Today's Grim Reality
Today's grim reality... The market's warning signs... You don't have to be a victim...
We begin today's Digest with a warning.
Today's essay will be brief. But what you're about to read will probably upset you.
Porter often says that his Friday Digests generate waves of angry subscriber feedback and cancellation requests. Today, I (Justin) may break the record...
If you're new to Stansberry Research, you may be wondering why we would publish information that's guaranteed to anger thousands of subscribers.
The answer is simple. Porter writes these Friday Digests with one thought in mind: To give you the information he'd want to know, if your roles were reversed... even if that means upsetting folks or losing some potential customers.
Porter is traveling today. So I'll do my best to fill his shoes... and show you what I would want to know right now if our roles were reversed.
Unfortunately, today's message is one you likely don't want to hear. I hope you'll take it easy on me...
Regular Digest readers know that Porter has been tracking a long list of problems across nearly every corner of the world's financial markets.
Despite the broad market rally of the past few months, these problems have not gone away. In fact, they're still getting worse...
The U.S. economy has clearly stalled.
Bank of America Merrill Lynch analysts reported this week that out of the 21 major economic indicators they follow – ranging from manufacturing and services, to jobs, to home sales – 16 are the same or worse than they were at the beginning of the year.
Last week's May jobs report was a disaster. U.S. income tax withholding – a proxy for the job market that can't be manipulated as easily as other employment measures – has been plunging, too. And temporary staffing agencies are letting folks go for the first time since 2008.
Data from major economies like Europe, Japan, and China are even worse.
Plus, new research shows the corporate-debt binge is even worse than we knew.
It's no secret that companies have loaded up on massive amounts of debt in recent years, but S&P Global Ratings found they're also holding surprisingly low levels of cash.
According to S&P, when you strip out the cash holdings of the top 25 non-financial companies – those like Apple (AAPL) and Google (GOOG), who hold unusually large amounts of cash – those remaining have the lowest cash-to-debt ratio in at least a decade.
Meanwhile, corporate sales and earnings are plunging. Is it any surprise that default rates in the corporate-bond market just hit a six-year high?
Plus, credit-sensitive sectors like financials, autos, and retail have dramatically lagged the market.
On top of all of this, more than $10 trillion of sovereign debt is now carrying a negative yield. And that number is still growing.
Yields on 10-year government bonds from Germany, the U.K., Sweden, and Japan plunged to new record lows this week. Japanese and Swiss 10-year yields were already negative, but the German 10-year yield could soon join them. It fell as low as 0.009% yesterday.
This is a big deal... Ten-year German bonds (or "bunds," as they're called) are the benchmark sovereign debt for one of the world's most important economies. They now yield nothing... and are on the verge of charging investors interest to hold them.
As Porter has explained, negative interest rates are a sign of a completely broken financial system. They represent a giant "house of cards" underneath the entire global economy...
When the problems above begin to cause investors to panic and sell stocks, bonds, and paper currencies, how will central banks respond? By pushing rates even further into negative territory?
Of course, Porter isn't the only one who is concerned...
We've discussed how some of the world's most successful investors are buying gold and "hedging" their stock positions.
Some have gone even further... Billionaire money managers like Carl Icahn, Stanley Druckenmiller, Bill Gross, and George Soros have publicly warned that there are major problems ahead.
By now, you're probably wondering what the "bad news" is...
It's simple. Despite a stagnant economy and deteriorating fundamentals, almost everything is rallying right now.
Bloomberg reports that since the beginning of June, virtually every asset class and currency – outside of the U.S. dollar – has been rallying.
Precious metals are leading the way, but everything from the S&P 500... U.S. Treasurys... emerging-market currencies, stocks, and bonds... most commodities... and even junk bonds are moving higher.
The list of stocks hitting new 52-week highs has soared. And the broad U.S. stock market – as represented by the S&P 500 – is flirting with new all-time highs.
In short, it appears we could be approaching a breakout in risky assets – a rally driven not by fundamentals, but by central-bank manipulation.
In other words, we could be entering the final innings of the "Bernanke Asset Bubble" our colleague Steve Sjuggerud has long discussed.
Let me be clear... I'm not suggesting you rush back into the market today. A breakout has not yet been confirmed, and there's no guarantee we'll see one.
But if you're leaning heavily bearish, you need to be prepared for this scenario.
I realize this statement is likely to upset many of you… especially those who are leaning heavily bearish today. But again, it's what I would want to know if our roles were reversed.
Now... what should you do with this information?
If you followed our advice to own only great businesses, hold plenty of cash and gold (and select gold stocks), and "hedge" your portfolio with a few short sales, you can sit tight for now. You're positioned to benefit from a continued rally, and protected if this breakout fails.
If a breakout is confirmed, you can consider moving some of your cash back into the market. But if you do, you absolutely must do it safely. The end of this long boom is likely to be extremely volatile, and there's no telling how it could end.
This means using proper risk management tools like diversified asset allocation, appropriate position sizing, and trailing stop loses. If you're not willing to do this, you're better off holding cash and gold instead.
The most important benefit of these tools is that they take the emotion out of deciding when to sell a stock. In volatile markets, a little news can trigger dramatic swings in stock prices. Even veteran traders can act out of panic or euphoria when they see the herd of investors stampeding in one direction or the other.
Making emotional, panicked decisions is an exceptional way to lose money. It ensures you buy when everyone is bidding up prices and sell when fear has driven them down. Buying high and selling low never works.
That's why setting a plan and knowing when you'll sell in advance is so important. And to ensure you stick with the plan... we recommend using a product like TradeStops to manage your risk.
We've written about TradeStops a lot over the years. It's a sophisticated portfolio-tracking tool designed by our friend and colleague Dr. Richard Smith. In addition to alerting you when your positions hit their trailing stops, Richard's TradeStops software features a "risk-rebalance tool" to help you lower the overall levels of risk in your portfolio... along with a one-click way to determine the optimal position size for any stock you own.
Porter has said that "nobody should be reading newsletters or investing on their own without using TradeStops." (You can read his writings about it here and here.)
In fact, we were so impressed with what Richard built that we invested in his business and have been partners with him for the last several years.
To sign up for a 60-day, 100% risk-free trial subscription to TradeStops Premium, click here.
New 52-week highs (as of 6/9/16): Becton Dickinson (BDX), Franco-Nevada (FNV), Fidelity Select Medical Equipment and Systems Fund (FSMEX), VanEck Vectors Junior Gold Miners Fund (GDXJ), Johnson & Johnson (JNJ), Medtronic (MDT), Altria (MO), Newmont Mining (NEM), Pretium Resources (PVG), Ritchie Bros. Auctioneers (RBA), Spectra Energy (SE), SEMAFO (SMF.TO), Silver Standard Resources (SSRI), AT&T (T), and Vanguard Inflation-Protected Securities Fund (VIPSX).
In today's mailbag, a new subscriber shares his experience with Richard's TradeStops service. Send your notes to feedback@stansberryresearch.com.
"In the few weeks I have been using TradeStops I have made more money than I had in the previous 12 months. More importantly my confidence and peace of mind have improved immensely, and I can see I will be using this for the rest of my life as well as my children's lives...
"Previously I was flying by the seat of my pants, selecting funds that had done well in the past with absolutely no clue as to allocation. When I plugged my four previous funds into TradeStops, I found that all had long since stopped out. I replaced them with four funds that triggered entry signals within the past two months. The result is an $11,000 gain. The other major accomplishment is in my brokerage account. I had gotten burned so many times that I had half of it sitting in cash. TradeStops has provided me with the tools to put that money to work. Thank you." – Paid-up subscriber Kenneth S.
Regards,
Justin Brill
Baltimore, Maryland
June 10, 2016
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