This Is Not the Time to Get Complacent
Stocks climb a 'wall of worry'... The Powell Asset Bubble... A 'cautiously curious' approach... Investors think nothing can go wrong right now... This is not the time to get complacent...
Stocks continue to climb a 'wall of worry'...
Politically motivated stimulus negotiations... a digital "Cold War" with China... the ugliness of the Eastman Kodak (KODK) situation – and what it says about corporate greed today... the Federal Reserve backstop...
Plus, the number of reported COVID-19 cases in the U.S. just surpassed 5 million over the weekend... while the nationwide death rate has been trending higher for a month...
If anyone can figure out what's "good" about all of these things, please let us know.
And yet, stocks go higher...
Central-bank policy – near zero interest rates, as well as roughly $6 trillion of Fed-created dollars and new lending programs – has a lot do with why the major U.S. indexes have now climbed about 50% or more from their March lows... while the U.S. just reported its largest one-quarter decline ever in gross domestic product.
We're getting tired of saying it, but as we last did in the July 30 Digest...
In other words, the disconnect between Main Street and Wall Street may never have been wider than it is right now.
However, as investors, we also can't ignore that two different things can be true at the same time...
As we also recently wrote, stocks can go up and the economy can stink simultaneously.
It has been happening for five months... and we can't say when it'll stop being true.
After all, one collection of information (stocks) tends to look ahead, while the economic data looks backward. But the big questions on our mind today are...
- How much longer can stocks continue to climb to new highs, while we see as much uncertainty about the economy as we do moving ahead? And...
- How long can it last with a pivotal presidential election coming up in less than three months?
We'll share a few opinions and perspectives from several editors this week in the Digest.
For starters, we turn to our colleague Dr. Steve Sjuggerud. He covered the Fed's influence on stocks well in the July 29 issue of his free DailyWealth e-letter...
In general, Steve wrote that all the trillions in "easy money" that Fed Chair Jerome Powell and the central bank is throwing at the economy today puts the "Bernanke Asset Bubble" (which started amid the financial crisis in 2008 and 2009) to shame.
Steve said that the Fed's massive injection of essential liquidity into our financial system would continue to send stocks higher in the short term. It's a "recipe for a major asset boom," as Steve wrote... noting that it would be wise for investors to own stocks today.
But Steve also issued an important warning in that DailyWealth essay...
I want to be clear about one thing... I'm not saying this is good. The long-term consequences could be severe. We simply can't know today – we don't know if or how it could go wrong.
What we do know is what happened last time. The Bernanke Asset Bubble sent asset prices on a 10-year boom. And Powell's actions are likely setting up a massive boom in asset prices too.
Other smart investors are remaining 'cautiously curious,' at best, too...
Oaktree Capital Management co-founder Howard Marks, for instance – who we last mentioned here on the topic of the opportunities in distressed bonds – put it well in his latest memo about the economy and markets on Friday.
Marks described why, in his view, what we're seeing today isn't a "normal" economic recovery. As he said...
Just a few months after the bottom was reached in the market and the economy, investor optimism has been restored and the prices of many assets have regained their prior highs.
That's a much faster recovery than normal by historic standards, and it seems to give short shrift to the conditions that continue to challenge the economy.
It sure seems so.
Now, don't get us wrong – you want to 'make hay while the sun shines'...
That's what our founder Porter Stansberry said back in January about central-bank policies and why he believed stocks should continue to move higher this year.
Porter essentially said the same in March after the COVID-19 pandemic hit. He went on record at the time, predicting that stocks would again reach new highs later this year – just as they have. The Nasdaq Composite Index won the race to new highs, but plenty of other stocks have followed...
The 15 "forever stocks" that Porter and our research team recommended on March 25 are up an average of 35%, with three up at least 60% and five others sitting on 30% gains. Keep in mind, these are safe, reliable companies that you can feel comfortable owning forever.
And many of our other editors have notched big winners for their subscribers lately, too...
Our publisher Brett Aitken e-mailed our staff recently with some of the numbers...
We already mentioned Stansberry Venture Technology editor Dave Lashmet's 1,000%-plus winner in a partial position with tiny biotech firm Inovio Pharmaceuticals (INO) in the June 29 Digest. That position took over the top spot in the Stansberry Research Hall of Fame of all-time highest-returning closed positions. As we wrote back then...
A 1,000% gain, much less in only a year, does not come around often, if ever. But honestly, we're not surprised that this massive success came from Dave, who is an expert in this early-stage biotech space.
Then, Dave followed up the Inovio pick a week later with a 777% gain on a partial position with chipmaker Nvidia (NVDA), which now sits at No. 3 in the Stansberry Research Hall of Fame. He recommended the stock back in May 2016 when it traded for $45 per share. It closed today at $446.60 per share.
These type of results aren't new for Dave's subscribers... Brett pointed out in his e-mail that Dave has recommended more than 20 doubles since launching his publication in November 2014. That means roughly one in three of Dave's recommendations have gone on to make 100% or more for subscribers who've followed his advice.
Stansberry Gold & Silver Investor editor Bill Shaw also has one or two recommendations regularly appearing in our Top 10 Open Positions, depending on the market action lately... And software firm Simulations Plus (SLP) – one of Austin Root's American Moonshots picks – is on the list, too... up roughly 250% since December 2018.
We could go on and on with more well-performing positions from our editors and analysts. These are just the picks that have entered the lists at the bottom of our daily e-mails over the past few months.
Given all those remarkable returns, we wouldn't blame any investor who may think the good times will last as long as the Fed says it will print money and keep interest rates low.
These folks might be asking themselves...
What do owners of stocks have to worry about?
Indeed, Powell said at a press conference two weeks ago, "We're not even thinking about thinking about raising rates," adding an extra "thinking" on to his comments from the previous month.
Just today, as Stansberry NewsWire analyst Nick Koziol reported, while there is no agreement between Republicans and Democrats in Congress on another U.S. stimulus package, some in the Trump administration are still optimistic...
[Treasury Secretary Steve Mnuchin] said President Donald Trump is "determined to spend whatever needs to be spent" to enact support for the economy. He added that Democrats appeared open to compromise and that the two sides agree on additional funding for the Paycheck Protection Program and direct payments to individuals.
In addition, also recently, other policymakers like Chicago Fed Chair Charles Evans have said they think another round of stimulus is important for "public confidence."
That might be true, but here's the important point we don't want you to go without knowing today... Everything we're seeing right now is also giving investors a false sense of security.
"This" can't go on forever, can it?
That's what our proprietary Stansberry Complacency Indicator is warning today...
This is one of our most reliable indicators, and it's sending a warning signal this month.
As subscribers to our flagship Stansberry's Investment Advisory publication know, this indicator has a remarkable track record over the past 25 years.
We won't get into all the details of how this indicator is calculated, but just know that a "complacency score" of less than 30 (out of a 0-to-100 scale) has correctly predicted a decline of 10% or more in 10 out of the past 12 market corrections – including March's 34% crash in the benchmark S&P 500 Index.
More important, while this indicator has not predicted every major sell-off, it has had no "false positives." Of the nine times this indicator has triggered, only once has it led to a correction of less than 10% within 12 months. And that time still corresponded with an 8.4% decline.
Said another way, over the past several decades, whenever our Complacency Indicator has signaled a bearish warning, a stock market correction has always followed.
And, amid the Fed-fueled rally in stocks the last few months, this indicator says investors are getting complacent today. As our Stansberry Investment Advisory team wrote in their latest issue, sent to subscribers on Friday...
The S&P 500 has now risen nearly 50% from its March 23 lows. Still, with the economic shock to the global economy caused by the coronavirus outbreak, it's far too early to call this a new bull market.
This month our Complacency Indicator score reads 31. That's down from 45 last month. It's the ninth consecutive month that the score has read above 30. Remember, we consider a reading below 30 to be "bearish." So this month, this indicator remained "neutral." But it's close to turning bearish.
This isn't to say you should go 'all out' of stocks right now...
But like we said last week, this is a good time to take a look at your portfolio... assess your allocation and position sizing... and make sure everything aligns with your investment goals and timeline.
According to our Complacency Indicator, investors are feeling like little can go wrong today. And when that happens, it usually tells us the opposite...
This is not the time to get complacent.
If you're already holding some extra "dry powder" and have money in "chaos hedges" like gold, as we've recommended over the past few months, you're likely in good shape.
But if your portfolio is made up of mostly speculative stocks today, you might want to consider taking some profits and raising cash that you'll be able to spend on buying opportunities after the next correction.
For more great insight into what's happening in the markets today, check out the latest issue of the Investment Advisory. Subscribers and Stansberry Alliance partners can view it right here.
And if you don't already subscribe to the Investment Advisory, we can't think of a better way to get direction on which way the markets may be headed – and how to protect and grow your wealth – than reading this newsletter. You can give it a try risk-free today. Click here for more information.
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In today's mailbag, feedback on Dan Ferris' Friday Digest about the crony capitalism at Kodak. Do you have a question or comment? As always, send us an e-mail to feedback@stansberryresearch.com.
"One of the best articles that I ever read from Stansberry: 'I Wish Them Swift and Terrible Justice.' 'Dare to be dangerous.' = my quote of the month. Thank you, Dan!" – Paid-up subscriber Dennis R.
"Kudos to Dan Ferris for snooping out this egregious action by the directors and executives of Kodak. If true, they violated not only ethical law but SEC rules governing the use of confidential information to profit at the expense of the public.
"I just wrote the Department of Justice, which, I understand, is investigating this Kodak action. If true, these people should not only be forced to give up any profits they earned but they should receive stiff fines (fines that hurt) and possibly short term prison sentences.
"Enough!
"Just so you know I am not an envious person, I worked in industry for almost 60 years handling confidential information and never traded on that. Either you are honest or not. I still managed to do pretty well. Thank you, Dan Ferris." – Paid-up subscriber Richard T.
"Probably the most direct to the point story I've read in a Stansberry product. It does make you want to go out and watch what's gonna happen- in November; or to Kodak and its board; or to the other cronys.
"Tell me how not to jump on and lose my good money. Thankfully I try to hear it from y'all before I pull the trigger. What the subscriptions cost is well worth it. Thanks." – Paid-up subscriber J.M.
All the best,
Corey McLaughlin
Baltimore, Maryland
August 10, 2020