'This Time' Is Never Different

In most cases, it's good to be a contrarian... But not when every major asset class is still in a massive bubble... A stickier phenomenon than most folks understand... The perfect symbol for the current disconnect... Delusions about where equity really gets its value... 'This time' is never different... It's even worse elsewhere... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] In most cases, it's good to be a contrarian... But not when every major asset class is still in a massive bubble... A stickier phenomenon than most folks understand... The perfect symbol for the current disconnect... Delusions about where equity really gets its value... 'This time' is never different... It's even worse elsewhere... --------------------------------------------------------------- Nope. I (Dan Ferris) am not buying it... I keep hearing analysts say they're bullish and that it's time to buy stocks again. They reason that stocks are cheaper and more attractive now that they've fallen about 20% (like the S&P 500 Index)... around 30% (like the Nasdaq Composite Index)... or perhaps even further (like many of the speculative "garbage" stocks we've discussed in the Digest). Heck, I even read an article from Bloomberg this week about institutional investors finding 30-year U.S. Treasurys attractive because they yield more than they have since 2014. At first, I thought maybe these Treasurys yielded something attractive like 8% or 10% today. But no... the yield these supposedly smart folks find attractive is only about 3.5%. I've also read some positively spun articles about the housing market in recent days. Their main point seems to be that housing prices can fall without it turning into a massive bust. For example, last week, one opinion-piece headline from Bloomberg said... Like they have any clue. Sure, plenty of folks are talking about a housing "crisis" as well. But from what I've seen, it's mostly getting framed in the media as just a shortage of affordable housing. Look, I get it. In most cases, it's good to be a contrarian... If you want more of something, you should be happy when its price falls. And yes, I do realize that viewing every market decline as the start of a crisis is a recipe for losing money. The overwhelming majority of the time, when the stock of a great business is down a lot for some reason... you should buy it hand over fist. No big deal. Every dip is just another buying opportunity. So since stocks and bonds are down so much this year, I won't say you're stupid if you think they're more attractive. I won't even say that if you think it's time to "buy the dip." I would say you're pretty normal. In my Extreme Value newsletter, I've told my subscribers to buy plenty of stocks. In fact, more than 20 of them are active recommendations right now. So maybe I'm normal, too. Yay! We're all normal. No need to keep going in today's Digest. Have a great weekend! Well... maybe there's a little more to it than that. I've written parts of the next section in other Digests. But before today, I've never said it all in one place at the same time. And frankly, as an investor, you need to know all of it... The short version is that every major asset class is still in a massive bubble... Stocks were more expensive than ever before in history in late 2021 and early 2022. The S&P 500 exceeded a price-to-sales (P/S) ratio of 3.0 in December and January. That had never happened before. The S&P 500's P/S ratio is around 2.3 today. That's just below where it was at the dot-com peak. So yes, it's down from earlier this year. But it's still clearly in mega-bubble territory. It's the same thing with the benchmark index's cyclically adjusted price-to-earnings ("CAPE") ratio, which hit 36.9 in January. That CAPE ratio was second only to the dot-com peak in 2000 (when it was around 44). Again, it's lower... But it's still in mega-bubble territory. We're living through an even bigger bubble in the bond market... This is a $127 trillion global market. And it has been in the single biggest asset bubble in all of recorded history for a while now... It has been scraping 5,000-year lows for at least four years (according to Sidney Homer's classic book, A History of Interest Rates, which cites interest-rate data going back to Mesopotamia in 3000 B.C.). The 10-year U.S. Treasury – the No. 1 return benchmark in global asset markets – yielded as little as 0.5% in August 2020. Then, the amount of sovereign debt selling at negative nominal yields hit $18 trillion in December 2020. Both are never-before-seen extremes. Bonds have been brutalized. But as I said earlier, the 10-year Treasury yields around 3.5% today. That's still historically low. Housing also soared in the post-pandemic world... The S&P CoreLogic Case-Shiller U.S. National Home Price Index rose roughly 20% in a single month this spring. That was the biggest up or down move in history. Then, in August, Consumer Price Index ("CPI") shelter inflation rose 0.7% over July's level and hit another multidecade high. And right now, housing is at its least-affordable level since the peak of the housing bubble in 2006. Take a look at the data from Bloomberg... And of course, overall inflation has been running at 40-year highs for months... The CPI rose 8.3% in August from the previous year. Food, energy, new vehicles, and transportation services all inflated at double-digit rates. And fuel oil was up an incredible 69% over August 2021. Now... remember how I said [in the September 2 Digest]( that the market behaves normally 85% of the time but that "the truly important 15% of the time that matters is here" today? By that, I was talking about the current mega-bubble... None of the stock, bond, housing, and inflation stats I just cited can be called "normal." They're all extremes – multiyear, multidecade, and even multimillennial (bonds). What has happened after those huge extreme highs? The S&P 500 is nearly 20% below its January peak. U.S. stocks had their worst first half since 1970. The 10-year U.S. Treasury has just had its worst six months since the U.S. Treasury market was created in 1788. Housing prices have come down a little bit. But they're still roughly as unaffordable as just before the housing bust. And importantly... household wealth just experienced its biggest-ever decline in the second quarter of this year. If you think this is a normal bear market, maybe it seems like a bottom is in. But do you really want to tell me that the greatest extreme highs in history... followed by the worst decline in stocks in 50 years... along with the worst Treasury market since George Washington was in charge... and housing affordability falling straight to levels not seen since the peak of the biggest housing bubble ever... is normal? A clear disconnect exists between what folks are saying and what's really happening... Folks either don't know – or perhaps don't want to believe – that inflation is a sticky phenomenon that tends to linger far longer than expected as it infiltrates the economy. They also don't seem to know or want to believe that we're still in a massive mega-bubble. I guess that's why so many folks don't seem to view high inflation numbers and lower stock prices going forward as highly likely. That disconnect was on full display on Tuesday... Again, that's when the U.S. Bureau of Labor Statistics revealed that the CPI climbed 8.3% in August. This reading was within 0.1% of what many analysts expected. You would think being that close to the majority's expectations would make it a nonevent. But it was far from that, wasn't it, Skeezix? Instead, it led to [the worst one-day performance for U.S. stocks]( since June 2020. I mean... do I really have to say this out loud? Let me do it just in case... "Hey guys, that means absolutely nobody really expected inflation to be this high for this long. So maybe these folks are still vulnerable to an even bigger shock next time." Inflation is a stickier phenomenon than almost anyone can seem to understand... What happened Tuesday proves that. It shows us how blindsided people still get from high inflation numbers. And yet, I keep hearing talk of "peak" or falling inflation... the Federal Reserve "pivoting" and lowering rates instead of raising them... and this being a bottom. That's nuts. First, all these enormous, historical highs in market valuations occurred. Then, an epic drawdown that's also a multidecade – or multicentury, for bonds – awful performance happened. And I'm supposed to just believe there's nothing else to see here? "Buy the dip." Really? The perfect symbol for the current disconnect appeared right on cue... According to a Bloomberg article on Wednesday... That's right... ARK Investment Management founder Cathie Wood aggressively bought Tuesday's massive dip. Specifically, she bought 27 stocks in her firm's eight exchange-traded funds ("ETFs"). Bloomberg data showed that the company's biggest purchase on Tuesday was streaming-device maker Roku (ROKU). That's notable because it was already the third-largest position in ARK Invest's flagship ARK Innovation Fund (ARKK). Roku is the type of stock that Wood loves... The company went public at $14 per share in September 2017. Its CEO said the company's goal was to "power every TV in the world." That apparently sounded like a grand vision... Roku's stock rose 67% in its first day of trading. Then, it climbed 34-fold over the next four years. However, the company still hasn't generated positive net income. So like most of the holdings in Wood's ETFs, investors started getting impatient... Roku's stock is now down roughly 85% from its July 2021 peak closing price of nearly $480 per share. You may recall that I called Wood the "Gerald Tsai of today" in [the February 11, 2021 Digest](. And you might remember that we published that essay the day before her flagship ARK Innovation Fund peaked at $156 per share. It's down more than 70% since then. Tsai ran the Manhattan Fund in the "go-go" stock mania of the 1960s. He sold the fund to an insurance company in 1968... just as its fantastic results were fading and the bull market started weakening. The Manhattan Fund stuck with the same, previously successful momentum-based strategy. And eventually, it became the worst-performing fund in history. These days, the ARK Innovation Fund is headed that way. And it's doing that by doubling down on money-losing stocks like Roku. Folks did the same thing in [the "Nifty Fifty" bust of the 1970s]( and the dot-com bust of the early 2000s. This mega-bubble will only end one way. And it will be far worse for everyday investors than the companies – some of which will survive after their stocks plunge 90% or more. ARK Invest isn't what it claims to be. And that will bludgeon investors straight to the bear market's bottom... Now, I'm not saying Wood and the folks running the company are lying to their investors. Not at all. I'm just saying that ARK Invest probably isn't about innovation. Innovation is just the marketing pitch it uses to pursue the time-honored, semi-shady goal of asset gathering (and the fee-charging that follows). Wood championed "disruptive technology" and bought into every tech-related fad of the past decade. It was a typical optimistic take that you get in all the technology-based booms. And it worked during the good times... From its inception in 2014 to its peak in February 2021, ARKK soared more than 667%. It was a well-timed play on bull market, hyper-enthusiasm for fast-growing tech companies. But when you sell the world eight ETFs and claim they're all buying "disruptive technology" stocks that will turn the world into a cross between The Jetsons and Star Trek... you can't just abruptly abandon that plan as soon as the market starts destroying those stocks. You need to stick with it. You need to keep singing the same old song and hope for the best. Looking back, I first heard the core tenets of Wood's narrative from another place in May 2017... In that month's issue of Extreme Value – the first time I expressed concern about the speculative mania – I quoted a well-done presentation about online retail giant Amazon (AMZN) by marketing guru Scott Galloway. As I wrote... Galloway argued that, "Amazon has essentially changed the relationship between companies and shareholders... It has replaced profits with vision and growth." Galloway's remarks about Amazon perfectly encapsulate the big mistake equity investors are making right now: believing there's ever a substitute in business for profitability. Yes, vision and growth saw Amazon through to profitability. Anybody who has read Amazon's incredible 1997 shareholder letter – to which CEO Jeff Bezos still refers today – knows of its grand vision (which mentions profitability as a key goal, by the way). But that doesn't mean vision and growth are a substitute for profitability. There is no substitute for profitability. Investors have pushed that reality aside and fallen in love with companies that have a great story and a soaring share price... regardless of profitability. What they don't realize is that equity only has value if a company earns a profit. That means there's a much higher probability than investors currently acknowledge that unprofitable highfliers might be worth... zero. Wood's mission wasn't really about having a crystal ball that told her disruptive technology companies would make their shareholders rich. It was more about wholeheartedly embracing vision and growth as substitutes for profitability. That's essentially a way to maximize the short-term effects of a massive bull market fueled by delusions about where equity really gets its value – from the company's ability to generate a cash profit and nowhere else. I guess I'm not really criticizing Wood and her company as much as I'm criticizing anybody who got caught up in the hype and believed her ETFs would go straight up forever. After all, it's never, ever easy to "get rich quick" in the stock market. Don't fall into the trap that 'this time is different'... It's never different! That's the whole point of that phrase. If you know that phrase, you also know that people only use it sarcastically. As I do many times in my Digests, I'll defer once again to GMO co-founder and portfolio manager Jeremy Grantham. In fact, [I just shared this same quote two weeks ago](. The 83-year-old British investor has studied a few dozen bubbles in his decadeslong career. And like me, he distinguishes mega-bubbles (which he calls "superbubbles") from the rest... The first thing to remember here is that these superbubbles, as well as ordinary... bubbles, have always – in developed equity markets – broken back to trend. The higher they go, therefore, the further they have to fall. They always break back to trend. And the higher they go... the further they have to fall. At its most recent bottom in June, the S&P 500 was down 24% from its all-time high in early January. And the Nasdaq had fallen 33% from its November 2021 peak. Am I supposed to believe that after the mega-bubble to end all mega-bubbles, we'll get off that easy? If this is a mega-bubble – and I'm certain it is – we won't get out of it without the most affected index falling more than twice as far as the S&P 500 and Nasdaq have fallen... In 1929, the most affected index was the Dow Jones Industrial Average. And in 2000, it was the Nasdaq Composite Index. Before the dust settled in the early 1930s, the Dow fell nearly 90%. And during the dot-com bust from 2000 to 2002, the Nasdaq plunged 78%. This time, the most affected index is really two – the Nasdaq and the S&P 500. The S&P 500 is the one everyone knows and tracks. And the Nasdaq has all the unprofitable "vision and growth" tech companies that Wood and everybody else loved in the good times. I don't do predictions. But I can't help but think that we won't get out of this mess without both indexes falling at least 50% or 60%. And based on what happened in the early 1930s and the early 2000s, that would still be getting off easy by mega-bubble standards. However, as bad as everything looks here in the U.S., everywhere else looks worse... Really. Just 10 days ago, the Wall Street Journal reported that investors were pouring money into U.S. stocks as a "safe haven" from the chaos in the rest of the world. From that article... Investors around the world are piling into U.S. stocks, even as they brace for the prospect of a rocky autumn, because they say there's nowhere better to shelter from the turbulence in global markets. Chew on that for a minute. Imagine thinking... "Well, in the U.S., their mortgage rates have only doubled (and then some)... their stock market is only down 19% or so... and they've only had the worst market for their sovereign debt in 234 years. Sure, that sounds like a safer bet than my country." I know most of you live in the U.S. So it's probably hard to think like that. But you have to get out of that narrow mindset and put yourself in the shoes of a foreign investor. If you can do that, you'll hopefully see how scary the world really is right now... Investors like us here in the U.S. are living through one of the worst mega-bubbles ever. And yet, investors elsewhere think "there's nowhere better to shelter from the turbulence." Yikes. At the same time, some analysts want us to believe that everything is swell. They're pushing the narrative that we can just "buy the dip" and make money again. Nope. I'm not buying it. And neither should you. This Beard's Days Are Numbered Our colleague Dr. David "Doc" Eifrig's "playoff beard" – which he's growing until he breaks his personal-best streak of winning options trades – is getting unruly. Take a look... After closing out four more profitable trades over the past month, Doc is just two wins shy of tying his record of 136 straight. This month, his subscribers earned about 23% annualized gains on trades with oil and gas giant Shell (SHEL) and 10% annualized on trades with entertainment leader Disney (DIS). Doc tells us that he expects to at least tie the streak next month. So, mercifully, his beard's days are numbered. If you want to join Doc on his final push – and make money using a simple trading strategy he has taught to subscribers for more than a decade – you can save nearly 70% for this research when you act by midnight tonight. [Get started right here](. --------------------------------------------------------------- Recommended Links: [When 2022 Ends, Which Side Will YOU Be On?]( While investors panic over rising inflation... a looming recession... and a devastating stock sell-off... the forensic accountant who predicted the 2008 and 2020 crashes just issued a new warning: Fortunes could be made and lost by the end of this year. And if you want to be on the right side of history, you need to act next week. [Click here for details](. --------------------------------------------------------------- [Until MIDNIGHT, Claim 1 Free Year of Retirement Trader]( "This is hands down my favorite income strategy and the single most valuable moneymaking secret I discovered during my decade working on Wall Street," says Dr. David Eifrig. He reveals this powerful, little-known "instant-cash secret"... PLUS a way for you to claim a FREE year of access (only until midnight tonight)... [right here](. --------------------------------------------------------------- New 52-week highs (as of 9/15/22): None. In today's mailbag, feedback on [Wednesday's Digest]( about the U.S. dollar and [yesterday's essay]( about lessons from 1937. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "The dollar is not getting stronger... it is just weakening slower than other currencies. As a result, relatively speaking, it appears to be getting stronger, but due to inflation, it is weakening every day." – Paid-up subscriber Dan O. Corey McLaughlin comment: Yes, agreed. That's why we included this part of the story, which is worth repeating... I know saying anything good about the dollar may be considered blasphemy to some of you. After all, we've shared the depressing chart of the devaluation of the U.S. dollar over the years, showing how it has lost nearly 90% of its purchasing power since we went off the gold standard for good in 1971. But what I'm talking about is the present-day context... To reemphasize what we've said many times, [we have concerns]( about the dollar's standing as the world's reserve currency for the next 100 years like it has been for the past 100. But at the moment, the dollar is "winning" against bad competition. "I read The Fourth Turning in early 2020. It's totally fascinating from an historic point-of-view. My oldest son (a Millennial) read it, too, and we've had a lot of lively discussions about it. It's interesting to compare ourselves and other family and friends to previous generational archetypes. "But it's both enlightening and a bit scary when seeing current events. As a Gen X-er and mother of four sons, three of whom are, or soon will be, of the age where they could be drafted, one statement from the book haunts me more and more. 'No fourth turning has ended without total war.' I'm praying that this is the first." – Paid-up subscriber Cheryl Z. Good investing, Dan Ferris Eagle Point, Oregon September 16, 2022 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 877.7% Retirement Millionaire Doc ADP Automatic Data 10/09/08 817.1% Extreme Value Ferris MSFT Microsoft 02/10/12 753.2% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 528.5% Stansberry Innovations Report Wade HSY Hershey 12/07/07 522.5% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 416.5% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 390.6% Retirement Millionaire Doc WRB W.R. Berkley 03/16/12 378.5% Stansberry's Investment Advisory Porter NTLA Intellia Therapeutics 12/19/19 323.7% Stansberry Innovations Report Engel FSMEX Fidelity Sel Med 09/03/08 303.1% Retirement Millionaire Doc 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 3 Retirement Millionaire Doc 1 Extreme Value Ferris 4 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 ETH/USD Ethereum 12/07/18 1,235.1% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,166.4% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,076.3% Crypto Capital Wade MATIC/USD Polygon 02/25/21 843.5% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 424.4% 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 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%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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