A twinge of panic... Today's sell-off was about one thing... The latest read on inflation... What drives the market to extremes... The 'controlled burn' could turn into a wildfire... How to profit in a crash... Today, a twinge of panic hit the markets... It was an "everything is down" day... Well, almost... As our Visionary Investor editor and True Wealth Opportunities: China analyst Brian Tycangco wrote this morning, shortly after the U.S. markets opened and a sea of red numbers followed... I (Corey McLaughlin) will get to addressing the good question Brian raised in a moment, but first let's report on exactly what happened today... As soon as the opening bell rang, the major U.S. stock indexes started selling off across the board. By the end of the day, the tech-heavy Nasdaq was down 4.68%... the benchmark S&P 500 fell 3.88%... and the Dow Jones Industrial Average was off 2.79%... Today marked a new low for the year for the S&P 500, and the U.S. benchmark closed in mainstream "bear market" territory – down 20% – for the first time in 2022. It was an even bleaker picture in the bond markets... The yield on the U.S. 10-year Treasury hit 3.36%, an almost 7% one-day move. That's a giant leap in the typically slow-moving world of bonds... and another reminder they aren't as "safe" as you might imagine in today's inflationary climate. Remember, bond prices move inversely to yields, so the 10-year Treasury fell by nearly 7% today. In another telling sign of a nervous market... the 2-year yield briefly topped the 10-year in pre-market trading, meaning the "yield curve" inverted again for the first time since April... Maybe most notably, bitcoin was down 20% earlier today... and even gold was down, by 2.7%. (It's not unusual for gold to sell off on days like today, in part because investors tap their allocations to cover other leveraged losses.) The only major assets up were the U.S. dollar and oil, which does tell us something... The story hasn't changed... Today's sell-off was about one thing: inflation... and how the world is reacting to it... I'm reminded of a few wise words I was fortunate to hear directly from Wall Street legend Marc Chaikin, founder of our corporate affiliate, Chaikin Analytics. As he told me in an interview last year, his mantra in a decades-long investing career has been... Fundamentals drive the market, but emotions drive the market to extremes. The fundamentals of today's market have not changed materially from several months ago... It's just that more and more people are realizing what they are. We've been writing all year long about the scenario of 2022... A slowing economy – in the U.S. and around the world... paired with decades-high inflation... it's the definition of "stagflation," a scenario that hurts everyone as prices rise but economic growth stalls. Meantime, the Federal Reserve says it's bent on fighting inflation – by raising interest rates – and seeking to slow demand for goods and services... In the process, despite decades of devaluation, the Fed raising interest rates will make U.S. dollars stronger, relative to other currencies. That's why the dollar went up today, as measured by the U.S. Dollar Index ("DXY"). The index compares the dollar with the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. DXY is up 16% in the past year. The dollar! It's a similar "nothing has changed" story with oil – because the supply-demand equation hasn't budged significantly. The prices of West Texas Intermediate ("WTI") and Brent crude were down to start the U.S. trading day, but they finished slightly positive. Oh, and one other thing was up today... the CBOE Volatility Index ("VIX"), known as the market's "fear gauge." It spiked by 22%, and is back above 30, which can be considered "extreme" territory. To top it all off... an economic contraction – or a recession, even if inflation cools somewhat – is on the table. The likelihood of an official recession seems like it's growing each and every day. And now, emotions are coming into play more and more... If the "animal spirits" of blind optimism and greed are awakened in raging bull markets, where everyone can look like a genius, it works the other way too... In bear markets, concerns turn into fears, which can turn into panics... especially when asset prices were overvalued to begin with... and the folks who follow the Cathie Woods of the world wonder what the heck is going on with their stocks. We sensed some panic today. The immediate catalyst for today's sell-off was driven by what we told you last week to watch... the latest read on inflation – the Consumer Price Index ("CPI") data published on Friday morning. We read the numbers... and, in short, they did not indicate the U.S. has seen "peak inflation" as many folks had hoped. Certain components of this key inflation gauge did fall – a point that you won't hear many people talking about. But the headline year-over-year number rose by 8.6% for May, a greater increase than April's year-over-year jump (8.3%)... Maybe more critical for stock prices, the latest CPI number was above Wall Street analysts' consensus estimates. And that hardly tells Mr. Market that inflation is cooling, even if it might be in some areas. Lumber futures, as one example, are down more than 50% since March. In any case, the new "official" inflation numbers present an ominous picture. Professional investors in charge of a lot of money must now consider that the Fed could raise interest rates higher and sooner than it originally planned... The Fed will announce its next monetary-policy decisions on Wednesday. Last Thursday, we reported that the odds-on favorite (north of 90% probability) among traders was for the Fed to raise rates by 0.50% at its next meeting. After the latest inflation data, the probability has fallen to around 70% today. The other 30% of traders, according to foreign-exchange company CME Group's (CME) FedWatch tool, are betting on the central bank's benchmark rate to rise by 0.75%. That would put the Fed's overnight lending rate at a range of 1.50% to 1.75%. (The Fed's benchmark rate is actually a range, rather than one number.) This change filters through the economy mainly in the form of more expensive loans. For stocks and other assets, that's not good... Higher rates, faster implies less economic growth, quicker. That means less profit for businesses sooner... and still, probably, not enough of a move to quell inflation on its own – simply leading to tighter margins if anything. We've described our path to this scenario many times before... I can't figure out if the Fed is really the last to know... or it's just trying to put off the inevitable. (My brain tells me the latter.) The Fed can only affect certain things directly with marginal rate hikes, like the housing market. It can't control other important things like oil or food prices – that is, unless the central bank pushes the entire economy into a recession with aggressive policy. I watched with interest an interview famed investor Stanley Druckenmiller gave at a recent conference. Close readers might remember we shared his warnings last fall about the Fed's insistence on keeping interest rates low despite rising inflation. During a video appearance at the Sohn Conference, Druckenmiller pointed out that throughout history, the only thing that has brought down a CPI that's up more than 5%... was the Fed raising interest rates by an even higher percentage. As we mentioned, the latest CPI checked in at 8.6%. So history has shown that rates would need to be near 9% to "end high inflation" right now. That's about nine times higher than current levels. That would blow up our debt-fueled world... If the Fed raises interest rates above CPI (which would be great in "normal" times), at least part of the result would be a wave of bankruptcies, Druckenmiller said. That sounds a lot like the scenario that our Stansberry's Credit Opportunities editor Mike DiBiase is anticipating in the next credit crisis, given the number of companies that wouldn't be able to afford payments on their debt. In this scenario, we'd also have a recession, no doubt. That means things like job losses, of course... meaning income loss... all in pursuit of the hope (but not a guarantee) that inflation will eventually decrease. That doesn't make people feel confident or pleased. We're seeing that part of the story already... Another closely followed report published on Friday made the case that things are getting worse with inflation. The University of Michigan's Consumer Sentiment survey showed an all-time low in June. As Stansberry NewsWire editor C. Scott Garliss reported... Unrelentingly high inflation along with rising gas prices were the most-cited concerns among Americans surveyed. And that could spell more trouble ahead for economic growth and the S&P 500 Index... I hate to paint a bleak picture in a world that could use some cheer, but if you're wondering why stocks are in a bear market, this is why... The idea of Fed Chair Jerome Powell's 'soft-ish landing' is a pipe dream... This brings us to Brian's question... Do we progress to wholesale panic? Or do we find a reason to pull back from the edge? Let's use some other analogies to explore an answer... So far this year, the market sell-off has looked almost like a "controlled burn" – with the air being taken out of the frothiest of stocks and sectors first for mostly sane reasons, though the spikes in volatility around bad news have been noticeable. Or, as Marc Chaikin has put it, we've been in a "rolling crash," with different sectors selling off more dramatically or at different times. But this controlled burn, or rolling crash, could soon turn into a wildfire, or a full-fledged smash-up... until the market gets some big answers on the path of our current bout with inflation. That could last into next year. In the meantime, if you stack enough "everything is down" days together, eventually you'll find a bottom. But it will be painful and volatile getting there. This week alone, think of the possibilities... Tomorrow, many of the same people who hang on every decimal point of the CPI will be doing the same with the Producer Price Index ("PPI"). As I wrote on Thursday, this index measures the prices that producers pay for raw materials, costs that are typically passed through to consumers. That makes the PPI a leading indicator of inflation. Another "surprise" could make a fearful or panicked market even more so... while a slightly lower number could ease some concerns. But, from there, two immediate short-term outcomes come to mind... We hate to keep harping on the Fed (really), but for better and worse, what it does matters a lot. The phrase "Don't fight the Fed" exists for a reason. This week, investors could rush for the exits no matter what happens. Option 1: The Fed sticks with its 0.50% rate hike plans, despite the higher CPI reading on Friday. Knee-jerk reaction: Oh no! They're not doing enough! Inflation is going to rage on... Sell! Option 2: The Fed raises rates by 0.75% or heck, 1% (which would be a real shocker) and says inflation doesn't look good... Knee-jerk reaction: All right. Maybe higher rates will slow the economy too much, but it's what needs to be done to fight inflation... Oh, but wait, that still means less profit than I was thinking... Sell! If you're interested in higher stock prices, Option 2 is probably the better – at least for this week. Maybe that's what the Fed will do, or maybe not. Powell and company haven't shown a particular care to try to stop falling stock prices just yet. Option 2 might not result in as big of a sell-off. It could even spur a brief rally, since it more directly addresses the inflation question. But any rally will still likely be a temporary Band-Aid for a deeper wound. Remember, the story still hasn't changed... Our Ten Stock Trader editor Greg Diamond summed up things well in a market update today for his subscribers. As he wrote... The market is discounting a bad macro/fundamental economic environment: Rising inflation, shrinking paychecks, and a pessimistic consumer. There is more inflation data due out tomorrow in the form of Producer prices (PPI). If that comes out higher than expectations like CPI last week then the Fed likely has no choice but to get more aggressive. I'm not going to speculate on what the Fed will or won't do [but] in terms of the stock market it won't be good. They are too far behind the curve. In short, short of inflation returning to pre-pandemic levels, we see more reasons for people to panic today than to pull back from the edge, as Brian put up for discussion... To that point, Greg's open bearish bets skyrocketed today amid the stock market sell-off. That has rewarded subscribers who stuck with them through a longer "relief rally" than he was anticipating. How to profit from a crash... When markets turn, you want to hold a generous amount of cash – and the closer to retirement you are, the more you might want on hand – as well as other defensive assets and high-quality, low-volatility stocks. Trades like Greg's can also help protect your portfolio... If you think stocks will keep falling, allocate some money to bets on stock prices going down. A great way to do this is by using options – the right way. With options, you can hedge losses in other positions. Depending on how much cash you have and what your other allocations are, they could even grow your portfolio overall. But, please, if you've never tried trading with options before, don't go at these sorts of bets without a good guide. In our Stansberry's Financial Survival Program, Greg and Stansberry analyst Jeff Havenstein detailed precisely how to bet on a stock market crash... shared examples of two strategies you can use... and walked subscribers through how to use them. As they wrote... See, most people don't understand options. The reason they were created in the first place is to reduce risk. In fact, the original options were designed to help investors hedge their portfolios against bad moves in the market – to act as portfolio insurance. They also detailed the "anatomy of a bear market," including why we may have already entered the "panic" phase... and gauged how far stocks could fall before hitting bottom. This research is must-read material, as far as we're concerned. Because the story hasn't changed... and it's not too late to prepare for more of the same outcomes in the months ahead. Stansberry Alliance members can find this module – "How to Profit from a Crash" – here... For anyone else interested in getting access – along with six other lessons from our team designed specifically for this market – click here to learn how to access our entire Financial Survival Program. 'Game Over' for the Stock Market "People will have to realize that we are now in a bear market, the world is different," says Claude Beget, keynote speaker at this year's Swiss Mining Institute conference in Zurich. "It's game over for stocks," he tells our editor-at-large Daniela Cambone, anticipating that gold-mining stocks will decouple from the broader stock market. Click here to watch this video right now. And to catch all of our videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime. | Recommended Links: | GOLD WARNING If you own gold stocks, read this warning from a professor who predicted the 2008 and 2020 crashes. He has already warned 200 top institutions... even the U.S. Pentagon and the FBI. But few people realize this could actually happen... or how a single move right now could make you massive profits as it unfolds. Click here to learn more. | |
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| New 52-week highs (as of 6/10/22): None. In today's mail, more suggestions on how a country could make better use of water... and why people are using their credit cards more these days... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I'm a Stansberry subscriber because I value expert advice relative to investment strategy. There is a very reliable... and proven, source of advice on how to deal with a lack of water... ISRAEL! That country, one of the 'driest' on the planet, has solved its water shortage problem and now has a surplus of water. And in the process has become one of the most efficient and productive developers of agriculture to feed its citizens. "There is no shortage of water in the U.S. The water is just not in the places where it is most needed. Examples: I live in [Washington] state where we have an abundance of water. [California] has the Pacific Ocean, which could provide unlimited water by desalination. The conclusion: Develop a full scale, national program (like the interstate highway program initiated by President Eisenhower back in the 50s) to capture, generate, recycle, store and distribute water... along with methodologies to use it in the most efficient and effective manner." – Paid-up subscriber Frank W. "If the U.S. government is going to look for ways to 'create jobs,' how about they build a pipeline from the Mississippi River to Lake Powell or Lake Mead in the Colorado River system. Dems are against pipelines usually, but maybe they could get behind a 'Green Pipeline.' The Mississippi floods every single year somewhere along its banks. That would be a great 'capture of runoff' if I've ever seen it. "Instead, political snake oil salespeople tell us humans are creating global warming, in an effort to blame someone or some group. Did the dinosaurs cause the last ice age? Did SUV driver's carbon footprint cause the 'Dust Bowl' years in the 1930s? Mother nature is more powerful than all of us. We are just passengers on the rides at Mother Nature's Amusement Park. The Southwestern United States are on the Hot and Dry Ride. "Let's search for ways to get along with the trends that are presented to us all. Maybe we could find a way to water all the crops that feed us in California and water our lawns and flush our toilets. The earth is a closed system folks. The water isn't just escaping into outer-space. We just have to be smart enough to harness it." – Paid-up subscriber Greg S. "One of the often-overlooked water problems in California is the depletion of the aquifer. This is in addition to the existing draught issue. As water is pumped out of the aquifer, it doesn't get replaced in equal measure. "It's gotten so bad that the subsidence in the California Central Valley is measurable. "This cannot continue, and as the aquifer is depleted, the ability to grow food for the rest of the world will come to a halt. Food prices will climb drastically, but it won't be inflation that's pushing the prices up, it will just be scarcity." – Paid-up subscriber Kurt S. "Paid-up subscriber Tom K. is wrong. [He said]... I believe you have to take into account that fewer vendors are allowing customers to pay with cash, forcing the consumer to use credit cards. "People can easily use debit cards, a digitized form of cash, without running up more debt. Credit cards should always be a last resort and, if possible, paid down every month." – Paid-up subscriber Rosemary L. All the best, Corey McLaughlin Baltimore, Maryland June 13, 2022 Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock | Buy Date | Return | Publication | Analyst |
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MSFT Microsoft | 11/11/10 | 863.8% | Retirement Millionaire | Doc | ADP Automatic Data | 10/09/08 | 751.2% | Extreme Value | Ferris | MSFT Microsoft | 02/10/12 | 741.1% | Stansberry's Investment Advisory | Porter | ETH/USD Ethereum | 02/21/20 | 586.7% | Stansberry Innovations Report | Wade | HSY Hershey | 12/07/07 | 496.3% | Stansberry's Investment Advisory | Porter | AFG American Financial | 10/12/12 | 414.9% | Stansberry's Investment Advisory | Porter | BRK.B Berkshire Hathaway | 04/01/09 | 399.2% | Retirement Millionaire | Doc | FSMEX Fidelity Sel Med | 09/03/08 | 282.0% | Retirement Millionaire | Doc | ALS-T Altius Minerals | 02/16/09 | 257.3% | Extreme Value | Ferris | TTD The Trade Desk | 10/17/19 | 254.4% | Stansberry Innovations Report | Engel |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. Top 10 Totals |
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3 | Retirement Millionaire | Doc | 2 | Extreme Value | Ferris | 3 | Stansberry's Investment Advisory | Porter | 2 | Stansberry Innovations Report | Engel/Wade | Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock | Buy Date | Return | Publication | Analyst |
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ONE-USD Harmony | 12/16/19 | 1,352.7% | Crypto Capital | Wade | ETH/USD Ethereum | 12/07/18 | 1,341.8% | Crypto Capital | Wade | POLY/USD Polymath | 05/19/20 | 1,078.9% | Crypto Capital | Wade | MATIC/USD Polygon | 02/25/21 | 780.1% | Crypto Capital | Wade | BTC/USD Bitcoin | 11/27/18 | 675.4% | Crypto Capital | Wade |
Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment | Symbol | Duration | Gain | Publication | Analyst |
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Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | Band Protocol crypto | 0.32 years | 1,169% | Crypto Capital | Wade | Terra crypto | 0.41 years | 1,164% | Crypto Capital | Wade | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | Frontier crypto | 0.08 years | 978% | Crypto Capital | Wade | Binance Coin crypto | 1.78 years | 963% | Crypto Capital | Wade | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | Rite Aid 8.5% bond | 4.97 years | 773% | True Income | Williams |
^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. |