This Commodity Could Rise 31% Over the Next Year

 
I love a hated investment…
 
I want to buy when everyone else has given up… when no one else can stomach the idea of buying.
 
That's where we are in the commodity markets today. Prices have been falling for years. And investors aren't interested.
 
Today, a certain commodity is in an even better position. It recently hit the most hated level we've ever seen. And it's now beginning an uptrend.
 
That means we could see gains of up to 31% over the next year, based on history. And best of all, there's a simple way to make the trade.
 
Here are the details…
 
Commodity prices are up this year… But not everything has recovered.
 
Today's opportunity is down 29% over the past year. It recently hit its most hated level ever. But the trend appears to be back. That means big gains should be on the way.
 
I'm talking about sugar…
 
Sugar has crashed. The price per pound is down nearly 60% since peaking in 2010.
 
Not surprisingly, investors are scared. They're more negative than ever, based on the Commitment of Traders (COT) report.
 
The COT report details the real-money bets of futures traders. It tells us whether traders are excited about or disinterested in an asset.
 
That means it's a useful contrarian tool… When traders all agree on an outcome, it's a good idea to bet against them.
 
And futures traders have become extremely bearish on sugar in recent months. Take a look…
 
The COT report hit its most negative level ever in August, -77,495. And it has only rebounded slightly to 34,270 since then.
 
This negativity is a good thing for us. It's setting up for a fantastic investment opportunity, based on history.
 
You want to own sugar when it's this hated. Since 2000, sugar prices have soared when the COT fell below and then rose back above -35,000. The table below has the full returns…
 
 
6-Month
1-Year
After extreme
17.0%
31.4%
All periods
2.4%
4.9%
Sugar prices have risen steadily over the past 17 years, with typical annual gains of 5%. But owning sugar when it's this hated has led to dramatically higher returns.
 
Similar extremes led to six-month returns of 17% and one-year returns of 31.4%.
 
Those are huge gains. They're many multiples of what you could typically expect in this commodity. And these extremes are rare… We've only seen this happen nine times since 2000.
 
Importantly, sugar prices have rebounded in recent weeks…
 
The simplest way to own sugar is the iPath Bloomberg Sugar Subindex Total Return ETN (SGG). SGG shares are up double digits in a little more than a month.
 
This isn't a screaming uptrend. But it's movement in the right direction. And history tells us much larger gains should be on the way.
 
We could easily see double-digit gains over the next few months. And returns of as much as 31% over the next year are possible.
 
This is a perfect "hated" investment. And shares of SGG are an easy way to make the trade.
 
If you've been looking to put money to work in commodities, this is a place to consider right now.
 
Good investing,
 
Steve
 

Source: DailyWealth

These Four Secrets Can Change Your Investing Fortunes

 
To bake a cake, you need the right ingredients.
 
If you don't have good flour, the right kind of sugar, and fresh eggs, you might still get lucky and bake something tasty. But chances are, without these critical ingredients, your cake won't taste like cake.
 
It's the same thing when it comes to analyzing investments – whether it's real estate, stocks, funds, or cryptocurrencies. Bad ingredients lead to a bad result.
 
So today, I want to tell you about four key secrets… the "good cake" ingredients of a good investment…
 
1You need context And experience matters.
What's the first thing you do when your kid comes running up to you, telling you that your other kid just hit him? You ask for context. What happened? Who hit first? Why? When? You don't take anything at face value.
 
It's the same with investing: Context matters. Who are you buying from? Why is he selling? If the investment is cheap, or expensive, what's the reason? And why do you think you know something that the seller doesn't? (If it was such a great investment, he wouldn't be selling it, would he?)
 
Answering these kinds of questions isn't easy. You can do it on your own. But if you lack experience, it's like researching your cold symptoms on the Internet… You'll likely end up misdiagnosing the problem, or self-medicating with snake oil.
 
The best solution is to seek out someone who's done it all before. Experienced investors know what to look for… They know what works and what doesn't. So if you're new to real estate, it helps to talk to someone who's been doing it for a long time. Or if you're curious about cryptocurrencies, you can follow the insight of someone with real-life experience in that world – and the know-how to separate the good from the bad.
 
In any case, context is critical – and experience helps you figure it out.
 
2What are the other options?
Whenever you buy one thing, you're making a decision to not buy many other things. In other words, your decision comes with an "opportunity cost."
 
When you're investing in stocks, the opportunity cost is easy to work out – after the fact. You can see how other stock prices changed, and (if you want to torture yourself) you can look at how much money you might have made on a different choice.
 
But the "cost" of what you didn't buy also applies to other types of goods. The money you spend on that long weekend at the beach is cash that you're not putting away for your children's education. You're also not buying a stock that could double or triple next year (or a stock that could fall to zero).
 
Part of assessing an investment is looking at what you could be buying instead… so you can make the right choice.
 
3Price is important.
If your objective is to make money – and if you're reading this, I'm guessing it is – then the price you pay, more than anything else, will determine whether or not you wind up making or losing money.
 
A great company can still be a lousy investment if its shares are expensive. And a terrible company – if its stock is cheap, and things are beginning to improve – might be a fantastic investment.
 
To know what's cheap or expensive, you need to look at valuation. One of the best ways to measure value in stock markets is to use the cyclically adjusted price-to-earnings (or CAPE) ratio, which smoothes out short-term price fluctuations.
 
Investing in markets that have a low CAPE ratio, on average, results in much better returns than buying markets with high CAPE ratios. Of course, this is the same for individual stocks… All else being equal, your odds of making money improve when you buy stocks cheap.
 
Anything can happen to prices in the short term. More people rushing to buy an overvalued "hot" stock will push the price up higher… And negative sentiment toward an out-of-favor stock can mean that it takes a while for a cheap asset to rise in price. But in the end, value will prevail.
 
4You can't skip the research.
You can't fully understand the context (see point No. 1), determine if something is cheap or not (see point No. 3), or know your other options (see point No. 2) if you don't do the work to figure it out.
 
The alternative is to get someone both knowledgeable and trustworthy to help you. For some people, that's a financial adviser. But I believe that with time, energy, and focus, everyone can master their own financial universe.
 
In short, you can get away with being lucky… for a while. But eventually, the odds catch up with you.
 
Understand the context… assess the opportunity cost… and buy on the cheap… all after doing the required due diligence. That's what goes into a great investment.
 
Good investing,
 
Kim Iskyan
 
Editor's note: Kim's colleague Peter Churchouse uses these secrets to find investment ideas all over Asia. And right now, he's unlocking major opportunities in the Chinese middle-class boom. You can learn everything you need to know about this massive wealth explosion – and how to profit using his hands-on research – right here.

Source: DailyWealth

$1.7 Trillion Is Headed Into Chinese Stocks by 2019

 
Xi Jinping slept on a straw mat in a flea-infested cave in rural China for seven years…
 
It was part of his "re-education."
 
You see, Xi's father was a founding member of the Communist Party of China. But this hurt, rather than helped, Xi when his father fell from power.
 
He was seen as a privileged "princeling." And the Communist Party didn't want him.
 
Xi underwent years of hard labor in the fields of Liangjiahe to "cleanse" him of his affluent upbringing. The party rejected him 10 times. But it finally accepted him in 1974.
 
Today, Xi is the president of China. And he recently made a statement that will change everything about the Chinese stock market…
 
Let me explain…
 
Last month, Xi became much more than just an influential president…
 
China recently enshrined his thoughts, ideology, and even his name in its constitution. It's a symbolic gesture that elevates Xi to the same status as famed Chairman Mao Zedong. Based on this, his influence in China will extend for potentially decades to come.
 
Xi received the honor at the Communist Party's 19th Party Congress last month…
 
This event only happens once every five years. Thousands of party officials and nine research committees attend. Twenty-five think tanks submit reports. It's big.
 
During President Xi's three-and-a-half-hour opening speech, one sentence stood out: "Houses are built to be inhabited, not for speculation."
 
With that one sentence, Xi declared the party's intentions. I believe this can only mean one thing…
 
It's time for Chinese investors to move on from the property market and into the stock market.
 
We won't officially know until the middle of next month how China will implement regulations limiting speculation in property. That's when China will hold its Central Economic Work Conference.
 
But we do know that this is a big deal…
 
It could end speculation on housing prices in China as we know it. And it could usher in a new era of investing… one that will send another $1.7 trillion pouring into the Chinese stock market.
 
In an article titled, "China's Giant Ball of Money May Be Headed Back to Stocks," Bloomberg wrote…
 
Chinese equity holdings will swell by up to 11 trillion yuan ($1.7 trillion) in the two and a half years through end-2019 amid policies to clean up the financial system, Morgan Stanley predicts.
Now, I know what you're thinking… "$1.7 trillion in Chinese stocks by 2019? What's going on here?"
 
You see, in the past, the Chinese people have done different things with their money than Americans…
 
They save a lot of it. And they put the rest into property.
 
The stock market is nearly irrelevant to most of them. When the Chinese stock market first opened in the 1990s, it only offered trading in boring, state-owned companies and had limited reliable information for investors.
 
The Chinese stock market has modernized significantly since those humble beginnings. But most Chinese still think of the stock market like it was back then – as a place for gamblers, not investors. And that's a fair assessment…
 
In the last dozen years, the Shanghai Composite Index has risen more than 100% three separate times. Gamblers run it up like they're winning the lottery, and then it crashes back down.
 
Take a look…
 
 
So historically, China's stock market hasn't been a place Chinese investors put money for the long term…
 
But thanks to that one sentence from President Xi, that is all about to change…
 
That sentence marks the end of Chinese gambling in the stock market – and the start of a new era for investors.
 
"Real" investors in China have bought property – and that's about it. That has led to some serious imbalances in the property markets. A decent apartment in Beijing costs $1 million or more. Shanghai is even more expensive.
 
Buying an apartment in China's largest cities is nearly impossible for the average person.
 
Now, Xi and the Communist Party have announced their intentions to do something about it.
 
The housing market will become less of an investment vehicle. The stock market will take its place. Morgan Stanley agrees – and says that $1.7 trillion will go into Chinese stocks by 2019.
 
This is the beginning of the institutionalization of the Chinese stock market. This is the end of the gambler's market in China… and the start of the modernization of China's stock investors.
 
My advice today is the same as it has been for years… Get your money there first.
 
Good investing,
 
Steve
 
P.S. China's giant ball of money is moving out of property and into stocks. No matter how you do it, I urge you to position your portfolio to profit now.
 
Fortunately, if you're interested in my True Wealth China Opportunities research, I have great news… Right now, you can gain LIFETIME access for less than the normal cost of a single year. But you must act quickly… This offer closes TONIGHT at midnight Eastern time. Get the details here.

Source: DailyWealth

A Simple Reason Why the U.S. Dollar Can Soar

 
Every night in 1995, I would deposit money overnight in a different currency…
 
Sounds strange, I realize.
 
But back then, as the vice president of a global mutual fund, one of my jobs was to execute our fund's trades.
 
Once our U.S. trading day was done, we wanted our money to work for us overnight as well. We might put our money into French francs, German marks, or somewhere else – just for the night.
 
We would find the safest country that was paying the highest interest rate. And we would put our money there overnight. No kidding.
 
As I'll explain today, what we were doing wasn't anything special…
 
Big companies like German automaker Volkswagen and Japanese automaker Honda (and thousands of other companies) have cash-management departments that do basically the same thing – on a much larger scale.
 
I'm sure that hundreds of billions of dollars move this way (if not trillions)… every day.
 
This money is all looking for the same thing… "Where am I going to get treated best tonight? Where is the safest, highest-yielding place to spend the night?"
 
The simple investing lesson you need to learn is that money flows to where it's treated best.
 
It always has. It always will.
 
Importantly, this simple truism leads us to an investment conclusion that you might find hard to believe: The U.S. dollar could move dramatically higher in the coming months and years.
 
Take a look at this table of safe countries to park your money in overnight. Tell me, where will money be treated best going forward?
 
We ask the simple question, "Where will money be treated best?" The answer is obvious: in the U.S. dollar.
 
The interest-rate difference between the U.S. and the other major "safe haven" countries is downright massive right now.
 
You know my investing strategy by now… Ideally, I like to buy when three things come together. I want to buy when an investment is cheap, hated, and starting an uptrend.
 
This investing strategy works for basically every asset class – you just have to figure out how to define these three terms.
 
When it comes to currencies like the U.S. dollar, we define "cheap" as the best value. The first place I look for value is in interest rates. When you have a difference in rates as large as we have today, it's time to pay attention.
 
For most of this year, the dollar hadn't been hated enough or in enough of an uptrend to expect a big move. But that changed recently.
 
After being in a downtrend for most of this year, the U.S. dollar has finally started an uptrend…
 
This is a new development. It tells me that a major move in the dollar could be starting now.
 
I know this might sound a little too simple… and maybe a little crazy. But hear me out…
 
Money flows where it's treated best. And right now, the U.S. dollar treats money better than any other major global currency.
 
With the uptrend back in place, we could be at the beginning of a major move higher. That makes now the time to position yourself for a stronger dollar.
 
Good investing,
 
Steve
 

Source: DailyWealth

The U.S. Is Headed Full Steam Into the Biggest Credit-Default Cycle in History

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 Recently, my famously bullish colleague Steve Sjuggerud mentioned a word of caution for the first time in many, many years…
 
Today, I (Porter) will point out a second – and in my view, even more worrisome – sign that this aging bull market is definitely running out of steam.
 
Before we get to the "meat and potatoes" of this missive, a reminder… I feel a tremendous obligation to provide you with the information I'd most want if our roles were reversed.
 
Sadly, that frequently means telling you something you don't want to hear and are likely to ignore. Often enough, telling folks the difficult truth about financial circumstances causes them to cancel their subscriptions, or as I like to say, "part as friends."
 
You see, we're entering into an incredibly dangerous phase of this bull market. Ironically, that also means most people will find stocks simply irresistible.
 
But trust me, friends… it's time to start selling. Let me show you why…
 
 Many, many obvious signs point to a gigantic financial bubble.
 
The prices of cryptocurrencies are soaring… Stocks are trading at record levels… Corporate bonds are paying record-low yields… Art is selling for $450 million… Consumer debt is at a new all-time high less than a decade after the biggest consumer-lending collapse in 50 years.
 
What's powering this bubble?
 
It's sovereign debt. Major governments around the world have gone mad with debt.
 
I won't bore you with the details (I promise). But consider this…
 
For a period of almost 20 years – between 1979 and 1998 – the 10-year average growth rate in U.S. federal debt was more than 100%. That first big "spurt" of U.S. debt growth peaked in 1991 (with a 10-year increase in federal debt of 228%) that saw total federal debt per person in the U.S. grow from $3,700 to $20,000 by 1998.
 
As I'm sure you'll recall, the period between the early 1980s and the 1990s was generally fantastic for the stock market and for investors. At the beginning of a massive credit boom, everything seems great. That's because when credit growth far exceeds savings, it allows an economy to consume far more than it's producing.
 
This "pulls forward" consumption, magnifies economic growth, and increases spending and usually wages, too. It's a boom!
 
But by 1998, so much consumption had been pulled forward that not enough global aggregate demand was left. A huge bust emerged, which hit commodities and emerging markets. Russia defaulted. Eventually, these problems caused the tech and telecom bubbles to burst, and the U.S. saw a severe bear market. Tech stocks fell about 80% from their peaks.
 
 We're about to see a similar bust
 
Over almost the entire last decade, we've seen another huge increase to government debt. Since 2009, U.S. government debt has again more than doubled on a rolling 10-year basis, peaking at 137% in 2012. By the end of this year, total federal debt per person in America will reach $62,000. That's nearly $250,000 for a family of four.
 
And that's just the federal debt that we've created in this generation.
 
On a per-capita basis, federal debt has more than tripled since 2000. You might have noticed that wages and the economy haven't tripled.
 
OK, no more data, I promise.
 
Since this boom began in 2009, almost nobody has paid any attention to this massive increase in federal debt. You haven't heard a word about our deficits from our politicians.
 
Nobody cares. Why? Because since 2009, these debts haven't caused our country's borrowing costs to rise.
 
Even though total federal debt outstanding has increased by 126% since 2008, our borrowing costs have fallen. We're still paying about the same amount in interest on this debt as we did back in the early 1990s, when our national debt was only 22% of the size of today's burden.
 
The thing that matters to policymakers is how much the debt costs to maintain, not how much it costs to repay. That's why you haven't heard anything about it.
 
Nobody is paying any attention to what's about to happen next…
 
As you know, the Federal Reserve has allowed the government to take on these massive debts by buying huge amounts of the debt that has been issued, and by manipulating interest rates lower so that borrowing costs were affordable.
 
That's causing big dislocations in the rest of the financial system. Low interest rates are mostly responsible for stocks soaring. (Price-to-earnings multiples expand as interest rates fall.)
 
The Fed's manipulation of interest rates also explains how and why consumer lending has reached all-time highs. As interest rates fell, lenders were forced to buy riskier and riskier loan portfolios to earn enough yield to match funding requirements for insurance portfolios and pensions.
 
 The ongoing debt explosion is finally reaching its peak…
 
Lots of those consumer loans are starting to go bad. We first saw default rates creeping up in subprime auto loans (as we warned they would). Now, credit-card default rates are moving higher, too. Soon, the mirage of student lending is going to completely fall apart.
 
That's when we'll see fireworks across the credit spectrum. But that's not all…
 
Just as defaults are rising, the Fed has begun to raise rates.
 
Look at what that's going to do to the U.S. government's funding costs over the next few years, according to projections from the Congressional Budget Office. Interest payments will nearly double, going from 6% to 11% of the federal budget…
 
These rising costs are going to have a profound effect on the current widespread political belief that "deficits don't matter," just as soaring default rates on consumer lending are going to lead to much tougher lending standards on cars, colleges, and credit cards.
 
All of that consumption that we've enjoyed on credit for the last decade is going to come back to haunt us. All of us.
 
 If I'm right – if the credit boom is over and the default cycle has begun – we should see plenty of warning signs in the months to come.
 
For one, transportation stocks will disappoint as new orders for manufacturing decline. (That's what Steve pointed out in the warning I referenced earlier.)
 
You should also see the yield curve invert early next year. That's extremely dangerous for financial stocks.
 
The Fed is raising short-term interest rates. But long-term interest rates aren't rising much. That's because they're based on the economy's long-term growth potential.
 
With such large debt burdens, we're unlikely to see 3% growth going forward. We haven't sustained rates of growth at that level since before President Obama. An inverted yield curve is a "get out" warning for financial stocks, so keep your eyes on the "spread" between two-year sovereign debt and 10-year sovereign debt…
 
As you can see, the spread has been decreasing since 2013… and could turn negative by early next year. I believe that's inevitable if the Fed continues to raise rates.
 
That's a big red flag for this bull market… This historic bull market has largely been the creation of low interest rates and buoyant credit markets.
 
"Happily," these tightening financial conditions and rising borrowing costs are arriving just in time for a huge wave of corporate high-yield bond maturities in 2018 and 2021. More than $1 trillion worth of speculative bonds is coming due before the end of 2021. There's no way the majority of these loans can be repaid or refinanced.
 
A particular worry is the debt related to retail/malls, high-cost energy production, and legacy media and entertainment.
 
As I've long predicted, the end of this credit cycle will see the greatest legal transfer of wealth in history as equity holders are wiped out when these bonds default. We haven't hit our big home run yet with our Stansberry's Big Trade strategy… But it's coming.
 
 So, my friends, just a simple warning… We are heading full steam into the biggest credit-default cycle in our nation's history.
 
Do you think we're prepared as a nation to ride out this storm? No way. Get ready for some real political fireworks.
 
Do you think the "marginalized" members of our society are angry today, crying over statues, bitching about who gets to play quarterback, and rioting over a few police shootings?
 
Just wait until their food stamps won't cash… until doctors stop showing up for Medicare work… until their pensions collapse… and until the police strike over unpaid wages.
 
Oh, yes… it's all coming. And maybe a "Debt Jubilee," too.
 
Whoops, I'm sorry. Not bullish enough for you? Too bad.
 
Good investing,
 
Porter Stansberry
 
Editor's note: Porter says a Debt Jubilee is coming. The idea is gaining serious momentum in our nation's capital. And while lots of people will be excited about this way to "fix" racism, income disparity, poverty, and inequality, Porter says what will really happen is a national nightmare.
 
That's why he and his team of analysts recently put together a full investigation into the Jubilee, which could become one of the most important social and economic events in our nation's history. Watch their free presentation here.

Source: DailyWealth

Porter: The U.S. Is Headed Full Steam Into the Biggest Credit-Default Cycle in History

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 Recently, my famously bullish colleague Steve Sjuggerud mentioned a word of caution for the first time in many, many years…
 
Today, I (Porter) will point out a second – and in my view, even more worrisome – sign that this aging bull market is definitely running out of steam.
 
Before we get to the "meat and potatoes" of this missive, a reminder… I feel a tremendous obligation to provide you with the information I'd most want if our roles were reversed.
 
Sadly, that frequently means telling you something you don't want to hear and are likely to ignore. Often enough, telling folks the difficult truth about financial circumstances causes them to cancel their subscriptions, or as I like to say, "part as friends."
 
You see, we're entering into an incredibly dangerous phase of this bull market. Ironically, that also means most people will find stocks simply irresistible.
 
But trust me, friends… it's time to start selling. Let me show you why…
 
 Many, many obvious signs point to a gigantic financial bubble.
 
The prices of cryptocurrencies are soaring… Stocks are trading at record levels… Corporate bonds are paying record-low yields… Art is selling for $450 million… Consumer debt is at a new all-time high less than a decade after the biggest consumer-lending collapse in 50 years.
 
What's powering this bubble?
 
It's sovereign debt. Major governments around the world have gone mad with debt.
 
I won't bore you with the details (I promise). But consider this…
 
For a period of almost 20 years – between 1979 and 1998 – the 10-year average growth rate in U.S. federal debt was more than 100%. That first big "spurt" of U.S. debt growth peaked in 1991 (with a 10-year increase in federal debt of 228%) that saw total federal debt per person in the U.S. grow from $3,700 to $20,000 by 1998.
 
As I'm sure you'll recall, the period between the early 1980s and the 1990s was generally fantastic for the stock market and for investors. At the beginning of a massive credit boom, everything seems great. That's because when credit growth far exceeds savings, it allows an economy to consume far more than it's producing.
 
This "pulls forward" consumption, magnifies economic growth, and increases spending and usually wages, too. It's a boom!
 
But by 1998, so much consumption had been pulled forward that not enough global aggregate demand was left. A huge bust emerged, which hit commodities and emerging markets. Russia defaulted. Eventually, these problems caused the tech and telecom bubbles to burst, and the U.S. saw a severe bear market. Tech stocks fell about 80% from their peaks.
 
 We're about to see a similar bust
 
Over almost the entire last decade, we've seen another huge increase to government debt. Since 2009, U.S. government debt has again more than doubled on a rolling 10-year basis, peaking at 137% in 2012. By the end of this year, total federal debt per person in America will reach $62,000. That's nearly $250,000 for a family of four.
 
And that's just the federal debt that we've created in this generation.
 
On a per-capita basis, federal debt has more than tripled since 2000. You might have noticed that wages and the economy haven't tripled.
 
OK, no more data, I promise.
 
Since this boom began in 2009, almost nobody has paid any attention to this massive increase in federal debt. You haven't heard a word about our deficits from our politicians.
 
Nobody cares. Why? Because since 2009, these debts haven't caused our country's borrowing costs to rise.
 
Even though total federal debt outstanding has increased by 126% since 2008, our borrowing costs have fallen. We're still paying about the same amount in interest on this debt as we did back in the early 1990s, when our national debt was only 22% of the size of today's burden.
 
The thing that matters to policymakers is how much the debt costs to maintain, not how much it costs to repay. That's why you haven't heard anything about it.
 
Nobody is paying any attention to what's about to happen next…
 
As you know, the Federal Reserve has allowed the government to take on these massive debts by buying huge amounts of the debt that has been issued, and by manipulating interest rates lower so that borrowing costs were affordable.
 
That's causing big dislocations in the rest of the financial system. Low interest rates are mostly responsible for stocks soaring. (Price-to-earnings multiples expand as interest rates fall.)
 
The Fed's manipulation of interest rates also explains how and why consumer lending has reached all-time highs. As interest rates fell, lenders were forced to buy riskier and riskier loan portfolios to earn enough yield to match funding requirements for insurance portfolios and pensions.
 
 The ongoing debt explosion is finally reaching its peak…
 
Lots of those consumer loans are starting to go bad. We first saw default rates creeping up in subprime auto loans (as we warned they would). Now, credit-card default rates are moving higher, too. Soon, the mirage of student lending is going to completely fall apart.
 
That's when we'll see fireworks across the credit spectrum. But that's not all…
 
Just as defaults are rising, the Fed has begun to raise rates.
 
Look at what that's going to do to the U.S. government's funding costs over the next few years, according to projections from the Congressional Budget Office. Interest payments will nearly double, going from 6% to 11% of the federal budget…
 
These rising costs are going to have a profound effect on the current widespread political belief that "deficits don't matter," just as soaring default rates on consumer lending are going to lead to much tougher lending standards on cars, colleges, and credit cards.
 
All of that consumption that we've enjoyed on credit for the last decade is going to come back to haunt us. All of us.
 
 If I'm right – if the credit boom is over and the default cycle has begun – we should see plenty of warning signs in the months to come.
 
For one, transportation stocks will disappoint as new orders for manufacturing decline. (That's what Steve pointed out in the warning I referenced earlier.)
 
You should also see the yield curve invert early next year. That's extremely dangerous for financial stocks.
 
The Fed is raising short-term interest rates. But long-term interest rates aren't rising much. That's because they're based on the economy's long-term growth potential.
 
With such large debt burdens, we're unlikely to see 3% growth going forward. We haven't sustained rates of growth at that level since before President Obama. An inverted yield curve is a "get out" warning for financial stocks, so keep your eyes on the "spread" between two-year sovereign debt and 10-year sovereign debt…
 
As you can see, the spread has been decreasing since 2013… and could turn negative by early next year. I believe that's inevitable if the Fed continues to raise rates.
 
That's a big red flag for this bull market… This historic bull market has largely been the creation of low interest rates and buoyant credit markets.
 
"Happily," these tightening financial conditions and rising borrowing costs are arriving just in time for a huge wave of corporate high-yield bond maturities in 2018 and 2021. More than $1 trillion worth of speculative bonds is coming due before the end of 2021. There's no way the majority of these loans can be repaid or refinanced.
 
A particular worry is the debt related to retail/malls, high-cost energy production, and legacy media and entertainment.
 
As I've long predicted, the end of this credit cycle will see the greatest legal transfer of wealth in history as equity holders are wiped out when these bonds default. We haven't hit our big home run yet with our Stansberry's Big Trade strategy… But it's coming.
 
 So, my friends, just a simple warning… We are heading full steam into the biggest credit-default cycle in our nation's history.
 
Do you think we're prepared as a nation to ride out this storm? No way. Get ready for some real political fireworks.
 
Do you think the "marginalized" members of our society are angry today, crying over statues, bitching about who gets to play quarterback, and rioting over a few police shootings?
 
Just wait until their food stamps won't cash… until doctors stop showing up for Medicare work… until their pensions collapse… and until the police strike over unpaid wages.
 
Oh, yes… it's all coming. And maybe a "Debt Jubilee," too.
 
Whoops, I'm sorry. Not bullish enough for you? Too bad.
 
Good investing,
 
Porter Stansberry
 
Editor's note: Porter says a Debt Jubilee is coming. The idea is gaining serious momentum in our nation's capital. And while lots of people will be excited about this way to "fix" racism, income disparity, poverty, and inequality, Porter says what will really happen is a national nightmare.
 
That's why he and his team of analysts recently put together a full investigation into the Jubilee, which could become one of the most important social and economic events in our nation's history. Watch their free presentation here.

Source: DailyWealth

A Chat Between Two of My Investing Heroes

 
Most investors have never heard of 'em, but Jason Goepfert and Meb Faber make my short list of favorite investors.
 
They do incredibly good, original work. And they share it with the world on their respective websites: SentimenTrader.com and MebFaber.com.
 
Earlier this month, Meb had Jason as his guest on his excellent podcast.
 
Jason – to me – is THE most knowledgeable and experienced investor when it comes to sentiment.
 
I got permission from Meb to share a few of Jason's comments with you about sentiment – and how it should fit into your thinking about investing.
 
Most investors have no idea how sentiment fits into the big picture. But literally nobody is better to learn from than Jason. Here are a few excerpts from Jason from the podcast…
 
Where does sentiment research fit in relative to valuation and the trend?
 
Like our mutual friend Steve Sjuggerud, he looks for something that's cheap, hated, and in an uptrend. So when you kind of fuse all of them together, I think your odds are much better.
Which is more important, sentiment or the existing trend?
 
Trend is most important. So that always gets the most respect. Clearly, you know, stocks for example, stocks are in an uptrend. So we try to respect that even if we're seeing an optimistic extreme in sentiment. It's usually not a good idea to just go short just because there are sentiment extremes. So there's always a balance between the two.
If you could only use one sentiment indicator, what would it be?
 
It would be nice if there was this one indicator we could all use, one set of rules that we could all use and that would help us all perform. [But] markets aren't easy. That doesn't happen. So I mean, that's the base of it, is respect the trend, and when sentiment hits an extreme, pay attention.
How long is a sentiment extreme useful?
 
For a lot of the indicators that we follow… the most effective time frame is somewhere in that one- to three-month time frame.
How did you get into studying sentiment?
 
I went to school for finance and economics. I was taught that people are rational. [But working in finance, I learned that] people are not rational, at least not all people. And so that really triggered my interest in learning more about the sentiment part of it, just the emotional part of it.
Today's DailyWealth is short and sweet – but Jason's words have an incredible amount of knowledge and research behind them.
 
If you want to know what works in investing, I highly recommend you listen to Meb's podcast, The Meb Faber Show. You can listen to the episode where Jason appeared for free right here. And be sure to regularly check out MebFaber.com and SentimenTrader.com.
 
Those two are sure to make you a better investor…
 
Good investing,
 
Steve
 

Source: DailyWealth

Three Ways to Invest If 'This Time Is Different'… or Even If It's Not

Editor's note: Our offices will be closed tomorrow for Thanksgiving. Look for the next edition of DailyWealth on Friday. Enjoy the holiday.
 
The words get a lot of attention… But they're almost never true.
 
They provoke greed and fear… And people's emotions get the better of them.
 
Too often, they let themselves believe "this time is different."
 
Over the past couple of days, we've talked about this phrase. It can lure you into making terrible decisions with your money… Or, on rare occasions, an idea behind the phrase can lead to gigantic returns. (That's why it's so tempting to believe.)
 
On Monday, we showed you that when history provides a big, testable data set, you're usually better off betting that this time will not be different.
 
Then yesterday, we touched on the pesky issue of timing. Sometimes, folks book thousands-of-percent returns before finding out if this time really is different.
 
Today, we'll look at three current "this time is different" scenarios. Our goal isn't to get to the bottom of each idea… Instead, we just need the appropriate investing or trading strategies for each situation.
 
As you'll see, you don't need to know if this time is different to make good decisions with your money…
 
Let's start with the belief that…
 
1. This time is different with paper money.
Paper money has been used for more than 1,000 years. Usually, it's printed and controlled by governments. And as those governments decide to spend more, they print more money… which erodes its purchasing power.
 
Every paper money that has ever existed has become valueless, except, of course, the ones we use today…
 
People believe that this time is different with the U.S. dollar, the euro, the Japanese yen, and other paper currencies… Or they haven't thought about it. Why else would they hold 100% of their assets in these currencies, or in stocks and bonds that can only be exchanged for these currencies?
 
On this one, I'm comfortable saying this time will not be different. At some point, today's paper currencies will become valueless, too. The only question is when.
 
And you don't have to agree with me to make a good investment decision. If you think this time is different with paper currencies, you can hold the vast majority of your wealth in them. But you should still own some gold and silver…
 
Gold and silver are the only long-standing currencies that cannot be printed by governments. And they've been great investments, no matter your outlook for paper currencies…
 
October 9 was the 15-year anniversary of the bottom for the benchmark S&P 500 Index after the Internet bubble burst. Aside from late 2008 and early 2009, that bust was the best time to buy stocks in more than 20 years. But as you can see in the 15-year chart below, gold has performed better than stocks…
 
I encourage you not to think about gold as an alternative to stocks, though. Think about it as an alternative form of savings… an alternative to the U.S. dollar.
 
Now, look back at the chart above. That horizontal black line at 0%… That is the U.S. dollar. Aside from other paper currencies, it's challenging to find assets that perform worse over time.
 
No matter your thoughts on paper currencies, it makes sense to hold 5%-15% of your wealth in gold and silver.
 
We'll move along quicker from here. Next is the belief that…
 
2. This time is different with cryptocurrencies.
People are going nuts for cryptocurrencies like bitcoin. They believe that this time is different… that a means of exchange not controlled by the government and large corporations can take hold.
 
They also believe this time is different in that an asset can soar thousands of percent, get lots of popular attention, and then soar hundreds or thousands of percent more… without a long, painful period of falling prices.
 
Bitcoin has soared nearly 66,300% over the past five years. It trades at around $8,200… And people are calling for it to rise to $50,000, $100,000, or even $1 million over the next decade or two (or less).
 
Cryptocurrencies and the related technologies are exciting. And many of them do have value.
 
The problem is, nobody has any clue how much value… especially because a lot of their future values will be based on whether people and governments adopt them.
 
In "this time is different" cases like this one, treat it like a speculation. You don't need to – and maybe shouldn't – avoid cryptocurrencies completely. But only invest what you're willing to lose…
 
For most people, that would likely be in the range of 1%-2% of their wealth… and no more than 5%. (If 2% of your wealth soars 1,000%, it becomes a much more significant 18%.)
 
Finally, let's consider the belief that…
 
3. This time is different with clean energy.
Big issues like climate change and sickening levels of pollution have lots of folks convinced that clean energies are the only way forward.
 
They believe that this time is different… that dirty sources of energy like coal and oil are on their way out for good… that solar, wind, hydro, nuclear, and to a lesser extent, natural gas will replace them.
 
Some believe that the internal combustion engine will disappear.
 
Just like with cryptocurrencies, if this time is different, investors will make huge amounts of money. They may even make fortunes if this time isn't different.
 
So again, don't avoid these investments. Just remember your asset allocation and position sizing. You don't want to put too much of your wealth behind any one idea because you never know what the future holds.
 
In the end, this time is rarely different. But sometimes it is. As long as you keep things in perspective and practice smart money management, you'll do just fine. And maybe you'll do extraordinarily well.
 
Good trading,
 
Ben Morris
 
Editor's note: Innovation is soaring today… The markets are flooded with new ideas. That's why Ben helps his readers make smart choices by identifying low-risk, high-upside trades. His DailyWealth Trader newsletter features all the tools you need to take control of your wealth today. If you're eager to hone your skills – and avoid costly mistakes – his research is a must-read… Click here to learn more.

Source: DailyWealth

The Danger (and Promise) of 'This Time Is Different'

 
You're usually better off betting with history than against it…
 
Yesterday, we saw that historical stock market studies can be a fantastic guide to whether "this time is different"… and that it almost never is.
 
But not everything in the stock market has a long history with reliable data. Some occurrences have no history at all. And "this time is different" applies to more than just stocks.
 
The ideas behind this phrase – and the money you can make or lose with them – can change your life. So let's dig deeper…
 
Today, we'll look at why folks are so tempted to believe this time is different. We'll look at examples from the past… how they turned out… and what we can learn from them.
 
The people who say and believe "this time is different" often have one of two main motivations.
 
The first one is the possibility of gigantic returns
 
Take $8 billion online bookseller Amazon (AMZN), for example. In 2002, that's what it was… an online bookseller that had been losing money for its entire five-year history as a publicly traded company.
 
At the time, an $8 billion company that was steadily losing money seemed absurd. And once the company started making money, its valuation seemed just as crazy. "You'd have to be a fool to buy a company that trades at 125 times earnings," thought lots of serious investors. "You're setting yourself up to get killed."
 
Amazon has never traded with a price-to-earnings (P/E) ratio below 27. Currently, it's at 287. (For context, the benchmark S&P 500 Index has a P/E ratio of 22 today.)
 
Value investors knew that to make money in stocks over the long term, you need to buy great businesses at reasonable valuations. But Amazon has defied gravity for the past 20 years.
 
Since 2002, investors are up more than 10,200%… dwarfing the S&P 500's nearly 210% return over the same span. Take a look at the chart below…
 
Will Amazon's valuation come back to Earth at some point? Yes… But in this case, laughing at "this time is different" meant missing out on a 102-fold return in 15 years.
 
We have one clear lesson with Amazon… The question of whether this time is different or not missed the point. Folks made spectacular returns before they even had the answer. Laughing at or avoiding this company has been the wrong move.
 
In other words, in Amazon's case, this time isn't necessarily different. But it hasn't mattered for so long that investors have been able to make great money.
 
That's why it's so tempting to believe "this time is different." Betting that it is can sometimes be profitable.
 
Of course, it often goes the other way. The next example was a belief motivated by fear
 
Without getting too deep into the details, "Peak Oil" was the idea that the world's oil production had peaked. It would have had catastrophic consequences… starting with unaffordable oil prices as production declined.
 
As a result of these predictions, the price of one barrel of oil shot up to $145 in 2008. Now, folks who understand markets know that high prices spur innovations that solve or get around these kinds of issues. And this time was no different…
 
Lots of Peak Oil believers bet on higher and higher oil prices… And they lost fortunes when they were proven wrong.
 
We can learn something from "Peak Oil," too…
 
The folks who believe this time is different can have a big impact on the market. Prices can swing wildly, as if they were right. But most of the time, they're not… So betting on this time being different is dangerous.
 
In fear-driven cases like this, investors would have been better off waiting for the irrational price movements to stall, then betting the other way.
 
When you bet that this time is different, the odds are stacked against you. It's rarely a good idea. But rarely doesn't mean never.
 
Tomorrow, we'll look at current examples where people are betting that this time is different. And we'll look at how to approach these potential investments.
 
Good trading,
 
Ben Morris
 
Editor's note: Today, some people think another specific trend is on its way out. But don't miss your opportunity to profit… At a time when great values are hard to find, Ben recently recommended a trade in a company poised for future growth. To learn more about his DailyWealth Trader newsletter – and access this recommendation – click here.

Source: DailyWealth

This Simple Phrase Could Be Costing You Money

Steve's note: This week, we're featuring a three-part series from my colleague Ben Morris. Investors are scared of what will happen when the "Melt Up" ends… They believe it's right around the corner. But history can tell us a lot about how markets behave. And Ben's series perfectly illustrates why you should "make hay while the sun is shining"…
 
It's one of the funniest phrases in the markets…
 
No matter how many times it's proven false, people will always believe…
 
This time is different.
 
Our psychology leads us to believe that our opinions are special, that the assets we've chosen to buy are special, and that this moment in time is special.
 
We often believe that this time we will beat the odds… because we have a gut feeling that this time is different.
 
But this time is almost never different. Instead, it's a heck of a lot like every other time…
 
For example, on July 11, 2016 – the day that the benchmark S&P 500 Index hit a new all-time high for the first time in more than a year – we ran a historical study that looked at similar highs from the past. Our conclusion: "There's a good chance we'll see the stock market rise by 14% over the next 12 months."
 
At the time, readers found this hard to believe. But 12 months later, the S&P 500 was 13.5% higher.
 
On September 28, 2016, we ran another study with extremely bullish results. The average one-year return in the past was 14.9%. So we said, "It's time to be more bullish than usual… not bearish."
 
Three months later, we followed up. The market was on track for the 14.9% gain. But we went further. We said…
 
If this signal works out as it has in the past… the S&P 500 could still climb 10.4% in the next nine months. That would put the index at nearly 2,500 by September.
Fast-forward to September this year… That month, for the first time, the S&P 500 closed above 2,500.
 
In each instance above, this time was strikingly similar to the past.
 
More recently, in mid-August, we ran a study based on the Volatility Index (or "VIX"). The S&P 500 had recently dropped more than 1% on two different days… And lots of folks were turning bearish. But between those two drops, the VIX closed with a reading below 12, signaling low volatility.
 
Since 1991, the VIX had closed below 12 more than 650 times. And in the one-month periods that followed those sub-12 closes, the worst drawdown in stocks was 5.9%. (A drawdown is the most an asset drops during a given time frame, even if it recovers before the end of that period.)
 
Drawdowns of 5% or more happened only 1.7% of the time. And 72% of the time, the one-month returns were positive. This made it easy for us to say, "The chances of a [10%] correction are slim."
 
We did see a small 1.7% drawdown following the VIX's sub-12 close in August. But at the one-month mark, stocks were 1.3% higher.
 
That "this time" wasn't different, either.
 
Why do I bring all this up now?
 
Well for one, the VIX is back below 12 as I write. So everything we said in August is just as true today.
 
If we believe that this time is similar to the past, there's about a 72% chance that stocks will be higher one month from now (using Friday's closing price)… Meanwhile, there's only about a 1.7% chance that stocks will fall by 5% or more over the next month. And in the month following more than 650 VIX readings below 12, the S&P 500 has never dropped more than 5.9%.
 
So it's very unlikely that we'll see a 10% correction over the next month… or even a pullback of 5%.
 
I laugh whenever I hear anyone use the phrase "this time is different." It's common enough. And people even use it with irony, knowing that this time is almost never different. But they believe it anyway.
 
If you ever find yourself betting that this time is different, think long and hard. Fear may be holding you back… And you may be missing out on a great opportunity. Over the course of your investing career, you could miss out on dozens, or hundreds of them.
 
That doesn't mean you should be reckless, of course. Always look for good opportunities to hedge your bets. Use stop losses, intelligent position sizing, and asset allocation.
 
But keep in mind… this time is almost never different.
 
Good trading,
 
Ben Morris
 
Editor's note: No one can predict the markets… But a firm grasp of history goes a long way if you want to make steady profits. In his DailyWealth Trader newsletter, Ben walks you through the shifts and signals we see every day… and uses his research to point out low-risk, high-upside trades. Click here to learn more.

Source: DailyWealth