willing to completely disregard reality. They don't want to hear the rational analysis of what's happening. I don't feel at all that we're at that point yet.
People are still fearful: Is the economy going to survive coronavirus?... What's going to happen with the airlines? Are we ever going to go to a concert again? Is there going to be a second round of COVID?
Investors are more fearful than greedy right now. At the peak of a Melt Up, it's all greed and no fear. The Melt Up peaks when there's no fear left.
Steve has become well known over the years in the investing world for his Melt Up thesis... It's safe to say he popularized the idea and the term that you'll now see in mainstream outlets, as well as throughout other investment-firm research...
But when Steve first started writing about it, the idea was simple...
As Steve says, it had a lot to do with what's proven to be the Federal Reserve's go-to 21st century "easy money" policy that has kept stock prices churning higher no matter what...
My point was that the Fed is going to cut interest rates lower than you can imagine and keep them there longer than you can imagine and that would cause stocks and other assets, like real estate, to soar higher than you can imagine.
That's exactly what happened. And then, COVID ultimately hit, and now, the Fed has once again cut interest rates to unimaginably low levels, and the same could happen...
Indeed, the Fed's 17 governors have projected 0% interest rates through the year 2022. At the very least, this indicates that this no-yield environment will be around for a while.
To Steve, that means more people will put money in the stock market in search of a return. Some people describe this as the "TINA" effect – "There Is No Alternative." As Steve says...
Zero percent interest rates force everyone to figure out something else to do with their money.
It doesn't matter how much money you have – $10 million, $100 million – zero percent on whatever amount of money you have is still zero, so you are being forced to do something with your money, and stocks are where a number of people are going to find themselves.
So the Melt Up will roll down its track...
But importantly for timing purposes, this inevitable flow into stocks is a rational decision made by yield-starved investors who were once relying on a few percentage points of interest off of other assets.
And rational decisions are not markers of a peak.
Eventually, Steve says we'll see mass irrational, Pets.com-like investing behavior like we did at the turn of the century and in 2008... and not just from a bunch of new millennial investors getting their investing feet wet, like some are today.
But we're not seeing this kind of behavior everywhere just yet...
Today, Wall Street speculators actually have significant bearish bets on...
As our colleague Jeff Havenstein wrote in yesterday's Digest...
Fear and uncertainty are here to stay – at least for the next few months.
It may not be at the all-time record we saw in March. But as we wrote on Monday, it's still at significant levels... (Significant enough that it's a great time to use one "protection selling" strategy in particular, as suggested by Retirement Trader editor Dr. David Eifrig.)
Stansberry NewsWire editor C. Scott Garliss reported earlier this week that the American Association of Individual Investors ("AAII") weekly sentiment survey shows optimism at a nine-month low among its 2 million member retail investors.
Only about 22% of those surveyed are bullish, 32% are neutral, and about 46% are bearish. And these sentiment numbers are occurring despite a 40% rally off the March 23 lows. As Scott says...
These readings suggest investors will be sitting on their hands. They're not pulling money out of the market, but they're not putting any new money to work either. They're paralyzed by the rally and all of the scary stories they're hearing in the news.
Investors are waiting for an event that tells them they need to commit one way or the other. Unfortunately, the ongoing coronavirus outbreak makes it hard to predict that event. By the time it tells us which way to go, it's likely many of the big gains will have been made.
Institutional investors are largely acting the same way, according to Scott. More than $1 trillion worth of assets that have gone into money market mutual funds since the beginning of March are still there.
So with investor fear still prevalent and rock-bottom interest rates in place for the foreseeable future, to Steve, this means "we may have 18 months of really good times in stocks."
And he and his research team will continue to keep subscribers updated in his True Wealth franchise of letters, as he did last month...
Most people don't understand that the market looks ahead. It has already priced in yesterday, and today. The market has assessed the economic threat from COVID-19, and it has moved on.
Don't get me wrong. I don't mean that COVID-19 is behind us. I don't mean that we can't have a second wave or more struggles ahead. What I mean is that the stock market has already assessed these factors, and it's not worried.
All the while, one sector has stayed strong...
That's real estate. We've written about this trend a lot over the past few weeks, and it can't be said enough...
In a world where it seems like a lot of things are changing all at once (more trillion-dollar stimulus appears to be on the way, for instance), sometimes it can be easier and less stressful to bet on the things that won't change – like the basic human need for a place to live.
In general in the U.S. today, there isn't enough supply to fill the demand that so many statistics indicate there is for housing.
Supply remains near its long-term average, while new home sales and mortgage applications continue to rise. New mortgage applications hit a number not seen since 2009 last week, 33% higher than a year ago, fueled by continued record-low interest rates.
And millennials – now the biggest generation in numbers in the country today – are looking more and more at buying homes, which are more affordable than ever.
These macro factors are big tailwinds for the entire real estate sector...
So first off, if you haven't at least considered refinancing your current home loan, you owe it to yourself to look into doing so today. Interest rates have never been lower, but you will need to weigh your breakeven costs.
Moreover, investors who can spot smart opportunities today can generate lucrative returns in the years ahead. For the longer term – even longer than the next Melt Up run – real estate is where Steve has most of his investable net worth... about 75%, in fact.
The point is... while there will be opportunities in stocks in the months ahead, Steve says don't ignore real estate either. For more insight and detail on how you can get in on the burgeoning housing boom, give Steve's newest service, True Wealth Real Estate, a try.
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In today's mailbag, feedback to a subscriber's note from yesterday and a part-time rancher's strategy for combating rising food prices. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"To subscriber DB and comment about Great Britain giving away Hong Kong to China v. US State Department advice. Doesn't he remember the intelligent giveaway of the Panama Canal by President Carter??? Another economic and political blunder of major significance!!" – Stansberry Alliance member G.Z.
"I have a couple of comments and observations on the rising food prices. Backstory: I raise cattle as a part-time business – I don't think I've purchased beef at a grocery store in 5 years, nor ham/pork, and only chicken and fish (because I'm a bad fisherman) and we keep our chicken for eggs, not meat.
"First a comment: While you see protein (beef and pork) prices rise at the grocery store, I am NOT seeing it at the auction yards where I sell my beef cattle (on average, I get about $1.45 to $1.55 per pound for my product). The breakdown is in the wholesale processing and packing plants...
"Two reasons – actual beef processors are getting sick with Covid-19, you've seen that in the news, so the plants shut down and that disrupts the supply chain. Secondly, the disconnect between what we producers get for our cattle and what you consumers pay at the market has been going on for years. Four packing companies, Tyson Foods, JBS SA, Cargill Inc and National Beef, control 70% of the packing industry. The DOJ is now looking into possible antitrust violations. I'll get off my soapbox now.
"Now, how to survive the market disruptions. While you may be aware of Omaha Steaks, there are many private producers that will sell you their beef product directly from their ranch to your freezer. All it takes is a little research on the 'net to find a provider in your area. For instance, we have many ranches here in Texas that will sell processed beef directly to the end customer. All of them sell only locally, as Texas inspected beef (versus USDA Inspected) can only be sold in-state. My family also sells beef to friends, primarily on word of mouth; we let them know when we are going to process a steer, and ask them if they like something. We usually sell a quarter to half a steer every six or seven months.
"I can't speak for how other states work, but if you do contact a local provider, ask if the meat is inspected. You may want to contact your state agriculture agency to find out what the rules are. Certainly, nothing is guaranteed, but if you find a local provider who has been in business and selling locally for a good while, they will be selling you a good product that is going to be good clean beef at a price that will be equal to or less than the price at the grocery store and of better quality...
"Now to fruits and vegetables. In our area Covid has shut down farmers markets. There is one of several truck farms we would buy from that moved from selling at a farmer's market to pre-order and pick up at the farm. We usually buy about $100 worth of veggies a month from them, whatever is fresh and ready at that time. This includes carrots, radishes, potatoes, zucchini, summer squash, lettuce, etc.
"If your area has farmers markets, or had them but got shut down due to social distancing issues, it shouldn't be too hard to find who the sellers are and see if they sell direct to consumer. Just have to do a little research, just do a search on the 'net or if you Facebook, ask your circle of friends. Once again, if the provider has been in business for a good while, you will be getting a great product, better than what you can at the grocery store, and helping out the farmer at the same time. A true Win-Win.
"Bon Appetit!" – Paid-up subscriber Dave C.
Corey McLaughlin comment: Wow, Dave, thanks for all the tips and suggestions. I bet many subscribers will find them helpful. (Along these same lines, I just bought local seafood from a wholesaler to eat over Independence Day weekend.)
All the best,
Corey McLaughlin
Baltimore, Maryland
July 8, 2020