Porter's Latest Prediction Just Came True
The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
The signs started to appear months ago...
Last summer, Stansberry Research founder Porter Stansberry warned that a significant stock market correction – or possibly something much worse – was now certain for the first time in years. As he explained in the August 4 Stansberry Digest...
How much longer can this go on? No one knows. But for the first time since 2010, we're now hitting levels on our complacency indicator that suggest a market correction is imminent...
This indicator hasn't warned about every correction. (It correctly warned about seven of the last 10.) But it hasn't produced any "false positives," either. In other words, while it doesn't spot every correction before it arrives, when it has told us that a correction is coming, the correction always does. (To be perfectly accurate, one of the resulting corrections only saw a decline of 8.4%. All of the others were in excess of 10%.)
You can see the key threshold level in the chart above. Drops in measures of fear below this level (30) always indicate a correction or bear market within 12 months.
We don't know if the warning signal we're getting now means that the "big one" is imminent, or if we are only going to see a "small" correction. But we know something is coming. We know it's coming soon. And we know that there are huge excesses in the credit markets, in particular.
In the fall, Porter went even further...
He said that it was simply a matter of time before the so-called "short volatility" trade imploded. And he warned that this could trigger a market panic... and potentially even set off the crisis he's been predicting.
Of course, he was exactly right...
The short-volatility trade did implode last week, just as Porter predicted. And the resulting sell-off pushed stocks into official "correction" territory – defined as a decline of 10% or more from a high – for the first time in two years.
Surely, Porter is even more bearish now? Surely, he's preparing for further downside... and the start of the serious crisis he has been predicting?
Not exactly. As he wrote in the February 9 Digest...
I don't believe the market action this week presages a bear market. It doesn't feel like the start of a new crisis...
Where is the epicenter of this big bull market in stocks? It's tech stocks like Tesla (TSLA), Netflix (NFLX), Nvidia (NVDA), Amazon (AMZN), and Facebook (FB). All of these companies' earnings have been good or great – even Tesla, whose business model I believe will eventually implode (but hasn't... yet).
Revenues beat expectations. Losses were below forecast. The other most likely blow-up, Netflix, is performing even better than anyone thought possible, adding an incredible 8 million new subscribers last quarter. Netflix was expected to add 1.25 million new U.S. users last quarter. Instead, it added 2 million. That's a huge beat.
As Porter explained, we haven't seen the "Lucent Moment" yet...
This is when one of the "darlings" of the preceding boom begins to falter... And it often marks the unofficial start of the bust to follow.
Near the end of the Internet boom in the late 1990s, telecom firm Lucent Technologies collapsed after an earnings miss in January 2000. The broad market peaked less than two months later… and went on to lose 50%-80% over the next two years.
During the housing boom and bust last decade, it was the failure of mortgage giants Fannie Mae and Freddie Mac in July 2008 that kicked off the real crisis.
In other words, Porter doesn't believe this boom will end until we see similar signs of trouble in today's tech darlings... And that simply isn't the case today.
So rather than make him more bearish, the recent volatility has made him more bullish, at least in the near term. More from the February 9 Digest...
When other investors are acting greedy, we try to become as cautious as we can... Today, we're seeing the opposite...
Investors are worried. It's possible – though not inevitable – that a real panic could emerge as forced selling leads to more volatility, which leads to more forced selling as futures dealers have to continually buy more equity puts to balance these trades. It's unclear what impact these new volatility-linked exchange-traded funds will ultimately have on the markets.
But as stocks go lower, so do the risks. And as stocks go lower, better and better opportunities will emerge. Don't begrudge these idiots for their madness. Revel in it. While lots of value is being destroyed, just as much opportunity is being created – for you.
My advice is simple... Follow your plan. You'll free up capital if the market falls further by following your trailing stops. That will give you "dry powder" when the smoke clears. Ideally, you've already put aside plenty of cash, and you have at least some non-correlated assets that will help buffer the madness.
History suggests Porter will be right once more...
In a research note published this week, analysts at financial-services company Canaccord Genuity noted that the big recent spike in volatility created an unusual situation. As the CBOE Volatility Index ("VIX") soared to more than 50, it pushed one significant momentum indicator – known as the "10-week rate of change" – above 125.
The ins and outs of this indicator aren't really important here. All you need to know is this extreme is rare. It has only happened four times in the 25-year history of the VIX. And more important, all four instances were followed by additional short-term volatility and at least slightly lower lows in stocks.
The first occurred in September 1998, following the collapse of Long-Term Capital Management that August. After "bouncing" off its lows, the S&P 500 Index fell another 4.9% over the four weeks following this signal before bottoming in early October.
The second was in October 2008 – at the peak of the last financial crisis. Again, stocks bounced... And again, they made a lower low. The S&P 500 fell another 24.8% following this signal before bottoming in March 2009.
The third followed the so-called "Flash Crash" in May 2010, while the fourth occurred during the big market decline in the summer of 2011. And like before, the S&P 500 went on to make a lower low. It fell another 6.0% and 2.2%, respectively, after those extremes.
In short, we may not be out of the woods yet. Stocks could fall to new lows in the coming weeks. But more important, history suggests it will be a great time to buy if they do.
One last thing...
As you've likely heard, the recent volatility hasn't been limited to the traditional financial markets. Bitcoin and other cryptocurrencies have suffered jaw-dropping declines, too.
After soaring to almost $20,000 in December, bitcoin plunged nearly 70% through the first week of February. Countless other "cryptos" fell even more in that stretch.
But while many folks are worried that the crypto "bubble" has burst, our colleague Tama Churchouse remains incredibly bullish.
If you're not familiar, Tama works for our corporate affiliate Stansberry Churchouse Research, and he's one of the most knowledgeable crypto analysts we know.
Tama is convinced the crypto bull market is intact… and believes this recent volatility is offering a second chance to make life-changing gains in these markets this year.
In fact, he not only expects bitcoin to recover all of its recent losses this year, he believes it could reach a new high of $50,000. That's more than five times higher than today's prices… and he expects many of his favorite crypto recommendations will soar multiples more.
If you were kicking yourself for missing out on the big gains in cryptocurrencies last year, you owe it to yourself to learn more. Click here for the details.
Justin Brill
Editor's note: If you want to make money in cryptocurrencies, you must remember one thing... The recent volatility we've seen is normal. In fact, after the recent sell-off, Tama believes 2018 will be the most profitable year yet for crypto investors. He recently detailed how you could potentially make thousands of dollars a month in profit. Get the details here.