Profit From the 'Melt Up' and Prepare for the 'Melt Down'

 
What happens after the "Melt Up"? And how do you make money?
 
David Tice knows better than anyone…
 
Tice delivered a 150% return to investors in his Prudent Bear Fund from March 2000 to October 2002. That was during the last great "Melt Down" in stocks – when tech stocks lost 77% of their value.
 
What happened back then is important – because I think we're setting up for a similar situation again.
 
I expect a huge run-up in stock prices (the Melt Up), followed by a long period of tough times in stocks – a "David Tice time."
 
My advice to you today is to "make hay while the sun is shining." Be bold now. Then be safe later.
 
Let me explain…
 
Porter Stansberry and I got to know Tice back in the late 1990s, during the last great Melt Up. We often spoke at the same conferences.
 
Tice was one of the only guys – on TV and in print – loudly sounding the alarm that the late 1990s tech-stock Melt Up would have to come to an end. He was also putting his money where his mouth was, betting against the flimsiest companies and buying precious metals in his fund.
 
But what happened to Tice after that?
 
Porter and I didn't hear much from him in the last decade or so.
 
It turns out, he sold his money-management business in the 2000s. And he spent his time doing completely different things – like becoming the lead investor in the movie Soul Surfer.
 
Fast-forward to today… With the emergence of a possible "Melt Up/Melt Down" scenario like we saw in 2000, Tice has returned to the markets – to once again sound the alarm.
 
I got an e-mail from him recently… after not hearing from him in years. "I think you're going to be right, Steve, about the Melt Up," he said. "Good job."
 
Tice was on TV recently as well. On the CNBC show Trading Nation, he told host Brian Sullivan, "Frankly, I think it's still going to end very, very badly."
 
Sullivan pressed Tice on when the end will finally arrive…
 
Brian Sullivan: How much longer [can the market keep going up]? You're a notorious bear, David! How much longer can it go on?
 
David Tice: … I've been listening to the guys, frankly, at Stansberry Research. Those guys are pretty brilliant. And they've talked about there being another Melt Up… It's possible, as much as I hate to say it, this market could go… higher.

If you're a longtime reader, you know my Melt Up thesis…
 
It's what I've been calling the final stage of the stock market boom, where the biggest gains usually happen – like we saw with the Nasdaq Composite Index in the Melt Up that ended in 2000. The Nasdaq soared 75% in the final five months of that bull market!
 
The Melt Up is also the final stage of the big-picture story I've been telling for many years.
 
My main thesis since the beginning of this bull market has been this:
 
Interest rates will remain lower than you can imagine for longer than you can imagine… And that will cause asset prices like stocks and real estate to soar higher than you can imagine.
This thesis has been exactly right. It has been a fantastic rise so far.
 
And as you know by now, I believe it still has plenty of room to run.
 
We are in the final stage of this great stock market boom right now – the Melt Up stage. This is where the biggest gains are made. And I urge you to stay invested right now to take advantage of it.
 
But be cautious as well… This won't last forever. And a "David Tice time" will follow, with a potentially massive Melt Down.
 
Stay long. But watch your stops. That's the key to profiting in the Melt Up – and protecting yourself from the Melt Down.
 
Good investing,
 
Steve
 

Source: DailyWealth

What the 'Smart Money' Knows… And the Stock Market Doesn't

 
We finally have conclusive proof of something we've always believed…
 
The bond market is smarter than the stock market.
 
You may have heard this saying before… It's one of Wall Street's oldest adages. And it's one of our core beliefs from nearly 20 years of studying the markets at Stansberry Research.
 
But until recently, it had just been a "gut feeling" that we had… We could never find concrete evidence. It was frustrating, so we decided to conduct our own study.
 
Today, we're going to share a critical detail about our findings with you… You see, while we knew this belief was true, the results were so dramatic that even we were surprised.
 
And they revealed an incredible indicator for finding stocks that could double your money…
 
As longtime subscribers know, our bond team combs through roughly 40,000 bonds each month and only identifies a handful of true "outliers" that are worthy of further research. Generally, the equity markets contain many more outliers – both long and short opportunities.
 
Over the years, we've come to agree with Benjamin Graham – "the father of value investing" – that eventually the stock market gets valuation right. But it can take years to happen.
 
It certainly makes sense. After all, the stock market is littered with unsophisticated individual investors and day traders who are hoping to make a quick buck.
 
The bond market, on the other hand, is different…
 
The U.S. bond market is about 50% larger than the stock market. There's more than $39 trillion invested in bonds in the country. And unlike the stock market, almost all the trading is done by the so-called "smart money."
 
Simply put, the bond market attracts a different kind of investor. Mainly, the bond market is filled with institutions like banks, insurance companies, and pension funds – stodgy old organizations that have no emotional attachment to their capital.
 
The members of this "financial elite" are widely regarded as being better at seeing broad market moves much sooner than their counterparts in the equity markets. That's where the old saying comes from. And that's why even the most experienced stock traders often look to the bond market for signals of what's to come in the equity market.
 
Equity investors are often jittery and shortsighted. They'll throw in the towel and sell a stock when the company has one bad quarter. Some even give up when the company has a good quarter – if it isn't as good as they had hoped.
 
Bond traders look past all of this short-term noise. They seek to understand true fundamental changes in the long-term prospects of each company. They don't bail out just because a company missed Wall Street's latest quarterly expectations.
 
A few months back, our bond team became fascinated with a scenario that plays out dozens of times every year. What happens when the stock market and bond market disagree about a company?
 
Sometimes, the price of a stock sells off sharply, but the company's bonds maintain their value. In other words, equity investors lose faith in the stock, while bond investors remain confident in the company's future.
 
But we wondered… does this divergence tell us anything?
 
To answer this question, our team compiled what we believe to be the world's most extensive analysis done on what happens when the bond and stock markets disagree.
 
Our team studied more than 1,000 situations when a stock fell more than 50% over a short term. (That's a huge selloff, and it signals that stock investors gave up on the company.) For companies that had bonds outstanding during that time, we looked at how their bonds performed over the same period.
 
In hundreds of those scenarios, the bond market "disagreed" with the stock investors. And just as we expected… our findings proved that bond traders are much better at predicting the long-term prospects of a company. Take a look…
 
The black line is a representative index of various "bond market disagreed" situations that occurred in stocks from 2010-2014. The horizontal axis represents the number of months from when the stock market first began to sell off these stocks.
 
Now, you would expect bonds to fall less than stocks. Bonds are better securities to hold in times of trouble. Remember, bondholders have a more senior claim on a company's assets than the shareholders have. Bondholders have historically recovered around 40% of their investment in bankruptcy proceedings, while equity investors usually get nothing.
 
But when the price of a company's stock is slashed in half and the bonds only drop by a single-digit percentage, that's a flat-out disagreement between bond and stock investors' expectations.
 
This clearly shows the bond market gets it right much earlier than the stock market. When a company's stock falls but its bonds don't… the stock market almost always ends up "agreeing" with the bond market, and shares bounce back toward their prior levels.
 
But here's what shocked us…
 
As the chart demonstrates, investors who bought shares when the market had given up on them routinely doubled their money (or better)…
 
You can think of it like this. On average, the stocks in this "bond market disagreed" population were trading at $100 a share and dropped to $40 a share. (That's a 60% loss.) Within two years, this "average" stock was trading for $89 a share. That's 11% below the pre-fall levels… But it's more than a double from the low. ($89 is 123% higher than $40.)
 
In other words, the bond market knew what the stock market didn't… These companies were fine. And if you had bought the stock of these companies after the initial drawdown, you would have more than doubled your investment in less than two years!
 
Our bond team had stumbled upon the greatest "bounce-back predictor" we'd ever seen.
 
Mathematically, these stocks double just by getting back to the levels where they previously traded. These companies don't need to soar to new heights… They just need to get back to where they were.
 
So whenever you see a huge divergence in the behavior of a company's stock and its bonds, keep this study in mind. We're not saying that the bond market doesn't overreact at times… But overall, the bond market is clearly much less jittery than the stock market.
 
And when a stock has fallen 50% or more, it can be one of the best predictors of a double waiting in the scrap heap.
 
Regards,
 
Porter Stansberry
 
Editor's note: Right now, this powerful signal is pointing to a cash-generating business that most investors are missing. The last time it "bounced back," you could have nearly quadrupled your money… And now, it's setting up for another big rally. Porter and his team shared all the details last Friday. Learn how to access this recommendation – and at a fraction of the regular retail price – right here.

Source: DailyWealth

'Boring' Wal-Mart Could Soar 41% Over the Next Year

 
It's a crazy claim…
 
Could Wal-Mart (WMT) – a boring retailer – really soar 41% over the next year?
 
History says, "Yes!"
 
You see, the world's largest retailer has been on a hot streak…
 
Wal-Mart recently moved higher for 11 consecutive days. That's a rare feat. And history says it tends to lead to massive returns.
 
Since 1973, Wal-Mart has increased an incredible 41% a year after similar instances. And it could happen again, starting now.
 
Let me explain…
 
From its birth in the early 1960s, Wal-Mart has expanded from one small store in Arkansas to more than 5,000 stores all over the United States.
 
By 1991, the company made more profits than retail kings like K-mart and Sears.
 
Today, Wal-Mart has become the undisputed ruler of retail by sales. It's even closing the gap on e-commerce giant Amazon (AMZN) in online sales… Wal-Mart recently reported that it grew online sales 67% by volume in the second quarter.
 
This strong growth in online sales likely helped the company's share price move higher 11 days in a row. The chart below shows the recent uptrend. Take a look…
 
The uptrend is fully in place. Wal-Mart is up around 13% this year, thanks in part to this rare string of "up" days.
 
This has only happened 13 times in the past 44 years. And similar instances say the gains will continue…
 
Since 1973, when Wal-Mart's stock moved higher for 11 straight days, it has typically gone on to rally an average of 41% over the next year. Take a look…
 
 
3-Month
6-Month
1-Year
After extreme
11%
37%
41%
All periods
4%
8.2%
17.2%
These are fantastic return figures.
 
Obviously, Wal-Mart has been a winner since 1973 – returning 17.2% a year. But the stock crushed normal returns after instances like the one we saw recently.
 
Similar strings of "up" days led to 11% gains in three months… 37% gains in six months… and massive 41% gains over the next year.
 
I know it's a bold claim. It sounds crazy to say it…
 
But history says Wal-Mart has a legitimate shot at huge gains over the next year. And 41% gains are in no way out of the question.
 
If you've been thinking about buying this blue-chip stock, now could be the perfect time.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth

How Hurricane Harvey Is Impacting This Critical Sector

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 The numbers are nearly unfathomable…
 
25 trillion gallons of water… That's roughly how much rain Hurricane Harvey dumped on the Houston area in fewer than five days.
 
And the 51.88 inches of rainfall measured outside the city is the most ever recorded from a single storm in the continental U.S., according to the National Weather Service.
 
This is more rain than typically falls in six months there… and enough water to supply New York City for more than 50 years, according to ABC News. More than 40 people have died as a result of the storm, and at least another 30,000 have been forced from their homes.
 
While the worst of the rainfall has passed, flooding is expected to continue for weeks – even months, in some areas. Some estimates suggest the damage could total as much as $190 billion. That would rank it as the most expensive natural disaster in U.S. history by far.
 
The loss of life and property is tragic and heartbreaking… We know many Stansberry Research readers live in Houston and the surrounding areas. We hope you and your loved ones are safe… Our thoughts are with you today.
 
 What comes next?
 
Houston is the fourth-largest city in the country… And of course, it's a critical hub in the U.S. energy sector. That industry is suffering its share of the colossal damage done by Harvey… According to the latest estimates from news service Reuters, Harvey has knocked out as much as 4 million barrels per day – or about 20% – of U.S. oil-refining capacity.
 
This has quickly rippled through energy markets…
 
In August, the price of West Texas Intermediate ("WTI") crude oil – the U.S. benchmark – fell 6%, including about 1.5% after Harvey made landfall last week. This isn't unexpected…
 
Crude-oil inventories have remained stubbornly high, despite significant production cuts from oil cartel OPEC. This decline in refining capacity only adds to these woes. A big source of domestic demand has suddenly disappeared, and inventories could be headed even higher in the near term.
 
Likewise, less refining means less gasoline and other fuel production. And flooding has closed several ports and shut down pipelines that enable these fuels to be shipped across the country.
 
We'd expect gasoline prices to rise in anticipation of tightening supplies. And that's exactly what has happened… U.S. gasoline futures have jumped to more than $2 a gallon for the first time in more than two years.
 
 Investors are left to wonder, how long will these disruptions last?
 
What will be the long-term effects on the energy markets? And how will they impact various sectors like refiners, pipelines, exploration and production, and oil services today?
 
Our colleague C. Scott Garliss of the Stansberry NewsWire team recently spoke with our resident energy guru Flavious Smith to answer all these questions and more. Flavious is the editor of our new Commodity Supercycles advisory.
 
No one is more qualified on the subject… He's a 35-year veteran of the energy business who has worked on nearly all of the most important onshore oil and gas basins in the U.S., including Anadarko, Appalachian, Denver-Julesburg, East Texas, Gulf Coast, Hugoton, Permian, Powder River, Uinta, Wind River, and Williston.
 
Flavious led the development of both the Marcellus and Barnett assets for EOG Resources (EOG). As longtime readers may recall, EOG is the "best of breed" firm that pioneered the use of the next-generation technologies that unlocked vast quantities of shale oil in the U.S. And he later served as the chief oil and gas officer and executive vice president at Forestar Group (FOR), building and leading the company's oil and gas operating segment.
 
If you have any money in the energy sector, you don't want to miss this short interview. Click here to watch it now. And if you're interested in receiving more great content like this from the Stansberry NewsWire team – including morning market "snapshots," evening market recaps, and up-to-the-minute news, research, and expert commentary throughout the day – we urge you to take a closer look. You can sign up for FREE right here.
 
 Elsewhere, it appears the top China fund manager agrees with Steve Sjuggerud…
 
Dawid Krige manages the best-performing China-equities mutual fund in the world this year. His Cederberg Greater China Equity Fund is up more than 46% year to date.
 
What's his secret? According to Krige, when he finds a great idea, he likes to make a big, concentrated bet and hold it as long as possible. Just 10 stocks account for more than 70% of his fund's holdings. And he has bought only three new stocks this year.
 
Why do we bring this up? Because two of Krige's latest bets should sound familiar to regular DailyWealth readers. As Bloomberg reported recently…
 
In a market where swings are notoriously large and gains can be dominated by a handful of companies, it helps to double down on your picks and sit tight. Two of Cederberg's new investments this year were Tencent and Alibaba, which have both treated the fund well, jumping more than 70%.
 
"Good ideas are scarce," Krige said in an interview from London. "It is easier to identify a wonderful company and own it for the very long run, especially in a place like China where there will be multiyear winners."
 
Cederberg only started buying Tencent and Alibaba this year, as well as Hong Kong-listed Beijing Tong Ren Tang Chinese Medicine, which is flat this year. With regard to the two Internet juggernauts, it's better to be five years late than 10 years late, Krige said. The fund's performance compares with a 40% gain in the MSCI China Index.
 

"They're immensely dominant, so it's very hard to see them getting disrupted," he said. "The monetization opportunity is immense, and that is just talking about what we know today."

 
Of course, Tencent (TCEHY) and Alibaba (BABA) are two of Steve's favorite "New China" investments. And he has recommended each – either directly or through an exchange-traded fund ("ETF") – to both his True Wealth and True Wealth China Opportunities subscribers.
 
As of Thursday's close, Steve's China Opportunities subscribers are up 58% and 68%, respectively, while his True Wealth subscribers are up 49% on Tencent and 62% on his preferred "New China" ETF.
 
 Steve still considers both of these stocks as "buys" today…
 
But he's particularly bullish on Tencent… He believes it will soon become the largest publicly traded company in the world. And folks who own it are likely to make hundreds-of-percent gains over the next several years.
 
But before you even consider buying shares today, there's something you should know
 
In short, Steve has discovered a "secret" way to invest in Tencent… This little-known opportunity gives you the chance to own shares at a huge discount to what other investors are paying in the market right now. And it's as simple as buying a stock.
 
Steve has prepared a brief presentation to explain it all… including why he's so bullish on Tencent today and how you can take advantage of this "secret" opportunity for yourself. Click here to watch the presentation right now.
 
Regards,
 
Justin Brill
 
Editor's note: Steve has found a much better, more profitable way to buy Tencent compared with owning ordinary shares. In fact, he says it's his favorite investment opportunity in the world today by far. But if you're interested in taking advantage, you must act quickly… Steve says it's only a matter of time before the public catches on and this opportunity disappears forever. Get all the details right here.

Source: DailyWealth

The Chances of a Correction Are Slim

Editor's note: The stock market and our offices are closed on Monday in observance of Labor Day. We'll pick back up with our normal publishing schedule on Tuesday. Enjoy the holiday.
 
Two things precede a bear market…
 
The first is a pullback… The second is a correction.
 
In trader speak, these are benchmarks for gauging how far a stock market has fallen.
 
A pullback is often defined as a 5% drop from a recent high. A correction is a 10% drop. And finally, stocks enter a bear market after a plunge of 20% or greater.
 
You can't enter a bear market without first seeing a pullback, and then a correction.
 
Investors are often fearful that these events are around the corner… But based on history, that's extremely unlikely. In fact, it's not likely we'll see even a pullback over the next month.
 
Here's why…
 
Last month, we saw the benchmark S&P 500 Index fall by more than 1% twice. But even with these recent declines, market volatility has remained low…
 
If you've ever read about stock market volatility, you've probably come across the CBOE Volatility Index (or "VIX"). It's one of the most widely used financial gauges in the world.
 
The VIX measures expected volatility in the S&P 500 over the next 30 days. In general, a VIX reading below 20 is considered low, and a VIX above 30 is considered high.
 
Yesterday, the VIX closed at 11.22. It has been below 12 just 10% of the time going back to 1991 (as far back as Bloomberg has data). In the 11-year chart below, you can see that this sub-12 area is rare…
 
Typically, the VIX rises when stocks drop. So folks often get the idea that the risk of a pullback or correction is higher than normal when the VIX is low.
 
But that's not the case.
 
We recently tested this idea by looking at all of the one-month drawdowns and returns for the S&P 500 since 1991. A "drawdown" is simply the most an asset drops during a given time frame, even if it recovers before the end of that period.
 
In this first table, you can see what happened in the month following every day the VIX closed below 12. When we ran our test, it had happened 666 times…
 
After VIX Below 12
Worst
Median
Average
Best
Drawdowns
-5.9%
-0.7%
-0.9%
1.2%
Returns
-5.0%
1.1%
0.9%
5.7%
Of the 666 days the VIX closed below 12, the biggest one-month drawdown was 5.9%. And we only saw 11 drawdowns of more than 5%. That's just 1.7% of the time.
 
So if you're expecting an all-out crash over the next month, that's unlikely. When the VIX closed below 12, as it did yesterday, one-month returns were positive 72% of the time.
 
Now, let's compare that with all periods. Below, you'll see the same table. But this time, it looks at the month following every single day since the start of 1991. First of all, you can see stocks are more volatile…
 
All Periods
Worst
Median
Average
Best
Drawdowns
-30.0%
-1.7%
-2.6%
6.4%
Returns
-30.0%
1.1%
0.7%
23.4%
For all periods, the median and average drawdowns were 152% and 172% larger, respectively. (There's some rounding in the tables above.) And interestingly, the median and average one-month returns were 2% and 19% lower, respectively.
 
In other words, one-month returns tended to be better than "normal" following a VIX reading below 12.
 
Importantly, during all periods, we saw 5.9% drawdowns about 16% of the time… or more than nine times more likely than when the VIX closed below 12.
 
For all periods, one-month returns were positive 63% of the time (compared with 72% of the time when the VIX closed below 12).
 
Across the board, when the VIX has dropped to levels as low as it did yesterday, stocks were likely to be less volatile going forward. And in spite of what a lot of folks think, it's also much less likely that stocks will be lower one month from today.
 
To sum this all up, based on history, there's only a 1.7% chance we'll see a drop of more than 5% (from yesterday's closing price) in the S&P 500 over the next month. And we have never seen a correction or a bear market one month after the VIX closes below 12.
 
With the sharp declines last month, it's easy to panic… and to think this bull market is coming to its end. But history says otherwise. It's good to keep this perspective.
 
Continue to use intelligent asset allocation… And continue to place smart trades… with a bullish bias.
 
Good trading,
 
Ben Morris and Drew McConnell
 
Editor's note: Now more than ever, it's crucial for investors to make smart, well-informed decisions. In their DailyWealth Trader service, Ben and Drew focus on high-upside, low-risk trades to give you every advantage. To learn more about a risk-free trial, click here.

Source: DailyWealth