Most of the Money Comes In at the Top

In today's Masters Series, adapted from the March 11, 2022 Digest, Dan discusses price fluctuations in the global markets amid the Russia-Ukraine conflict... explains how the market volatility we're seeing right now compares with past bear markets... and reveals how folks can not only survive this chaos, but position themselves to profit moving forward... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: [More pain is on the way](... Many investors have been reluctant to put their money to work throughout this bear market as out-of-control inflation and heightened geopolitical tensions continue to weigh on several important asset classes. But history shows this turmoil could lead to an even larger drawdown in the future... That's why Extreme Value editor Dan Ferris believes investors must prepare their portfolios immediately as this rampant market uncertainty drags on in order to avoid catastrophic losses. In today's Masters Series, adapted from the March 11, 2022 Digest, Dan discusses price fluctuations in the global markets amid the Russia-Ukraine conflict... explains how the market volatility we're seeing right now compares with past bear markets... and reveals how folks can not only survive this chaos, but position themselves to profit moving forward... --------------------------------------------------------------- Most of the Money Comes In at the Top By Dan Ferris, editor, Extreme Value I'm in tune with the times... Or maybe I am just the beneficiary of lucky timing. I'll let you decide, since I'm too human to feel like it's pure luck. I'm talking about the timing of two Digests I published last year... In February 2022, I warned you that asset prices don't glide... they leap. Then a week later, I told you not to let big, scary headlines about the war in Ukraine entice you into believing you needed to make big changes in your portfolio. The following week, the market tested that resolve I recommended you adopt by starting off with a plunging stock market on Monday... And it proved beyond a shadow of a doubt that commodity prices have the ability to make huge leaps. Russia is a major producer of nickel, oil, and wheat ‒ causing prices for all three to leap off the charts. Since the war in Ukraine began, some key commodity prices have leapt like never before. And these huge price leaps inspired boneheaded actions by folks who should know better... The most dramatic leap was in the price of nickel, which trades on the London Metal Exchange ("LME")... Russia is a major nickel producer. Traders anticipating Western sanctions bid the price up fast. The price leapt 70% on Monday that week and doubled the next day, to $100,000 per tonne. The drama didn't stop there... The big upward price move threatened a large short seller so the LME halted trading and took the shocking, unethical route of canceling trades to protect the seller. In other words, LME gatekeepers stole some traders' profits to keep one client from going broke. It is 100% not kosher. If that happened to me, I'd be calling lawyers and getting ready to go to battle with the LME... So why did they do it? Hong Kong Exchanges and Clearing ("HKEX") owns the LME, and the client is Xiang Guangda, the billionaire founder of China's biggest stainless-steel producer, Tsingshan Holding... Guangda says he's not reducing his position, making him sound like the Somali pirate who told the captain of a tanker he was hijacking, "I'm the captain now." The price of oil leapt 32% from February 24, 2022 through March 8... It has fallen since but is still higher than it was before the war started. The price of wheat rose 50% from the start of the war through March 7, 2022... Wheat futures went "limit up" five days in a row, meaning the price moved as far as the commodities exchange would allow. Wheat prices rose more than 40% in a week, breaking a record set in 1975. It's probably wise to expect more sanctions from both sides of the Russia-Ukraine war. Russian President Vladimir Putin already said he'll stop exporting uranium... That will boost the cost of uranium for U.S. electric utilities and their customers. Suffice to say, I warned you about leaping prices in the nick of time. Also, the events surrounding the nickel and oil price moves show you the kind of weird hell that can break loose when prices leap further than anybody expected... --------------------------------------------------------------- Recommended Link: [March 2: A Rare Market Event 50 Years in the Making]( A predictable shift is playing out once again, which could hand you huge profits if you know what's coming. A small number of folks have been preparing for this exact moment, but 99% of investors will miss out completely. Don't get left behind – [click here for full details](. --------------------------------------------------------------- It's easy to conclude that the war in Ukraine caused the price leaps... That might lead you to believe big price leaps require rare, extreme events before they'll happen. But that's not necessarily the case... Commodity prices had already been rising for a year before war broke out. Maybe the war just caused them to move in the same direction, but faster. Price leaps don't need an overt catalyst like war. They're an inherent feature of markets. Limits and trading halts can't prevent them, whether we're talking about leaps up or down. Digest readers know I think it's possible for the S&P 500 Index to leap downward more than 20% in a single day... even though there are protocols (called circuit breakers) in place at the big stock exchanges that are designed to make that impossible. I won't rehash my reasons for believing that, but I do think a big one-day crash lasting anywhere from minutes to a full day to weeks is more likely than not in the coming year... That's because investors are set to rush out of the stock market the way they've rushed out of the ARK Innovation Fund (ARKK), which I've reported on several times starting the day before it peaked on February 12, 2021. Investors have already poured money into the market the same way they poured record amounts of money into ARKK in the few months of the run-up to its peak closing price of $156.58 on February 10, 2021... At that point, the fund had risen 351% off its March 2020 COVID-19 bear market bottom. As of yesterday's close, it's fallen about 75% from its peak. The point here is not just that ARKK has fallen so much. It's that it fell so much starting right after a record amount of money flowed into it. Investors put more money into ARKK in three months – $8.59 billion in December 2020, January and February 2021 – than in the entire history of the fund from inception in October 2014 through November 2020 ($7.99 billion). The fund fell 34% three months after its price peaked, which happened just days before its 30-day cumulative inflows peaked. Unfortunately, in financial markets, most of the money often comes in at the top... It's especially common in stocks, exchange-traded funds, and mutual funds after they've seen epic short-term bull runs... Investors chase performance and get burned. This chart below of ARKK's cumulative rolling 30-day net inflows is simply a picture of a full-on speculative mania... You can plainly see 30-day cumulative net flows into ARKK going sideways for several years, rising in 2020, then going ballistic starting in December 2020 ‒ after the fund had soared nearly 150%. Cumulative 30-day flows had rarely been anywhere near $500 million in any 30-day period. Suddenly inflows soared to more than $1 billion, then quickly to more than $4 billion and nearly $6 billion... as wide-eyed investors chased the blistering performance in the rearview mirror. Then you can see the flows into ARKK peaking on February 22, 2021, 10 days after its peak closing price... It was all downhill from there. Fund flows plummeted, spending much of 2021 in negative territory. ARKK's share price fell 24% in 2021 and has fallen another 27% so far this year. Investors did the same thing with the entire stock market that they did with ARKK. More money went into stocks in 2021 than in the previous 19 years combined... As you'd expect, the market's trajectory up to its top was similar to ARKK's. By August 16, 2021, the S&P 500 Index had doubled from its March 23, 2020 COVID-19 bottom. It rose nearly 27% in 2021, an exceptional one-year rise... Of course, I know that ARKK is not the entire stock market and that most folks will say it's dumb to expect the entire stock market to behave like a single fund. I don't care what most people think... and I'm 100% certain the folks buying and selling stocks are all humans. Humans get scared and they panic. They indulge in recency biases, expecting the near-term future to resemble the near-term past... When they expect more big gains and get quick, big losses, they are disoriented and confused and vulnerable to panic. That's especially true of humans who don't know what they're doing. Warren Buffett holds businesses "forever" because he really, really knows a lot about them. Warren Buffett knows what he is doing... I'd bet most people buying stocks for the first time in 2021 – the ones who put more money into stocks that year than in the previous 19 years combined – don't even know what stocks are. All they know is that prices can go up a lot – very fast – and make them a lot of money easily. They know how to hit the "buy" button. Newbies using the Robinhood Markets (HOOD) trading app might know a little more than that, but not a lot more. When it becomes clear that stock prices can fall as well as rise, all that new dumb money will have none of the conviction of a knowledgeable shareholder like Buffett. They'll just know that stocks go down and how to hit the "sell" button and not a lot more. They're probably already getting disoriented and confused. And let's be clear, this is not a new phenomenon. It's all happened before... Folks went crazy for stocks in 2021 the way they did in 1928 and 1999... And what happened next in both of those episodes appears to have started happening again in 2022... The Dow Jones Industrials Average rose 47.5% in 1928... It peaked on September 3, 1929, and it fell 48% through November 13, 1929. The Nasdaq rose 84% in 1999. It peaked in March 2000 and fell 54% through December 20, 2000... In both cases, the losses in the weeks and months after the top were just the beginning. Two more years of downside lay ahead. History doesn't repeat, but it tends to rhyme. A similar outcome may lie just ahead – a drawdown of 40% to 50% over the next few months... and a bear market extending into 2024. It's true that bear markets can be short, like the one-month COVID-19 bear market of March 2020... Or they can be yearslong, like the Japanese bear market that peaked in December 1989 and didn't finally bottom until June 2012. Usually, we expect them to last between six months and two years. This time around, we'd expect it to last at least a year and to take the S&P 500, Nasdaq, and Dow Industrials down 40% to 60%. But I'm mostly not worrying about bear markets today. In 2021, every speculative piece of garbage from ARKK to meme stocks soared out of sight, suggesting that most of that new money was from folks who didn't know what they were doing. They were like the old cowboy comedian Will Rogers who said... "I buy stocks that go up. If they don't go up, I don't buy 'em." They didn't know what they were buying, nor how much risk they were taking. All they knew was that stocks were going up and they were buying. But in 2022, investors fled stocks as indiscriminately as they bought in 2021. They flipped the Will Rogers script and sell stocks that go down... and the farther they go down, the more they'll sell. With stocks in various market sectors struggling right now, investors will become more desperate. They'll sell whatever they can sell, regardless of the quality of the business. As that continues happening, the odds of a big short-term crash will increase. So I will leave you with this... First, sell the last of your speculative garbage. Stocks have been falling a lot lately. You'll probably get a nice rally any day now to help you do that... Next, be sure to hold onto plenty of cash, gold, silver, and bitcoin... The latter three will fall in price if the panic gets bad enough, but they're still the type of assets you don't want to be without. I expect all three to perform well through a bear market bottom. I consider all three as permanent holdings appropriate for long-term wealth preservation. Look out below. I suspect you ain't seen nothin' yet. Good investing, Dan Ferris --------------------------------------------------------------- Editor's note: Dan believes this drawdown isn't the only shift taking place in the markets soon. He says a once-in-a-lifetime market event is about to happen – one that could earn you massive profits if you start preparing ahead of time. That's why he's hosting an online presentation on Thursday, March 2 to reveal what's coming and discuss how folks can position themselves for this upcoming shift. [Learn more here](... --------------------------------------------------------------- Recommended Link: [The No. 1 Gold Play for 2023]( Some of the richest men in the world are jumping into gold right now... because evidence suggests we could see MUCH HIGHER prices in the coming weeks. But if you're not taking advantage of a little-known way to invest for around $5 today, you're missing out. [Click here for full details](. --------------------------------------------------------------- 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. 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