The Biggest Bubble in History Is Bursting... Right Now

We end our special year-end series today with, appropriately, a contribution from regular Friday Digest essayist Dan Ferris... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Editor's note: We end our special year-end series today with, appropriately, a contribution from regular Friday Digest essayist Dan Ferris... Dan has been writing to you all year about what he believes is the bursting of the biggest financial bubble in history... And, as he has continued to explain in 2022, he doesn't think the bust is over yet. In today's essay – published [in the October 15 Masters Series]( and adapted from Dan's July issue of Extreme Value – Dan explains why he believes more pain is to come before this bubble is finished popping... and why it's crucial for individual investors to recognize it. --------------------------------------------------------------- The Biggest Bubble in History Is Bursting... Right Now By Dan Ferris, editor, Extreme Value and The Ferris Report We're officially in a bear market... Bulls and bears come and go. It's a natural part of investing. And for investors focused on long-term value, downtrends – even significant ones – are welcomed events. They take the edge off inflated markets, strip out the riffraff, and result in many extraordinary opportunities to scoop up high-quality companies at huge discounts. But this is no ordinary bear. This is the end of the world as we've known it for decades. Ignoring this fact is the biggest mistake most investors are making right now. Fully understanding and preparing for the realities of the current bear market could be the difference between earning a decent return over the next few years... and a total wipeout of your savings. The following quote from one of my recent Stansberry Investor Hour guests – friend, author, and master investor Vitaliy Katsenelson – shows you an easy way to avoid this mistake... 'Whatever happened to you over the last 20 years, just invert it'... See, as [I told Stansberry Digest readers]( in June, the past 20 years saw steady trends of falling interest rates, climbing housing prices, soaring stock market valuations, and a growing economy. Today, it's the opposite... Interest rates are rising, the stock market's overall valuation has tanked (and yet is still very expensive by the most reliable metrics), and the economy is shrinking in inflation-adjusted terms. Here's the list of items I published in the Digest to try to orient readers to this new reality and help them say goodbye to the old one. (You might print this out and tack it up near where you do most of your investment reading and research. It's hard to keep all this stuff in mind, but two years from now, you'll be glad you did.) I'm not saying these trends will hold 100% of the time for the next several years. I'm saying times have changed, and we need to adapt in order to overcome what's in store. First, let's see what's causing us to have to invert the lessons of the past few decades... --------------------------------------------------------------- Recommended Links: ['I Found the Answer to Retirement']( A reader came forward with his unique story of how he retired early and worry-free WITHOUT stocks... thanks to ONE single idea that anyone can use. Now he sees 16%-plus annual returns with legal protections... and he NEVER has to worry about another market crash. Get the full story today and claim a holiday "bonus gift" that he negotiated on your behalf, [right here](. --------------------------------------------------------------- [UPDATE: Market Meltdown 2023]( What happens in the coming weeks could make or absolutely break your retirement. That's what history has shown when stocks are falling, inflation is rising, the Federal Reserve's raising rates, and economic activity is slowing. But Dan Ferris recently stepped forward with an insanely simple solution to protect your wealth. [Full details here](. --------------------------------------------------------------- We begin by recognizing a single, simple historical fact... The biggest bubbles in the history of the financial markets did not end with anything like a six-month, 24% drawdown of the S&P 500 Index or an eight-month, 33% drawdown of the Nasdaq Composite Index – like what we've seen this year. That means that moving forward, more downside is likely and calls of a bottom are premature. We'd all love it if there were a precedent for escaping a massive asset-price bubble without having to endure a huge bear market, but it doesn't exist. After a huge equity bubble, the bear market tends to be long and the decline from peak to trough tends to be huge. Here's a snapshot of the biggest equity bubbles of the past 100 years bursting... In other words, the bottom is nowhere in sight. Within each bear market, there are incremental rallies. Last month, we noted how these bear market rallies tend to be smaller at the beginning of the cycle and larger near the end. So far, the biggest rally in the S&P 500 since it peaked on January 3 has been the 11% rise from March 14 to March 29. More recently, the S&P 500 rose 6.7% from June 16 to June 24 in a typical smaller, early bear market rally. [Editor's note: The U.S. benchmark rose roughly 14% from July 14 to August 16, pulled back to new lows in October, then again rallied 14% through the start of December after this essay was originally written.] Those are normal rallies that occur naturally within every bear market. Unlike what many investors and financial media pundits are saying... they do not mark a bottom. History suggests this bear market will last roughly between one and a half and three years. Since we at Extreme Value have a higher-than-average tendency to consider extreme outcomes that other investors view as unlikely and a waste of time to even consider, we've been warning you about and recommending you prepare for a difficult market for more than a year. Since we've now been vindicated... Let's continue to buck the trend and consider a simple mental model for thinking about the likelihood of extreme market outcomes: high-water marks. Perhaps you've been to a place like Harpers Ferry, West Virginia, a small town that sits at the confluence of the Potomac and Shenandoah Rivers. Among the historical sites, you might notice the high-water marks showing the level of various floods throughout the town's history. High-water marks are deceptive. They make you feel that they're unlikely to ever be exceeded. In fact, the opposite is true. The presence of multiple high-water marks in places like Harpers Ferry proves they're virtually guaranteed to be exceeded. "Even the very highest one?" It's tempting to ask. Yes, that's the point. Each mark was the highest-recorded flood level in history... until an even bigger flood came along to claim the No. 1 position. If you view the latest high-water mark as an unattainable extreme, you're simply being fooled by randomness. It's like that in financial markets, too. As we've pointed out, history can be an excellent guide in preparing for various possible future outcomes. But every now and then, modern markets exceed history's high-water marks, and we just have to wait and see how far the waters rise this time. This holds true for both bull and bear markets. We didn't know how high or how long the bull would go before it ended, and we don't know how low or how long the bear will go before it ends. The last bull – the most overvalued, highly speculative market in history – reached unprecedented heights. It's reasonable to assume the bear that follows could become the most devastatingly deceptive and ultimately destructive one in history. After this bursting bubble exceeds the last high-water mark and shocks everyone with its relentless brutality, nobody will want to own stocks when they finally hit bottom. An entire generation of investors that thrived off "buying the dip" will see much of their life savings wiped out and will swear off stocks. Many of them will never return to the market. (The same will happen in bonds – which are arguably in a bigger bubble than stocks – and crypto.) That is what the bottom of a massive bursting bubble feels like... For the first time in history, the U.S. is experiencing a confluence of three macro extremes all at once: - High government debt to gross domestic product, like the post-war 1940s - Excessive stock market valuation on par with the 1929 and 2000 bubbles - A resource-driven inflationary crisis environment comparable with the 1970s And though I've said it many times, it bears repeating that six months ago, stocks were more expensive than ever before by one reliable measure... The S&P 500 price-to-sales (P/S) ratio is the easiest and one of the best ways to understand the overall stock market's valuation. When it's at extreme highs or lows, it's signaling heightened risk or opportunity. Never in recorded history had the P/S ratio traded above 3 times sales... until April 2021. It then stayed at that extreme level – peaking at an all-time high of 3.17 on December 27, 2021 – until January 2022. Around 2.3 as I write [Editor's note: This is still the case], it's slightly higher than the dot-com peak, which was previously the most overvalued moment in history. And in January, the cyclically adjusted price-to-earnings (P/E) ratio of the S&P 500 (or the Shiller P/E ratio, named after economist Robert Shiller) hit its second-most expensive level since 1870, the highest being the dot-com peak in early 2000. It has fallen with the market but is now right at 29, near its third-highest level of the past 150 years. It first reached this level in 1929 and didn't exceed it again until 1999. In short, the stock market is not just extremely expensive. It's still valued like one of the three biggest equity bubbles in U.S. history. In addition to the unprecedented constellation of macro forces, a huge turn in a four-decade interest-rate trend could be just days away. The U.S. Federal Reserve has generally lowered rates for the past 40 years. There have been increases and decreases along the way, but the overall trend is down... In other words, Fed policy looks cyclical in the short term, from dovish to hawkish and back again... But over the long term, it has demonstrated a clear dovish bias. The Fed has indicated it's likely to raise the benchmark fed-funds rate by 75 basis points (0.75 percentage points) at its next meeting. ("Fed funds" is the benchmark interest rate the Fed raises and lowers to try to regulate price stability (inflation) and unemployment. When you hear that the Fed cut or raised rates, this is the rate they're adjusting.) If the Fed goes through with the hike, the fed-funds target range will be 2.25% to 2.5%... right where it was back in July 2019, the last time the Fed reversed course and started cutting rates. If the Fed continues to raise rates past 2.5%, the odds of a recession – already high enough to be concerning – will ratchet higher. I'll leave it to the technical analysts to decide if that would constitute a broken trend, but it'd be enough for me if the target rate rises any amount past 2.5%. That would be an early confirmation of our new market reality: higher interest rates, not lower. --------------------------------------------------------------- Editor's note: In the months since Dan wrote this essay, the Fed has only continued to raise its benchmark interest rate – currently to a level near 5% – well above the previous peak of rate-hiking cycle in 2019. And the central bank has said it will continue to raise rates. If anything, these facts only confirm to Dan that the biggest financial bubble in history isn't finished popping yet. Dan went live with a brand-new presentation in October, urging folks to "wake the hell up" and realize the shifts that are occurring in the markets as we speak. He explained why a massive fall is ahead for stocks... and that's not even the worst part. Dan still believes this is the case today. In advance of us rerunning this essay today, just last week, Dan [recorded a critical update]( from his home in Oregon to the original stock warning that aired in October... Just like he did a few months ago, Dan will hand you the exact strategy he believes investors should be using right now... This includes the small handful of stocks and other investment recommendations he's confident will carry the most successful investors forward into the new year. Four of the stocks he recommended that his readers buy back in October have already climbed more than 10%... But we haven't even gotten to the heart of Dan's thesis yet – when his picks could really benefit individual investors the most. [Click here for full details](. --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst ADP Automatic Data 10/09/08 855.0% Extreme Value Ferris MSFT Microsoft 11/11/10 848.9% Retirement Millionaire Doc MSFT Microsoft 02/10/12 728.1% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 564.7% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 449.6% Stansberry Innovations Report Wade AFG American Financial 10/12/12 442.9% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 441.8% Retirement Millionaire Doc WRB W.R. Berkley 03/16/12 418.4% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 314.6% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 299.0% 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 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Extreme Value Ferris 1 Stansberry Innovations Report 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 1,090.2% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,056.8% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,040.1% Crypto Capital Wade MATIC/USD Polygon 02/25/21 838.1% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 379.2% 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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