This Alarming Trend Is Just Beginning

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 We begin today with signs of the top…
Stocks are expensive. But we remain cautiously bullish for now.
Yes, large-cap U.S. stocks are now trading at higher levels than any other time in history, outside of the Internet bubble. But as Porter explained in the April 7 Digest, valuation alone is not a reason to get bearish…
The chart below shows you the ratio between the market value of these companies and their annual sales. This "price to sales" ratio is one of the best ways to measure the real value (or lack of value) in the stock market because there are ways to inflate other measures, like book value ratios and earnings…
One vital point to remember, however: just because stocks are extremely expensive compared with history doesn't mean they can't become more expensive.

I don't advocate shorting individual stocks just because they're expensive in terms of their ratios. Nor do I advocate shorting markets merely because they're expensive relative to history. Valuation doesn't equal timing.

 Now, though, we're also starting to see examples of the absurd beliefs that always accompany a top in the market…
History shows investors can come up with all kinds of convincing – but ultimately foolish – reasons why "this time is different."
For example, in the late 1990s, everyone loved tech stocks.
If you were an investor at the time, you may remember people had plenty of reasons why they believed these stocks weren't expensive and could only go higher. Back then, they said profits didn't matter in the "new economy." It was all about "clicks and eyeballs."
In the mid-2000s, everyone loved housing… And there were plenty of reasons to buy. "They aren't making any more land," they said. "And home prices never go down."
We were reminded of this while reading the Wall Street Journal this week. In an article titled, "This Time Is Different: Two Reasons Not to Be Alarmed by the Nasdaq Record," the authors presented a simple argument…
The companies in the [Nasdaq Composite Index] collectively [trade] at 27.5 times their last 12 months of earnings, according to Thomson DataStream.
While that's the highest such reading for the multiple since 2004, it just barely eclipses levels seen in early 2010. And it's only a fraction of the peak of 72.2 seen in March 2000, when euphoria over tech stocks crested.
The current valuations, though high relative to much of the post-crisis economic recovery, suggest that the recent climb in share prices hasn't gotten out-of-whack with recent earnings. This time really is different. So far.

In other words, tech stocks aren't that expensive because they're still cheaper than they were at the peak of one of the biggest manias in history.
How's that for an investment thesis?
 Meanwhile, we're also keeping a close eye on the looming problems in the credit markets…
In recent months, we've shown how default rates for auto loans, student loans, and even high-yield "junk" corporate debt have been quietly ticking higher.
Now, we have new evidence that one of the riskiest corners of the credit markets is rolling over, too…
This week, Capital One Financial (COF) – one of the country's largest credit-card lenders – reported first-quarter earnings. And they weren't good…
The firm reported a stunning 20% year-over-year decline in net income, far worse than analysts had predicted. And it said larger-than-expected credit-card losses were to blame. As the Journal reported…
The bank, often looked at by analysts as a gauge of consumers' ability to pay back their debts, reported that domestic credit-card net charge-offs reached 5.14% in the first quarter. [This] was up from 4.16% a year prior. The companywide provision for credit losses jumped 30% from a year earlier to $1.9 billion.

 Porter and his Stansberry's Investment Advisory team predicted this trend more than a year ago… And it is likely just getting started.
As they explained in the December 2015 issue, where they warned about the rising risks to credit-card lenders for the first time…
Like the financers of subprime auto and student loans, Capital One's margins depend on low cost of capital and keeping loan losses to a minimum. If either one of these numbers rise significantly, profits can evaporate quickly. Our bet is that the company's credit-card loan losses are about to start rising…
Back in 2007, credit-card loan losses for Capital One totaled around $3.6 billion. In 2008, losses nearly doubled to $6.1 billion, wiping out the company's entire profits. The stock plunged from around $83 in 2007 to $8 a share by March 2009.
Capital One's credit-card loan losses reached 8% of its loan book in 2008. Today, its loan losses are half that at around 4% for credit-card loans… We expect they will head much higher. They could approach 10% of the company's loan-book value. When this happens, Capital One's profits will disappear… once again.

Unfortunately, Capital One's own management team still doesn't appear to understand the magnitude of these problems. More from the Journal (emphasis added)…
Chief Executive Richard Fairbank said the bank raised its outlook for full-year, domestic card charge-off rates to the high end of a 4%-to-around 5% range. That was up from the bank's prior expectation of the mid-4% range. Mr. Fairbank said this revision is "based on portfolio dynamics and industry conditions [the bank] observed in the first quarter."
"Against this backdrop, we have been tightening our underwriting," he added. "We still see growth opportunities in our domestic card business, but our growth window is gradually getting smaller."

 Switching gears, DailyWealth editor Steve Sjuggerud was a guest on The Meb Faber Show this week…
As you may know, this is our friend Meb Faber's free weekly podcast. Meb is the co-founder and Chief Investment Officer of Cambria Investment Management, and one of brightest investment minds we know.
If you're a fan of Steve's work, you don't want to miss this episode. This wide-ranging conversation covered a ton, including…
How Steve got started in finance… what he learned from his worst-ever trade… what Steve is seeing in the investment world today… his latest thoughts on stocks, bonds, housing, and gold… the biggest mistake his subscribers make… and much more.
Check it out for yourself right here. You can also learn more about Meb and his podcast at
 Steve is also hosting a special live briefing for Stansberry Research readers next week…
As regular DailyWealth readers know, Steve is incredibly bullish on China today. But he says there's a new "wrinkle" to the story…
In short, three recent changes have "fast tracked" his big China prediction. Steve says this story could play out even quicker than he originally believed possible.
On Wednesday, May 3 at 8 p.m. Eastern time, Steve will be going live on-air to explain it all…
He'll explain why you're not hearing much about this news in the financial media… why President Trump is "powerless" to stop what's coming… and what this situation means for his "Melt Up" prediction for U.S. stocks.

Steve will even give you the name and ticker symbol of one of his favorite China recommendations just for attending. This event is absolutely free for Stansberry Research readers. Simply click here to reserve your spot.

Justin Brill
Editor's note: One of the most powerful money groups in the world could soon make an announcement that will dramatically alter your financial future… But only if you play it right. To help you prepare, Steve is holding a free live briefing on Wednesday at 8 p.m. Eastern time. Plus, he's giving away one recommendation to anyone who shows up. Save your spot by clicking here.

Source: DailyWealth

How to Escape the Trap of Knowing Too Much

It sounds crazy, but you can know too much about a stock.
This is hard for people to accept in our "Knowledge Is Power" society… where the Internet puts thousands of pages of information, data, and news about a company in front of us with a few clicks of a mouse.
People like to believe that with enough information, they can make a perfect decision… That by adding fact after fact, data point upon data point, their understanding becomes increasingly clear. But it doesn't always work like that.
In the field of behavioral finance – essentially the study of how people make decisions surrounding money – studies have repeatedly shown that humans usually gather too much information… and sometimes get stuck in the process.
Picking a stock, bond, or fund isn't an exact science. Often, it means letting some facts and data go…
Don't misunderstand… I'm not saying you should dive into the market half-cocked, throwing money at every hunch and tip that comes along. (And if you saw the blizzard of magazine clippings and journal pages spilling from my desk, you'd be tempted to call me a hypocrite.)
You do need to understand the companies you buy.
But don't spend so much time collecting data that you fall into the trap of knowing too much, and then forgetting to take action…
People can easily be paralyzed with indecision. At a certain point, investors can get lost in a sea of ratios and statistics that don't add to their understanding of the investment.
For example, say you find a stock that looks expensive based on the past 12 months of earnings, and it just missed earnings by $0.02 in yesterday's earnings announcement. But it looks like a steal based on "consensus Wall Street estimates of future 12-month earnings." What are those conflicting signals telling us? Which are important? What can we ignore?
Honestly, what does something like the debt-to-equity ratio tell you that the net tangible assets growing over three years doesn't tell you? Is that distinction vital to buying the stock?
Heck no.
Don't get bogged down in old data…
I follow the work of an English clergyman named Reverend Thomas Bayes to guide my investing strategies. In a paper published in 1764, the reverend and mathematician outlined a method of assessing probabilities now called Bayesian statistics… In the simplest terms, it represents common-sense investing.
Bayes believed it was important to integrate your past experiences while looking at data – creating what he called "priors" – in order to estimate the probability of something happening in the future. It turns out, the human brain does this well… as long as it doesn't get emotionally attached to the earlier decisions. For investing, this is critical to understanding.
When I analyze stocks, I stick with a time-tested and simple strategy…
I simply search out companies with long histories of growing or stable sales. If a company has endured lean years in the past and has come out strong, it can probably do it again in the future.
We want to see healthy cash flows because they tell us the company is making cold, hard cash and not just reporting accounting tricks with its earnings (like with Enron).
And we want to see a clear pattern of rewarding shareholders with dividends and stock buybacks. Dividends compounded over time are the most consistent avenue to big returns.
I've told subscribers many times that "dividends don't lie." Companies can't fake a cash payment like they can manipulate other items on the balance sheet. If you're going to cut a dividend check, you have to have the cash to cover it. And a rising dividend is like a magnet drawing shares higher.
Just remember, when you want to buy or sell something, do it based on the facts of the past plus your experience. Then combine those into expectations (probabilities) about the future.
And avoid anchoring your current decision to a past decision. For example, cut your losses early if the trade isn't going your way… Don't stick with it just because you bought the stock.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Dave recently recommended a banking powerhouse that fits his time-tested criteria for great companies. Not only has it proved it can handle a crisis, but it also boasts steady growth and a "superstar" CEO at the helm. And now, with a bank-friendly political climate and the economy picking up steam, this company is poised to reap the benefits. You can learn how to access this recommendation with a risk-free trial, right here.

Source: DailyWealth

Traders Just Made an Extreme Bet on Silver

Precious metals are booming again this year.
Gold is up double digits, and silver is up almost 15%. But the rally in silver is getting ahead of itself.
Futures traders are all over it… They're making extreme bullish bets on higher silver prices. And history says that's a contrarian indicator. Lower silver prices are likely, starting now.
Here are the details…
Silver is up big this year… But it's not a smart bet today. The market quickly hit frothy levels.
You see, futures bets on higher silver prices are at an all-time high based on the Commitment of Traders ("COT") report. This is a warning sign… Precious metals investors need to pay attention.
The COT report is a fantastic contrarian indicator. It tells us exactly what futures traders are doing with their money. And at extremes like we're seeing today, the smart move is to take the opposite side of the trade.
Simply put, traders tend to be wrong at the extremes and right in between. That's because when futures traders are all making the same bet, it signals a crowded trade… And the opposite usually occurs.
Today, futures traders are all betting on higher silver prices. Take a look…
The last time futures traders were this bullish on silver was August 2016. The metal fell 24% over the next four months. Take a look…
Surprisingly, that's the ONLY other time in history that futures traders have been this bullish on silver. And while I'm not calling for a 20% fall in silver prices, a double-digit decline wouldn't be surprising.
Again, futures bets on higher silver prices are at an all-time high. I'd be interested in silver if that script was flipped and futures traders were bearish on silver.
But the contrarian bet today is on a lower silver price.
Importantly, I don't recommend you short silver. It's hard to get these sentiment trades exactly right. But based on this extreme, a sharp pullback in silver is likely in the short term.
If you've profited from the precious metals boom so far in 2017, today is likely a good time to take profits.
Good investing,
Brett Eversole

Source: DailyWealth

This Common Strategy Could Be Quietly Ruining Your Portfolio

For decades, financial advisers have recommended putting 60% of your money in stocks and 40% in bonds. The conventional wisdom is that the safety and stability of bonds will protect you when stock prices fall.
Too many people believe stock and bond returns correlate negatively, meaning they reliably move in opposite directions.
But taking this tired advice could ruin you…
Christopher Cole at Artemis Capital Management – a hedge fund that specializes in volatility investing – busted the Wall Street "60/40 stock/bond" myth in an October 2015 research report called "Volatility and the Allegory of the Prisoner's Dilemma."
Cole looked at more than 132 years of data and discovered the correlation myth is false.
He writes, "The truth about the historical relationship between stocks and bonds is scary…"
Using data from 1885 through 2015, Artemis discovered that stock and bond prices have historically moved in the same direction roughly 70% of the time.
According to Artemis, it's only during the last two decades of falling interest rates and accommodative monetary policy that stocks and bonds have been negatively correlated. Otherwise, the firm reports, "Not only are stocks and bonds positively correlated most of the time, but also there is a precedent for multiyear periods whereby both have declined."
This might seem like a purely academic topic. Even Artemis admits the last 20 years have been pretty good, with bonds protecting investors when stocks sank.
But that's exactly the type of thinking that had investors in the early 2000s repeating, "Housing prices have never experienced an annual decline" – right up until the housing bubble blew up.
Nobody has any excuse for believing stock and bond prices can't fall at the same time… because that's what has happened 70% of the time going all the way back to 1885.
Artemis reports, "In the event stocks and bonds simultaneously lose value, the classic 60/40 will become a 100% loser..."
This kind of allocation can be particularly risky when the markets have been calm for a while…
The Volatility Index ("VIX") – the market's "fear gauge" – currently sits around 11.
That's historically low. And it suggests investors are incredibly complacent right now.
Meanwhile, since President Trump won the election, the S&P 500 has marched roughly 11% higher and is now trading around 25 times earnings.
The more expensive the market, the riskier it is. The lower the VIX, the less fear there is in the market. When both happen at the same time, like today, that's a bad combination…
When volatility stays low, the stock market road is smooth. But when the stock market finally hits its next bump in the road, volatility could soar higher than it typically would in a more volatile environment.
So it's prudent to prepare yourself for higher volatility. But don't count on the 60/40 stock/bond allocation to protect your portfolio…
For most investors, the best approach is to keep plenty of cash on hand.
Not only will that protect you from a market pullback, but it will also let you take advantage of bargains that pop up when the market falls and volatility soars.
The best, easiest, lowest-cost way to protect yourself from big drawdowns is to hold plenty of cash.
Let me be clear… I do not recommend selling all your stocks and going 100% to cash. That type of extreme approach guarantees you'll miss out on the compounding that has ruled the stock market for more than a century now.
It's simply far, far better to hold some cash and keep your capital safe than to watch your portfolio dwindle if the market suffers a correction.
Good investing,
Dan Ferris
Editor's note: Dan's strategy is to buy great businesses "on sale," then sit back and collect huge gains – without worrying about market events. His latest recommendation is a cash-gushing business ready to not only weather big changes in its industry, but prosper. Dan believes shares could rise as high as 50% over the next year alone. You can try his research risk-free – and learn how to access this recommendation – by clicking here.

Source: DailyWealth

The Biggest Mistake My Readers Make

"What's the biggest mistake you see your subscribers making?" Meb Faber asked me on his podcast recently.
It's a great question… And I'll share my answer with you today…
"It's always the same," I began…
Individual investors let their losers ride… and cut their winners.
They do the exact opposite of what you need to do to make money.
It's so challenging to learn [to do it right]. The best thing I can do when I hire young people is to tell them, "DON'T OPEN AN ACCOUNT."
They first need to learn what's right – and know it down in their bones – before they start trading.
Because trouble starts as soon as people start investing their own money and trading and they DON'T already have these ideas down:
1) Don't let a small loss become a big one, and
2) Don't cut your winners early.
That's the biggest thing that individual investors have a hard time with. And it's crushing.

You can see this idea at work every single day. Here's an example I gave on the podcast…
Look Meb, we're looking at China. China rose by triple-digit percentage gains – three separate times – since 2006. There's a strong likelihood that sometime in the next five years, we're going to see a triple-digit gain in China.
Let's say you buy today, and then you cut your loss at 15% if you're wrong. And then you buy again, and you cut your loss again at 10% if you're wrong. And then you buy a third time, and you make a 150% gain.
So what we did there is we cut our losses early, and we let our winner ride. And that is the correct way in my opinion – and in my experience – to make money.

Keeping your losses small is one of the best ways to protect your gains. But as I explained on the show, it can be hard to let go of your losing trades…
Most of the biggest problems [individual investors have] are in letting small losses become big losses.
Even in the case of the Putin example [that I shared here in DailyWealth yesterday], I cut my loss at a massive 50%…
You might say, "Jeez, I'm already down 50%. Why don't I just see how this plays out?" But by cutting our loss, we live to fight another day.

My friend Alex Green said it well… "Think of your portfolio like a rose garden – you need to trim your weeds and let your roses bloom."
Most individual investors do the opposite… They let their weeds become bigger weeds. And they trim their roses before they even start to bloom. Do that long enough, and all you're left with is a worthless pile of weeds.
Check out my interview on Meb Faber's podcast… The episode comes out on his website tomorrow.
And I urge you to listen to more of Meb's podcasts… In my opinion, he's one of the world's top investing analysts. He has his guests discuss the most important questions in investing. And he's a super nice guy.
You can learn more about Meb and his podcasts at
Good investing,

Source: DailyWealth

Lessons Learned From My Worst-Ever Trade

Meb Faber is one of my heroes in the investment world…
He's doing fantastic research, and he's always digging to get down to "The Truth" in investing – whatever that truth may be.
When I first learned about him around a decade ago, Meb was doing "homework" similar to mine on the financial markets – only his work was more elegant.
So what did I do? I sought him out. I had to get to know him.
I had to see if he was the "real deal." And if he was, I looked forward to trading ideas on our own paths to The Truth…
When we met, I realized he was the real thing. I told my subscribers that I thought he would go on to become a star in the investment world. And that's exactly what happened.
Today, Meb shares his ideas through a podcast, where he interviews some of the world's top investment professionals. It's got to be one of the best podcasts about investing out there. I urge you to check it out.
This week, Meb had me on the show as his guest. And I had a great time…
We covered just about every investing topic you can imagine – stocks, real estate, high-yield bonds, China, emerging markets, the big tech companies, whether we're in a bubble or not, and much more. And we covered a lot of other stuff, too… like surfing, collectible cars, rare coins, and more.
It's hard to believe we squeezed all that in.
One question we discussed was, "What was your worst trade?"
I thought I'd share my answer with you today…
Vladimir Putin came out and said he had no intention of bankrupting Yukos, the big Russian oil company.
What he wanted to do instead was to put Khodorkovsky, the outspoken leader of Yukos, in prison. And he did.
Yukos was trading for two times earnings. So what's your downside in buying one of these massive Russian oil companies at two times earnings when the president, the only guy who had an interest in bankrupting Yukos, says, "I'm not going to bankrupt Yukos"?
So what I did was – I trusted a politician.
Fortunately, when we bought the stock at two times earnings, I put a 50% trailing stop on it. I thought, "There's no way this could happen, but it is a Russian stock – it could be extremely volatile."
We put the widest stop I've ever put on anything, which is 50%, on Yukos.
Sure enough, Yukos went right down 50%. We stopped out. I felt terrible for my subscribers. I felt I let them down. How foolish was I to trust the words of a politician?
Yukos went all the way. Putin bankrupted Yukos.
That may not be the most memorable, but it surely was impactful.
You probably learn more from your losers than your winners, because you dig in and say, "What did I do wrong?"

Two lessons from that trade are:
Never place a trade that depends on trusting a politician.
•   Always use a stop loss – even if it's as wide as 50%. Even when buying at two times earnings, your downside risk is still 100%.
That's just a couple of minutes from our 90-minute episode. I think there are a lot of nuggets of wisdom in this show, and in his previous podcasts.
If you're interested in learning to become a much better investor, I urge you to check out Meb Faber's podcasts. Find a guest or topic that appeals to you, and start there… As for my own guest feature, you'll be able to find it on his website this Wednesday.
Check it all out at
Good investing,

Source: DailyWealth

Watch for This 'All Clear' Signal Before Buying Gold Stocks

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 "We're not there yet, but we're close"…
So says our colleague Ben Morris about a potential breakout in precious metals.
Ben recently noted that both gold and silver, as well as their related mining stocks, had reached critical "resistance" levels. Gold, gold stocks, and silver stocks were still testing these levels, while silver had just broken through.
He said that gold, in particular, faced a major test on its long-term chart. As we shared in the April 12 Digest
When we look at a longer-term chart of gold, we see that gold faces a big resistance level at about $1,300 per ounce…
So even if gold breaks through its shorter-term resistance, we won't get aggressive in the sector until gold breaks though this longer-term resistance level. And gold only has to rise about 4% to get there.
 Since then, the rally has continued… Gold, gold stocks, and silver stocks finally joined silver by breaking through these levels last week.

This is a bullish sign. But Ben says the final – and most important – test remains. As he explained in DailyWealth Trader this week…
We last looked at gold, silver, and precious metals stocks on April 5. At the time, I noted that all of these assets were bumping up against short-term "resistance" levels, except for silver, which had already broken through. (Resistance is a level at which folks tend to sell an asset and prices often stop rising. If an asset breaks through resistance, it will often continue to rise.)
I won't go through all the charts again today. But if you look at an updated chart for each asset, you'll see that they have all broken through their resistance levels since that issue… But the most important chart of all – the long-term chart of gold – still hasn't given us the "all clear"…
On April 5, gold traded at around $1,250 per ounce. On Thursday, it closed at $1,288 per ounce – a 3% gain. That's a lot of ground for gold to cover in just seven trading days. And as you can see in the chart below, gold is now "bumping its head" against its long-term, downtrending resistance…

As he noted, if you've been holding bullish trades in gold, gold stocks, silver, or silver stocks, you've likely had a good couple of weeks.
But these assets all tend to follow gold. So he still doesn't recommend placing new trades today, until gold finally breaks out on its long-term chart, too…
Waiting for that last 1% rise – which would take gold to more than $1,300 per ounce – could really pay off…
The way I see it, on the downside, gold could pull back to $1,200 per ounce or maybe lower. That's at least a 7% drop for the metal… And it would likely mean much more downside for silver and precious metals stocks. Yet the upside you would gain by jumping in now is small…
Sure… You may miss out on the first move higher as gold breaks through resistance. But that initial move likely won't exceed 4%. That's not worth risking 7% or more on the downside.

 Of course, Ben's advice is tailored for traders…

That is, folks who are interested in speculating on higher gold and silver prices. It doesn't apply to your "core" positions in physical gold and silver.
As longtime readers know, we look at these core positions as a form of savings, as well as crisis "insurance" that you buy and hope you never need.
If you still don't have a small portion of your savings in physical gold and silver, it's never a bad time to buy. But if you have these bases covered, Ben suggests waiting to buy more…
For a trade to be great, you need two things… First, you need a good idea. And second, you need a trade setup that allows you to limit your risk.
With everything going on in the world, owning physical gold and silver is a great idea. Even speculating in precious metals stocks is a good idea… when you have favorable trade setups.
We're not there yet. But we're close. Hold on to the trades you have open. And hold off on opening new ones. Your patience will likely pay off.

 Speaking of speculating…

Palm Beach Letter editor and former hedge-fund manager Teeka Tiwari knows more about Bitcoin and other so-called "cryptocurrencies" than anyone we know.
Over the past year, he has traveled more than 30,000 miles – to places like London, Berlin, New York, and Las Vegas – to meet with Bitcoin millionaires, venture capitalists, and high-level industry insiders.
His purpose? To develop a way to identify fast-moving cryptocurrencies before they soar.
Teeka recently explained his four-part strategy – what he calls the "BITS system" – and said that it just flashed a "buy" signal in a little-known cryptocurrency play.
Right now, this idea trades for around $3.50. But based on Teeka's system, he believes it could soar to $13 soon. That's a gain of more than 250% in a matter of months.
And that's just the low end, according to Teeka. On the high end, he believes you could eventually be looking at 10, 20, or even 25 times your money.
For a limited time, you can find out more about Teeka's new system – as well as all the details about how you can invest in this cryptocurrency today. Click here for details.
 Investment-management firm BlackRock (BLK) reported quarterly earnings this week…
As you may know, BlackRock has been the world's largest asset manager for nearly a decade. It dominates Wall Street.
In fact, founder and CEO Larry Fink was recently asked if he was the most powerful man on Wall Street. His only quibble was that BlackRock's offices are in Midtown.
But we don't bring this up to discuss the firm's earnings…
You see, alongside its latest results, BlackRock reported an astonishing achievement, even by its standards. It noted assets under management have now soared to a record of $5.4 trillion.
We hear a lot of big numbers tossed around these days… $1 million – or even $1 billion – isn't as impressive as it used to be.
But $1 trillion is still an unfathomably large number for most folks. Consider this: 1 million seconds is equal to about 12 days. But 1 trillion seconds is more than 31,000 years.
 How did a single firm rack up $5.4 trillion of investors' money?
In large part, by leading a trend that is radically changing the investment world.
Many folks don't pick stocks anymore. More and more, they prefer to collect the average market return (less fees) by buying index funds. And BlackRock has become a leader in low-cost index funds and exchange-traded funds (ETFs).
BlackRock runs some actively managed funds, but it owes its growth to the rise of "indexing."
This trend has been celebrated by many in the financial media. And for many folks, investing in index funds is an improvement over high-cost mutual funds that rarely beat the market. But you likely haven't heard about one of the biggest risks to index investing.
In short, the size – and quality – of the stock market has been quietly declining…
 Forbes has called it "the incredible shrinking stock market"…
In 1996, the U.S. stock market boasted more than 8,000 publicly listed companies. Today, that number has fallen to just 3,600.
Thousands of firms have "disappeared" via private buyouts and mergers. And they're no longer being replaced by as many new ones.
Today, innovative startups are staying private longer… or no longer going public at all. Instead, these firms take money from wealthy investors in markets that aren't available to regular investors.
 But as we mentioned, this trend isn't just reducing the number of stocks in the market…
It's lowering the quality – and therefore, the potential return – of the broad market, too.
After all, do you think these institutions and skilled investors choose the worst investments for themselves? Of course not.
They buy the most profitable businesses and best investments, take them private, and keep them out of the hands of everyday, public investors.
Over time, this leaves investors in index funds holding the "junk" that private money doesn't want. And fewer quality businesses means lower market returns.
 So what should you do if you don't want to settle for low returns in index funds and ETFs?
First, stay with us…
Of course, we're biased. But we believe our investment research is among the best available anywhere… at any price. And high-quality research will become more and more important for individual investors as the universe of great companies continues to shrink.
Second, we recommend taking advantage of opportunities to shift these trends in your favor…
For example, our colleague Dr. David "Doc" Eifrig has identified a simple "backdoor" way to partner with some of the best private-equity investors in the world.
Doc says folks who take advantage of this opportunity could see capital gains of 150% or more in the years ahead… And they'll collect an income stream that's three times higher than average publicly traded S&P 500 companies while they wait.
But unlike most private-equity investments, you don't need connections or millions of dollars in capital to take advantage. Any regular investor can participate.
This week, Doc published all the details on this opportunity. It's not too late to get involved, but you need to act soon. To learn more, click here.
Justin Brill
Editor's note: Doc recently discovered a special way to partner with the masters of private equity, start collecting huge streams of income, and get in on 45% potential upside this year alone. But you must act quickly… This opportunity is only available to investors until this Thursday. Find out how you can get involved before it's too late right here.

Source: DailyWealth

This Trade Changed 400 Years of History in Just Four Hours

On a cold and rainy day in October 1971, Ray Tomlinson sent the first-ever e-mail.
At the time, he didn't think much of it. Nobody told him to do it… He just thought it was neat.
Tomlinson was a programmer working on a secret government project called ARPANET… a network of computers that could "talk" to one another.
It took two years before people realized just how powerful Tomlinson's invention was. By then, e-mail had gone from virtually nothing to 75% of all ARPANET traffic.
Today, 2.5 million e-mails per second are sent on ARPANET's successor – the Internet.
More than four decades after Tomlinson's invention, e-mail is still the single most-used application on the Internet. It was crucial to the growth of the web.
In the early days of the Internet, e-mail was the primary draw for users. There was no YouTube, Google, or iTunes Store.
E-mail birthed some of the earliest Internet success stories… Pioneering online-service providers like Prodigy, CompuServe, and America Online were all built on providing convenient e-mail access.
E-mail has been called a "disruptive technology." Its use is so widespread that it's putting the U.S. Postal Service out of business… E-mail has contributed to a 35% drop in first-class mail over the past decade.
Early investors in e-mail support technology got rich, turning tiny investments into millions and millions of dollars today.
It's easy for us to dream what it would have been like to make that sort of fortune from an investment. If we had the right information back in the 1980s and 1990s, would we have invested? Would we have committed those dollars?
Today, I'm putting your feet to the fire.
Friends, we are on the brink of a budding new technology trend that is on the same scale as e-mail and the Internet – possibly bigger. But this one will revolutionize the way we transact and do business… in the way e-mail revolutionized communication.
It's happening right now with only a few people watching…
On September 7, Barclays facilitated a $100,000 trade of cheese and butter between Irish food company Ornua and the Seychelles Trading Company.
This small trade will be just as revolutionary as the first e-mail sent.
Here's why…
When two companies in different countries want to buy and sell from each other, they use a bank to guarantee the transaction… It's called "trade finance."
According to consulting giant McKinsey, about $2 trillion is conducted in trade finance each year.
For more than 400 years, trade finance hasn't changed much. Banks act as intermediaries between trading partners. They use letters of credit to guarantee everyone gets paid. Part of the due-diligence process has always involved collecting a mass of paperwork.
Both sides have to prove that they truly own what they say they own. They also have to prove that the goods they are selling are of the size, quality, and quantity that the bank is guaranteeing.
As you can imagine, trade finance involves sending mounds of paperwork across oceans. Missing a signature? Sorry, please resend the package. It's a time-consuming process desperately in need of change.
Even in today's digital age, it takes 10 days on average just to handle the paperwork. Sometimes, it can take up to a month.
But all of that just changed on September 7.
That $100,000 trade for butter and cheese concluded in less than four hours. That's a huge time-saver that will significantly reduce the price of international trade.
Here's how the deal was done…
Barclays Bank used a new technology called the "blockchain" to transact the trade.
The blockchain is a digital ledger that is tamper-proof. No single party has the power to change the records. Instead of sitting in one central location, the ledger lives on thousands of computers that automatically update.
The blockchain also has a built-in electronic record-keeping and transaction system. Both trade parties are able to track all documentation via a secure network. That means no third-party verification is required.
Barclays' global head of trade and working capital, Baihas Baghdadi, said that the blockchain will be a game changer:
We've proved the reality of this technology and the client, Ornua, has asked us when they can do the next transaction in this way, which proves how user-friendly the entire process was.
Think about that for a second…
Trade finance hasn't changed since the 1600s. More than $2 trillion a year is conducted via trade finance, and it's still done with bits of paper flying across the world's oceans.
The first-ever trade deal done exclusively on the blockchain is as big as Ray Tomlinson's first e-mail.
It's a whole new way to do business. In a few short years, most international trade will be conducted through a blockchain… just like most of the world's communication is done via e-mail.
But the blockchain won't only change trade… Think about real estate. Real estate transactions have been done basically the same way since the Middle Ages. It's a cumbersome, paperwork-heavy process that takes months.
In a few years, the blockchain will allow you to qualify for a loan, conduct a title search, and close on a house in a single day. It's not that far off.
It's not every day you get to see a life-changing trend happen right before your eyes.
In a few short years, the word "blockchain" will be as commonplace as e-mail. And it will spawn entire new industries.
Barclays has proven the blockchain works to conduct business… And it won't take long before this technology becomes widespread. Remember, e-mail took off just two years after its first use.
But here's the thing… The technology is run using cryptocurrencies such as bitcoin. You can use cryptocurrencies to protect your wealth and privacy… But they also act as "shares" in the burgeoning blockchain industry.
As more people use the blockchain, these "shares" increase in price. Unlike hedge funds that require you to be an accredited investor (with a net worth of more than $1 million), you can buy "shares" in a blockchain's technology by purchasing its cryptocurrency.
Teeka Tiwari
Editor's note: In 2013, bitcoin prices rose from $13 to $1,147… a gain of more than 8,700%. Now, Teeka and the Palm Beach Letter team have found a new way to profit from cryptocurrencies. These little-known assets are setting up for a huge rally, thanks to three unstoppable trends… But this opportunity won't be a secret for long. Learn more here.

Source: DailyWealth

A Crash Is Coming in High-Yield Bonds

If you're a junk-bond investor, I have a message for you.
Get out.
The easy money in high-yield bonds is gone. Prices have soared. And the overall high-yield bond market sits at dangerous levels today.
History says this setup could lead to double-digit losses. And that's why the smart move is to get out – now.
Let me explain…
High-yield bonds have soared over the past 14 months. The iShares iBoxx High Yield Corporate Bond Fund (HYG) is up 16% from its February 2016 bottom.
HYG is still near its recent highs. It hasn't begun to break down yet. But buying today is incredibly dangerous. That's because right now, you're getting almost zero premium for the risk you're taking in high-yield bonds.
You see, high-yield, or "junk" bonds, come from companies with questionable prospects. They're less-than-stellar businesses… And they have to pay higher interest rates because of that extra risk.
In exchange for taking on more risk, investors are supposed to get the benefit of higher yields… But right now, that benefit hardly exists. High-yield bonds pay less than 6% today. That's one of the lowest yields we've seen over the last decade.
This makes owning junk bonds a scary idea. But the overall yield isn't even the best way to see what's happening. You can do better by looking at the junk bond "spread."
By "spread," I mean the difference between the yield on high-yield bonds and the yield on similar-duration government bonds. For example, if high-yield bonds pay 6% and government bonds pay 2%, then the spread is 4%.
A high spread means high-yield bonds are a good deal. You'll earn a lot of income to compensate for the extra risk. But a low spread means high-yield bonds are a bad value – and much riskier.
High-yield bond spreads recently hit a multiyear low. Take a look…
The current spread is at a level we've only seen a few other times in the past decade. And those were dangerous times to put money to work in high-yield bonds.
Spreads were below 4% in mid-2007. That was just before the "Great Recession," which kicked off a massive 30%-plus decline in the high-yield market.
We saw spreads bottom below 4% in 2014 as well. And high-yield bonds went on to fall by roughly 20% in the next year and a half.
Today, spreads are low again… at just 4.1%, as I write. And they've been below 4% for most of 2017.
This is a dangerous warning sign for high-yield bond investors. There's simply no margin for error with yields this low. And history says that major busts tend to begin when the spread hits current levels.
I can't know the exact timing… But even if I'm early, the message is correct.
If you own high-yield bonds, get out – now.
Good investing,
Brett Eversole

Source: DailyWealth

Are You 'Stock Shy'? Don't Be

You're probably nervous about buying stocks…
The current eight-year-long bull market – which came after a memorable and painful crash – has most people nervous.
This is a problem. Nerves don't help you make money or protect what you have. They only add to the likelihood that you'll make unnecessary trading mistakes.
And nobody wants that.
Another problem with being "stock shy" is that we're in a bull market… And stocks are one of the best places to make money today.
Today, I aim to help you lose the nerves. The best way to do that is to have a well-thought-out plan for dealing with risk. So below, I'll share one of the most powerful ways you can deal with risk this year…
It starts with stop losses, includes position sizing, and ends with scaling in to positions. These are three big ideas… So let's get started.
A stop loss is a predetermined point at which you'll sell a trading position… no questions asked. Stop losses are designed to limit risk and to remove emotions from your trading decisions.
I won't get into the nitty-gritty of how to choose a stop loss here. But we can break down stop losses into groups, by percentages…
For example, if you think that your timing on a trade is good or that the trade doesn't need much "wiggle room," you might be comfortable using a tight stop loss that's 10% or less below your purchase price. If you think the stock will be volatile but has huge upside potential, you might prefer to use a wide stop loss that's 20% or more below your purchase price.
I suggest creating three stop-loss groups based on the risk to your initial capital. Maybe you label them "tight," "moderate," and "wide" stop losses. Each of these groups will be appropriate for certain types of trades.
Next, consider your position size. This is the amount of money you put into a stock. In general, you should feel comfortable putting more money into positions that you view as safe and likely to be profitable… and less money into riskier speculations, even if they have enormous upside potential.
For example, if consumer-electronics giant Apple (AAPL) is trading at its cheapest valuation in years (as it was last February), you should consider taking a large position size. It's the largest company in the world, and it earns extraordinary profits and free cash flows.
Junior gold miners, on the other hand, are more like lottery tickets. You could make 10 times your money or more if a trade works out. But even if you do a deep analysis of a company, you may still lose money. Plus, junior gold-mining stocks are guaranteed to be volatile. So you probably shouldn't put too large a percentage of your wealth into any one such stock.
Finally, scaling in means buying a portion of your planned position size initially and buying another portion (or portions) later on. I usually suggest adding to a position only after you're showing profits on the initial position. This way, you can keep your risk to a minimum.
Those are the three ideas you need to understand. Here's how you can use them together in your trading…
If you're making a trade with a tight stop loss (maybe 10% or less), you may want to take a full position size right off the bat. After all, a 10% loss isn't too bad, even with a relatively large position size.
If you're making a trade with a moderate stop loss, you may want to take a half position. This way, you'll risk just half the amount you would on a full position. Then, you can add the other half position once you're sitting on gains and can comfortably tighten your stop loss.
If you're making a trade with a wide stop loss, you may want to take a one-third position size. Just like with your half positions, you can add to one-third positions after the trade moves in your favor.
You don't have to follow this strategy to a T… But you can use it, or something similar, as a guideline. Risk less up front… And have more confidence in your trades.
Remember, we're in a bull market. Stocks could continue higher for longer than we can imagine.
Good trading,
Ben Morris
Editor's note: Ben often shares low-downside, high-upside trades with his DailyWealth Trader readers. With these setups, you only need to risk a little to give yourself a shot at big gains. Just yesterday, he recommended using a double position size on one surprising investment that could break out over the next few months. Click here to access a risk-free trial.

Source: DailyWealth