'The most important thing that has happened this year'... Two things you need to keep in mind... This top economist agrees with Porter... Why you shouldn't fear a correction... Good news for Apple... A 'second chance' for gold...
An important notice to start today's Digest...
Regular readers know we've been urging folks to be extremely cautious...
For the past several years, there have been plenty of reasons for concern. But the long-term trend in stocks remained up... and investors who turned too "bearish" and sold stocks were proven wrong again and again.
But following the recent selloff, we became concerned. The size and speed of the decline put the six-year uptrend in U.S. stocks in question for the first time in years.
Stocks have drifted higher – and volatility has drifted lower – over the past couple of weeks. But we believe it's too soon to assume the worst is over. In fact, Porter is more concerned than ever...
He explained why in last Friday's Digest, noting that something "critical" occurred last week that every investor should know about...
It's the most important thing that has happened this year in global finance. One of the world's largest debtors had its credit rating lowered to "junk" status – below investment-grade. This is hugely bearish for the global economy... and in my view, it makes it almost certain that the U.S. stock market is going to go a lot lower...
I suspect we'll receive a huge wave of cancellations because of today's essay. And of course, by giving you this bear market warning, I'm also sticking my neck out. If I'm wrong, many of you will never read our newsletters again. Nevertheless, I have to tell you about these things because I'd want you to do it for me.
By the way, I haven't seen anything about this yet from the mainstream financial press. So please... whatever you do... don't ignore today's Digest. I'll even give you all permission to share this warning with anyone you care about. Feel free to pass this around. Try to prove I'm wrong. This is that important. This information could protect your life savings.
As Porter often says, our mission at Stansberry Research is to do our best to tell you what we'd want to know if our roles were reversed.
Today, we believe risk is high... and we've done our best to help you understand why we think so, and to be prepared whether stocks move higher or lower from here.
But there's something else we'd want to know today, too.
In short, a bigger decline isn't necessarily something to fear...
There will be extraordinary opportunities – the kind of opportunities that only come along once in a decade or even longer – to buy cheap, safe stocks and make a literal fortune over the coming years. As Porter noted in the August 28 Digest...
I don't think this correction is finished. The real carnage hasn't even begun. This bull market was built on a few key narratives: That China's growth would propel resource prices forever... that Europe was fixed and would begin to rebound... and that the U.S. economic rebound would create a huge new wave of consumer demand. These things haven't come to pass, and the market is beginning to realize it.
These facts are going to scare a lot of investors. Some of them will panic. They will sell everything. They will go to cash. They will miss once-in-a-decade opportunities to buy high-quality businesses – the kind of investments that can multiply your capital by 10 or 50 times in a decade.
But we aren't the only ones who think so...
In an appearance on financial-news network CNBC this morning, Mohamed El-Erian – chief economist at Allianz and former CEO and "right-hand man" to Bill Gross at bond giant PIMCO – echoed some of Porter's thoughts...
We have a bumpy road ahead of us, but I keep on stressing, it will create a lot of attractive opportunities.
El-Erian said investors should stop worrying about whether the Federal Reserve is going to raise interest rates...
The big question is not whether they are going to hike or not. The big question is why are we so obsessing over a single hike? And that says a lot about how codependent markets and central banks have become.
Instead, he thinks we could be seeing a fundamental shift to a "higher-volatility regime," where credit becomes more expensive and the price "multiples" – such as price-to-earnings or price-to-sales ratios – investors are willing to pay for stocks and other assets go down.
Like Porter, El-Erian believes it's still too early to be buying aggressively, but that some big opportunities are likely. "It's one of these things that happens once a decade... but be careful because it's going to be incredibly volatile in the next few months," he said.
But just because we're cautious doesn't mean we're bearish on all stocks. There are almost always good opportunities if you know where to look...
For example, we've discussed the opportunity in consumer-electronics giant Apple (AAPL) several times recently...
Shares plunged along with the rest of the market last month. Critics pointed to concerns that the company's growth is slowing, that the turmoil in China would hurt sales, and that the company's new iPhone 6S would be unlikely to repeat the success of last year's iPhone 6 launch.
But Apple remains one of the world's best companies. It's incredibly cheap, and several of the world's best investors are bullish on it today.
And if the latest reports are correct, concerns about the company's growth may be overblown as well...
According to a company statement released this morning, the new iPhone 6S is "on pace" to break last year's sales record...
Customer response to iPhone 6S and iPhone 6S Plus has been extremely positive and preorders this weekend were very strong around the world. We are on pace to beat last year's 10 million unit first-weekend record when the new iPhones go on sale Sept. 25.
But it's not just in the U.S...
In a separate piece this morning, technology-news website Recode reported that the new iPhone 6S is also a big hit in China. Early numbers show demand in China is outpacing any other region – including the U.S.
And over the weekend, financial publication Barron's suggested that Apple shares "could soar 50% in the coming year" due to the company's new iPhone leasing program.
While the program didn't make headlines at last week's product announcement, the article notes it could be a "game changer" for the company...
The leasing program attacks the primary bear case on Apple—slowing iPhone growth. Amit Daryanani, an analyst with RBC Capital Markets, estimates that the upgrade cycle for iPhones has stretched to 26 months from 22 months in 2013. After getting a jump-start from the larger iPhone 6 this year, analysts expect iPhone sales to flatline at 235 million units in 2016. The iPhone Upgrade Program, Apple's official name, has the potential to reverse the trend, and more.
"You essentially create a certain group of your user base that is going to be on a 12-month upgrade cycle," Daryanani says. The big question is how large that group becomes.
We've also discussed the opportunity in gold and gold stocks several times in recent weeks.
And despite his warnings on the broad stock market, Porter agrees. As he explained in the July 24 Digest...
I believe that some combination of rising interest rates, rising defaults in the corporate bond market, and global currency/trade wars will likely cause the U.S. stock market to decline substantially. No, I don't know the exact timing of such a move. But I believe it will happen with the next few months. Downward reversion to the mean will play a role.
Likewise, I notice that the gold and precious-metals sector is in the midst of a three-year decline. I see that junior mining stocks have declined every year since 2011. Most of the best names in the space are down more than 80%. I'm 100% certain that eventually, this downward trend will reverse. And I know that when that occurs, the resulting price increases will be dramatic. I believe average gains in excess of 250% are likely.
Investors smart enough to "hedge" their exposure to the U.S. stock market by establishing a "toehold" in the highest-quality gold and junior gold-mining stocks will likely be far more successful over the next three to five years than investors who don't.
Porter's prediction could already be playing out...
Gold and gold stocks were among the handful of sectors to defy the recent selloff. While most of the market was falling, they moved higher.
Gold and gold stocks have pulled back again as stocks have drifted higher. If you don't yet own enough physical gold – or if you've been looking for an opportunity to put a small percentage of your portfolio in the highest-quality gold and junior gold stocks – this is a good "second chance."
New 52-week highs (as of 9/11/15): National Beverage (FIZZ) and Inogen (INGN).
In the mailbag, subscribers send us a few kind notes. Surely we've said something to ruffle your feathers lately... Let us know what's on your mind at feedback@stansberryresearch.com.
"Hi Porter, I just started getting your newsletters this last week. A longtime friend has been recommending I subscribe to it for 2 years and finally made the leap of faith. I did so because of one reason, I simply could not find a publication that had a more holistic view of the world's financial situations, and common sense approach. Today's brokers tend to be so short sighted and quick money oriented that their recommendations change on an hourly basis, and their strategies are way too complicated. That's what I enjoy about your newsletters, they're 80% educational and 20% recommendations and strategies. I learned one thing when I was in the brokerage business many years ago, that the herd mentality is ALWAYS wrong 100% of time.
"P.S. I very much enjoy you talking about your wife and family, and your fishing. You can tell a lot about a man from his personal and family life. For me it helps me understand and build up a trusting relationship when I know something about a person's outlook on life and what's important to him. My wife and I have been married 34 years, and it has been the most wonderful years I could have ever imagined. Keep up the good work." – Paid-up subscriber Daryl
"Porter, as much as I would like to disagree with you I find it hard to argue the facts and logic backed by history and charts you present. I agree with your assessment regarding the direction of the Market and have taken many of the steps recommended by you and your team. Even if we're both 100% wrong, the most I'll lose is a few months of dividends or questionable stock growth, but I sleep very well. Thanks." – Paid-up subscriber John H.
"Porter, I am a fairly new subscriber (3-4 months) to a couple of the newsletters offered by Stansberry Research. I for one will not be cancelling my subscriptions simply because of this particular newsletter. I have learned so much from the Stansberry newsletters, available books and website that I have been able to improve the retirement way of life for my husband and I as well as to help my children with their investment needs toward their future retirement.
"I know that some people may have cancelled their subscriptions in the past because of some of your views, but my husband and I share the same views as you about many things happening in the world today. Thank you for stepping up and stating your opinion and keep doing so." – Paid-up subscriber Pam D.
Regards,
Justin Brill
Baltimore, Maryland
September 14, 2015
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