How to Find Stocks That Thrive in a Bear Market

 
I recently spoke with friend, investor, and author Vitaliy Katsenelson, chief investment officer of investment firm Investment Management Associates.
 
Vitaliy is brilliant. I think he's the Benjamin Graham of our generation (and I'm not the first one to say that). I also highly recommend his two books, The Little Book of Sideways Markets and Active Value Investing. The latter is especially deep and insightful, but easy to read.
 
Earlier this year, he and I spent a lot of time talking about the way he applies a specific concept to companies… the idea of "antifragility," drawn from trader and philosopher Nassim Taleb.
 
Today, I'll share pieces of our talk with you. It's a way of thinking that every investor needs to know…
 
In his work, Taleb differentiates three states: fragile, robust, and antifragile. Vitaliy explained it like this…
 
Take drinking glasses or champagne glasses. You put them in a package. You bubble wrap them as much as you can. You put them in a package and you write "FRAGILE" on it in big letters. Then you pray that the shipping gods take care of them in a very nice way, so they won't be damaged when they arrive. That's fragile.
 
Then you have robust things. Think of this as something made of rubber. You put a rubber object in a package, you shake it and bounce it around, and you don't worry about what happens to it. It won't break. When it arrives, you know it's going to be fully intact.
 
Antifragile is almost like rubber with IQ. It's as if the rubber object gets smarter and stronger from getting beat up.
 
So it applies to companies. Fragile companies, when there's some kind of stressor [like a recession or Amazon competing with them] that comes from outside that breaks those companies, that causes the value of the business to decline, I would call those companies fragile.

Vitaliy offered the example of a cyclical company with lots of debt as being fragile. If the economy goes into a recession and the company must issue equity at low prices, it could destroy its own value.
 
As Vitaliy explained, "It doesn't necessarily have to go bankrupt. It's just that the recession or other event causes the value of the company to decline. Not just the stock price, but the value of the business actually declines."
 
Robust and antifragile businesses can both withstand harsh conditions. But the difference between them is important to understand. As Vitaliy puts it…
 
When you have a robust company, say it goes into a recession. It comes out as if nothing happened. The value of the business has not deteriorated or increased… the company has neither benefited nor been hurt by a recession.
 
Then we have antifragile companies. This is the one that's most interesting to me. These are companies where they have a very strong business and they have a great balance sheet and they have great management, either the combination of all three things, or at least two out of the three. I think good management is paramount.
 
When [the antifragile company] goes into a recession, because it's the strongest player in the industry, its business is doing fine. Its competitors are suffering. The competitors are fragile, so that company is able to take advantage of its competitors.
 
So maybe it cuts prices and drives competitors into bankruptcy and takes market share, or it buys competitors on the cheap, but it's basically getting a benefit from the stress.

After the recession, the antifragile company's earnings power is higher than it was before the recession. It's able to actively take advantage of conditions that weaken its competitors.
 
Vitaliy later added, "To be truly antifragile, you need your competitors to be fragile." I took this to mean antifragility is a relative assessment, not an objective one. Antifragility cannot exist in a vacuum.
 
He offered an example: electronics retailer Best Buy (BBY). "Best Buy was a much stronger, better-run company than Circuit City. And it had net-net benefited from Circuit City going out of business… Best Buy ended up being the antifragile company in that industry because everybody else was fragile."
 
Warren Buffett's Berkshire Hathaway (BRK) has also exhibited antifragility by keeping plenty of cash on hand to take advantage of bad times, like when it bought bonds yielding 10%-15% during the financial crisis, and hundreds of millions of warrants.
 
I asked Vitaliy, "What would be a good dividing line between robust and fragile, for a company?" He said debt is the easiest way to separate the two…
 
If you have debt in a cyclical business, those two markers together make it a fragile company. A company that may be cyclical but doesn't have debt may be a robust company.
I've been thinking about Vitaliy's idea of antifragile companies ever since our conversation.
 
I see fragile, robust, and antifragile as an attempt to create boundaries along a continuum of risk, with 100% fragility at one end, robustness in the middle, and antifragility at the other end.
 
I don't believe a truly antifragile company exists. For example, Vitaliy identified cyclicality as a weakness, but all businesses are cyclical to some degree.
 
Vitaliy also mentioned recession as a typical stressor that would help differentiate the three types of companies. And again, I don't think a truly recession-proof business exists. A company could do well in one recession and poorly in another.
 
What does make sense to me is what Taleb – the father of antifragility – calls via negativa
 
Negative financial advice is the best and most foundational of all financial advice: That is, don't lose money, don't blow yourself up, don't take too much risk, etc. You must heed all the good "negative advice" before you can benefit from any positive advice (i.e. what and when to buy).
 
Your first task as an investor is to identify sources of fragility in businesses and make sure you have minimal (and preferably zero exposure) to them.
 
For instance, Vitaliy identified debt in a cyclical business as a fragile combination. A large debt load in any business that has no pricing power (many of which are highly cyclical) will make a company fragile.
 
Once you've eliminated or minimized fragile companies, you're left with robust companies which may exhibit antifragile characteristics.
 
Sources of antifragility are often limited in time and scope. For example, Best Buy benefited from the implosion of other electronics retailers due to Amazon's influence. But this is likely a one-off opportunity that Best Buy won't be able to exploit again.
 
Overall, you don't want too many long positions in fragile companies (if any). You want to invest in companies that are as far away from fragile as possible: companies with great balance sheets and management teams.
 
As Vitaliy noted, a strong management team is paramount… First, companies are just groups of people, so the people leading them need integrity and competence. Second, once again, every business is cyclical to some degree. Whether a company can benefit from events that hurt other companies depends on how the people in the company (especially those in charge) behave through cycles.
 
No business is completely antifragile. Still, Vitaliy's insight is valuable and downright brilliant.
 
I hope our conversation can help you identify businesses that will succeed when their competitors fail. That's a worthwhile ability, because it can help you know which companies to buy and which ones to avoid.
 
Good investing,
 
Dan Ferris
 
Editor's note: Dan's new No. 1 recommendation boasts one of the best management teams he has ever seen. And he believes shares could easily rise 1,995% – enough to turn a $5,000 stake into $104,750. But time is running out to access his research… We're closing the doors on this special offer on Thursday at midnight. Click here to learn more.

Source: DailyWealth

Where Else Can You Find Returns Like This Today?

 
"Quick, which has been the hottest investment since 1982, stocks or Treasury bonds?"
 
Bond guru Gary Shilling asked that question back in 1999 – while the dot-com boom was in full swing.
 
Stocks returned 20% a year over that stretch (with dividends reinvested). From 1982 until the dot-com boom in 1999 was probably the best 17-year period for stocks in all of history.
 
Nothing could have beaten stocks during that time – right?
 
It turns out, a simple Treasury bonds strategy did. No kidding.
 
In fact, it crushed stocks – delivering a 24% annualized return…
 
The simple, stock-beating strategy was to buy a 25-year Treasury bond and hold for one year. Then, you'd sell it, roll the proceeds into a new 25-year Treasury bond, and hold for one year again.
 
(The key to the big gains is to do this with zero-coupon Treasury bonds instead of regular Treasury bonds. Zero-coupon bonds don't pay interest… Instead, they sell at a discount to their maturity value. Buying long-term zero-coupon bonds gives you a big discount, and potentially big upside potential.)
 
"But Steve, why are you telling me this?" you might be thinking. "You can't make 24% in a year in Treasury bonds anymore."
 
Shilling – the man who predicted lower interest rates in 1981 and has made a fortune using this strategy for decades – says it can keep going…
 
In a Bloomberg article yesterday, he explained that if interest rates on government bonds drop "from the current area of about 3% to my long-held 2% target in 12 months," then the total return will be 25% for a 30-year Treasury bond… And a zero-coupon 30-year Treasury would return 33%.
 
Yes, that's a 25%-33% return in Treasury bonds in just one year. Shilling concludes: "Where can you find comparable investment prospects?"
 
Now, nearly all investors disagree with Shilling…
 
Last week, I told you that Bill Gross – known as the "Bond King" for his decades of great calls on interest rates – says we should expect interest rates in long-term Treasury bonds to stay around 3% for the rest of this year. And most investors expect higher rates than that.
 
But I agree with Shilling – at least in the short term.
 
In my True Wealth newsletter, we recently made a big bet that interest rates on long-term bonds will go DOWN this year – not up.
 
So far, subscribers who have followed our advice are making good money on this trade.
 
"But what about all the government spending, Steve?" It's a fair question. The U.S. government is $20 trillion in debt. If it can't pay it back, investors would lose confidence in government bonds, sending interest rates dramatically higher. The only question is, when will this happen?
 
According to Shilling, we're not in any danger of this happening yet:
 
Don't get too concerned. With inflation likely to remain low and Treasurys continuing to be a haven for domestic and foreign investors, financing the expanding federal debt should continue without major problems.
A key point here… In my True Wealth letter, we're not making a long-term bet. Instead, we're putting on a trade over a few months.
 
Investors are almost unanimously betting against Treasury bonds. They are nearly unanimously betting on higher interest rates. Only Shilling and I disagree with the crowd.
 
So far, so good.
 
I believe we have big gains to come in our bet on lower interest rates over the next few months.
 
If you are betting on higher interest rates today, you need to realize that you are part of a crowded trade. And when a trade gets this crowded, the consensus is usually wrong.
 
Looking years ahead, I get it – it's a scary picture. The U.S. government is heading ultimately toward a debt crisis, with dramatically higher interest rates.
 
But that scenario is likely years away. For the next few months, my money is on lower long-term interest rates.
 
Good investing,
 
Steve
 

Source: DailyWealth

This Bull Market Is Near the 'End of the Deck'…

 
Can you beat the odds in Vegas? According to former MIT math professor Edward O. Thorp, yes – and he actually figured out how…
 
He literally wrote the book on it – Beat the Dealer – in the early 1960s. It became a New York Times bestseller. The book explains how to reliably win the game of blackjack.
 
"I certainly wasn't motivated by the hope of making big money," Thorp said in his excellent autobiography, A Man for All Markets.
 
"What drew me was the chance of doing something people thought wasn't possible, to be a bit prankish – the fun of just pulling it off."
 
So how do you beat the house in blackjack?
 
At the beginning of a game, you can't. You have no advantage.
 
However… once you get close to the end of the deck, it's a completely different story…
 
As you approach the end of a deck of cards, your chances of winning can increase. You can change your strategy toward the end of some games to improve your odds of winning.
 
Here's what's going on…
 
The game of blackjack is also called "twenty-one." That's because your goal is to get as close as possible to 21 points – without going over that amount. You do this by collecting cards with different point values.
 
Ed discovered that if a large number of "face" cards haven't yet been played in the deck, then your odds of winning change.
 
The face cards in blackjack are Jacks, Queens, and Kings. They are all worth 10 points. (Therefore, 10s also count as face cards.)
 
Normally, if you have a total of 16 points in your hand, you would ask the dealer for another card. However, if a large number of face cards have not been played, then toward the end of the game, you are better off NOT asking for another card if you have 16.
 
Meanwhile, the dealer will ALWAYS take another card when he has 16 (and your buddies probably will, too).
 
Ed figured out that the odds of winning slightly tilt in your favor toward the end of the game. And that's when you need to increase your bets the most.
 
I tell you this because we have a similar situation in the financial markets today…
 
In normal times, you can't beat the market. You have no advantage.
 
But something extraordinary often happens late in the game. As you approach the end of the deck, your chances of winning can increase.
 
Likewise, as you approach the end of a great bull market in any asset, a cycle of higher and higher prices can get underway.
 
Whether it's the housing market a dozen years ago, the dot-com boom nearly 20 years ago, or, to a lesser extent, bitcoin in late 2017… the situation changes late in the game. Something changes in investors, and they push prices higher in a way that doesn't normally happen. A self-fulfilling boom kicks in.
 
Since 2009, stock prices have been going up. It is one of the greatest stock market booms in history. But we still haven't reached THAT moment – the moment where the game changes.
 
However, when it comes to this bull market, we are approaching the end of the deck. We have counted cards along the way. And now it's time. The game is changing.
 
I call this final phase the "Melt Up." And it means big gains in a relatively short period of time are possible.
 
So where will the biggest gains happen?
 
They typically happen in the highest-volatility stocks. That usually means tech stocks, biotech stocks, and more volatile foreign markets.
 
These are what's been beaten up in the recent market decline. But it's also where we'll see the biggest gains when the Melt Up comes roaring back.
 
Today, we're near the end of the game for this bull market. That gives us an advantage. We have a chance to earn big gains in a short period of time as a result. Don't miss it.
 
Good investing,
 
Steve
 
P.S. When I say "don't miss out," I mean it… Based on history, stocks could underperform for years once this boom is finally over. I've shared some of my favorite Melt Up recommendations with my True Wealth subscribers… along with how to get out before the crash. To learn more about how to access the stocks I believe will soar most in this final phase, click here.

Source: DailyWealth

This Could Be Your Last Great Chance to Profit From One of Steve's Best Ideas

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 it's one of the highest-conviction ideas of Steve Sjuggerud's career…
 
We're referring to his bold prediction that global index provider MSCI would agree to add domestic Chinese stocks – known as "A-shares" – to its emerging markets index last year… and that these stocks were practically guaranteed to move higher as a result.
 
As Steve explained in the June 20 DailyWealth – just hours before the announcement…
 
Today is one of the most important days in the history of investing… This afternoon, MSCI – the leader in global stock market indexes – will announce the results of its annual meeting…
 
I predict – for the first time in history – MSCI will finally include Chinese A-shares in its global indexes. This is a big change. And it likely affects you, even if you don't realize it. You are about to start owning local Chinese stocks in your pension fund – for the first time ever.
 
You see, right now, roughly zero percent of American retirement assets are invested in local Chinese A-shares. But that will all change when MSCI includes local Chinese stocks in its indexes…
 
Right now, 94% of U.S. pension funds that are invested in global stocks are benchmarked to MSCI's indexes. So if you're a teacher, a firefighter, or anyone else with a decent pension fund, you will unknowingly start owning local Chinese stocks for the first time… very soon.

 Of course, Steve was exactly right…
 
Later that day – at 4:30 p.m. Eastern time – MSCI made it official. It would begin to add Chinese A-shares to its benchmark emerging markets index approximately one year later in mid-2018.
 
More important, shares have rallied dramatically, just as Steve predicted. Despite recent fears of a "trade war" with China, subscribers who took his advice are up more than 20% so far.
 
But if you aren't among them, Steve has some great news: You haven't missed anything yet. He believes the biggest gains are still ahead…
 
 You see, the first "tidal wave" of money into Chinese A-shares is about to begin…
 
Remember, MSCI only announced this move last June. But it won't actually start buying these stocks for another couple of months… And history suggests these stocks could absolutely soar in the meantime. As Steve explained in his latest issue of True Wealth China Opportunities last month…
 
MSCI handles changes to its indexes all the time. It moves countries up and down its rankings every few years.
 
The last two countries MSCI elevated were Qatar and the United Arab Emirates (UAE). Both were considered frontier markets – or developing countries that are too small to reach the next category – until MSCI announced in 2013 that it would re-classify them as emerging markets.
 
In both cases, these countries had massive rallies after MSCI's announcement through the day inclusion began. Take a look…
 

 As Steve noted, these were significant rallies…
 
Qatar rallied more than 50% over this period, while the UAE nearly doubled.
 
But take another look at that chart. You'll also notice that the gains began to accelerate in April 2014. More from Steve…
 
The hype an index gets when the flood of money from MSCI is coming is huge. And the biggest gains tend to happen right at the end.
 
You can see it in the chart below. Most of the gains for both indexes happened in less than three months leading up to inclusion…
 

In short, both these indexes saw more than half their massive returns in the final few months before MSCI started buying.
 
This is great news for Steve's favorite A-share investments.
 
 But it gets even better…
 
We mentioned the recent fears of a trade war between the U.S and China. Many of Steve's favorite China opportunities – including these A-shares investments – have fallen 10% or more as tensions have risen over the past several weeks.
 
But Steve believes these fears are overblown… In reality, Chinese stocks enjoyed a massive rally over the past year, and were overdue for a correction.
 
Tariffs are a convenient excuse, but Steve believes a real trade war is unlikely. As he explained in the March 26 DailyWealth
 
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…

In other words, Steve believes the recent correction is a rare second chance to buy Chinese stocks at a significant discount, just before the MSCI "hype" rally begins. And it could be one for the record books…
 
According to news service Reuters, Chinese fund managers have slashed their equity exposure to the lowest level in 18 months. Even Chinese investors don't want to own these stocks right now… which means the rush back into A-shares over the next few months could be incredible.
 
 Of course, A-shares aren't alone…
 
Thanks to the recent sell-off, all 22 of Steve's top China recommendations are "on sale," and he rates them all strong buys today. If you missed out on the big rally last year, this could be your last great chance to get on board this multiyear bull market.
 
To be sure every interested reader has one last chance to take advantage, Steve has agreed to open up his True Wealth China Opportunities service to new subscribers at the best price we have ever offered. But please note, this special offer will only be available until tomorrow night at midnight Eastern time. Click here for all the details.
 
Regards,
 
Justin Brill
 
Editor's note: Steve believes fears of a trade war between the U.S. and China give investors a fantastic buying opportunity right now. Folks who realize what's likely to come next – and follow Steve's advice – could see triple-digit gains… quickly. We've put together a special offer to help you. But you need to act fast… It expires tomorrow. Get started here.

Source: DailyWealth

What to Make of 'President for Life' in China

 
"Steve, there are riots happening right outside your hotel!" my only contact in Jakarta, Indonesia told me over the phone.
 
"All our meetings are off! Whatever you do, don't leave your hotel room!" Then he hung up.
 
I looked out my hotel room window… and couldn't believe what I saw.
 
I saw fire. Young people throwing and breaking stuff. I saw anger. And frustration. Like I've never seen in my life.
 
It was 1998. I had just landed in Jakarta a few hours earlier… during the final days of the 31-year rule of President Suharto.
 
It gave me firsthand experience of how "president for life" can go. And it wasn't fun to witness…
 
The Indonesian rupiah had lost 80% of its value in the past year. The stock market was down more than 90% in U.S. dollar terms. The rumor was that only 22 of the hundreds of companies trading on the Indonesia Stock Exchange were solvent.
 
A day or two later, when the riots dissipated and things calmed down a bit, I had a meeting with the head of Indonesia's central bank.
 
(It's not often that a kid in his twenties (me!) gets a meeting with the most powerful figure in finance in the world's fourth-biggest country by population. But Indonesia was desperate for help.)
 
I asked him what his plan was to stop his currency from falling. He replied, "Got any ideas?"
 
He was only half joking. Indonesia was falling apart.
 
This isn't just an Indonesia story, as you are well aware. History is littered with examples of how leadership with no term limits has turned out badly – and how the countries involved have ended up worse off.
 
Hugo Chavez eliminated term limits in Venezuela in 2009. Vladimir Putin circumvented the existing term limits in Russia – he has now entered his fourth term. And, as I'm sure you've heard, the Communist Party recently eliminated term limits in China.
 
That's right… We now have a potential "president for life" in China. This is a big change. And it's important think about what it means for Chinese investments.
 
My good friend Peter Churchouse has been based in Hong Kong since 1980, and he's been analyzing and commenting on China for nearly 40 years. He recently wrote to his subscribers about China's new move to abolish term limits:
 
In the bigger picture, a big danger of the "president for life" approach is the potential for policy mistakes to go unchecked. In other countries, we've seen leaders start out reform-minded. But under the golden halo of absolute power, they became an autocratic "bad emperor."
 
So far, there have been few major policy blunders in China. But the imposition of unchecked, unlimited power increases the risks of such errors over time.

Peter is exactly right. It's a genuine concern for the political and economic system in China. It could go badly… eventually. But what does it mean for investors today?
 
I've been a major China bull over the past few years. I even launched a China newsletter to capitalize on the once-in-a-lifetime opportunities that are taking place there now.
 
Still, those opportunities have a shelf life. I don't expect to be "all in" on China forever. And while the lesson of history is that "president for life" is not a good thing in the very long run… you can make a lot of money in China without being around for the long run.
 
In the short run, this could be hugely beneficial for Chinese stocks.
 
Stock markets hate uncertainty. And over the next few years I expect to be investing in China, it appears we will have certainty there. President Xi Jinping will be in power, period.
 
So no, I'm not a convert to "president for life." But we still have a great window of opportunity in China.
 
Stocks are still reasonably priced, and outside investors have not bought in yet. We should have a reasonable period of certainty in the markets.
 
These are good things. And they point to major opportunity in China right now.
 
I've said it many times: I expect hundreds of billions of dollars will flow into Chinese stocks over the next few years. If you haven't already… get your money there first.
 
Good investing,
 
Steve
 
P.S. The other cloud hanging over China is all the talk of trade war with the U.S. This has been big news in recent weeks. But I believe the media has it wrong… The trade wars have actually created a fantastic opportunity. I recently put together a brief presentation that explains it in detail. Get the full story here. (You won't have to sit through a long promotional video.)

Source: DailyWealth

How Americans Lost 69% of Their Savings

Steve's note: I believe stocks can still go higher from here. But if you're worried about when the boom times will end, you can still profit… and take steps to prepare. Yesterday, my friend and colleague Porter Stansberry warned that a "Debt Jubilee" could be on the horizon. Today, he digs into the consequences of past Jubilees in America… and shares how you can protect yourself.
 
In 1933 – in order to deal with mounting debts and print money to pay for dozens of new social programs – President Franklin D. Roosevelt made two extraordinary changes to the financial system.
 
First, he closed banks for four days and forced Americans to turn in each ounce of gold they owned for $20.67 in paper money.
 
Then the government raised the price of gold, wiping out 69% of the savings of anyone who followed these rules.
 
You're probably familiar with that part of the story. But that was only the beginning…
 
Roosevelt also eliminated the "gold clause" in all contracts, including loans, bonds, and other financial instruments.
 
You see, at the time, people were worried the government might inflate away the value of their money.
 
So they added a gold clause, which said repayments could be required to be made in gold.
 
These gold clauses were in federal loans, bank deposits, insurance contracts, and other private agreements.
 
When Roosevelt outlawed the gold clause, he stole billions from investors. In fact, a Harvard paper estimates this rule took $700 million a year from private investors who bought government bonds.
 
Billions more were stolen from folks who lost money from the elimination of the gold clause in private contracts, bank accounts, and insurance deals.
 
Eliminating the gold clause was so controversial, investors sued the government. The case went to the Supreme Court.
 
Roosevelt was terrified his Debt Jubilee would be overturned. He even drafted a speech saying he would ignore the court if it ruled against him.
 
But his political pressure worked, and the court ruled 5-4 in Roosevelt's favor.
 
Of course, there were consequences…
 
Tens of millions of Americans lost massive amounts of their savings. And after booming, the stock market soon fell 50% in a single year.
 
Investor confidence was crushed. Supreme Court Justice Harlan Fiske Stone vowed he would never buy another federal bond.
 
We had another Debt Jubilee in America about 40 years later… Starting in the late 1960s, we saw another populist uprising… a combination of economic and social upheaval.
 
If you're old enough to remember, think about the anger and resentment of the 1960s.
 
The Black Panthers' slogan was: "Power to the People." The idols of the day were people like Latin-American guerrilla leader Che Guevara, Malcolm X, and Muhammad Ali.
 
All over the country, there was one clash after another…
 
Small farmers fought banks and railroads… Union workers battled their bosses and federal judges. On college campuses, students fought anyone with authority. Election rallies routinely ended in violence.
 
Things were so bad, Lyndon Johnson decided not to run for re-election. Martin Luther King Jr. and Robert Kennedy were assassinated.
 
In 1968 alone, there were violent uprisings in more than 120 U.S. cities.
 
A few miles from where my company is headquartered today, thousands of National Guard troops and 500 state police officers were brought in to quell the violence and looting.
 
At the same time, a major financial crisis was brewing…
 
The government had borrowed extraordinary sums, and we were having a hard time repaying creditors.
 
That's because at the time, every dollar was required to be backed by $0.25 worth of gold. So the government couldn't print unlimited amounts of money out of thin air.
 
Also, foreign creditors who owned U.S. government bonds were allowed to collect repayments in gold bullion instead of dollars… so our gold reserves were quickly disappearing.
 
Get this: Between 1958 to 1968, 52% of America's gold reserves left the country in the form of repayments for our debts.
 
The government was scared. It knew there was only one way out… another Debt Jubilee.
 
First, we eliminated the 25% gold backing of every dollar.
 
Then, in 1971, President Richard Nixon completely defaulted on our promise to pay gold for dollars to our foreign creditors.
 
Once again, the government simply wiped the slate clean.
 
No one could redeem dollars for gold any longer.
 
This allowed the Fed to print as much money as it needed to make payments on our debts.
 
But once again, there were consequences…
 
In the 1970s, the U.S. dollar lost 30% of its value over a several-year period. Inflation more than doubled. And the stock market fell 48% in less than two years.
 
Unemployment was around 10%. And, believe it or not, the Federal government got so desperate that it issued "Carter Bonds" denominated in Swiss francs because the U.S. dollar could no longer be trusted.
 
That brings us to today.
 
Once again, the stage is set for America's next Debt Jubilee.
 
We are living in a world of two different Americas. For the wealthiest 40% of the population, life is good. Asset prices are rising… and wages are finally starting to increase.
 
For everyone else, life is getting worse…
 
For the bottom 60% of America, consumer debt is high and wages are stagnant. Most of these folks would have difficulty raising even a few hundred dollars for an emergency. These folks have less than $20,000 on average saved for retirement. Physical and mental health is deteriorating. And death rates are soaring. Premature deaths are up by 20% since 2000.
 
As Bridgewater Associates wrote in a 2017 report…
 
The biggest contributors to that change are an increase in deaths by drugs/poisoning (up two times since 2000) and an increase in suicides (up over 50% since 2000).
That is the definition of hopelessness.
 
And it's why the inevitable Jubilee in America is already underway…
 
The concept of a Jubilee comes from the Bible (The Old Testament), the Book of Leviticus, Chapter 25.
 
A Jubilee in the Jewish tradition was said to occur roughly every 50 years. It was a time for total forgiveness of debt and the freeing of slaves.
 
Pope Boniface VIII proclaimed the first Christian Jubilee in 1300. And rulers throughout history have occasionally used a Jubilee to reset the financial system – especially when the poorest citizens are threatening revolt.
 
Today, the vast majority of America is in bad shape. And the poorest citizens are calling for a radical solution…
 
But this Jubilee will be different from the 1933 and 1971 ones we've discussed.
 
The federal government is free to print all the money it needs to pay government debts. Private households are different.
 
The only ways out of private debt are to pay it, to default, or to have it forgiven with a Debt Jubilee.
 
Today, America's low-income households don't have the funds to service the money they owe. It's mathematically impossible. And politicians will never allow tens of millions of our poorest citizens to go bankrupt.
 
So the only solution left is a Debt Jubilee.
 
It will be similar to the one that took place in 1841 in America
 
Back then, the laws were temporarily changed, so debtors could be discharged of their debts – without the consent of the creditors. Over a period of 13 months, more than 40,000 people wiped away their debts before the act was rescinded.
 
Today, it will be tens of millions of people and trillions of dollars. And once again, there will be consequences…
 
Millions of investors, pensioners, insurance customers, and creditors will lose a fortune. Stocks will collapse. Dozens of companies will go bankrupt.
 
I'm not saying this to scare you. This is simply the reality we face.
 
The Jubilee is already starting. Protect your financial accounts. Get out of the common investments that are most likely to get crushed. Focus on ways to profit while everyone else loses their shirts.
 
And learn all you can about the corruption destroying America…
 
Regards,
 
Porter Stansberry
 
Editor's note: Porter says the coming Debt Jubilee is inevitable… and it will be devastating for most of America. But you don't have to be a victim. His recent presentation covers all the information critical to protecting your wealth… And you'll even learn how you can position yourself for huge gains as this event shakes up the financial markets. Click here to learn more.

Source: DailyWealth

A Major Jubilee Is Coming to America

Steve's note: Regular readers know I'm bullish today. But eventually, the "Melt Up" will end – and when it does, my friend and colleague Porter Stansberry wants you to be ready. That's why this week, I'm sharing the first chapter of his book, The American Jubilee. In today's piece, he argues that the warning signs of a coming "Debt Jubilee" are already here…
 
If you study American history, you'll see that Debt Jubilees occur only in a unique type of extreme political environment.
 
After all, a Jubilee is a radical measure.
 
The government essentially steals money from one group and hands it to another.
 
In order for this to occur, four elements must be in place…

 
1.   The wealth gap must be getting dramatically bigger.
 
2.   There must be cultural threats from those with different values or from outsiders (in other words, minority populations and immigrants).
 
3.   The government must be ineffective at providing solutions.
 
4.   And there must be growing anger toward the "elites."

Sounds familiar, doesn't it?

 
We have the largest gap ever between the rich and poor…
 
We have huge increases in violent protests about immigration and race…
 
We have a completely ineffective government…
 
And we have extreme animosity toward the "elites" from both the left and right.
 
Check… check… check… and check.
 
There's actually a name for this type of political and social phenomenon. It's called "populism." And it emerges every 30 to 40 years…
 
Populist movements are characterized by extreme anger at the government, at the wealthy, at the establishments, and at "newcomers" and minorities.
 
As the director of an Alabama group that tracks violence and hate crimes around the country told Newsweek in June 2017: "There has been a massive explosion of violence across the country."
 
I'm sure you've seen this yourself.
 
The hatred and anger is like nothing I've witnessed in my lifetime. And it's coming from all sides. A member of my staff went to a book reading in Baltimore by one of the most famous left-wing authors in the country.
 
The author told the crowd that he wished he could go back in time and smother Donald Trump in his crib as a baby… or convince Trump's mother to have an abortion.
 
This epitomizes the political and social environment in America today.
 
From the protests and marches… to the refusals to stand during the national anthem…
 
From Black Lives Matter to the anti-immigration movements… to the rejuvenation of white supremacists… to the tripling of membership in the Democratic Socialists of America.
 
It's clear we are in the middle of an extreme "populist" period in America.
 
Ray Dalio, one of the richest men in America, studied the political environments of the past 100 years and concluded in March 2017…
 
The last time that it [populism] existed as a major force in the world was in the 1930s, when most countries became populist. Over the last year, it has again emerged as a major force.
Look at this chart. The big spikes show when populist politicians got the most votes in America and abroad…
 
So what does this all mean?
 
It proves that what we're experiencing today is eerily similar to what happened in the 1930s… right before the biggest and most radical Debt Jubilee in American history.
 
The economic comparison is stunning.
 
Interest rates hit zero leading up to each of these periods…
 
The government went into mega money-printing mode during both periods…
 
Printing money caused the stock market and other risky assets to boom during both periods… boosting the wealth of the rich, but doing nothing for the poor…
 
 
During the 1930s, just like today, the wealthy acquired a much higher-than-normal percentage of our nation's wealth…
 
And in both the 1930s and today, the percentage of the population who were foreign born was higher than normal… causing animosity among the "common man."
 
Just like today, the economic conditions of the 1930s caused extreme income inequality.
 
Back then, the top 10% earned 45% of all income (compared with 50% today) and owned 85% of the wealth (compared with 75% today).
 
Even the political characters are the same…
 
The 1930s saw a popular socialist presidential candidate, just like we had in 2016. Huey Long was a former governor of Louisiana and a U.S. senator. He proposed an income cap at $1 million… a 30-hour federal work week… and 100% income taxes at the highest level.
 
Long even established 27,000 "Share Our Wealth" clubs around the country and had a radio show that was listened to by one in five Americans.
 
So where did this all lead? It led to America's most dramatic Debt Jubilee to date…
 
Regards,
 
Porter Stansberry
 
Editor's note: A financial revolution is already starting to take place across America. But you still have time to protect yourself. Porter and his team of analysts have put together a presentation to explain everything. You'll learn how the Jubilee will play out, as well as the steps you can take to survive… and prosper. Get the full story here.

Source: DailyWealth

Watch the Lie, Part 2: The Big Interest-Rates Lie

 
Last week, I warned you to watch out for the lie about stocks.
 
This week, I want to warn you about the interest-rates lie…
 
Most people think interest rates are about to go dramatically higher.
 
But they aren't going to go dramatically higher. They CAN'T go dramatically higher.
 
Even the Federal Reserve – which recently raised short-term interest rates to 1.50%-1.75% – said in late March that it will raise short-term interest rates to 3.4% by 2020.
 
The Fed is lying…
 
It can't possibly raise interest rates that high. It would cause the next Great Recession.
 
I understand why the Fed wants to raise interest rates. It wants to "normalize" interest rates to what we are used to… It wants to have the ability to lower them if the economy starts to struggle again.
 
I get it.
 
The problem is, "what we are used to" is irrelevant. Yesterday is not today. And right now, one of the market's biggest legends is saying the same…
 
"The Fed's purported three to four hikes this year beginning in March are likely exaggerated," Bill Gross said last month.
 
Gross is known as the "Bond King" for his many decades of correct calls about interest rates.
 
Today, he agrees with me. Significantly higher rates are not possible.
 
His explanation is simple: "The U.S. and global economies are too highly leveraged to stand more than a 2% [short-term interest rate] level in a 2% inflationary world." In other words, the U.S. and global economies carry a lot of debt today.
 
So why does that mean the markets can't handle interest rates higher than 2%?
 
As Gross puts it, "When it comes to financial markets… the 'beast' is really leverage." It's what caused the Great Recession. And if central banks raise rates too quickly, we'll risk going down that road again.
 
"The Fed, under Jerome Powell, hopefully has learned that lesson, and should proceed cautiously," he adds. In other words, the Fed should stop raising interest rates at closer to 2%.
 
If Gross is right, then what does that mean for investors in long-term bonds – like 10-year Treasury bonds?
 
"Investors should therefore look for 3% plus or minus on the 10-year for the balance of 2018," he says.
 
So… The Federal Reserve says short-term interest rates are going to 3.4%. But the Bond King says we can't have short-term rates higher than 2% in a world of 2% inflation.
 
Who do you think will be right? The Bond King, or the Fed?
 
The Fed is lying to you – in my opinion. It is trying to fool the markets into thinking that it will raise short-term interest rates to 3.4% by 2020.
 
The Fed wants to keep markets in check. It wants folks to know that low rates won't be around forever. Posturing is the best tool it has right now. But 3.4% by 2020? I don't buy it.
 
In my book (and the Bond King's book), as long as inflation is in the range of 2% or less, that won't happen in this economic cycle.
 
Good investing,
 
Steve
 

Source: DailyWealth

The Cornerstone of Preventing Investment Worry

 
For those of you constantly fearing the next market crash, you need to remember one thing…
 
The U.S. stock market is the greatest wealth-creation tool in history.
 
It allows you to become a partial owner of thousands of profitable businesses. When paired with the power of compounding, the market is what allows us to even consider saving for retirement.
 
Even so, people mostly complain about the market's bad days and investments that fail to rise immediately.
 
Right now is one of those times…
 
The stock market took a wild ride recently. On February 5, the Dow lost nearly 1,200 points, about 4.6%. And Wall Street's "fear gauge" – the CBOE Volatility Index (or "VIX") – soared by more than 100%.
 
The VIX is often known as the "Fear Index" because it doesn't measure the actual volatility of the stock market. Instead, it measures the volatility that investors expect in the future by looking at how expensive options – which investors can use as protection – have gotten.
 
The recent spike is clear in the following chart…
 
Looking at days like these, you may conclude the market is scared. You might look at the balance in your retirement account and wonder if it could be 20% or 30% lower in a few months.
 
But if you look at valuations – what people are paying to own stocks – it's clear the market isn't that scared.
 
Since the end of January, the price-to-earnings (P/E) ratio of stocks fell from 22.7 times to 21.2. Keep in mind that the S&P 500 Index has traded at an average ratio of around 16 over the past 60 years.
 
And as Steve Sjuggerud pointed out last week, even the S&P 500's forward P/E ratio (which takes into account next year's estimated earnings) is just around its 25-year average… Not high, not low.
 
This may sound like splitting hairs, but the difference between scared and slightly less optimistic is a big one. And understanding that difference will help you sleep well at night.
 
We don't know where the market will be next month. It may be down or up. The recent correction could develop into a bear market – though we don't suspect it will.
 
The point is, if you're preparing for or near retirement, you've got a heck of a lot to look forward to. And if you set yourself up with a sound financial plan, you have little reason to be concerned.
 
Here's how you do that…
 
First, focus on saving and investing. You need to live below your means to accumulate wealth. There's no backdoor trick around that fact.
 
Then, when you try to figure out your investments, set reasonable expectations. You're not going to double your retirement account in a year. You are going to have wins and losses… and, over time, you'll see the beautiful effect of compounding.
 
Building an intelligent portfolio of stocks, bonds, and other asset classes also means you'll have less to worry about and more to gain. This is the power of asset allocation.
 
Stocks, bonds, real estate, gold, and other investments move in different directions and are influenced by different economic factors. By holding multiple asset classes, you reduce your risk and increase the return you get per "unit" of risk you take on.
 
When you look back, you'll always wish you had more of what went up and less of what went down… But you'll never be able to do that with certainty. Asset allocation doesn't guarantee returns, but it gets you closer and closer to a predictable rate of return.
 
When you make individual investments, you also need to mind your position sizes and use trailing stops.
 
Always limit an individual stock position to no more than 4% or 5% of your portfolio. Yes, when you buy a stock that shoots up, you'll wish you had bought more. But if you get that feeling sometimes, it means you are doing things right.
 
Likewise, a trailing stop will make it so that you know exactly what you can lose from an investment.
 
These are the cornerstones of preventing worry.
 
The simple fact is that "capital" earns a positive return over time. Having a sound financial plan allows you to earn the fair return on your capital… while smoothing out the scary times in the market.
 
Here's to our health, wealth, and a great retirement,
 
Dr. David Eifrig
 
Editor's note: If you're over age 50, Dave has discovered a dirty secret that could threaten your retirement. It's what the government won't tell you about a nasty federal regulation… one that could affect millions of U.S. seniors this year. Dave reveals it all in a special presentation – plus how you can get around this rule for big potential gains. Click here to view it now.

Source: DailyWealth