The Clock Is Finally Ticking on the 'Melt Up'
Editor's note: To simply say it has been a brutal couple of weeks would be quite an understatement...
The benchmark S&P 500 Index is down a double-digit percentage from its peak. And to many folks, it might seem like this is the beginning of the end. But as our colleague Steve Sjuggerud told his True Wealth subscribers in a special update at the end of last month...
We saw a total of five corrections during the last Melt Up in the dot-com era. They were sharp falls. But they weren't the end of the boom.
So please, don't worry too much right now. I know it's bad out there. But this is a time to be excited, not scared.
Having said that, Steve also believes it's a great time to start preparing for what's next...
So in this weekend's Masters Series, we're republishing part of the most recent issue of True Wealth. As Steve explains, he's not always optimistic about stocks. And while he doesn't think we're at the end of the bull run yet, the telltale signs are starting to appear...
The Clock Is Finally Ticking on the 'Melt Up'
"Apple's stock was up 89% in 2019," my mother-in-law told me recently, beaming – sitting on her couch across from me.
It's not typical of her to talk up her stock portfolio. But when she does, I take note.
The last time she beamed like this was 20 years ago – in the same seat...
It was Christmas break in 1999. Qualcomm's (QCOM) shares had just jumped $150 – in a day – on December 29. (Ultimately, Qualcomm finished 1999 up more than 2,600%.)
My mother-in-law was proud of her stock back then, too. But I was getting extremely worried. This is nuts, I thought... THIS is what a mania looks like.
In the mid-January 2000 issue of my newsletter, I told my 40,000-plus paid subscribers the same thing...
We are at the peak of most likely the greatest financial mania that will ever be seen in our lifetimes, and quite possibly the greatest ever witnessed.
Today, most people think of me as "Mr. Melt Up" – as someone who's permanently optimistic on stocks. But that's not always the case... As you can see from what I wrote back then, I'm NOT permanently optimistic on stocks. I simply call 'em like I see 'em.
So... where are we today?
The answer is fascinating to me. And in this weekend's Masters Series, I will share a little bit about what I see with you – and how we need to navigate it.
In short, the Melt Up is finally here – in earnest. We're finally seeing the first echoes of the 2000 bubble. Our window of opportunity for big gains is shrinking by the day.
However... despite the pullback in the stock market over the past couple of weeks, we still have time to make a lot of money as this plays out. The setup conditions are still in place.
Let's take advantage of this moment while it's here.
And it's not just my mother-in-law who's buying... Many longtime investors are now pushing aside their bad memories of 20 years ago – and they're buying again.
The trading activity of individual investors has picked up – big time. And it all just started recently...
The next chart shows what I mean. It's the daily trading activity (the average number of trades per day) of individual investors at E-Trade. Take a look at what happened earlier this year...
You can see that daily trading activity among individual investors absolutely soared heading into the start of 2020. In short, this tells me that the animal spirits that have been lying dormant for 20 years are awakening again.
Or in other words, excitement is building in the market... to the point where emotion will soon take over rationality.
There's one fascinating thing here about the timing of all this...
E-Trade changed its business model to "free" trades back in October. Customers could buy and sell stocks without paying a fee for every transaction. As you can see in the chart, the timing of the move to zero commissions roughly coincides with the wild explosion in trading.
And it's not just E-Trade that offers commission-free trading now. TD Ameritrade, Charles Schwab, and Interactive Brokers all cut their commissions to zero around the same time.
As soon as "free" trading arrived, trading activity soared. It doesn't seem like a coincidence.
Here's another interesting part...
While the number of daily trades has soared, the actual number of new accounts opened at E-Trade hasn't soared. The message to me is that existing traders are becoming active again. But we haven't seen the wild influx of new customers – yet.
I strongly believe that will happen before the Melt Up is over.
Commission-free trading is also attracting young people – and so is the ability to buy "fractional" shares, which online broker Robinhood offers. Instead of paying more than $2,000 for a single share of Amazon, you can pay less to own part of a share... while still getting in on the upside.
All this is opening up the market to young investors. They're starting to speculate, according to Robinhood. Young folks are buying shares of companies they know and use – including Snap (social media), GoPro (portable cameras), Fitbit (fitness trackers), and a few specific cannabis stocks. But importantly, they're not "all in" on stocks – yet.
Typically, for a truly massive Melt Up, you need an entirely new generation of, well, suckers.
By that, I mean people who haven't experienced a crushing investing downturn in their lifetimes. We need folks to believe that their beloved asset can never go down in price.
That isn't happening yet. But it could happen soon.
It's hard to believe, but we are 20 years removed from the last great Melt Up. And even the bust of 2008 is a dozen years old now. So most people have either forgotten or have never experienced a major bust.
Knowledge about money is a fascinating thing...
Scientific knowledge is cumulative. Once we figure out the Earth is round, well, now the Earth is round. But when it comes to our money, we never learn... Humans experience the same money mistakes over and over, throughout history.
Somehow, when it comes to money, we each think that we alone are special... We each create situations in our heads where we come out richer.
We buy lottery tickets – with essentially no hope of winning the jackpot. We open restaurants – knowing that most restaurants fail within their first few years. We know these things – but we do them anyway.
We suspend our disbelief. We avoid logic and critical thinking. We think the other guy will likely lose money... but somehow we won't. Meanwhile, we are doing the same thing he is! It's nuts.
My friend, the time is coming when people will forget their fears.
We've seen the first signs of excitement. So my goal is to help you navigate the Melt Up with a clear head... so that we can maximize our gains on the way up, and minimize our losses on the way down.
In tomorrow's essay, I'll show you exactly how we can do that.
Good investing,
Steve Sjuggerud
Editor's note: It's hard for anyone to make sense of all the recent twists and turns...
Steve still believes the market's Melt Up will continue. But no matter what happens in the coming weeks, you're playing a dangerous game if you don't have an exit plan in place.
Ask yourself... "What am I going to do when the 'Melt Down' comes?" And if you can't answer that question, you absolutely must watch Steve's latest on-camera interview. In it, he explains the No. 1 thing you can do to protect your wealth today. Get started right here.