The 'Bond God' Is Getting Bearish
The 'Bond God' is getting bearish... A new recession risk... Stocks and the economy are connected like never before... Lashmet checks in from Vegas... A 'behind the scenes' look at the Consumer Electronics Show...
The so-called 'Bond God' is getting bearish...
During his latest monthly webcast on Tuesday, DoubleLine Capital CEO Jeffrey Gundlach highlighted a couple of concerns that should sound familiar to regular Digest readers.
First, he noted that the high-yield corporate (or "junk") bond market is flashing "yellow" right now.
Like us, Gundlach said junk bonds have been signaling the first signs of credit market stress in nearly three years. He believes it could be an early indication that this long boom is ending.
Also like us, he admitted it's still early, but said this trend is "something we're going to have to watch very, very carefully." In the meantime, he suggested anyone still holding risky corporate bonds take advantage of the recent bounce to sell. "Use the strength we've seen in junk bonds as a gift and get out of them. Investors need to go into strong balance sheets... to survive [in 2019]," he said.
Gundlach also believes stock market investors are still far too complacent to suggest we've seen the ultimate bottom of this correction...
In fact, he even went as far as comparing today's market environment to that of late 2007 and early 2008, just before the market plunged during the financial crisis. As he put it...
There's potential for that here. Because the panic in December was a buying panic – not a selling panic – you never saw the [CBOE Volatility Index ("VIX")] truly spike the way you want for a panic. You want to see that thing over 40. It never made it to 40.
We agree. In fact, regular readers know the VIX is just one of several measures that are sending a similar message today: Whether or not this long bull market resumes, history suggests we will see further downside before this correction ends.
Of course, one of the biggest counterpoints to the bearish argument for stocks has to do with the economy...
True bear markets typically coincide with periods of significant economic weakness or recession.
When markets have suffered declines – even serious declines – while the economy has been strong, they've tended to recover quickly. The crash of 1987 is a quintessential example. And right now, despite some early signs of weakness, the economy remains healthy by official measures.
However, while we hesitate to employ the four most dangerous words in finance – "it's different this time" – it's possible we could see an exception to this "rule." As the Wall Street Journal reported over the weekend...
The value of Americans' financial assets – such as stocks, bonds and savings accounts – is at a record relative to the size of the economy, research from investment bank Natixis shows...
Over the past 10 years, the value of financial assets held by U.S. households has increased from roughly 3.4 times to roughly 4.4 times the size of the U.S. economy, according to [Joseph] LaVorgna, chief economist for the Americas at Natixis.
But that's not all... According to former Federal Reserve insider Danielle DiMartino Booth, financial assets also account for a greater percentage of Americans' net worth than any other time in history.
In short, thanks to a decade of the Fed's easy-money policies, the health of the U.S. economy is tied to the health of the stock market like never before... which means a large enough decline in stocks alone could potentially push the U.S. into a recession.
Finally, we'll end today with a little positive news...
Earlier this week, we told you our resident technology expert Dave Lashmet and his team of analysts were headed to Las Vegas for the International Consumer Electronics Show ("CES"), the world's largest annual technology event.
As we noted, CES and events like it are where Dave has discovered some of the most profitable recommendations in Stansberry Research history, and he expects this year's to be one of the most lucrative yet.
In fact, Dave tells us he's already found several promising ideas since the event officially kicked off on Tuesday. He shared one of these ideas with us in a private e-mail yesterday...
LG has a roll-up OLED screen as a 65" 4K TV. Every major tech news outlet is covering it. The big idea is, your TV can roll away... Imagine – no more moving the furniture, or arguing where it goes. The TV doesn't even need a wall...
Alas, LG is planning a huge price point – probably north of $5,000, or about 10 times what you have to pay for a smaller 4K screen today. But if this takes off, and the number of units sold begins to spike, the price point will come down...
Now, this is a pretty cool story...
As Dave noted, prices should eventually come down enough that we'll all have these roll-up televisions in our homes. But he believes there's an even more important story here that few outside of the industry understand today...
Everyone is covering this story... But here's the breakthrough everyone missed: Virtual reality is finally possible – because of LG's bendable OLED screen.
Let me explain... Your eye is a ball. Sounds simple, I know. But it means that as you look to the right or left, your lens moves in an arc. With a flat screen, getting the lenses to make the edges of the screen as close to you as the middle was impossible.
(Well, it's possible, but it's expensive and heavy when made with glass – or it's cheap and not very persuasive in plastic.) Put simply, it's not "reality." In fact, no current system can give you wrap-around vision on a head-mounted system.
Instead, you'd need an entirely curved view screen lit up by a projector – like a flight training simulator (aka $100,000).
But now, if you can curve the screen – and make it with organic light-emitting diodes – you can curve a small screen. In this case, with LG's new material, the optics become trivial – you just need a magnifying glass (albeit, a curved one).
Why is this important?
Because all the other hardware necessary for a completely immersive virtual reality experience already exists. All that has been missing has been a cheap and effective way to view it.
Now, it's here... And Dave believes this breakthrough will open up a revolutionary advance in virtual reality in the near future...
Here at CES, Wall Street analysts yawn when LG rolls out an expensive home screen format... because it will never scale. But it's not the TV that matters. It's that LG has proven it can build a highly bendable, full-color screen.
Globally, there are more than 500 million video gamers. All of them want a fully immersive game experience. LG just showed it off. It's worth a fortune. But nobody else is covering this. That's why we came to CES.
This is just one of the promising technologies Dave and his team have seen at CES so far...
And as promised, we've arranged a way for you to go "behind the scenes" with them to learn more.
Simply go to stansberryatces.com to see a short video and photos with all the highlights of day one of the event. And stay tuned for highlights from day two tomorrow.
New 52-week highs (as of 1/8/19): none.
In the mailbag, one reader weighs in on gold, while an Alliance member shares her story. Send your notes – good or bad – to feedback@stansberryresearch.com.
"Hi guys, much appreciated on the insight on gold... I'm not a gold bug, but I'm slowly warming up to the value of it... Cheers." – Paid-up subscriber Steven T.
"Hello Stansberry Research team, I've been an Alliance member since 2008? I have been silently following your trading advice over the years. Today, I feel compelled to write this email to send my gratitude to the entire team.
"Back in 2007/2008 I had zero trading experience, my 401K was slashed more than one third when the market crashed back then, luckily I found you guys on Google!
"This August, I retired from one of the largest US companies with my 401K a few times bigger than what I had in 2008 (it could have been more if I have followed the recommendations more closely...)
"Needless to say, after retirement I now have more time to read all the articles from SR and I thoroughly 'enjoyed' the wild ride in the last couple of months. It truly felt like we are a big virtual team, battling all together in the field everyday. How fun!
"There are a few individuals that I would like to thank the most, could you please pass on the following notes to them:
"Steve Sjuggerud: It has mostly been your recommendations that made my 401K a few times larger since 2008, your bold investment strategy matches to my style well. Although the account got a hit on the recent down turn, I have secured a few of your melt up recommendations by selling puts and got them almost at the bottom price. Hope I did the right thing and can't wait for them to turn around (some of them did already).
"Greg Diamond: Tapping on the Ten Stock Trader app is now my 1st thing to do every morning @ 6am or earlier (I live in California), I especially appreciate the technical analysis which gave me a good idea on what I'm dealing with on the overall market beyond the short- term trading. I'm so excited to hear that you are expecting a little Diamond in the coming days/weeks, my best wishes to you and your family.
"Doc.: Last but not the least, while your investment style is less exciting than Steve :)‚ I appreciate your strategy and solid approach which I should start discipline myself more after retirement. I also followed your Retirement Millionaire recommendations to build my children's portfolio and appreciate how well they have held up during the down turn.
"Of course, the entire research & editing teams deserve a big round of applause, the work is beyond just trading advice but a sense of winning together and truly a pleasure to read. Best regards." – Paid-up Stansberry Alliance member Jenny H.
Regards,
Justin Brill
Baltimore, Maryland
January 9, 2019