This Controversial Commodity Is Booming

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 Longtime readers know we keep a close eye on the resource sector…
 
Commodities can be a valuable part of a proper asset-allocation plan. Bought at the right time and in the right way, they can help you to diversify some money outside of the traditional asset classes most folks are familiar with (like stocks, bonds, and real estate).
 
But before you consider investing even $1 of your hard-earned savings, you need to know the most important "law" of the resource sector… Commodities are cyclical.
 
They can go through spectacular "booms" that are inevitably followed by massive "busts," and vice versa. The reasons aren't complicated, but they're critical to understand…
 
Like most free markets, supply and demand drive individual resource markets. Whenever supply and demand get "out of whack," the market reacts and corrects the imbalance.
 
In simple terms, if the supply of a particular commodity becomes scarce relative to demand, prices will rise. Higher prices will attract new capital to the market in search of a profit and encourage existing producers to produce even more.
 
Supply will rise, prices will fall, and the market will reach an equilibrium again.
 
It works the other way as well… If supply rises compared with demand, prices will drop. Lower prices encourage producers to scale back production or leave the market altogether.
 
Supply will fall, prices will rise, and the market will reach an equilibrium again.
 
It's Economics 101.
 
 In most markets, producers are making these adjustments constantly… Supply and demand rarely get too far out of whack, and prices are relatively stable.
 
But the resource markets are different. When supply and demand become imbalanced, it often takes much longer for these markets to react.
 
Why? Because as our friend and resource expert Rick Rule likes to say, resource markets tend to be both "capital- and time-intensive."
 
In other words, it typically takes a lot of time and money to build a mine… drill a well… or start a productive farming operation. And once a producer has spent years and millions (or even billions) of dollars to begin producing, it is often hesitant to slow or stop when prices start falling.
 
This allows the supply and demand imbalances in resource markets to grow much larger and persist far longer than they otherwise would. And it leads to huge price swings with extreme highs and lows you don't see in most other markets.
 
This also means commodities are often "uncorrelated" to stocks and other assets… And it can be particularly valuable when most traditional assets like stocks and bonds are historically expensive, like they are today.
 
History is full of examples where commodities have boomed while stocks have fallen or gone sideways. Likewise, in recent years, we've seen many commodities fall during one of the broadest bull markets in history.
 
In fact, because individual commodities trade according to their own supply and demand dynamics, they often have little correlation with each other. It's not uncommon to see some areas of the resource market boom at the same time that others bust.
 
In short, when you buy a commodity at the right time – following one of these massive busts, when prices are extremely low – it's possible to make a fortune… regardless of what happens in the broad market.
 
 Our colleagues Steve Sjuggerud and Brett Eversole recently shared one such opportunity…
 
This commodity's price has fallen more than 60% in a brutal, multiyear bear market. But Steve and Brett believe the next boom is about to begin. As they explained in the March 15 DailyWealth
 
Booms and busts…
 
Investors tend to see them as black swans… or once-in-a-generation events.
 
But they happen in the stock market more often than most people realize. And they're downright commonplace in the commodities markets.
 
Today, we've found one commodity that could be at the bottom of a bust cycle… and on the verge of its next boom.
 
This commodity is more hated than at any point in history. Everyone expects it to continue lower. And that's setting up a contrarian opportunity.

So… what is this commodity? Gold? Copper? Oil?
 
Nope. It's a market you've probably never considered buying. More from Steve and Brett…
 
This opportunity is in coffee…
 
Coffee is dead to investors. It's more hated than ever before, based on one of our favorite measures – the Commitment of Traders (COT) report.
 
The COT report gives weekly insights into what futures traders are doing with their money. And based on history, when futures traders are all making the same bet, it's smart to take the opposite side of that bet.
 
Today, futures traders are betting on lower coffee prices. They haven't been this bearish at any previous point in history. Take a look…
 

 As they explained, coffee isn't merely dirt-cheap today…
 
It also has never been more hated than it is right now.
 
In fact, they note sentiment has only gotten close to this bearish two other times in history. Both occurred in the past five years. And both led to huge returns…
 
In 2015, coffee hit a similar extreme. Investors were sure the price could only head one direction… down. Instead, coffee soared 45% in just 10 months.
 
Amazingly, just a year before, there was a similar setup. In 2014, investors were once again betting on the demise of coffee. It didn't work out [either]… Coffee prices soared 92% in just 11 months.

To be clear, Steve and Brett have not officially recommended buying coffee at this time…
 
As longtime readers know, Steve prefers to buy assets that are not only cheap and hated, but also in an uptrend. And as you can see in the following chart, coffee – as represented by the iPath Bloomberg Coffee Subindex Total Return ETN (JO) – has not yet started a new uptrend…
 
If you're looking for a way to diversify your portfolio outside the "Melt Up," coffee is worth a look. History suggests it could nearly double over the next several months no matter what happens to stocks.
 
 But coffee isn't the only "boom" we're tracking in the resource markets today…
 
There is another that is already underway… And it offers dramatically higher upside potential in the coming years. However, we hesitate to discuss it… You see, simply mentioning this "commodity" in the past has triggered a flood of complaints and led to waves of cancellations.
 
We're talking about marijuana – or more specifically, legalized marijuana.
 
We know marijuana use remains a contentious issue for many readers. But like it or not, marijuana is a commodity… And it's rapidly gaining support across the U.S. and around the world.
 
Today, nine states and Washington, D.C. have legalized recreational marijuana use. Another 21 states have approved it for medical use. All told, more than half the states in the U.S. allow for some sort of legal marijuana use.
 
As is often the case, these changes have coincided with a dramatic shift in public opinion. As you can see in the following chart, a survey completed in October from polling and analytics firm Gallup found that 64% of Americans favor legalizing marijuana use…
 
This is up from just 12% in 1969 and double the percentage of Americans in favor of legal marijuana in 2001.
 
In short, we've likely reached a "tipping point," where it's simply a matter of time before legal marijuana is available in all 50 states.
 
 We're seeing a similar trend in countries around the world… Several major countries – including Australia, Germany, Italy, Greece, and Mexico – have already legalized medical marijuana.
 
Canada has gone even further… It expects to fully legalize recreational marijuana through the entire country sometime this summer. And the country's financial regulators have already allowed legal marijuana companies to trade on Canada's stock exchanges.
 
This is where you'll find most of the publicly traded marijuana stocks today… And many have already had incredible runs in the past year.
 
The two largest producers by market cap in Canada – Canopy Growth (WEED.TO) and Aurora Cannabis (ACB.TO) – are both up roughly 200% or more in the past six months alone. And many smaller, more speculative stocks have soared multiples more.
 
Of course, one big problem remains… Marijuana remains illegal under federal law in the U.S. and many other countries. This means many American companies risk being shut down by the federal government at any time.
 
And while we expect the trend toward legalization to continue, we foresee significant regulatory battles ahead. We have no way of knowing in advance exactly how it will shake out… or who the biggest winners and losers are likely to be.
 
So despite the obvious opportunities in this market – and despite the big gains by early investors to date – we've stayed on the sidelines so far.
 
 But what if there was a way to invest in this trend without exposing yourself these risks? What if there was a way to profit from this boom without having to choose the winners and losers in advance?
 
Commodity Supercycles editor Bill Shaw believes he has found exactly that…
 
It's a real business with real profits that's ideally positioned to capture the upside of this boom… Yet it has virtually none of the legal or regulatory risk associated with owning marijuana stocks directly. Bill says it's the single best way to profit from the legal marijuana boom today.
 
It wouldn't be fair to Bill's paid subscribers to share all the details here… But you can get instant access to this recommendation – and all of Bill's in-depth analysis – with a 100% risk-free subscription to Commodity Supercycles. Click here for the details.
 
Regards,
 
Justin Brill
 
Editor's note: We can't know exactly how the marijuana saga will play out. But Bill has found a lower-risk, 100% legal way to gain exposure to this booming market. And right now, you can gain access to this analysis – and the rest of Bill's research – at 75% off the regular price. Get started here.
 

Source: DailyWealth

Watch the Lie: Stocks Are No Longer Expensive

Editor's note: The markets will be closed tomorrow in observance of Good Friday. Look for your next issue of DailyWealth on Monday after the Weekend Edition. Enjoy the holiday.
 
It's true… Stocks have gone up for nine years in a row.
 
It's true… Stocks hit all-time record highs earlier this year.
 
But it's NOT true that stocks are expensive today…
 
I'm not kidding.
 
Thanks in part to two things, stocks are not expensive anymore. Let me explain…
 
Two things directly cut down the main measure of "value" in the stock market – the price-to-earnings ratio…
 
1.   The correction in the markets, and
 
2.   The tax cuts from President Trump.
The price of stocks – the top half of the ratio – went down in the correction.
 
Meanwhile, earnings – the bottom half of the ratio – are expected to go up dramatically, largely thanks to the tax cuts. (Over the next 12 months, the earnings of companies in the S&P 500 Index are expected to rise by 27%.)
 
Both the numerator and the denominator in the world's main measure of value have improved dramatically – in a short amount of time.
 
So contrary to what you might think, or what you might be hearing in the media, stocks are no longer expensive.
 
Specifically, the price-to-earnings ratio has now fallen exactly in line with its 25-year average. (This is based on next year's estimated earnings, to include the impact of the tax cuts.) Take a look…
 
You can easily see the great peak in valuations around the time of the dot-com frenzy. Stocks were the most expensive they've been in the last 25 years. (Actually, ever.)
 
And you can easily see the great bottom in valuations in 2009. Stocks were the cheapest they've been in the last 25 years.
 
So what does this measure of stock market value tell us now?
 
Today, we are exactly in the middle… Stocks are trading right at their average valuation over the last 25 years. They are not cheap – but they're not expensive.
 
Keep in mind, this is looking at earnings estimates for the next year. If you only look in the rearview mirror at trailing earnings, you will come to a different conclusion today.
 
These forward earnings estimates aren't guaranteed to come true. However, I want to make decisions based on all available information, not just based on looking in the rearview mirror.
 
I'm sure you can list plenty of reasons why stocks could keep falling. But now you'll have to take the main measure of value off your list…
 
Prices have fallen. Earnings are rising. Therefore, the price-to-earnings ratio is much lower today than it was at the start of this year.
 
Can stocks soar from today's valuation?
 
Absolutely! It happened just a couple of years ago…
 
Stocks are now trading at the same forward P/E ratio they were trading for in March 2016. The S&P 500 soared 46% (in total return) between then and January this year. That's 46% in less than two years… from the same starting point in valuation we have today.
 
As of today, stocks are neither expensive nor cheap, based on the most classic measure value.
 
Don't let 'em tell you any different… And don't let valuation be the reason that you are not invested. That reason is now no longer valid…
 
Good investing,
 
Steve
 

Source: DailyWealth

The Biggest Advantage You Have Over the 'Smart Money'

 
Individual investors – normal people who invest their money themselves – get a bad rap…
 
They're usually framed as the dummies who buy from the so-called "smart money" (that is, professional investors like hedge funds, large institutional investors, and wealthy private investors).
 
The "smart money" has cubicle farms of frenzied MBAs crunching numbers and analyzing companies to help them make investment decisions. Individual investors have only the Internet and their wits (and newsletter providers like us, of course).
 
But individual investors like you and me have one huge advantage. And that's called time…
 
One of the big divisions in investing is between people who are focused on the "short term" – and those who invest for the "long term."
 
If you own an investment fund of any sort, though, those two time horizons may have a lot more in common than you'd think.
 
Most fund managers talk about "investing for the long term." Larry Fink, the head of BlackRock (the world's largest asset manager), wrote not long ago that his company had over time "engaged extensively with companies, clients, regulators and others on the importance of taking a long-term approach to creating value."
 
Of course big mutual fund companies want you to invest for the long term. After all, the longer they control your money, the more you'll pay them in fees. Their preferred holding period for your cash is forever… at 1% or 2% per year.
 
But many of these institutions are hiding a dirty secret about their type of "long-term" investing.
 
A number of years ago, I managed a hedge fund. Like most people who manage other people's money, I talked about investing for the long term.
 
But my idea of "long-term investing" was really "as long as the idea works." I wasn't focused on where a stock I bought was going to be trading six months, or one year, or three years later. For me, "long term" was the end of the quarter, whether that was two months, or two days, away.
 
And the dirty secret of most mutual funds and most other big money managers (no matter what their marketing pitches say) is that they think the same way.
 
Money-management companies – and the people who work for them – are usually assessed based on their quarterly performance. They have to show their holdings once every three months. And many are paid based on how they performed (compared to the index or in absolute terms) over the quarter.
 
Few fund managers are willing to wait for a "long-term" idea to work out if that takes more than, say, three months. Because during those three months, that's dead money. And they aren't paid a performance fee if an asset doesn't appreciate.
 
Of course, pretending that the short term is the long term isn't just a problem in money management. The head of BlackRock continued in his commentary:
 
The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy. In the face of these pressures, more and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.
Fortunately, as an individual investor, you have a way out of this: Invest for yourself and define your own "long term."
 
The reality is that a stock that doesn't do anything for six months, but (say) doubles over two years is a fantastic investment… one that even great investors experience only occasionally.
 
Waiting can be worth it. For example, several studies have shown that buying stocks that are cheap – that is, which have low valuations – will result in better performance than buying stocks that are expensive.
 
One study found that over a 25-year period, the cheapest 10% of stocks in the Russell 1000 Index, a big U.S. market index, performed four percentage points better per year than the index as a whole. That means investing in the cheapest stocks would have earned you 2.5 times as much over the period than investing in the broad market.
 
But few fund managers have the necessary patience to hold an investment for 25 years. And they don't want to get fired – which is what happens if, as a fund manager, you sit on dead money too long.
 
That's why it pays to invest your own money. Maybe, like I did (and like most funds), you'll sell at the first sign of trouble. But unlike the "smart money," you can afford to give yourself time… And the best thing about giving yourself time is that it allows for good things to happen.
 
Good investing,
 
Kim Iskyan
 
Editor's note: Stocks aren't the only way to invest for the long term. Kim's colleague Peter Churchouse has made millions over the years… mostly thanks to a type of investment outside the stock market. And despite what the "experts" say, all you need to get started are five simple techniques. Learn more here.

Source: DailyWealth

This 'Sign of the Top' Won't Cause a Market Crash

 
It's finally happening…
 
One of the big tell-tale signs of the end of a speculative boom is when individual investors heavily commit to buying, like we saw during the dot-com boom in 1999.
 
It's not just in stocks, though… It can happen in any potentially speculative asset. For example:
 
•   Bitcoin in December.
•   U.S. houses a dozen years ago.
•   Beanie Babies in the late 1990s.
Greed is a powerful thing… It can take over – particularly with individual investors.
 
Greed took over rational thought in bitcoin last December. The cryptocurrency soared to nearly $20,000 before it crashed back down… Today, it trades around $8,000, a 60% fall from that peak.
 
In short, when individual investors are piling in, the top is often near.
 
That is, often – but not always…
 
According to the latest survey from the American Association of Individual Investors (AAII), individual investors have recently had a greater allocation to stocks than at any time since the dot-com boom.
 
In fact, the recent readings are some of the highest we've seen since the survey began in November 1987.
 
Stock allocations have soared during this bull market. They went from around 40% at the 2009 bottom to more than 70% right now. Based on this indicator, individual investors are now more bullish than they've been at any time during this boom.
 
You need to see something important, though.
 
It's the reason why this "sign of the top" DOES NOT mean stocks are peaking right now…
 
During the last "Melt Up" in stocks – when the market soared during the dot-com boom – stock allocations first broke above 70% in 1996. That was three-and-a-half years before the ultimate peak. Take a look…
 
In 1998, stock allocations hit 75%. That was the year before the final Melt Up phase propelled markets dramatically higher in 1999 and 2000.
 
So, we have two takeaways from this "sign of the top"…
 
First, individual investors are more bullish than they've been at any other time during this bull market. That looks like a red flag or warning sign to me.
 
However… that alone doesn't mean the peak is here today.
 
The last great Melt Up started from similar levels of stock ownership. That tells me that this red flag is simply a marker of where we are now – the beginning of today's Melt Up in stocks. It's not a sign of the end.
 
Based on history, stocks can still soar dramatically – even from these levels.
 
Good investing,
 
Steve
 

Source: DailyWealth

China's 'National Team' Comes to the Rescue

 
China's government intervened in the stock market last week…
 
That might sound like an extreme thing to do. But with all the talk of trade wars with the U.S., Chinese stocks were falling – until China's "National Team" of state-backed investors stepped in and started buying blue-chip Chinese companies to prop up the market.
 
"China's so-called National Team of state funds has a long history of smoothing swings in the country's $7.7 trillion stock market, particularly during big down days," Bloomberg News wrote on Friday.
 
It might seem like Big Brother is stepping in… which is typically not a good thing.
 
But governments do it all the time… and it's often worked…
 
For example, Japan's central bank now owns 75% of Japanese exchange-traded fund ("ETF") assets. It owned zero ETFs less than a decade ago.
 
And Japan's stock-buying has certainly helped push Japanese stocks higher. Japan's benchmark stock index hit 26-year highs in January.
 
Likewise, China's National Team has historically bought huge chunks of the Chinese market…
 
In 2015 – one of the last times it happened – CNBC reported: "One member of the team, China Securities Finance Corp, the main conduit for the injection of government funds, owned 742 different stocks at the end of September, up from only two at the end of June."
 
This time, the group began buying blue-chip names including China Life Insurance and China Petroleum & Chemical.
 
It worked… By the end of Friday's trading, both of those stocks bounced back from their morning lows. And China's large-cap index lessened its drop to 2.9% from 4.6%.
 
Investors are scared. But instead of being scared, we should see this as a buying opportunity for Chinese A-shares…
 
Chinese stocks are getting a huge tailwind…
 
Right now, China's government is buying Chinese stocks. And very soon, large international investors are going to start buying Chinese stocks, too.
 
You see, index provider MSCI is about to start including Chinese stocks in its benchmark emerging markets index. The first round of inclusion happens in May, just a couple of months from now.
 
So we have a situation where investors are scared, but we KNOW there is a "backstop" or "floor" to the markets – courtesy of the government buying stocks and international investors about to buy.
 
Plus, I believe all this "trade war" talk will go away…
 
I could be wrong, of course. But a trade war would only hurt both countries. Instead, I expect it's mostly posturing to get some sort of concessions.
 
Regardless, China's National Team will keep buying to prop up the markets. And big institutions will start buying soon, as the MSCI's inclusion is around the corner.
 
Let's get our money there first.
 
The easiest way to do it is to invest in a fund that is benchmarked to the MSCI China A Inclusion Index. That means it owns the stocks that will be included… and that will benefit as institutional money starts flooding in. That fund is the KraneShares Bosera MSCI China A Fund (KBA).
 
This is a great moment – a great opportunity. Take advantage of it…
 
Good investing,
 
Steve
 

Source: DailyWealth

This American Icon's Demise Is Just the Beginning

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 The most important company in the country just went belly up…
 
And few people seem to care or even notice.
 
As I'll explain today, the death of this American icon is a sure sign that the country's experiment in endless debt is about to explode. We've been watching this situation for more than two years… And the recent news only confirms what we've known has been coming.
 
But I am getting ahead of myself. Let me back up to where it all began…
 
In November 2015, we launched Stansberry's Credit Opportunities, our publication dedicated to buying distressed corporate debt.
 
At the time, we believed that America's credit markets – swollen by cheap credit funneled into student and auto lending – were reaching a tipping point. We foresaw a wave of defaults coming that would undermine the entire debt market… and drive down the prices of corporate bonds, many issued by high-quality businesses that were in no danger of defaulting on their debts.
 
Smart investors with ready capital can swoop in and buy these discounted "distressed" bonds and lock in a healthy income stream… as well as a big capital gain when the bonds mature.
 
The best investors in the world use this strategy. And we wanted to help subscribers take advantage of the strategy, too.
 
Still, outside of our Alliance members, few retail investors ever seem to understand it…
 
Most investors sign up for newsletters expecting to get rich by next week. They want hot stock tips. Bond investing is too slow and "boring." But that's not why I'm writing about it today.
 
While you may never buy a bond, you can still learn from the bond market. And recently, we received an important message…
 
 The old adage says that bond investors are smarter than stock investors…
 
The bond market is also far bigger than the stock market. The global stock market sits at around $65 trillion, according to data from the World Bank, while the global bond market is about 35% bigger at around $90 trillion.
 
The bond market is full of institutional money. These firms pay brilliant people tons of money to know what's going on in the markets and to make the right decisions.
 
Bond investors are also higher on the food chain than stock investors. They get paid first in the event of a bankruptcy… And they have a much bigger say in what happens when it matters. We saw that play out again earlier this month.
 
 We've warned again and again about the country's looming debt problems…
 
Since launching Stansberry's Credit Opportunities, we've warned readers about a wave of debt coming due that would have to be refinanced between 2018 and 2020. We were especially wary of high-yield (or "junk") bonds.
 
Of course, the skeptics called us fearmongers. That's fine with us… We're used to it. Our contrarian advice often cuts against the mainstream wisdom… and earns us criticism. Regardless, we persisted. As we wrote in the March 2016 issue of Stansberry's Credit Opportunities
 
Between now and 2020, $1.32 trillion of junk debt is expected to come due. Most of that matures toward the end of the five-year period.
We didn't have any special insight when we wrote that. We were simply stating the facts… and explaining why we were warning about the credit markets.
 
 Among the companies laboring under an enormous pile of junk debt was an American icon… struggling 70-year-old toy company Toys "R" Us.
 
The global toy market does around $90 billion in annual sales. We don't think for a minute that kids will ever stop loving toys. But we doubt that kids born today will ever step foot in a brick-and-mortar retail toy store. Online gaming and Internet shopping with retailers like Amazon (AMZN) are putting an end to that.
 
As we told readers at the time, the death knell for Toys "R" Us likely happened in 1998, when discount retailer Walmart (WMT) began to sell more toys than Toys "R" Us. The emergence of the Internet compounded those problems… and put toy stores on a crash course toward obsolescence.
 
In 2016, Toys "R" Us owed creditors more than $6 billion, most of which stems from a leveraged buyout back in 2005. A huge portion of that debt – $1.6 billion – was coming due in 2017 and 2018. With more than $1.3 trillion in junk debt coming due at the time, Toys "R" Us knew it had to cut to the front of the line if it wanted to find a willing lender.
 
We thought that if Toys "R" Us could refinance and survive, other troubled companies might, too. Therefore, interest rates would likely remain lower for longer… And it might take longer to reach the end of the credit cycle than we had originally anticipated.
 
But if creditors spurned Toys "R" Us, refusing to let it refinance at affordable rates, then many, many other indebted companies faced similarly dire prospects.
 
 Toys "R" Us was the canary in the bond market coal mine…
 
That's why we called Toys "R" Us – laden in debt, and with an increasingly obsolete business model – the most important company in the U.S. economy.
 
Toys "R" Us is a private company. But its bonds traded publicly… And the bondholders had become far too complacent. As recently as last June, the company's bonds maturing in October 2018 traded for more than par ($1,000). Bondholders were completely ignoring the risk in order to get its 7.3% yield. Even in August, the bonds traded for $980.
 
Then, reality set in…
 
On September 7, the bonds fell 25%. About a week later, they traded for less than $400 per bond.
 
By September 19, the company filed for Chapter 11 bankruptcy protection. It received a $3 billion lifeline while it tried to renegotiate the debt and reorganize the company.
 
Management shut down some of the underperforming stores and continued to operate the remaining 1,600 locations in an effort to turn around its failing business. The bonds plummeted to less than $300.
 
Last week, the company took its last breath, announcing it couldn't find the necessary financing and would be forced to liquidate its assets.
 
The company will close all of its U.S. stores. More than 30,000 people will lose their jobs. CEO David Brandon said he was "very disappointed with the result." That may be true, but we doubt he was surprised.
 
For years, management had tried to improve operations. But the headwinds were in plain sight. The increasing traffic to online retail, a heavy debt load, and dwindling cash flows were working against Toys "R" Us.
 
 Why are we telling you this story?
 
Two years ago, we told Stansberry's Credit Opportunities readers that if Toys "R" Us didn't make it, we expected things to get worse – a lot worse – in the bond market.
 
We believe it will matter more than most people realize… Plus, another well-known American business – iHeartMedia – filed for bankruptcy last week. The mass-media communication firm has 850 stations across America… and $20 billion in debt.
 
Despite last year's rally in junk bonds, we see a credit crisis on the horizon…
 
Since junk bonds – as represented by the iShares iBoxx High Yield Corporate Bond Fund (HYG) – hit their highs last July, they've been in a steady downtrend. If that continues like we believe it will, you can expect a lot more volatility in the stock market, as well. The forecast for the rest of the junk-bond market is starting to look ominous…
 
 Among the carnage is a bit of good news…
 
None of this has to hurt you.
 
Our Stansberry's Credit Opportunities team has been following every movement in the bond market for more than two years. They're eager for a jump in bond-market volatility.
 
They know that as fear hits, bondholders – even those owning the bonds of companies we know are safe – will panic. They'll sell for whatever they can get, just to move to cash or cash-like securities. That's when we'll swoop in and make recommendations at a huge discount to par.
 
We know many of you aren't interested in "boring" bonds. But patient investors will be rewarded. They'll earn interest payments along the way and enjoy massive capital gains when they get paid in full at maturity (or when the market sends the bond prices back to par).
 
Hopefully, you can see why this is such a great investment strategy. The last two years have been tough for our team to find bargains in the bond market. But we've still made 23 recommendations since November 2015, racking up an impressive win rate of 74%, with average annualized gains of 22% (including nine open positions). Our win rate on 14 closed positions is 79%, with an average annualized gain of 33%. That earned them a well-deserving "A+" on this year's Report Card.
 
 We aren't the only ones who are waiting patiently…
 
So is Howard Marks, the guru of distressed debt.
 
Longtime readers may recognize Marks' name. He's the billionaire founder of asset-management firm Oaktree Capital (OAK). At the end of last year, his firm had $102 billion in assets under management.
 
Around the Stansberry Research office, Marks is considered the maestro of distressed debt. He got his start in high-yield debt markets back in 1978. He has made his funds' investors average annualized gains of 19% over the past 25 years. Few investors can make those returns in a year, let alone average it for more than a quarter of a century.
 
Around 25% of the funds Marks runs are normal, open-end funds that anyone can buy through a brokerage account. But his specialty is buying debt when it's selling at liquidation prices. In 2007, he launched a special fund to take advantage of the massive bubble he saw in the financial markets. By mid-2008, he had raised $10 billion… just before the meltdown at Lehman Brothers. At the time, it was the largest distressed-debt fund ever.
 
When Lehman filed for bankruptcy in September 2008, the bond and stock markets crashed. That's when Marks started buying debt for pennies on the dollar. By the end of the year, he had invested about $7.5 billion. Then… he sat tight.
 
Four years later, Marks returned every penny of the $10 billion to his investors, plus an additional 25%. Even if investors had the nerve to buy and hold stocks at the time – and most didn't – the returns were about flat as stocks drifted sideways over the same period. Marks went on to more than double his investors' money… all through distressed debt.
 
Today, Marks is at it again. He has spent the past two years building another gigantic fund to buy up debt when it goes on sale as the next crisis unravels. He currently has around $20 billion ready to deploy… with about $9 billion earmarked for his distressed-debt fund.
 
We watch Marks closely and read his memos. And next month, we're going to see him.
 
 On April 10, Marks will be among the most important attendees at a small, exclusive meeting in New York…
 
Twice a year, Jim Grant – the founder of the excellent Grant's Interest Rate Observer newsletter – hosts a meeting at the five-star Plaza Hotel in New York City.
 
(As an aside, I make a point to read every one of Jim's issues. I have for years. It's the only financial newsletter outside of our own that I read without fail. He offers unique financial insights that you won't find anywhere else. And he delivers it in a unique writing style. It's not for everyone, and it requires a good understanding of finance to get the most out of it. But it's like nothing else on the market.)
 
I've personally attended Jim's conferences since 2012. In that time, I've heard fantastic insights from JPMorgan Chase CEO Jamie Dimon… flamboyant and colorful hedge-fund manager David Einhorn… famed short seller Jim Chanos… and fearless activist investor and billionaire Paul Singer. Last year, Porter and I sat in the front row, watching Jim interview former Federal Reserve Chairman Alan Greenspan.
 
This year, Marks will be presenting at the Grant's conference. Another world-class asset manager will be there, too: Harvard-educated John Hathaway, senior portfolio manager at Tocqueville Asset Management. Hathaway co-manages the Tocqueville Gold Fund and is considered one of the foremost experts on gold and precious metals.
 
Hathaway is frequently cited in Barron's, the Wall Street Journal, and Bloomberg. He regularly appears in Jim's newsletter and numerous other financial media outlets. I'm eager to hear what he thinks about precious metals today. Almost no one has done more high-quality research on the subject.
 
 But this year, we're attending the Grant's conference for another reason entirely…
 
For the first time ever, Jim has invited one of my Stansberry Research colleagues to present at the Grant's spring conference. I'm talking about senior analyst Bryan Beach… the editor of Stansberry Venture Value and a frequent contributor to Stansberry's Credit Opportunities and Stansberry's Investment Advisory.
 
Last fall, after reading the September issue of Stansberry's Investment Advisory, Jim personally called Bryan to learn more about our "Golden Triangle" research (which spawned from our bond research and confirms the belief that the bond market is smarter than the stock market).
 
If you're unfamiliar, we found the Golden Triangle strategy when we were researching bonds for Stansberry's Credit Opportunities. We discovered a way to consistently double your money within two years in the stock market.
 
Without disclosing the details of the strategy, our analysts figured out how to gauge when bond and stock investors disagree over the quality of a business… and individual investors can take advantage of the situation.
 
Almost every finance professor and Wall Street guru will tell you that's impossible to do on a regular basis. But Bryan and Stansberry's Credit Opportunities editor Mike DiBiase have found that the Golden Triangle reliably identifies stocks that are poised to soar quickly.
 
On average, Golden Triangle stocks went on to more than double in two years. It's our most important breakthrough yet. Porter has called it "our most lucrative discovery ever."
 
And next month, Bryan will be a featured presenter at Grant's spring conference, alongside Marks, Hathaway, and many more of the finance industry's sharpest minds.
 
This is a huge honor for us… And we would love to share this experience with you.
 
 Here's how you can join us…
 
We've arranged a special offer for next month's conference… an offer that no other publisher on the planet has been able to convince Jim to allow. In short, you'll get a virtual "seat" at the Grant's spring conference (which normally costs $1,750… go ahead, see for yourself right here) and one full year of Grant's Interest Rate Observer (which sells for $1,295), for a one-time fee of just $1,295.
 
That's like getting access to the spring conference at an unheard-of discount of more than 25%… and getting a full year of Grant's Interest Rate Observer absolutely free.
 
You may remember we were able to put together a similar Stansberry Research subscribers-only offer for Grant's fall conference last October. The feedback we got at Stansberry Research from folks who took us up on that offer was incredible. Take, for instance, what we heard from Paul W., who wrote in to tell us…
 
Excellent experience. Combining the Grant's Conference with a subscription was brilliant. The conference was icing on the cake but tremendously valuable icing. Entirely worthy of the money paid.
As we did last year, we'll also be sharing our own thoughts from the conference in real-time via live chat updates. It's the next best thing to being "in the room" with Porter and our team in New York.
 
And once again, we'll take on all the risk… Take the next few weeks to read Jim's work, and attend the conference on April 10. If you aren't completely satisfied, simply let us know and we'll issue a full Stansberry Research credit for every penny you paid.
 
You literally have nothing to lose.
 
 We hope you appreciate just how special this opportunity is…
 
There's a reason Porter clears his calendar to attend both the spring and fall conferences every year, no matter what. As an attendee of Grant's conference, you'll hear ideas you won't hear anywhere else, from the smartest folks in finance today.
 
If you've been with us for long, you know our aim at Stansberry Research is to give you the information we would want to know if our roles were reversed. Thanks to Jim's generosity, that's exactly what we've been able to do. Click here to reserve your spot now.
 
Regards,
 
Brett Aitken
 
Editor's note: For the first time ever, a Stansberry Research analyst has been invited to speak at the most exclusive investment meeting in the world – Jim Grant's conference in New York. And for a limited time, we've arranged a special deal for DailyWealth readers to tune in at a huge discount. Get started right here.

Source: DailyWealth

How a 'One-Two Punch' Tanked the Market… And What's Next

Editor's note: Today, we're finally able to introduce one of the world's most successful stock pickers to our readers. His name is Louis Navellier – but he's also known as the "King of Quants." His systematic approach to spotting growth stocks led his readers to Apple and Amazon – long before they became the tech and retail giants they are now. And next week, he's making a special offer to Stansberry readers. Read on for some of his insights about where the market is headed today – and details about this special event…
 
Wall Street doesn't know what to think after last month's rollercoaster ride.
 
Blackstone's Steve Schwarzman says emphatically, "This bull market is not over." But Morgan Stanley says the market correction is just an "appetizer, not the main course" of market trouble ahead. So who's right?
 
I warned investors repeatedly for the two weeks leading up to February's big pullback, saying, "The market is overdue for a pause of some sort" and that I was "concerned about the market's overbought condition leading to a potential correction."
 
I mean, it took just three months for the Dow Jones Industrial Average to rocket from 23,000 to 26,000. You simply can't have a run like that without the market needing to digest those gains.
 
But what should have been a normal pullback turned into multiple, gut-wrenching 1,000-point drops – thanks to a one-two punch…
 
You see, good news can be bad news on Wall Street.
 
And Wall Street got spooked by a triple-whammy of good news…
 
1.   A big payroll number from the ADP National Employment Report that showed 234,000 new jobs created in January versus the 177,000 expected.
 
2.   Data that finally showed the wage growth the Fed has been desperate for.
 
3.   A model from the Atlanta Fed that predicted blockbuster first-quarter GDP growth of 5.4%.
That was the first blow. Fears that the economy might heat up too much sent bond yields soaring as Wall Street worried the Fed might have to raise interest rates more aggressively this year. And that sent the market tumbling and volatility soaring.
 
The CBOE Volatility Index (or "VIX") DOUBLED in just one day.
 
And that's where things got ugly.
 
A pullback triggered by a jump in volatility would normally have been much more mild. But it turned into a full-blown correction because of yet another harebrained investment product cooked up by pure greed on Wall Street.
 
A new breed of exchange-traded funds ("ETFs") betting against volatility emerged in the last year. These half-baked products were supposed to be a sure thing, but instead blew up in investors' faces.
 
One of these ETFs, the VelocityShares Daily Inverse VIX Short-Term ETN (XIV), was designed to effectively short the VIX. It lost about 85% of its value overnight and was liquidated soon afterward.
 
I don't often agree with CNBC's Jim Cramer, but he was right to blame this meltdown on "complete morons" on Wall Street. Two of the largest ETFs involved had ballooned to $4 billion invested. Systematic selling as these investments imploded turned a normal pullback into a 2,000-point panic.
 
But the good news is the market has been recovering quickly, and the underlying fundamentals driving the market are strong.
 
Earnings are the best they've been in 10 years. Positive earnings revisions are on a record pace. And thanks in large part to corporate tax cuts, analysts are now looking for 19% earnings growth this year.
 
The economy is healthy and growing. Unemployment is low. Personal income is up. Consumer and business confidence is high.
 
So let me be clear… this recent market correction was NOT the start of a bear market.
 
It was a healthy and much-needed pullback after the market's parabolic run the last four months.
 
Sincerely,
 
Louis Navellier
 
Editor's note: Louis believes we're about to see the biggest opportunity of his 35-year career. And he's about to share the details in a breakthrough presentation. On Wednesday, March 28 at 8 p.m. Eastern time, he'll discuss his top stock picks… share his forecast for the years ahead… and reveal his "Total Growth" strategy for what could be the final stage of this historic bull market. Click here to learn more.

Source: DailyWealth

Your First Look at My Next Big Idea

 
"Little-known Tencent will become the world's largest company within five years."
 
I made that bold prediction in 2016 at our Stansberry Conference.
 
Most U.S. investors had never heard of Tencent (TCEHY) back then… But today, Tencent is the fifth-largest company in the world – ahead of Facebook (FB).
 
Even if my prediction doesn't quite come true within five years of that speech, it was still a bold, profitable call. Investors who took me up on that big idea made a lot of money – triple-digit gains.
 
Now, I'm sharing how you can get the first look at my next big idea. Let me explain…
 
At the same conference a year earlier, I unveiled my "Melt Up" thesis for the first time… the idea that stocks would truly soar to unbelievable heights before this bull market was over.
 
It seemed like a crazy idea… Stocks had already boomed for six years. And the market was in the middle of a correction when I spoke.
 
The idea of a stock market Melt Up has driven my investment script since. And the idea's gone a bit viral in the mainstream media. Investors who took my advice at that 2015 conference would have made huge gains.
 
At the 2017 Conference, I had another big prediction…
 
I told the audience when the Melt Up would end.
 
The short answer is that we aren't there yet. The run-up in stocks can still continue. But a Federal Reserve-induced crash is likely in 2019 or 2020.
 
So far, so good. No crash yet.
 
So, what do I have in store as my big idea for the 2018 Conference?
 
I can't tell you today… You already know why. I save my biggest idea of the year for the attendees of this conference.
 
But you can join me this October in Las Vegas so you can hear my big idea for 2018 in real time.
 
I'm not the only one speaking, of course…
 
You'll also hear from our founder Porter Stansberry… along with Steve Forbes (editor in chief of Forbes magazine), Dennis Gartman (editor of The Gartman Letter), and investment-newsletter legend Jim Grant (founder of Grant's Interest Rate Observer).
 
And that's just to name a few.
 
I'm biased, of course, but I think it's the best investment event you can attend!
 
I hope to see you there…
 
Good investing,
 
Steve
 
P.S. One of my favorite benefits of this conference is the chance to chat with readers. We'll be opening ticket sales soon. Keep watching your inbox for updates on how to get in on this event… And if you make it to Vegas, flag me down and say hi.

Source: DailyWealth

The Best Place to Find Value in Today's Overvalued Market

 
Hard as it is to believe, there's a large group of "investors" out there who don't care about the price of what they're buying.
 
They don't care about earnings or dividends or any of that. They buy no matter what.
 
And the result is a market full of over-loved and overvalued stocks. We deal in strange markets these days, with bizarre, distorted prices.
 
Seriously, I'll prove it.
 
Take a look at soft-drink giant Coca-Cola's (KO) sales and net income (earnings) from 2012-2016. During this period, the stock rose nearly every year:
 
  2012 2013 2014 2015 2016
Sales $48 $46.9 $46 $44.3 $41.9
Net income $9 $8.6 $7.1 $7.4 $6.5
In billions of U.S. dollars.
In 2017, Coca-Cola delivered another year of declining sales and earnings. And the stock was up again for the year. So, nothing has changed.
 
A company can't keep reporting lower and lower profits and somehow see its stock price continue to go higher and higher. Eventually, you get absurd prices.
 
Today, I'll show you the group of investors who are causing these distorted prices… and a little-known trick to fade – or counter – this trend and find value in the market.
 
Companies like Coca-Cola can see their share prices rise despite falling earnings because of a practice called "indexing."
 
An example of indexing is when you put your money in an S&P 500 index fund, or exchange-traded fund ("ETF"). These kinds of funds aim to mimic the returns of the S&P 500 Index by buying all the shares in the index, in the exact proportion that the index holds them.
 
The fees are very low. And since most actively managed funds can't beat the S&P 500, index funds have become a popular option.
 
Popular may be an understatement. Vanguard – one of the largest providers of index funds and ETFs – has $4.5 trillion under management. That's no typo. Trillion with a "T."
 
The top 10 index firms report $9.2 trillion in indexed assets. That's about a third of the value of tradable shares in the S&P 500. And the inflow continues.
 
Those inflows are creating distortions. You effectively have a steady buyer sending a tsunami of money into index funds as well as a limited number of big stocks.
 
Indexers don't care if Coca-Cola is overvalued. If it is in the index, the index fund has to buy it. Period.
 
Over the years, this creates odd effects on the pricing of those stocks in the index.
 
Few do a better job of documenting these distortions than Murray Stahl, the chief investment officer and co-founder of Horizon Kinetics, a New York-based investment firm.
 
Murray calls companies like Coca-Cola "revenue decliners." In March 2017, Stahl warned that Coca-Cola was overvalued. He showed that sales and earnings had fallen since 2012. And yet the stock carried a premium valuation.
 
"No one seems concerned that a highly caloric soft drink like Coca-Cola is losing market share to healthier alternatives," he wrote.
 
How to explain it?
 
Coca-Cola is an index favorite. And the flood of money pouring into index funds gives stocks like Coca-Cola lots and lots of automatic buyers. This is likely a leading contributor of overvaluation.
 
So where to find value today?
 
A little-known secret of how the S&P 500 is constructed: The focus is on the market cap as indicated by the "float." Float is the number of shares outstanding less shares held by insiders.
 
Thus, the index overweights shares with low insider ownership, like Western Union (WU). And it underweights shares with high insider ownership, such as Berkshire Hathaway (BRK-B).
 
That's the exact opposite of what a smart investor would do.
 
Instead of piling into overvalued index funds, you should be attentive to differences between companies.
 
It may not feel like it, because the indexers have done very well blindly betting on the S&P 500. But they're taking risks that will catch up with them eventually.
 
An easy way to reduce those risks is to own firms either not in the S&P 500 or that are underweight because of high insider ownership. That's where we're finding value today.
 
On the flip side, you can find a steady supply of people selling stocks not favored by indexes, as money flows away from the active managers – who would typically hold such stocks – and toward the indexers.
 
The result is you can find value in stocks not favored by the indexers. Now is a great time to be a stock picker.
 
Regards,
 
Chris Mayer
 
Editor's note: How should you approach your investments? How should you think about them? Chris wrote his newest book to tackle these key questions. In it, he lays out practical guidelines to unclutter your thinking – that is, to get unhelpful ideas and misleading information out of the way – so you can boost your investing success. To order your copy now, click here.

Source: DailyWealth

A Perfect Track Record for Quick Double-Digit Gains

 
Today, I'll share a trade that has a perfect track record in recent years…
 
More important, it just signaled again.
 
If you follow this signal, you should be able to pocket double-digit gains in six months on a "boring" asset.
 
But first, I'll explain why it works. It gets to the core of how we plan some of our best trades at DailyWealth
 
It's simple, really. If you want to make money in the markets, you need to buy what's cheap. And you need to buy it when no one else wants to.
 
The opposite is true as well. A good time to sell is when something's expensive and EVERYONE wants it. When everyone wants an asset, there aren't many new buyers left to push prices higher.
 
This is the basic idea of trading or investing on "sentiment."
 
We've showed time and again here in DailyWealth that this idea is a great way to figure out the pulse of a market and make contrarian bets at extremes. Today, it's leading us to a bet most investors would never consider…
 
You see, a certain commodity has boomed in 2018. It rallied double digits from trough to peak. And investors are now extremely bullish.
 
This commodity crashed the last five times this happened. And the next fall has already begun.
 
The opportunity is betting against corn.
 
Corn doesn't sound like a sexy trading idea, I know. It's not Elon Musk putting people on Mars. But hear me out…
 
After a steady climb higher, futures traders are now extremely bullish on corn, based on the Commitment of Traders (COT) report.
 
The COT report gives us a gauge of how traders feel about an investment. It tells us what futures traders are doing with their money in real time.
 
When futures traders all bet in one direction, the opposite often happens. Today, futures traders are all betting on higher corn prices.
 
We've seen similar bullish levels five times in recent years. And corn prices fell dramatically in each case.
 
You can see this on the chart below. It shows the corn exchange-traded fund ("ETF") – the Teucrium Corn Fund (CORN). The arrows represent the last five times futures trades were betting on higher corn prices to the same degree as they are right now (and the most recent example as well)…
 
Prices fell dramatically in every case. In fact, each instance led to a double-digit decline for the corn ETF over the following six months. Take a look…
 
Sentiment Peak
6-Month Return
8/21/2012
-20.2%
4/29/2014
-26.1%
12/23/2014
-15.1%
7/21/2015
-14.1%
6/14/2016
-17.9%
That's a perfect track record… and an average loss of 19% in six months.
 
Futures traders haven't been this bullish on corn in nearly two years. And simply put, you really don't want to be long corn when these traders are this bullish.
 
The commodity is already rolling over. The corn ETF is down 4% in recent days. And history says this is likely the start of a major downtrend… with potential double-digit losses.
 
Shorting the Teucrium Corn Fund is the simplest way to profit from this idea. But even if you don't make the trade, this is another example of why sentiment is vitally important to investors.
 
Go out looking for crowded trades… and then make the opposite bet. That's how you earn outsized returns in the market.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth