It's Not About Police Brutality for Everyone

It's not about police brutality for everyone... Some 'protesters' just want to create chaos... Beating and killing innocent Americans... Is this really a slam dunk?... The 'TINA' market is screaming – for now... If this happens in bonds, watch out... A pathetically low bar for good news... My two biggest fears right now...

Today, I (Dan Ferris) need to address the outbursts of violence sweeping across our nation...

As we all know by now, the latest round of civil unrest started about two weeks ago.

George Floyd, a 46-year-old African-American resident of Minneapolis, died in police custody on May 25. Not long after that, an eyewitness video emerged that showed a city policeman kneeling on Floyd's neck for almost nine minutes as he struggled to breathe before dying.

Once the disturbing video went public, massive protests broke out around the country...

For the protesters who did things peacefully, it was about speaking out against racism or police brutality. But for some folks, it wasn't about that at all... and it never has been.

For them, it's not about Floyd. It's not about Breonna Taylor, a 26-year-old African-American medical technician who was fatally shot by police in Louisville, Kentucky, back in March. And it's not about any of the countless victims of foolish violence in our streets.

Although most of the protesters have remained peaceful, it matters less in today's world... Nowadays, we're connected by social media, and the violent episodes garner almost all the airtime and an army of apologists.

The group of so-called 'protesters' that I'm talking about is the worst element of our population...

These folks are responsible for the violence in different pockets of our country... allegedly in the name of protest. But in reality, they're simply using these societal shortcomings as cover to commit acts of vandalism, arson, robbery, assault, battery... and even murder.

It's nothing less than an attempt to uproot the foundation of civilization. It's an effort to plunge us into chaos. And frankly, with parts of our cities burning around us, it's working.

A couple years ago on the Stansberry Investor Hour podcast, I said that I believe civilization began when the first caveman called his neighbor an S.O.B. instead of bludgeoning him with a rock.

In other words, the fundamental act of civilizing is a negative act. It is the refusal to initiate violence in human interactions. Those who fail to refuse that urge – like the people pillaging our stores and destroying our cities – are striking at the roots of civilization.

Throwing these types of people in jail and prosecuting them for vandalism, arson, looting, theft, assault, and murder is the most fundamental act of maintenance for any society that wants to call itself civilized. And yet, we're not doing that... at least not as aggressively as we should be.

It's also an easy litmus test you can use to evaluate comments and attitudes about the protests...

For example, left-leaning news website Slate pitted itself against civilized society last Thursday, when it tweeted, "Non-violence is an important tool for protests, but so is violence." The post linked to a podcast titled, "A History of Violent Protest: Big structural change in America doesn't happen without violence."

One podcast participant called violence, "a lubricant for social change, a form of communication." The participants also likened the recent riots to the American Revolution...

American colonists fought the English monarchy for the right to set up their own civilized society. That's the exact opposite of what these violent groups are doing in America today...

The current violence in U.S. cities and towns is tearing apart civilization through everything from vandalism to robbery to murder. And worst of all, these acts of violence are being committed against innocent people and their properties...

A husband and wife were brutally beaten with pieces of wood in Rochester, New York, while defending their business against looters... Another man was critically injured in Dallas after being beaten with a skateboard and stoned during riots in the city... And David Dorn, a 77-year-old retired St. Louis police captain and current security guard, was shot and killed as he responded to an alarm outside a pawn shop in the city amid overnight looting.

It's critical to understand history, but it's also good to see current events in a different way...

Put yourself in the shoes of someone else. As a Digest reader, you're most likely a U.S.-based investor. So imagine looking at another country as a potential place for your capital...

This country's stock market is rising. It's up about 40% in just over two months. It's on an unprecedented run, including the best 50-day rally in its benchmark index's 63-year history.

But at the same time, violence runs rampant in the streets across the country... an upcoming election will likely herald big, unpredictable changes no matter who wins... and the government is borrowing tons of money, financed by a central bank that promised unlimited quantitative easing ("QE"), pushing its sovereign bond yields to record lows (including the yield on its 30-year bond yield dipping below 1% for the first time ever).

It wouldn't exactly be a slam dunk to invest in that country, would it?

And yet, that's the U.S. today...

It's seen as a slam-dunk equity market – and has been for years.

It's the "TINA" market. The acronym means "There Is No Alternative." The idea is that U.S. equities are the only viable option for investors, since other developed countries' central banks have already pushed interest rates into negative territory but have failed to goose their economies, making their equities less attractive. (It makes you wonder why the Federal Reserve behaving identically wouldn't make U.S. stocks equally unattractive.)

When you add in some of the greatest businesses that have ever existed and the deepest, most liquid markets in the world, buying U.S. stocks today remains an easy decision for many investors here and abroad... despite the unpleasantness of the past few months.

The TINA market is screaming as we inch our way out of lockdowns from the COVID-19 pandemic...

The experts who focus on price action are all bullish... Stansberry NewsWire editor C. Scott Garliss told us recently that commodity trading advisors ("CTAs") – who speculate in the futures market based on price momentum – have gone both long- and short-term bullish. These CTA firms are covering short positions that have frustrated them for two months.

Likewise, you probably aren't worried about violence in the streets – or the unlimited QE or the government borrowing – harming your investments... The trouble is, by the time most folks care, it's usually way too late. And trust me, that day will come. It always does.

What's an investor to do? It's one thing to stay in U.S. stocks because they keep rising. Fine... Do that if you want to.

But you have to learn to keep an eye on the bigger picture developing in the financial markets, too. This is already an era of upheaval and crisis.

If the worries I've expressed in recent Digests (here and here) come even a little bit true, you'll need to try to prepare for the worst before it arrives... not after it already happened.

So here's a tip to get started with your disaster preparation...

If you want to learn how to be a good macro investor, watch the bond market.

Macro issues – such as early-stage political trends, central bank activity, and broad economic developments – don't often show up in the stock market first. Generally speaking, stocks are the least macro-sensitive asset class.

To stay ahead of the curve on big macro developments, you need to follow bonds...

Right now, the U.S. dollar is still the world's reserve currency. And U.S. Treasurys are still viewed as no-risk, highly desirable securities. But these assets are less desirable than a couple of years ago because their yields have fallen very low... The 30-year U.S. Treasury yielded more than 3% in October 2018. Today, it's around 1.6%. It fell below 1% in March.

Declining bond yields generally mean inflation is falling. Really low yields usually mean deflation or worse (times of recession or depression). And negative yields typically mean people would rather lose a little money holding something they view as safe than anything else. (It could also be a currency play, but that's a discussion for another day.)

When negative yields happen, it means an economy is stuck in first gear and can't grow. It also means that the central bank has probably reached the limit of its ability to stimulate economic growth. Keep that in mind as you watch your equity accounts continue to soar.

If U.S. Treasurys wind up trading at negative nominal yields, it will be a bad sign...

Imagine an investor preferring the certainty of losing a small amount of money rather than taking any amount of risk in other securities. That's what negative-yielding bonds mean.

It's a major cause for concern. We're not there yet, but we keep inching closer to that day.

As for the stock market...

The COVID-19 pandemic, as well as the ensuing bear market and lockdown, have left us with a pathetically low bar for good news. We saw two incredible examples last week...

On Thursday morning, American Airlines (AAL) announced that it will restore its domestic flight schedule next month to 45% less than its July 2019 schedule... and its international schedule to 80% less than its 2019 schedule.

And yet, the stock jumped 41% in one day on the news. From a glass-half-full perspective, I guess 45% less is better than 95% less... and 80% less is better than 100% less.

Then on Friday, the government announced that the U.S. added 2.5 million jobs in May. On the surface, that sounds good. But it still leaves the unemployment rate at a horrendously high 13.3%. Still, the market loved it, going straight up... by as much as 3% on Friday.

Valuation is a terrible timing mechanism, but it eventually becomes a natural barrier to equity returns...

The recent enthusiasm has left the S&P 500 Index trading at around 2.3 times sales. That's just shy of its all-time high valuation of 2.4 times sales, reached in February.

History isn't on equity investors' side, either... Macro investor Cullen Roche noted on Twitter that U.S. stocks fell 25% during the Spanish Flu pandemic of 1918 and went sideways for about four years.

Roche acknowledges that history doesn't repeat but only rhymes, and that "predictions are hard... especially about the future." However, he still thinks, "The stock market could easily be dead money for a few years as it's already discounted a recovery."

That leads into my two biggest fears right now...

Everyone seems to believe that the bear market has ended just as quickly as it started. But my second-biggest fear is that it's not over...

In that case, I believe we could see the stock market performing the double-hammerhead maneuver familiar to acrobatic pilots. The market would climb straight up... stall out when it can't go any higher... and fall out of the sky like a dead bird before leveling out again.

My biggest fear is even worse than that... What if we're in the midst of a "Fourth Turning" crisis, similar to the era from 1929 to 1945 that I talked about in the May 22 Digest?

Only this time, the Fourth Turning will end with a massive change to the global economic regime... The U.S. dollar will lose its worldwide reserve currency status... And the government and other institutions will gain more power over individuals, who too often find themselves on the horns of a dilemma – like submit or suffer imprisonment... or worse.

The U.S. dollar makes up about 60% of foreign-exchange reserves and 80% of global foreign-exchange transactions. If it were to wind up at 30% of reserves and 40% of global transactions, it would still be an important currency... but it might not be No. 1 anymore. And even if it were still No. 1 at that point, it would likely decline in value quite a bit.

One of my friends just introduced yet another historical paradigm to the mix...

During a recent discussion, hedge-fund manager Jeff Ross of Vailshire Capital Management brought up the "Go-Go" years of the late-1960s, followed by a decade of "stagflation."

Back then, a bubble in technology ("Powertron Ultrasonics" was a real company) and blue-chip stocks ("The Nifty Fifty") had convinced investors that equities were unbeatable and would never fall.

Of course, that soon proved to be untrue... The S&P 500 plunged 53% from its January 1973 peak to its October 1974 trough. And it's still not true now... no matter how wonderful it feels for the market to keep ripping higher amid all the surrounding chaos.

I realize that it doesn't pay to get bearish when the market is going from "bad to less bad," as my colleague and True Wealth editor Steve Sjuggerud likes to put it.

I can't know for sure when it'll all turn around and head south – no one can...

But I can know the return prospects of businesses trading at peak valuations. And once again, after a big drop and subsequent run higher, they're poor for the overall market...

Regular Digest readers know economist and portfolio manager John Hussman is one of my go-to sources to track how expensive or cheap the market is at any given time. And his latest missive paints an ugly picture for long-term U.S. equity returns from current levels...

I expect that over the completion of this cycle, the S&P 500 will most likely lose roughly two-thirds of its value as measured from the February 2020 highs. Even that retreat would only bring the S&P 500 to historically pedestrian, run-of-the-mill valuations.

As someone searching for stocks that I can tell my subscribers to hold for years, I'm concerned... Without the unpleasantness of the COVID-19 response, I doubt we would've found the great deals we've uncovered recently (and again this month).

Overall, my tune hasn't changed...

The violence and riots that we're seeing in our cities under the guise of wanting change are just the latest pieces of evidence. Perhaps one day, we'll look back on the period from 2008 through 2030 or so and say, "Thank goodness, it's over"... the same way folks did in 1945.

No matter what, I've never been happier to be holding plenty of cash, gold, and bitcoin. And yes, I'm also grateful for the opportunity that the COVID-19 pandemic and response gave us to get into some of the world's greatest businesses... which rarely get this attractive.

The company we've identified in Extreme Value this month is one of the greatest businesses you'll ever invest in. Unfortunately, I can't reveal too much in today's Digest. But my Extreme Value subscribers will get all the details in the June issue this Friday evening.

Now, Extreme Value isn't for everyone. However, if you're a long-term investor who wants to put capital into some of the greatest businesses that have ever existed at prices that rarely get this attractive, you can gain instant access today at the absolute lowest rate we've offered in years. Get started right here.

And in the meantime, please be careful out there...

Bone up on your history. Learn to imagine that things might be very different in the next decade from how they were in the last one. You must start preparing before it's too late.

New 52-week highs (as of 6/5/20): Home Depot (HD), JD.com (JD), KraneShares MSCI All China Health Care Index Fund (KURE), NetEase (NTES), Flutter Entertainment (PDYPY), and Sea Limited (SE).

In today's mailbag, feedback on Porter's latest bold call... Scott Garliss' poignant D-Day remembrance... and the "$100 Challenge" Masters Series essay on Saturday. Do you have a comment or question? Send it to feedback@stansberryresearch.com.

"Porter's call affected me in two ways. First, in the past I had seen recommendations for a good many of the stocks in the Forever Portfolio, bought them, and was holding them at the time of his call. This made me hold on and not sell them ignoring trailing stops. Second, it made me add new money to buy the ones on the list I did not hold. Both good things!

"I'll make this short. Thanks Porter and team for putting me in these stocks and Porter especially for keeping me in and adding new money at a time of real market fear." – Stansberry Alliance member John P.

"Thanks to Scott Garliss for sharing his grandfather's story and his tribute to all the veterans who fought in WWII to preserve the freedoms we enjoy today. My father spent three and a half years in a Japanese POW camps and was one of the lucky ones to survive that ordeal.

"I often wonder how today's generation would fare if placed in a similar situation. I'd like to think they would step up to the plate... but somehow I have my doubts." – Paid-up subscriber Martin P.

"I enjoyed your story about WWII and B-17's. My uncle too talked little about his B-17 war experiences, but late in life he started to write stories about them. They were short stories about particular missions...

"He's now 101 and living in Tucson but recently he combined all of his stories in a book that is available at Amazon titled Flying with Col. Chuck. It's free on Kindle or $11.50 in paperback. All of the proceeds go to 100th Bomb Group Foundation. It's a good read." – Paid-up subscriber Curt S.

"My father was in WWII, though not at D-Day. He was born in 1905, but in 1942 he went to enlist in the Army. Yes, he was 37 years old. He was also blind in one eye. The Army took him.

"While he told many stories about the War, my favorite was when he was a guard in a German POW camp in Maryland... I asked him how they could give the prisoners their orders, as they all spoke German. Dad said that was easy, we just found a German who spoke English. That was Hans Grebner (maybe not the correct spelling).

"The War ended & my Dad said to Hans: 'Germany has been destroyed. Why don't you stay in the US & I'll sponsor you so you can become a citizen!' Hans said: 'Thanks, but I'm going home.' I asked my Dad why Hans turned down his offer. He said: 'All soldiers just want to go home.' After some time, Hans wrote my Dad & asked if the offer was still open. My Dad said yes. So Hans & his wife moved here & became very successful.

"Hans always wanted to repay my Dad, but my Dad wouldn't let him. Dad felt that in life you should always do what is right, and you shouldn't get paid for doing what is right." – Dave S.

"I loved the story about your Grandfather and WWII. Here's to the greatest generation!" – Paid-up subscriber Robert D.

"Dan Ferris; Wow! Great article. So true. I am a paid Alliance Member, and your information is so good I get spoiled and take it for granted. This piece by Dan Ferris is really an eye opener.

"I've been trading and investing since 1986, I have paid a huge tuition (Losses) in learning different aspects of the market and investment strategies.

"In the last few months, I have been trying to unlearn a lot and simplifying an investment strategy for friends and family who are not as addicted to 'The Game' as I.

"Dan's article really hit home as my simplified strategy is a blend of, to quote Mark Minervini, 'I execute a trade only at the point of alignment across the spectrum with regard to companies' fundamentals, stock price, volume activity, as well as the overall market conditions.'

"Dan's words reminded me that all I am doing is taking each of those pillars of alignment to eliminate companies or assets that do not align properly and as a result do not get a commitment of my money in that asset. Great job." – Stansberry Alliance member Brian C.

"No, I did not throw $100.00 out the window. I threw 22% of 2 months earnings out the window in the course of 4 days. I made my first entry into stock investing 4 days before the 1987 October crash. It was a huge loss for me at the time as I was a substitute teacher making entry wages.

"Because of the experience I researched every US market crash. I found they all had a similar pattern: The ability to buy stocks for fractions of the going price: $100 could buy $1000 worth of stocks. 2. The government printed more and more money. I have avoided the 2003 drop and the 2008 drop. I bought again when I no longer knew of traders doing any buying.

"It was hard to buy when NO one else was doing so but it has worked out well so far. Yes, I did buy again in late March and will see where it goes. I do have a fear now as the US government is buying bonds of US companies which is a scary extension of the printing of money concept." – Paid-up subscriber Joe L.

"Trading options, I lost $27,000 in the market and it was hard on me until I let go of all my emotional attachments. This was my $100 bill challenge. I'm still in the market, I live a life of abundance, I'm filthy rich already in my mind.

"I am $5000+ in debt right now because I've had to fund my life with a credit card to get through. I predict I'll be far better solvent by the end of the year.

"Reading about the $100 bill challenge and the emotional aspect made so much sense. Thanks for sharing." – Paid-up subscriber Loren F.

Dan, I read the article completely and was it really good. The act of throwing a $100 bill out the window is more than a metaphor. It is a measure of how ambitious are you, how strong is your drive to win. I would not throw any money out the window but have certainly wasted it [on] some stupid things.

"Another great article and getting into position to listen to this week's podcast. Thank you for your awesome teachings." – Paid-up subscriber Art S.

"Well after reading this e-mail I thought alright, I am ready to do it. I am 58 years old and though I have a decent, though not great, retirement account, things have been looking like I should be putting more money in investing to make sure I don't run out when the time comes.

"I am looking to invest in companies that I will not tap for 8-10 years if I need to. My health is not great so I am not one who can wait until 70 to take Social Security.

"I must admit that when I thought of throwing the $ out the car window on the freeway I thought but what if no one finds it. So I don't know if this counts but I gave an extra $100 to the Oregon food bank instead. It is not random so might not count but it was definitely $ that I was not intending to give away. I am all in." – Paid-up subscriber Lisa L.

Good investing,

Dan Ferris
Vancouver, Washington
June 8, 2020