The 'Melt Up' Gets Its Spokesman

The 'Melt Up' gets its spokesman... Gamblers flood into the stock market... Today's action is looking like 1999... Robinhood trading goes wild... It all points to the Melt Up kicking into high gear... You won't want to miss this announcement...

Editor's note: We're turning things over to our good friend Dr. Steve Sjuggerud for the next couple of days...

Steve reintroduced Digest readers to his "Melt Up" thesis in our Masters Series over the weekend. He explained why there's more upside than you can imagine... and detailed the $6 trillion in "fuel" that's going to power the next great asset boom.

Today, Steve will help you learn all about the names and faces being attached to the Melt Up. Someone we've talked about in the Digest before is now the poster child for this phenomenon. And as Steve explains, that shows us exactly where we're at in the Melt Up...

'Stocks only go up,' outspoken day trader Dave Portnoy often boasts on Twitter...

On up days, Portnoy is the best there is. At least, that's what he tells anyone who will listen.

Regular readers might remember one bold claim he made on Twitter earlier this summer. As our colleague Dan Ferris detailed in the June 12 Digest, Portnoy said...

There's nobody who can argue that Warren Buffett is better at the stock market than I am right now. I'm better than he is. It's a fact. You're just gonna have to deal with it.

When the market moves against Portnoy, he always has some story to explain why. But I (Steve Sjuggerud) can tell you that one part of his act is consistent...

Portnoy is an emotional roller coaster.

He bets on whatever is hot, or whatever strikes his fancy. He bets big, wins big, and loses big. And he tells you all about it.

As you've probably learned if you've read the Digest over the past few months...

Portnoy built a huge following through his Barstool Sports business, which is now worth nearly $500 million...

Barstool Bets is his latest venture... It's a sports betting and gambling website.

And if you think about the idea of Barstool Bets for a moment, Portnoy's recent antics in the stock market start to make a bit more sense...

You probably know that the U.S. Supreme Court effectively legalized online sports betting in mid-2018. Companies have been scrambling to cash in on legal sports gambling ever since.

Then the COVID-19 pandemic hit, and professional sports shut down for months. That put sports bettors like Portnoy out of commission. But they still wanted to gamble.

And the stock market provided the perfect place for them to get their fix...

Betting on stocks has nearly all of the components of sports betting built into it – there's risk, skill, luck, and drama. People get to pick their favorites. And they get to spin stories to explain why their picks are the best.

You can change nearly everything about the who, what, where, when, and why. You can swap team names for stock names... and folks will find a way to roll the dice.

Plain and simple, people just like to gamble...

You and I might not see the stock market as gambling. But these folks do... And they're piling in as the market melts up – to a degree that I haven't seen since 1999.

Pro sports finally ramped back up in late summer as COVID-19 restrictions eased...

That gave hungry gamblers like Portnoy something to bet on again. But here's the thing... The gamblers still aren't leaving the stock market.

I was confident that we would soon see a true Melt Up in stocks – where the public piles into the stock market. But I never imagined that the Melt Up would be fueled (at least in part) by bored sports bettors during a full-blown pandemic.

Who could have imagined that? Yet... here we are.

For the first time in more than 20 years, the general public is buying stocks like they're in a casino. This, my friend, means that the Melt Up is here. And that brings us back to Portnoy and beyond...

You see, Portnoy has become the poster child of the Melt Up mindset. But it's not just him...

In fact, one brokerage has come to define it. You probably already know it by name...

I'm talking about Robinhood.

We've seen a rush of new traders lately – and the surge in visits to Robinhood's "Learn" page shows it. Daily visits to that section of its site soared 250% between January and June.

Our friend and sentiment data wizard Jason Goepfert (of SentimenTrader.com) has been tracking trading activity on Robinhood, too. The numbers have been staggering...

For example, just take the number of Robinhood traders holding leveraged broad market exchange-traded funds (ETFs). In December, the number was roughly 20,000. As of May, nearly 100,000 Robinhood users were holding leveraged ETFs.

That, my friends, is a stock market frenzy at work. This is the Melt Up in action.

If you want more proof that Robinhood has become ground zero for retail-investor mania...

You just need to look at the complaints.

Generally speaking, the various U.S. consumer protection agencies don't get a whole lot of complaints about brokerage firms. The rules are pretty clear. And both sides are supposed to know how the game works.

But over at Robinhood, things are a little different...

In the first half of the year, newly minted investors have filed more than 400 complaints against the company – roughly four times the norm for its competitors. The word in government circles is that some regulators feel like they've become the company's customer-service department.

It's notoriously hard to get ahold of anyone at the company. That's part of how it has kept costs low.

And that, along with mountains of venture funding, is a big part of why Robinhood has helped usher in a new era of zero-fee trading.

This, as I'm sure you know, is a relatively new innovation.

And boy oh boy, has zero-fee trading made it easier to get into the market...

In the past, trading fees could easily eat up a small investing account.

Now, even major brokerages have slashed their fees since companies like Robinhood entered the scene. And that means the "dumb money" can gamble with smaller amounts without feeling like the house is taking too big a cut.

Only have $20 to invest? No problem. The trade is free.

Oh wait... That stock is $100 a share? Not to worry – Robinhood will sell you a fractional share you can afford.

Don't be fooled into thinking these small trades don't matter, though... These traders might not have much money on their own. But together, they can push the market around... For example, the trading volume of "call buys to open" from small traders in the options market has skyrocketed.

In 2019, there were less than 5 million of these contracts. Today, there are around 20 million. That's a near fourfold increase in less than a year... And it's the highest number of bullish contracts on record.

This might sound complicated. But the story it tells is simple... Small investors are making record bullish bets on stocks in the options markets. And the levels we're seeing today are an order of magnitude higher than they've been at any time in history.

The entire financial-services industry has taken notice...

Julian Emanuel is a managing director at BTIG. That's a financial-services company that is among the top 20 global brokers by volume of completed trades.

In a recent interview, Emanuel shared a clear-as-day Melt Up indicator. It may sound obscure at first. But it's just a way of looking at bullish and bearish bets.

Here's what he said...

The price of out-of-the-money calls, as was the case throughout August, is still trading at a premium to the price of out-of-the-money puts.

Now, you need to know one thing here... Normally, the prices on these kinds of options cancel each other out. You can read the sentiment of the market simply by seeing if people are piling up their bets on one side of a trade.

But today, folks are spending way too much on bullish bets. In other words, they've bought into Portnoy's view that "stocks only go up."

These folks will push the market higher than you could possibly imagine.

If you think people are being irrational now... just wait. This is going to get a whole lot crazier before it ends. And as longtime Digest readers know, I want to make sure you get the most out of this phenomenon – this Melt Up – that you can.

Of course, it's not all good news...

The classic history of Melt Ups shows that ALL the newcomers – unfortunately – will ultimately get wiped out.

The market has a dastardly history of sucking in the largest possible number of unsuspecting participants on the way up... and then wiping all of them out on the way down. They ride the tide all the way in, and then they ride it all the way out.

But the thing is, savvy investors will make a lot of money as that tide comes in.

We know the tide will come in and go out. What you need to do right now – quite frankly – is to play with fire...

So today, I'm asking you to make a gamble – and yes, it's a gamble...

I want you to gamble that you can ride the tide all the way in... and get off the boat in time as the tide goes out.

Anyone who knows me will tell you that I am typically a conservative investor. But there are a few moments when I step out of that conservative way of investing.

Now is one of those times.

I learned a big lesson during the last Melt Up in 1999. I was too conservative with my own money. I saw the general public buying into stocks for the first time in my career. I knew it was a danger sign... So personally, I missed out on the Melt Up in 1999.

I missed out on the huge losses, of course. But importantly, I missed out on the huge gains, too.

I decided that when this type of event rolled around again, I would not do the same thing. Instead, I would ride the tide as far as it would take me. And then when the tide started going out, I would step off the boat.

The time to do that is now.

It's exactly why I'm hosting a Melt Up-themed event this Wednesday night...

This is a huge story.

I've spent years getting this message out to the public. And it's never been more important than it is today.

That's because the Melt Up is here... more clearly than it has been at any other time in recent years. All the pieces of the puzzle are coming together... And it now has its poster child (and more).

So in just two days, I'm sitting down with legendary stock picker Matt McCall for a special event. We're going to discuss what's happening... and help you learn about everything you can do right now to take advantage of it.

The event is completely free. It begins at 8 p.m. Eastern time on Wednesday night. And for everyone who shows up, Matt and I are both giving away a couple of recommendations. All you need to do to attend is sign up right here.

I hope to see you there. And I hope you take advantage of today's Melt Up.

New 52-week highs (as of 10/16/20): BlackLine (BL), Crispr Therapeutics (CRSP), Corteva (CTVA), Lonza (LZAGY), MSA Safety (MSA), Flutter Entertainment (PDYPY), Rollins (ROL), and Belo Sun Mining (VNNHF).

Our mailbag is overflowing with feedback about the latest Friday Digest from Dan Ferris. We'll start sharing some of the replies today... and continue throughout the week. As always, send your comments and questions to feedback@stansberryresearch.com.

"Freedom to speak one's mind is important to our democratic republic. But we must be aware of those that use that freedom to lie constantly (The Liar-in-Chief) and call anyone daring to tell the truths that contradict his lies as promoting fake news. Freedom of speech requires that those ready to speak out tell the truth. Truth will keep [us] free. Lies will continue to oppress us. Suppressing opposition speech and voting rights is not the way to keep us free." – Paid-up subscriber Leo G.

"Dan, thank you for your insightful and poignant article on free speech. I fully agree with the content of the article. I am shocked by the cites of censorship by our nations universities. I had no idea that they would stifle educated scholars to share their views with our young students. These students are eager to learn, capable of forming their own opinions, and in need of hearing as many sides to issues as they need to make their choices in life.

"We have seen the Constitutional Right to Free Speech exacerbated so often lately to include rioting, violence, and looting. The media and many local governments seem to condone this criminal behavior by protesters as a part of their rights to free speech. I too would be inclined to bring the weapon to the front door if necessary to protect my home or business. Where would our rights be if we did so?

"I have been troubled for some time over my own belief that rights are a product of responsibility. I am no constitutional scholar, but this is what I always believed. If you act irresponsibly, your rights are compromised. If not, our own constitution would promulgate hedonism. As you are obviously better informed on these issues, I would love to hear more from you on these subjects." – Paid-up subscriber Tim L.

Dan Ferris comment: God brought order to chaos and made us in his image and likeness long before James Madison and the other Founding Fathers wrote the U.S. Constitution.

The Constitution is a profound document, but it doesn't give me anything I didn't already have before it was written.

We forget that too often.

"Thank you, Dan. (May I call you Dan? I feel as if I know you.) Today's Friday Digest article was so point-on, I simply had to respond.

"You have expressed the very emotions I have been feeling for all these months leading up to the present. I, like you, have the feeling that a critical point is soon to be on us. In fact, it is here.

"There is nothing further to discuss in the public forum, or from the pulpit, or in the media, or in academia, when only one viewpoint is allowed. If it gets to that point ... There is the Soap Box. If that is shut down, there is the Ballot Box. If that is no longer viable, there is (and you know what the next one is).

"None of us, I think, really wants to see it come to that. But if it must be, I remember the words of Patrick Henry, 'Is Life so dear, or Peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I care not what course others may take. As for me, give me Liberty or give me death.'" – Paid-up subscriber Chuck B.

"Thank you for the warning in the Digest on Friday, October 16, 2020. You are exactly right. When free speech is stopped then we cease to have a free society. We certainly see this happening. The trouble is that the media supports the loss of freedom of speech which seems pretty odd.

"Twitter and Facebook have become the 'thought police.' Late night comedians have become the source of news for many, which is terrifying. Thank you for your words. We all need to heed them." – Paid-up subscriber Mike G.

"Thank you, Dan, for a great read. My daughter graduated from Yale two years ago. In her third year, at Halloween, some students complained about costumes that offended them. The professor just said don't look at them, he was accosted on school grounds and cursed at and screamed at, he was forced to resign for that one comment. I paid a quarter of a million dollars for that display of free speech." – Stansberry Alliance member J.I.

"Way to go Dan, well said. I do not think I would be that polite in getting the point across. We certainly are not the Nation that stormed Normandy. Universities in North America today are propaganda mills turning out liberal snowflakes who are taught to hate America & truly believe socialism/communism is the way to go. They know nothing about our history! I no longer recognize the country I grew up in & was willing to die for. So sad!" – Paid-up subscriber Harley H.

"Hi Dan, Great article this week, certainly share your concerns. As a matter of fact my wife and I are in the middle of selling our place and moving back to Canada, after 23 years here in the U.S.

"I'm not saying Canada doesn't have its own problems, it does, but I feel a lot safer every time I cross that border into Canada. Best of luck to you and please keep up the great work." – Paid-up subscriber Gord P.

Ferris comment: Be careful... They don't have enough guns up there. It's a much softer target than the U.S.

"Hi Dan, I'd welcome you and your wife to come to Canada where there's a lot less rioting and rancour, possibly because the right to freedom of speech is more circumscribed than in the U.S. There are also a lot fewer guns. I personally have never owned one.

"For years I was on both sides on the issue of freedom of speech, unable to make up my mind. Then the cartoons of the Prophet Mohammed caused upheaval in Europe. The Canadian Broadcasting Corporation decided to report on the issue but not reprint the cartoons, as to do so would not really add much to the story but could offend a lot of people. I found this very wise.

"What is the purpose of the right to freedom of speech? It is so people of reason can argue different views and perhaps come to a consensus on which they can agree, or at least come to respect each other's differences. It helps us discover the truth and make better decisions. But there is [a] whole group of people out there trying to fit hateful tribal conspiratorial messaging under the umbrella of free speech, saying it's their right to spout racist, homophobic or other slurs. In the 1930s, when Hitler talked about the 'cockroaches' of international finance, he didn't want reasonable people to argue the truth of what he said, he wanted to promote hatred of the Jews. His free speech led to hate speech, which led to violence, which eventually ended free speech in Germany." – Paid-up subscriber David D.

Ferris comment: Gosh, David, thank you so much for the invitation. I hope it's still good after you read this response!

You see, the viewpoint expressed in your e-mail is exactly what I am fighting against with my Digest...

If a man who murdered millions of people for their race, religion, political views, sexual orientation, and social standing is your example of the perils of "freedom of speech"... then you and I will have to agree to disagree.

If I could rewrite Friday's Digest, I would eliminate the phrase "freedom of speech." Because in modern times, people like you view freedoms and rights as provisional... perhaps even optional... and worst of all, controlled and granted by governments.

You say that you were on "both sides" of the issue of freedom of speech for years. But in the way you imply it, there are no sides... All speech is irreplaceable, including speech that people like you label as "hate speech" (a meaningless term in this context).

Prohibiting any type of speech is wrong... The error begins when you categorize and label forms of speech.

If you want to say out loud in public that you want all white people, podcast hosts, gun owners, financial analysts, or classical guitarists to burn in hell, then say it. (I'm all of the above.)

I certainly wouldn't be adding you to my Christmas card list, but I will never support anyone's desire to suppress your speech – even if it's "hateful" toward me. We should all fight for your right to speak as you wish, no matter the content of your speech.

The Canadian Broadcasting Corporation's ("CBC") choice not to publish the cartoon was cowardly...

It should've put the cartoon on billboards all over the country and told the whole world that suppressing speech will not be tolerated in Canada. The CBC had an opportunity to stand up for speech, and it blew that chance in front of the whole world. I'm almost embarrassed for the organization.

And by the way, you seem to have forgotten (or maybe never learned about) German Lutheran pastor Martin Niemöller's words about Hitler and his Nazi followers. They're posted on the wall at the U.S. Holocaust Memorial Museum in Washington, D.C...

First they came for the socialists, and I did not speak out – because I was not a socialist.

Then they came for the trade unionists, and I did not speak out – because I was not a trade unionist.

Then they came for the Jews, and I did not speak out – because I was not a Jew.

Then they came for me – and there was no one left to speak for me.

You and the CBC want to wait until they come for you. (And by the way, if they come for you in Canada, you won't have enough guns to defend yourself!)

I won't wait until they come for me... I support the right to publish that cartoon, as I would support the right to publish cartoons expressing the exact opposite view, as well as every view in between.

When I was a child, we used to say, "Sticks and stones will break my bones, but names will never hurt me." We didn't know how wise we were!

Today, the world is full of cowards who say it's wise to act as though names will break your bones.

As I said in one of my responses above, God brought order to chaos through speech, and he made us in his image to do the same. God did not say, "Let there be light, but not so bright that it hurts your eyes."

Hitler – nor anyone else in the history of the world – can bring chaos through speech. All speech contributes to order... by revealing the contents of our minds. Instead, Hitler brought chaos by brutally suppressing speech through his violent actions.

Did you get that?

The Nazis weren't evil because of what they said. They were evil because of what they did. The names they called hurt no one, but their sticks and stones killed 11 million Jews, communists, homosexuals, Jehovah's Witnesses, Poles, Ukrainians, and Soviet prisoners of war.

Finally, you contemplate "the purpose of the right to freedom of speech"...

The purpose of speech is to know truth – and all speech is truth, at least provisionally. It might take a split-second to falsify it, but that is not what I'm talking about.

Speech brings order to chaos... And suppressing it is evil, in all times and places.

Good investing,

Steve Sjuggerud
Jacksonville, Florida
October 19, 2020