New Warnings From the World's Greatest Investors

New warnings from the world's greatest investors... Tepper turns cautious... Icahn: The market is 'way overvalued'... Gundlach: Fiscal stimulus is coming... 100% chance of recession in the next 12 months?... Why gold could double... More bad news for automakers... How to profit as the credit bubble pops...

Many of the world's most successful investors are speaking out about the growing risks in the market today...

In recent months, we've shared warnings from legends like Stanley Druckenmiller, George Soros, Paul Singer, Ray Dalio, and Julian Robertson, just to name a few.

This week, we've heard from several more...

First, in an interview with financial-news network CNBC on Monday, David Tepper – the billionaire founder of hedge fund Appaloosa Management – admitted that he is "pretty cautious" on the market today.

Now, that may not sound too concerning... but it's important to note that no one – except perhaps our colleague Steve Sjuggerud – has been more bullish on U.S. stocks over the past several years...

On September 24, 2010, just as the Federal Reserve's first quantitative-easing ("QE") program was winding down, Tepper appeared on CNBC and made a bold prediction. While many were worried about the market, he believed U.S. stocks were a "can't lose" proposition.

He said if the economy was actually recovering, stocks would head higher. But if it stumbled again, the Fed would step in with a second round of QE... and stocks would still head higher. As he put it at the time, "What, I'm going to say, 'No, Fed, I disagree with you, I don't want to be long equities?'"

His call was spot on. The Fed launched QE2 that fall. And his bullish "Don't fight the Fed" comments are credited with kicking off the big rally that followed.

Tepper has been right nearly every step of the way since the bull market began in 2009... And he has made billions of dollars as the rally continued longer than most folks expected. In fact, it wasn't until last fall that Tepper began to temper his bullishness, noting that while he wouldn't say he was bearish, he wouldn't call himself a "bull" any longer.

Yesterday, he moved a bit further from his longtime bullish stance. He still denied being "outright bearish" on the market just yet, but he sounded as cautious as he has since the rally began. From the interview...

I just don't see the market having the ability to move up that much... The upside [versus] downside [risk] is not the most favorable I have seen. As you know, typically the markets go up over time, but it's not a great environment [right now].

In particular, he pointed to weakening corporate profits and uncertainty around the upcoming presidential election, and he noted that his fund is "pretty light in the stock market" and is holding "a lot of cash."

But Tepper wasn't the only notable name to speak with CNBC yesterday...

Billionaire Carl Icahn said he, too, is cautious. Regular readers may recall the legendary activist investor published a warning titled "Danger Ahead" last September. Yesterday, he said he has only become more concerned about the long-term outlook since then.

He believes we have a "false market" – largely propped up by central-bank manipulation – and said that many S&P 500 companies are "way overvalued" today.

But like Tepper, Icahn said he isn't getting extremely bearish just yet. While the long-term problems are clear, he said it's "anybody's guess" how long the market can continue to move higher.

Fixed-income guru Jeffrey Gundlach – CEO of investment firm DoubleLine Capital – also spoke yesterday. The so-called "Bond God" reiterated his recent call for a long-term bottom in interest rates, noting that U.S. Treasury yields have been quietly rising since this summer...

Pretty much every maturity in the U.S. Treasury bond market has a yield that's about at or above its 200-day moving average... So it seems to me that something's going on in the bond market and that's why I turned negative on most assets during July and frankly that's been the right position to be in ever since then.

This idea that interest rates are going to stay at zero forever became popular in July, and I know from my years of experience in this business when you hear words like 'forever' or phrases like something 'can never happen,' like they were saying interest rates could never rise, it means it's about to happen, and it's already happening.

Gundlach believes some form of "fiscal stimulus" – or direct government borrowing and spending on "real" things like infrastructure – is likely to occur as the unintended consequences of super-low interest rates and QE grow worse...

I think we're heading to a fiscal stimulus regime no matter who wins. I think Trump would do more of it than Mrs. Clinton but I think either way you're heading in that direction... Fiscal stimulus is coming, and it's fundamentally bond unfriendly...

Because fiscal stimulus would involve government spending on materials and services rather than financial assets, it could push up prices in the real economy. The government would also have to borrow more money (issue more bonds) to finance these programs.

This combination of higher prices (the Fed's measure of inflation) and greater bond issues could cause bond prices to plunge... and interest rates to rise. (At least in theory, Japan has tried these programs in the past without much success, though proponents claim they simply didn't spend enough.)

As we've discussed, governments and central banks are certain to continue trying to stimulate the economy. In the end, this will be incredibly bullish for precious metals... and terribly bearish for bonds. But the path they'll take is less certain...

While we've heard rumors of QE "tapering" in Europe and Japan, the reality is that central banks have given no indication that this is being considered. Likewise, despite the obvious problems of negative-interest-rate policy, central banks have shown little intent to reverse it.

In short, it's simply too soon to say whether Gundlach will be correct. But if he is, it could hasten the bond-market crisis ahead.

Gundlach is also cautious on stocks. He said he has been avoiding or shorting weak sectors like consumer-discretionary stocks all year and is "up tremendously." He also said he would turn "particularly negative" on the broad market if the S&P 500 closed decisively below the 2,130 level.

Finally, former hedge-fund manager and Goldman Sachs alum Raoul Pal shared a warning that should sound familiar to regular readers. In an interview published Monday on financial-news website MarketWatch, Pal echoed Porter's recent prediction that the U.S. will fall into recession within a year: "The business cycle points to that... and 100% of all two-term elections have had a recession within 12 months since 1910."

Pal is also bullish on gold, and believes that the next recession could be the catalyst that sends gold prices much higher.

Like us, he expects central banks will react as they always have... by trying to stimulate the economy with even more easing or direct money-printing. When they do, he says gold prices could double or shoot even higher.

Incredibly, despite his concerns about the U.S, he's also bullish on the U.S. dollar...

He believes gold and the dollar could rally together, as problems in the European banking system and elsewhere make the U.S. currency relatively attractive compared with other major currencies.

In the meantime, we're already seeing signs that the U.S. economy is slowing...

And perhaps nowhere is that more obvious than the auto industry.

This week, No. 2 U.S. car manufacturer Ford Motor (F) is adding to the factories it's "idling"...

According to Bloomberg, first up is a one-week break for its Louisville factory, which builds the Escape and Lincoln SUVs, as well as two Mexico plants, which make its Fusion and Fiesta models. Next week, it will close its F-150 plant in Kansas City – the company's top seller and most profitable vehicle. The week after, it's idling the Louisville plant for another week.

This follows a one-week shutdown of Ford's Mustang facility in Michigan after sales of the sports car plunged 32% in September. According to Bloomberg...

F-series sales fell 2.6% last month as a pickup price war heated up. Escape sales dropped 12% in September as Ford faced competitive pressure from the Toyota RAV4 and Honda CR-V. Fusion sales plunged 18% and Fiesta was off 40% as car sales continue to languish with low fuel prices pushing buyers into trucks and SUVs.

Even Ford itself admits that sales are topping out...

Last month, Reuters reported that Ford's Senior Economist Bryan Bezold said sales had "hit a plateau," and he noted that while the auto industry had outperformed the U.S. economy since the 2008-2009 recession, pent-up demand had "now played out."

And while sales are slowing, inventories are surging...

The Wall Street Journal notes that Ford's U.S. sales fell 8% in September... despite "generous Labor Day deals and deeper discounts." However, Ford's F-series truck inventory stood at a 93-day supply at the month's end... more than 50% above the 60-day supply that the industry considers optimal.

Of course, Ford is not alone. As we reported in the October 3 Digest...

Sales at the top three U.S. automakers fell again last month. General Motors (GM) and Fiat Chrysler (FCAU) reported declines of 0.6% and 0.9%, respectively, while Ford Motor (F) reported a huge 8.1% decline.

But this trend likely extends beyond the Big Three... According to the Journal, J.D. Power forecasts U.S. light-vehicles sales declined nearly 1% industrywide last month. And this decline is coming despite record vehicle supply and increased sales incentives.

How to profit as the credit bubble inevitably pops...

As Porter has explained, the boom in auto sales was a direct result of cheap money from the Federal Reserve. This means automakers like Ford – as well as other highly indebted firms dependent on cheap credit for survival – will be among the biggest casualties as credit conditions tighten and the economy slows.

This is exactly why we're launching our new Stansberry's Big Trade service next month. It will show you exactly how to "short" the most distressed issuers of debt, a group we've called "The Dirty Thirty."

This strategy will not only allow you to hedge your portfolio against a broad market decline... It will also set you up to earn to windfall profits – as much as 10 to 20 times your money – as the inevitable bust plays out.

Again, we're hosting a free, live webinar next month where Porter will explain this strategy in detail.

On the other hand, if you'd rather not wait, you can learn more about Stansberry's Big Trade – including how you can get immediate access to "The Dirty Thirty" and ongoing "beta" issues of our preliminary research BEFORE the service officially launches next month – by clicking here.

New 52-week highs (as of 10/17/16): ProShares Ultra MSCI Brazil Capped Fund (UBR) and short position in Hertz Global (HTZ).

In today's mailbag, Steve Sjuggerud responds to an unhappy subscriber about gold. Send your questions, comments, and concerns to feedback@stansberryresearch.com.

"Dear Dr. Sjuggerud, I am a subscriber to your relatively expensive True Wealth Systems and you have urged us to buy GDXJ which I did and just this month Seabridge Gold. Why don't you tell us in your service to sell when you did... so we didn't lose so damn much money? As you might guess I am not at all happy with this service!!" – Paid-up subscriber Lary R.

Steve Sjuggerud comment: You bring up an important point: What I do with my own money and what appears in True Wealth Systems are different things...

First, let me clear up any potential misconceptions. Stansberry Research's rules prevent me from owning the specific securities I recommend in my newsletters. That said, I often invest in the same trends I write about, just using different securities.

So why would my personal strategy differ from what I write? To start, True Wealth Systems (TWS) is, as its name suggests, data-driven. The recommendations reflect trends and "buy" signals generated by our computer systems, which were built on what has worked over history. These systems are built on my ideas, so I often agree with them.

However, sometimes I personally disagree with our systems. Usually when that happens, the systems are right and I am wrong.

In late July, I personally sold my own gold stocks, as I said on stage at a major conference. I was up hundreds of percent in less than a year. It was time for me to pocket those gains.

In our TWS letter, we stick with what our systems say, not with my gut feelings. Our systems said gold stocks were still a buy.

It was a moment where I personally acted differently than our systems. Again, it doesn't happen often, and usually our systems are right and I am wrong. In this case, I got it right, at least, so far... But remember, TWS still has us in our gold positions. If they're up 200% or 300% a year from now (which is possible), the laugh may be on me.

Regards,

Justin Brill
Baltimore, Maryland
October 18, 2016