Wall Street’s definition of a bear market is a 20% drop from a peak.
That’s what happened to the Dow yesterday at 3 p.m. ET.
And today’s action was absolutely brutal.
Europe’s version of the S&P 500, the EuroStoxx 600, plunged 11%. That’s the biggest one-day percentage loss in its history.
The Dow ended the day down 10%. That’s its biggest drop since the 1987 crash.
And the S&P 500 ended the day down 9%. That takes the index into a bear market behind the Dow. It’s down 26% from its peak in February.
The single most important thing right now is that you follow the wealth protection plan I (Chris) and my colleagues here at Legacy Research have been laying out for you.
As colleague Teeka Tiwari put it in a must-read insight about the sell-off over at our Palm Beach Daily e-letter today…
What you do next could be the difference between retiring on time or working an extra five to seven years.
First, I want to make one thing clear…
We’re humans. Thanks to some evolutionary baggage left over from our time as hunters on the savannas of Africa, we have fight-or-flight tendencies.
That’s especially true when our savings are on the line. At a time like this, we ALL feel scared… even seasoned investors.
I’ve been on the phone with my folks back in Ireland (where I’m from) on a regular basis over the past couple of days. They’re retired. And the stocks in their portfolio are tanking.
There’s no doubt about it: Times like these test our mettle as investors.
But if you stick with the plan we’ve been laying out for you, you’ll come out on the other side of this just fine.
So take a deep breath… and remember something very important…
As colleague Teeka Tiwari showed yesterday in these pages, this bear market is cyclical, not “secular” (long-term).
In other words, it’s a short-term countertrend bear market… that will yield back to a long-term bull market that Teeka sees continuing for another 10 years.
As he points out, in the last secular bull market – between 1982 to 2000 – you could have made a gain of 1,391% by just buying the S&P 500 stocks and doing nothing else.
That’s enough to turn every $100,000 in savings into nearly $1.5 million.
But to get those gains, investors had to endure three plunges of nearly 20% or more.
Here’s the urgent health warning he gave his readers today…
Here is the ugly truth: The coronavirus is NOT like the flu. It’s anywhere from 10x to 40x more lethal than the flu. But if you’re young and healthy… chances are, you’ll be fine.
For the over-60 set the mortality rate skyrockets. Same goes for folks with certain preexisting health conditions.
Over 120,000 people in more than 100 countries have already been infected. And on Wednesday, the World Health Organization declared the outbreak a pandemic.
It’s estimated we won’t have a vaccine for 12 to 18 months. In that time frame, hundreds of thousands of people (perhaps millions) could die from COVID-19.
Teeka’s urging his readers to take what’s going on with coronavirus seriously… without allowing the fear the media is whipping up to paralyze them.
And it’s the same drill for financial fear…
Last November, the bull market was still raging.
The S&P 500 had shot up 22.8% since the start of the year. And you had to look pretty darn hard to find a single bearish voice in the mass media.
Suggesting we were edging closer to a nasty crash was a deeply contrarian call to make.
But in our November 4, 2019, dispatch, I showed you how Legacy Research cofounder Bill Bonner’s Doom Index was saying just that.
That’s especially true if you were tuned in to the talking heads on TV.
But I made a promise to you when we launched the Cut.
I said I’d bring you the best ideas for how to grow and protect your wealth – even if they ran contrary to the mainstream financial press.
In fact, I often know I’m onto something if most folks’ knee-jerk reaction is to dismiss it offhand as “nuts” or “crazy.”
Here’s the warning I passed along to you last November from Bill’s head of research, Joe Withrow.
The numbers are falling apart. We just updated the Doom Index and it bumped up to a 9. The Doom Index is telling us to prepare for a crash.
The last time we got a reading of 9 was the first quarter of 2008… and we know how that turned out. The S&P 500 was cut in half over the next four quarters.
The mainstream media despises gold. Wall Street Journal personal finance columnist Jason Zweig went as far as to call it a “pet rock.”
But I told you to ignore the mainstream advice and use gold to shield your wealth for the crash Bill saw on the way…
We don’t know for sure if doom is nigh. What we do know is that when these indicators have lined up in the past… trouble wasn’t far behind. So now is a great time to play defense as well as offense in your portfolio.
Stock prices depend on earnings. And expanding earnings depend on an expanding economy. That’s why most stocks are a lousy place to be in a recession.
Gold, by contrast, doesn’t rely on earnings… or an expanding economy. Instead, it’s widely seen as a safe store of wealth. So it tends to rise in price as the economy… and the stock market… fall off a cliff.
Now, gold has dropped a bit recently as traders liquidate positions to satisfy margin calls. But since November, gold is up 4%. The S&P 500 is down 19%.
And since the coronavirus made front-page news in the U.S. in early January, gold is up 1% versus a 23% fall for the S&P 500.
When you’re a long-term stock market investor, you can profit only when stocks go up.
But traders can profit whether the market is up or down. Take what Teeka has achieved at our Alpha Edge advisory.
His stated mission is to recommend individual investments that consistently beat the averages. And it’s working.
For instance, Teeka and his team have taken advantage of the chaos in the market by using call options on gold miners. They closed out trades with triple-digit gains of 133% and 350%.
Or take the recent string of gains over at Teeka’s Palm Beach Quant advisory.
As regular readers know, it uses a powerful computer program that detects patterns based on decades of data to forecast the future price movement of stocks. And so far, their system has proven successful, with recent option trades closing out for gains of 39%, 52%, and 57%.
The U.S. stock market has risen at an average rate of 6.8% a year for the past 50 years.
But those returns aren’t free. You earn them by shouldering some tumultuous price swings in your stocks.
Without these swings, stocks wouldn’t carry any risk… and they’d pay out no return.
I’ll leave you to think about a quote from John Maynard Keynes (hat tip to my friend Chris Mayer over at Woodlock House Family Capital for bringing it to my attention).
Most people remember Keynes as an economist. But he was also a successful investor.
From 1924 through 1946, he ran the endowment fund of King’s College at Cambridge University in England.
Over that time, his fund outperformed the British stock market by an average of eight percentage points a year.
And one of Keynes’ golden rules was not to let yourself get shaken out of quality stocks by temporary price falls. As he wrote…
I feel no shame at being found still owning a share when the bottom of the market comes. I do not think it is the business, far less the duty, of an institutional or any other serious investor to be constantly considering whether he should cut and run on a falling market, or to feel himself open to blame if shares depreciate in his hands. I would go much further than that. I should say it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself.
I’ll have more for you on this fast-developing situation in future dispatches… so stay tuned.
It contains the best wealth-protection insights from Bill, Teeka, Doug Casey, E.B. Tucker, Dan Denning, Jason Bodner, Dave Forest, Nick Giambruno, and the rest of the team.
It’s 109 pages filled with tips from our investors, speculators, and traders across Legacy Research.
You’ll learn about the five asset classes you should consider to make your portfolio crash-resistant… how to make money as stocks fall… and even a proven commodities system you can use to avoid having your wealth wiped out in the next crisis.
As a Daily Cut reader, you can access it for free here.
Regards,
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Chris Lowe
March 12, 2020
Barcelona, Spain
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