Be Ready When the Next 'Worst' Record Strikes

It looks like the ultimate contrarian setup – but is it?... The parade of pain marches on... Status quo keepers love the 'Fed pivot' idea... Markets can crash in both directions... You can't say I didn't warn you... A prominent 'Bear Club' member is buying growth stocks... Be ready when the next 'worst' record strikes... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] It looks like the ultimate contrarian setup – but is it?... The parade of pain marches on... Status quo keepers love the 'Fed pivot' idea... Markets can crash in both directions... You can't say I didn't warn you... A prominent 'Bear Club' member is buying growth stocks... Be ready when the next 'worst' record strikes... --------------------------------------------------------------- Sure, it looks like the ultimate contrarian setup right now... I (Dan Ferris) can't deny that. After all, it's pretty brutal out there... So far this year, we grinded through the [worst first half for stocks since 1970](. And according to Deutsche Bank data, in the first half of 2022, we also endured the [worst six months for the 10-year U.S. Treasury note since 1788](. You didn't think the bad news would just stop coming at the end of June, did you? We've dealt with plenty of other "worst" records since then, of course... For example, [on September 13]( continued fears about inflation sent the major indexes spiraling to their biggest one-day drop since June 2020. And every stock in the market-cap-weighted Nasdaq 100 Index fell that day [for the first time since March 2020](. And this week, the parade of pain marched on... On Monday, mortgage data provider Black Knight's (BKI) Home Price Index showed that median home prices in the U.S. fell 0.98% in August. That followed a 1.05% decline in July. Losses of roughly 1% might not seem like much at first. However, as Black Knight reported, these two drops marked the worst single-month declines since January 2009 – in the depths of the financial crisis. Not only that... they're both among the worst eight drops on record. Surging mortgage rates are driving the home-price declines. According to Bankrate.com data compiled by Bloomberg, the average 30-year fixed-rate mortgage recently hit 7% – its highest level since December 2000. Don't worry, stocks are still getting a fair share of the bad news. According to Bloomberg data, roughly $15 trillion in value has been lopped off U.S. stocks since last November. Financial data wizard Charlie Bilello [noted on Twitter this week]( that [the typical "60/40" portfolio of stocks and bonds]( had lost 21% through the end of September. That means this traditional investing strategy is on pace to log its worst performance since 1931 (when it lost 27%). All this bad news in one place surely must mean some type of market bottom is around here somewhere, right? And a ripsnorting rally certainly wouldn't surprise me at any point. [That's a typical feature of bear markets]( after all. Although a short-term rally could happen, it's still far too early to be too bullish... In the first third or half of a bear market, everybody wants to be a hero. Every market observer wants to be the person who "calls the bottom" and looks like a genius. But just as bull markets don't end [until the last bear is gored]( bear markets don't end until all the bulls have been ground into burger meat and all the hero wannabes are gone. We're simply not there yet. One anecdotal indicator suggesting more downside ahead, for example, is that the current bullish case seems to be that the end of the world is near... so you should buy stocks! It sounds ridiculous when I put it like that. But think about it... that's the ultimate logic behind the "Fed pivot." If you've been on vacation all year, the Fed pivot is the idea that the Federal Reserve will soon stop raising interest rates – and instead begin cutting them. And it will do that because rising rates have caused too much pain for too many folks. Some people even say the Fed must pivot, as if it has no choice... Morgan Stanley's Mike Wilson said in a note published Monday that the Fed will likely pivot from "hawkish" to "dovish" monetary policy because U.S. dollar liquidity is now in the "danger zone where bad stuff happens." Wilson added that "more price action of the kind we've been experiencing will eventually get the Fed to back off." He says a pivot "can lead to a sharp rally," but that the central bank can't stop an oncoming earnings recession. Morgan Stanley is an absurdity... It's a large, risk-taking institution backstopped by the Fed, which can print endless amounts of money to spread the risks among everyone except the people being paid exorbitant sums to take them. You couldn't design a worse system for the "little guy" than that. So... of course Wilson says the Fed will pivot. His employer is "too big to fail" in the Fed's eyes. That encourages him to feed investors the idea that the Fed has their backs as well – and that it will step in to save them any minute now. Don't hold your breath. In an article yesterday, Bloomberg voiced a similar vibe... It's getting harder and harder to buy and sell [U.S. Treasurys] in large quantities without those trades moving the market. Market depth, as the measure is known, last Thursday hit the worst level since the throes of the COVID-19 crisis in the spring of 2020, when the Federal Reserve was forced into massive intervention. While we're listing status quo keepers stumping for a Fed pivot, we might as well include the United Nations... A recent U.N. Conference on Trade and Development ("UNCTAD") report said U.S. rate hikes will wipe out $360 billion of future income from developing countries. And along with the report's release, UNCTAD Secretary-General Rebeca Grynspan said... There's still time to step back from the edge of recession. We have the tools to calm inflation and support all vulnerable groups. This is a matter of policy choices and political will. But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession. The U.N. specializes in pushing bad ideas it knows nothing about – like when it recognized the genocidal Khmer Rouge regime and downplayed human rights violations in Cambodia in the 1970s. So it doesn't surprise me that it would chime in about a Fed pivot, too. In the eyes of Morgan Stanley, Bloomberg, and the U.N., Fed Chair Jerome Powell is like God in the old spiritual we sang in grade school... He's got the whole world in his hands. But conveniently, these status quo keepers are leaving out a few things... For example, none of them reported on how much capital has been poorly deployed into pure speculative nonsense as the Fed lowered rates... None of them talked about what kind of damaging asset bubble would result from another Fed attempt to "save the world"... And none of them advocated for abolishing the Fed, which inflates massive asset bubbles and then only protects society's wealthiest members from the ensuing ill effects. OK, maybe I won't take that detour today. But my point is simple... If anybody thinks the Fed will save us – if that's your bull case – you're not paying attention. Everybody seems to think the market and the economy are machines that the Fed can tweak as it likes. But you, me, and the Fed are in markets the way fish are in water... The fish don't control the tides, currents, wind, and waves. They're just along for the ride. One thing bulls seem to get too excited about are days like Monday and Tuesday, when stocks seem to fly off recent bottoms. But I think anybody encouraged by days like that is just showing us how much they don't understand how bear markets work... Too many folks don't seem to understand that markets can crash in both directions... Panic-selling is easy to spot, of course. The COVID-19 crash in March 2020 is a great example... In the 10 trading sessions before the market bottomed on March 23, 2020, stocks fell as much as 12% in a single day. But most folks forget that March 2020 had some huge "up" days as well. The S&P 500 Index rose nearly 5% on March 10, more than 9% on March 13, and about 6% on March 17. That type of wild action happened during the Great Depression, too... The Dow Jones Industrial Average fell roughly 13% on October 28, 1929. And the next day, it tumbled nearly 12%. But then, it rose more than 12% on October 30, 1929. All but two of the top 20 one-day percentage gains in the Nasdaq Composite Index occurred on the way down to bear market bottoms. And the two exceptions occurred just days after the bottoms (March 23, 2009 and March 24, 2020). So for all anyone knew at the time, it was still a bear market. In other words... panic-buying is just as common as panic-selling during bear markets. Folks feel the pain of big losses for the first time in years. And they frantically try to win it back when any glimpse of a rally occurs. It never pays to "catch a falling knife" like that. The market never moves in one direction in a straight line – neither up nor down. I doubt the market's gains on Monday and Tuesday will wind up as anything more than a typical, brief bear market rebound – or possibly the start of another bear market rally. In fact, I'm likely already correct... The S&P 500 fell 2.8% today. And the Dow and Nasdaq both plunged as well. They dropped 2.1% and 3.8%, respectively. We'll see how things play out in the days ahead, though. I still believe we're closer to the beginning of the bear market than the end. And that means it's prudent to remain cautious. After all, we're still in the stage of the cycle when all the highly speculative, boom-and-bust stocks are flaming out, going out of business, or otherwise longing for the good ol' days. The latest example is familiar to longtime Digest readers... You can't say I didn't warn you... I'm talking about exercise-equipment maker Peloton Interactive (PTON). In our [September 3, 2019 Digest]( a couple of weeks before Peloton went public, we said... I can't imagine Peloton will exist five years from now. It does nothing that can't be imitated by larger, better-financed competitors. I don't wish the company ill, but I wouldn't touch the stock (on the long side, at least) or buy the product. Peloton went public in late-September 2019 at $29 per share. The stock soared roughly 475% to more than $167 per share in January 2021 as speculators flush with stimulus checks poured money into it. COVID-19 lockdowns boosted Peloton's sales from $915 million in the fiscal year ending in June 2019 to more than $4 billion two years later. At that point, I looked dead wrong. But you can never say never in the markets. I never changed my mind about Peloton for reasons I clarified in the [November 9, 2021 Digest](. In a nutshell, I reiterated that Peloton's business was nothing special. And I used Nautilus (NLS) as an example of the boom-and-bust nature of the exercise-equipment industry. Almost a year later, I don't look dead wrong anymore... Peloton's boom ended in early 2021. The bust has been playing out for the past 21 months. The company's sales fell 11% in the fiscal year that ended in June. And its net losses grew 14-fold. The stock closed at $8.69 per share today. It's down 95% from its January 2021 peak. The endgame is at hand. Yesterday, Peloton announced its fourth round of layoffs. It's firing 500 employees this time – roughly 12% of its workforce. The Wall Street Journal reported... Chief Executive Barry McCarthy, who took over in February, said he is giving the unprofitable company about another six months to significantly turn itself around and, if that fails, Peloton likely isn't viable as a standalone company. Not viable as a "standalone company" probably means it would get acquired. (Heck, maybe Nautilus will be interested in a takeover.) If that were to happen, you could technically say I was wrong – since the company would still "exist" in some form. But with the stock down 95%, I think I nailed this one. Peloton was always a pure speculation, not a long-term investment... From the beginning, it tried to do what a lot of companies do these days – turn a highly cyclical product into the next iPhone. That didn't happen. And now, the company's survival is at stake. I sincerely hope you took my advice to stay away from Peloton. It's a money-losing business... But far too many rabid, hype-fueled retail investors chased those types of companies in the post-COVID-19 period. Peloton isn't the only money loser that has tanked hard, either... According to data compiled by Bloomberg, stocks in the Nasdaq with negative net income have fallen an average of nearly 49% since the index peaked in November 2021. And those with positive trailing 12-month net income have fallen an average of about 17%. That's nearly three times the loss for unprofitable Nasdaq stocks compared with profitable ones. A 17% loss is painful... But it's more tolerable than your capital getting sliced in half. I know how enticing it is to try to ride the rocket when it seems to go nowhere but up. And criticizing the fundamental outlook of a business as a reason not to own the stock probably still looks stupid to a lot of folks. But I don't know how anybody could fail to see what's happening out there... Folks who bought the worst garbage – much of which traded at exorbitant valuations – have lost much more than investors who stuck with profitable companies. They gambled too much... and got burned. [I'm still a card-carrying member of the "Bear Club" today](. And I believe this bear market has a long way to go. But I'd be remiss if I didn't help you see the full picture today... One prominent Bear Club member believes it's time to start buying quality growth companies... To be clear... he means the ones that aren't going to flame out like Peloton. As regular Digest readers know, Bear Club member Jeremy Grantham co-founded asset-management firm GMO. And on Tuesday, his company put out a new report called, "Growth Investing Ain't About The Rates." From the report... Rising rates hurt investors; claims on profits in the future are simply worth less if you discount them at a higher rate. As growth stocks deliver their cash flows deeper in the future, their worth is hit harder than the average stock. But as GMO explained in its note, the effect isn't as strong as most folks think... It's due to the fact that all fast-growing businesses slow down eventually. Growing, high-quality businesses have an advantage over what GMO calls "speculative growth companies." As the report continued... Growing Quality companies... have an extra layer of protection in rising rate environments because they are less reliant on capital markets. Speculative growth companies, on the other hand, tend not to be cash generative and must rely on external funding; therefore, their cost of capital is much more sensitive to rising rates. GMO has been buying high-quality growth companies recently, at prices it says "overplay the role of rates in determining investment results." Given that Grantham is a well-known bear, this could be good news for long-term, fundamentals-driven investment strategies. It's definitely a counterpoint to keep in mind... Even though I believe the bear market is far from over, I also admit that I can't predict when the bottom will occur. The bear market could end soon or go on for two more years. It's impossible to predict. I understand why a wise, old contrarian like Grantham – bearish as he has been – is beginning to buy. As I said at the outset, it sure looks like the ultimate contrarian setup. But I'm just not there yet. And I don't expect to be for at least another year. So for now, let's do what we've learned works best... Continue to prepare for a wide range of potential outcomes. Hold plenty of cash, high-quality stocks, and precious metals. That's the key to our survival in the long term. If this really is the ultimate contrarian setup... we still won't miss the boat. We'll have plenty of time to capitalize. But as I've shown you today, a lot of evidence still points to the contrary. So if that's the case, you'll be glad that you're ready when the next "worst" record strikes the markets. --------------------------------------------------------------- Recommended Links: ['SELL THIS BELOVED AMERICAN STOCK IMMEDIATELY']( Wall Street titan Marc Chaikin and world-renowned forensic accountant Joel Litman just delivered an urgent crisis warning... and shared their No. 1 step to take with your money right now to protect yourself. Plus, Joel revealed his No. 1 stock you should SELL immediately. It's a beloved American company that he says is headed for disaster. [Click here for details and be ready to act quickly](. --------------------------------------------------------------- ['Here's the EXACT Moment to Sell Your Stocks']( If you don't have an exit plan for stocks, think about what a 50% hit to your portfolio would mean. Would you have to delay retirement by 10 years? Downsize your home? Tell your grandkids you can't pay for their college? A top expert says that could be the case for most people who don't take [this ONE simple step today](. --------------------------------------------------------------- New 52-week highs (as of 10/6/22): Black Stone Minerals (BSM), CTS (CTS), Revance Therapeutics (RVNC), Texas Pacific Land (TPL), and short position in iShares U.S. Real Estate Fund (IYR). The mailbag is quiet today. Is everyone too busy making weekend plans to tell us what's on your mind? As always, we would love to hear your thoughts about the markets, the economy, and more at feedback@stansberryresearch.com. Good investing, Dan Ferris Baltimore, Maryland October 7, 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 11/11/10 882.9% Retirement Millionaire Doc ADP Automatic Data 10/09/08 830.8% Extreme Value Ferris MSFT Microsoft 02/10/12 757.8% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 525.0% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 492.1% Stansberry Innovations Report Wade AFG American Financial 10/12/12 410.8% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 389.9% Retirement Millionaire Doc WRB W.R. Berkley 03/16/12 379.4% Stansberry's Investment Advisory Porter TPL Texas Pacific Land 11/05/20 311.3% Stansberry's Investment Advisory Porter NTLA Intellia Therapeutics 12/19/19 304.7% 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 5 Stansberry's Investment Advisory Porter 2 Retirement Millionaire Doc 2 Stansberry Innovations Report Engel/Wade 1 Extreme Value Ferris --------------------------------------------------------------- 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 1,168.2% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,157.2% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,093.4% Crypto Capital Wade MATIC/USD Polygon 02/25/21 845.7% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 431.3% 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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