The Next Great Asset Boom
And the Furious 'Cash Panic' It Will Create
In late 2008, during the worst financial crisis of our lifetimes, Ben Bernanke did the only thing he could...
He fueled the fires of the recovery. He did everything he was allowed to do. Then he went to Congress so he could do even more.
Ben Bernanke was the Federal Reserve chairman during the 2008 financial crisis. And he had one goal in mind.
He wanted to stop another Great Depression from happening... at all costs.
Bernanke was uniquely qualified to do just that. He was a student of the Great Depression. He got interested in it as a kid. And since then, he has described himself as a "Depression buff, the same way people are Civil War buffs."
As a result of his studies, Bernanke decided that the big problem during the Great Depression was the Federal Reserve. Specifically, the Fed didn't fuel the recovery nearly enough.
Bernanke wasn't going to let the financial system fail on his watch. He wasn't going to repeat the mistakes made during the Great Depression. Instead, he acted swiftly...
You see, money dries up during a crisis. And if companies can't borrow money, more and more find themselves unable to fund short-term operations. Paying employees – or even keeping the lights on – can become impossible. And that can cause the economy to fall into a serious and prolonged slump.
Bernanke wasn't going to let that happen. So he cut interest rates to zero for the first time in U.S. history. And he didn't stop there.
He also went to Congress and helped orchestrate $700 billion in stimulus. Much of it went into the heavily criticized bank bailouts you probably remember from that time.
After that, Bernanke kicked off years of quantitative easing. That eventually pushed trillions worth of liquidity into the system.
That was another first. But anything to save the day, right?
Bernanke lit the coals to save the economy. And it worked. We didn't spiral into the depression that he feared was possible. But his policies had some side effects... good and bad.
In short, they became the cornerstone for the longest bull market in history. It was a trend I saw coming. I told my readers about it in an issue of my True Wealth newsletter, published in July 2010.
Here's what I wrote back then...
We now know what Fed Chairman Ben Bernanke's playbook is, looking out three years.
He's making it easy for us. In short, he will keep money as "easy" as possible, for as long as possible – likely beyond 2012.
For a visual... Bernanke is trying to light up the U.S. economy like a grill. He's dousing it with rocket fuel and pumping away on the "start" button.
Again, Bernanke's playbook worked. The U.S. economy recovered. And while we didn't see the runaway inflation in consumer goods that many feared at the time, we did see another type of inflation...
A massive inflation of asset prices.
I called this the "Bernanke Asset Bubble." I saw he was doing everything in his power to boost the economy. And the obvious result would be a massive increase in asset values... specifically stocks and housing.
This sent the S&P 500 Index up more than 500% during the 10-year bull market. And if you were an investor over the last decade, you probably did darn well yourself.
You might wonder why I'm giving you this history lesson, though. After all, that 11-year bull market is over now. The COVID-19 crisis ended it in early 2020.
And while the market has stormed back to new highs, we couldn't possibly see another long-term boom like that again. Right?
That's the general consensus. But today's setup tells us it's dead wrong.
The reality is that the same factors I saw in 2010 are in place today. In many ways, it's even more extreme.
In short, the Fed has lit the coals of the next great asset boom.
That means the snapback rally we saw to end 2020 could actually be at the start of another great boom. And it’s already leading to a dramatic money-making event in stocks. It's the "cash panic" that no one sees coming, as I'll share in this report.
Before we get to exactly what's in store for the stock market – and a reason why it could already be underway – let's take a look at the Federal Reserve. We need to get a good handle on what it's done to spark the next great boom...
COVID-19 Sets the Stage for the Next Great Asset Boom
Today, the Federal Reserve has a new face. Jerome Powell is the guy calling the shots...
Powell took over as Fed chair in 2018. And when COVID-19 stepped onto the world stage in March, he jumped into action.
At first, that meant following Bernanke's playbook. In two quick moves, Powell cut interest rates from 1.5% to 0%.
Those are just Fed-controlled short-term rates, though. Longer-term, market-controlled rates followed suit. The 10-year Treasury yield fell from nearly 2% at the start of the year to a low of 0.5%... the lowest we've ever seen.
The Fed also dropped the rate it would charge banks to borrow money. And it cut reserve ratios, too, which meant banks could lend more without holding more in reserve. That led to more liquidity in the system.
But these actions are all old news. They're basic Fed tools. Powell's next steps were brand-new... And now, they've been pumping trillions in liquidity into the financial system.
These moves are basically massive lending facilities. They allow the Fed to either buy assets or provide liquidity to a market in need of it. Powell's actions include...
- A way for the Fed to buy commercial paper (short-term debt).
- A lending option to keep money market accounts running.
- A plan to buy municipal bonds.
- A literally unlimited amount of quantitative easing. (The original plan was "only" $700 billion!)
- A $300 billion lending program for businesses.
To be clear, these moves make what Bernanke did look like child's play. If Bernanke baby-stepped into his massive stimulus program, Powell jumped in head-first.
The list above isn't complete, either. It's missing Powell's biggest move – by far.
Powell announced a $2.3 trillion lending program. It'll lend to certain banks... make up to $600 billion in loans to small and medium-sized businesses... and even buy corporate bonds from certain businesses.
In total, Powell's stimulus plan could inject more than $6 trillion in new liquidity into the system.
It took Bernanke seven years to rack up half that amount. And Powell's measures are dramatically beyond the scope of anything Bernanke ever put into motion.
Now, I realize the details of these plans are confusing. It's hard to get a grip on how they actually work, who they help, and their long-term effects.
You don't need to understand them inside and out, though. All you need to know is this...
Money is now cheaper than ever. And the Fed is pumping more cash into the financial system than ever.
As we saw during Bernanke's time as Fed chair, that's a recipe for a massive asset boom.
Powell is stoking the same coals that sparked the last massive bull market. But he's got a heck of a lot more of them... And he's also pouring fuel on them that Bernanke never knew existed.
The Fed has also moved the goal posts on inflation. The prior plan was to use a 2% target for inflation. Once it hit that level, easy money policies would slow down to cool the economy and prevent inflation from getting too high.
That was the old plan though. Powell has said that since inflation has been so low for so long, he’s willing to let it get above the 2% target for some period of time before trying to cool things down.
Simply put, the plan is to let the economy run hotter for longer. And that means more time to allow asset prices to boom this time around.
I want to be clear about one thing... I'm not saying this is good. The long-term consequences could be severe. We simply can't know today. We don't know if or how it could go wrong.
What we do know is what happened last time. The Bernanke Asset Bubble sent prices on a 10-year boom. And Powell's actions are likely setting up a massive boom in asset prices too.
So whether you agree with these policies or not, it'd be foolish not to act on them.
Stock prices are already on the rise. The post-COVID-19 boom to end 2020 was spectacular. And history says that we could see years of gains from here.
They could happen fast, too. That's because this incredible stimulus should kick off a spectacular run-up in stocks.
Let me show you what I mean...
Why a Massive Event Will Drive Stock Prices to Unimaginable Heights
It's crazy to even imagine...
In a matter of months, we've faced a total shutdown of the U.S. economy... a stock market crash... more than 30 million lost jobs... and an economic recession.
But hear this, my friend: A massive money-making event – one that could push prices to incredible heights – is already in place.
I probably sound like a lunatic for saying that. But stocks have soared recently. And as I've already explained, the stage is set for the dramatic rise in stock prices to continue from here.
COVID-19 hit the market like a meteor. Now, though, the upheaval is fading. Vaccines are beginning to roll out. The worst is behind us... And in its place is trillions and trillions in economic stimulus.
This is the same setup we saw coming out of the Great Recession... except today, the amount of money pouring into the system – thanks to Congress and the Federal Reserve – dwarfs anything we saw last time around.
I expect this fuel to light an incredible fire under the U.S. economy, as it already has in the stock market. It’s already causing something I call a "Melt Up."
Now, you might be wondering what a Melt Up even is... and why I'm so sure it's here.
So let's cover the basics now. It's time to get a handle on what makes a Melt Up, and why it's such a powerful idea...
The first thing you need to know is this... The Melt Up is the phase of a stock market run-up where we see the biggest gains. It's where we see investors panic out of cash and into stocks.
That's our simple premise: That stocks often have their biggest, most explosive gains at the ends of major bull markets.
In short, before the big "Melt Down" arrives, we have the big Melt Up. It's the final push higher before the bear market kicks in.
The most recent major example of this happened at the end of the 1990s bull market. The Nasdaq Composite Index soared more than 86% in 1999 alone. Now that was a Melt Up.
Importantly, the Melt Up typically begins after a time of extreme fear.
In late 1998, stocks had fallen dramatically in the wake of the Asian Financial Crisis. We hit a fear extreme. Then, stocks surprised everyone and soared higher – the Nasdaq rose 200% in 18 months during the dot-com bubble. Take a look...
I can't guarantee a massive move like that again, of course. But I do believe that the coming years could resemble the late 1990s.
That might be hard to believe, considering we just saw a bear market in stocks. But from where I sit, it’s obvious that the Melt Up is already in place.
To put it simply, stocks are acting a lot like they did back in the 1990s. Stocks crashed late in that bull market... And then they soared to new all-time highs.
A new bear market is typically marked by a fall of 20% or more. That means the bull market of the past decade technically ended with the COVID-19 bust. But it has since come roaring back. Now, we're near new highs again. And the rally to end 2020 was nothing short of spectacular.
Let's take a closer look at the Melt Up setup conditions this time around...
Stocks Hit a Fear Extreme... Then Rise Dramatically
In the past three years, we've seen two major pullbacks. And each major pullback led to major extremes in investor fear.
You can see them clearly by looking at this chart of the S&P 500...
The bull market nearly ended in late 2018. From the end of September to the end of December that year, stocks lost nearly 20%.
It was a kick in the gut. Investors had gotten used to consistent gains and easy money in the previous four years.
Then, in early 2020, COVID-19 shut down the U.S. economy and crashed the stock market. The total decline was 34%. It was the quickest bear market in history. And it caused plenty of fear.
How do we define fear? It's more challenging than you think – you're trying to put a number on a human emotion.
We look at it in a variety of different ways, but the most common way to size up fear in the markets is through the Chicago Board Options Exchange's Volatility Index (the "VIX") –known as the market's "fear gauge."
When stock prices move wildly, the VIX goes up. When stock prices are steady, the VIX moves down.
The VIX spiked during both the recent falls. Generally, a VIX reading of more than 20 shows fear in the market.
During the December 2018 correction, the VIX soared to 36. And the COVID decline in March 2020 led to highest VIX reading in history. It peaked at 83... even higher than what we saw in the financial crisis.
Take a look at these past two spikes in volatility...
This is exactly the setup we're looking for. It's exactly what happened before stocks melted up in the late 1990s.
Investors hit a patch of fear... stock prices fell... but then they recovered. They reached new all-time highs and continued to soar during the final stage of the bull market – the Melt Up.
Now, the COVID-19 bust initially had investors scared silly. They didn't know what to do. But that fear didn’t last long.
Stocks staged an incredible rally through the remainder of 2020. The S&P 500 hit new high after new high. And the incredible fear turned to incredible greed very quickly.
It might not seem possible, but the Melt Up is here right now. The last bull market ended... But the new one has already begun. And I expect incredible gains from here.
Remember, all that Fed stimulus should lead to a massive asset boom. That's exactly what happened under Bernanke. And Powell is following the same script... with even more fuel.
It’s already started a massive Melt Up in stocks. Let me show you why I’m sure of it…
Proof the Melt Up Is Already Underway
I've been monitoring the Melt Up closely in recent months and years.
I knew this bull market would end with a major blow-off top... But it has been hard to know exactly when it would kick into high gear.
I've been closely watching a few important indicators. And these pieces have begun to fall into place.
I can now say this without hesitation... The Melt Up is here.
Why am I so confident?
It's simple. And I can prove it by showing you a few charts. Before I do, let's recall exactly what happened during the last Melt Up...
The Melt Up is the final push of a bull market. But it doesn't necessarily lift all stocks.
In fact, the last time around, most stocks didn't soar in the Melt Up. And I believe that could be true this time, too.
The last true stock market Melt Up in the U.S. happened during the tech bubble of the late 1990s.
The entire market had soared through the '90s. The old fuddy-duddy companies made huge gains right alongside the exciting new Internet stocks. But that changed as the bull market neared its end and the Melt Up took over.
The chart below shows the last 12 months of the 1990s bull market. You can see that the fuddy-duddy companies (the Dow Jones Industrial Average) stopped keeping up with the exciting tech companies (the Nasdaq Composite Index). Take a look...
The Dow basically went nowhere for the final 12 months of this stock market Melt Up, while tech stocks soared triple digits.
The beginning of that major outperformance is what signaled the Melt Up entering its final stages. And now, finally, we're seeing it again.
Until recently, boring stocks and exciting tech stocks had soared alongside one another. The tide of recent years has lifted all ships. You can see it in the chart below...
During 2019, the old fuddy-duddy stocks tracked nearly perfectly with the exciting tech sector.
But the chart above ends a little over a year ago. That's because things have changed in 2020… specifically after the COVID-19 bottom occurred.
The exciting tech stocks are finally outpacing the boring fuddy-duddy businesses. Take a look...
This is big news. Over the last year, the Nasdaq has dramatically outperformed the Dow.
This is exactly what we saw in the late 1990s. It's what signaled the final stages of the Melt Up back then... And it's what happened right before we saw a massive triple-digit boom in tech stocks in just 12 months.
This is it, my friend. We don't need to make it complicated. This is proof the Melt Up is here.
And if you're going to take advantage of it, you must act now...
You see, there are a small number of investments that historically soar higher and faster than anything else during a Melt Up.
You can think of them as Melt Up stocks. And they are the key to making the most out of this event – before the inevitable Melt Down.
I recently recorded a full presentation on the coming Melt Up, including which groups of stocks are on track to benefit the most... and which kinds of stocks to avoid.
If you'd like to learn more about this incredible story (which NO ONE in the mainstream financial media is talking about) you can access it for free by clicking here.
You'll get the name and ticker symbol of a little-known Melt Up stock, absolutely free, just for watching.
Good investing,
Steve Sjuggerud
