Clearing Up Some Confusion About the 'Melt Up'

 
The "Melt Up" is here my friends…
 
What this means to me is:
 
•   The end of this long bull market in stocks is near. However…
 
•   Before it ends, certain stocks could absolutely soar.
That's my thesis. So how should we trade it?
 
We want to maximize our upside potential during the Melt Up. You know the phrase, "Make hay while the sun is shining"? We want to make money while the opportunity is in front of us.
 
So I created a Melt Up Millionaire portfolio of nine positions to take advantage of the potential upside. It's a portfolio designed to double in 12 months – if my thesis is right.
 
We believe these nine holdings could return a weighted average of 100% in the next year. And we expect that when the Melt Up ends, we will be able to exit these positions in time to keep our profits.
 
Of course, we aren't wearing rose-colored glasses. Any portfolio with the potential to double in 12 months is going to be volatile – extremely volatile. That means it has the potential to lose a heck of a lot of money, too… without a doubt.
 
I don't want to minimize that idea. So let me say it again:
 
Any portfolio that has the ability to double in 12 months also has the ability to lose you a lot of money if I'm wrong. Both outcomes are possible – seriously.
When I spoke about this last week in our webinar, I tried to stress this idea. I went on in depth about protecting our downside risk with trailing stops. And I tried to make it clear that this is the highest-risk portfolio I have recommended in my career.
 
So I was a bit surprised when I got this e-mail from a new subscriber to our Melt Up Millionaire project:
 
I am a new subscriber to the True Wealth Systems Melt Up Millionaire. Please ask Steve to address why [STOCK NO. 1] is included when the firm's EPS (earnings per share) is [negative] and pays no dividends? [STOCK NO. 2] has a P/E [price-to-earnings ratio] of 74. [STOCK NO. 3] has a P/E of 82 with [a low EPS]. [STOCK NO. 4] has a P/E of 80 with [a low EPS].
 
This program appears to be VERY high risk with high leverage that can lever down as well as up – [but] that is all that is discussed it seems. My confidence is shaken as I study the recommendations in the program. – B.B.

B.B. actually makes some good points. So let me address them…
 
First, as I said above, the recommendations in the Melt Up Millionaire portfolio are going to be volatile – without a doubt.
 
The goal is to give you the ability to double your money within 12 months. You're not going to do that with shares of Wal-Mart or Exxon. When the goal is to deliver a 100% return in a year, you have to take on volatility.
 
I want to stress something here… There's a difference between volatility and risk.
 
With any portfolio, we can't control volatility. No one can control or predict the day-to-day moves in a single stock. We are purposefully exposing ourselves to that volatility.
 
However, we can control our risk. We do this with "trailing stops"…
 
We put 35% trailing stops on each of our positions. That means that the biggest loss that we're risking on any one recommendation is 35%. And that's a trailing stop, which means that the sell price adjusts based on the stock's "high-water mark." In other words, trailing stops actively work to lock in gains and minimize losses.
 
This way, our downside risk is limited to 35% or less. Meanwhile, our upside potential is 100%-plus. This is great.
 
Hopefully this helps you see how we could have a large amount of volatility, but we are limiting our downside risk.
 
Second, B.B. brings up an important point: valuation.
 
You need to know two things about valuations in the Melt Up:
 
1.   We specifically chose recommendations that have low earnings today, but high earnings-growth potential. These are the ones that will go up the most if the Melt Up unfolds as I expect.
 
2.   Valuation isn't what kills a Melt Up. It's a symptom of the end, but it's not the cause of the end.
When we were considering the recommendations for this portfolio, we looked back at previous Melt Ups – and focused on the 1999 dot-com boom. Importantly, the stocks that moved up the most back then were the low-earning, high-potential-growth stories.
 
The key point is that starting from high valuations didn't matter in that Melt Up – the most expensive names at the start were the ones that had gone up the most by the top.
 
The "value" stocks at that time – stocks like Warren Buffett's Berkshire Hathaway – didn't even participate in the Melt Up. So if you were looking to buy "value" in 1999, and participate in the Melt Up by buying the market stalwart Berkshire Hathaway, your strategy would have failed.
 
Of course, the expensive high-growth names in 1999 were the ones that lost the most as the bubble burst in 2000. And of course, safe Berkshire Hathaway outperformed in the bust.
 
That's what we expect to happen again… And we will lock in our gains and exit using trailing stops.
 
Today, we believe that we are approaching a Melt Up like we saw in 1999. And we want to capture as much of that upside as possible. So we are going after the higher-risk names.
 
When the bubble bursts, we can start to look for values. But that's not where we are today.
 
This is the idea behind our Melt Up Millionaire portfolio. If I am wrong about this, we have our trailing stops in place. Our volatility may not be limited, but our downside risk is. If our thesis is right, and the market continues to melt up, we are positioned for maximum profit.
 
I hope that gives you a better insight into my thinking on my Melt Up thesis, and how to maximize profits if I'm right and minimize losses if I'm wrong.
 
Thanks for writing in B.B.
 
Good investing,
 
Steve
 

Source: DailyWealth

Three Questions to Ask Before You Buy an ETF

 
A decade ago, exchange-traded funds (ETFs) were barely on investors' radars.
 
But since then, the ETF industry has exploded. ETFs are now the bread-and-butter tool for everyday investors looking for an easy way to invest in a particular geographic region, market, sector… you name it.
 
A record $3.4 trillion of assets under management (AUM) is now held in ETFs. That's a nearly 17-fold increase since 2003.
 
And this trend isn't slowing down anytime soon…
 
What's behind all this new money in ETFs?
 
Investors have been disappointed with the relatively high fees and underperformance of active funds (that is, funds where managers select stocks themselves). This has made ETFs – low-cost, passive funds that simply track a particular benchmark index – more attractive.
 
ETFs have radically democratized the investment process for everyday investors. But like everything in investing, you need to make sure you know what you're buying.
 
Here are three things you should consider before you buy an ETF…
 
   1. What is the cost?
 
ETFs charge a fixed-percentage annual running cost to shareholders. This is known as the "expense ratio." While an actively managed fund might charge, say, 1% of AUM and a percentage of profits, ETF expense ratios are typically less than 0.50%. And expense ratios continue to decline.
 
However, you still need to know what's expensive and what's not…
 
Remember, different underlying ETF assets will affect the expense ratio. If the ETF tracks a major benchmark developed market index like the S&P 500, the expense ratio should be low.
 
But if it holds a wide range of emerging market stocks, expect the ratio to be higher. It's more expensive for an asset manager to replicate a basket of stocks across multiple exchanges – so the expense ratio will reflect those costs.
 
When I want to establish a baseline for a particular type of ETF, I check fund manager Vanguard's ETF page. Vanguard is renowned for offering the most cost-effective ETFs. It currently offers 55 ETFs across a range of underlying asset classes and sectors. So when I'm comparing costs, I use Vanguard as a starting point.
 
   2. How is the liquidity?
 
Liquidity is the ease with which you can buy and sell a security in the market without affecting its underlying price.
 
When it comes to most individual investors, our buy and sell orders don't visibly move the market. But they can if we're looking at things like thinly traded small-cap stocks. And some ETFs can suffer from a lack of liquidity, too…
 
The first sign that an ETF might not be easy to trade in and out of comes from looking at its AUM. A small ETF is far likelier to suffer from low liquidity than a large multibillion-dollar fund.
 
The second factor to consider is the nature of the underlying securities in the ETF. If your ETF holds a basket of large-cap developed market stocks, then liquidity won't be a problem.
 
On the other hand, look at an ETF like the iShares Barclays USD Asia High Yield Bond Index ETF (AHYG on the Singapore Exchange). With $75 million in total assets, it's small… And it holds relatively illiquid assets (Asian high-yield bonds). In cases like these, liquidity is going to be a problem.
 
If you choose to buy a relatively illiquid ETF, please make sure you use a limit order. That means when you place your buy or sell order, specify the maximum purchase price (or minimum selling price) you are willing to accept.
 
   3. How does the index work?
 
I can't stress this enough – when you are buying an ETF, you're not only investing in a basket of securities, but ALSO in the mechanics of how the underlying index works.
 
In the early days of ETF investing, this was less of a consideration. Most of the first ETFs sought to replicate standard benchmark indexes, like the S&P 500. But today, the number of indexes has exploded to around 5,000 globally… And they cover every imaginable type of investment.
 
Beyond all of these different sectors and themes, you can also find a growing list of "smart beta" indexes.
 
Most indexes simply take a basket of stocks and weigh them according to their respective market caps. But smart beta indexes use more complicated factors to choose their underlying stocks… They can account for volatility and risk, or track stocks with the most momentum, or seek out dividend payers. By doing this, smart beta indexes aim to provide investors with enhanced returns.
 
Smart beta indexes – and the ETFs that track them – might sound appealing. But you need to take the time to read through the index-construction documents. You can't just take the name of an ETF at face value and assume it's giving you what it says it is… Always "read the fine print" of your investments.
 
So if you're looking to invest in an ETF, make sure you do your homework. Read the fine print, and make sure you know exactly what you're getting into by answering these three questions first.
 
Good investing,
 
Tama Churchouse
 
Editor's note: Tama is on the hunt for investment opportunities around the world that aren't on the radar of most investors and aren't talked about in the mainstream media. Learn more about The Churchouse Letter – including a once-in-a-generation opportunity that you can invest in right now – right here.

Source: DailyWealth

Why I Own Gold but Not Gold Stocks

 
Last week, I held an urgent webinar event to talk about how you could potentially make 100% gains in the next 12 months during the "Melt Up."
 
The Melt Up ideas I've been presenting are certainly high-risk – but they have the potential for big returns.
 
When I finished my presentation, I answered listeners' questions live on-air.
 
While most of the questions pertained to the Melt Up, one listener asked a question about gold.
 
"Steve, how can you own gold, but not gold stocks?" the listener asked.
 
It's a good question. The answer is simple… But I don't think most people want to hear it (or they don't want to believe it).
 
Here's what you need to know…
 
Most people believe that gold stocks are a leveraged way to play gold. If gold prices go up, people think that speculative gold stocks should go up a lot more.
 
This is often true, but not always
 
Sometimes, even when gold goes up, speculative gold stocks don't do what you expect them to do. Sometimes, gold stocks actually DON'T soar more than gold itself.
 
We're seeing that right now.
 
Gold itself has gone up a lot this year. But gold stocks have not held up their part of the bargain. Instead of dramatically outperforming gold this year, speculative gold stocks have dramatically underperformed the price of gold.
 
Gold has soared about 13% – from about $1,150 to about $1,300. But speculative gold stocks – as measured by the VanEck Vectors Junior Gold Miners Fund (GDXJ) – are roughly flat this year. Take a look at this one-year chart…
 
As you can see, in the first half of this chart, gold and speculative gold stocks tracked each other's performance – down in the second half of 2016, then up in the beginning of 2017.
 
Then they diverged…
 
Now, gold is sitting at a new high for this year. And GDXJ is basically flat for the year.
 
Said another way, gold is in a solid uptrend. We can't say the same for GDXJ… yet.
 
I summed it up in the August 10 DailyWealth:
 
It's hard to make a compelling case that we're in the start of an uptrend… If you are determined to make a trade in gold stocks, I can suggest a low-risk, high-return trade for you to put on today…
 
Let me be straight with you… I am not bold enough to take this setup – yet. But it's getting pretty darn close. It's a "good" setup in gold stocks… not great, but good…
 
If you're bold enough… and IF you are willing to follow your exit strategy, you could do pretty darn well on this trade.

So yes, I own gold. But no, I do not own gold stocks.
 
I'm getting closer… But I'm not there yet.
 
Good investing,
 
Steve
 
P.S. Last week, I revealed a hand-picked portfolio of nine recommendations that should absolutely soar as the Melt Up continues. I believe this entire portfolio will rise 100% or more within the next 12 months. In fact, I'm so confident about it that I'm making one of the most outrageous offers in Stansberry Research's 18-year history. Get the details here.

Source: DailyWealth

Our Entire Portfolio Is Up 42% This Year. Here's Why…

 
If you're not profiting from the "Melt Up" yet, what are you waiting for?
 
You're running out of time… Stocks aren't going to go up forever.
 
My Melt Up theme is the idea that stocks tend to soar in the final months of a great bull market as it comes to an end. And we're entering that time – right now.
 
The end of the dot-com boom in 2000 is the last great example of this. The Nasdaq soared 200% in the final two years of the Melt Up… and an extraordinary 75% in the final five months.
 
I can't know for sure, of course… But this time around, I believe we could see something similar.
 
The Melt Up is already underway. And you might be surprised to hear it, but it's not just happening in the U.S. Huge gains are happening overseas, too…
 
I was stunned at how far ahead of us China was in mobile technology when I visited China two summers ago. I came home and was shocked that nobody was talking about it.
 
I had to get my readers in on the trend. So I started a letter called True Wealth China Opportunities.
 
So far, the performance of that letter has been amazing…
 
The letter is less than a year old. Year to date, the average gain on our recommended China portfolio is around 44%. (That's not annualized – that's the return so far this year.)
 
We have no losers this year. The portfolio's worst-performing stock since January is a bank (up more than 22%). The best performers, of course, are the technology stocks – the ones focused on building "ecosystems" for their users that you never have to leave – sort of like Facebook in the U.S.
 
I believe this style of stock – tech companies that build "ecosystems" – will comprise some of the biggest winners in the Melt Up.
 
It's already happening…
 
The list of the world's biggest companies has changed dramatically in recent years. All but one of them (No. 7, Warren Buffett's Berkshire Hathaway) are "new economy" companies that want to keep you in their ecosystems. Take a look:
 
Rank
Company
Country
1
Apple (AAPL)
U.S.
2
Google (GOOGL)
U.S.
3
Microsoft (MSFT)
U.S.
4
Facebook (FB)
U.S.
5
Amazon (AMZN)
U.S.
6
Alibaba (BABA)
China
7
Berkshire Hathaway (BRK-B)
U.S.
8
Tencent (TCEHY)
China
Tencent – which I've predicted will be the world's largest company someday – is up 73% this year and is now the world's eighth-largest company. And Alibaba (which is a bit like Amazon) has performed even better – up 99% this year. Alibaba is now No. 6.
 
Those are huge gains – especially when you realize that these are two extremely large companies. They are now among the top eight largest in the world (based on stock market value). Companies that size don't usually see these kinds of gains.
 
Our China recommendations have absolutely soared. I'm happy for the success of our subscribers that were bold enough to listen to me about China.
 
The crazy part is, I believe my Melt Up theme still has plenty of upside… We could be just getting started.
 
I don't have the space to explain the full story here. But I urge you to not miss out!
 
The Melt Up is here. It won't be here forever. Get on board, now…
 
Good investing,
 
Steve
 
P.S. I recently gave a broadcast on how to tell when the Melt Up will end, and the best ways to participate right now. If you haven't gotten in on this idea yet, you can still make up for lost time… and potentially double your money in the next 12 months. Click here to learn more.

Source: DailyWealth

This 'Bad to Less Bad' Winner Is up 60%-Plus… And It's Still a 'Buy'

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 
And for good reason… He has been on an absolute tear.
 
Across his three publications – True Wealth, True Wealth Systems, and True Wealth China Opportunities – readers are currently up double digits or better on most of his broad market recommendations in the U.S., Europe, China, and Japan, among others.
 
But make no mistake… Steve has continued to find big, contrarian opportunities for his subscribers across the investment world.
 
For example, in early 2016, Steve alerted subscribers to a huge opportunity in an area of the market most investors had left for dead: the resource sector.
 
At the time, most commodities were in a brutal bear market. Prices had plunged for nearly five straight years… Most resource stocks had lost 75% of their value or more.
 
But where many others saw only risk, Steve saw a huge opportunity. As he wrote in the March 2016 issue of True Wealth
 
A major sector in the world has fallen more than 75% in less than five years.
 
This is the biggest, most beaten-down sector on Earth today. And it's one we've discussed before in True Wealth.
 
I'm talking about the global mining sector… specifically, the major base-metals miners such as Freeport-McMoRan and BHP Billiton.
 
You know the story… Commodity prices have fallen dramatically, and so have profits for these businesses. Now they're scrambling… selling assets at the bottom of the market. Take a look…
 

As Steve explained, the long bear market had pushed prices back to 2003 levels… And it was setting up one of Steve's classic "bad to less bad" opportunities. More from the issue…
 
The biggest gains in investing are made when things go from "bad" to "less bad." It can happen very quickly. Importantly, things don't have to get "great" or even "good." They just have to get a bit better… or "less bad."
 
The upside here is extraordinary… History tells us everything we need to know…
 
Mining stocks (as measured by the DataStream Global Mining Index) soared roughly 800% from late 2001 to 2008.
 
We saw massive gains after the financial crisis in 2008 as well. Commodities boomed, and these companies soared nearly 300% from their 2008 bottom to their 2011 peak.
 
The great news here is that we could be on the verge of a new uptrend. Hard-hit Freeport-McMoRan is already up 60% since its bottom – last month! BHP and Rio Tinto are also bouncing off their January bottoms. Take a look…
 

 Longtime readers know Steve prefers to wait for a confirmed uptrend before opening a bad-to-less-bad trade…
 
And while a few mining stocks were moving higher, he wanted to see a broad recovery before calling a bottom.
 
Steve didn't have to wait long… The next month, the uptrend was confirmed, and he told readers it was time to buy. As he wrote in the April 2016 issue of True Wealth
 
The chart below shows the iShares MSCI Global Metals & Mining Producers Fund (PICK). As you can see, we now have a legitimate uptrend. Take a look…
 
The entire ETF is up 42% since its January bottom. Again, this does not mean we've missed the uptrend. The price is still down – a lot. This strong start is a good sign… It could be the start of the next major "up cycle" in global mining companies.
 Steve's timing was nearly perfect…
 
Metals prices have been trending higher ever since. And as the Wall Street Journal reported this week, the global mining business is suddenly booming again…
 
The world's biggest miners are on a tear. Fueled by a sharp rise in commodities prices, companies like BHP Billiton, Glencore, and Rio Tinto are flush with cash again, boosting dividends, cutting debt, and shelling out cash for expansion projects. Just a couple of years ago, they were scrambling to survive in the midst of a historic downturn…
 
An important sign of these companies' renewed health is their falling debt load. As of June, BHP, Rio Tinto, Anglo, and Glencore collectively held net debt of about $44 billion, down about 50% from the end of 2014, according to a review of their earnings reports.
 
It's a dramatic shift from two years ago, when the mining industry was reeling. Slowing Chinese growth had sent commodity prices sharply lower. Miners loaded up with debt and cut dividends as their share prices sank.
 
But a surprise rally in the past year in major commodities such as copper, iron ore, and coal has been a windfall, bringing in much needed cash, breathing new life into the beleaguered industry and sparking a rally in mining stocks.

Folks who took Steve's advice are up more than 60% so far. But he believes further gains are likely… He still rates PICK a "buy" in the True Wealth portfolio today.
 
 Meanwhile, in a live event earlier this week, Steve shared his latest thoughts on the bull market in U.S. stocks…
 
Regular readers know Steve believes the rally is in its final "inning." But he's more convinced than ever that we'll see an explosive final rally – what he's calling the Melt Up – that pushes some stocks to unbelievable new highs before it all ends.
 
And in his presentation Wednesday night, Steve shared all the details about his brand-new "Melt Up Millionaire" project. He says folks who follow this strategy could double their money or better in the next 12 months… And he's so sure of it, he's offering a unique guarantee unlike any we've ever offered before in the history of Stansberry Research.
 
If the Melt Up Millionaire model portfolio doesn't produce weighted gains of at least 100% in the next 12 months or less… you can apply every penny you pay to any other Stansberry Research product of your choice. And if Steve doesn't meet his goal – even if the portfolio reaches 99% gains in that span – you'll also get a bonus year of his True Wealth Systems service, absolutely free.
 
If you missed the event, that's OK… It's not too late to take advantage of this one-of-a-kind offer. But you must act soon… This deal won't be available for long. Learn more about Steve's Melt Up Millionaire project right  here.
 
Regards,
 
Justin Brill
 
Editor's note: In 18 years at Stansberry Research, we've never made a guarantee like the one Steve is making today. And for a limited time, you can get instant access to his entire Melt Up Millionaire portfolio at a 40% discount. Get the details here.

Source: DailyWealth

Another Reason Why the 'Melt Up' Can Move Much Higher From Here

 
When does it all end?
 
When will the "Melt Up" be over… and the meltdown begin?
 
I know you're worried about this question. I am, too.
 
My team and I have worked long and hard finding the answer. And today, I'll share one simple reason why the Melt Up isn't over yet… and why stocks can still move much higher.
 
Last month, I showed you one simple way to see a dying bull market. The advance/decline line – a measure that shows if more stocks are going up than down – was a warning sign at the end of the 1990s boom.
 
The advance/decline line is signaling "all clear" for now. And another similar measure also says the market is healthy today. Here are the details…
 
Today's indicator is the S&P 500 Equal Weight Index. You see, the regular S&P 500 is "market-cap weighted." That means the largest companies get a larger weighting.
 
Consumer-electronics titan Apple (AAPL), for example, has a nearly 4% weighting in the S&P 500, even though the index typically holds 500 companies.
 
Those kinds of outsized weightings mean that, at times, the overall market can rise while most stocks in the S&P 500 are falling.
 
So in addition to monitoring the regular index, we can confirm the overall market's movements with this equal-weight index. Every stock is equally weighted, regardless of size. This equal-weight index should mirror the S&P 500 when we're in a healthy bull market.
 
And again, this indicator told us the market wasn't healthy at the end of the tech boom. Take a look…
 
The S&P 500 Equal Weight Index was hitting "lower highs" when the overall market peaked in 2000. It was 6% below its 1999 high as the overall market hit new highs.
 
That was a major warning sign for the market. And the same thing happened in 2007…
 
The index hit a lower high as stocks peaked. The majority of stocks had stopped moving higher. And the final Melt Up gains all happened in what was overall a weak market.
 
This isn't happening today… yet. Take a look…
 
The chart shows that the S&P 500 and the S&P 500 Equal Weight Index are moving together today. They're both coming off all-time highs.
 
It will be a warning sign if the overall market hits a new high and the S&P 500 Equal Weight Index doesn't. But that's not happening today.
 
Stocks are still broadly moving higher. The bull market remains healthy.
 
The Melt Up is still intact… So my advice is simple: Stay long.
 
Good investing,
 
Steve
 
P.S. If you're one of the millions of Americans who missed out on the massive bull market over the last eight years, don't worry… I just released a presentation detailing how to potentially double your money over the next 12 months. And I made a unique guarantee unlike any other in Stansberry Research's 18-year history. Get the details here.

Source: DailyWealth

This 'Safe' Asset Could Fall 15%-Plus This Year

 
Former Fed Chairman Alan Greenspan is worried…
 
Greenspan believes that the bond market is about to begin a dramatic correction. And current sentiment says he could be right.
 
The market hasn't been this in love with government bonds in years. And government bonds fell 15%-plus the last two times we saw similar sentiment.
 
That means that this "safe" asset could be a major loser to finish the year.
 
Let me explain…
 
Alan Greenspan has seen his share of market cycles. He was chairman of the Federal Reserve from 1987 to 2006. But he has mostly stayed out of the news in recent years…
 
That is, until a few weeks ago. The market for U.S. government bonds has caught his attention.
 
Greenspan told Bloomberg TV, "Real long-term interest rates are much too low and therefore unsustainable."
 
The 10-year government bond rates have been less than 3% since 2014. Greenspan doesn't think that can last. And he has said that when rates begin rising, they are "likely to move reasonably fast."
 
Greenspan's idea is a long-term prediction. And we can't know for sure if he'll be right over the next decade.
 
But history says he will likely be right over the next few months.
 
Right now, the investing crowd is all betting that rates will fall even further from here… The Commitment of Traders (COT) report makes that clear.
 
The COT report shows us what bets futures traders are making right now on government bonds.
 
This is a fantastic short-term contrarian tool. When everyone is making the same bet, we want to do the opposite.
 
Right now, the COT report shows that futures speculators are all betting on higher bond prices and lower rates – the opposite of Greenspan's long-term belief. Take a look…
 
You can see that 10-year government bond speculators are all bullish on bonds.
 
They expect interest rates to fall while bond prices move higher. And the degree of their bets is extreme.
 
The last time we saw a similar level was September 2016. Back then, the iShares 20+ Year Treasury Bond Fund (TLT) – an exchange-traded fund that tracks long-term government bonds – fell 15% in just around three months.
 
Like today, bond speculators then were all on one side of the trade… expecting bond prices to rise. But the crowd was wrong.
 
It was the same story in 2012… TLT fell around 17% from December 2012 to September 2013 after sentiment hit similar levels.
 
Most folks consider government bonds to be safe investments. But like anything else, buying at the wrong time can lead to serious losses.
 
Alan Greenspan believes bonds are in a bubble. He believes rates are about to rise… which means bond prices will fall.
 
We don't know if he'll be right over the next few years. But sentiment says the next few months, at least, could see major losses.
 
A 15% decline to end the year is completely possible. And that makes U.S. government bonds an asset to avoid today.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth

Three Things I Wish I Had Understood About Money Long Ago

 
Although experience may be the best teacher, it's also the most expensive – especially in matters of money.
 
It's far cheaper (if not always as effective) to learn from others' experience, insight, and errors.
 
What follows are three essential money lessons that I wish I had understood long ago. If these might help you (or someone you know at an earlier stage in his financial journey)… well, that's time well spent.
 
     1. What will this expense be "worth" years from now?
 
My friend and colleague Peter Churchouse has a fantastic story that illustrates what I mean. Here it is in his own words:
 
Not long ago, I bought a 10-year-old Jaguar in Hong Kong, where I live. I paid roughly $6,500 for it…
 
The first owner paid roughly $100,000 for this car, back in 2005. So I paid nearly 94% less than the original purchase price…
 
Buying a new car – in high-priced Hong Kong or anywhere else – is almost always a terrible investment. Depreciation from the second you drive it off the lot is the name of the game.

However, there's another side of this story. He explains…
 
In early 2006 – that is, a few months after the original car owner in question bought his Jag – I purchased a small investment property in Hong Kong. I paid approximately $180,000 for a little one-bedroom walk-up flat in Central, Hong Kong.
 
I took out a 50% mortgage to buy it, so my down payment after stamp duties, agents' fees, and other expenses was roughly $100,000. I could have bought myself that brand-new 2005 Jaguar – but instead, I bought a flat in need of some tender loving care.
 
Fast-forward to 2015. After a good run, I sold the apartment for $943,000. That's a return of close to 950% on invested capital – in about 10 years.
 
A 94% loss, with the Jag… versus a 950% gain, in real estate. That can be a life-changing difference.

It's easy to take this to the extreme. You'll drive yourself crazy if you constantly consider the possible future value of anything you spend money on ("Shall I get this cappuccino… or put my future child through college?") But it's worth considering that some big expenses carry an enormous potential opportunity cost.
 
     2. What money is… and isn't.
 
Everyone must decide on the meaning and role of money in his or her life. And the sooner you figure out what that is, the better. For me:
 
•   Money is a way of keeping score. There are a lot of ways of keeping score in life, and money is one of them. How much it matters is up to you.
    
•   Money is a tool. It's a way of getting what you want – whether that's time, travel, space, or sparkly things. Also, money is a useful tool to make more money.
   
•   Money means options. If you have money, the range of opportunities available to you – things you can do with your time – expands dramatically.
What money isn't to me…
 
•   It's not an end in itself. The day that you let the number in your bank or brokerage account define you is the day you need a money enema to straighten out your brain. I haven't been there, but I'm guessing neither credit nor cash gets you far in the afterlife.
   
•   It's not a crutch. A dislikeable former colleague of mine used money and the shiny things it buys as a way to feel better about himself. Maybe that works for some people… but it doesn't work for me.
Everyone's journey to understanding the meaning of money is different. But if I could, I'd go back in time to tell my younger self these things.
 
     3. The power of compounding – over long periods of time.
 
Compounding is a simple idea… In short, it means reinvesting returns instead of spending them. Over time, the original investment gets bigger and bigger as more returns are reinvested.
 
It's like a snowball rolling down a hill. The further it rolls… the bigger it gets.
 
For example, if I invest $10,000 with an annual interest rate of 5%… after 12 months, I'd get $500 in interest. But instead of spending that $500, I reinvest it on the same terms… And now I'm earning 5% on $10,500. So 12 months later, I'd earn $525 in interest, which I again reinvest… and on it goes.
 
In the short term, that doesn't sound like a lot. But now look at the magic of compounding over several decades… and the more decades, the better.
 
Let's say I started investing when I was 25 years old with an annual investment of $20,000 (and I reinvested the interest each time). Assuming compounding at 5% growth per year, at age 65, I'd be sitting on a nest egg of about $2.5 million.
 
But if instead I'd started at 35, I'd only have about $1.4 million when I retired – that's $1.1 million less – because compounding has had less time to work its magic. That's a huge difference.
 
So when it comes to compounding… time is the secret to success. Starting as soon as possible and reinvesting interest over several decades can build life-changing wealth.
 
Good investing,
 
Kim Iskyan
 
Editor's note: No matter where you are on your journey to wealth, the right tools can help you make smart decisions when it counts. And that's exactly the kind of key insight you'll find in Kim's free e-letter, the Asia Wealth Investment Daily. It digs into the world's most urgent financial news – and what it all means for your money. Click here to learn more.

Source: DailyWealth

Speculators Are Borrowing More Than Ever… Here's What It Means

 
It's official – investors have borrowed more cash than ever to buy stocks…
 
We're talking nearly $600 billion borrowed "on margin" – when you add up the margin debt on the New York Stock Exchange (NYSE) and Nasdaq stock markets.
 
It's more money than investors borrowed at the peak of the dot-com boom in 2000. And more money than the 2007 peak just before the global financial crisis.
 
That sounds scary, right?
 
Many "experts" who are looking for a reason for the market to go down might point to it as a sign of the top. But is it something to worry about? Let's take a look…
 
This chart shows the NYSE's margin debt versus the S&P 500 Index. You can see that we're now at an all-time high… above previous highs when stocks peaked in 2000 and 2007.
 
At a glance, you might think that the high margin debt could have caused those crashes… or made them worse. But that's not really the case.
 
Let's look at it another way to see it more clearly…
 
Here's a chart of the annual change in NYSE margin debt.
 
You can see that the use of debt to buy stocks spiked right around the market peaks in 2000 and 2007. And it bottomed out two years later.
 
Those two peaks in the yearly change in margin debt are much better indicators of danger than what you see in the first chart. (And those bottoms in 2001 and 2009 would have been much better buying opportunities.)
 
That's not quite enough to go on as a trading strategy. But this chart does tell us that we don't need to worry about margin debt (at least not yet). As you can see, today's reading is nowhere near the last two peaks.
 
Another way to look at total margin debt is relative to the total size of the market.
 
Margin debt levels have historically fluctuated between 1% and 2% of the overall value of the stock market. Those percentages don't move around much, even though the actual overall margin debt goes up and down.
 
Right now, while margin debt is at an all-time high, we're still at less than 2% margin on the overall market.
 
In short, margin debt is high. But by itself, that's no reason to sell U.S. stocks. It's not a sign of danger – yet.
 
Many investors are scared of the markets right now. They're looking for any excuse to sell. Margin debt will be one of their excuses.
 
Don't believe 'em. You now know the real story…
 
Good investing,
 
Steve
 
P.S. We're at a crucial point in the Melt Up… where a lot of investors are going to be tempted to do exactly the wrong thing. You have to know the right moves to make. Tomorrow night, I'm hosting a free live event where I'll explain how you can potentially double your money over the next year. Click here to reserve your spot.

Source: DailyWealth

'This Time It's Different'

 
At the height of the dot-com bubble, the Lycos search engine was worth about $240 per eyeball.
 
About 20 years ago, Internet evangelists argued that profits or even revenue no longer mattered… They created alternative valuations to measure Internet stocks, including the number of "eyeballs" they could attract.
 
Tech stocks soared. Bulls argued, "This time it's different."
 
Of course, we know it wasn't. Profits still mattered. And the tech darlings came crashing down – bringing the rest of the market with them. Today, Lycos is worth practically nothing.
 
"This time it's different" has become a pejorative phrase. It's used by value-investing adherents to tag those willing to buy stocks at anything higher than a reasonable valuation.
 
So with stocks on the rise… is it different this time?
 
The problem here is that in the truest sense, every time is different. Circumstances always change… But the basics of human behavior don't change. Markets get overheated as investors fear missing out on returns. They'll always drift too far upward and then too far downward, eventually reverting to the mean.
 
However, if your argument is that the mean doesn't change, you're too stubborn…
 
The new average is higher. The days of the market trading at 12 times and 15 times average earnings are gone…
 
Some hardline value investors have anchored to the price-to-earnings ratios of the 1970s and 1980s. But valuations have fundamentally stretched since then…
 
This may not last. However, we believe some things are unquestionably different this time. If we focus on what we know, we see that several factors are working together to lift the market today…
 
First, as we explained in a recent essay, growing earnings have ticked markets up over the last few months in what looks like the start of a strong upcycle in revenue growth. But there's more to the story…
 
You see, mountains of investment capital continue to chase historically low rates.
 
We've argued this point for years now. Other prognosticators claimed that on the day the Federal Reserve raised rates, bonds would collapse… wiping out the savings of millions.
 
Well, the Fed has raised rates four times now. And while bonds have fluctuated a bit, yields and prices are within spitting distance of where they started.
 
Now, the Federal Reserve is planning to reduce its balance sheet by reducing mortgage-backed security holdings and Treasury holdings. The totals are expected to be between $4 billion and $20 billion a month (though likely at the lower end).
 
The bond market is unperturbed.
 
The issue at hand is the massive accumulation of global wealth. We simply didn't have as much capital in the world as recently as a decade ago. While the U.S. has long been wealthy, now the world is growing wealthier, too.
 
In 2016 alone, global wealth grew by $3.5 trillion to total $256 trillion.
 
Since the turn of the century, China has quadrupled its wealth. India has tripled. Even developed economies in Europe and North America have more than doubled their total wealth.
 
Over the last two decades, economic growth has exploded. And trade – be it between two people or two nations – is not a zero-sum game. It creates value out of "thin air." That value has been piling up and getting siphoned into both safe assets like Treasury securities and risky assets like stocks.
 
That's why rates stay low. The Fed's $4 billion to $20 billion of buying per month doesn't even qualify as a drop in the bucket… It's a single water molecule.
 
That growing global economy – paired with the scale of technology – also expands the capabilities for companies to capture huge markets that didn't exist before. Companies like Alphabet (GOOGL) and Facebook (FB) can serve billions of people. With a bigger market, the gains to the winner become larger than ever.
 
In sum, the Fed's moves don't matter. Economies and earnings are growing. And that's driving markets up.
 
We think that valuations are high, but nowhere near bubble territory. There's no euphoria in markets. There's no mania chasing prices to astronomical levels. Today, we simply see a rising market.
 
And we don't expect that to change until cracks show in the underlying economies of the biggest nations.
 
Here's to our health, wealth, and a great retirement,
 
Dr. David Eifrig
 
Editor's note: Nearly every president since 1980 has quietly used one approach to get cash in the hands of everyday Americans. Now, President Trump is planning the biggest potential payouts yet. To collect, investors must make one specific move in advance. Dave just detailed this opportunity in a new presentation. Watch it here.

Source: DailyWealth