Transcript
Right now, six out of 10 American stocks are in a bare market, down more than 20 per cent from their highs. And always, nobody has noticed because one number on the news, the S&P 500 is holding up just fine. The surface looks calm underneath it. Most of the market has already been through the fire, a bit like Winne, who's been through the beach, which is why he's looking so sleepy this morning. Yet the most watched strategist on Wall Street, the man who runs the house view for Morgan Stanley, big investment bank.
He just called this one of the best setups of his entire career.
And that is not a reason to run and buy things blindly, but it's a reason to get ready because three things are lining up at the same time. And the last time they did, a generation of investors got well did it really, really well. While everybody else was still reading scary headlines and the window is not a year away, it's literally the next few weeks. It's around the midterms and most people will find out after it's over when it's in the papers and the easy money is potentially gone. So, by the end of this video, you know the three things lining up, why the midterms are the trigger, and what the skilled money is doing right now.
I'm Felix Nicholas Pin, an economist and former investment banker. That down there is, of course, Winston. Most importantly, we're the founders of the Prin Institute. We publish research on financial markets. We provide instructions on how they work.
We take zero sponsorships and zero endorsements ever, so we can say whatever the heck we like. And because there's a fair bit to this u charts, numbers, all that stuff, um I put the lot into a single document for you. You can download that completely for free. Uh it's at felixfriends.org/midterms and you can look over it in your own time right after this video. Cost you absolutely nothing.
And honestly, before I show you anything, give yourself a bit of credit because the fact that you're actually sitting here watching this instead of, you know, scrolling past and looking at kittens or whatever you normally look at, it actually puts you in 99 bears ahead of 99 per cent of people here. And I do really mean that. So, most people will find out after this opportunity once it's gone and they're like, "Oh, how do they know? Why? It's unfair and all of that." It's actually it's a skills gap.
It's not about what the headlines are telling you. It's about what the headlines are not telling you. This on the screen, hopefully my editors will put that up for you, is the S&P 500. And on the face of it, it looks fine. It's up on the year, new highs in the headlines.
And if that's the only number you ever look at, you'd think everything is just glorious. But look at the red. Nearly six in every 10 stocks across the whole American market are already down more than 20 per cent from their highs. And that's the technical definition of a bare market. And most of the market is already in one.
It's just no one's noticed behind the green headline number. Now, in the one corner, everyone was told this is a sure thing. You know, the the chip makers uh the companies at the centre of the whole AI story that you know, they're going to do really really well. Well, nine in 10 of them, nine out of 10 of them are down over 20 per cent. Four in every 10 have lost half their value.
Half. These are the names people were told could only go up. So how can the index be up while most of the stocks in it are down? Because the index isn't really 500 companies anymore. It's about seven or eight companies.
It's a tiny handful of giant tech names that now make up basically the whole index. The rest is just outlier noise. Now think about what that means for you. If you just buy the index fund and you tuck it away because you're just, you know, discount averaging into it or something, which is what, you know, sensible people have been told to do for 40 years, you think you own 500 companies, you think you're safe, you think you're diversified. In reality, you own eight stocks that basically all do exactly the same thing.
So, that's probably your pension. That's probably your portfolio. It's probably your savings and support you're planning to retire on. Now, look, over 30 years, that's worked out for a lot of people. And I'm not going to pretend otherwise, but just look at this chart and tell me you're honestly comfortable owning a basket where most of the names are falling in a teeny tiny group at the top is holding the roof up.
Because the trouble with leaning on eight companies is simple. The day one of those eight companies trips because some manager does something dafted or one earnings call lands badly, the whole thing comes crashing down and it's your life's work underneath that.
But there is good news, and I think that should give you some hope, not fear. A market where most stocks have already fallen a long way is not the top of a bubble. The top is when everything is going up together and nobody's worried. This is closer to the opposite. Most of the damage for most of the market has already happened.
The fear has already been paid. The question is what comes next and who's getting paid when it does. And I'll play you in a second a little clip from the Morgan Stanley chat because that's really insightly.
I'm going to play you a little clip from the Morgan Stanley chat because that's really insightful. But here is where it actually gets personal. So stay with me for a second. Most of the market has already fallen. The money when it comes back is not going to come back into everything equally.
It never does. It'll pour into a certain kind of company and it'll leave the rest sitting there or worse, they'll continue to lose. So the difference between the people who do well out of the next year and the people who don't is not luck. It's whether they know where the money goes first and whether they position before it moves, not after. And you can say, "Well, I own the index.
I'll do all right." Well, how's that working out for you? When most companies are down 20 per cent and you're relying just on a Morgan Stanley chap, the man who runs the view at Morgan Stanley, he called this one of the best setups of his career. I mean, the professionals are saying that out loud in public. That is not the moment to be sitting in cash with no plan and being fearful or whatever. But most people have no plan.
They've got a feeling. And the feeling is always what the m news prevents you, which is which is generally fear. That's how you sell stuff. So I want to do something about that. This Saturday, we're going to remove the fear.
We're going to run a completely free live training. It's called How to Invest for the Midterms and Beyond. And you can get your seats at midtermsinvesting.com. The link is down below in the description. And now this is what I want to walk you through. how an election actually moves your money, the mechanics, I mean, not the slogans, what the politicians are saying, that doesn't matter, but what kind of investments have historically done well in these moments, how to tell real scarcity from the fake kind that gets dangled in front of you to make you act, and how the skilled money, the Wall Street money is arranging itself right now before any of it reaches the news.
And how you can read that and how you can do that yourself because reading this setup is a skill. It's a skill you weren't taught. It's very useful watching this video, but in three days time you're going to be like, "Yeah, but but but now what?" Right? That's what I want to fill in for you. That gap, that skill gap, so you can stop listening to me.
So come and learn it with us. Winston will be there, too. Midtermsinvesting.com link is in the description down below and it's in the pinned comment as well, so you can't miss it. And then let's understand together first here. Why are the midterms a trigger?
So every election does one thing. It opens up spending. More promises, more programmes, more boring and all all that kind of stuff is always what happens.
But there's a second half to that and that's the spending floods the system. It's got to go somewhere and it's going to land somewhere in the real economy in roads, contracts, wages, whatever. And a chunk of it will end up in the market. It'll bid up the price of the things people own. And if you look at history, because this is actually really remarkable in terms of data, go back decades and look at how American stocks behave in the 12 months after midterm election.
The S&P has averaged 16 per cent returns in the year after midterms. 14 per cent of that just in the first six months. Not once in a while, it has finished higher after every single midterm going back like 50 years. It's one of the most consistent patterns in the entire history of the market and lines up with the midterm which is the most predictable event on the calendar. So you can see it coming from a mile off if you know what to look for.
So why does it why does it work like that? Well, partly it's the spending I just mentioned. Partly because an election clears the air. Markets hate not knowing what's coming more than they hate being the politician they don't like. An unanswered question freezes people.
It freezes the money. So people sit on their hands. They hold cash. They wait. Once the vote is done and that question mark lifts, the money that was hiding on the sidelines starts looking for a home again all at once.
So the question for you is really which way is the money moving? Because the money moves first and the and the real world your wages, the prices of eggs, the job market, all that follows a long time afterwards. So get the direction of the money right and you are ahead of almost everybody including people who are far far cleverer than you and me and far busier worrying about the wrong thing. He saw it in 2023. Half the experts were still promising a recession that never turned up.
The headlines were grim and the market went on to have one of its best years in a decade because the money had started to turn before the news caught up. So the people who sat waiting for the all clear from the news, well they missed most of it. And right now for the first time in years, three separate things are about to push that money in a particular direction at the same time.
And that's the part I promised you, right? So let me show it to you. It's it's honestly rare for even one of these things to line up, but having three arrive altogether right at a midterm is the thing that I've generally not seen ever actually in my life. So start with the one that's already been hurting you, right? The giant wave of spending on AI is being digested.
For two years, the big tech companies have been pouring hundreds of billions into AI and the market got a little bit nervous uh about whether any of this would have a payoff and and and about how is all being financed. And that nervous is exactly why most stocks have already fallen. But a wave of spending like that doesn't just sort of evaporate. It works its way through the economy into the companies that supply the picks and the shovels, the chips and the power and the data centres and then into the ones that actually use that stuff to make real money. So the fear comes first.
The payoff tends to come way after. And the fear is now mostly in the price, which is another way of saying the risk is actually a lot lower than it was like a few months ago in my humble opinion. And we've seen this film before, right? Every time the world builds something big and new and shiny, railways, electricity, the internet, that sort of thing, it goes the same way. Everyone piles in, they overbuild, the crowd panics, and it was all a waste.
The weak players get washed out, and then once the dust settles, the ones left standing make an absolute fortune on the very thing everybody had just given up on. The internet didn't die in 2000. The nonsense died. The real businesses went on to run the world. And AI is walking that same path right now.
And we're somewhere in the wash out. The next one you already know about because we just spent a good while talking about it. The midterm uncertainty is about to clear. So I won't labour you with it. But the single most reliable thing an election does is it removes a question mark.
And the market loves having a question mark removed. In a few weeks, in a few days, whenever you're watching this, that one is a goner. Whichever way it goes.
And the biggest of the lot, the one I'd circle twice, this one here, right? Circle it twice. Not a circle, is it? But you get the idea. The people who control the supply of money, they are turning on the taps.
The amount of money slloshering around America, they call it M2. What is M2? M2 is money. Basically, it's growing at the fastest pace in 4 years. And on top of that, the central bank has stopped shrinking its balance sheet and it started buying government debt again.
And what does that do? It puts more of the green stuff into the system through the short-term debt market to keep it running smoothly. Think of it as a as a as a as a vitamin shot straight into the market's arm. You're like, "Wow, I'm awake." It doesn't cure anything really or everything but it perks the whole thing up for a while and that money is going to go looking for looking looking even not locking looking for what a return and it usually ends up in stocks and then the kind of hard assets that hold vow hold value by our cash losses. So line them up all three together.
Most stocks have already fallen hard. So they're actually looking better than they have before in terms of attractiveness. the fear that pushed them down, the AI worry and the election warrior is starting to clear a little bit. And there will be more wobbles, by the way. And I do believe that the big eight companies are going to get a big wobble at some point, which is why I'm telling you this because you're thinking you're safe in them. I don't think you are because they have yet to be kicked properly and there will be at some point.
But fear is lifting midterms doing that. There's a flood of money. And that's the setup. And that's what the man at Morgan Stanley is looking at when he calls it one of the best he's ever seen. It's not particularly dramatic.
He's just reading the same three things I just showed you. So what does the skilled money do with it? Because knowing a setup is good is actually fairly useless if you don't know how to do it. So the first thing to understand is this. The skilled money, and I say skill, I never used the word smart money because I've met the bankers.
I was one of them. We're not that smart, but we're skilled because we've been trained. And the skilled money follows the money. They watch where it's flowing and they go there. They don't fall in love with a stock and marry it for life.
They don't know a single I don't know a single person who actually works inside one of the inst institutions who just buy something and holds it till the end of time. People just don't do that anymore. They have rules and they follow them whether they feel like it or not. So when that money flew out into the market, it won't lift everything. It goes into quality into excitement.
Usually companies that are growing their sales and actually growing their profits and actually making a decent return on their money or a company that has a story that is so exciting everybody wants to buy it anyway. But the skilled money doesn't bargain hunt in the bin or the rubbish, whatever you call it. it is actually buying the businesses where they see the other skilled money buying it. It's kind of like the ultimate popularity context. So the market is really like a live perma democracy where the money gets to vote. It's the ultimate capitalistic system that we could come up and the crowd is frightened because there is a there's a survey that's been asked of people since I think the 80s.
Uh it's called the American um Association of Individual Investor Survey or something really catchy.
Um but they basically asked people, do you think the market's going to be higher or lower in 6 months? On an average for all of these decades, for all of these decades, 31 per cent of people said it's going to be lower. Lately, it's been running well well above that. Right? >> In the early 2009, 70 per cent of people were bearish. In autumn of 2022, 60 per cent of people were bearish.
Now, when the bears far outnumber the bulls, you'd think that's a terrible sign. Well, it's actually quite the opposite. When the crowd gets this scared, the market has a stubborn habit of doing the reverse. In 2009, after the scare, the market went up 67 per cent. In 2022, again, 60 per cent of people were bearish and the market climbed from there very significantly because when someone is really frightened, they've usually already sold.
And if they've already sold, there's hardly anybody left to sell and there's a mountain of cash sitting on the sidelines waiting to come back.
So, the best time to buy is almost always when it feels really, really, really horrible. Um, and there's one more mistake I want to save you from. And you know, I'm not a financial adviser. isn't telling you what to buy or what to do. But people read the news and they see the economy and it looks a little shaky and they therefore think the market's going to crash. They treat the stock market like it's some sort of thermometer health check for the economy and it isn't.
Go back to 2020. Unemployment was 15 per cent. It was the worst since the Great Depression. And what happened next? By August, we're at an all-time high in the market. millions out of work, market at all-time highs.
It felt kind of obscene. And I understand exactly why you feel like that because it is obscene. But it happened because the market does not care about how you feel. It does not care what's happening in the economy right now. It's looking forward at what companies will earn at some point tomorrow and very much how much money is sloshing about looking for a home because the government flooded the system with money and that money went straight into stocks.
So what? The rich got richer. It also runs the other way, too. In 2022, job numbers were great. The economy was brilliant.
Unemployment was at a 50-year low. And the market did what? Minus 19 per cent. Should use a red pen for that, shouldn't I? Why?
They were turning off the money printing taps. They were pulling money back out. They were opening the the thing at the bottom of the bathtub, whatever that's called.
You would tell me in the comments. What's that? What's that called? I can't can't think of it. Anyways, so what would I actually do?
Again, not financial advice. I'm not registered or licensed to be anything at all other than Winston's keeper, but two things. First, don't sit in a big pile of cash feeling safe because the money printing lifts the market and that therefore means your cash is worth less. Second, stop reading the news. Stop reading the economy as a signal for the market.
Start looking at where the money is actually flowing. Cancel your newspaper subscriptions. Cancel Netflix. Turn off the television and throw it away. That's probably the best thing you can do to actually free up your mind so you can learn this and then get the skills so you can make better decisions and not listen to some lunatic on social media. >> So, let's just put the whole thing together.
Most of the American market has already fallen into a bare market, out of sight behind a headline number held up by eight stocks. And that is therefore unlikely to be the top of the bubble because a lot of the pain has already been taken on.
I do think we're going to get another shake out by the way of the top guys, but that'll be another bit of fun we'll have. And then we have three things lining up all at once. And I've never seen all three of them live line up together in my lifetime. The election uncertainty is about to clear and fresh money is flooding into the system at a very very beautiful pace for investors and a terrifying pace for wage earners and savers and pensioners. That's the setup Mong Stanley is calling the best of his career that chap.
And I think you can start to see exactly why he's saying that. So most people will make the same mistake. They'll read the scary headlines. They'll sit on the sideline and they'll find out a year from now what they missed. Now you already know better than that just by being here.
So come and get the actual full in-depth plan. I'm not holding that back. It's completely free, but it's going to take me like 2 hours to teach you. And this YouTube video can't be two hours long. So on Saturday, free live, I'll walk you through how this all moves your money so you walk away with a skill set to be able to make better decisions going forward.
Go to midtermsinvesting.com, grab your free seat and write thrive in the comments. If you wish to thrive out of the situation, which I think we all want to and we all deserve to, you certainly do because we don't panic. We make a plan and I'm looking forward to doing that with you on Saturday. All the best. >> Right now, I think we're going through some sort of weird phase transition. And normally when you get bad economic news or you get bad jobs data that people are going to fly to safety into the bond.