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Porter Stansberry: My most serious market warning to date



From Porter Stansberry, Editor, Stansberry Digest:

Friends, this is a difficult Digest for me (Porter Stansberry) to write…

Nobody likes to read bad news. But there are serious problems in the underlying fundamentals of our equity and credit markets. Rising interest rates are going to expose these problems, accelerating the inevitable end to the current credit cycle and this bull market in stocks.

I am more and more convinced that the next several years will be extremely difficult for most equity and bond investors.

I’m very worried that you are overexposed to these risks.

Please. Please. Please. Read this Digest carefully.

I don’t care whether you agree with me. What matters to me is that you get a complete and detailed warning about the serious risks that exist just below the surface in our equity markets. How much risk you continue to take is, of course, up to you. But unless you understand these risks, you can’t make informed decisions. And I doubt anyone else will be able to give you the information I detailed below.

(By the way, you have my permission to share this week’s Digest with anyone you think should be aware of these problems. I hope some of your friends will choose to subscribe. But even if no one does, I still believe this information should be widely known among all investors.)

What’s the big problem?

The extremely low interest rate regime of the last decade (created by the Federal Reserve manipulating the credit markets) encouraged many companies that should have failed to continue to borrow money. As a result, there are now several hundred publicly traded corporations that cannot possibly repay their debts. These zombie companies cannot even afford their artificially low interest rates.

Several hundred American companies are destined for bankruptcy or are on the verge of it. The stock market hasn’t factored in these problems, at all.

Nobody has paid much attention to these zombie companies yet, not even when major companies like toy retailer Toys “R” Us, suddenly liquidated. (When is the last time you can remember a major U.S.-brand being liquated? Not just bankrupt, but every last item being sold off at an auction?)

The market is going to focus more and more of these zombie companies for one simple reason: Interest rates are, for the first time in almost a decade, rapidly increasing. The interest rate on the 10-year U.S. Treasury note has been going up for almost a year and recently broke past 3%. This is a key level, and it implies grave danger lies ahead for highly indebted firms. Many companies cannot refinance their debts at these levels.

I’ve included a list of the biggest zombie companies below.

So if you do nothing else, read what I’ve written below. Learn what indicators will appear as the credit cycle rolls over. Know what stocks to avoid at all costs. I’ll show you 10 of them in this Digest essay…

About the problems in the markets…

Our equity and credit markets suffer from serious, fundamental problems. These problems are big enough that I’m growing increasingly concerned that future investment returns, in both stocks and bonds, will be extremely poor.

The heart of the problem is, far too many American corporations have borrowed more money than they can possibly afford to repay.

Here’s an example of what I’m talking about…

General Electric (GE) was, at one time (the early 2000s) the most valuable corporation in the world. It manufactured everything from light bulbs to jet engines. It was essentially a corporate version of America itself. The financial excesses of the past 30 years crippled this business. Its managers engaged in every kind of accounting and financial hijinks you can imagine. They left this iconic American company saddled with more than $60 billion in net long-term debt. (Please note: That’s net debt – after subtracting all of GE’s cash.) Even with record-low interest rates, GE still faces interest obligations of almost $3 billion per year.

And here’s the problem: These interest rates are likely to rise a lot faster than GE’s ability to grow earnings. Currently, GE earns only $3.6 billion year, when measured by “EBIT” – that’s earnings before interest and taxes. If its interest expenses grow and its earnings don’t keep up, GE will have a difficult time paying its debts in its current structure.

And don’t forget, GE requires at least $7 billion a year in capital investments (capex) to maintain its facilities and position its businesses for future growth. In other words, while GE can do some things to avoid bankruptcy (like cutting its annual capex spending), it isn’t earning enough capital to finance both its debts and future growth. It is caught in a death spiral.

GE’s problems are now well known to investors because last year the company’s new CEO came forward and told everyone what had really been going on in the company. (We’d been reporting on GE’s weak financial position for years.) You can see what happened to the company’s stock price as these balance sheet issues became clear to the market.


Yes, GE is only one company…

And it’s not as important as it used to be. But the business still has a $125 billion market cap. It employs nearly 300,000 people. GE’s troubles are going to matter, to both the markets and our economy. And unfortunately, GE isn’t the only big problem that’s lurking. Let me show you what I mean.

My friend Jim Grant, publisher of Grant’s Interest Rate Observer, recently published some research done by Bianco Research on the overall level of debt in the U.S. equity market. Bianco wanted to know how many more GEs (giant companies hugely encumbered by debt) were out there. So it asked a simple question. Based on the three-year average of cash earnings (defined by EBIT), how many U.S. firms can’t afford their debt service? Bianco found 14.6% of the S&P Composite 1500 (the 1,500 largest public companies in the U.S.) couldn’t afford the interest on their outstanding debts. That is, the three-year average cash earnings (EBIT) wasn’t big enough to cover their interest expense.

I don’t believe one in 100 American investors understands how big of a role new debt has played in the equity boom that we’ve seen over the last several years. Today, corporate debt in America is a new all-time high. American companies have never held so much debt relative to the size of our economy ever before.


What do you think is going to happen if interest rates keep rising (which seems likely) or a recession hits?

Sooner or later, in one way or another, these problems will become clear to more and more investors – just like GE’s problems came to light over the last year. There will be catastrophic losses, unlike anything you’ve ever seen before. How do I know?

At the peak of the last big equity market bubble (2007), only 5.7% of America’s companies were in the same dire straits. That is, back in 2007, only 5.7% of America’s top 1,500 companies weren’t earning enough to cover their interest payments. The resulting bear market saw stock prices fall by 50% and led to a national bailout of the banking system. What will happen this time, when almost three times as many companies are in this critical financial position?

Here’s the part to remember…

I asked our analysts to put together a list of the 10 worst examples of big companies with horrible underlying fundamentals.

The list is below. Note, GE is in the best position. GE is still earning enough to afford its interest, but only just barely. The other companies on this list don’t make enough money to afford their current interest payments. Some of them wouldn’t make enough to afford their interest payments even if their earnings doubled (Sprint, SeaWorld Entertainment, Endurance International).

Keep in mind, these firms are only a small sample of the full problem in terms of the number of companies…

More than 100 major companies are in this poor financial condition. But my sample list isn’t small in terms of capital. These companies, collectively, represent almost $200 billion in market value. They hold $126 billion in debt, which costs $6.9 billion a year to service. That’s a 5.5% annual interest rate, collectively, for companies that aren’t creditworthy in any rational sense of the word.

With 10-year U.S. Treasury notes now paying 3% annually, who in the world is going to continue to finance these debts at less than 6% annually? No one. What about 8% annually? Doubt it. What about 10% annually? Maybe. But explain how these companies can afford higher interest rates (almost double what they’re paying now) when they can’t make ends meet at 5%? It won’t happen.

What will happen?

I don’t know. But what I do know is that investors in these stocks, and in a whole bunch more like them, are destined for severe disappointment. And that doesn’t bode well for investor sentiment, the market multiple, or the general level of the stock market.

What’s the most dangerous thing in the world to an aging bull market, made up of firms with a record-high level of debt? Rising interest rates. What do we see in the market today? Rising interest rates.

Horse, meet water.

Time is running out…

I use these pages (and my own newsletter’s recommended list) to educate, cajole, threaten, and bully people into doing smarter and safer things with their money. How many times have you seen me write “There’s no such thing as teaching, there’s only learning”? And how many times have I written “Horse, meet water”? How many times have you seen me essentially berate our customers, telling them “I know you won’t ever do this, no matter how obvious it is that you should“?

I don’t know how many people actually learn anything or how many people take my warnings seriously. What I do know is, ironically, our business tends to sell more subscriptions when investors are excited and doing a lot of risky (i.e., dumb) things with their money. And virtually every time investors get excited, a lot of people lose money. That’s what happened in the Internet stock bubble of 2000. That’s what happened in the real estate/commodity bubble of 2008. And that’s what happened – in a truly astounding way – during the bitcoin bubble last fall.

I know, this cycle is going to repeat. I just don’t know exactly when. But I’m praying that this time is different for our subscribers. Please listen to me. Time is running out on this bull market. You don’t need to sell everything, but lower your exposure to the equity markets to less than 60% of your portfolio. Put some of your capital some place safe. Buy some gold. Buy very safe bonds. Buy some local real estate that you know well and can always rent. Get out of debt. Follow your trailing stops. Raise cash when you stop out. Realize that over the next 12-36 months, the investors who win will be the ones who survive. You can choose to be one of them. You really can. But you need to act now.

I mentioned a few triggers to watch for…

The most important indicators and warnings will come from the corporate-bond market. The three most important indicators are:

  • The prices of junk bonds. As credit tightens, the prices of junk bonds will fall. You can watch junk-bond funds – like the Shares iBoxx $ High Yield Corporate Bond Fund (HYG) – to monitor these prices.
  • The interest rate “spread” between high yield debt and U.S. Treasury securities. As defaults grow, the increased risk will be expressed in much higher interest rates for weak borrowers.
  • The 10-year U.S. Treasury yield. If safe yields on government bonds reach 4% or more, there will be complete carnage in the corporate-bond market, where average rates to refinance outstanding debts will probably double.

We cover all of these fixed-income market indicators closely in our Stansberry’s Credit Opportunities service. And just so you know, default rates right now are near all-time lows. Nobody is afraid – yet.

I’ll do my best to keep you up to date as the default rate grows. For now, I’m looking for more situations like Toys “R” Us, where radically overleveraged, private-equity managed businesses fail because they’re simply denied any additional credit. That’s what’s going to happen… more and more often… until one of these deals blows up and triggers a general panic.

If I could tell you exactly when, I would. But there’s no doubt it’s coming.

Beat the rush. Prepare now.

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Two easy ways to cut through the B.S.




From John Engel, Analyst, Stansberry Venture Technology:

Investing in cutting-edge drug discovery can offer huge payoffs…

But it will never be safe or easy. I (John Engel) had to learn this the hard way. Even today, I continue to use this lesson to my advantage as a biotech analyst for Stansberry Venture Technology.

In today’s Digest, I want to discuss something most people experience but don’t talk much about: failure.

So let’s start where I did, many years ago, as a research associate for one of the largest pharmaceutical companies in the U.S.

I’m not ashamed to admit that my first few months in drug discovery were humbling. It took many years of practice before I truly gained my footing.

Back then, I had an advantage that most people aren’t lucky enough to have…

I had tapped into a wealth of experience by befriending an older, wiser colleague who we’ll call “Dr. A.” He had seen the biotechnology industry grow from a pipe dream into the multibillion-dollar industry it is today. He loved to tell me how easy I had it, with all of the advanced tools that exist now.

For reasons unbeknownst to me, Dr. A offered to show me the ropes. Of course, I eagerly accepted.

Often, he’d size me up before showing me a new technique. I’d master it, and a few months later I’d show him that “advanced tools” had found an easier way. It was a fun game. That’s probably why he put up with me.

Still, what we were working on wasn’t trivial. We knew that a successful outcome could potentially add an additional $100 million in annual revenue for the company. We took it seriously.

Once, after watching me stumble my way through a difficult experiment, he stopped by my workbench. With a straight face and an unsympathetic tone, Dr. A said, “John, you stay in this business long enough, you’re guaranteed to fail.” Then he walked away.

I’ll never forget the confusion I felt…

Did I botch the experiment? Did I overlook something so simple that even my mentor thought I had no future in this business?

It turns out, Dr. A had watched me perfectly execute the techniques. He just knew something I didn’t: It wasn’t the experiment that had failed, it was the molecule I was working with at the time.

In hindsight, this minor speed bump foreshadowed much bigger problems. A couple years later, still working on the same project, I found out what Dr. A really meant when he said I was “guaranteed to fail.”

At the time, the project I was working on was well ahead of schedule. We were on a roll and nailing every milestone in development.

You can probably guess what happened next…

We hit a major snag and our good fortune dried up.

The biomolecule (a protein) that we developed had a hidden flaw that we discovered only after scaling up – a step to produce large quantities of the protein in pilot fermenters.

At high concentrations, the protein “fell out” of the solution. You could see it with the naked eye, sort of like a shaken-up snow globe. It made downstream purification a nearly impossible task.

I remember working long hours that summer trying to find a resolution. Nothing seemed to work. We knew going into year-end progress meetings that it was all over. Two-plus years of work and upwards of $1 million invested in the project all disappeared overnight.

As a bench scientist, nothing was worse than having to throw a project in the trash. I wasn’t ready for that… In research, success isn’t guaranteed. As Dr. A put it, the only guarantee was that I would fail along the way. I’m just glad the first failure happened early in my career.

It seems every week, another drug failure hits mainstream headlines…

Take Axovant Sciences (AXON), for example. The company aimed to solve the world’s Alzheimer’s crisis with a groundbreaking pill. The thing is, the pill wasn’t much better than a shot of espresso. What Axovant had going for it was a huge marketing push and a big-name CEO.

Last August – just a few months before the company released its Phase III data – I told one of my colleagues in a private e-mail…

Axovant Sciences [has] a pill that increases the signals between neurons, but it does nothing to stop the disease. I’ve seen the CEO [David Hung] interviewed a few times. I’m disgusted at how much garbage the guy spews from his mouth. Harsh, I know, but he’s what’s wrong with the biotech industry.

Axovant’s pill amplified neural signals (as does caffeine). But at best, the pill was a Band-Aid on a bullet wound for Alzheimer’s patients. It had no real effect on the course of the disease.

What’s worse, Hung was shamelessly selling his previous success developing cancer therapies.

Hung, who both founded and served as CEO of Medivation, made more than $350 million when he sold the company to pharma giant Pfizer (PFE) for $14 billion. Folks expected to see him do it all again with Axovant, but they were wrong… Hung left the company right after things hit the fan. His tenure as CEO lasted less than a year.

As for the drug, here’s what things looked like when the company publicly announced its failure in Phase III. Axovant’s stock fell again when the company killed the project a few months later…


Due diligence could have saved most investors from this bloodbath…

A few things stood out as I analyzed the company’s position.

First, drug giant GlaxoSmithKline (GSK) tested the drug in 13 clinical trials. Axovant mentions this in its corporate filings, right before it says the following…

While the 35 mg intepirdine dose group achieved statistically significant improvement in the CDR-SB at 12 weeks and was numerically superior at 24 weeks and further time points, the benefits at 24 weeks and beyond were not statistically significant.

(“CDR-SB” is a score for mental acuity, and “statistical significance” is proof that the drug does what it’s designed to do. It’s also important to note that 13 clinical trials is an extensive amount of testing.)

If you had done a little digging, you would have discovered that Glaxo had sold the drug for peanuts after conducting its trials. The deal closed after Phase II testing, which on average costs $20 million.

Add another $10 million (on average) for Phase I testing, and Glaxo likely invested more than $30 million in a drug it sold for $10 million. (The deal also included royalties if the drug was approved.) Believe me, Glaxo knows a thing or two about this business. It has entire teams of experts who determined the risks of failure far outweighed any chances of success. That’s why the company sold the drug for a fraction of what it paid in development costs.

From late September (just before its top-line Phase III results were announced) to January, Axovant shares fell nearly 95%.

The point of this story is that this drug was never a safe bet. And every investor should have seen the writing on the wall. It’s not always easy to make these connections, especially when the CEO is taking every opportunity to sell you on the idea.

I’ve found two simple ways to cut through the B.S…

First, as is the case with any stock, you should know what you’re investing in and why. This may seem obvious, but I can’t tell you how often someone has pitched me on a breakthrough drug without knowing what it actually does. “Why” is often a question of how big the market is and how much market share the drug could win.

Second, you need to let science dictate your decisions. You can’t let a CEO smooth-talk you into an investment. They’re often compensated with company shares, which means the more investors they attract who will boost the share price, the more money they make.

Once you have this mindset, it’s easier to steer your investment.

Let me show you what I mean…

Based on, a government-sponsored website that tracks experimental medicine, more than 280,000 active clinical trials are currently underway. And the odds of success are stacked against most drugs… Research firm Statista notes that nearly 85% of them fail.

That doesn’t mean we haven’t seen some huge winners out there, though. Take Humira, for example. The drug is designed to suppress the immune system. It helps people suffering from health problems like arthritis, psoriasis, Crohn’s disease, and colitis.

In 2015, Humira became the most profitable drug in history (based on yearly sales). In 2017, it topped $18 billion in sales. Total sales over the drug’s lifetime are approaching $120 billion…


Think about that for a second.

It cost around $1.5 billion to build Yankee Stadium less than a decade ago. AbbVie (ABBV) – which owns Humira – expects to make 13 to 14 times that from Humira prescriptions next year alone.

These figures are staggering. But most drugs (including Humira) aren’t overnight successes. Consider that Humira began Phase I testing in 1997 and didn’t reach Phase III for another three years.

What’s important is that the drug proved itself time and time again during clinical testing. The data showed the drug was safe and helped patients. The evidence in patients was clear as early as 1999. It’s published in Annals of the Rheumatic Diseases, a journal that highlights the drug’s Phase I trials. Three years later, these positive results supported an approval from the U.S. Food and Drug Administration.

The point is, Humira generated a huge amount of data over many years of clinical testing. That means there was plenty of time to interpret the results and use them to guide an investment in cutting-edge medicine.

With 280,000-plus ongoing clinical trials, new data are being published in medical journals around the world every day and discussed at medical conferences. It takes work to separate the good from the bad.

Now, I’m not here to scare you away from biotech investing…

In fact, nothing is more satisfying than making the right call on an investigational new drug or technology. As I just mentioned, the amount of opportunity out there is huge. You can make a fortune if you simply learn to avoid obvious failures.

What if you don’t have the time or desire to do the background work? Well, we have an easy way to take advantage of investment opportunities in cutting-edge medicine.

As I explained, my biggest advantage when I started a career in drug discovery was tapping into a wealth of experience. My colleague Dave Lashmet, editor of Stansberry Venture Technology, has chased investigational new drugs and technology for more than two decades.

These days, I help Dave with his research efforts…

To find drugs with blockbuster potential like Humira, we read through thousands of pages of medical and science journals every year. We comb through the data on dozens of clinical trials. We talk and meet with industry experts. And we attend several conferences each year. In the last year alone, Dave and I have attended 10 conferences covering a diverse range of illnesses including cancer, heart disease, Alzheimer’s, and infectious diseases.

Our research has taken us all over the U.S. and to Amsterdam, London, and Barcelona. (By now, you should understand why.) This type of research is what differentiates Dave’s work from the rest. It’s this type of research that leads us to finding new and innovative drugs that can save lives and make investors a fortune along the way.

Dave’s track record speaks for itself. Since launching Stansberry Venture Technology in November 2014, he has made 41 recommendations. So far, 13 of those have gone on to double or more. In other words, roughly one in every three picks he recommended to his readers over this period has doubled. It’s an incredible track record.

If you want to invest in tiny biotech stocks that have the potential to double… triple… or make up to five times or more on your investment, you must read Stansberry Venture Technology. If you’re interested in learning more, click here.



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Is the world’s biggest real estate market about to collapse?




From Brian Tycangco, Editor, Stansberry Churchouse Reseach:

The world’s biggest real estate market is slowing down. And it’s not because of failing subprime mortgages or an economic crisis.

China’s property market – worth seven times that of the U.S., based on total value of new homes sold – is weakening… again.

China’s new home sales hit US$1.69 trillion last year, as an estimated 22 million Chinese moved from rural areas into cities (that’s like the entire populations of the U.S. states of Kentucky, Louisiana, Alabama, South Carolina and Kansas moving to the city).

A total of 1.44 billion square meters of apartments and condominiums were sold – the equivalent of 5.76 million new homes, assuming the size of an average American suburban house (last year, 614,000 new homes were sold in the U.S.).

But a couple of years of breakneck growth has caused the average price of developed property (i.e., condominiums and residential apartments) in China to jump 18% since July 2015. In the biggest cities of Beijing, Shenzhen and Shanghai, prices increased more than 50%.


Adding fuel to soaring real estate prices are Chinese investors speculating for short-term gain, considering property prices in most cities are rising at least twice as fast as the 5.5% average mortgage rate.

Buyers now need to show a pile of cash up front

To curb speculation, the government started raising the requirements to purchase property in March 2017. It increased the minimum down payment on second home purchases in second- and third-tier cities from 20% to 30%.

That compares to a typical second-home buyer in the U.S., who is required to put up between 10% and 20% as down payment.

What’s more, the Chinese government also ordered state-owned banks to raise the minimum down payment for privately-developed residential projects in first-tier cities from 70% to 80%. That essentially locked out all smaller buyers in many cities, including Shanghai, Shenzhen and Beijing.

The next stage of tightening happened in September 2017, when local governments in a number of cities, including Shenzhen, banned investors from selling newly purchased homes for up to five years. Other local governments barred investors from buying a second home for up to three years.

So after growing by 16.1% in the first half of 2017, home sales growth in China slowed to just 3.3% in the first half of 2018.

The Chinese government’s year-long crusade to deflate the property market finally filtered through to developers’ sales. As a result, the shares of listed Chinese real estate developers have fallen.

The MSCI China Real Estate Index, which captures the performance of large and mid-cap segments of the China real estate market declined by 14% between May 1 and July 31. That compares with a 5.8% decline in the MSCI China Index and a 2.7% gain in the MSCI All Country World Index.

But is this a precursor to a Chinese real estate market collapse? History shows us that it’s likely not. We’ve seen this same knee-jerk reaction in Chinese real estate company stock prices in the face of Beijing’s previous efforts to deflate the hot property market.

China’s history can be a road map to profits

In September 2010, for instance, Beijing enacted measures to curb speculation in real estate after prices jumped 32% in just two years (2008 to 2010) to 4,725 yuan per square meter.


That eventually led to a 30% decline in the MSCI China Real Estate Index by the following year, as curbs filtered through to developers’ bottom lines.

(That also opened up a terrific buying opportunity in shares of Country Garden Holdings (Exchange: New York; ticker: CTRYF; Exchange: Hong Kong; ticker: 2007), one of China’s biggest and most established real estate developers, which I recommended to my readers in February 2011. It went on to nearly double their money (95%), as government curbs were eventually lifted and eager buyers returned to the market.)

Then, in March 2013, after average property prices rose 17% to 5,850 yuan per square meter in a just a couple of years, Beijing stepped in again, slapping a 20% tax on selling a home (vs. existing 1% to 3% capital gains taxes). Beijing also increased the required minimum down payment from 60% to 70% for second homes.

That resulted in a 20% correction in the MSCI China Real Estate Index over the next 12 months, and caused total property sales to fall nearly 3% between 2013 and 2015.

(The lull in the market presented an opportunity in our Strategic Wealth Confidential newsletter to recommend shares in one of the country’s best-run real estate investment trusts (REITs). REITs are companies that hold a portfolio of income-generating property and distribute nearly all their profits to shareholders as dividends. This one in particular was paying out an 8.5% yield.)

With average real estate prices in China again up 18% in just the last couple of years, Beijing’s recent determined moves to rein in the property market shouldn’t come as a surprise. We actually welcome it.

Will the Chinese real estate selloff continue?

For the short-term, the outlook is going to be weak. The government has not given any indication that it’s willing to ease restrictions on new home purchases, and will likely add more restrictions in the coming weeks and months.

But I’ve been covering the Chinese real estate market since 2003, and the volatility we’re seeing today is nothing new.

With 600 million Chinese (40% of the country’s population) still living in rural areas, and 22 million of them moving into cities each year, the property market in China is still far from reaching a point of peak demand.

Down the road, I expect there will be a slew of profitable, well-managed and under-leveraged Chinese property developers that will once again offer up enticing value.

Good investing,


P.S. Even as China’s property market is letting off some steam, other sectors of its economy are expanding at a breakneck pace. One of these sectors is water treatment, which is growing non-stop thanks to the government’s efforts to clean up the country’s heavily-polluted rivers and lakes. It’s opening up a rare opportunity for 793% gains on a leading water treatment specialist. To find out more about this company – and two others with similar potential – go here.

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Cramer’s charts suggest it’s still worth investing in bonds




U.S. Treasury bond yields have been on a tear this year, and with the Federal Reserve on track to continue raising short-term interest rates, it looks like the trend will continue. But when bond yields rise, prices fall, which has investors worried. “The conventional wisdom on both Wall Street and Main Street is that U.S. Treasuries are one of the worst possible asset classes to own right now,” said CNBC’s Jim Cramer.

However, Cramer thinks that investors shouldn’t be too quick to follow the crowd. The “Mad Money” host enlisted the help of technician Carley Garner, co-founder of DeCarley Trading and author of “Higher Probability Commodity Trading,” to reassess the state of the bond market. Garner believes that “the bears in the Treasury complex have gotten overconfident,” said Cramer.

Taking a look at the weekly chart of the 10-year U.S. Treasury futures, Garner’s analysis shows that large speculators, who are professional money managers, are betting against Treasury prices at never-before-seen levels.

“Not only are they holding net short positions in these 10-year Treasury futures, but they’re more bearish than they’ve ever been at any other time in living memory,” Cramer said. Together, large and small speculators are holding a net short position of 800,000 10-year Treasury futures contracts.

Garner “thinks this trade has gotten overcrowded,” Cramer said. She believes that prices are poised to rise once all of these short sellers buy back Treasury bonds to close their positions.

Looking at the seasonal price patterns of the 10-year Treasury bond, the charts show that prices tend to rise in the second half of the year. This trend is particularly reliable according to Garner’s analysis, with the biggest rally occurring from July through early October.

“Garner thinks the rally could be particularly pronounced this year given that Treasury prices are pretty depressed,” the “Mad Money” host said.

Cramer’s bottom line? The markets aren’t always what they seem. “Don’t just assume that our long-term interest rates are destined to head lower immediately,” he said. “The charts suggest that U.S. Treasury prices could actually have some upside here.”

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