Yesterday, the Dow fell nearly 300 points as continuing trade-war fears pushed investors toward traditional safe havens.
As I write Tuesday, the markets are rallying on news that the U.S. will delay select China tariffs — the Dow is up 350 points.
Yet the fact that stocks are jumping so much on little more than a tariff-delay (as opposed to any sort of meaningful trade agreement) is evidence of growing anxiety in the market. The fear is that the blue-sky conditions we’ve enjoyed over the last decade is in its twilight … and what’s around the corner could be much worse.
Last week, we featured a research piece by billionaire Ray Dalio which suggested we’re in the end stages of the current investment “paradigm.” The piece went on to suggest over the coming quarters/years, we’re going to see a radical shift in the markets that’s going to do a great deal of damage to the portfolio of those investors who aren’t prepared.
It’s our job to help you prepare. You’ve worked hard to earn your wealth, and we want to help you protect it. As part of that, in last week’s Digest, we referenced a tailored “offensive” strategy, targeting thematic investments that are likely to do well even as the broader market suffers …and also new “defensive” strategies, which are various ways to preserve, and even grow your wealth, as markets fall.
Today, we’re going to zero in on defensive strategies with the help of Eric Fry, editor of Fry’s Investment Report, and the author of Bear Market 2020: The Survival Blueprint.
In today’s essay, we’re going to hear why bear market strategies are timelier than ever. The essay is by Chris Skokna, who is a key part of Eric’s research team.
Best of all, Chris will give us a preview of Eric’s new issue that comes out this Thursday. The issue is a deep dive into a specific defensive strategy that’s on Eric’s radar.
If you’re feeling anxious about this market, you’re not alone. It’s not too early to begin preparing for what’s coming next.
I’ll let Chris take it from here.
3 Strategies to Survive the Next Bear Market From “Mr. 1,000%”
If you’re already following the 2020 presidential race, you know one thing.
Elizabeth Warren has a plan.
Actually, she has a lot of plans.
One for fighting corruption … another for putting workers on corporation boards … a universal childcare plan … and don’t forget her “ultra millionaire” wealth tax.
It’s exhausting keeping up with them all, so normally I don’t try to.
But a few weeks back, the senator from Massachusetts released a plan that made me take notice.
I’m talking about the blog post titled “The Coming Economic Crash and How to Stop It.”
In it, she argues that rising household and corporate debt puts us in danger of a catastrophic recession or worse — and lays out some of her solutions.
Now I don’t put much stock in Sen. Warren’s politics or her solutions (which we’ll get into later).
But here’s the thing: She’s probably right.
Every business cycle turns, and so will this one.
To get more insight, I turned to Eric Fry, chief global investment strategist at InvestorPlace. In recent months, Eric also has been warning about a market crash.
So, I called him up to see what he thought about Sen. Warren’s analysis — and her plan to “stop” it.
To get started, Eric took me back to about a decade ago …
It Will Happen Again
On October 12, 2007, the benchmark S&P 500 stock index hit a new all-time high of 1,576.09, he reminded me. At the time, the U.S. economy appeared to be thriving. It had recovered from the 2000-’02 dot-com collapse and the recession that followed. Gross domestic product (GDP) was rising. Home values and stock prices were soaring, creating new paper millionaires every day.
“You know the rest of the story,” he said. “The healthy-looking economy was a mirage. It was dangerously leveraged to an overvalued real estate market. Individuals and corporations around the world were deeply in debt. The economy’s foundation was crumbling beneath our feet.”
Then stock prices collapsed … The S&P 500 fell from its October 2007 high to an “apocalyptic” low of 666 in March 2009. That was a collapse of 57.7%.
It was one of the worst bear markets in U.S. history, and it wiped out $11 trillion worth of stock market wealth.
“Could something like 2008 happen again? Yes!” Eric said. “In fact, a new crisis is a certainty. We don’t know when it’s coming. We don’t know how long it will last. We don’t know how far stocks will fall. But we do know that a financial crisis, and a resulting bear market, will come.”
After all, the world’s financial markets have been cycling through periods of boom and bust for hundreds of years. Times of economic boom and soaring prices are followed by times of economic bust and plummeting prices.
Here in the United States, the stock market has logged more than 30 bear markets (market drops of more than 20%) since 1900.
With this fact in mind, let’s go back to 2007 … right before the last time the market crashed.
“While the stock market was busy hitting new all-time highs, mortgage debt, credit card debt, student debt, corporate debt, and government debt were also hitting new all-time highs,” he says. “The U.S. economy was literally drowning in debt. If that scenario sounds familiar, it’s because the economic and stock market conditions of today share some important traits with the 2007 version.”
The U.S. economy has recovered nicely from the 2007-’08 crisis, producing a steady string of 2% to 3% growth. As a result, the unemployment rate is below 5% once again.
Plus, Eric notes, the current financial boom is even bigger than the 2002-’07 bull market. This time around, the S&P 500’s earnings have tripled, as the stock market has rocketed more than 400% from its recessionary lows of 2009.
“But despite this prosperity, our economy looks shaky if you examine it up close,” he says.
And his diagnosis is surprisingly close to Sen. Warren’s.
Here are just a few of the statistics he cites …
Mortgage debt is once again close to the nosebleed levels it hit in 2008.
Credit card debt has jumped to a new all-time high of $870 billion …
Student loan debt has skyrocketed to nearly $1.5 trillion. That’s triple what it was in 2007 …
And corporate debt outstanding is hitting new all-time records, just like it was in early 2008. The difference is that the current levels are nearly 50% higher than they were then.
“Still, despite these widespread signs of distress in the real economy, stock valuations are high, just like they were in early 2008,” Eric says. “To be sure, the stock market could keep rising over the next few months — and even hit new all-time highs. But history shows the risk of a severe selloff is high.”
And Eric isn’t alone in thinking so.
The National Association for Business Economics recently surveyed nearly 300 business economists. And about 75% of them believe we’ll get a recession by the end of 2021.
More than half of them expect it’ll come by the end of 2020.
And Sen. Warren thinks she can “stop” this.
Here’s how …
“Stay Rich — and Get Richer”
Of course, when it comes to a solution, Elizabeth Warren’s case falls apart.
How does she say we can “stop” this disaster?
As you probably imagine, the senator has a four-point “bold action” plan to “head off” an economic crash. I could go into the details, but here’s the gist.
You guessed it: Vote for Elizabeth Warren (and her basketful of government giveaways).
Your vote is your decision, but here’s Eric’s advice to you …
“Don’t worry about any coming market crash,” he says. “It may take months or even years to get here, but it’s inevitable — and no effort on your, her, or my part is going to stop it.
“Instead, take steps right now to stay rich — and get richer,” Eric says.
In her blog post, Warren pins her credentials on how to stop the next market crash on her predicting the last market crash. “I warned about an economic crash years before the 2008 crisis, but the people in power wouldn’t listen,” she wrote.
Well, Eric also predicted the last market crash. But instead of running around “warning” people, he got down to business and showed folks how to make money even while things looked horrible.
In fact, Eric was one of the first analysts to forecast the financial crisis of 2008 — and he showed his readers how to short dozens of the big banks and mortgage companies that eventually went bust.
People who followed his recommendations could have walked away with gains like 1,415% on Countrywide Financial Corp., 4,408% on Fannie Mae (FNMA), and even 6,425% on Freddie Mac (FMCC).
And in a previous crisis, Eric shorted the dot-com bubble, identifying more than a dozen stocks that plummeted more than 50% in value. Traders who bought puts on those stocks could have made hundreds — even thousands — of percent gains.
In one 12-month period during the dot-com meltdown, he told his subscribers to sell or sell short:
• Infosys Ltd. (INFY) in February. That stock tumbled 80%.
• Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) in March. That stock dropped 76%.
• Power-One Inc. in September. That stock plunged 94%.
• Ariba Inc. in September. That one blew up completely, falling 99%.
• Motorola Solutions Inc. (MSI) in September. Down 82%.
• Cisco Systems Inc. (CSCO) in October. Down 84%.
• Celestica Inc. (CLS) in October. Down 86%.
• Flex Ltd. (FLEX) in November. Down 71%.
• JDS Uniphase Corp. in November. Down 97%.
• Corning Inc. (GLW) in December. Down 95%.
Eric’s negative analysis of Corning was so compelling that the editor-in-chief of Barron’s profiled it in his lead story.
Wins like these are why, around the office, we call Eric “Mr. 1,000%.”
The editor of our newly launched product Fry’s Investment Report, Eric has called nearly every significant market move of the past 25 years … and he’s made more stock recommendations that resulted in 1,000%+ gains than anyone in the financial newsletter industry.
Most so-called analysts tout huge “hypothetical” or “back-tested” returns that never came from an actual recommendation. Eric, however, is the real deal.
In fact, he was one of the few analysts who predicted the last market crash, in 2007-’08.
He’s gotten so many major calls right that I don’t have time to put them all in one essay. We’d be here all day.
And now he’s written the book on bear market preparation.
Part “diary” and part “owner’s manual,” Bear Market 2020: The Survival Blueprint takes you by the hand and walks you, step-by-step, through six simple tactics that will help you and your family survive, and even make money, during America’s next bear market.
“Knowing about and using these bear market defense strategies could mean the difference between having an abundant retirement — or barely getting by in your old age,” he says.
This is perhaps the only thing Americans of all political stripes can agree on.
A bear market — or worse — is coming.
The clock is ticking.
You can get Eric’s strategy for survival by clicking here.
Now, one of Eric’s bear market survival tactics is allocating a greater portion of your wealth to GOLD …
In fact, Eric is devoting the next issue of Fry’s Investment Report — his monthly dispatch — to gold. It comes out this Thursday.
In it, Eric will explain why gold is reaching prices it hasn’t reached since 2013 — and where it’s going from here. Moreover, he’s featuring interviews with several industry experts … and releasing his latest investment recommendation. It’s a deep dive into all-things-gold, and how important gold can be for a portfolio — definitely not to be missed.
Here’s Eric on why investing in gold can be critical:
Many investors may not realize that the S&P 500 produced a loss during the 11-year span from August 2000 to August 2011. Based on price, this blue-chip index slumped more than 25% during that decade-plus. Even after adding in dividends, the S&P 500 produced a loss of 8% during those fruitless years.
But gold shined brightly. Its priced soared nearly 600%.
It’s not too late to get on the list to get this special all-gold issue delivered directly to your inbox.
To learn how to join Fry’s Investment Report — and get Eric’s latest recommendations — click here.
Senior Managing Editor, Fry’s Investment Report