A chilling chart for the bulls… Why 2019 is looking a lot like 2008… Your best defense in a stock market crash… In the mailbag: “I’m all for drugs, especially opioids…”

Is the coast clear for stock market investors?

When we left off yesterday, we promised you a deeper dive on what’s ahead for stocks in 2019.

The question on the table today: After the whippy 6% jump for the S&P 500 so far this month, are the bulls back in charge?

Or is Mr. Market luring investors back in before he deals them a final, punishing death blow?

History isn’t on the side of the “buy the dip” crowd…

The S&P 500 rose nearly 6% in January 2018. But that didn’t stop it from ending the year down 6%.

Compare that to January 1987, when the index shot up 13%. Nine months later, it crashed 20% in a single day – its worst single-day percentage drop on record.

Last year was no picnic, either. Between September 20 and December 24, the S&P 500 plunged 19.8%.

That’s just shy of the 20% fall that marks an official bear market… and another bad omen.

According to figures from the folks at Wells Fargo, on average, it takes stocks 63 months to reach a new high after a 20% plunge.

That’s five years and three months. So don’t be surprised if we don’t see the S&P 500 break back above last year’s peak of 2,931 until sometime in the spring of 2024.

That’s not where the bad news ends for the stock bulls…

The S&P 500 has also been making a series of “lower highs.”

Here’s a chart colleague Joe Withrow showed readers of Bill Bonner’s daily Diary e-letter yesterday…


Since the S&P 500 peaked last September, each new high (red arrows on the chart) has been lower than the previous one.

And Joe warns this is a classic bearish setup…

A lower high occurs when stocks fall and then fail to reach their previous peak during the next rally attempt. When we see a series of lower highs like this, that tells us the market is losing steam… and that we are moving into a bear market.

It’s a repeat of what we saw before the global financial crisis…

Look at this next chart.

It’s of the S&P 500 from its peak in October 2007 to its post-crash low in March 2009.


As you can see, stocks also made a series of lower highs in 2007 and 2008 before falling off the proverbial cliff. Joe again…

In 2008, we saw a series of lower highs from May through September, and the S&P 500 slipped 11% lower in that time.

But then the big crash hit. The S&P 500 plunged 36% over the next two months, from September 19 to November 20 – making that the most destructive two months of the entire bear market.

And peak-to-trough the index plunged almost 57%.

The point is that crashes don’t happen all at once. They’re often preceded by a series of smaller drops and partial recoveries.

And that’s exactly what we’ve been seeing since the low this past Christmas Eve.

That means you’re still at risk from a plunge in stocks in 2019…

As colleague Dan Denning has been telling readers of The Bill Bonner Letter, this is the single biggest issue you face as an investor right now. Dan…

Your key challenge now – especially if you’re at or near retirement age – is to avoid the big loss.

Am I talking about a 95% one-day loss in the S&P 500 or the Dow? Of course not. The indexes won’t fall that far… in a day. But history shows that a typical bear market at the end of a huge credit boom – and we’ve just had the biggest boom ever – can take the indexes down 70% to 80%.

It’s why Dan and Bill have been urging their readers to stick to a very conservative allocation to stocks. Here’s Dan again…

Unless you’re happy taking big risks, Bill and I recommend keeping no more than one-quarter of your wealth in stocks. Then split the rest between cash… real estate… and precious metals.

That’s a much smaller exposure to the stock market than most mainstream financial advisors recommend. But they use long time-horizons and historic returns of about 8% a year to justify a larger exposure to stocks.

But you don’t have 100 years to make money on your stocks. You may not even have 30. That means taking a much more cautious approach.

Ultimately, how much of your wealth is in stocks versus other investments is up to you.

But as legendary financier J.P. Morgan put it, if a lot of your wealth is tied up in stocks, consider “selling down to the sleeping point.”

That was Morgan’s advice to a friend who complained that his stock holdings were keeping him awake at night.

Dan is exploring other ways you can protect yourself in the next crisis…

As we mentioned at the end of yesterday’s Cut, he’s down in New Zealand right now to see whether it’s a suitable location for a crisis “bolt-hole.”

As he put it in a private email to the Legacy Research team…

New Zealand has become popular with the ultra-wealthy as a billionaire bolt-hole in the case of an “event.” I’m talking civil unrest, a natural disaster, an electromagnetic pulse blast that takes down the power grid, a pandemic, or an old-fashioned financial system crisis.

The world’s ultra-wealthy are already making plans to comfortably ride out any such disruption from the comfort of a bunker somewhere down under. Presumably with plenty of chilled Sauvignon Blanc on hand and New Zealand’s excellent butter, honey, and lamb products.

Some questions Dan will be trying to answer for Legacy readers while he’s in New Zealand…

Is it practical to move there? How would you do it? Or are you better off looking for a bolt-hole somewhere in the U.S.?

We’ll have more for you on what he finds out – including eye-witness reports from folks he’s meeting on his travels. So stay tuned for more on that…

In the meantime, don’t forget to make this a two-way conversation…

Do you have a bolt-hole plan in place? Have you made other preparations for a financial crisis along the lines that Dan suggests?

And if you’re reading this in New Zealand, and want to drop Dan a line, let us know… and we’ll pass on the message.

Write us at [email protected]. We read every email you send in… and regularly feature them in the Daily Cut mailbag.

Speaking of which…

In today’s mailbag, one of your fellow readers is “all for drugs, especially opioids…”

Regular readers know the drug legalization debate has been a fixture of the mailbag over the past few months.

But some of the latest emails we got may shock you…

Decriminalization of everything. Why not? Does not any law infringe on a right? Where did we get the notion that anything and everything should be regulated? Sounds crazy.

I’m all for drugs, especially opioids. Let the dumb arses cull the herd of themselves and leave the rest of humanity to pursue its pleasure without their lunacy and refusal to be responsible for themselves.

More drugs for everyone!

– Kevin P.

First, for the numbskulls that somehow think that the federal government has EVER had any constitutional authority to legalize or make illegal any drugs: Please show me where government has such authority. Second, just because weed or any drugs are legal does not mean that a private business does not have the legal “right” to run or have rules required for personnel that work for it.

The problem is people seem to want government to assume authority for their morals and/or behavior. Why someone would give a rat’s ass if government sanctioned their marriage, death, love life, or what they can contract with and to whom is beyond my personal belief. The oath of office is the key to corralling the assholes in government.

– Martin K.

There is a good argument for legalization, no matter which way you look at it – legal, moral, impact on citizens, impact on families, impact on government, etc. While there are many good reasons to attempt to force citizens to put only approved drugs into their bodies, there is no good way to enforce such laws.

They all lead to forcing drugs underground, which always leads to more laws, larger law enforcement for the state, and higher taxes. “The road to hell is paved with good intentions.”

– Roger S.

Does making drugs illegal just force them underground? Is that where they belong? Write us at [email protected].



Chris Lowe
January 29, 2019
Dublin, Ireland