What I Told Our Subscribers in Las Vegas... And a Few Things I Didn't

What I told our subscribers in Las Vegas – and a few things I didn't... The complete (ugly) picture... Like turkeys gathering just before Thanksgiving... A classic dynamic of every raging bull market... One potentially massive catalyst for the next bear market... The biggest round of applause I got this week...

It's always a ton of fun to interact with our subscribers...

And for me (Dan Ferris), this year's Stansberry Conference was no different. I had a great time presenting ideas and chatting with folks at the annual event in Las Vegas this week...

I presented on Monday afternoon about our current bubble... It's a topic that should sound familiar to Digest readers. On Tuesday night, I participated in the "Great American Panel" with Dr. Ron Paul, Trish Regan, John Tamny, Grant Williams, and our host Buck Sexton.

Then, in the annual meeting for Stansberry Alliance members on Wednesday, I revealed a brand-new stock idea reserved for those in attendance... It's one that won't likely appear in my Extreme Value newsletter because it's more of a macro thesis than a value thesis.

Anyway, in today's Digest, I want to discuss what I told our subscribers in Las Vegas. And more importantly, we'll go beyond those thoughts into a few other things you should know.

Let's get started...

'This. Is. A. Bubble.' was the name of my presentation on Monday...

I know that's a frequent topic in my Digest missives. But I guarantee that you would've had more fun hearing it this time. After all, I was delivering the news in living color...

The first thing I said after walking onto the Encore Ballroom stage was that, given the title of my presentation if they wanted to buy any stocks... they had better do it before I started talking. (The joke was on them since the markets were closed by the time I spoke.)

Then, I had everyone in the room repeat the title of the presentation after me, loudly and with gusto. There's no substitute for sitting in a crowd of like-minded investors (mostly fellow Alliance members, too)... and hearing them all shout, "This. Is. A. Bubble."

The idea enters your consciousness on a level you don't immediately perceive when you say it out loud like that. And frankly, it needs to be said loudly by as many investors as possible.

You hardly hear anyone saying anything about a "bubble" these days. So I hoped that one good, loud statement of this simple fact might help reorient them to the reality of the current conditions in the markets.

And you know what I think of those...

As I've pointed out time after time in the Digest, market valuations are currently out of control...

The benchmark S&P 500 Index is the most followed equity index in the world... It accounts for roughly 80% of the market value of all U.S. stocks. So it's clearly a big deal.

The S&P 500 is more expensive right now than at any time in history. That includes the dot-com-bubble peak in March 2000 and the housing-bubble peak in October 2007.

Sometimes people ask me what I mean when I say stocks are more expensive than ever...

I don't mean that the S&P 500 is hitting new highs. I mean that the S&P 500's valuation is hitting new highs. That's a critical difference...

Simply put, when an asset is expensive, it means investors who buy the asset at that price can expect to be poorly compensated for the risk they're taking.

When an asset is at its most expensive valuation in history – like U.S. stocks today – the only reasonable expectation is for investors to be compensated worse than investors in that asset have ever been compensated in history. And beyond that, it's perfectly reasonable to expect the current speculative frenzy to end with one of the worst bear markets ever.

Of course, human nature being what it is, at precisely the moment when stocks offer the worst risk-reward proposition in all of recorded history... investors have more money in them than they've had in decades.

Right now, according to a CNBC article from earlier this month, "Stocks are at a 70-year high as a share of household financial wealth." And roughly 56% of Americans own stocks, according to a recent Gallup poll... So more than half the country is participating in this frenzy.

Plus, as I told the audience in Las Vegas, U.S. equity investors are using more margin debt in their accounts than any time since at least 1997. They're getting greedy and leveraging up.

Put it all together and check out the (ugly) picture it paints...

More Americans have more of their wealth in stocks than any time in 70 years at the exact moment when stocks are at the point of highest risk and lowest potential reward ever... And they're borrowing more money than ever to do so, ramping their risk up even further.

If that sounds really bad to you, I agree.

It's as if a group of turkeys got together a few months before Thanksgiving and decided to figure out which turkey farm serves the best food and has the best accommodations... "Hey guys, don't worry... We'll just stay as long as it's good and we'll all escape before they start chopping heads off."

Investors would say it like this... "I'll ride the bull until it starts falling apart, then I'll get out early enough to keep most of my gains."

But that's a recipe for disaster...

As I showed the crowd – and as I've told you before – market tops are weird, drawn-out processes. You never know they're happening until they're long past... and horrible damage has been done. By that point, it's often too late to save your wealth.

At the moment when investors ought to be terrified of the risk they're taking for lower expected returns than ever... they're actually thrilled to be in the stock market. It's just like the turkeys... they're all fat and happy right up to the moment they get eaten.

Why aren't investors scared? Why don't they see what I see?

If you say, "Dan, maybe it's because you're wrong"... that could be true.

I'm confident in the data I'm looking at, but maybe it doesn't mean what I say it means. Maybe "this time is different" will prove to be true for the first time ever.

Yes, I could be wrong. That's always possible. But as at least a couple of early 20th century sportswriters famously said – paraphrasing a part of Ecclesiastes 9:11 from the Bible...

The race is not always to the swift, nor the battle to the strong, but that is the way to bet.

Likewise, the market can go far higher than anyone ever imagined. However, in doing so, the only rational expectation is that it sets itself up to come crashing down harder than anyone would ever believe is possible.

An endless bull market that's totally untethered from rational-return expectations is possible... But that isn't the way to bet.

I don't think I'm wrong... But even worse, as I've often said, there's no way anyone can predict when that nasty bear market will arrive – or exactly how it will play out.

When contemplating why investors aren't scared right now, I'm not ready to throw in the towel...

I think investors aren't scared because they've been conditioned by the market for more than 10 years to ignore such concerns and buy every dip. That's still happening today.

One of the biggest behavioral themes that has conditioned investors to ignore rising risk is the fear of missing out ("FOMO"). This is a classic dynamic of every raging bull market...

Everybody sees their neighbors getting rich in stocks... Or they see folks commenting on social media about how much money they're making... And they don't want to be left out.

These investors all get severe cases of FOMO. And it keeps spreading rapidly in bubbles.

But here's what I didn't tell the folks in Las Vegas about FOMO...

It's very obvious today that FOMO has pushed investor behavior to unimaginable extremes. More than $1 trillion has flowed into global equity markets so far this year.

Depending on your perspective, $1 trillion might not sound like that much...

For example, according to data compiled by Bloomberg, the U.S. stock market alone these days is worth around 53 times that amount. And the entire global stock market is trading at around $120 trillion today.

So in that context, an extra $1 trillion into global stocks seems relatively small.

Except that it's not a small number. And based on another piece of context, it's massive enough to suggest the most rabid stock market feeding frenzy anyone has ever seen...

It's more than all the money flowing into global stocks combined over the past 20 years.

Forget toilet paper. I think this is what they really mean by the term 'panic buying'...

Remember those turkeys from earlier?

Well, a few hundred of them just found a really nice farm to live on... And now, millions more are following in their footsteps and storming the gates. Thoughts about what turkey farms do with turkeys on Thanksgiving are nowhere in their frenzied bird brains.

Likewise, investors all over the world today don't have any cares in the world... They feel less need to protect themselves than any time since the peak of the dot-com boom.

In the following chart, you can see the Chicago Board Options Exchange's "put-call ratio."

Regular readers know the put-call ratio helps us track sentiment among traders, based on their put- and call-option trading behavior. You'll notice that it shows us that investors are currently buying fewer put options as protection than any time since March 2000...

I don't do predictions, but I promise you...

This is what it looks and feels like to be right smack in the middle of a massive market-topping process. And yet, nobody but me and the last few bears can see it.

At that point, I told the crowd in Las Vegas that I knew what some of them were thinking...

"What's the 'catalyst,' Dan? What event will cause this massive, relentless, epic, biggest-ever bull market to finally end and become a bear market?"

My attitude toward that question makes me sound like a flippant teenager...

Whatever, dude... Whatever.

The real answer is...

I don't know. You don't know. Warren Buffett doesn't know. Nobody on Wall Street knows. No one in the entire world knows.

We don't get to know that... It's the future. No one can know for certain what will happen.

Maybe that's why nobody talks about bubbles enough until after they burst... Because Wall Street, investment advisers, and financial media pundits don't like to say "I don't know."

They all want to impress you and make you think they're well-informed. They're constantly saying idiotic stuff like, "The market went up 0.05% today because..." as if anybody knows why such random, meaningless movements occur. They're fooled by randomness... And they're assuming you'll be fooled by it, too.

So you can't predict anything – and all you get to know about big turns in the market is whatever you can glean about today by studying history. That's what all my concerns are based on...

I assume that markets will always be driven by human nature. And I'm highly confident that human nature hasn't changed... nor will it change during my lifetime (if ever).

We're still susceptible to all the same foibles as when humans were living in caves and trying to not get eaten by lions, tigers, and bears. Human nature and a splash of epic bull market makes for a dangerous cocktail. If you must drink... sip slowly, don't gulp.

In the end, I got over my teenage flippantness and offered one potentially massive catalyst...

It's something that could take the stock market down hard at some point soon. And for that reason, it's something that my colleagues and I have discussed a bunch here in the Digest...

Inflation.

During my presentation, I showed a series of charts pointing out something that you and I absolutely cannot ignore... Prices for energy, housing, food, and stuff you buy at the dollar store have all risen substantially this year.

The Federal Reserve keeps force-feeding us the narrative that inflation is "transitory"... But that excuse is breaking down rapidly. To me, the reality of the situation seems clear...

Inflation is here. And it doesn't look like it's leaving any time soon.

So equity investors should be warned. As we've discussed before, inflation is bad for stock prices...

Consider a business that earns a 30% return on invested capital ("ROIC"). In a period of 10% inflation, that ROIC would get cut down to 20%... Then, the stock market would adjust the company's valuation downward by about the same amount to reflect the damage.

And remember, inflation – according to the government's Consumer Price Index, at least – rose above 5% earlier this year... It had consistently run below that level since 1991, except for a brief time in 2008.

In other words, as I summed up in my presentation at the Stansberry Conference...

Stocks are less attractive today than any time in history... Yet investors own more of them than they have in 70 years... They're using more debt to buy them than any time in at least 24 years... And they're buying less put-option protection than any time in 21 years.

This will not end well.

It never has... And despite what you might think, "this time" is never different.

Most of the time, not being afraid of the market and investing confidently in great stocks is a superpower that will make you rich. The contrarian mindset is a beautiful thing.

But every decade or two, a brief period comes when being too confident is a liability with a much greater likelihood of losing you money. I believe we're in one of these periods right now. So please... tread carefully in the stock market today.

My message was well-received on Monday afternoon... The crowd applauded a few times as I made all the points I've just shared with you.

But the biggest round of applause I got all week in Las Vegas wasn't for anything finance-related...

Before I go any further, I must warn you... I'm about to get political. If that bothers you, no worries. Have a great weekend, and I'll see you next week. (I'm writing again on Tuesday.)

At the end of the "Great American Panel" discussion on Tuesday, Buck Sexton asked each panelist for a final thought. And I commented briefly on the topic of freedom of speech...

The idea of free speech has become perverted through the years. Speech is now considered as a form of violence on college campuses, social media, and in a lot of traditional media.

I'm sure you've heard reports of overly sensitive college students claiming they need a "safe space" where they can get away from the words of others... or even just the mere presence of others whose ideas, beliefs, races, or genders that they claim is offensive to them.

In fact, I recently watched a video of a man who was assaulted and had his sign taken away and destroyed because he expressed support for comedian Dave Chappelle during a protest against Chappelle's recent Netflix comedy special.

As you might've heard, Chappelle has been accused of criticizing the LGBTQ+ community... But I saw the special, and I can tell you that is pure nonsense.

The protestor who was attacked literally said nothing except "Dave Chappelle is a funny guy," and "I love Dave." His presence was completely benign, and yet it was met with violence – mild violence, but violence, nonetheless.

I often say there's no difference between the 'right' and the 'left' side of the political aisle...

By that, of course, I'm talking about modern liberals and conservatives.

That's still true. But the two sides go to extremes on many different issues...

Today, when it comes to speech, the left has gone haywire. It's no longer supporting civil liberties and intolerance. And even worse, it's (often violently) in favor of suppressing them.

That's a major problem.

Overall, as I concluded in Las Vegas... Too many people seem to have forgotten that civilization began when the first caveman called his neighbor an S.O.B. instead of trying to bash his brains out with a rock.

Speech is a beautiful thing. And for hundreds of years, we've had the freedom to speak what's on our minds here in America. That's something that cannot change – ever.

And that leads me into an important point that I didn't say on the panel. But it's something that absolutely must be addressed...

We all must relearn our core competency as Americans.

Though I vehemently disagree with anyone who currently advocates violence against the government, I believe it is time to speak out and tell the government to go to Hell... And it's time to remind those officials who is the servant and who is the master.

Remember, speech is the oxygen of our civilization... Speak up. Don't let them win.

New 52-week highs (as of 10/28/2021): Automatic Data Processing (ADP), Bunge (BG), CBRE Group (CBRE), Costco Wholesale (COST), Comfort Systems USA (FIX), Formula One Group (FWONA), Intuit (INTU), LendingClub (LC), Microsoft (MSFT), Nestlé (NSRGY), Novo Nordisk (NVO), Invesco S&P 500 BuyWrite Fund (PBP), ProShares Ultra QQQ Fund (QLD), ProShares Ultra Technology Fund (ROM), S&P Global (SPGI), ProShares Ultra S&P 500 Fund (SSO), Suncor Energy (SU), TFI International (TFII), Thermo Fisher Scientific (TMO), AMERCO (UHAL), ProShares Ultra Semiconductors Fund (USD), and Vanguard S&P 500 Fund (VOO).

In today's mailbag, a Stansberry Alliance partner welcomes Matt McCall to Stansberry Research – and makes a pertinent observation about the next bust. We're always happy to hear your thoughts, comments, and observations on the markets at feedback@stansberryresearch.com.

"Matt, I am feathering into the [MegaTrend Investor]. I do think this will be a plus to my portfolio. The great stock market gains that are mentioned are ones for the record books. I hope the next growth era will smash [those] records.

"BUT there is no mention of the downturns (crashes) that happen after those rallies – like the 1920s and 2000s.

"[Nevertheless, it's great] to see new perspectives and investment ideas at Stansberry. Welcome." – Stansberry Alliance member Jeffrey G.

Dean Jones Jr. comment: Jeffrey, thanks for writing in – and more importantly, for allowing us to be a part of your investing journey. We're always humbled by the support from Stansberry Alliance partners like yourself.

You bring up a great point... It's true that the market doesn't go up forever. Eventually – as Dan coincidentally notes in today's Digest, for that matter – the bubble always bursts.

But for starters, that doesn't necessarily mean everything will crash at the same time. You can almost always find spots of the markets that are thriving, even amid the worst market crashes of all time.

And more to Matt's point... He's incredibly bullish on the market today – and for the foreseeable future. And he believes the "Roaring 2020s" will prove to be the greatest decade in the history of the stock market. But as he also explains to MegaTrend Investor subscribers in his welcome letter...

Keep in mind, not all stocks will be winners during the Roaring 2020s. It requires sifting through the thousands of publicly traded stocks and identifying the best companies in the megatrends set to soar...

That is the strategy I use to find the greatest investments in the world. It's not easy, but it is possible.

In short, if you follow Matt's approach, you'll be introduced to the best moneymaking "megatrends" of the decade. He believes you'll be much better off in 2030 than today. And of course, along the way, he'll be sure to guide you away from any potential land mines.

Speaking of that... For anyone else who hasn't yet joined Matt as a charter member of MegaTrend Investor, we'd encourage you to check out his brand-new presentation. Don't delay, though... This offer won't be available forever. Click here to get started.

Good investing,

Dan Ferris
Eagle Point, Oregon
October 29, 2021