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The Market Is Telling the Fed What to Do

Aug 9, 2024 | Stansberry Digest | Dan Ferris

A rare one-day drop... An ever rarer one-day spike... Little has changed...
'Fear is back'... Sahm rule: Made to be broken... More T-bills than the Federal
Reserve... Welcome to the party, Warren Buffett...

--------------------------------------------------------------------------------


A DOSE OF PERSPECTIVE SEEMS LIKE A GOOD IDEA RIGHT NOW...

Digest editor Corey McLaughlin has already covered Monday's market panic... So I
(Dan Ferris) will start by zooming out a little bit...

From its July 16 all-time-high close of 5,667.20 through Monday's close of
5,186.33, the S&P 500 Index's total decline is just shy of 8.5%.

That's a pretty large move for a three-week period, down or up. U.S. stocks have
averaged about a 10% gain for the entire year for a few decades now.

But it's not uncommon. Since the 1980s, the S&P 500 has had a correction of more
than 5% every year but two (1995 and 2017). So maybe the past few weeks' market
action is nothing to get excited about.

If you're bullish on stocks and the current decline is over, history suggests it
won't take long to put it behind us. On average, it takes about three months to
recover from a correction of between 5% and 10%... and about eight months for
one between 10% and 20%. In the grand scheme of things, for folks investing for
the next 10, 20, or more years, that's nothing.

Also, as of this writing, the S&P 500 is less than 7% from a new all-time high.
And the index is still well above its 200-day moving average, where it has been
since last November.

If you thought the market was still in bull mode last week, this week's action
shouldn't change that view.

The bottom line for investors is that the market's action since mid-July,
including this week, doesn't mean you should change the long-term picture for
your investments. Nor does it mean you should change any part of your savings
plan. It's not fun to watch your 401(k) lose almost 9% in three weeks, but
that's a purely emotional reaction to a relative nonevent.

On the flip side of all that...


MY VIEW OF THE OVERALL STOCK MARKET HASN'T CHANGED, EITHER...

I've been telling you that stocks are egregiously expensive on a historical
basis and still in mega-bubble territory. The cyclically adjusted
price-to-earnings ("CAPE") ratio was 35.5 last time I mentioned it. Now it's
34.1.

So, while history tells you the decline since July was a nonevent... it also
tells you that when stocks get as expensive as they are today, large, extended
declines have always followed.

And in nearly every one of those instances, some large index like the S&P 500,
Dow Jones Industrial Average, or Nasdaq Composite Index has gone into a
decade-plus sideways market after that large decline.

Like all market nonevents, this one has been taken way too seriously by a bunch
of folks trying to do that thing I'm always telling you it's so foolish to even
attempt: make predictions.

After Monday's panic, the bond market is now pricing in a 50-basis-point rate
cut in the short-term benchmark federal-funds rate at the next Federal Open
Market Committee meeting on September 17 and 18.

So let me get this straight. A run-of-the-mill market correction, which has
happened almost every year since the 1980s, somehow means the U.S. central bank
will have to intervene in the short-term interest-rate market to... do what?
Inquiring minds want to know.

The S&P 500 is allegedly a forward-looking data series, which gives us hints
about future developments in the U.S. economy. So far this year (as of
yesterday), the market is up about 10.9%. That's a little better than the
average return of the last 30 years, at 9.9%.

Even after the recent decline, including the panicky day on Monday, the market
is still signaling all-clear in the U.S. economy.


YOU MAY WANT TO QUIBBLE WITH MY SUGGESTION THAT THE MARKET'S RECENT ACTION IS
TOTALLY NORMAL...

Since the first of the year, the market's fear gauge – the CBOE Volatility Index
("VIX") – has spent most of its time between about 12 and 16, with a brief move
up to 19 in April. It closed at 23 on Friday, August 2. Then the market had a
panicky day on Monday, and it soared.

As Corey wrote in Monday's Digest, "Fear is back." The VIX spiked as high as
65.7 that day – its third-highest level ever (exceeded only by spikes in the
fall of 2008 and March 2020).

The VIX is a 30-day average of near-the-money put and call option prices. It
negatively correlates with the S&P 500 about 80% of the time. That means that
when the S&P 500 declines, 80% of the time, the VIX rises.

When the market declines a lot, the VIX always rises as frightened investors
purchase last-minute insurance policies on their stock portfolios in the form of
put options.


WHY WERE INVESTORS SO SCARED ON MONDAY...?

Well, the quibblers will say it's because a one-day decline of greater than 4%
is rare (about 0.49% of market days since 1990), and the S&P 500 opened Monday
down 4%.

The S&P 500 closed nearly 3% down for the day. That's still a relatively rare
occurrence, at just 1.67% of market days since 1990. Even taking out the days
when the market rose, it's still not common, coming to just 3.6% of all down
days.

You still have to wonder why, with 146 greater-than-2.7% declines occurring in
the past 34 years, only three of them generated these enormous VIX spikes...

The other two were obvious: the 2008 crisis and COVID-19 panics were crazy
times. I get it. But there's nothing like that going on right now. It just
seemed like there ought to be some obvious reason why this particular spike was
so large. And there was... but it's nothing like I'd imagined...


AS IT TURNS OUT, IT WAS MOSTLY A TECHNICAL GLITCH...

In an analysis posted on the social platform X, Andy Constan of macro research
firm 2 Graybeards concluded that the VIX didn't hit 65 on Monday... at least,
not in a way that's meaningful to overall market volatility.  

The apparent spike to that level was due entirely to the mispricing of a single
option, which threw the VIX calculation wildly out of whack. Constan recommends
looking at the VIX futures, not the VIX, as a clearer fear gauge. The August
2024 VIX futures contract peaked at about 32 on Monday, according to data
compiled by Bloomberg.

That's still a serious spike, but not one of the three highest on record.

I would point out that the VIX has dropped quickly since Monday... to 20.4 at
today's market close. That's barely above its long-term average closing value
since 1990 of 19.49, according to data compiled by Bloomberg.


SO THE VIX WENT ABSOLUTELY NUTS FOR A FEW HOURS, THEN GOT BACK TO SLIGHTLY ABOVE
NORMAL OVER THE NEXT COUPLE OF DAYS...

I'd love to say Monday's VIX spike means more folks are coming around to my way
of thinking about stock market valuations, but that's probably not true...

If the market fails to recover to the July 16 high in the next three months,
then maybe I'll start believing that. Even then, recent history suggests stocks
will still be historically expensive at the next market bottom.

In fact, a good student of stock market action and human behavior shouldn't be
surprised at all if Monday turned out to be the bottom of this correction. It's
typical for investors to capitulate like that. They all throw in the towel at
the bottom... which is how corrections tend to end.

If that's true and the market heads higher, I'll probably just get more bearish
with each uptick.


MONDAY'S MARKET ACTION MAY HAVE REFUTED ONE OF MY RECENT IDEAS...

Here's something I suggested in my June 28 Digest:

> The market is overwhelmingly focused on rate cuts, ready for money to get
> cheaper and boost stocks. And today's stock prices already reflect the
> expectation that this will happen.
> 
> So if the Fed cuts rates by less than the market expects, everyone will feel
> that effect. It would suggest that the Fed sees greater inflation pressures
> than the market currently believes.
> 
> This shift could also drive up long-term yields like the 10-year Treasury
> note, creating a yield-curve reversion. Stocks priced near record valuations
> are wholly unprepared for higher long-term interest rates, which would drive
> up companies' borrowing costs.
> 
> In other words, the Fed could cut rates... only to see other rates rise. And
> that would be bad news for stocks.

The 10-year Treasury yield was 4.3% that day. It has since fallen and plunged to
a near-term low just below 3.8% on Monday as panicked investors bought bonds –
yes, even 10-year bonds.

The 10-year is yielding 4.1% now, but what will happen if investors continue to
sell stocks? Will its yield fall as investors buy longer-term bonds along with
T-bills and other safer short-term instruments? Or will investors fear that Fed
cuts will rekindle inflation, making longer-term bonds unattractive?

I don't know, but I doubt the question will really be answered before the Fed's
September meeting.

I still think there's a chance that the Fed will either not cut rates or cut
less than the market expects... either of which would be considered a hawkish
move that doesn't support equity prices. And honestly, if the central bank does
cut rates as much as the market expects, history suggests it could be signaling
trouble for the economy or stocks.

Not that we need to wait for worrying signals...


THE 'SAHM RULE' RECESSION INDICATOR WAS TRIGGERED ON MONDAY...

Corey mentioned it in his Monday Digest. Here's how I described it a couple
weeks ago for subscribers of The Ferris Report:

> Named for its creator, former Fed economist Claudia Sahm, the indicator helps
> pinpoint the start of a recession. It compares the three-month moving average
> of unemployment with its low over the previous 12 months. If the moving
> average has risen at least 0.5 percentage points above its 12-month low, that
> means a recession has begun.
> 
> This indicator has a perfect track record of signaling recessions over the
> past 50 years.

At the end of June, the indicator stood at 0.43. At the end of July, weak
jobs-report data pushed it above the 0.50 threshold, and it now stands at 0.53.
The indicator with the perfect track record says we're in a recession.

Its creator disagrees. When a recent jobs report triggered the indicator, Sahm
herself wrote a Bloomberg opinion piece titled, "My Recession Rule Was Meant to
Be Broken," which begins:

> The US is not in a recession, despite the indicator bearing my name saying
> that it is. The Sahm Rule, which was triggered with Friday's
> weaker-than-expected jobs report, joins a long list of economic tools skewed
> by the unusual disruptions of the past four and a half years.

In the same article, Sahm admits that she created it to "act as an automatic
trigger for fiscal policy, such as stimulus checks, in a downturn." Automatic
means the rule indicates economic weakness is already happening and, if you're a
politician, you're supposed to say something should be done about it sooner
rather than later.


IN OTHER WORDS, IF THE SAHM RULE WORKS, IT'S NOT PREDICTING A RECESSION... IT'S
SAYING WE'RE ALREADY IN ONE...

That's a view shared by a Stansberry Investor Hour podcast guest and macro
analyst, Simplify Asset Management's Mike Green, who says we're "almost
certainly in recession that probably started in the fourth quarter of 2023."

And I think I know why Sahm won't abide by her indicator's output... Sahm left
the Fed and now works for the asset-management firm New Century Advisors. She
won't be the first to declare a recession because she knows clients and her
bosses will crucify her for it.

Everybody in that industry knows that you make money by getting and keeping
clients' assets. And you keep clients by losing money when everybody else is
losing it and making it when everybody else seems to be making it.

It makes no sense to chase client assets out the door by predicting a recession.
She'll call it a recession only when the whole world already knows it... when
it's the safe thing to do.

Having worked at the Fed – a typical D.C.-area hive of pedigreed bureaucrats –
Sahm is certainly familiar with the concept of plausible deniability... making
folks believe you didn't know some unpleasant fact any sooner than anybody else
did.

So when her indicator with the perfect track record says we're in recession, she
has to tap dance in a Bloomberg editorial and say something like, "Sahm Rules
are made to be broken, and if only the Fed would cut rates, there'd be no
recessions ever. It's not a recession, I swear! Don't fire me, please!"


SO INVESTORS MIGHT NOT LOVE THE RESULTS OF THAT RATE CUT THEY'RE COUNTING ON...

We all seem to have swallowed hook, line, and sinker the idea that the Fed
controls the stock market.

But maybe, just maybe the Sahm Rule works the way it always did before, and the
Fed doesn't control the market, but only reacts to it.

And maybe cutting rates in September will just be its final acknowledgement that
yes, we've been in a recession since at least July (by the Sahm Rule) if not
since last fall (as Mike Green said).

And if all that plays out, then maybe a 50-basis-point cut will scare the crap
out of everyone and the stock market will hate it even more than Monday's
disappointing unemployment report.

Maybe the market already knows things aren't great, and the 10-year yield below
4% is the market cutting rates before the Fed can do it.

I hope not... but hope is not a strategy.


FINALLY, THE WORLD'S FAVORITE INVESTOR SEEMS JUST AS CONCERNED AS ME...

Last quarter, Warren Buffett sold more than half of Berkshire Hathaway's biggest
equity position, Apple. It owned more than 900 million shares of Apple last
December, 789 million at the end of March... and just 395 million shares as of
the end of June.

Where's he putting the cash? In the safest place he can find. Berkshire now owns
more T-bills than the Federal Reserve: $235 billion compared with the Fed's $195
billion worth of the shortest-term Treasury obligations.

Bloomberg estimates Berkshire paid an average of $37.51 per share for its Apple
stake. With the stock above $200, Buffett made more than 460% in capital gains
on the position.

So Buffett – who says his favorite holding period for stocks is forever – is
selling massive amounts of his largest position and buying massive amounts of
T-bills.

If he's really a long-term investor who loves to hold forever, buying T-bills
instead of stocks suggests he doesn't see anything priced for a good long-term
return.

In other words, while I was telling you future returns on Magnificent Seven
stocks were unattractive and T-bills were a great buy, Buffett was selling Apple
and buying T-bills.

Welcome to the party, Warren.

Do you have your ticket yet for our upcoming Stansberry Research Conference &
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New 52-week highs (as of 8/8/24): AbbVie (ABBV), Alpha Architect 1-3 Month Box
Fund (BOXX), CBOE Global Markets (CBOE), Equity Commonwealth (EQC), Fair Isaac
(FICO), Intercontinental Exchange (ICE), Intuitive Surgical (ISRG), Kellanova
(K), Lockheed Martin (LMT), Motorola Solutions (MSI), Procter & Gamble (PG),
Planet Fitness (PLNT), Regeneron Pharmaceuticals (REGN), Veralto (VLTO), Viper
Energy (VNOM), and the short position in SolarEdge Technologies (SEDG).

In today's mailbag, feedback on a take in yesterday's edition from Stansberry
Research senior analyst Brett Eversole... and compliments on our "emergency
briefing" from Stansberry Research founder Porter Stansberry, senior partner Dr.
David "Doc" Eifrig, and Stansberry's Investment Advisory lead editor Whitney
Tilson... Do you have a comment or question? As always, e-mail us at
feedback@stansberryresearch.com.

"I find Brett Eversole's analyses always interesting. May I suggest a debate
between Brett and Dan Ferris at Stansberry's October conference? I would love to
see that." – Subscriber Sherwin R.

"Thank you so much for putting together the above-mentioned video . Included was
a host of worthwhile information... I also liked that I could control playback
speed (which I did) and/or skip parts (which I did not) if I so desired.

"Hands down the best, most useful video presentation I have seen from Stansberry
Research." – Stansberry Alliance member Dale W.

Good investing,

Dan Ferris
Eagle Point, Oregon
August 9, 2024



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LATEST ARTICLES

--------------------------------------------------------------------------------

How FinTok Broke Finance... Again

Aug 9, 2024

Editor's note: We're in the golden age of social media "influencers" – but they
may not be telling you the whole truth. Today, we're sharing an updated
DailyWealth essay, last published here in January 2022. In it, Director of
Research Matt Weinschenk explains how to get the best market advice without
falling prey to expensive fees... or the get-rich-quick schemes of unqualified
investors. We had a shot to fix finance... But we missed it. Instead, we got
this... a 45-second video titled "An Average Monday of Any Stock Trader 💹🏅."
It was originally posted on social media platform TikTok. Here's how the day
goes... You begin the morning doing a little work... staring at four trading
screens with your feet up. Then, you choose whether to drive your Ferrari or
your Bentley to the beach club, followed by a cruise on a yacht with friends.
Later in the day, you do some watch shopping, make a couple TikTok videos, then
have dinner – served by your personal butler – by the pool. This is one of
thousands of similar videos you can find on "FinTok," a community on TikTok that
offers tips and tricks to get rich quick... Most of FinTok is hype. It shows
clips of kids who look 17 standing in front of digital backgrounds of six
trading screens, acting as if it's their real work environment. Then they go
"supercar" shopping. Others share photos of themselves on private jets... which
are likely taken on studio sets that you can rent for Instagram photo shoots.
When the FinTok videos do discuss finance, the facts are dead wrong... One
famous FinToker revealed his "system" in a video. Standing next to his wife or
girlfriend, he explained... Here's my strategy in a nutshell. I see a stock
going up, and I buy. And I just watch it until it stops going up, and then I
sell it. And I do that over and over, and it pays for our whole lifestyle.
Thanks for the tip. Another built a following claiming that maxing out a 401(k)
is the dumbest thing you can do with your money. I am a professional equity
analyst. My day involves a lot more spreadsheets than these FinTok jockeys seem
to deal with. And as I said, we almost fixed finance in America... However, this
is where we ended up. Before FinTok, Wall Street was the villain... Wall Street
has long been criticized as a scheme for turning ordinary people's money into
investment bankers' wealth. You may have heard the anecdote that starts Fred
Schwed's 1940 book subtitled A Good Hard Look at Wall Street... An out-of-town
visitor was being shown the wonders of the New York financial district. When the
party arrived at the Battery, one of his guides indicated some handsome ships
riding at anchor. He said, "Look, those are the bankers' and brokers' yachts."
"Where are the customers' yachts?" asked the naive visitor. And Wall Street
partly deserved this image. For decades, we saw individual investors paying 2%
and 3% annually on the amount of their money their broker held under
management... plus front-end loads (or payments) for mutual funds that lagged
the markets. We saw brokerage commissions of more than $50 a trade and demands
to trade round lots of 100 shares... We saw complex financial instruments
designed to hide fees from confused customers. But starting in the mid-1990s, we
saw a democratization of investing. 401(k)s became mainstream, allowing savers
to control their own retirement accounts... Online discount brokers cut
commissions to $10 or less... Internet sites began to provide instant and
trustworthy financial data. That wave inspired an army of day traders who drove
the dot-com boom. But like today's FinTokers, they got intoxicated by easy
money. The bubble burst... And the traders, for the most part, went away.
Following that bubble, index funds led to the next wave that empowered everyday
investors. These funds roughly tracked the market's returns for drastically
lower fees. From 2000 to 2010, the assets in index funds more than quadrupled...
and then quadrupled again from 2010 to 2020. That meant no more fees for
underperformance or high front-end loads on mutual funds... And with a simple
exchange-traded fund ("ETF") portfolio, investors didn't need to pay expensive
advisers. But it turns out, folks aren't satisfied with just "average" returns.
While index funds are still popular, people are increasingly getting into active
investing. That coincides with efforts from financial technology ("fintech")
companies to democratize finance even more... Led by Robinhood and other
brokerages, trading commissions have been cut to zero, and margin lending is
widely available. It seemed an admirable goal. But it turned investing into a
game. And this "gamification" of trading led people to overtrade. Then, the
pandemic kept people locked at home with plenty of time to play the market...
And play they did. Worse, cryptos and non-fungible tokens exploded. Today, more
and more people feel that financial speculation is the way to get rich, because
"everybody's doing it." All this together has led to an entire class of people
who are under-researching, overtrading, and winning and losing vast sums of
money. Alongside the FinTok "stars" showing off rented wealth, you can watch
videos of blowups... screenshots of accounts that lost six figures in a day. We
followed one FinToker who posted a catastrophic tale over several months. He
quit his job and put all his money ‒ all his savings and funds from his
individual retirement accounts ‒ into bitcoin. (I'd argue that he could have
kept his job and still bought bitcoin, but let's not go there.) Bitcoin fell,
and he took a big loss. He started using trading coaches he discovered on social
media. They suggested using leverage to earn back his losses. But leverage can
work against you even if an asset goes up. Ultimately, he got wiped out. He
moved back in with his father at age 45 and got a job as a waiter. You can find
many sad tales out there like this one. America broke free of Wall Street's
fees... But it left behind the level-headed guidance those fees brought with
them. So, who should manage your money in the 2020s? The answer is somewhere
between Wall Street's exorbitant fees and the hubris of a 20-year-old whose
advice is to sell when the stock stops going up. There is a better way... If you
combine the tools of modern finance – low commissions, abundant information, and
low-cost ETFs – and pair them with solid, independent research... you have found
the secret sauce of smart, self-directed investing. Good investing, Matt
Weinschenk Editor's note: On Tuesday, August 13, at 9 a.m. Eastern time, join us
online to celebrate our 25th anniversary of delivering financial research. We're
airing a special broadcast to share our business's No. 1 secret – a strategy our
top subscribers can thank for much of their success. And we'll explain why it's
the perfect way to prepare your portfolio for a potentially bumpy ride... Click
here for the full details. Further Reading "When they first start investing,
many people focus only on the possibility of big returns," Dr. David Eifrig
says. But risky speculations won't help most folks "catch up" to the ultra-rich.
You're much likelier to build lasting wealth by following a few simple tenets...
Read more here. "Narrative and enthusiasm lead to big losses," Dan Ferris
writes. Hype is no substitute for real knowledge. When the last bear market
began in 2022, meme-stock investors got crushed – and some never learned to
start doing their homework instead... Get the full story here.

Keep reading...

My 'first look' at Nike

Aug 9, 2024

Longtime readers know my favorite type of stock... I'm talking about one of a
high-quality, long-term-growth company that's down at least 50% – and, ideally,
80% – due to short-term headwinds and/or fixable problems. When these companies
recover, their stocks are often multibaggers – driven by both growing earnings
and multiple expansion (i.e., the price-to-earnings multiple reverting to its
historic high levels). Over the years, I've made millions of dollars for myself
and my investors betting on the recoveries of companies like Berkshire Hathaway
(BRK-B), McDonald's (MCD) (which I discussed recently in my June 5 e-mail), and
Netflix (NFLX) (which I also discussed recently in my June 10 and June 11
e-mails). While I save my best ideas for paid subscribers – like those of our
flagship Stansberry's Investment Advisory newsletter, which you can learn more
about as part of a special presentation right here – longtime readers of my free
daily e-mail know that I share plenty of ideas here. For example, many of my
readers profited handsomely after reading my six-part series beginning on
November 1, 2022, in which I pounded the table on Meta Platforms (META) when the
stock had collapsed to below $100 per share. (You can see all of those late 2022
e-mails here: November 1, November 2, November 3, November 4, November 7, and
November 8.) Today, META shares trade for more than $500. And just last month on
July 22 and July 23, I wrote about another potential candidate I had my eye on –
the beaten-down shares of discount retailer Five Below (FIVE). As I noted, the
stock could have another shoe to drop, so the timing didn't look right just
yet... but I would keep my eye on it. So today, I'll share a "first look" at
another stock that I've been watching... I'm talking about apparel giant Nike
(NKE). I'm a big fan of the company and have owned many of its products over the
years – I especially like the Alphafly running shoes, which have carbon fiber
plates that create a springboard effect that have sped up my running times by an
astonishing minute per mile (depending on the distance, roughly seven minutes
versus eight). I also enjoyed Shoe Dog, the autobiography of Nike founder Phil
Knight. Since Nike went public in December 1980, at $22 per share, there have
been seven two-for-one stock splits. So each initial share is now 128 shares –
making the initial public offering ("IPO") price about $0.17 per share. From
that point until its peak 40-plus years later at more than $170 in early
November 2021, the stock went up by more than 1,000 times (not including
dividends) – making it one of the greatest growth stocks of all time, as you can
see in this chart: But since November 2021, it has been a different story – as
of yesterday's close, Nike is down by 57% (versus a 13% gain for the S&P 500
Index over the same period). You can see the fall in this next chart: I always
start my analysis of a company by looking at its historical financials, ideally
going back 20 years to see what happened during the global financial crisis.
This chart shows Nike's revenue and operating income for fiscal years ending May
2005 through May 2024: As you can see, Nike was an incredible growth story...
but if you look closely, operating income flatlined from 2016 to 2019, which
should have been a warning flag. But then after an initial hit due to the
pandemic, both revenue and profit soared in the aftermath – driving the stock to
its all-time high at the end of 2021. Since then, revenue rose in 2022 and 2023
while operating income declined... and then the two diverged in 2024, as revenue
was flat while operating income recovered somewhat. Keep in mind that 2024's
operating income was only down 6.6% from the peak in 2021, so I would expect the
stock to be down – but not by 57%! So let's see what the cash-flow statement
tells us – take a look at this chart: I like what I see here. Nike gushes
cash... has minimal capital expenditures ("capex")... and cash from operations
has risen strongly in the past three years – hitting an all-time high in 2024.
Now in this next chart, let's look at how Nike has returned its huge free cash
flows to its shareholders in the form of dividends and share repurchases: Once
again, I like what I see here – a steadily rising dividend (the stock currently
yields about 2%) and large share repurchases. I'm especially impressed that Nike
reduced its share repurchases by 86% from 2019 to 2021 as the stock soared and
became substantially overvalued, but then as it declined sharply, the company
has once again ramped up repurchases. This has resulted in a 29% decrease in
shares outstanding in the past two decades, boosting earnings per share by 41%.
In this next chart, you can see the reduction in shares outstanding: Finally,
let's take a look at the balance sheet with Nike's net cash (cash minus debt).
Here's the chart: We can see that the company historically had a healthy amount
of net cash... but then took on $9.2 billion of debt (offset by increased cash
of $4.1 billion) in 2020 to maintain its dividend and buy back more than $3
billion of stock during the pandemic, as free cash flow temporarily plunged. But
then, only one year later, Nike returned to a net cash position in 2021 as free
cash flow recovered and the company cut back on share repurchases. Since then,
Nike's net debt has fluctuated around zero as the company has used its strong
free cash flow to steadily increase its dividend while significantly ramping up
share repurchases. So with operating income only down 6.6% from its peak, why is
the stock down 57%? Simple: the stock got ahead of itself and, at its peak, was
trading at over 40 times trailing earnings. Since then, it has been more than
cut in half – and is trading at 19.5 times trailing earnings. Now the math is
easy: earnings down 7% plus multiple down 50% equals a stock down 57%... In
summary, I like what I see based on my first look at Nike's historical
financials. While growth has slowed down and become more erratic, Nike's overall
financial picture is one of an exceptionally strong company. In Monday's e-mail,
I'll continue my analysis by looking at what has caused the stock's collapse and
whether it's a value trap or possibly a great buying opportunity... Stay tuned!
Best regards, Whitney P.S. I welcome your feedback – send me an e-mail by
clicking here.

Keep reading...

When Chaos Reigns... Take a Walk

Aug 9, 2024

Monday was a day of bloodshed in markets around the world... Japan's Nikkei 225
Index had its worst day in decades after falling 12.4% and officially entering a
bear market. European markets fell 2%. And here in the U.S., the Dow, the
Nasdaq, and the S&P 500 indexes all saw losses near 3% or more. Several
brokerages, including Fidelity Investments and Charles Schwab, went down as
traders rushed to log in to their accounts. During the chaos, my team asked what
I made of it all. There are two things I often tell folks to do when fear like
this grips the market... First, shut down your computer and go for a walk. Then,
get ready to put your money to work in the markets as good deals on stocks pop
up as panicked investors sell. If you've followed our advice over the years –
like using proper position sizing and diversification – you don't need to worry
about corrections like we saw on Monday. But I understand that advice isn't
always simple to follow. It's easy to get scared when everyone else seems to be
panicking. And serious long-term challenges are facing investors. But my team
and I are here each week, to help you navigate these challenges. I recently sat
down with some of my long-term business partners to celebrate the 25th
anniversary of my publisher, Stansberry Research. One of the topics we discussed
is the No. 1 thing we recommend you do immediately to prepare yourself for what
could be a very long and volatile period in the markets. The entire special
broadcast is going live next Tuesday at 9 a.m. Eastern time. Click here to make
sure you don't miss it. Now, let's dig into the Q&A... As always, keep sending
your comments, questions, and topic suggestions to
feedback@healthandwealthbulletin.com. My team and I really do read every e-mail.
Q: What exactly do you mean when you say to never enter your stops with a
broker? How would I know when to sell otherwise? – E.M. A: Most brokers give you
the option to enter your stops "into the market" – in other words, telling your
broker to sell automatically if your stock falls to a certain price (a hard
stop) or a certain percentage from its highs (a trailing stop). But you should
never reveal your stop loss to your broker or anyone else. Entering your stop
price into the market is tempting for its convenience, but it leaves you
vulnerable. If they know you'll sell automatically at a certain price, investors
or brokers who see your stop can temporarily manipulate a stock's share price to
push you out of the position. So never enter your stops into your brokerage
account as part of your order. To be clear, we are not advising against stop
losses... quite the opposite. Just track them on your own (in a notebook or
Excel spreadsheet, for example) or through a service like our corporate
affiliate TradeStops. Using strict stop-loss rules to avoid capital losses
removes emotion from the trade. When you're wrong, admit it and take your lumps.
It's one of the most important rules to successful investing. Remember, before
you invest, know exactly why you're buying the stock and what would make you
sell it. Set yourself up to succeed by knowing ahead of time what your exit
strategy is. Stop losses are a great asset for any investor, so start using them
to monitor your portfolio today. Just don't let your broker sell your stocks
automatically for the wrong reason. Q: In your piece on ticks, you failed to
mention what to do if someone finds a tick. Advice? – H.R.  A: If you've
discovered a tick on your body, there are a few steps you should take... Remove
the tick without delay. If you find a tick on yourself that hasn't attached,
you're in the clear. The trouble starts when an infected tick bites you. And the
sooner you remove the bug, the better your chances of avoiding infection. Lyme
disease's transmission times depend on the tick and can range from four hours to
96 hours of attachment time. But some diseases infect you faster – for instance,
a tick can transmit Rocky Mountain spotted fever after a six-hour blood meal and
the (fortunately rare) Powassan virus after just 15 minutes. Removing an
embedded tick can be tricky, though. Many ticks sport fishhook-shaped barbs to
get a good grip on your flesh... And they top it all off by secreting a gluey
"cement" that forms a tight seal between their mouths and your skin in as little
as five minutes after biting you. Lots of folks claim they have "secrets" to
removing ticks... rubbing alcohol, a lighter or a lit match, petroleum jelly, or
nail-polish remover. These methods don't work. You really need a pair of pointed
tweezers, a slow and steady hand, and – as I'll discuss – a bit of caution...
Don't just yank it off. With the tweezers, grab the tick as close to the skin's
surface as possible. Pull upward in a steady, continuous motion – don't twist or
wiggle the tick. That way, you'll remove the whole critter. Make sure to save
the tick, too. If parts of the tick remain in the skin, leave the area alone and
let the skin heal... Your body will expel the parts over time. Finally, clean
the area with rubbing alcohol or soap and water. Don't flush it down the toilet.
If the tick was carrying an illness, it might take several weeks or even years
for symptoms to appear. Knowing the kind of tick that bit you can go a long way
to determine what made you sick. And you can also have that particular tick
tested for pathogens if you start to show symptoms. A company called TickCheck
will run a basic diagnostic panel for $50 (you can spend up to $200 for more
details). Results take just a couple of days to come in. Plus, you can even send
up to five ticks to be batch tested for no extra cost (as long as they're all
removed from the same person). If you're not up for dropping $50 each time you
get a tick bite, put the tick in a baggie and stick it in your freezer for a few
weeks. You can pull it out for testing if you show suspicious symptoms.
Diagnosis and treatment are much quicker and easier if doctors know what
illness, if anything, this suspicious tick was carrying. What We're Reading...
Did you miss it? Behind the "shocking" sell-off in tech. Something different:
The healthiest communities in America. Here's to our health, wealth, and a great
retirement, Dr. David Eifrig and the Health & Wealth Bulletin Research
TeamAugust 9, 2024

Keep reading...

Episode 373: We're Entering a New Bull Market in Gold

Aug 5, 2024

On this week's Stansberry Investor Hour, Dan and Corey welcome Rudi Fronk back
to the show. Rudi is the founder, chairman, and CEO of Seabridge Gold (SA). With
more than 35 years of experience in the gold industry, Rudi is an expert in his
field. He joins the podcast to talk all about precious metals mining, future
opportunities for gold and copper, and what sets his company apart from the
rest. Rudi begins by giving a brief history of how he got into gold mining. He
shares the reason he started Seabridge with shareholder value in mind. He also
breaks down some of the risks involved in mining – including working in
politically unstable countries – and why he'll never build another mine again.
After, he talks a bit about the technical aspects of drilling, exploration, and
the process behind estimating how much gold is in the ground. According to
Rudi... I did a presentation looking at all the metal we have in terms of gold,
copper, silver, and molybdenum in the ground, not yet mined, still needed to go
into production. But all that metal in the ground at today's metal prices is
$8,000 worth of metal per common share... $15 a share. Next, Rudi discusses
potential joint-venture opportunities with leading mining companies for
Seabridge's KSM property, mainly thanks to increased demand for copper. He also
talks about the importance of permitting, catalysts that could move Seabridge's
share price higher, offsetting share dilution, and early-stage projects that are
in the works. And Rudi makes his case for why gold is entering a new,
interesting bull market. Right now, you're seeing a huge transfer of physical
gold from the West to the East... Central banks, sovereign wealth funds, Asian
high-net-worth investors – they don't buy mining stocks or paper gold. They're
buying the physical gold... The Western investor has abandoned gold. Investors
are coming from around the world, and they're buying gold because it's not the
dollar. They want out of the dollar. Finally, Rudi shares his opinion on
bitcoin, talks further about soaring copper demand, and delves into Seabridge's
goal of giving back physical gold to investors. As he explains, the KSM property
is expected to produce more than 1 million ounces of gold per year for the first
33 years. And 35% to 49% of gold produced will be returned to the company...
People buy gold-mining stocks expecting exposure to the gold price. They're not
getting that. If you look over the long term, the large mining companies have
significantly underperformed the gold price in a meaningful way. Our goal at KSM
is we will take back our share of profits from the project in the form of
physical gold... and deposit it at a physical ETF in exchange for shares... and
then we'll dividend out those shares that we get back for depositing our gold.
Click here or on the image below to watch the video interview with Rudi right
now. For the full audio episode, click here. (Additional past episodes are
located here.) The transcript will be on the website soon.

Listen to the episode



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