The Big Announcement Is Less Than Two Weeks Away
A new extreme in the 'commodities-to-stocks' ratio... The last time this happened, gold soared more than 500%... The big announcement is less than two weeks away... Inclusion 'looks almost certain'... Steve is on the ground in Beijing...
It's one of biggest extremes we've ever seen...
Are we approaching another massive turning point in the markets? If the following chart is any indication, the answer is a resounding yes...
The chart shows the commodities-to-stocks ratio over the past 47 years. This ratio compares commodities – as tracked by the S&P GSCI Commodity Index – with the benchmark S&P 500. The red circles show times when commodities have become extremely expensive relative to stocks. And the blue circles show times when commodities have been extremely cheap compared with stocks.
As you can see, this ratio has now fallen to an extreme rarely seen over the past five decades...
In fact, it is now even lower than either of the previous two bottoms...
Some of you may recall the first... It was just before President Nixon took the U.S. dollar off the gold standard. Over the next several years, inflation shot higher... commodities soared... and stocks entered a brutal bear market.
The second bottom occurred just before the final run-up in the dot-com boom. Again, over the next decade, commodities dramatically outperformed stocks. The broad GSCI Commodity Index rose nearly 300% from January 1999 through the end of 2007, while the S&P 500 gained less than 30%.
Today's historic lows suggest "real" assets could once again be set to beat financial assets over the next several years.
This could also be great news for gold in particular... As Luke Gromen – founder of macroeconomic research firm Forest for the Trees – noted this week, gold soared nearly 1,800% and 600%, respectively, following the last two lows.
You may be wondering if this scenario casts doubt on the "Melt Up" scenario Steve Sjuggerud has predicted...
After all, if the ratio is moving higher, surely that's bad news for stocks, right? Actually, that's not necessarily the case...
A closer look at each of the previous lows shows that the ratio bottomed and turned higher a year or more before the stock market peaked and turned lower. And in each of those cases, the last "innings" of the stock market rally were led by a narrowing group of stocks, rather than the market as a whole. In the late 60s, it was the "Nifty Fifty." In the late 90s, it was a handful of Internet stocks.
This scenario would fit perfectly with Steve's belief that we'll see a final "blow off" top before the bull market finally ends and a bear market begins.
Inclusion "looks almost certain"...
Regular Digest readers know Steve is also bullish on China today. In fact, he has gone so far as to call this the most contrarian opportunity of his entire career. He says buying Chinese stocks today could be even better than buying gold stocks in the early 2000s... U.S. stocks in 2009... or real estate in 2010.
Why? Because China is hated today. Virtually every headline you read is bearish, and investors have all but given up on owning Chinese stocks. Meanwhile, an upcoming decision is set to push hundreds of billions of dollars into these stocks over the next several years. As Steve explained in the May 6 edition of our weekend Masters Series...
June 20, 2017 will be one of the most important days in the history of investing...
On that one day, big investors will be forced to change the way they invest.
On that day, MSCI – the leader in global stock market indexes – will announce the results of its annual meeting to make any changes to its index weightings.
This time around, the changes should be historic... I predict – for the first time in history – Chinese A-shares will finally be included in MSCI's global indexes.
This is big...
Right now, roughly zero percent of American retirement assets are invested in local Chinese A-shares. But that will all change when MSCI includes local Chinese stocks in its indexes.
What will happen is – whether they realize it or not – Mom and Pop America will end up owning Chinese stocks in their retirement funds. Here's why...
94% of U.S. pension funds that are invested in global stocks are benchmarked to MSCI's indexes. So if you're a teacher, a firefighter, or anyone else with a decent pension fund, you will unknowingly start owning local Chinese stocks for the first time... very soon.
Ultimately, hundreds of billions of dollars will flow into Chinese stocks as this process unfolds – regardless of whether they're a good buy or not.
But Steve is no longer alone in this prediction...
As we've discussed, the mainstream financial media has been picking this story up in recent weeks. And just this morning, the South China Morning Post – Hong Kong's largest English-language newspaper – predicted China's inclusion in MSCI's indexes is now all but certain. From the article...
After three failed attempts since 2014, we think China stands a good chance of joining the MSCI this year.
Factors supporting the inclusion are obvious. A-shares are the second-largest equity market in the world by market cap and turnover. In fact, combining the mainland- and Hong Kong-listed equities, China is already the most actively traded market in cash turnover.
However, A-shares, akin to yuan bonds, are completely unrepresented in major global indices like the MSCI. Even though Hong Kong- and foreign-listed Chinese stocks are included, the weights are usually well below the relative size of China in the global economy and equity market.
Steve is actually in China as we write...
He and several Stansberry Research colleagues and subscribers are traveling this week for our 2017 Asia Investment Opportunities Conference Series. They arrived in Beijing on Saturday and are heading to Hong Kong today.
Steve tells us they've already heard from an impressive lineup of expert speakers – including some of Asia's most respected equity analysts, market strategists, and CEOs – and had some incredible "boots on the ground" experiences.
We'll be sure to pass along more details when Steve returns. In the meantime, he sent us a short note with his latest thoughts on the upcoming decision...
"Will MSCI grant China "Emerging Market" status?" That's the big question...
What a joke! As I write to you from Beijing, I can tell you it's a more modern city than any city in the U.S. It's definitely far beyond any "emerging market," and surpasses just about every major city in the world.
Somehow, Pakistan, the United Arab Emirates, and Qatar are already deemed "emerging markets," while China hasn't earned that status. It's ridiculous.
Meanwhile, nobody is invested in these stocks. The Chinese don't care. Americans don't care. And large institutional investors don't care.
Someone asked me here in Beijing what I think would happen to Chinese stocks if MSCI didn't grant "emerging market" status this year... I said, "Not much will happen – because there's no money invested in Chinese stocks today to start with! There's nobody left to sell!"
Life in Beijing is so far ahead of what we can imagine back home in the U.S. – read tomorrow's DailyWealth to see some of the details...
New 52-week highs (as of 6/6/17): AbbVie (ABBV), Global X China Financials Fund (CHIX), First Trust Nasdaq Cybersecurity Fund (CIBR), Ctrip.com (CTRP), Eaton Vance Enhanced Equity Income Fund (EOI), iShares China Large-Cap Fund (FXI), Johnson & Johnson (JNJ), iShares MSCI China Index Fund (MCHI), Microsoft (MSFT), Shopify (SHOP), Guggenheim China Real Estate Fund (TAO), ProShares Ultra FTSE China 50 Fund (XPP), and Direxion Daily FTSE China Bull 3X Fund (YINN).
In today's mailbag, the Stansberry Alliance welcomes a new millionaire... And a longtime Alliance member weighs in on two of our newest endeavors. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com.
"Thanks! [My portfolio] just passed the second comma mark today. Could not have done it without you guys. Alliance membership was a better investment than my MBA." – Paid-up Stansberry Alliance member Dave B.
Brill comment: Congratulations, Dave! We're thrilled to hear of your success, and grateful we could play a part in it.
"Hi Porter and others. I appreciate your [Stansberry Investor Hour] broadcast this week, and especially your persistent defense of USA citizens against the invasive pursuit of information by the deep state. You held your side of the discussion against an entranced supporter of corporate/governmental snoops. Also, I appreciate the discussion with WikiLeaks' Julian Assange. I support your thinking that it is better to lose a few government secrets than to lose more and more of our individual privacy and liberties.
"I have written to you in past, mainly expressing my dislike of certain stocks Stansberry recommended. At this time, I would like to tell you how great your new Stansberry Newswire has been. The information is timely, very informative, and with a personal touch.
"I find it added just what was needed to supplement the multiple Stansberry Newsletters and other services and give perspective. It has greatly improved my investment abilities. That along with TradeStops makes your services invaluable. Also, I complement Scott Garliss on his Newswire broadcasts. Thanks." – Paid-up Stansberry Alliance member Michael G.
Brill comment: Thanks for the feedback, Michael.
For those who aren't aware, Porter has officially relaunched his weekly radio show with a new name: Stansberry Investor Hour. And as we mentioned in Friday's Digest, the second episode features a can't-miss interview with one of the most vilified people in the world: WikiLeaks founder Julian Assange. Again, the easiest way to listen to this episode – and every future episode – of Stansberry Investor Hour is to "subscribe" to the show. Apple users can sign up in iTunes right here, while Google Play users can sign up right here. And as always, it's absolutely free.
Meanwhile, we launched the Stansberry Newswire back in February as part of our new Stansberry Portfolio Solutions product... And the feedback so far has been incredible. If you're a Stansberry Portfolio Solutions member, you can access the Newswire by clicking here. If not, you can still access our morning Newswire briefing via our YouTube channel right here. And keep an eye out for our free Stansberry Newswire app soon.
Regards,
Justin Brill
Baltimore, Maryland
June 7, 2017