Panic Early

Joel Litman, stock bear... My ultra-contrarian pick in Vegas... The innovation-per-capita king... A 60/40 heartbreaker... Panic early... Remember to diversify... How investing will remain radically different...

You've been hearing about our annual Stansberry Conference and Alliance Meeting all week from Corey...

In case you missed those daily recaps from Las Vegas, you can check them out on our website.

Today, I (Dan Ferris) will expand on my own message from the event... and also share what I heard from my colleague and friend, forensic accountant Joel Litman of our affiliate company, Altimetry.

Joel and I are on the same page these days when it comes to the stock market. And our shared view is not optimistic...

As Joel told conference attendees, he thinks the stock market is way too expensive relative to the bond market.

And as if to make extra sure I knew he and I were like minds, during his talk on Tuesday, Joel mentioned value guru Ben Graham's two investment classics – Security Analysis and The Intelligent Investor, which are very near and dear to my value investor's heart.

He pointed out the fact that these two books spend more time on the subject of bonds and credit than they do on stocks.

Also like me, Joel thinks it's time to buy good bonds of good companies whose discounted prices promise good, safe returns.

I've been consistently bearish on stocks for the past two years, but Joel has only been sounding the alarm more recently. Joel and I do different types of research. He's an accounting expert who digs deeper into companies' financial statements to better determine their health. He uses his research to recommend individual companies to invest in or avoid, as well as to gauge broader market trends.

Joel and I have collaborated on some research, and we've put together a presentation I think you ought to look at (especially if you're not already a subscriber to The Ferris Report or Joel's research at Altimetry). You can find it here.

Two stocks I recommended in Vegas...

On Wednesday, I gave my annual exclusive stock pick to our Alliance members... Subscribers to The Ferris Report will eventually get the details next week in our October issue, too.

It's an easy, low-cost way to access an asset class that I don't believe anyone at Stansberry has ever covered before... But from this point forward, I believe it's an essential part of a truly diversified portfolio.

Most investors likely believe this type of investment is for ultra-wealthy folks only. That's not true, as I'll show my Ferris Report subscribers.

Also at the Alliance meeting, I gave a bonus recommendation as one member of a panel titled "Don't Attend This Panel."

Our mission was to present such deeply contrarian ideas, you'd never believe them.

I can't share the specific stock and its ticker that I recommended in Vegas. That's exclusive for Alliance members. But you'll see why I consider it so contrarian... It's an investment in Israeli stocks.

(In fact, I thought I had the ultimate contrarian pick until my fellow panelist Brett Eversole recommended an even more hated Chinese stock.)

Now, I'm not here to write about politics. I sincerely hope the violence in Israel stops soon. But as I'll explain, from the standpoint of economics and investing, Israel is a smart place to put your money right now.

The first and most obviously attractive part of investing in Israeli companies right now is that it's clearly a contrarian play... Arguably, it always is, since the small country is always surrounded by lots of folks who'd like to wipe it off the face of the Earth.

Second, Israel has a roughly $500 billion GDP – the second largest in the region next to Saudi Arabia's $1 trillion economy (third if you count Turkey's $900 billion GDP). With just 9.8 million people, Israel's GDP per capita is high, too, at around $53,000.

In his 2009 book, The Israel Test, tech guru George Gilder wrote:

Israel's rarely-celebrated feats of commercial, scientific, and technological creativity climax the Jews' twentieth century saga of triumph over tragedy. Today tiny Israel... is second only [to] the United States in technological contributions. In per capita innovation, Israel dwarfs all nations. The forces of civilization in the world continue to feed upon the intellectual wealth epitomized by Israel.

Israel is a very important country to Gilder and the global economy for many reasons. But one of the primary reasons is the skill and creativity of its small, young population.

Best of all, unlike other economies in the region, Israel isn't dependent on oil...

The Saudis have a trillion-dollar economy because they have vast oil reserves under barren deserts. Israel is also a desert nation, but it has wisely staked its fortunes on the technology sector.

Israel's top ten stocks by market cap, besides the nation's biggest banks, include large, well-known tech companies like Check Point Software Technologies, Mobileye, CyberArk Software, and Teva Pharmaceutical Industries.

There are more than 1,200 publicly traded companies in Israel, 119 of which also trade in the U.S. on the Nasdaq, according to data compiled by Bloomberg.

As a tech-based economy, Israel doesn't have the geographic risks of countries in the region that need to extract and ship crude oil. The Israeli economy can easily distribute software and other technology products around the world.

I ran into my friend Marko Papic in the greenroom behind the stage. He's a Serb who lived in the Middle East for several years. Through his role at Clocktower, he's one of the sharpest geopolitical strategists in finance today... and he loved the Israel idea for the same reasons I do.

I also discussed some themes you've heard in the Digest...

For example, a couple weeks ago, I told you I was worried about the way stock and bond markets were trading...

To quickly recap, the stock market is supposed to be riskier than the bond market. Bonds are supposed to be for your "safe money," and stocks are where you're supposed to go if you want to take a little more risk in exchange for a little more return.

But the two markets are currently priced exactly opposite of what you'd expect. The bond market keeps falling, pricing in more and more risk, and the stock market keeps trading at mega-bubble valuations.

In other words, stocks are priced as though investors haven't a care in the world, and bonds seem to be trying to wake them up to growing risks like inflation and geopolitical developments like the conflicts in Ukraine and now Israel.

The bond bear market is still in full swing, with 10-year Treasury yields hitting their highest levels since 2007 this week. Investors who count on bonds to keep them afloat when stocks weaken are really taking it on the chin these days...

Last year, the traditional '60/40' portfolio logged its worst performance since the 1930s...

We've mentioned the 60/40 portfolio many times in the Digest. The idea is that you have 60% in stocks and 40% in bonds... When the stock market isn't doing so well, the bonds tend to pick up the slack, making it easier to hang on to your stocks for the long term.

We've warned against the 60/40 portfolio, but lots of regular folks have one. The Wall Street Journal published a piece yesterday about a typical American couple who've been married 50 years and have their retirement funds in a 60/40 portfolio.

The article is heartbreaking... because the couple isn't worried that 60/40 is dead. They rode out previous bear markets and told the Journal their portfolio is only trading 14% below its 2021 highs. They said it will have to get worse before they start getting really worried.

It immediately reminded me of something investment strategist Mike Green of Simplify Asset Management told me recently when I spoke with him on the Stansberry Investor Hour. As someone he worked with years ago once told him...

'If you're going to panic, panic early'...

I wish the couple in the Journal would panic now and not wait for the problems in stock and bond markets to keep bludgeoning their portfolio.

They need to learn about the sea change in markets (which I referred to last week).

They need to understand that the strategies that worked for the past 40 years aren't going to work nearly as well any longer, if they work at all.

I'm afraid that couple represents an all-too-large sample of the population. I suspect many folks are too complacent about the disconnect between stocks and bonds today.

Like I told attendees at our annual Stansberry Conference on Tuesday, you can no longer mindlessly buy every dip in the stock and bond markets and expect to make double-digit returns every year for the next four decades. That's over.

From now on, you'll need to learn to assess risk...

I've written a lot about this topic. I've emphasized that all my bearishness and all my talk about the biggest financial mega-bubble in recorded history was never a prediction that a bear market would happen. It was and still is a massive, ongoing exercise in understanding and recognizing risks in the stock and bond markets.

As I mentioned last week, you'll also need to learn how to build a totally different kind of portfolio, filled with assets you might not be familiar with today.

So maybe I don't really want you to panic, but I do want you (and that couple in the Journal) to expand your knowledge of various asset classes.

You know stocks and bonds...

These are the components of the classic 60/40 portfolio. Most Digest readers have owned them for decades.

I bet many Digest readers own some gold, too. That's a great chaos hedge, portfolio diversifier, and long-term wealth preserver. Everybody should own some gold.

And of course you know cash. You use it in one form or another every day. Today, cash-like instruments – like Treasury bills – are paying 5% annualized yields. So that asset most folks understand best is one of the most attractive to own right now. That's great.

But you probably don't invest much in stocks of companies based outside the United States. You should just pick a country and get to know it a lot better.

One easy way to do that is to look up one of the country's exchange-traded funds ("ETFs") and get to know all the companies held by the fund.

For example, I'd heard of tech companies based in Israel before, but I had no idea there were more than 1,270 publicly traded Israeli companies, or that nearly 120 of them trade on the Nasdaq. Nor did I know that it had such a large GDP, given its small population.

There's probably a country you're at least curious about as an investor. If so, you should take my advice... Google the ETFs that hold stocks from that country and study at least a few of them.

There are many other asset classes besides stocks and bonds. You should learn about them.

I like to ask Stansberry Investor Hour guests to leave listeners with a single thought... anything that's on their minds...

This week, my thought is this:

Investing has been relatively easy for the past 40 years. All you needed to know was stocks and bonds. You could endlessly buy every dip in the market, confident that rates would keep falling and asset prices would keep rising.

Given the age at which most folks begin investing, perhaps as many as 90% of today's investors have known nothing but falling rates, a Federal Reserve that appears to have firm control over financial markets, and endless dip-buying via passive funds in 401(k) accounts.

You can still have those funds in your account. But now you need a few other asset classes in there, too.

Look around and learn.

Read The Ferris Report.

And be prepared for the investing environment to remain radically different from what we saw in recent decades.

Lastly, I want to make sure you see one more thing today...

I just talked about the importance of not mindlessly buying dips. That's not the way to invest anymore. Fortunately, my friend and longtime colleague Dave Lashmet, editor of Stansberry Venture Technology, has just put out a new recommendation – and it's one you want to consider...

After all, more than a third of Dave's recommendations in Venture Technology have doubled or better. Yes, more than a third... Some of his picks have made subscribers four, eight, or even 15 times their money in various marketing environments, including his pick of Nvidia (NVDA) well before it soared by more than 1,400% and became a popular AI stock.

Simply put, Dave is one of the most knowledgeable analysts I know and our longest-tenured health-tech analyst. I've known him for decades. Right now, he's recommending an opportunity that he's calling the "medical breakthrough of the decade," which could return 400% no matter which way the broader market goes from here.

Without giving too much away, Dave says this company could do very well in a recession or significant market downturn because of the inelastic demand it can create, even when the economy is bad.

But the catalyst for the greatest returns in this business is quickly approaching later this month... so you'll want to jump on this opportunity soon. And good news: Dave is offering discounted access to his work and this recommendation, but only until midnight tonight. Click here for the full story and all the details now.

New 52-week highs (as of 10/19/23): Structure Therapeutics (GPCR) and Liberty Energy (LBRT).

In today's mailbag, feedback on our coverage of our Stansberry Research conference... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Wisdom from Morgan Housel:

'The most valuable financial asset is not needing to impress anyone.'

"I never thought of this as being a financial asset, but it couldn't be more true and I couldn't agree more.

"Stick to your plan and above all don't be concerned with what others have or are doing. It may just be the best advice you will ever give yourself." – Subscriber Larry H.

Good investing,

Dan Ferris
Eagle Point, Oregon
October 20, 2023