The Price of History Is Going Up

A stock market stalker... The market is exaggerating or lying... Mistakes get more expensive over time... Why societies collapse... A bigger crisis... Putting it all together...

I feel like the stock market is stalking me...

It's desperately trying to get my attention by telling me everything I say is right.

Two weeks ago, I noted Meta Platforms' (META) and Alphabet's (GOOG) record-breaking negative free cash flows and suggested:

No matter how good these companies' results are otherwise, the market is expressing its disapproval of their deteriorating cash flows. Perhaps the bonfire of the "AI vanities" has begun...

[T]his is the sort of action that happens at the end of a bull market.

I said the stock market was "shoot[ing] the generals." In other words, even the biggest, allegedly safest tech names were falling. After shooting Alphabet in July and Meta two weeks ago, the market fired another round into Alphabet again last week.

Then it put a bullet in Intel (INTC), which fell 29% in one day after management told investors to expect fourth-quarter revenue, gross margins, and earnings to be lower than the third-quarter figures.

I called last week's Digest "Intel Is a Warning" and showed you how an even bigger crisis could unfold soon... where the government's nearly 40 investments over the past two years could create the need for 40 bailouts. (There's ample historical precedent to support that possibility. You can see my presentation with Dr. Ron Paul right here to learn more.)

But that wasn't enough for the market. It crushed stocks yesterday, pushing the Nasdaq 100 Index down as much as 6.5%.

So I say it's an AI vanity bonfire, and Alphabet and Intel get shot in the head. I say maybe there's a bigger crisis brewing, and the market shoves the Nasdaq down further than it had dropped in one day since the COVID-19 crash of March 2020.

I know the market isn't really stalking me... and I do think a crisis is coming... but the market is going overboard. That makes me want to take a contrarian viewpoint.

It's wise to assume the market is exaggerating or lying right now...

If the market is lying, then the AI bull isn't dead. If it's exaggerating, maybe there's another leg up left in this bull market.

I have a healthy respect for history, which strongly suggests a rally is imminent. And it's no coincidence that volatility has ramped up around midterm Election Day, as everyone sells for fear of what follows.

It has been widely reported in the press that after 19 of the last 19 midterm elections, the S&P 500 Index was higher six and 12 months later. Will this be 20 out of 20?

Ten Stock Trader editor Greg Diamond thinks so. I spoke with him on Tuesday for an upcoming episode of the Stansberry Investor Hour podcast. He recently put together a free presentation where he makes the case that a market bottom is either in or near... and that a post-election rally is the most likely scenario from here.

Greg's research goes deeper than what's in the press. He has studied every market cycle since 1900. I urge you to check out his free presentation right here.

We've all heard how folks who don't know history are doomed to repeat it. So even if I'm ultimately right about a bear market or an even bigger crisis, maybe it's not here quite yet.

But repeating mistakes isn't the only problem...

Mistakes tend to get more expensive over time...

Archaeologist Joseph Tainter started the final chapter of his 1988 book, The Collapse of Complex Societies, with the following anonymous quotation:

Every time history repeats itself the price goes up.

Tainter argues that human societies are naturally simple. We only build complex systems –like multilayered governments, professional standing armies, specialized bureaucracies, and vast supply chains – because we encounter problems that simple structures can't solve.

When a crisis hits – resource scarcity, external threats, internal violence – society invests resources in a new layer of complexity.

Anybody who remembers pre-9/11 travel knows that's true. Before 1973, there were no metal detectors at the airport. You could carry a gun right onto an airplane. Now you can't take one onto a plane unless it's unloaded and inside a locked, hard-sided container in your checked baggage.

The U.S. Transportation Security Administration costs about $8 billion a year ($11.5 billion before user fees are applied). It's just one of hundreds of (very expensive) local, state, and federal government responses to societal problems.

It's not hard to see how these programs could get out of hand. Today, the U.S. government spends $7.4 trillion annually and takes in $5.4 trillion. That's $2 trillion it needs to borrow every year (for now) just to keep everything going.

Tainter might say we have about $2 trillion more worth of federal government "solutions" to society's (real or imagined) problems than we can afford.

All this growing complexity requires ever more energy to maintain. Every new regulation, specialized workforce, piece of infrastructure, or institutional layer is like a permanent tax on society's total energy budget.

Tainter's law of diminishing marginal returns says that societal collapse is not a sudden catastrophe. Eventually, complexity gets too expensive, and societies run out of money and the other resources needed to solve their problems.

It makes sense that the increasingly expensive solutions societies create eventually lead to a series of increasingly expensive crises.

Just consider...

The 2008 crisis was worse than the dot-com bust, which simply wiped out the equity and riskiest debts of new Internet companies. The 2020 shutdown of the entire global economy – which ushered in 40-year high inflation – was arguably worse than the 2008 financial crisis.

I'm not saying you'll find a perfect line of worsening crises, one after another. But that seems like a good assumption over the long term. Each recent crisis seems to have upped the ante compared with the one before it.

I also doubt we're on the cusp of total collapse. But the next, likely bigger, crisis could be upon us.

When Dr. Ron Paul and I got together a few weeks ago to record our presentation on what we fear may be the next large crisis, we weren't talking about Tainter or complex societies. We just looked around at what has happened historically and realized a lot of it is happening again... and just like Tainter's quotation suggests, the price of history is about to go up.

Putting Greg and Tainter together...

The market's recent action can mean that it's set to make new all-time highs sometime in the next several months... as we approach a bigger-than-ever crisis.

Assuming there is a rally ahead, the more explosive and epic it is... the more devastating we should expect the next leg down to be.

Now, if you're holding an index-like portfolio, you haven't suffered any devastating losses and might be wondering what the heck I'm warning about.

The S&P 500 ended yesterday less than 6% below its last all-time high close. The Nasdaq Composite Index closed less than 12% below its last high. So what if the next rally takes us to new highs and is followed by a 15% drop?

If that's your thinking, I'm not talking to you. I'm talking to the legion of wild-eyed speculators hopped up on AI juice who have bought everything from Nvidia (NVDA) to Palantir Technologies (PLTR) and can't wait to buy Anthropic when it finally goes public. They own every lousy, cash-burning AI lottery ticket with the maximum margin their brokers will allow.

Those folks are already hurting. According to data compiled by Bloomberg, roughly half the Nasdaq 100 is selling 20% or more below their 52-week highs. That includes ultra-popular mega-cap AI darlings like Alphabet, SpaceX (SPCX), Broadcom (AVGO), Tesla (TSLA), Micron Technology (MU), and Advanced Micro Devices (AMD). The index itself closed yesterday 15% below its October 6 all-time-high closing level.

If you're selling right now to reduce your exposure to a highly leveraged bet on AI, good for you. You should have done it sooner, but it's not too late to limit future damage. Those who don't fix their portfolios will eventually incur a catastrophic loss, perhaps in as little as a year from now. And if you're betting on a rally to make you whole again, that's usually a sign you're about to lose a lot more.

If you're reacting to the midterm elections by selling because you're scared Democrats will ruin everything, maybe you want to rethink that. I don't disagree that Republicans and Democrats all ruin just about everything they touch. But you shouldn't let politics influence your portfolio.

I've made that mistake, and it wasn't fun...

I reacted to President Donald Trump's election in 2016 by recommending that readers sell the biggest winner in Extreme Value, spirits giant Constellation Brands (STZ). Trump was promising to rewrite the North American Free Trade Agreement and build a wall on the Mexican border. Constellation imports Corona, Modelo, Pacifico, and other Mexican beers. The stock sold off just before and after the election... then staged an epic rally along with the rest of the market. It would have turned an Extreme Value seven-bagger into a 10-bagger if I'd just ignored election noise.

Portfolio manager and Stansberry Investor Hour guest Harris Kupperman has supplied us with an excellent maxim to navigate elections and other noise: "Headlines are not outcomes."

Just because Democrats want to stop the Iran war doesn't mean it will end. Just because they want lower gas prices doesn't mean we'll get them. Just because they hate data centers doesn't mean companies will stop building them. Just because they dislike Trump more than they like America doesn't mean they'll tank the economy and cause a recession.

Putting all of this seemingly contradictory information together...

Yes, the AI trade is looking shaky... and if you're heavily leveraged to it, this is your wake-up call.

Yes, 19 out of the last 19 times, the market has rallied after midterm elections. So fade the headlines and get ready. If the rally never appears and you're holding a well-diversified portfolio, you have little to worry about.

And yes, you should understand the potential for a bigger-than-ever crisis caused by the corporatist bubble we discussed last week.

There's some nuance to all this, which I'll share with Ferris Report subscribers in the November issue later this month. Suffice it to say, some trades have produced great profits that need to be protected... some are weakening and should be exited... and some are longer-term in nature and should be held.

Meanwhile, other opportunities have become more attractive and should be seized. For example, it's reasonable to assume that oil and gas stocks will remain true to their historical tendency to rise with interest rates.

As the late, great value guru Peter Cundill liked to say, "There's always something to do." I would add: "especially when markets are volatile and investors' expectations have hit multiple extremes at once." Like right now.

New 52-week highs (as of 11/5/26): American Financial (AFG), American Water Works (AWK), Brown-Forman (BF.B), Alpha Architect 1-3 Month Box Fund (BOXX), Cronos (CRON), Lonza (LZAGY), Motorola Solutions (MSI), Republic Services (RSG), and Tradeweb Markets (TW).

In today's mailbag, more discussion about the midterm elections and AI... and thoughts on what was behind the results... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Everybody wants more AI so they can do quick research, craft job search resumes and the like. They want social media and photos and downloads, and streaming movies and TV. They want what takes energy, but they don't want it anywhere nearby and don't want to pay for it. Classic. NIMBY and 'free.' And as one person put it today, when the data centers are instead built in other countries (Including Canada), the same NIMBY folks will claim it's a matter of national security and preserving American competitiveness, and why isn't the government doing something about it?!" – Subscriber Mark B.

"Users should guarantee electricity, water and noise will be separate from the community. Tax revenue and jobs should represent the upside. It can be sold as an important component to keep the U.S. in the leadership of this very important technology!" – Subscriber Charles M.

"The vote to decrease the number of data centers around the U.S. is not going to happen. How do I know??? Because I live in the data center county, Loudoun County, Virginia. And all the data centers here were brought in by our Democratic Board of Supervisors, our Democratic congressman, and senators. The closest data center to my home is 1.2 miles. But thankfully I don't see or hear them. So these Democratic politicians that are newly elected around the country are lying to the citizens who elected them. The data center build out will continue. Democrats like the money from data centers..." – Subscriber Molly K.

Corey McLaughlin comment: Fair point and a good one to bring up, but it's not the whole story. Both parties have had a hand in bringing data centers to your county...

The foundation came in 2000, when a board led by a Republican chair let data centers go up anywhere office parks could. The "Data Center Alley" branding came under a Democratic-majority board in 2008. And a special zoning ordinance passed under an all-Republican board in 2014.

More recently though, yes, the past two Democratic-majority boards approved 32 of 39 data-center applications from 2022 through May of this year.

Why? Data centers are expected to bring in $1.3 billion for Loudoun this fiscal year, about 40% of the county's budget. That has been too much money for either party to turn down.

"I am dubious about your purported link between inflation, prices, and the election. The price that seems to be most impactful to voters is that of gasoline; but it seems like wages have improved much more rapidly than the inflation in gas prices. How many hours did you have to work for that tank of gas is much more important than the price per gallon (although the fear mongering media always wants the consumer to live in fear, which attracts eyeballs)..." – Subscriber Tim S.

"It wasn't the war itself that was the problem. It was the never-ending times we accepted the fake attempts of Iran to negotiate. They have no intent to honestly negotiate and the only answer is regime change." – Subscriber Barry M.

"President Trump and his advisors mismanaged the Iran War. They should have gone for the knockout. Instead, nice guy always loses... They trusted Iran would make a deal. Iran will never make a deal. This has led to higher gasoline and diesel..." – Subscriber David W.

Good investing,

Dan Ferris
Medford, Oregon
November 6, 2026