'Prepare, Don't Predict'

Editor's note: For the rest of this week here at Empire Financial Daily, we're turning things over to our friends at our corporate affiliate Stansberry Research... Today and tomorrow, we'll kick things off with some insights from Dan Ferris, editor of the Extreme Value newsletter. Dan focuses on buying world-class businesses at steep margins of […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Editor's note: For the rest of this week here at Empire Financial Daily, we're turning things over to our friends at our corporate affiliate Stansberry Research... Today and tomorrow, we'll kick things off with some insights from Dan Ferris, editor of the Extreme Value newsletter. Dan focuses on buying world-class businesses at steep margins of safety... and his model portfolio includes open gains of 697%, 328%, 198%, and 190%, among others, and has led to appearances in Barron's and Fox Business News. Right now, Dan has an urgent warning regarding the state of the markets... --------------------------------------------------------------- 'Prepare, Don't Predict' By Dan Ferris I must be clear from the start... This is a bubble. If you know me well... you know "this" is referring to stocks, of course. When investors still pour record amounts of money into any asset trading at the highest valuation it has ever reached, it's a bubble. And that's happening with stocks today... So far this year, investors have poured more than $400 billion into exchange-traded funds ("ETFs")... And it's on track to exceed $500 billion by the end of the year. If that happens, it'll be about 67% higher than the previous record of roughly $300 billion in 2017. That data comes from the Financial Times, which recently published the following chart from macro advisory firm Strategas. You can clearly see the big uptick in ETF inflows this year... It isn't just one corner of the market, either. As Strategas analyst Todd Sohn told the Financial Times... It's the persistency of the equity rally, up 100% since last March with barely a pullback. It's everybody into the pool, it's everything, every region, every sector. Today, with 'everybody' in the 'pool,' stock prices naturally have been bid up to record-high valuations... You can see this in any measure of the stock market's value throughout history that has negatively correlated well (90% or more) with subsequent 10- and 12-year returns. The easiest of those measures to understand is the S&P 500 Index's price-to-sales (P/S) ratio... The S&P 500's P/S ratio rarely eclipsed 2 times sales before January 2017... But it has mostly been above that level in the nearly five years since then. It never hit 3 times sales until this past April... And it's around 2.8 times today. At this point, warning everybody about a bubble in stocks – or even worse, bonds – makes me feel like that boorish guy at the party who won't stop bloviating about how much he hates some politician... You just can't shut him up. But I can't stress this enough... U.S. stocks have recently been more expensive by any meaningful measure than at any other time in history. And instead of being scared of stocks... Everybody wants to buy them. Sorry about the boorish thing, but what the heck do you expect me to tell you? Maybe you'd rather hear something like, "Gosh, I don't know how to tell you this, but you're about to earn the worst 10- and 12-year returns any U.S. equity investor has ever earned... But hey, everybody is doing it... so tequila shots are on me!" --------------------------------------------------------------- Recommended Links: [Stansberry's Bull vs. Bear Summit]( In March 2020, our financial lives were turned upside down. Today, our friends at Stansberry are stepping forward to ensure it won't happen to you again. On September 28, they'll reveal the truth about the greatest threat to your wealth today – including the name of the No. 1 most dangerous stock in the world. [Click here to learn more](. --------------------------------------------------------------- [Unique L.O.C.K. System Says: Do This]( Joel Litman's L.O.C.K. system signaled buy on AMD at $2.67... It called RingCentral at $20 and Square at $11. [Now it's identified five under-the-radar tech stocks that could become the tech giants of the 2020s](. --------------------------------------------------------------- And no, I don't care what the popular sentiment indicators say... I know some of them are flashing "fear" right now, implying that it's a great time for contrarians like us to buy. I couldn't care less, though... In my mind, some of those sentiment indicators are so volatile that they're practically worthless (something it took me years to figure out). For example, the American Association of Individual Investors ("AAII") Investor Sentiment Survey is indicating fear about stocks at the moment... Just 22.4% of respondents are bullish – with the S&P 500 only about 3% lower than its all-time closing high of 4,536. Meanwhile, back on April 21, 52.7% of AAII survey respondents were bullish – with the S&P 500 roughly 5% lower than today. That's the most bullish reading of the past six months. The market is trading at a valuation today close to where it was on April 21... Its P/S ratio was 3.13 back then, and it's at 2.78 now. To be fair, the survey asks investors if they're feeling bullish, neutral, or bearish about stocks over the next six months... So it's a short-term indicator, which is kind of the point. In other words, it's useless for long-term investors... And after all, it tends to take years of holding on to shares of great companies to make real money in stocks. If a sentiment indicator goes into extreme fear mode on a tiny little pullback of roughly 3% below a new all-time high... how valuable is it to long-term investors? It seems like the AAII survey's main value is to create the illusion of an ever-changing narrative. Let's face it... Economic conditions and company fundamentals tend not to change nearly as much or as fast as stock prices. Simply put, investors systematically overreact in the short term. For an extreme example, if you bought shares of online juggernaut Amazon (AMZN) 20 years ago... do you really care about sentiment? And if you've adopted something like my truly diversified portfolio of stocks, cash, gold and silver, and bitcoin... again, do you really care about little weekly fluctuations in the market that somehow translate to big swings in sentiment indicators? If you're a short-term trader, maybe. But if you're a truly diversified long-term investor, I hope not... The only indicator you need is the market itself. The S&P 500 has roughly doubled off the COVID-19 panic bottom of March 23, 2020. Doubled! In roughly 18 months! And instead of exercising caution... investors have reacted to this incredible, record-setting rally by pouring record amounts of cash into stocks through ETFs. One of the main reasons folks think they need an indicator besides the market itself is because they're under the delusion that they can predict the market's short-term direction. They can't. As my personal mantra goes, 'Prepare, don't predict'... It's the only reliable way to manage your own money and grow your wealth over the long term. And as part of that preparation, I urge you to tune in to a free event on September 28 at 8 p.m. Eastern time. I'll be sitting down with two of Stansberry Research's senior analysts to discuss exactly what you should be doing with your money in the weeks ahead. Now, my colleagues might not agree with me on the timing of the coming crash... It may not come today. And it may not come tomorrow. But the bear market will come. And it's time to position your portfolio accordingly. This event is free to attend, but you must reserve your spot in advance – you can do so [right here](. Regards, Dan Ferris September 23, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](