October 21, 2020
Featured contributor Dr. Steve Sjuggerud is no stranger to American Consequences… And for the past three years, he’s been pounding the table about his “Melt Up” thesis – the last big push of a major stock boom, when investors tend to see the biggest gains.
I know what you must be thinking… Most investors are hung up on the new highs in stock prices and aren’t willing to accept they can go higher. Many Americans are worried that another major stock market event is right around the corner. You may be right, but it’s not what you think…
With the global pandemic, the most contentious presidential election in history, 8% of Americans out of work, market volatility, and civil unrest, there’s no way Steve is still saying stocks are going to go up and folks can make good money, right?
But he is…
Today, Steve explains the one crucial detail that tells us investments are very cheap today… And he shares a simple chart that clearly shows stocks still have room to run.
The decisions you make in the coming weeks could affect your wealth for the next decade. Steve is holding a special investor event tonight where he’ll explain live the No. 1 thing you can do right now to make money… Sign up for free by clicking here.
Make Hay While the Sun Shines…
By Dr. Steve Sjuggerud
My friend, many investments are cheaper than you can imagine right now…
There’s so much investing opportunity today, I hardly know where to begin!
“Steve, have you lost your mind?” you might be thinking. “You know that we’re in a pandemic… that stock prices are at new all-time highs… and that house prices are now above their 2006 peak… right? So how can you possibly say that these investments are cheap?!”
You’re asking the right questions, of course…
How can houses be cheap when they are selling at all-time highs? I realize it sounds like a ridiculous thing to say. And how can stocks be cheap when they’re just below their highs, too?
I’ll cover it all today. And hopefully you’ll walk away feeling like I do… darn excited.
You’ve probably heard me tell this story before. But I keep telling it because, honestly, I know a lot of folks have a hard time believing me.
If that’s you, then please hear me out today… because this is important for us going forward.
If you buy into what I’m talking about, then you will have a huge advantage over your peers in your investments…
You will have conviction that you are doing the right thing… And best of all, chances are great that you will make a heck of a lot more money than just about anyone you know.
There’s a crucial detail that tells us investments are really cheap today…
We have record-low interest rates, which benefits companies (and their stock prices). And we have record-low mortgage rates, which benefits the housing market.
Let’s stick with the housing idea to start…
The truth is that most people don’t buy a house based on its sticker price… They buy it based on its monthly payment.
So I built a revealing chart. And it’s one you likely haven’t seen before. It’s based on the simple idea that mortgage payments are critical in determining the “fair value” of the median house in America.
Three things are included in my fair-value calculation (all adjusted for inflation)…
- The median house price in America.
- The median income in America.
- Mortgage rates.
The result is fascinating…
In the 1980s, when mortgage rates were sky-high, houses were expensive based on my chart.
After that, interest rates went down, and by the 1990s, housing was fairly priced. Then the housing boom took hold, and by 2006, house prices were overvalued.
But the most fascinating part of all of this is what’s happening today. Take a look…
You can see from the red line that house prices bottomed in 2011. That makes sense… Home prices had been crashing for years at that time. And since then, they’ve soared again.
That boom in house prices is what has people worried about real estate now. House prices have gone up so much, people think they can’t go up much further.
But look at my “fair value” line in blue above…
Thanks to record-low mortgage rates, the fair value of houses in America today has actually gone up faster than house prices have gone up. The typical home in America is underpriced by about $75,000!
You’ve heard me say for years that the largest part of my financial portfolio is in Florida real estate. Now you see why… I’m putting my money where my mouth is on this trade.
Higher interest rates would, of course, make houses less of a “value.” But we are not there yet. And with the COVID-19 recession, higher interest rates are still a long way off.
The Federal Reserve is going to do all it can to stimulate the economy with the tools it has always relied on – and that means we are in for lower rates for a long period of time.
That’s it, my friend. That’s the thing that matters most in the market today.
We have record-low interest rates. And that makes housing a better deal than you can imagine. So if you’re in the market to buy a home, don’t put it off… You want to act now.
And the thing is, low interest rates are also creating big value for stocks, too. It’s happening despite the rally we’ve already seen since March. And that’s not the only reason to get excited.
Let me explain…
The interest-rate story is what makes real estate cheaper than you can imagine… And the same is true for the stock market.
Think about it… You earn about 0% with your money in the bank. But stocks at a price-to-earnings (P/E) ratio of 20 (20-to-1) have an “earnings yield” (E/P) ratio of 5% (that’s 1-to-20).
When you buy a stock at a P/E of 20, you are buying an earnings yield of 5%. Compare that to earning 0% in the bank… or 0.6% on a 10-year bond.
So as you can see, the earnings yield is a way to measure value while keeping interest rates in mind. And it shows that stocks are a great value right now.
Even if stocks doubled in price to a P/E of 40, then their earnings yield would be 2.5% – which is still pretty good, relative to other investments these days.
Again, if you’ve followed my work recently, you already know this. But there’s even more to the story.
Regular readers know I like to buy what’s cheap, hated, and in an uptrend…
The earnings yield shows us that stocks are not expensive, thanks to interest rates. You can also see that stocks are in an uptrend – you don’t need any fancy charts from me to know that.
But are stocks hated?
You’ve probably noticed that investors are talking more about the stock market this year. The ups and downs have gotten people’s attention. And heck, we hardly had any sporting events to bet on for several months… Might as well bet on stocks, right?
It might feel like more people are buying in, which is an essential part of a Melt Up in stocks. But the data tells me that we are simply not there yet.
Remember, a Melt Up is the last big push of a major stock boom, when you tend to see the biggest gains. Stocks are loved in the later stages of a Melt Up… Investors start buying up stocks and stock funds to a crazy degree.
But that isn’t happening yet…
This simple chart sums it up. Since 2017, investors have been consistently pulling money out of American stock funds (exchange-traded and mutual funds). And they have been consistently putting money into bond funds (which pay next to nothing!).
Take a look. More than $1 trillion has flowed into bond funds since 2017…
So is this a sign of the end? With the huge rise in stock prices this year, did you miss it?
No, and no.
There’s plenty of upside ahead. So be bold and take advantage of it!
Most other folks are too hung up on the new highs in stock prices. They’re not willing to accept that stocks are a good deal, relative to bonds or money in the bank. But they are a good deal today – thanks to record-low interest rates. And as the chart above shows, they’re hated, too.
I hope that you are bold enough to see these new highs for what they are. New highs in price mean nothing… What truly matters is what you get for your money – which is a lot today.
Yes, we are at new highs in stocks. And yes – significantly higher prices are ahead.
P.S. Steve is so adamant we haven’t missed the blow-off top in stocks yet, he’s having a special event tonight to explain in person what we need to do with our money before 2021… It’s a free online event – click here to sign up for it.
So far, roughly 80,000 folks have registered… I know I’ll be online watching. Steve is giving away a stock name and ticker that he believes could see as much as 1,000% gains in the coming months.
If you do attend, drop me an e-mail to let me know what you thought of the special event: [email protected].
Now here are some of the stories we’re reading…
Microphones Will Be Muted at Thursday’s Debate Commission unveils format, with new rule to allow uninterrupted responses and answers will be limited to two minutes.
Don’t Censor! Stop The Hoaxes! Facebook, Twitter Face A Catch-22 As Election Day nears, Facebook and Twitter are finding themselves in a Catch-22, between conservatives who accuse them of stifling free speech when they block or put warning labels on questionable posts, and others who say the companies need to do more to stamp out online misinformation and conspiracy theories.
‘Cougar Guy’ Tells the Story Behind His Viral Video Kyle Burgess was on a trail run when he came upon a protective mama mountain lion. Using his phone, he filmed her as she escorted him away from her cubs for six terrifying minutes. He had no idea he’d just shot Internet gold.
Managing Editor, American Consequences
with the Editorial Staff
October 21, 2020