Update - September 21, 2021

My Magic Stock Market Formula

I went to a local zoning hearing last night. Ugh. It reminded me why I stay away from such travesties.

While the meeting was maddening, the pregame conversation was interesting.

I sat beside a neighbor who, until last night, had no idea about my background or what I do. Nonetheless, he wanted to talk about the markets.

“Did you see Wall Street today?” he asked. “Oof.”

He went on to share that he was facing the same conundrum so many investors find themselves in these days.

“I want to buy the dip,” he said. “But I don’t want to jump into a market that looks like it could roll over at any time.”

I tried to interrupt, but he kept going.

“I’ve got $400,000 sitting in my bank. I’m earning $53 per year on it. I need to do something.”

Boy, does he!

Wasting Time

I told him the same thing I tell my tens of thousands of readers. I said that I’ve heard tales like his ever since the March 2009 lows.

In April of 2009… investors thought the market was overdone.

In 2012… same thing.

In 2015… folks sat on the sideline.

Same thing in 2018.

And now the story continues. “Stocks are too expensive,” the crowd chants.

I didn’t need to tell my neighbor that if he had simply put his money into the S&P 500, he’d now be a multimillionaire. He knows. And yet he still isn’t ready to move his money.

Trying to push him over the edge, I told him not to look at the main indexes – the Dow, the S&P 500 and the Nasdaq. They don’t mean anything. They certainly don’t speak to valuations.

Instead, I said to focus on interest rates. Then I gave him my magic formula.

When rates are rising, hold onto your cash. When they fall… buy.

It’s true whether we’re talking long-term or daily trends.

Proof

Yesterday’s sell-off is a prime example of the opportunity that lies in all of this. The headlines painted it like it was a bloodbath, as if some black swan had just crashed the party.

That wasn’t the case at all.

The main indexes were down hardly more than 1% – well within the expected bounds of this market. The crypto market was down further. But it, too, didn’t do anything we don’t expect.

Today, of course, the markets are doing just fine.

Here’s a better way to view things. Simply watch the 10-year Treasury. It dipped by a mere six basis points. At its low for the session, it briefly hit 1.29%. It quickly rebounded… taking stocks with it.

Right now (and this changes monthly, if not weekly), the critical number for stocks, bonds and even crypto is 1.30%. Any number below that means the market is oversold and is an incredible buy. Yesterday proved it.

Any number above that figure means we need to pick our plays wisely.

What comes next – and where that key figure goes next – is largely up to the Federal Reserve. It’s meeting as you read this. The details of this key meeting will be revealed tomorrow afternoon.

With the news that China isn’t as healthy as it appeared (golly, who would have thought?), there’s a strong chance the Fed will be more dovish this month. It’ll likely tell us that it’s less worried about an overheated market and, therefore, is less concerned with raising rates.

If that happens, it’ll be a buying opportunity. Stocks and cryptos will be treated nicely.

It’s a continuation of the cycle we’ve seen over the last 12 years. It’s the product of an economy that’s addicted to dirt-cheap money and government stimulus.

As soon as the Fed begins to hint that it believes the economy is strong enough to remove some stimulus, rates rise, sellers sell and the market dips.

The Fed is forced to back down and the cycle continues.

That’s why I created the Modern Asset Portfolio… which hinges not on traditional interest rates, but on real interest rates. Not only do we track the critical yield of the 10-year Treasury, but we also add the inflation rate to our equation.

By focusing on “real” rates (that’s the 10-year rate minus the rate of inflation), we get a much stronger sense for the direction of the market.

Right now, it’s telling us we should not be on the sidelines. We should not have our money in a savings account, just waiting for a clear buying opportunity.

It won’t come.

Compared with this time next year… and the year after… stocks are cheap.

Just ask the fella I sat beside last night. He’ll tell you that you can’t afford to wait for a “bottom.”

I know the headline writers tell a scary tale, but the market’s real indicator is begging us to buy.

Be well,

Andy

P.S. And if you’re wondering what to buy right now… you need to check this out. I’ve just released my latest research on a $1 crypto I think could be bigger than Bitcoin. Get all the details here.