You may have gotten some conflicting messages from our recent American Consequences issues…
We have both warned about the things that are going wrong with easy-money central-bank policies in the “Escher Economy” and the “New Mutant Capitalism”…
And we have featured Dr. Steve Sjuggerud’s research on the incredible “Melt Up” potential as this bull market reaches its conclusion.
We’ve done this on purpose because we give readers the best insights and information we can find, and some of these insights and information contradict each other.
Who’s right? Who’s wrong? Who knows?
Actually, you readers probably do. We editors are a small group of people. You readers are a large group. We believe in you. We believe that if our “small group mind” collects good insights and information, your “large group mind” will figure out what to do with it.
Below, as part of our continuing effort to show the financial value of, as it were, “both sides of the coin,” we feature an essay from American Consequences contributor Porter Stansberry, editor of The Stansberry Digest.
Editor in Chief, American Consequences
Dear friends… what follows will surprise some of you, confound others, and probably anger most…
I (Porter) am about to explain why the Digest has recently both warned about an imminent collapse in the stock and bond markets… while at the same time predicting a huge rally in stock prices.
This sounds inane. Or even corrupt. Aren’t we simply trying to play both sides of the coin so that no matter what happens, we can claim to be right? No, not at all. One of us – either Steve Sjuggerud or me – is going to be right. The trick is understanding when we are going to be right.
One of three things will likely happen after you read this…
- You’ll learn more about the coming “Melt Up” that Sjug is predicting and lever up your speculative account (aka you’ll follow Sjug).
- You’ll be persuaded that the risks of this strategy are too big, the volatility too high, and the timing too difficult to execute. You’ll begin to raise cash and you’ll try to position your portfolio for a correction (aka you’ll follow my direction and become far more conservative with your portfolio).
- You’ll decide this is all nonsense and B.S. and you’ll call to cancel your subscription (aka the most likely outcome).
The public loves certainty. And our dear subscribers are no different. They love clarity. They would rather us be dishonest and manipulative… if we’d only be clear. Alas, the world isn’t so tidy. And the stock market even less so.
What follows is the best I can do, while keeping my integrity, to give you the information I’d want, if our roles were reversed.
You might not think it’s clear enough.
But it’s certainly honest.
Sjug and I both agree on one thing right now…
This is an old bull market. It is clearly reaching its “end stage.” Sjug believes that means there’s a lot of money to be made before this bull finally dies.
(By the way, Sjug hosted a big event last week to share his latest research. He detailed a clever strategy for capturing what could be huge gains over the next several months. You can watch his latest “Melt Up” thesis presentation here. I’m certain you’ll learn a few things that will help you, no matter what your market outlook is. After all… Sjug knows this bull market better than anyone.)
Since 2009, Sjug has been following a very clear ‘script’…
He believed that Ben Bernanke and the other central bankers around the world would engineer another asset bubble, what he dubbed the “Bernanke Asset Bubble.”
He was right. Boy, was he right. To my knowledge, no other analyst in the world has been as bullish on stocks for as long as Sjug has.
It has now been more than 3,000 days since the last bottom in the stock market. That’s more than 100 months of stock prices moving higher without a correction of more than 20%.
Recently, this incredible rally began to show signs of reaching a peak…
To Sjug’s credit, he has predicted and stayed long for the entire duration. But lately, the market’s environment has reached a euphoric state. Various measures of risk and volatility are hitting critical (and rare) highs.
We have developed a proprietary model of credit and liquidity conditions – our Complacency Indicator. This tells us when conditions for higher and higher asset prices have reached a peak. When liquidity conditions can’t get any better… they don’t.
I won’t bore you with all the details behind this indicator… except this: It has never produced any false positives.
It warns about virtually all corrections and, when it signals, we’ve seen a 10%-plus decline in stocks within 12 months. Therefore, I believe the event I’ve been warning about since 2015 (a big, important correction in stocks and a debacle in the credit markets) is finally upon us.
This looming bear market has been held off by some incredible (historic, even) actions by the central banks, like negative-interest-rate policies and trillions of dollars in quantitative easing.
But you can’t stop a credit cycle forever.
Sjug believes that before this bull market dies, we’ll see one final, epic ‘blow-off top’…
He could very well be right. The conditions are ripe for such a move: The public believes in stocks, we’re seeing tremendous amounts of froth and speculative excess (see the virtual currencies), and liquidity conditions have never been more conducive to asset bubbles forming. (By some important measures of value, junk bonds were actually trading at higher prices than investment-grade bonds by early August.)
Investors and speculators who are nimble (and lucky) could make huge profits if Sjug is right and if they stay fully (or at least mostly) invested during such a move. If you’re interested in this opportunity, Sjug recently detailed his plans on how you can participate in this big, final rally. Again, you can watch it here.
There’s only one caveat…
I’d urge you to only stay fully invested if you’re certain that you’ll have the discipline to sell virtually everything when Sjug finally says the party is over.
What I saw in the big emerging market bull market of the mid-1990s… and in the gigantic tech bull market in 1999-2000… and in the world-warping and bank-destroying mortgage bubble and commodity boom of 2007-2008… is that 90% of investors (or more) simply won’t sell in time. By the time they finally decide to get out, it’s way, way too late.
Bull markets are formed in the midst of despair and hopelessness. They grow alongside rising liquidity and reinforced optimism. They mature with euphoria and a steadfast belief that “this time is different.” But it never is.
If you can maintain your own emotional balance and your investment discipline… if you’re sure you can avoid being sucked into the vortex of greed that’s emerging right now… then Sjug’s advice might serve you well.
But I believe that strategy will be a disaster for many investors.
What do I propose instead?
Well, my approach is far more humble. It won’t double your money in the next four months, as Sjug’s strategy certainly could. My approach is to largely ignore the madness in the markets and to invest in the trends that we’re certain are going to continue, no matter what happens in the broad market.
This week, I asked my entire team of analysts to give me three trends that they believe will continue for the next decade and that are powerful enough to transform the global economy. Here’s what I told them…
Assume you have to put your entire portfolio into a single trend. And assume you will not be allowed to trade around the position or sell it for at least 10 years. What broad macro trend would you build a portfolio around? What’s your primary data point to measure the extend of that trend?
I received lots of great ideas…
Not all bullish. Not all bearish. Here’s a sample:
- The deflation of the global debt bubble. Key data point: total international government debt versus global GDP.
- The demise of gasoline-powered work and personal vehicles. Key data point: electric car sales versus traditional gas-powered car sales plus crude oil demand. (Closely related to this idea, another analyst suggested the surest trend of the next 10 years would be “the fall of the House of Saud” and $5 oil by 2027.)
- The death of traditional forms of payment and the corresponding rise of mobile-payment systems. Key data point: mobile payments as a percentage of retail payments. (Currently, 30% of Starbucks sales are via mobile-payment apps.)
- Florida coastal real estate. Key data point: the price of homes in my neighborhood. (That’s Sjug’s idea. He has a tremendous amount of money invested in Florida land.)
- Growth in cyber warfare across the globe. Key data point: number of major attacks per year.
- Accelerating returns in automation, robotics, and connected “smart” machines. Key data point: Ray Kurzweil’s “calculations per second” per $1,000 spent.
- The rise of genetic surgery. Key metric: the clinical progress of CRISPR therapies.
- The emergence of a new and better form of money (think bitcoin). Key metric: bitcoin price versus the difficulty of traditional mining.
These weren’t all of the ideas, of course… just the ones I thought were particularly important and reliable. I have no doubt that all these ideas will lead to dozens of outstanding investment opportunities over the next decade and will produce substantial amounts of wealth for investors who are diligent enough to pursue these ideas and stick with them. Here’s a big hint: If you’re emotionally disciplined enough to buy into these ideas when others won’t, you’ll be far, far more successful.
I know what you’re thinking…
“How does that help me?” you ask. “What should I buy today? How should I organize my portfolio? What about the boom Sjug mentioned? What about the bust you’re worried about, Porter?”
Well, let’s just consider one of the major trends that will unfold over the next decade. My top, most certain trend is the death of retail. I have no doubt that within 10 years, more than half of the retail space in America will no longer exist. And that’s probably too conservative an estimate. The destruction is retail is likely to be far worse and occur far faster, like a 75% decline within five years.
My family doesn’t shop in stores anymore at all…
We buy everything – groceries, clothes, cars, toys, tools, services – absolutely everything online. I won’t go into stores anymore. Not even for a pack of gum. Wegmans will bring me gum along with all my groceries within hours, and the workers stack them all neatly for me in my garage. They even put the food and drinks into my fridge for me.
The rest of the country is right behind me, walking away from the mall and from Target (TGT), too. Nevertheless, most people don’t understand just how big of a change this will be for the U.S. economy.
Consider a few important facts… Between 1970 and 2015, the number of malls in the U.S. grew twice as fast as the population. As a result, America has a truly absurd amount of retail space per capital – about six times more than anywhere else in the world (except Canada, where thanks to Sears Holdings (SHLD), retail was grossly overbuilt, too).
America has more than 7.5 billion square feet of shopping center space. That’s about 23 square feet of mall space per person. On a per-capita basis, that’s 10 times more than Germany.
There are lots of ways to invest in this trend…
JC Penney (JCP), Sears, and Macy’s (M) will all go bankrupt within the next 12-18 months. You can short their stocks.
Lots of weak brands and retail concepts that depended on mall traffic will likewise fail, like L Brands (LB), which owns Bath & Body Works and Victoria’s Secret.
A good rule of thumb: If a brand doesn’t have a successful mobile app for ordering and isn’t experiencing huge increases to mobile-app sales, it’s probably doomed.
For evidence of how important a good mobile app is to business, just look what happened to Domino’s Pizza (DPZ) after it began taking orders over mobile phones via its own app. The stock is up more than 400% in the last five years. That’s what can happen when you combine a great brand with delivery and making ordering as easy as pushing a button.
The other obvious trade?
Shorting the mall owners. Most malls in America carry a mortgage. It might be non-recourse to the parent company, but when the malls can’t pay their mortgages, the parent receives no further earnings. Just watch GGP (GGP) – formerly General Growth Properties – for your best indicator and top short in the space. More than 90% of GGP’s malls have JC Penney, Sears, or Macy’s as an anchor tenant. More than 40% have all three. They’re toast.
A huge array of businesses provide services to mall retailers. Manhattan Associates (MANH) is a “point of sale” software company that helps mall retailers manage sales, inventory, and process payments. It’s not hard to understand why this company keeps missing earnings forecasts… or why its stock is down about 45% from its peak in December 2015. Its customers are dying in droves.
On the flipside, we have plenty of ways to invest in the new online world of retail…
There are service providers to the new online retailers – like Shopify (SHOP). It’s essentially the online version of Manhattan Associates. Shopify allows online retailers to quickly open an online store and manage sales, marketing, inventory, and process payments using a cellphone and an app.
Of course, there are local delivery-service companies like GrubHub (GRUB), which specializes in delivering food to apartments and offices. It’s not as easy as it seems and the details matter a great deal, especially with food delivery.
Hundreds of companies are building great online retail businesses. Amazon (AMZN) won’t put them all out of business. Look for strong brands, good margins, and most important, a mobile app that’s driving repeat business.
Will the stock market boom or bust?
I believe it’s likely to do both. Maybe Sjug is right and we’ll see one more huge rally. Maybe our Complacency Indicator is right and this bull market has finally taken its last breath. Nobody can know for certain.
But is it really that hard to figure that Shopify will likely continue to grow and Manhattan Associates will likely continue to fail? Why not buy one stock and short the other?
Over the last year, Shopify is up about 135%. Manhattan Associates is down about 30%. The reason why isn’t hard to understand… And it’s virtually certain to continue. If your portfolio is structured this way, around any of these powerful trends, it doesn’t matter what the market does.
Investing legend Warren Buffett always says that investing is done best when it’s business-like…
In the businesses I own directly, we don’t try to guess when customers might buy more or less of our products or services. Instead, we try to constantly innovate to get ahead (or at least take advantage) of the biggest trends that are changing our customers’ behavior.
I strongly suggest doing the same with your portfolio. If you do, you will soon completely ignore what the market is doing. It simply won’t matter to you at all.
The Stansberry Digest