The Weekend Edition is pulled from the daily Stansberry Digest.
You might not believe what you're about to read...
I just made the biggest prediction of my 20-plus-year career at Stansberry Research.
During my recent webinar on October 19, I told an online audience of tens of thousands of folks – many of whom have never heard of me or Stansberry Research – why I believe there's a lot more downside in stocks from here... and that it'll be followed by a 20-year sideways market in which the S&P 500 Index doesn't make a new high.
Regular Digest readers know I've been bearish on the stock market for more than a year. I've warned about the likelihood of a multiyear sideways market. But that's not the part they won't believe...
Longtime readers have heard me say, "Prepare, don't predict." I've also said that making predictions is a fool's errand.
And yet, on that night, my webinar co-host Amy Gamper and I must have used the word prediction 100 times to describe my viewpoint...
So what gives? Have I done a 180 and gone into the predictions business?
The explanation is simple.
We humans can't help but think about the future...
It's impossible to avoid such thoughts. I doubt you could be a functioning human being without thinking about the future and trying to make some guess about how it might look.
The process of valuing a business, which I've spent most of my career studying, is based on guesses about the future. I'll go even further... It's impossible to value any asset without making assumptions about the future.
When I say "Prepare, don't predict," I'm referring to the moment when you put your hard-earned capital at risk. My mantra is about not betting 100% of your capital on any (especially macro) prediction or forecast.
A longer way of saying my three-word mantra might be, "Never bet your whole portfolio on any single prediction or forecast. You don't know the future and neither does anybody else. A good investor must prepare his portfolio for a wide variety of outcomes."
If you saw my presentation on October 19, this might be an unsatisfying explanation so far.
But the truth is often unsatisfying...
For example, it's as unsatisfying as it is true that nobody wants to be told it's easy to get rich slowly. All you have to do is commit to the discipline of saving and investing for several decades.
Furthermore, investors need to learn to think about the future the way historians do. They need to learn about the past and think about whether the future might resemble it. The future won't repeat the past, but as the saying goes, it'll rhyme.
That's what I did at my webinar... I expressed my belief that history is about to rhyme with specific episodes from the past. What's more, those episodes were some of the most difficult times investors have lived through over the past century or more.
Like I showed you on October 19, past mega-bubbles all started out like the current one did... And every one of them ended with a steep bear market followed by a sideways market. I simply find it far too difficult to believe that this mega-bubble will turn out differently.
You've probably heard that "this time is different" is the most dangerous phrase in finance. I couldn't agree more.
Something that keeps happening over and over again for 800 years is not a coincidence...
It's human nature in action. And it's proof that people behave certain ways under certain market conditions...
For example, what's the difference between people getting caught up in the frenzy to pay any price for tulip bulbs in Holland in 1637 and the frenzy to pay any price to buy non-fungible tokens ("NFTs") in 2021?
Tulips and NFTs sure are different. But the human behavior in both frenzies looks pretty much identical to me. People saw the price of something increasing and lost all relationship with what they knew – if anything – about its value. They behaved desperately, trying to make a fortune overnight. Many of them eventually lost everything and lived to regret such a vain effort.
Before every speculative frenzy fell into a crisis, some expert said, "This time is different." But it never was... And it never will be. This is not just an old market adage. It's some of the most profound, time-honored, proven wisdom available to humanity.
The Book of Ecclesiastes says, "There is no new thing under the sun." That doesn't mean you can't invent new ways to do everything from cooking your dinner to moving between two points on the globe. History tells us you can do those things. What it does mean is that human nature never changes.
Financial crises – including mega-bubbles, bear markets, and multidecade sideways markets – are as old as markets. They will happen as long as human beings are the primary actors in them.
No mega-bubble has ever ended without a brutal bear market, followed by a decades-plus-long sideways market...
For example...
- A negative 89% bear market and a 25-year sideways market followed the September 1929 Dow Jones Industrial Average mega-bubble peak.
- A negative 78% bear market and a 15-year sideways market followed the March 2000 Nasdaq Composite Index mega-bubble peak.
- A negative 76% bear market and a still ongoing 33-year sideways market has followed the December 1989 mega-bubble peak in the Japanese stock market.
I consider repeating all this once again to be a valuable service. It's too hard to remember every day that part of what you need to prepare for is the worst thing that will ever happen to you as an investor. Human nature again.
But keeping it at the forefront of your mind is more urgent than you may imagine.
The mega-bubble + bear market + sideways-market phenomenon is like a convicted serial killer who has escaped from prison...
Would that scare you? Of course! It would be a nightmare for anybody near that prison. Even if you lived thousands of miles away, you'd fear for those nearby.
Well, bursting mega-bubbles are like serial killers on the loose. They've killed millions of folks' retirements before, and they'll do it again. In fact, they're slashing away at them as you read this. Just look at stocks and bonds since January 1...
It's the worst start to the year for stocks since 1970, and the worst U.S. Treasury bond performance since 1788. Mortgage rates are above 7%... And inflation is above 8%.
There's no way we'll get out of this with a "soft landing." We're going to experience a very hard landing, likely featuring stagflation, recession... and a sovereign debt crisis whose magnitude is difficult to fathom.
So call it a prediction. Call it a forecast. Call it corned beef on rye if you like. I don't care what you call it...
I've identified something which the market's actions – unpleasant as they've been – suggest will get a lot worse... and which most folks aren't prepared for at all.
If you want to know where we are right now, check out economist/portfolio manager John Hussman's latest market comment titled, "Estimating Downside Market Risk," in which he quoted the classic 1932 finance book, The Dow Theory, by Robert Rhea...
There are three principal phases of a bear market: the first represents the abandonment of the hopes upon which stocks were purchased at inflated prices; the second reflects selling due to decreased business and earnings, and the third is caused by distress selling of sound securities, regardless of their value, by those who must find a cash market for at least a portion of their assets.
If you want to know where we are right now, just ask yourself... Does it seem like investors have abandoned the hopes upon which stocks were purchased at inflated prices?
It seems to me like they can't wait for any reason to pour their money back in. They're still in denial and desperately trying to win back what they've lost. That never ends well...
I've devoted myself to warning folks about what the market's action of the last couple years likely means for the next several years. I hope I'm wrong. But like I said, it seems foolish to believe that this time will be different... since it never has been in past mega-bubbles.
Even if I'm 50% right, we're talking 50% of the worst calamity U.S. investors have faced since the Great Depression.
Add to that the disturbing fact that most investors today have never really dealt with the combination of high inflation, rising interest rates, and a bear market...
We haven't seen inflation this high for 40 years. A 50- or 60-year-old investor probably wasn't buying stocks back then. If they were, they were just getting started and got lucky to come in at the tail end of the brutal 1970s inflationary period.
Investors are facing the worst calamity ever, and they're totally unprepared...
Most investors today are more likely to deny what's happening and what it means than they are to study up on their market history and prepare their portfolios.
It all sounds terrible, I know... But as I showed DailyWealth readers this week (here and here), it's not all bad news. There are strategies that are perfect for the type of market that's unfolding today, and I believe they will dominate the scene for at least a decade, maybe two.
I can't give away Extreme Value stock recommendations, but during my webinar, I did share two stocks I think you ought to sell right away. They're two of the most popular stocks in the world right now, so you'll want to hear the full details.
Furthermore, as I discussed in my presentation, we've created a "done for you" 10-stock portfolio that should help you survive – and even thrive – during the difficult times ahead.
If you missed my event, you're in luck. For a limited time, you can watch a replay right here. It's not short, but please watch the whole thing. Do it so you can tell yourself you gave my warning a chance. If you disagree with my conclusions, no harm – at least you'll have learned some interesting market history.
I hate to think of all the folks who'll be blindsided by what's coming. And I hate to think I didn't do everything I could to convince everybody I could to wake up and prepare for it.
I hope you'll take a look at my presentation. What could be the worst calamity you face as an investor is on the horizon... You need to have a plan to survive it.
Good investing,
Dan Ferris
Editor's note: Dan recently made the boldest prediction of his 20-year career at Stansberry Research. And even if he's only 50% right, the effects of what's coming could spell financial ruin for millions of Americans. That's why Dan went on air to share the top steps you should take to protect your money... right now. In case you missed this must-see event, click here to watch the replay before it goes offline.
