The Weekend Edition is pulled from the daily Stansberry Digest.
"Maybe we'll get lucky," I wrote to end my missive...
But as I typed out the long text message, I knew it was already too late...
It was February 26. And I was penning a rather fiery rant to my colleague and boss, Steve Sjuggerud.
Just 11 days earlier, on February 15, I told DailyWealth readers that this episode was likely just the latest hiccup in the historic bull market. I believed stocks would keep heading higher.
However, in a roughly two-week span, the data changed... And I was forced to change my mind.
Of course, I'm talking about COVID-19. In the past two months, it has continued to spread... reaching roughly 200 countries and regions around the world.
The virus has infected 4 million people worldwide, killing more than 270,000, according to Johns Hopkins University. The final numbers will be sorted out by data scientists in the coming years.
Just before I wrote to Steve about my changing view, Germany reported cases with no apparent link to China. The country had entered the so-called "community spread" phase.
That's when I realized that this was most certainly not a contrarian opportunity...
I warned Steve that domestic and international flights were ongoing. And as long as people could continue to move around, COVID-19 wasn't going away.
Still, I had hoped that the U.S. wouldn't join Germany so soon...
That evening, news reports out of California said that someone had tested positive for COVID-19. However, authorities couldn't identify how the person had contracted the virus.
We had arrived at the community spread phase. And just hours after my first text message to Steve, I wrote him again: "Well, that didn't take long."
In my February 15 essay, I said, "Look, I'm not saying coronavirus isn't a big deal. It is." Looking back, though, it clearly wasn't enough.
But as they say, hindsight is 20/20...
At the time, it appeared that the world still had a chance at containing the virus. That's why I urged folks to ignore the headlines and stay invested.
Now that we know that wasn't the case, we can only look to the present and the future...
So today, I want to discuss the market's movement in recent weeks. As you know, despite countrywide lockdowns and widespread uncertainty, stocks are rallying higher.
However, as you'll see, I believe there is significant volatility ahead...
I'll highlight two key indicators that tell the true story about the state of our economy right now. And even better, I'll show you that it's not too late to prepare for what's coming.
Let's begin with where we are now...
Plain and simple, the market is sleepwalking...
The benchmark S&P 500 Index peaked at 3,386 on February 19. After plunging into a bear market, it fell as low as 2,237 on March 23 – an incredible drop of 34% in about a month.
But over the past six and a half weeks, things have changed. Investors are less fearful. The Chicago Board Options Exchange's Volatility Index – the market's so-called "fear gauge" – has steadily declined after surging to more than 80 in March.
And the stock market has charged up off its lows... The S&P 500 closed above 2,900 on Friday. That's 30% higher than its bottom. It's only 14% below its February peak.
Apparently, that's all it takes to "price in" a major catastrophic financial event.
At least, that's what you're expected to believe. Think about it... We're enduring the most widespread shutdown in modern times. It's an unprecedented level of disruption.
And yet, we're expected to believe that a 14% decline from the peak prices it in? Not a chance.
If you look at the key data we have, you'll see we're not in the clear yet. The market is sleepwalking. Someday soon, when it wakes up, volatility will return in a big way... And we need to prepare.
That means we're in darn dangerous times. And the choices you make right now will have outsized effects on your future.
We'll use two key indicators to help us determine the state of the economy...
The first key indicator is unemployment...
By now, it should be pretty clear that it's bad out there.
I'd be a fool to not see the signs of stress all around my local community.
For the first time in all my life, I'm seeing multiple people going through my neighborhood, door to door, looking for work. One man even told me that he'd work in exchange for diapers for his kids if we had them.
He was desperate. And that desperation is dangerous.
I don't know if any of these folks found work. But I do know that their circumstances aren't unique to our area. The Federal Reserve's chart for "initial" jobless claims looks broken...
Before this happened, each of the humps leading up to and through the gray recession bars since the 1970s would look like mountains. Today, they look like ant hills. And the long, vertical black line on the right... the one shooting straight up to the sky... that's where we are today.
It looks like a data error. But it's not.
We have never experienced a spike in unemployment like this. And even if the virus went away tomorrow, things wouldn't get back to normal tomorrow.
It takes time for people to find jobs and get comfortable again after a crisis. And it will take time for the businesses that survive to get back up to speed, too.
The problem is, the market hasn't noticed the unemployment issue yet.
The U.S. Bureau of Labor Statistics just released its latest numbers on unemployment yesterday morning. It says the unemployment rate stands at nearly 15%.
That's well above the peak unemployment rate of 10% that we saw during the housing crisis more than a decade ago. In fact, it's more than we've seen during any crisis... since the Great Depression.
Yet as far as I can tell, the market is acting like we're still at 4% unemployment. Stocks have been rising despite these historic levels.
Eventually, the unemployment situation will catch up with the market...
After all, you've heard that it's a "consumer-driven economy." And let's be honest... it's hard for consumers to drive the economy when 15% of them are out of work right now.
That's just reality.
The market hasn't woken up to it yet. And you need to be prepared before it does.
That brings us to the second key indicator – oil...
Like it or not, our economy runs on oil. When things are going great, we use a lot of it.
We use it for shipping goods across the seas... We use it for traveling by plane... We use it for our daily commutes... And we use it in trucks to fill our stores with things to buy.
In the U.S., petroleum and natural gas make up roughly 67% of our energy consumption. Add in coal and you'll get to 80%.
Our economy runs on oil. But today, we have way too much of the stuff. We have so much oil around the world now that we're running out of places to put it.
That has sent prices plummeting. On April 20, West Texas Intermediate crude oil fell to negative $37.63 at market close... the lowest price in history.
The simple fact is, oil consumption is way down. It's literally the fuel that runs the economy, yet the economy is parked on the side of the road taking a breather.
Unfortunately, taking a breather isn't an option for oil producers.
Sure, they can cut production a bit... But in general, they have to keep producing oil. It's how they feed their families. And shutting down oil wells can lead to more costs and operational problems down the road. So most of them are stuck producing a product that nobody can use right now.
Where are the markets in all of this? You guessed it... They're sleepwalking.
The economy is telling us, "I'm doing so poorly that I don't need the fuel that runs me." And the market is just pretending, "Maybe we're about to go back to normal."
Nothing about this is normal. The market will wake up sometime soon. And we have no way to know how hard it will fall as reality sets in.
So... how can you prepare for the market waking up?
You need to hold gold.
And you need a guiding hand to help you get into quality gold investments.
Now, I know you've heard plenty about gold over the past few months. But please, don't ignore what I'm saying today...
Based on history, gold is a safer bet than you might realize. And as I'll show you in a second, during crises, you have a longer opportunity to get into gold than you might realize.
I know what you're thinking: "Vic! We've missed our chance. The current crisis is already a few months in play. We can't get in at the stock market peak anymore."
You're right. You can't go back in time to February 19 and hoard as much gold as possible.
However, gold runs on a different clock than the crisis. It's slow to respond, and it moves with a mind of its own.
We've covered this dynamic before in DailyWealth. But if you missed it, let me give you an example...
Even if you had waited for six months into the housing crisis, gold was still a better bet than stocks. It would have returned about 25% over the next two years. Meanwhile, the market suffered... The S&P 500 lost more than 10% of its value over the same period.
And the results get even stranger...
If you missed the bottom in stocks by six months and then bought gold in September 2009, you still would have clobbered the stock market over the next two years. Take a look...
That's right... By then, the market had started its recovery on its way to an 11-year bull market. But gold was still the right choice to own for the next two years – by a wide margin.
The takeaway is clear...
Right now, thanks to two major economic indicators, we know the market is sleepwalking.
The official unemployment rate of 15% shows us that the "driver" of the economy – the consumer – is out of work. And the oil glut shows us the economy has come to a standstill.
While everything seems to be moving along smoothly now, the market will eventually wake up from its dream. And as an investor, you need to be prepared before it does.
Fortunately, in this instance, gold transcends ideology...
If you believe we've already seen the bottom in the market, gold is still a good bet to outperform – at least in the short term. And if you believe the market turmoil is just getting started, you have an incredible opportunity to defend against it by buying gold today.
Earlier, I mentioned it's critical to have a guiding hand to help you get into quality gold investments...
And I believe my colleague John Doody is that guiding hand.
As a college economics professor for almost two decades, John became interested in gold due to an innate distrust of politicians. He was concerned about their habits of debasing currency via inflationary economic policies.
After developing his own innovative method of finding undervalued gold-mining stocks, John left teaching to launch his Gold Stock Analyst newsletter in 1994. And his results speak for themselves...
From 2001 to 2019, John's model portfolio returned a cumulative 923%. It beat the major gold exchange-traded funds... and nearly doubled the return of the S&P 500 in that span.
Recently, John and his business partner, Garrett Goggin, sat down with Stansberry Research Publisher Brett Aitken for a "Gold Rally Kickoff Call." They shared their latest thoughts on gold, including why they believe it could soon hit $3,000 per ounce – or more.
If you missed this special videoconference, you can still watch the free replay right here.
Good investing,
Vic Lederman
Editor's note: It's critical to know which investments to make in the gold sector. During his recent Gold Rally Kickoff Call, John shared valuable insights on the gold and silver markets today... including why he believes gold could soar to $3,000 an ounce or more. To prepare for the market's awakening and the impending volatility, we urge you to watch the replay of John's videoconference here.
