Chris’ note: Legacy Research subscribers have been at the top of our minds here at The Daily Cut

Stocks are tumbling. Coronavirus fears are rising.

If you’re like our friends and family, you have a bunch of questions and worries…

What should I do with my money? What will happen if the stock market shuts down? How long could this last? Will the economy tip into a recession?

Rest assured, we’re here to make sure you have all the answers.

That’s why, for as long as this crisis lasts, my team and I at Legacy Research are stepping up to the plate.

Here’s what we’re going to do…

1) We’ll have a morning version of The Daily CutDaily Cut AM – as often as we can. We’re going to tear down the “paywall” to our best ideas, insights, and recommendations.

We’ll keep the focus on how the outbreak is progressing… what it means for your wealth… and the steps you can take to protect yourself.

It will be where you’ll find our best content – paid or free – on the pandemic and its impact on markets. Now, we can’t give you everything for free…

We still need to run a business and take care of our staff. But your peace of mind is paramount to us. So we’ll be working extra hard on your behalf over the weeks and months to come.

2) We’ll create a “community center” for you and your fellow Legacy readers.

This will be the place where you can get your urgent questions answered by our team of analysts.

We’ll get to as many of them as we can and publish answers from Bill Bonner, Doug Casey, Teeka Tiwari, Jeff Brown, E.B. Tucker, Dan Denning, Nick Giambruno, and Dave Forest.

And if you have a personal story to share about how you’re coping with the virus… or how you and your family are staying safe… or local updates on quarantine, the economy, or the response by the feds… let us know.

We want everyone to participate. So start sending as many as you have my way. You can reach me and the team at [email protected].

We’ll publish as many of your emails as we can… and I’ll personally make sure to get answers from our analysts.

We’ll continue to honor our promise to give you honest answers – even if they’re at odds with what you’re hearing in the mainstream media.

To kick it off… an insight from Bonner-Denning Letter coauthor Dan Denning on what to make of the coronavirus panic and what to do now.

U.S. stocks are now in a bear market. But as Dan reveals below, it all depends on what kind of bear market we’re in…

The longer-lasting type that began in 1929… or the shorter version that started in 1987.

Whichever type of market we get… as long as you follow the wealth-protection plan Dan lays out below, it won’t matter much. You’ll sleep well either way.

Best regards… and stay safe,


Chris Lowe

What to Make of the Coronavirus Panic… and What to Do Now

By Dan Denning, Coauthor, The Bonner-Denning Letter

This feels like the “big one,” doesn’t it?

First, we hope you and your family are safe.

Aside from the stress of markets crashing… and your nest egg being at risk… the stress of being at risk in a pandemic is new (for most of us).

Colleague Tom Dyson and family are in Florida. Bill Bonner made it to his ranch in Argentina. I (Dan) am hunkered down in Australia. No matter where you are, be safe out there.

Now, to markets…

We’re going to look at current events in the context of the most damaging bear markets of the 20th century. The only question that matters now: Is this the big one?

No one knows for sure. But our job here, as ever, is to look at the big picture… connect the dots… and give you a concrete plan of action to protect your wealth and your family.

Popped Bubble

With that in mind, look at the chart below…


The speed of the bear market (defined as a 20% or more drop from a peak) that’s just begun in U.S. stocks is breathtaking.

But if you’ve been following along with Bill and me at The Bonner-Denning Letter, it’s not THAT surprising.

All the “multiple expansion” we wrote about in 2019 – where passive investors and algorithmic traders piled into tech and momentum stocks to drive the S&P up 32% – has turned to multiple contraction.

The stock market was expensive in 2018. It got more expensive when Treasury Secretary Steve Mnuchin got on the phone on Christmas 2018 to prevent a bear market. (The S&P 500 shot up 44% from that point before the crash).

Now, the prospect of a real hit to earnings from society-wide coronavirus lockdowns was enough to pop the bubble. But what you just saw is unusual only because of the speed… not the size of the move itself.

According to Guggenheim Investments, investors in the S&P 500 have experienced 29 “drawdowns” (peak-to-trough falls) of between 10% and 20%. The average fall was 14%, lasted four months, and took four months to recover from.

But here’s the thing… The bigger the decline, the longer the recovery.

There have been eight drawdowns of between 20% and 40%. The average fall was 27%. They lasted, on average, 12 months. And took an average of about 15 months to recover from.

There’ve been only three bear markets that saw a drawdown of 40% or more. I’ve circled them in red on the chart above.

The average fall was 51%. The average bear market lasted more than 23 months. And it took, on average, 58 months (nearly five years) for the stock market to hit a fresh high.

That’s how a normal business cycle works. But what we just saw is not normal…

Fed Folly

The Fed (America’s central bank) tried to end the business cycle.

Had it not intervened with the Troubled Asset Relief Program (TARP) and quantitative easing (QE), the 2007-09 bear market would have been more like the 1929-32 bear market.

The stock market sell-off would have been much deeper and likely lasted longer. It would also have resulted in the liquidation of all the bad debts that had accumulated in the boom. The bust would have cured everything, the way a fire clears the dead wood in the forest.

In 1929, stocks fell more than 86% peak to trough. The banking sector collapsed. This triggered the Great Depression.

This is what then-Fed-chairman Ben Bernanke said he was trying to avoid with his magic technology (the printing press).

By comparison, the housing bubble crash in 2007-09 was a 56% loss that was immediately reinflated into an 11-year bull market. It took the S&P 500 up almost 400%.

If this is a garden-variety – or “cyclical” – bear market, it may already be over.

But Bill and I don’t think so. We believe this is a revaluation of financial assets related to the real economy. It’s more like 1974 and 1929 – which were followed by long slumps – than 1987 or 2009, when the subsequent recoveries were relatively swift.

Use This Plan to Shield Your Wealth

If Bill and I are right, your goal should be wealth preservation.

You should not be trying to guess the bottom, much less profit from it –except, perhaps, as a speculator in mining stocks and deep-value plays.

Our advice at The Bonner-Denning Letter remains the same…

Manage your risk with an asset allocation plan that’s heavy on cash, gold, and land… and light on stocks and bonds.

You can still speculate on cryptos… but make sure to keep those positions small. Our advice is to keep these positions to less than 1% of your portfolio.

Sit out the reset in stocks in assets that have no counterparty (gold) or that become desirable because of their liquidity (cash) or safety (land).

Whatever your plan, stick to it…

Fire Sale

And remember, this is a fire sale.

Anything that can be sold will be. A lot of investors buy “on the margin” with borrowed money.

When margin calls come, they need to come up with cash as collateral… or get wiped out. So they sell the most liquid assets they own.

This is why gold falls along with everything else in the early stages of a bust. It’s also why the Fed had to intervene on Thursday to restore liquidity to the U.S. Treasury market.

The cashed-up investor takes advantage of the fire sale by buying assets when they go no-bid. At the bottom, no one will want to buy stocks again for a long time. We’re not even close to being there.

We get there if the initial catalyst for a re-rating on the market turns into a systemic crisis in stocks and bonds (first collateralized loan obligations, then corporate bonds, and then so-called “risk-free” government bonds).

Then, liquidity disappears from the system (no matter what the Fed does).

You get an “earnings shock” from a global pandemic. You also get a massive deflation in credit and money.

In this scenario, gold still falls, but less than everything else. It becomes a relative winner and the best way to preserve the value of your savings.

Live on Your Own Terms

In the coming days, you may see more circuit breakers triggered in the markets.

It would not surprise me to see markets take a “bank holiday” and shut down entirely.

We’re finally realizing what should have been obvious all along – complex systems are fragile. Leveraged complex financial systems built on maximizing short-term profit are more fragile still.

They’ve been smashed.

My biggest worry – aside from larger declines in the market – is that measures to impose order on the chaos will lead an even more rapid loss of freedom and liberty.

Restricting freedom of movement – travel bans, enforced quarantines, curfews – may be necessary to stop the spread of a virus. But what if they become permanent features of life?

The use of facial recognition technology makes it easier to track curfew breakers.

If cash is designated as a vector of contagion, there’s justifiable cause to ban it and require the use of central-bank-issued digital currency, which would tag, track, and tax all transactions.

It would be awful, but not surprising, if this entire pandemic results in more authoritarian government and greater control over your life.

We can’t do anything about public policy, currency devaluation, or pandemic. But our position has always been that the best way to manage risks in life is to have as much financial freedom as you can.

It gives you at least some flexibility in how you respond to a crisis. This is a crisis.

Hopefully, you’re already in cash and gold. And hopefully, you found yourself a kind of bolt-hole to ride it out. Prepping – financial and otherwise – is a kind of self-isolation. If you’ve already done that, you’re ahead of everyone else.

Find the Right Network

More important, if you’re willing to think for yourself and prefer living life on your own terms, you are not waiting in fear for the government to come help you.

The wolf is at the door. Odds are, he’s not there to help you.

And nobody else is coming to help you, either. The authorities, by virtue of their incompetence, may be making things a lot worse.

At times like this, you want to belong to a network of friends and family who, at the local level, can help you when you need it, and whom you can help in return.

Hopefully Bill, Tom, and I… along with the rest of the Legacy team… can continue to help you with better insight and information about what’s really going on in financial markets and what to do.

Ultimately, I think we’re seeing the failure of centralization and the belief that every important decision in life comes down to the correct public policy or the right figure for money supply.

There is more to wealth than money. There’s family. There’s community. And there’s being surrounded by people who share some of the same values.

Here’s hoping that’s where you find yourself right now.



Dan Denning
Coauthor, The Bonner-Denning Letter

Chris’ note: Keep a lookout for more insights from us on the coronavirus panic… and how to protect your wealth.

In the meantime, make sure to write in with your most pressing questions for Dan and the rest of the team here at Legacy.

As I mentioned up top, we’ll feature them in a special “community center” section of future Daily Cut AM dispatches.

You can also send us local updates from your area… personal stories about your situation… government actions… and anything you think your fellow readers will find useful.

Here’s that feedback address again – [email protected].

Like what you’re reading? Send your thoughts to [email protected].