The Right Time to Be 'Too Early'

Another up-and-down day... Elon Musk owns Twitter now... It's a big week for everything... Watch tech earnings this week... The right time to be 'too early'... How to prepare and protect your portfolio...

The topsy-turvy markets continue...

After the Dow Jones Industrial Average endured its worst-performing day of the year on Friday – and the benchmark S&P 500 Index and tech-heavy Nasdaq Composite Index sold off sharply too – today we saw more of the same trend...

For most of the day, the major U.S. indexes were in the red, but they reversed in the late afternoon to finish positive... The Nasdaq led, up roughly 1.3%.

However, probably most telling, though, was at one point today the CBOE Volatility Index ("VIX") – considered by many as the market's "fear gauge" – spiked up as much as 12%...

And when you look at the year-to-date time frame, it's a jittery market... The S&P 500 is now down 10%, the Nasdaq is off 18% – just shy of the mainstream's media's "bear market" threshold of a 20% drop from previous highs – and the Dow has slipped 7%...

Maybe I (Corey McLaughlin) just don't watch enough mainstream financial-news channels and am living on my own bubble, but it seems many folks haven't gotten the message yet about what's really going on in the economy and markets...

Everyone seems more focused on Elon Musk buying Twitter (TWTR)... a cash deal was reached late today valued at roughly $44 billion, for $54.20 per share. Hat tip to our colleague Dan Ferris, who said the odds favored it.

The point being, today we will share the message again...

Simply put, if what we're living through today isn't at least the start of a bear market – or the middle of a "rolling crash," as our friends at Chaikin Analytics are calling it – I'm not sure what other signs to wait for to tell us...

For the record, we're using our colleague Dr. David "Doc" Eifrig's working definition of bear market…

A period of prolonged negativity in the stock market, of such a magnitude that you'd like to have a plan in place to prepare for it.

Look at energy stocks, for example. They were one of the last baskets of companies to rebound from the "COVID crash" lows two years ago... and have risen in value even as higher-growth tech names started to sell off months ago...

The Energy Select Sector SPDR Fund (XLE) – led by names like Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP) – rose more than 170% from its October 2020 lows through the start of this month.

But the sector is now down roughly 10% in a week... including 3% today. These names, many which pay out sought-after dividends (valuable in an inflationary world), have been the strongest stocks by far for months. But now they are shedding value too...

As I will explain momentarily, I saw another indicator over the weekend that concerns me... but beyond my singular real-world anecdote, there are also plenty of underlying economic data, trends, and curious timing that suggests more trouble ahead for the markets too...

Now, this declaration – acknowledging the possibility of a bear market, when it seems like others aren't – might sound scary, or be something you don't want to hear. Or it might sound like a prediction that we try to stay away from making, but...

1. What we're saying shouldn't scare you. Some of the best investors in the world make tons of money during or after market downturns or bear markets... and you can too.

2. It doesn't matter if I'm right (or wrong), so long as you've prepared and protected your portfolio accordingly for whatever happens. And we have suggestions on how to do that...

First, here's my weekend story...

The 'birthday party' indicator...

As our friend and colleague Jeff Havenstein put it just last week in a guest Digest essay, you can learn a lot about the market's mood from being out in the wild away from a desk...

Doc [Jeff's boss and mentor] has said for years that you can gauge market sentiment by talking to folks at cocktail parties and in taxis or Ubers... I'd add conversations on golf courses to that indicator as well.

I will add a kid's fifth birthday party to the list too. I was at one over the weekend.

Aside from the cheap candy-filled piñata that predictably malfunctioned, the most notable takeaway for me came when a good friend who works in commercial-real-estate development asked for my thoughts on the market...

Specifically, he wanted to know if I thought we're going to see a recession soon...

He grimaced when I told him what we've been saying here for the last several months... Economic growth is slowing. Inflation may or may not have peaked, but will likely still be higher in the months and years ahead...

Meanwhile, the Federal Reserve is raising interest rates – making borrowing money more expensive – in an effort to dampen economic activity and say it has done something to help lower inflation... in an already slowing-economic-growth scenario.

My friend isn't a complete alien to the markets. I sensed he was concerned, but he wasn't panicked... That's good for him, but I ended our conversation feeling that maximum market "fear" – or a bottom – has not arrived yet.

At the same time, stagflation – which isn't good for anybody – is a real possibility.

Even if we don't have a recession, we're going to see less economic growth than we have over the past two years fueled by pandemic-related stimulus. In general, that means lower stock prices ahead, so long as slower growth is being accounted for on Wall Street.

You can prepare...

If this is too simple-minded, apologies, but I want to cover the basics...

If you don't already have a diversified portfolio, now is the time to create one... It's not the time to be "out over your skis" in any one position or sector, especially high "beta" positions tied to high growth prospects... Things can turn quickly in a volatile market like this.

As always, with any asset, if one of your stop losses is hit, by all means, sell. That's what the stop loss is there for. But the biggest point might be this...

I'm not a sleep therapist, but in general if you're up at night worried – about your portfolio – listen to your insomnia and treat yourself by trimming your risk. There's no shame in being "too early" to sell.

At worst, you've raised cash... to help you sleep better at night... and so you have more capital to invest again down the road. You will get more bang for your buck when better buying opportunities present themselves when the worst is over... if you can be patient.

In a bear market, raising cash actually might be the best outcome of all and it's fully within your control. As Doc explained in module one of our new Stansberry's Financial Survival Program...

During a bear market, nothing is more important than cash. And it's not hard to understand the basics of why... In fact, you could define a bear market as the rising value of the U.S. dollar versus financial assets.

Likewise, when commodities... or real estate... or foreign currencies... go through a bear market, what you're really seeing is the rising value of the U.S. dollar as compared with those other assets.

The most important factor in determining how successful you can be as an investor during a bear market is simply how much cash you have (and can raise) as asset prices fall.

Recently, the U.S. dollar, as measured by the U.S. Dollar Index ("DXY"), is about the only thing going up in value, up 5% in the past two months. That's because the Fed is raising interest rates and essentially making the dollar "stronger."

While we have concerns about the U.S. dollar's strength over the long term – you'll hear more about this from our colleague Kim Iskyan here later this week – while the Fed is making borrowing more costly. So, for better and worse, the dollar will rise in value.

Especially compared to the rest of the world that is struggling with similar growth and inflation realities. And especially now...

It's a big week for everything...

As Stansberry NewsWire editor C. Scott Garliss wrote today, key economic data is due out over the next several days and any piece of it could move the major indexes...

Earnings season kicks into high gear this week. In total, 175 of the S&P 500 Index and 13 of the 30 Dow Jones Industrial Average member companies release results. In other words, we'll soon know more about corporate profitability and outlooks.

Technology stocks will be the focus. Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (FB), and Microsoft (MSFT) are all reporting.

As if that wasn't enough, we receive important numbers on inflation and economic output this week, too. On Thursday, the U.S. Bureau of Economic Analysis releases advanced first-quarter gross domestic product ("GDP") figures. On Friday, it releases personal consumption expenditure ("PCE") numbers for March.

Those figures will give us a read on the Federal Reserve's policy direction. The GDP numbers will tell us how much people are spending while the PCE data is a read on inflation growth. They're expected to show expansion of 1.1% and 6.7%, respectively.

One of the things I've learned while writing the Digest the past two years is the complications of being too early...

You often hear investors who make ill-timed moves saying they were "too early," meaning they put money into a trade or idea that went the wrong way, before they had a chance to make money on the idea, only for it turn out as planned months or years later.

The opposite is also true...

Sometimes, it's great to be 'too early'...

It can be a downright joy, in fact, if you sell before the worst arrives. The issue is that you'll only know for sure in hindsight if you're "right"... That's why knowing your goals first is critical, so you can make the decision that is best for you.

We – our editors and analysts – may see what's going on beneath the surface of the economy for weeks or months (or years!) in advance some cases. It might seem obvious to us or you after a while...

But, still, oftentimes the biggest moves in the market – up or down – take time to develop, or only happen once the "news" that we've long seen is confirmed or made obvious to the public.

That could be the case with the GDP number and the major earnings reports this week.

For weeks, we've seen the Atlanta Fed, rather quietly, publishing updated GDP projections that keep trending lower than "consensus" expectations... Shortly after the start of the war in Ukraine, the Atlanta Fed's projection was for no growth in the first quarter.

Now, it's just above 1%.

That's fine and expected with a war happening in Eastern Europe, but at the same time, "official" inflation numbers have been rising... So if we see inflation at 7% or so on Friday and 1% growth, how do you think people are going to react?

It's the first time many people are going to see the comparison on paper... Not good.

Let's also remember that Apple, Microsoft, Amazon, and Alphabet all report earnings this week. These are the top five heaviest-weighted companies in the S&P 500... combining to make up more than 20% of the index.

If last week's earnings reports are any indication, there could be some surprises...

As Scott wrote in his daily morning commentary today...

Last week, we warned that advertising spending may be declining... On Thursday evening, we got a signal of what's to come. Social-media company Snap (SNAP) reported numbers. The results weren't bad.

But the digital advertising news was not great... The numbers shrank versus the fourth quarter of last year. The first-quarter total was $1.05 billion compared with the fourth quarter's $1.28 billion.

Management said macroeconomic and geopolitical worries created unease among its advertisers. Chief Financial Officer Derek Andersen said those concerns accelerated in the back half of the quarter. Advertisers are scared about inflation, rising rates, and war in Eastern Europe, so they pull back on spending and wait and see. And the ripple effect begins.

Ask anyone who worked in the media world in last great recession (like me) and they'll tell you that decreased advertising spending was one of the crippling outcomes for the industry...

A decade later, advertising is exponentially more important to big tech companies... and everyone for that matter. According to market-data firm Statista, advertising makes up 97% of Meta Platform's revenue and 81% of Alphabet's.

The point is...

Any 'bad news' tied to the major tech stocks this week could sink the indexes...

And, as Scott noted, that gets the mainstream news talking... and then fear rises and feeds on itself. Alternatively, tech shares could shoot higher too, pushing the indexes up...

Think of what happened with Netflix (NFLX) last week, with its shares dropping more than 30% after its first-quarter earnings report showed declining subscriber growth...

In January, the company lost about 30% after another earnings report for the fourth-quarter of 2021 that fell short of Wall Street expectations... Many other high-growth names, like Meta Platforms, sold off dramatically last quarter after that...

I can't tell you for sure if the same thing happens this quarter... but I can tell you there is a lot of risk in the market right now.

Scott writes that he'll be watching how the S&P 500 acts near its March "support" level around 4,200. If the index can hold that level this week, it could lead to a "relief rally." If that doesn't happen, look out below...

Moreover, our colleague Greg Diamond recommended two new bearish trades in his Ten Stock Trader advisory on Friday... and is prepping for more if appropriate. Subscribers should check out Greg's Weekly Market Outlook from this morning for more analysis...

There is still time to prepare and protect your portfolio...

For more, check out Stansberry's Financial Survival Guide. The all-new seven-part course is full of strategies designed specifically for the volatile market environment we are in today.

Module 1 is essentially a detailed lesson on being "too early" – in a good way – and describes why you should protect your portfolio now... and how to do it. As we explained last week, Module 2 details perhaps the biggest bullish "asymmetric bet" in the world today...

And, in Module 3, released on Friday, analyst Alan Gula gets into how investing in "special situations" has a place in a well-diversified portfolio... and shares specifically how to use a low-volatility strategy that earns a high risk-adjusted return.

These are exactly the kind of strategies that can bolster your portfolio in times like today. As Alan writes...

Like cash, this strategy provides protection during stock market downturns. But the strategy far outperforms cash, even when money-market rates are high.

Best of all, we'll show you how you can play an individual deal to potentially increase your returns.

In other words, a bear market doesn't need to scare you. But in order to profit or protect your portfolio from it, you have to first acknowledge the possibility exists... and then act on it.

Existing subscribers and Stansberry Alliance members can find that research here. And if you are interested in getting access to Stansberry's Financial Survival Program, click here for more details and get started today.

Russia Hoarded Gold for This Moment

Russia has been increasing its gold reserves to prepare for economic sanctions "for the last eight to nine years," Byron King of St. Paul Research tells our editor-at-large Daniela Cambone. Get all the details in this exclusive interview...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 4/22/22): None.

In today's mailbag, more thoughts on the trouble with American railroads and feedback on Dan Ferris' latest Friday Digest on Twitter and Elon Musk... Do you have a comment or question? E-mail us at feedback@stansberryresearch.com.

"What company do you know that can expect repeat customers after they have been told 'We can't serve you'? Precision Scheduled Railroading is part of, but not all of the problem.

"For operating crews, you are at the mercy of the crew dispatcher in eight hours (6 1/2 rest plus 1 1/2 hours call time) after you finish your previous tour of duty in less than 12 hours. If your workday stretched to 12 hours (and often longer, against the rules), you still get only 12 hours off. The pay is good, but the scheduling is brutal.

"The major railroads want badly to run automated trains – no crew expenses – but from a public safety perspective, this would be a disaster. Imagine an automated train's response to someone who drives past a crossing gate at the last minute. It's 'Got that one!' The proposed one-man crews are little better; can the railroads ensure that their employee won't have a heart attack or stroke, or a nip at the bottle?

"I believe that the railroads need to acknowledge the limitations of their technology and make 'operating crew' a more satisfying position by improving the conditions under which they work. At that point, the railroads can bring locomotives out of storage and move all the freight tendered. Recall that the railroads do have duties as a 'common carrier' to serve all the public who will pay for their services." – Paid-up subscriber Stephen C.

"Moving oil tanker rail cars occupies many locomotives because our government refuses to permit pipelines. BNSF has a big loop of track for loading crude oil onto trains near my North Dakota home. High rail rates discount North Dakota oil so it trades for much less than West Texas Crude. If Uncle Sam would let the oil flow through pipes instead of roll on tracks, we may have plenty of clear track and free locomotives to move fertilizer. Oil supply would increase too.

"New trucks and tractors won't pull without urea Diesel Exhaust Fluid ("DEF"). Engine control computers, sensing low-DEF tank level, cut engine output to below working power. Fertilized or not, crops won't be planted without urea. Not much else will be happening either with the nation's truck fleet parked, waiting for DEF." – Paid-up subscriber Paul J.

"I always look forward to Dan's Digests. Regarding the Twitter story and Elon Musk's involvement, both [last Monday's] and Friday's Digests were superb, as are all the others. Thanks again, Dan." – Paid-up subscriber Sue M.

"Dan, I suspect you have nailed it on Twitter. I've seldom used it because I noticed early on that the time I spent wasn't paying off for me. Same reason I don't use Facebook or Instagram, etc. My kids might call me an old fart, but I developed lots of computer systems during my professional career and I don't feel the need to be a part of most of these systems.

"I think your take that Twitter creates antagonism and emotion as one tries to make one's point come home in a few words also shows some of its weakness, i.e., how well can one describe a process as difficult as investing with such few words. For that matter how can one fully describe almost any idea in such a few words. Look at your descriptions of one company you suggest investing in, they are pages long.

"It is exciting to try expressing ideas and I will grant that I've often felt I could describe a thought process in the restricted amount of letters and convince the world that my thinking was the correct logic but inevitably my 'exceptional' logic often didn't even get a response, let alone change the world. In other words, time on these systems means and produces essentially nothing." – Paid-up subscriber Al M.

"'Fissiparous'... Learned a new word today! Thanks." – Paid-up subscriber Jacqueline G.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 25, 2022