The Weekend Edition is pulled from the daily Stansberry Digest.
No matter how many times I try to help folks, someone in the crowd always gets it all backward...
Despite that, I feel like it's my duty to make sure as many folks as possible know how to prepare for the inevitable ups and downs of the market.
Longtime readers know I've painted the same picture many times now. And as time passes, it becomes clearer...
It appears that the greatest financial mega-bubble in all recorded history has formed a massive top. It took around 22 months to get there.
I've never put it quite this way before, but the top happened in two big pieces – bonds and stocks. Bonds peaked in 2020. And so far, stocks peaked in late 2021 or early 2022.
Two events define the bond market top...
First, on March 9, 2020, during the chaos of COVID-19 and the Federal Reserve's massive reduction in interest rates, the 10-year U.S. Treasury note's yield sunk to its all-time low.
It yielded as little as 0.398% during the day and closed at 0.499%.
The second event that defined the bond market top was on December 11, 2020, when the amount of negative-yielding sovereign debt in the world (mostly Japanese and European) reached its all-time high of nearly $18.4 trillion. It's down to about $1.3 trillion today.
These extremes represent 5,000-year lows in bond yields. And since yields and prices are inversely related, it also means 5,000-year highs in bond prices.
That's the current situation with bonds. Now, let's look at stocks...
Stocks started topping in the first quarter of 2021...
By that March, equity market bubbles in clean energy, cannabis, special purpose acquisition companies, and unprofitable technology companies had all topped out.
As we've discussed many times in the Stansberry Digest, Cathie Wood's ARK Innovation Fund (ARKK) best represents the latter bubble. The exchange-traded fund hit its all-time high of $156.58 per share on February 12, 2021 – the day after I first warned you about it in the Digest.
The "topping party" picked up in the fall of 2021...
Bitcoin hit its all-time high of roughly $69,000 in October 2021. Small-cap stocks topped out on November 8, when the Russell 2000 Index peaked. And then, the tech-heavy Nasdaq Composite Index peaked at a little more than 16,000 on November 19.
In my November 19, 2021 Digest, I encouraged you to...
Invest accordingly. Reduce your speculative bets. Make sure you have plenty of cash ready to go when the bust happens. And consider shorting vulnerable stocks if you're comfortable.
This is a dangerous time for investors. Be careful. And don't say I didn't warn you.
I think that means I can take credit for calling the top in the Nasdaq to the day...
Then, the S&P 500 Index hit its all-time high on January 3, 2022. Perhaps fittingly, it was the first trading day of a crazy year in the markets.
The top of the biggest financial mega-bubble of all time was in – at least, as it stands so far...
You know what happened next...
In 2022, U.S. stocks endured their worst first half of a year since 1970. At the same time, the U.S. Treasury market had its worst six months since 1788.
Mortgage rates have more than doubled. Inflation hit 40-year highs.
The double-barrel hit to financial assets and the housing market generated Americans' biggest-ever quarterly decline in household net worth in the second quarter of this year.
And don't forget...
The Fed has been raising interest rates at an unprecedented pace. The central bank remains steadfast in its effort to bring the year-over-year changes in the monthly Consumer Price Index from the current level of around 6.4% back down to its target level of 2%.
Meanwhile, everyone from talking heads, fund managers, and Wall Street status-quo keepers has tried "calling the bottom" along the way. And yet, none of them were bearish enough on stocks or bonds.
Now, let's get to the question everybody always asks after I tell them all that...
What happens next?
The only credible answer to that question is... "I don't know."
Instead, I encourage you to ask a different question. You should ask something like, "How can I use history as a guide here?"
I've said it many times before, and I'll continue saying it again and again...
Don't make the mistake of thinking this bear market is an average one.
If I'm right and we've just watched the biggest financial mega-bubble of all time form a massive top, then what follows won't be a run-of-the-mill bear market...
It will more likely be a horrendous bear market that takes the S&P 500 and other big stock indexes down 70% or more. Even worse... an up-and-down, ratcheting-sideways market will then follow that. And it might not make a new high for 10, 15, 25... or even 30 years.
Don't just take my word on that. Learn from history...
It happened after mega-bubbles topped out in U.S. stocks in 1929 and 2000 (after which the Nasdaq went sideways for 15 years). And it happened in Japan in 1989. The Japanese stock market still hasn't made a new high after going sideways for the past 33 years.
So, what the heck can investors like you and me do about it?
I've urged you many times to "prepare, don't predict." I've also said many times that it's foolish to try to make market predictions.
And yet, I've essentially predicted the bear market that began in 2021 and finished topping out in January 2022.
You see, most times, a prediction is something you say about the future. Then, you wait to see if it comes true.
The whole thing is often just an intellectual game. And for the most part, it doesn't influence your life in a big way at all. But as an investor, it's much different...
A prediction isn't what you say. A prediction is what you do with real money.
In my case, a prediction is what I research and recommend our subscribers do with their real money. And I've consistently recommended that you take the same four actions...
- Hold the stocks of great businesses.
- Sell unprofitable, cash-burning tech stocks and other trashy speculations.
- Hold plenty of cash.
- Hold gold and silver.
These four investments form the core of a truly diversified portfolio. So let's briefly dig into why each of these is an ingredient for success in any market...
First, let's talk about the stocks of great businesses...
We keep holding stocks partially because nobody knows the true timing of market tops and bottoms until they're far enough in the past for us to see them clearly. But mainly, we do it because we can't afford to not be invested in the endless process of real wealth creation...
Every day, through every kind of economic environment we can name, armies of people wake up and make the world a little wealthier than it was the day before. Over the long term, that process can make us a lot of money as investors.
Constantly participating in that process is essential if you hope to build long-term wealth. It's the easiest way to get rich in the U.S. – and maybe the entire world.
Again, this is why you should never, ever sell all your stocks and go to 100% cash.
You should sell garbage stocks because they're only fun and profitable during bull markets...
In bear markets, they get absolutely crushed. And many of them go out of business.
These types of companies don't earn cash. They burn it.
The only way they can survive is by raising cash through new equity and debt issuance. And when their stock falls 70% or 80% – as many already have – it becomes impossible to do that. So many of the burning matches become nothing but ashes.
It was fun while it lasted. But now, it's over...
Get out of garbage speculations. They're not coming back.
In addition to always holding plenty of cash, you should hold some gold and silver...
Gold should be the larger holding of the two precious metals. It has a 5,000-year history of preserving wealth over various time frames, many of which are well within the span of a single lifetime.
What's more, I expect gold to perform well in terms of the U.S. dollar over the next decade.
Gold's history as a wealth preserver will become more valuable as the Fed overreacts to each new crisis with too much tightening... then too much easing. It has done that consistently for the past few decades. And I don't think that will change anytime soon.
A bear market's job is to bring investors back to reality...
If we don't learn what assets and businesses are worth, we'll eventually come to regret it.
Perhaps worst of all... not appreciating what things are worth can ruin your retirement if you encounter a big bear market late enough in your investing career.
Value investing generated big returns in the Japanese sideways market. And I expect this investing style will do the same thing in the U.S. sideways market that will likely begin within the next two to three years... and last a decade or more.
We've hit on yet another reason why I keep repeating myself...
Most of our subscribers are older folks, like me. They can't afford another dot-com bust or financial crisis. They need to preserve the value of the wealth they have right now... and they want to continue growing it into their retirement years.
Fortunately, I can help with both of those things...
If you haven't checked out my latest warning about what's ahead, I encourage you to take some time to do so this weekend. We don't need to be victims in this sideways market.
Good investing,
Dan Ferris
Editor's note: Dan says a rare, specific economic setup 50 years in the making is quickly approaching. And it'll have a HUGE impact on your money – whether you're prepared for it or not. That's why, this past Thursday, Dan went on air to explain what's happening... how it's going to play out... and how to navigate it. He even shared the specific group of investments he believes is a strong play against what's coming. If you missed Dan's message, click here to watch the replay.
