2020 Melt Up Event Review

The ‘Bear Market Blueprint’ From the Asian Financial Crisis

The Asian financial crisis was exceptional. Not just because it was my first financial crisis… and not just because I experienced it firsthand, as I explained in yesterday’s essay.

It was exceptional because of the way things played out.

It started as a country-specific problem, then quickly engulfed an entire region. What seemed like a strong economy was quickly turned on its head… And then more dominoes fell. The devastation was immense.

In many ways, the market “contagion” we experienced back then reminds me of what’s happening in stocks today.

Fortunately for us as investors, those similarities mean we can learn a lot from what happened back then. We can use the past to build a blueprint for today’s crisis.

Let me explain…

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This chart of Asian stocks (excluding Japan) during the Asian crisis gives a decent summary of what we can expect today…

It’s not a perfect example. Things will certainly be different this time. But overall, it’s a powerful guide.

Asian stocks fell from about 400 points in 1997 to about 150 points in 1998. Said another way, if you had $400,000 invested at the peak in 1997, you were left with just $150,000 at the bottom in 1998. Take a look…

I see two things here…

The downturn can take longer than you can imagine, with stocks falling farther than you can imagine.

Recovery is not only possible – it can be relatively large, and relatively swift.

This is the kind of pattern I believe we’ll see this time around. One important point here, though…

I don’t want you to start expecting the recovery yet.

We are more likely in the start of the downtrend now, for the reasons I outlined yesterday. The crisis is still the only thing on investors’ minds… And as long as that’s true, the selling can continue.

I am not predicting a fall as severe as what Asia experienced, or for it to last as long. But the reality is that I don’t know how it’ll play out this time. No one can know for sure. We are truly living in unprecedented times. Chances are, things will get worse before they get better.

What we do know is that the crisis won’t last forever. And if we combine this with the script I laid out yesterday for finding market bottoms, we know where to look for signs of the turnaround.

A terrifying new trend is creating thousands of new millionaires (Barron’s estimates 20,000 to 200,000 so far) while at the same time destroying the financial future for many others…

Will You Be Left Behind?

So, our blueprint is this…

First it’s in the news. Then it isn’t. Then people give up. Then it bottoms… And then it roars back.

In the case of the Asian crisis, the bust lasted more than a year. That’s not long in the grand scheme of things. But when you’re living it, day by day, it’s an eternity.

Consider that the coronavirus worries only began dominating the news in the U.S. about a month ago… And the U.S. stock market peaked just six weeks ago. Six weeks!

I don’t know about you, but it feels like much longer than that to me. And in the last two weeks, there have been no other news stories. Everything is framed around the virus and its disastrous impact… on people, the economy, and the markets.

So, if you look at our blueprint, we’re clearly in the first stage, where investors can’t stop talking about what’s happening on Wall Street. That’s not how bottoms form.

It could take a few weeks – or a few months – for people to stop talking about Wall Street. Only then can the market finally bottom.

The Most Important Lesson From My First Financial Crisis

By Dr. Steve Sjuggerud

“If I died today, nobody would even know,” I thought to myself.

Thirty yards below me, outside my hotel window, cars were on fire as an angry mob of rioters started hurling whatever they could find at the hotel.

I was alone in Jakarta, Indonesia. It was 1998… during the worst stretch of the Asian financial crisis.

I was there to meet with the head of Indonesia’s central bank. I was surprised that a 20-something nobody (me!) could get a meeting with him – the most powerful “money man” in the country.

I asked him what he was going to do to save the financial markets. “Got any ideas?” he replied. He wasn’t joking. Times were terrible, and he was desperate.

Indonesia’s stock market fell more than 90% in U.S.-dollar terms, peak to trough – as brutal as a stock market wipeout gets.

I flew straight into the heart of the financial crisis. From Indonesia, I made my way to Thailand… Singapore… the Philippines… and Malaysia. It was crazy.

I experienced it all firsthand. And I saw something you need to understand in today’s volatile market – the key to knowing when the pain will end…

A terrifying new trend is creating thousands of new millionaires (Barron’s estimates 20,000 to 200,000 so far) while at the same time destroying the financial future for many others…

Will You Be Left Behind?

When the Asian crisis really kicked in – and markets and currencies really started falling – it was all over the financial news. Day after day. You couldn’t get away from it.

It started as a small problem with Thailand’s currency… Then it spread, engulfing each Asian country one by one. Eventually, Russia collapsed as well – the entire Russian market also fell 90%.

And as the problem got worse, the news coverage grew exponentially.

The financial crisis ended eventually… but only long after it had disappeared from the mainstream media news cycle.

As I said, I experienced this firsthand. And over the next 20-plus years, I saw the same news cycle again and again.

The financial crisis (wherever it was) didn’t end just because it exited the headlines. It continued to inflict pain on investors.

The markets only bottomed once people forgot about them… once people stopped talking about the financial crisis with their friends… once regular folks stopped talking about getting back into stocks (or getting in for the first time).

In short, the bottom only happened once people gave up.

I tell you this today because the financial markets are all over the mainstream news. Everyone is talking about what’s happening on Wall Street – more so now than I can ever remember.

Unfortunately, my friend, that alone is a bad sign.

I have experienced a lot of major bear markets firsthand. I have seen many markets fall – dramatically. I have seen the cycle of fear you are experiencing now in the financial markets… many times.

I could talk to you today about interest rates, or economics, or other similar historical events. But to me, this is all you need to know…

The stock market will not bottom when it is all over the mainstream news.

It won’t. It can’t.

The bottom only arrives long after that – when the stock market falls out of the news completely… when most people have forgotten about Wall Street. Until that happens, stocks can continue to fall.

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Now, this sounds grim. But it isn’t all bad. The important thing is, past major crises around the globe give us an investing blueprint to follow. So while we can’t know exactly how things will play out, we can follow the signs to get a better idea.

Tomorrow, I’ll share the specific blueprint I’m following. I’ll explain exactly how we’ll know when this crisis is over… and when it’s time to act.

“There Is No Gold…”

By Dr. Steve Sjuggerud

“There is no physical gold available today,” my good friend and legendary gold dealer Van Simmons told me yesterday.

What I assumed he meant was that there was a shortage of gold to buy. So I figured if you wanted to buy gold, you’d have to pay higher premiums over the quoted gold price online.

I was right. But there’s more to it than that. It’s a situation you never see in precious metals. And it could lead to huge upside from here…

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“I’ve never seen anything like it in decades,” Van said. “Gold refiners around the world are shutting down due to coronavirus. So the supply of physical gold is disappearing for now. That creates the risk that there won’t be enough gold available in New York to fulfill futures contracts. It’s crazy.”

Van is not one for hype. He has been at this for many decades. He has seen it all… But he hasn’t seen this.

“It’s not just gold,” Van explained. “The premiums for physical silver went crazy this week as well.” The premium to buy silver soared 10-fold in a couple days, he added.

Here’s what’s going on…

The physical silver exists… but nobody will deliver it. Due to coronavirus, not enough folks are willing to load it on the trucks or planes.

It’s all new territory.

What it adds up to is a perfect storm for higher precious metals prices…

You have no supply, and plenty of demand. This is Economics 101 – when there’s more demand and less supply, prices go up.

You have the government “printing” money and passing it out. (We can expect “$6 trillion in coronavirus stimulus,” Larry Kudlow of the Trump administration said this week.)

You have interest rates at essentially zero. Precious metals pay no interest, so they have trouble competing with money in the bank. But when money in the bank pays zero interest, precious metals become attractive again.

These are three massive catalysts. And they all point to the same end result… higher prices for gold and silver.

Importantly, you haven’t missed it. Gold and silver haven’t soared yet… quite the opposite.

Gold fell 3% over the last month, and silver crashed by more than 20% in the same span. But it’s only a matter of time until the catalysts above catch up to current prices. And when they do… look out.

The simplest way to own gold is the SPDR Gold Shares Fund (GLD). For silver, you can own the iShares Silver Trust (SLV). These simple funds track the spot price of gold and silver. And while there are better ways to profit from what’s going on, they’re both solid options.

No matter how you do it, consider adding some precious metals to your portfolio – now.

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No Bottom Yet: The Dumb Money Is Still Buying

By Dr. Steve Sjuggerud

I’m looking for the bottom in stocks as hard as you are. Unfortunately, we’re not there – yet.

I say this because mom-and-pop America is “buying the dip.” And this is not good news.

Think of it a bit like a game of poker… “If you don’t know who the patsy is at the poker table, you’re the patsy.” (Legendary investor Warren Buffett likes to say this, but I assume the saying is older than Buffett.)

In short, when you see an inexperienced player show up at a poker table, you know you’re about to take his money. It’s just the way the game goes.

It’s only a matter of time before he loses it all – because, well, he doesn’t know what he doesn’t know…

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Inexperienced investors are in the same boat… They don’t know what they don’t know. So typically, when a big stock market fall hits the mainstream news, they appear out of nowhere to “buy the dip.” Unfortunately, it rarely ends well.

I bring this up because I’m seeing this type of behavior right now from inexperienced investors…

This Bloomberg headline from last week tells you everything you need to know: “In Midst of Chaos, Nasdaq ETF Gets Biggest Inflow in Two Decades.”

The article was written a few days ago. Since then, this month’s inflows into the Nasdaq exchange-traded fund (“ETF”) are now at an all-time high.

The three previous records for monthly inflows into the Nasdaq ETF were back in 2000 – as the dot-com bubble was crashing. The months were October, November, and December 2000, to be exact.

The most likely buyers back then were individual investors “buying the dip.” And by those final months of 2000, that “dip” in the Nasdaq had landed at around 3,000 points – down 40% from the peak.

Those investors got hammered going forward…

The Nasdaq hit a couple other major lows after they bought… in April 2001 and September 2001. The ultimate bottom didn’t arrive until October 2002. If they bought around 3,000 points and sold at the bottom, then they lost more than half their money.

Today, inexperienced investors are buying. So, based on history, I believe the bottom is not in yet.

If you have followed my writing over the last decade or more, you know that I am an optimist… I am always looking for the opportunity – somewhere.

I’m also a realist… I try to call ’em like I see ’em.

The optimist in me says that – someday – stocks will soar far higher than they were at the start of this year.

The realist in me says that we still have more room on the downside right now, as inexperienced investors get hurt the worst.

I’m not a buyer… yet. Now is the time to be patient.

This Is a Time of Fear… and Opportunity

Monday was the worst day in U.S. stocks since the 2008 financial crisis. Most folks are wondering what they should do next… And more important, if now is the time to panic.

But according to Steve Sjuggerud, panicking is the wrong move today. He put out an update to his paid subscribers last Friday explaining why. And he tells us that his advice remains the same – even after Monday’s brutal sell-off.

So today, we’re doing something a bit different. We’re publishing Steve’s Friday note. Normally, we’d reserve this content for paid-up subscribers. But given the wild market action, Steve has agreed to share it here. Read on for the details…

By Dr. Steve Sjuggerud

I have personally lost a lot of money in the last two weeks. I’m sure you have too.

It feels awful, I know. It’s heavy out there… As I write, the S&P 500 is down 13% from its all-time high on February 19, and interest rates have fallen to record lows.

So you may be surprised to hear this… but I am extremely excited to buy…

No, I haven’t bought yet. But I will personally be a big buyer very soon – when we start to see the beginning of a new uptrend.

Unless the next global financial crisis is upon us – which I don’t think is the case – then soon we will see the best buying opportunity in the stock market since Christmas 2018.

Investor sentiment is absolutely terrible out there. But here’s the thing: You want to buy assets when they’re hated…

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Once U.S. real estate became incredibly hated in 2011, and investors lost faith completely, I started buying real estate heavily here in Florida.

It was the first time in my investing career that real estate was THAT hated. So I bought all I could – and then some. Since then, I’ve made incredible profits on it.

Today, stocks are incredibly hated. Investors have lost faith. Meanwhile, the economy (to this point) is doing well, interest rates are at record lows, and stocks are not expensive.

In my opinion, this will turn out to be the last great buying opportunity of the Melt Up.

As I said, I have lost a lot of money so far. I want to limit my own losses – and yours. So we will follow our trailing stops. We genuinely can’t know when the negative sentiment will change. It could be tomorrow. It could be a week from now… or even a month from now. We also can’t know the path the coronavirus will take.

I expect the extreme fear will fade away sooner rather than later. But as I mentioned earlier, I have not personally bought yet. I am waiting for more of a sustained uptrend. I am waiting for things to get “less bad.”

When that happens, I will likely load up on stocks… for the first time since the end of 2018.

Times are bad right now. But they won’t be bad forever. I believe we will have a fantastic buying opportunity, soon…

I look forward to guiding you through it. When the trend returns, we’ll be ready to put money to work.

Stay safe. Don’t stress too much. Follow your trailing stops to limit your downside risk. And consider being a big buyer sometime soon…