Mr. Market, the Overactive Manic-Depressive

Meeting Mr. Market... What was he thinking at all-time highs?... The bond market doesn't agree with the stock market... They both can't be right... What 'everybody knows'... The only sane bet... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Meeting Mr. Market... What was he thinking at all-time highs?... The bond market doesn't agree with the stock market... They both can't be right... What 'everybody knows'... The only sane bet... --------------------------------------------------------------- Have you met Mr. Market yet? If you've ever traded a stock, yes, you have... In his landmark 1949 classic book The Intelligent Investor, the economist, college professor, and investor Benjamin Graham said the stock market behaves like an individual he named "Mr. Market." Graham, who died in 1976, is widely known as the "father of value investing." He hired a 24-year-old Warren Buffett, one of his students at Columbia University, in the 1950s to work at his investment firm. You can bet that one of Graham's lessons was why understanding Mr. Market's personality was important. As Graham wrote in a single paragraph in The Intelligent Investor... Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly. When I (Dan Ferris) read that paragraph, I'm led to believe that, according to Graham, two traits define Mr. Market... First, he's "very obliging indeed," meaning that he's a very active trader, always wanting to buy or sell. Second, he's manic-depressive, frequently letting his emotional highs and lows get the better of him. An overactive, manic-depressive trader seems destined to spend his life transferring all his wealth into other people's accounts... Unfortunately, lots of folks behave that way... And thus, so does Mr. Market because... Mr. Market is 'lots of folks'... He's the personification of the herd, which buys at the top, afraid of missing out on gains that have already been enjoyed by early investors... And the herd also sells at the bottom, when its members can't bear the thought of further losses. At the same time, other folks like Buffett, Stanley Druckenmiller, and Paul Tudor Jones amass fortunes by exploiting Mr. Market's mistakes... They win when he loses. Perhaps that's why immediately after introducing Mr. Market to the world in his landmark book, Graham points out in the next paragraph that it's better not to worry about him most of the time... You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position. The Buffetts, Druckenmillers, and Tudor Joneses of the world do that. They beat Mr. Market by forming their own ideas based on their own research. You are free to do the same and decide for yourself whether Mr. Market's view is "plausible and justified" or "a little short of silly," based on your own research (or that of someone you trust, like Stansberry Research), then act accordingly. It's easy to spot Mr. Market's worst mistakes in real time... Did anybody honestly believe or even care if the cash-burning businesses in the ARK Innovation Fund (ARKK) rose 350% in value from March 2020 to February 2021? Does any competent investor think Tesla's (TSLA) business is worth several other profitable car companies combined? Yet at different times in the past few years, Mr. Market briefly thought both of those things were true. Mr. Market would never admit to buying and selling based purely on emotions. He'd more likely cite some popular narrative that he heard somewhere and adopted immediately and uncritically. For example, "disruptive innovation" is still a popular enough buzzword to push ARKK 28% off its low closing price just under $30 on December 28, 2022. And I'm sure you'll have no trouble finding many folks who will tell you that Tesla is a software company or an alternative-energy company instead of what we all know it to be: an automobile manufacturer. I can easily see Graham's Mr. Market getting swept up in the speculative frenzy that followed the pandemic in 2020 and 2021. I can also easily see him becoming despondent and selling everything at bear market lows. Mr. Market is easy enough to understand... Mr. Market does an excellent job of explaining the stock market's gyrations... but it really bothers me that I can't square his existence with another popular idea of how the stock market works... Perhaps you've heard some financially savvy person tell you that the stock market is "forward looking," or maybe even that it "discounts" the likely future. "Discount" is finance jargon. In this case, it means something like "predicts" or perhaps merely "accounts for the likelihood of." In other words, the stock market, or Mr. Market, looks to the future and tries to figure out what will happen. Perhaps you already see the problem with that view... I have trouble believing that an overactive manic-depressive trader can also be very good at forecasting the future. If he were any good at forecasting the future, would he really have paid way too much for every stock in the market in late 2021 and early 2022? I can already hear the keyboard cowboys typing... "Dan, I'm surprised at you. You must know the market is irrational in the short term and rational in the long term," or maybe the classic, "The stock market is a voting machine in the short term and a weighing machine in the long term." The voting machine/weighing machine quote is often wrongly attributed to Graham. It's not what he wrote at all. In Chapter 1 of the first edition of his first landmark work, Security Analysis, published in 1934, Graham and co-author David Dodd wrote... In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion. It's probably more accurate to say that the market will eventually get around to assigning a business the proper valuation at some point, but that assumes the investor will recognize that moment when it arrives. However you say it... We can all agree that a voting machine is not a weighing machine and that neither machine is a crystal ball... The market certainly wasn't discounting the likelihood of a bear market as it hit all-time highs in late 2021 and early 2022. It was expecting the good times to continue... That was the most expensive moment in all recorded history. What does such a moment say, except, "Everything will be perfect from now on..."? That's never true, but that didn't stop Mr. Market, the allegedly forward-looking manic-depressive, from suggesting it ever could be true. I have to wonder... how far ahead is this forward-looking voting machine supposed to be forecasting? When the Nasdaq Composite Index peaked in November 2021, was it forecasting a rosy future for the next five decades? Or the next five years? Or five months? Well, the Nasdaq was down 13% five months after its November 2021 peak and had fallen about 36% roughly 13 months later, so its forecast period is neither five months nor 13 months. We'll have to wait until 2026 to see if it was looking five years out. So far, the "forecast" it made at its all-time high seems to have missed the mark. But maybe the Nasdaq wasn't discounting anything... Maybe Mr. Market just went on a bender and got a hangover... I am doubtful of everyone, including myself, who says, "The market is telling me that _________," then fills in the blank with a story about Mr. Market's latest tantrum. But it's not hard to see that Mr. Market's most manic extremes have been followed by his longest and most destructive tantrums, which can last decades. I've mentioned such episodes many times in the past year or two... The 1929 mega bubble... the 1989 Japan mega bubble... the 2000 dot-com mega bubble... and the current mega bubble... All were huge speculative events that generated negative consequences that lasted a decade or more. After the 1929 mega bubble peaked, the Dow Jones Industrial Average didn't make a new high for 25 years. The Japanese market still hasn't made a new high nearly 34 years after it peaked in December 1989. The Nasdaq took 15 years to hit a new high. Some dot-com era favorites, like Cisco Systems (CSCO) and Intel (INTC), still haven't returned to their 2000 highs. The central bank policies that followed the dot-com highs have influenced the stock market for two-plus decades... They led us straight into the biggest financial crisis since the Great Depression, and since then have led us into the present bear market, which I believe will be followed by a sideways market lasting a decade or more. In what way were those frenzied bull runs up to those extreme highs forecasting a long, destructive episode? None that I can see. OK, so what about the futures market? If the stock market isn't a good forecasting tool, shouldn't the futures market be? It has the word "future" right in the name. It's an entire market system devoted solely to assigning prices to commodities and other assets for specific future delivery dates. So let's look at bond market futures. Interest rates are the most important prices in the world, because they're used to determine the value of all other cash-generating assets, including publicly traded companies in the stock market. Surely, the futures market for such an important price would tolerate little, if any, of Mr. Market's manic-depressive nonsense... The interest rate that has everybody's attention today is the federal-funds rate. If I haven't already persuaded you that the market is a terrible forecasting tool, take a look at the difference (called the "spread") between the present-month fed-funds futures contract and the December 2023 contract. It looks like something a toddler drew on the refrigerator with a Sharpie when mom wasn't looking... When the spread is below the red line, the market is forecasting lower rates in December than in April. When it's above the red line, it's forecasting higher rates in December than in April. As you can see, the market was forecasting higher rates for December until about May 2022. Then it switched to forecasting lower rates for December than April. Then suddenly, expectations of higher rates soared, with the spread making a new all-time high about a month ago, on March 8. Then the market took an even more violent turn down, amid the bank run contagion fears, and the forecast has been for lower rates ever since. The insane volatility suggests the market was blindsided... with expectations of higher rates dominating from February 6 to March 8... Then another blindside followed immediately, causing the spread to collapse deeper into negative territory than it had ever been before. The most important information in this chart is not where it is at any given moment... Instead, it's the violent whipsawing action... which suggests that the futures market for one of the most important prices in the world has no idea where rates will be in December. The weird thing about all this is that falling interest rates are a classic sign that investors are worried about an economic downturn. Rates fall as they buy bonds in search of a safe haven from stocks. It doesn't seem like stock market investors are nearly as worried. The stock market has risen since the S&P 500 Index bottomed in October and the Nasdaq bottomed in December. So, as bond investors bid bond prices up and interest rates down because they're worried about a recession, stock investors bid stocks higher in the belief that lower rates will mean higher stock prices. The bond market believes the Federal Reserve can cause a recession. The stock market seems to believe that recession or not, the Fed can keep stock prices propped up by cutting rates. One or both of those groups must be wrong. But both the Wall Street "smart money" and Mr. Market can't be right. So, I'd guess Mr. Market is wrong... It appears that he believes too deeply in the Fed's ability to support stock prices by lowering interest rates. He's saying something like, "I'm bullish because an economic downturn is coming and that means lower rates, and lower rates are always good for stocks... right?" Wrong. We've pointed out more than once in the Digest that, historically, when the Fed has pivoted from raising rates to cutting them, stocks have fallen. One of Mr. Market's problems is that his forecasts consist of what "everybody knows"... For example, everybody knew stocks would go up forever in 1929, just before they made their last new high for 25 years. Everybody knew the Internet would make everyone rich quickly in 1999 and 2000, right before hundreds of dot-com stocks went to zero and the Nasdaq didn't make a new high until 2015. Everybody knew housing prices would never fall back in 2006... the year they peaked before falling for six years straight. Now that stocks have risen off the bottoms they hit in the fall, everybody knows a new bull market has begun. Everybody knows it's time to buy. And now that inflation has peaked and interest-rate spreads are forecasting a recession, everybody knows the Fed will soon begin cutting rates. And of course everybody knows low rates mean high stock prices. In other words, there are several questionable forecasts baked into the market right now... What if even one of them is wrong? What if we do have a recession later this year... and the Fed does cut rates... but stocks fall instead of rising? What if we don't get a recession? What if the Fed hikes rates a few more times? What if the fed-funds rate is 6% by December instead of the 5% the market seems to be forecasting? The stock market seems certain that stocks are good bets right now. The bond market with its falling rates seems certain a recession or at least a slower economy lies ahead. What if they're both wrong? And what if the Fed doesn't behave as expected? Don't look to Mr. Market for the answers... He is an overactive manic-depressive, and he doesn't know anything except what everybody knows. And when everybody knows something is a sure thing in the market, the only sane bet is that something else will happen. --------------------------------------------------------------- Recommended Links: [If You Own Any Stocks, Read This Immediately]( Marc Chaikin is known on Wall Street as the guy who makes eerily accurate predictions – like last November, when he warned we were heading for a banking crisis. Now, he's stepping forward with a new warning: ["Americans are about to do some DANGEROUS things with their money..."]( --------------------------------------------------------------- [FBI Consultant: 'The Government Could Take Over Your 401(k)']( A professor and consultant for the FBI just stepped forward with a major new warning... which could make some Americans vastly wealthier but have serious negative consequences, too. He says there's even the possibility that the government could soon make huge changes to retirement accounts like IRAs and 401(k)s. [Get the details here](. --------------------------------------------------------------- New 52-week highs (as of 4/5/23): Alamos Gold (AGI), CBOE Global Markets (CBOE), Hershey (HSY), Motorola Solutions (MSI), Sprott Physical Gold Trust (PHYS), Stryker (SYK), and Unilever (UL). One housekeeping note before we get to the mailbag... The U.S. markets and our offices are closed for the Good Friday holiday tomorrow. We'll pick up with our regular fare on Monday, following this weekend's Masters Series. Now, on to the mail... Today, we have more of your feedback on what's going on in energy markets... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "One of the advantages of being aged 85 is I was Controller of a NYSE Fertilizer Company during the 1973-1974 Oil Embargo. That embargo allowed our fertilizer prices to be increased 200% to 300%. The present OPEC production cut will very soon be passed on to the world consumers via higher prices & supply shortages. "For the last 45 years I have been living in Western Colorado, in a county richly endowed with natural gas deposits that require extensive fracking and populated with 'not in my backyard' citizenry. Furthermore, 67% of our county is Federal Lands and Biden has shutoff all drilling on such Federal Lands. Plus, the Colorado Oil and Gas Commission, from which all drilling permits must be awarded, is filled with ESG types. Opening the spigots is a pipe dream! "During 1980 to 2010 there were approximately 15,000 Natural Gas wells drilled in this county. Now the drilling of new wells is at a standstill and all the workers and drilling companies have left the area. These gas wells will be depleted in 20 to 25 years, so it is only a matter of time and our production will be zero and this valuable national treasure will be ignored and probably never produced." – Paid-up subscriber H.S. Good investing, Dan Ferris Eagle Point, Oregon April 6, 2023 --------------------------------------------------------------- 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 1,027.3% Retirement Millionaire Doc MSFT Microsoft 02/10/12 884.3% Stansberry's Investment Advisory Porter ADP Automatic Data 10/09/08 767.9% Extreme Value Ferris ETH/USD Ethereum 02/21/20 659.3% Stansberry Innovations Report Wade HSY Hershey 12/07/07 625.7% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 552.5% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 450.3% Retirement Millionaire Doc AFG American Financial 10/12/12 410.3% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 329.1% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 316.8% 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 1,475.1% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,177.4% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,052.8% Crypto Capital Wade MATIC/USD Polygon 02/25/21 930.3% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 650.1% 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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