This Profitable Investing Strategy Is About to Make a Comeback

Steve's note: I've said it before… This isn't what a top feels like. I expect big gains in stocks before we see a peak. But the "Melt Up" will end eventually. And my colleague Dan Ferris believes that when it happens, one classic investing model will see a return to glory. Today, he explains why, and why it could mean new opportunities for investors…
 
I've warned about the ongoing stock market mania since May last year.
 
And if you've ever wondered what comes after the mania and its inevitable crash, this is the answer…
 
I believe we're about to see an extended period in which buying good businesses trading at historically cheap valuations – "value stocks" – results in much higher returns than buying fast-growing businesses trading at high valuations – "growth stocks."
 
Today, I'll explain more about this idea – and why the Golden Age of Value Investing has finally dawned…
 
The market cycles consistently between growth and value. Growth has outperformed since 2009.
 
But if you look at the stock market's history and developments in certain sectors of the economy today, the signs show that value could soon overpower growth again.
 
Just look at this comparison of the Russell 3000 Value and Growth Indexes from the dot-com era…
 
If you look closely at the chart, you'll see growth outperformed value the whole time, even in the early years of the dot-com boom. When the boom went manic around 1998, growth stocks rocketed higher.
 
This resulted in the single most overvalued moment in U.S. stock market history. (Until recently, perhaps.)
 
We know what happened next… Technology stocks, telecom stocks, and other Main Street and Wall Street favorites melted down. Many of the survivors – like Internet leader Cisco (CSCO), chipmaker Intel (INTC), telecom behemoth AT&T (T), and troubled industrial giant General Electric (GE) – still haven't seen their share prices return to dot-com era highs. Many companies went to zero.
 
After the crash, investors ran from tech stocks. They returned to more conservative, value-priced plays in mining, banking, housing, and mortgages. A new crop of value investors was born. The cycle shifted. And value trounced growth…
 
So what happened? What set up the outperformance in growth stocks that we've been seeing over the past several years?
 
It was the financial crisis of 2008…
 
Wall Street turned conservative housing, mortgage, and banking plays into toxic waste through excessive leverage and complex financial schemes like collateralized debt obligations ("CDOs") – "layer cakes" of risky debt securities that blew up in the financial crisis – and credit default swaps ("CDSs"), which were insurance policies on those piles of toxic debt.
 
Leading up to the collapse, all the mining, housing, mortgages, and other previously cheap and safe opportunities got absurdly expensive. The mania accelerated as individuals locked in cheap mortgage rates for overpriced housing and engaged in "flipping" (buying and selling houses for a quick profit).
 
We know what happened next… The housing bubble imploded. The biggest economic crisis since the Great Depression nearly destroyed the global financial system. And investors fled the poisonous assets.
 
Feeling burned by the value plays gone sour in the crisis, investors turned back to technology, including social media, e-commerce, solar power, and electric cars. Growth has outperformed value since 2009…
 
We're nearing the end of the growth cycle. And it looks like value is about to take charge once again.
 
Over the long term, value trumps growth. As I wrote to my Stansberry Research colleagues in October…
 
A study by Nobel Prize winner Eugene Fama and Ken French, two of the greatest investment researchers of all time, compared value investing with growth investing in 13 markets around the world and concluded:
 
"Value stocks have higher returns than growth stocks in markets around the world. For 1975-95, the difference between the average returns on global portfolios of high and low book-to-market stocks is 7.6% per year, and value stocks outperform growth stocks in 12 of 13 major markets."
 
In market after market all over the world, value investing can't be beat.

Investors forget about the power of value strategies and need to rediscover them every 10 years or so. This time is no different.
 
Growth has been in charge since 2009 – the second-longest bull market on record. Based on history, we can expect at least eight years of value outperformance when this growth cycle is done.
 
This next period could be the Golden Age of Value Investing. And for investors focused on buying great businesses at cheap prices, it could be one of the most profitable times you ever see in the markets.
 
Good investing,
 
Dan Ferris
 
Editor's note: Dan just made what could be the biggest prediction of his career. It's his brand-new No. 1 recommendation… a stock that could return as much as 1,995% over the long term. This idea is already getting a lot of attention – which means time is running out. Click here to learn more.

Source: DailyWealth

Interest Rates Are About to Go… DOWN?

 
"Steve, how can you even think that long-term interest rates could possibly go LOWER?" you might be asking…
 
"Don't you know? EVERYONE believes interest rates are headed higher."
 
You are right… EVERYONE believes interest rates are headed higher.
 
The thing is, the fact that EVERYONE is already in this trade is the reason why interest rates will struggle in the next three months or less…
 
The evidence is stacking up everywhere that we are at an extreme in interest rates right now. EVERYONE believes that long-term interest rates are headed higher…
 
Let me share a few examples:
 
•  
According to the latest Global Fund Manager Survey from Bank of America, fund managers are so scared of higher interest rates, they are avoiding bonds to the greatest degree in the decades-long history of the survey. (Fund managers are more "underweight" bonds than ever.)
 
•  
"Inflation and a bond crash" is what worries fund managers the most, according to the same survey.
 
•   Traders have placed their second-largest bets in decades on higher interest rates (based on trading in the futures markets for 10-year government bonds).
The last time futures traders placed so many bets on higher interest rates was early last year.
 
What happened next? Interest rates on 10-year U.S. Treasury notes went DOWN – from 2.6% in March to 2.15% in June.
 
It doesn't matter what the investment is – whenever you see EVERYONE betting the same direction on a trade, that trade is typically almost over.
 
Bond investors are betting on higher interest rates to a near-unprecedented degree.
 
I expect – over the next three months – they will be wrong in that bet.
 
I'm not betting against them because of their reasons. I'm betting against them because no one is left to join their argument…
 
Everyone who wants to bet on higher rates has done so. That means nobody is left to join the trade and push rates higher.
 
Now, I don't have a trade in place – yet. I'm waiting for the trend in interest rates to start falling.
 
Once the trend is here, I'll likely place a three-month bet that long-term interest rates will go DOWN.
 
Are you bold enough to go against EVERYONE and do the same?
 
If I'm right, and interest rates go down, it could fuel another leg up in stock prices. And what I've called the "Melt Up" in stocks could explode even higher.
 
Stay on board with stocks…
 
Good investing,
 
Steve
 
P.S. The moment I've been waiting for has arrived… The Melt Up is finally here. But if you wait any longer to take advantage of it, you'll almost certainly miss out. So for a short time, I'm sharing a final offer to get in on my most important Melt Up research – with specific recommendations for how to cash in on the last stages of this bull market… Click here to learn more.

Source: DailyWealth

Your Financial Adviser Is Lying to You

 
I get so mad, I just want to scream…
 
I HATE IT when I get letters like the one below… because I hate it when people try to mislead our subscribers.
 
You see, one of our readers recently sent us a question.
 
And my answer is, "Your financial adviser is lying to you."
 
Here's what the subscriber wrote to us:
 
We just heard from one of our financial advisers that Ameriprise discovered that KraneShares is having some kind of management problems and we should be warned. Is it true and should we be cautious about our investments in several KraneShares Funds?
It is NOT true.
 
If you're not familiar, KraneShares provides the top exchange-traded funds (ETFs) when it comes to investing in China. I've written about two of its ETFs as ways to invest in China – the KraneShares Bosera MSCI China A Fund (KBA), and the KraneShares CSI China Internet Fund (KWEB).
 
The statement from the Ameriprise Financial adviser (if he really said that – I hope he didn't) borders on defamation. It's unlikely that Ameriprise is privy to information about KraneShares that nobody else knows.
 
More likely, Ameriprise simply doesn't want to sell the two KraneShares funds I've written about. And the financial adviser made up a reason why.
 
Nothing is wrong at KraneShares. And nothing is wrong with these two index funds that have a combined TWO BILLION dollars invested in them. They are not leveraged. They are two ordinary ETFs.
 
So what's going on here?
 
Barron's newspaper addressed this question two weeks ago, with a story called "The Latest Casualty in the ETF Fee War – Objective Advice."
 
The Barron's article explains that brokerage firms are reluctant to sell funds that they don't make much money on…
 
It's hardly news that money managers have been fighting for fund assets, lowering prices on index funds… Most brokers offer "no-transaction fee" ETFs. In the past, these NTF platforms were often made up of ETFs that had been chosen by independent research and data providers, such as Morningstar… Now, the funds on these NTF platforms are largely a function of ETF providers paying to be there.
Barron's doesn't mention Ameriprise in particular. This is just a relatively new industry-wide issue for all brokerage firms. If the brokerage firm doesn't make money by selling that ETF, then it doesn't "approve" selling it.
 
Here's the way these relatively new conversations go:
 
Customer: "Hi, I would like to buy an index fund ETF with the symbol XYZ."

Broker: "I'm sorry, we can't buy that fund for you."

Customer: "What? But, why? It doesn't seem any riskier than any other ETF."

Broker: "Our company has determined that the fund is unsuitable. You can't buy it."

Saying it's "unsuitable" is bad enough. That's not telling the customer the whole story of why the firm won't sell the fund. (Besides, it raises the question – "unsuitable for whom?")
 
But warning the customer that there are "management problems" – when there aren't management problems – is far worse.
 
Some firms have found other, more honest solutions…
 
Fidelity, for example, doesn't make much money on Vanguard funds. Instead of dropping Vanguard funds and making up excuses, early this year, Fidelity instituted a 0.05% fee on Vanguard funds held in 401(k) plans.
 
So what should you do if a brokerage firm comes back to you and tells you a simple, ordinary index fund is "unsuitable"?
 
I would suggest checking with other brokerage firms to see if they can buy it for you.
 
It might be time to change brokers…
 
Good investing,
 
Steve
 

Source: DailyWealth

The 'Debt Jubilee' Is Getting Mainstream Attention

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 Another quarter, another new high for debt…
 
Earlier this month, the Federal Reserve Bank of New York released its latest quarterly report on household debt and credit. And in short, Americans continue to borrow like mad…
 
Total household debt climbed another $193 billion in the fourth quarter of 2017 to a record $13.15 trillion. It has now risen for 14 consecutive quarters and five straight years… It now sits just shy of $500 billion more than the previous peak in the third quarter of 2008.
 
Credit-card debt once again led the way… It rose 3.2% in the quarter to $834 billion. Student and auto loans increased 1.5% and 0.7%, respectively, to a record $1.38 trillion and $1.22 trillion. And even mortgage debt climbed substantially for the first time in several quarters, up 1.6% to $8.88 trillion.
 
On the bright side, the New York Fed did note that "serious delinquencies" – defined as loans that are 90 days or more delinquent – didn't get worse for most categories last quarter. In fact, the overall delinquency rate ticked down from 2.4% to 2.3%, thanks largely to an improvement in mortgage debt. But it was up significantly year over year.
 
 This trend is unsustainable…
 
Sooner or later, it will end… and one of the largest credit-default cycles in history will begin. But like the "Melt Up" in stocks, we suspect it could continue a little longer.
 
The following chart shows the U.S. high-yield corporate "spread." This is the difference in yield between U.S. Treasury bonds and high-yield (or "junk") corporate bonds.
 
In simple terms, this spread tells you what, on average, investors are demanding in extra yield in order to hold the riskiest corporate debt instead of government bonds. This makes it a good "early warning" indicator of broad credit-market trouble.
 
As you can see, the junk-bond spread has begun to move higher this year. But it remains below 4% today. This is near its "tightest" level in history, and well below levels that would indicate stress in the credit markets…
 
In short, the junk-bond market – the "canary in the coal mine" for the credit market – is healthy… for now.
 
 Again, we can't know exactly when this boom will end…
 
But we can guarantee it won't end well.
 
Regular DailyWealth readers know Stansberry Research founder Porter Stansberry believes the most likely outcome is a "debt jubilee"… a financial "reset" that wipes out trillions of dollars of this debt through a massive devaluation of your hard-earned savings. As he explained in the October 28 DailyWealth
 
What happens in these situations? When deleveraging doesn't work, the debt burden grows and grows. It begins to weigh heavier and heavier across the poorest segments of society. It leads to despair. To depression. To violence. And to revolution.
 
I don't think I have to tell anyone that the federal debt burden has been growing uncontrollably for the last decade. Since 2008, total U.S. federal debt has more than doubled. That is, our government has borrowed more money in the last 10 years than it borrowed in the 231 prior years of its existence.
 
Yes, in terms of debt to gross domestic product (GDP), government borrowing was larger during the Civil War and during World War II. That's true. But it's also irrelevant. What really matters is that it's not only the government's debt that continues to grow uncontrollably. What really matters is that our country's total debt load (household, corporate, and government) continues to grow. Even after the crisis of 2008. Even with $4 trillion in new money. Even with the huge number of mortgage defaults (over $1 trillion in losses).
 
And… what really matters is that, more so than ever before, the burden of these debts is falling most heavily on the poorest members of our society – the people most likely to be radicalized. The people most likely to be violent. The people most likely to declare a jubilee.

 If you're like most folks, you're probably skeptical…
 
You might even assume that this was just a provocative story Porter dreamed up to sell more newsletter subscriptions. After all, nothing like this could actually happen in America today… right?
 
Think again.
 
Not only is a jubilee possible… it's already being discussed in "mainstream" circles. As CBS News reported last week…
 
The GOP tax bill is providing a $1.5 trillion windfall, which will mostly be enjoyed by the rich and corporations. But what if there were another way to spend that money that could benefit more middle-income Americans while eliminating some of the country's inequalities?
 
Look no further than getting rid of America's student debt, argue researchers at Bard College's Levy Economics Institute. They examined the potential impact of canceling the $1.4 trillion in student debt that 44 million Americans are carrying…
 
Erasing the debt would add as much as $1.1 trillion in economic growth over a decade, while more than 1 million new jobs would be created each year, the researchers forecast. Unemployment rates would be reduced by as much as 0.36 percentage points.

Expect to hear even more about these ideas as debts continue to rise and more Americans fall hopelessly behind. In the meantime, if you still haven't seen Porter's detailed presentation on this situation, be sure to check it out right here.
 
Regards,
 
Justin Brill
 
Editor's note: We've never seen what's going to happen next… Porter says the U.S. financial system is about to be "reset." And the markets will react violently. Fortunately, you don't have to be a victim…
 
To help you prepare for what's ahead, Porter published a brand-new book – The American Jubilee. In it, you'll learn America's 50 most dangerous companies… a critical move you must make in your bank account… and much more. Get your copy for just $19 right here.
 

Source: DailyWealth

Three Steps to Survive the Next 'Black Monday' Crash

 
When the next crash comes, they'll blame the machines. And they'll be wrong – again.
 
October 19, 1987 is known as "Black Monday." On that day, the Dow Jones Industrial Average lost more than a fifth of its value. The 22.6% drop was the biggest one-day percentage loss in history… even bigger than the crash of 1929.
 
What caused it?
 
The popular explanation is "portfolio insurance." This strategy used the futures market to try to protect a portfolio against a decline. I won't go into all the details today – but basically, it involved setting up a computer program to sell stocks automatically as the market went lower.
 
No one was taking the time to look at the fundamentals of the individual stocks. And so, the theory went, selling snowballed out of control and led to that big decline in 1987.
 
Now, most people take the "portfolio insurance" story as a given. (The Financial Times matter-of-factly declared it "a leading contributor to the 1987 'Black Monday' crash.")
 
I say the theory is bunk.
 
Today, I'll show you why… And I'll share three steps you can take that will help you get through market crashes (regardless of their causes) better than most everyone else…
 
The portfolio insurance theory has some big holes in it, as one Wall Street observer noted:
 
Unfortunately for the theory, it does not explain very well why markets around the world crashed simultaneously or why the decline stopped. It is at an utter loss to explain why many indexes around the world that had no computer trading fell further than the Dow Jones Industrial Index.
This quote comes from a book titled Ubiquity: Why Catastrophes Happen by science writer Mark Buchanan. In it, he covers catastrophes of all kinds – earthquakes, wars, and yes, stock market crashes.
 
We always have ready explanations for these big events after they happen. But Buchanan uses insights from physics to show that "all past efforts to perceive cycles, progressions, and understandable patterns of change in history have necessarily been doomed to failure."
 
One of his most memorable examples involves using a simple sand pile to try to find out what causes an avalanche. If you take a grain of sand and then pile another grain of sand on top of it and another and another… How long before the pile collapses? What triggers it?
 
Three physicists from Brookhaven National Laboratory tried to answer this question in their lab. They ran lots of tests. And what did they find?
 
They found there was no way to predict an avalanche, or its size. There was no pattern. Sometimes the avalanches would be small, sometimes large. It seemed any grain of sand could trigger an avalanche at almost any time.
 
Buchanan writes:
 
What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size.
In other words, triggers are unpredictable…
 
Buchanan adds more evidence in a variety of fields to reach "the surprising conclusion that even the greatest of events have no special or exceptional causes."
 
This is hard for most people to swallow. They want a reason for why something happened. They want to have a theory. But most things happen for reasons we don't understand.
 
When the 1987 crash happened, I was 15 years old. I remember being intrigued by the whole thing, but not really understanding what was going on. The mystery of the crash helped fuel my interest in finance – and stocks specifically.
 
In the ensuing 30 years, I've lived through many more market catastrophes. They're never easy to get through. Here are three steps to help you:
 
•  
Always invest carefully. I always chuckle when I hear people say, "Now is the time to be careful" – as if there is a time to be careless! You should always invest carefully in a portfolio of stocks in well-financed companies at good valuations with managers who have skin in the game.
 
•   Only invest with money you can afford to leave alone for a while. The longer, the better… but I think three years is probably a minimum. If you can do without the money you invest for at least three years, then this horizon will help limit the risk of having to yank your money out at a bad price just because of some stock market calamity like a 1987. You can afford to wait for better prices.
 
•   Keep something in reserve. You want to have the ability to add to your favorites if the market gives you a chance to do so at great prices. You can't take advantage of the next Black Monday if you have no money.
If you follow these three key points, you'll get through better than most everyone else.
 
Regards,
 
Chris Mayer
 
Editor's note: Chris has developed a way to pinpoint extraordinary opportunities in the markets – whether stocks are going up, down, or sideways. These are the kinds of investments with the potential for 10-to-1 returns… And with this blueprint, investors have a chance to get in years ahead of any analysts on Wall Street. Click here to learn more.

Source: DailyWealth

Two Reasons Oil Prices Are Headed Lower

 
The oil cartel kept its word…
 
The plan was to cut production by 1.2 million barrels of oil per day through 2018… And the cartel is keeping its promise so far.
 
That has been a major boost for oil prices over the past year.
 
Crude oil broke above $60 per barrel in December – for the first time since 2015.
 
But oil prices faltered in recent weeks. The fall broke double digits… And that could just be the start.
 
You see, two major red flags are occurring for oil today. And they point to much lower prices from here.
 
Let me explain…
 
Fourteen oil-producing countries make up the global oil cartel known as OPEC. Together, OPEC members account for nearly half of the world's crude oil production.
 
To increase the price of oil, OPEC and some other oil exporters agreed to production cuts back in 2016. They've worked…
 
The American benchmark for oil prices – West Texas Intermediate crude oil – has soared. Prices are up nearly 70% since the beginning of 2016.
 
Can these elevated prices last? Maybe not…
 
Oil prices are already breaking down. They dropped more than 10% in recent weeks. And those declines could easily continue – for two reasons…
 
First, while OPEC has been making cuts, U.S. production has been filling the gap.
 
The U.S. just produced its highest levels of oil in nearly a half-century. According to the latest report from the Energy Information Administration, daily production broke 10 million barrels a day in November – the highest production level since 1970.
 
The U.S. is picking up OPEC's slack. And that could put a strain on oil prices from here.
 
Next, oil sentiment is skyrocketing…
 
Futures traders are all betting on oil prices to continue higher. They're currently near record levels of bullishness.
 
We can see this euphoria through the Commitment of Traders (COT) report for oil. The COT report is a great tool for contrarian investors. It shows us in real time what futures traders are doing with their money. If futures traders are all betting in the same direction, the opposite tends to occur.
 
Today, futures traders are all betting on higher oil prices. Take a look…
 
Today's extreme optimism is above and beyond any level since the COT report began.
 
That's the opposite of what you want to see as a contrarian. Traders absolutely love oil today, and that means a short-term fall in oil prices is the smart bet.
 
When you put these two red flags together, it's hard to be bullish on oil.
 
Again, the U.S. is producing more oil per day than it has in nearly a half-century. That increased supply could be a strain on prices. And futures traders are all betting on higher oil prices today. That means a short-term pullback is likely.
 
I'm not saying to short oil today. But if you've profited in oil and energy investments in recent months, it's probably time to take gains off the table.
 
Much lower oil prices are likely from here.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth

The Return of Volatility

 
A funny thing happened during the late 1990s dot-com mania…
 
It had never happened before. And it hasn't happened since.
 
But it may be starting to happen again…
 
It has to do with volatilityAnd you need to prepare now.
 
The CBOE Volatility Index (or "VIX") is one of the most widely used financial gauges in the world. It measures expected volatility in the benchmark S&P 500 Index over the next 30 days. In general, a VIX below 20 is considered low, and a VIX above 30 is considered high.
 
As you probably know, volatility stayed extremely low last year…
 
In 2017, the VIX closed above 16 just once… at 16.04. It averaged just 11.1 for the year.
 
This is extremely unusual. In the 28-year history of the VIX, the only time it spent a full 12 months below 16 was in 1995. (That year, it averaged 12.4.)
 
The VIX typically rises when stocks fall, and falls when stocks rise. So the VIX often jumps above 20 when stocks go through normal corrections. But last year and 1995 were both during historic bull markets… And normal corrections didn't take place.
 
It was odd behavior in both cases. But something funny happened after the calm of 1995…
 
During the dot-com mania, the VIX rose as stocks rose. (Again, usually, they move opposite one another.) You can see this in the chart below, highlighted in blue…
 
The VIX averaged 12.4 in 1995. Then, it started to rise…
 
Year
Average VIX
1995
12.4
1996
16.4
1997
22.4
1998
25.6
1999
24.4
2000
23.3
2001
25.7
2002
27.3
However, the VIX didn't rise without reason. Volatility returned to the stock market…
 
The S&P 500 soared 148% from the end of 1995 through March 23, 2000. You can see the size of the corrections during this mania phase below…
 
We should expect this sort of volatility during a period of rapidly rising prices. But until recently – like in 1995 – we haven't had it.
 
So now, it's no surprise that we've finally seen our first "official" correction since the summer of 2015…
 
Stocks have been humming along without many hiccups for almost nine years. But last year may have been the start of a mania – or what my colleague Steve Sjuggerud calls the "Melt Up."
 
If we are entering a period similar to the late 1990s – and signs point to this being the case – then it was only a matter of time before volatility returned. And now it has…
 
Last month, the VIX and stocks climbed in unison… similar to what happened after 1995. Then came the correction…
 
Stocks can continue higher in the coming months… But don't expect to see another long stretch with such low volatility anytime soon.
 
My advice is to prepare for both – rising overall stock prices AND volatility. You can do this with the help of a simple strategy…
 
Normally, in my DailyWealth Trader service, we use tight stop losses when we enter new positions. And we keep them tight as they move in our favor. This way, we never risk losing too much of our initial investment… or giving back a big portion of our gains.
 
As volatility rises, though, keeping your stops too tight would likely mean stopping out of lots of bullish trades just before they continue higher.
 
So you want to trade in a way that will keep your initial risk low… but still give your trades the "wiggle room" they need to turn into big double- and triple-digit winners.
 
You can do this by using tight stop losses when you enter trades, then giving them more slack as they move in your favor.
 
If last year was the first year of the Melt Up, big gains are ahead. And the only way you'll capture those big gains is if you're prepared to deal with volatility.
 
It will likely be uncomfortable when stocks pull back. But this strategy is one of the best ways to prepare for the return of volatility… and an exciting, profitable year in the markets.
 
Good trading,
 
Ben Morris
 
Editor's note: Rising volatility can create lucrative opportunities – and this is where Ben's "trading for income" strategy truly shines. It's one of many tools he shares with his readers… And it's a great way to collect cash – with less risk – as the market's "fear gauge" goes wild. To learn more about his DailyWealth Trader service, click here.

Source: DailyWealth

Are You Contrarian Enough for This Trade?

 
Eleven billion dollars…
 
That's how much money two major funds lost in combined market value over the last few weeks.
 
You might expect this, since the stock market just suffered a correction. But interestingly, these aren't stock funds…
 
Sure, stock funds lost money as prices fell. And folks are certainly worried about the market after the recent decline.
 
But this mass exodus happened in another asset. And you should consider this as a massively contrarian opportunity right now.
 
Let me explain…
 
An $11 billion loss means these two funds saw 19% of their combined assets disappear… in less than three months.
 
The crazy part is that both funds fell less than 3% over that time. So they haven't lost assets because share prices are down, but because investors have pulled their money OUT of these funds.
 
Again, these aren't stock funds. They're two of the largest bond exchange-traded funds (ETFs) – the iShares iBoxx Investment Grade Corporate Bond Fund (LQD) and the iShares iBoxx High Yield Corporate Bond Fund (HYG).
 
LQD is the largest investment-grade bond ETF, while HYG is the largest "junk" bond ETF.
 
At the end of November, these two funds held nearly $60 billion in total assets put together. Both have lost more than $5 billion since. Take a look…
 
The mass exodus from these two funds has a single culprit: rising interest rates.
 
Yields have been moving higher since September. And fears of higher interest rates are hitting an extreme right now. You see it everywhere…
 
Inflation and a resulting bond crash are fund managers' biggest fears right now, according to the latest Fund Manager Survey from Bank of America.
 
Real-money traders are making the same crowded bet…
 
The Commitment of Traders (COT) report tells us what futures traders are doing with their money. And right now, futures traders are betting on higher interest rates at near-all-time extremes.
 
It's across the board. Futures traders are unanimously betting on higher two-, five-, and 10-year Treasury yields.
 
The thing is, we know that when EVERYONE believes in one trade, the trade is usually over… It means there's nobody left to buy. That's where it looks like we are now with this interest-rate trade.
 
Investors expect higher rates. They're selling bond funds to avoid losses if rates rise. And futures traders are actively betting on higher rates.
 
This all means betting on higher interest rates is a crowded trade right now.
 
And as a contrarian investor, that gets me interested.
 
LQD and HYG saw $11 billion disappear in just a few weeks. If you're bold, now is a moment to consider going against the crowd and betting on bonds… betting on lower rates.
 
Do it as a three-month sentiment trade. And set a tight stop loss to limit your downside.
 
Trades don't get more contrarian than this. But the time is right… Are you contrarian enough for this trade?
 
Good investing,
 
Steve
 
P.S. Last week, I found a unique way for my True Wealth readers to make this contrarian bet. The recommendation is brand-new, so I can't share the exact details with you. But it's a smart way to earn big yields – and potentially double-digit capital gains – as this extreme moment goes away. If you're interested in signing up for True Wealth, click here for more details.

Source: DailyWealth

Porter's Latest Prediction Just Came True

The Weekend Edition is pulled free from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 The signs started to appear months ago…
 
Last summer, Stansberry Research founder Porter Stansberry warned that a significant stock market correction – or possibly something much worse – was now certain for the first time in years. As he explained in the August 4 Stansberry Digest
 
How much longer can this go on? No one knows. But for the first time since 2010, we're now hitting levels on our complacency indicator that suggest a market correction is imminent…
 
This indicator hasn't warned about every correction. (It correctly warned about seven of the last 10.) But it hasn't produced any "false positives," either. In other words, while it doesn't spot every correction before it arrives, when it has told us that a correction is coming, the correction always does. (To be perfectly accurate, one of the resulting corrections only saw a decline of 8.4%. All of the others were in excess of 10%.)
 
You can see the key threshold level in the chart above. Drops in measures of fear below this level (30) always indicate a correction or bear market within 12 months.
 
We don't know if the warning signal we're getting now means that the "big one" is imminent, or if we are only going to see a "small" correction. But we know something is coming. We know it's coming soon. And we know that there are huge excesses in the credit markets, in particular.

 In the fall, Porter went even further…
 
He said that it was simply a matter of time before the so-called "short volatility" trade imploded. And he warned that this could trigger a market panic… and potentially even set off the crisis he's been predicting.
 
Of course, he was exactly right…
 
The short-volatility trade did implode last week, just as Porter predicted. And the resulting sell-off pushed stocks into official "correction" territory – defined as a decline of 10% or more from a high – for the first time in two years.
 
Surely, Porter is even more bearish now? Surely, he's preparing for further downside… and the start of the serious crisis he has been predicting?
 
Not exactly. As he wrote in the February 9 Digest
 
I don't believe the market action this week presages a bear market. It doesn't feel like the start of a new crisis…
 
Where is the epicenter of this big bull market in stocks? It's tech stocks like Tesla (TSLA), Netflix (NFLX), Nvidia (NVDA), Amazon (AMZN), and Facebook (FB). All of these companies' earnings have been good or great – even Tesla, whose business model I believe will eventually implode (but hasn't… yet).
 
Revenues beat expectations. Losses were below forecast. The other most likely blow-up, Netflix, is performing even better than anyone thought possible, adding an incredible 8 million new subscribers last quarter. Netflix was expected to add 1.25 million new U.S. users last quarter. Instead, it added 2 million. That's a huge beat.

 As Porter explained, we haven't seen the "Lucent Moment" yet…
 
This is when one of the "darlings" of the preceding boom begins to falter… And it often marks the unofficial start of the bust to follow.
 
Near the end of the Internet boom in the late 1990s, telecom firm Lucent Technologies collapsed after an earnings miss in January 2000. The broad market peaked less than two months later… and went on to lose 50%-80% over the next two years.
 
During the housing boom and bust last decade, it was the failure of mortgage giants Fannie Mae and Freddie Mac in July 2008 that kicked off the real crisis.
 
In other words, Porter doesn't believe this boom will end until we see similar signs of trouble in today's tech darlings… And that simply isn't the case today.
 
So rather than make him more bearish, the recent volatility has made him more bullish, at least in the near term. More from the February 9 Digest
 
When other investors are acting greedy, we try to become as cautious as we can… Today, we're seeing the opposite…
 
Investors are worried. It's possible – though not inevitable – that a real panic could emerge as forced selling leads to more volatility, which leads to more forced selling as futures dealers have to continually buy more equity puts to balance these trades. It's unclear what impact these new volatility-linked exchange-traded funds will ultimately have on the markets.
 
But as stocks go lower, so do the risks. And as stocks go lower, better and better opportunities will emerge. Don't begrudge these idiots for their madness. Revel in it. While lots of value is being destroyed, just as much opportunity is being created – for you.
 
My advice is simple… Follow your plan. You'll free up capital if the market falls further by following your trailing stops. That will give you "dry powder" when the smoke clears. Ideally, you've already put aside plenty of cash, and you have at least some non-correlated assets that will help buffer the madness.

 History suggests Porter will be right once more…
 
In a research note published this week, analysts at financial-services company Canaccord Genuity noted that the big recent spike in volatility created an unusual situation. As the CBOE Volatility Index ("VIX") soared to more than 50, it pushed one significant momentum indicator – known as the "10-week rate of change" – above 125.
 
The ins and outs of this indicator aren't really important here. All you need to know is this extreme is rare. It has only happened four times in the 25-year history of the VIX. And more important, all four instances were followed by additional short-term volatility and at least slightly lower lows in stocks.
 
The first occurred in September 1998, following the collapse of Long-Term Capital Management that August. After "bouncing" off its lows, the S&P 500 Index fell another 4.9% over the four weeks following this signal before bottoming in early October.
 
The second was in October 2008 – at the peak of the last financial crisis. Again, stocks bounced… And again, they made a lower low. The S&P 500 fell another 24.8% following this signal before bottoming in March 2009.
 
The third followed the so-called "Flash Crash" in May 2010, while the fourth occurred during the big market decline in the summer of 2011. And like before, the S&P 500 went on to make a lower low. It fell another 6.0% and 2.2%, respectively, after those extremes.
 
In short, we may not be out of the woods yet. Stocks could fall to new lows in the coming weeks. But more important, history suggests it will be a great time to buy if they do.
 
 One last thing…
 
As you've likely heard, the recent volatility hasn't been limited to the traditional financial markets. Bitcoin and other cryptocurrencies have suffered jaw-dropping declines, too.
 
After soaring to almost $20,000 in December, bitcoin plunged nearly 70% through the first week of February. Countless other "cryptos" fell even more in that stretch.
 
But while many folks are worried that the crypto "bubble" has burst, our colleague Tama Churchouse remains incredibly bullish.
 
If you're not familiar, Tama works for our corporate affiliate Stansberry Churchouse Research, and he's one of the most knowledgeable crypto analysts we know.
 
Tama is convinced the crypto bull market is intact… and believes this recent volatility is offering a second chance to make life-changing gains in these markets this year.
 
In fact, he not only expects bitcoin to recover all of its recent losses this year, he believes it could reach a new high of $50,000. That's more than five times higher than today's prices… and he expects many of his favorite crypto recommendations will soar multiples more.
 
If you were kicking yourself for missing out on the big gains in cryptocurrencies last year, you owe it to yourself to learn more. Click here for the details.
 
Regards,
 
Justin Brill
 
Editor's note: If you want to make money in cryptocurrencies, you must remember one thing… The recent volatility we've seen is normal. In fact, after the recent sell-off, Tama believes 2018 will be the most profitable year yet for crypto investors. He recently detailed how you could potentially make thousands of dollars a month in profit. Get the details here.
 

Source: DailyWealth

The One Secret to Thriving in 2018

Editor's note: Our offices will be closed on Monday in observance of Presidents' Day. Look for the next edition of DailyWealth on Tuesday after the Weekend Edition. Enjoy the holiday.
 
Welcome to 2018. Pull up a chair and stay a while.
 
We all have the same questions: What awaits us this year? What dangers lie ahead? What opportunities? What should we do next?
 
Before we get to my answers, I have a parable to share. It will help get you in the right frame of mind…
 
I first read this in a book by Alan Watts, who was a popular speaker and writer – mainly on Eastern wisdom as found in Zen, Buddhism, Taoism, etc. Below is my rendition of the story.
 
The parable is about a farmer. One day, he forgets to latch the barn door and his horse escapes.
 
"That's bad news," his neighbors tell him.
 
But the farmer is more circumspect. "Maybe," he says.
 
The next day, the horse returns… with several other wild horses as well.
 
"Wow, that's great," the neighbors say.
 
"Maybe," says the farmer.
 
The next day, the farmer's son breaks his leg after being thrown by one of the new horses.
 
"That's rotten luck," the neighbors say.
 
"Maybe," says the farmer.
 
The next day, a war begins. Men come to the village to draft soldiers. The farmer's injured son does not have to go.
 
"What good luck," the neighbors say.
 
"Maybe," says the farmer.
 
You get the point of the story… You can never really be sure how things will turn out. Bad news may, in fact, lead to a good outcome down the road. And vice versa.
 
The market provides abundant examples of the parable in action.
 
I remember a point early last year when one of our recommendations, Rolls-Royce (RYCEY), fell sharply after a "bad" earnings report. More than one reader wrote to me with worried thoughts. My team and I said to buy.
 
Since that drop, the stock is up around 40%…
 
Or consider a counterexample: U.S. stocks, by and large, had a great year in 2017. The S&P 500 Index – a broad index of large U.S. companies – delivered a 22% return.
 
Good, right?
 
Well, maybe.
 
For one thing, it has been hard to find bargains in the U.S. stock market. Valuations look rich for many stocks. After a nine-year bull market, the risk of buying something expensive and suffering poor returns – or losses – is higher now.
 
And time will tell if the generous gains of last year will stick… or whether they merely set the stage for a difficult 2018. Less than two months in, we've already seen big waves in the market.
 
Thus, the parable nudges you to take the happenings of life with equanimity. You never really know how things will turn out.
 
So again, what awaits us this year? What dangers lie ahead? What opportunities? What should we do next?
 
Like the farmer in the story, we will deal with the year as it unfolds day by day. It's better to live in the present. Only the present is "real."
 
Most people spend too much time and energy trying in vain to predict the stock market. They worry incessantly over imagined problems. I suggest a different approach: Focus on the businesses you own and how they can create wealth over time.
 
A business is like an organism, or perhaps a machine. You can understand how it works. And you can use this understanding to gain a real edge over the rest of the market. This is what we should focus on.
 
And for now, keep a good amount of cash in your portfolio. You'll likely get chances to put that money to work. Last year was the only one on record in which the S&P 500 recorded a gain every single month. It is unlikely to repeat… hence the value of dry powder.
 
Regards,
 
Chris Mayer
 
Editor's note: If you've been concerned about the market… wondering if you should sell your stocks and sit on the sidelines… Chris has an important message for you. It's about an investment method he has spent three years and $138,545 developing – a blueprint you can use to potentially make 10 times your money. Click here to learn more.

Source: DailyWealth