The Weekend Edition is pulled from the daily Stansberry Digest.
As longtime readers know, Steve has popularized the term "Melt Up"...
It's catchy, no doubt, and also an appropriate way of describing what has happened with the stock market over the past decade or so – how stocks just kept reaching new highs no matter what drama was going on in the world.
Steve first coined the phrase in Las Vegas at our annual Stansberry Conference in 2015, but the heart of the idea goes back years earlier... to the government's response to the previous financial crisis.
In other words, we've seen this story before.
That's because, as Vic Lederman wrote in last week's Weekend Edition... a lot of folks fail to realize that the Melt Up is built on an economic philosophy.
It's not an approach that we would suggest anyone use to manage their own nest egg (or is even possible, lending to yourself at near-zero interest rates), but it's one that the Federal Reserve and governments around the world have used for years... and most notably since the financial crisis of 2008 and 2009.
In short, we're talking about larger amounts of "easy money"...
And as Vic described so well last weekend, the initial idea behind Steve's thesis years ago was simple...
- The world had just been through a major economic crisis.
- The Federal Reserve and the U.S. government were taking massive action to end the crisis.
- That meant interest rates would stay at rock-bottom levels for longer than anyone could possibly imagine.
- And the net result would be an asset boom... one that could be larger than any of us would ever see again in our lifetimes.
Those four components are the core of Steve's Melt Up thesis. And the philosophy behind them is simply that policymakers will push markets to ridiculous extremes just to keep things rolling in the "right" direction.
If you run down the list of Steve's four main points that define a Melt Up, it doesn't take a market wizard to realize the same thing is playing out today – only with different circumstances.
This time... instead of a mortgage crisis and housing bubble, followed by a market crash and a Fed-fueled record bull market... it has been a pandemic and government shutdowns, a simultaneous market crash, and a Fed-fueled end to the shortest bear market in history.
And today, stocks continue to go higher...
So, if you ask us, "Did COVID-19 kill the Melt Up?"... we'd say, "Hardly." The theme actually might be stronger than it has ever been.
For one, more "fake money" has fallen from the sky than ever before...
That means fuel for the next great asset boom and its unimaginable highs has arrived on a greater scale than ever before. The amount is much greater than what we saw even in the wake of the financial crisis (and more might be on the way).
As I wrote in the July 27 Digest, the numbers are startling the further back in history you go...
In 10 days in March, the Fed created trillions of dollars of free "fake money"... more than it had created in the previous 30 years before the financial crisis of 2008 and 2009.
At its most basic level, this means there's way more money in the financial system that's available in different ways today than anyone thought imaginable at the start of 2020...
At the same time, interest rates are near zero – again, just like after the financial crisis... And we're seeing the consequences, or the "net result," as Vic described it, starting to play out.
Here's just one example...
Take the growing popularity in investing circles of figures like Barstool Sports founder Dave Portnoy, also known as "Davey Day Trader."
Portnoy likes to say, "stocks only go up," which is, of course, not true. But if you're the type of new investor like him who has only followed stocks since the end of March, you largely don't know anything different.
And this has been the case for a lot of new investors.
We sense a bit of sarcasm in Portnoy's public comments and think he's not as freewheeling as he leads on, but we know not everyone is so keen.
More commonly, newcomers to the market have been making money over the past six months (unless they traded only in September) but are largely blind to what experienced investors know...
- They are actually part of the Melt Up with each share or bullish call option they buy, and...
- Maybe more important, they're largely unprepared for the other side of a great asset boom, be it a Fed-fueled rise of stocks today, "tulipmania" in 17th-century Holland, or bitcoin in 2017.
On that last point, you've heard our founder Porter Stansberry and Steve say this over the years...
For every Melt Up, there is a "Melt Down"...
Don't get us wrong... You can make a ton of money during a Melt Up. We may not like the long-term consequences of years of "easy money" policies (more and more debt), but in the short term it can mean a boom for stocks.
But folks must be prepared for the inevitable downside of a massive government-fueled asset bubble, too. The bigger the bubble, the messier the pop.
So here's the most important thing we can tell you today...
To make the most money you can without losing a fortune, you want to be on the right side of both the Melt Up and the Melt Down. You don't have to time it exactly right to the hour or day... but you want to get at least as close as you can.
And you definitely need to know the best investments to take advantage of and prepare your portfolio for both sides of the Melt Up and Melt Down.
With all that in mind, Steve just gave his latest update on his Melt Up thesis earlier this week...
We don't want to spoil everything Steve discussed... You can still watch the event for yourself, available for a short time. But it's safe to say Steve delved into more nuances of what the Melt Up really means. And that's two things, really...
It's an economic philosophy, as we already described above. But there is also the critical "end of the Melt Up" stage, where it feels like almost everyone you know is downright giddy about the stock market.
Like the Davey Day Traders of the world.
We're not experiencing full-blown euphoria yet, but Steve and his team say we're on the way...
We will definitely continue to see and hear plenty of stories from everyday folks who believe they can't lose money. And institutional investors, who have been more scared of risk as the markets have churned higher over the past few months, are getting "less scared" of the market today, too.
According to the most recent survey of hundreds of money managers and investors around the world by Bank of America, "cash levels" held by these folks in the past six months have dropped at the fastest rate since 2003.
This is important... because A LOT of cash has been sitting on the sidelines in things like barely-any-yield money market accounts since March. The amount of cash held by institutional investors reached $3.3 trillion in May.
As you can see in the chart below, the amount of cash that Wall Street managers have held has been declining steadily since May, but they still have about $700 billion more on hand than before the COVID-19 pandemic and subsequent government shutdowns...
If you're a believer that this cash will continue to come off the sidelines, that means this roughly $700 billion must go somewhere...
With rock-bottom interest rates in place today and the same expected from the Fed for the next few years, there's nowhere for money to go... except stocks.
We're not experiencing full euphoria yet, but it's coming. And these shifts in sentiment are also happening quicker than they did after the financial crisis a decade ago.
Said another way, even if we don't like what's happening with our economy today – and Steve acknowledges that the long-term consequences of this money-printing won't all be good – this is the world we must work with today.
And the good news is... Steve has a plan for it.
All the best,
Corey McLaughlin
Editor's note: Just this past Wednesday, Steve held his "State of the Melt Up" event where he shared the most critical update to his Melt Up thesis to date. He discussed why today's flood of "fake money" has sparked something big in the financial markets... And he covered exactly what to do with your money to position yourself on the right side of the Melt Up – and the inevitable Melt Down. If you missed any of the details, catch the replay right here.
