The “Echo Trade” (Rare Opportunity)

A Once-In-a-Decade Opportunity… Emerging Now

We’re going to hold off on the prospect of World War III until Bullet No. 2 today — on the theory and in the hope that we can carry on with “normal” investing and trading.

And for good reason: The newest addition to the Paradigm Press team wants to draw your attention to what he calls “an incredible moneymaking opportunity that we only see emerge once in a decade — if that.”

Enrique Abeyta, our hedge fund veteran and trading pro, calls it an “echo trade.”

“An echo trade,” he tells us, “is when you find a stock that was much higher several years ago and has now begun to recover to those old highs. Often, those highs are two… three… or even five times higher than where the stock is trading right now.

“It’s a very rare opportunity that typically only happens in the aftermath of a once-in-a-decade stock market crash.

“Over my 30-year career, I have only seen echo trades emerge twice,” Enrique goes on.

This first time was during the early 2000s, in the aftermath of the dot-com bust.

Maybe you remember the pain: “There were plenty of stocks that had fallen 90% or more during that crash,” Enrique reminds us, “many of them even going bankrupt.

“The ones that didn’t go bankrupt, however, were positioned for huge returns.”

The iconic example here is Amazon (AMZN). Look at this chart from the 1997–2002 timeframe…

AMZN shares soared 5X in only two years — and then gave up nearly all of it over the next 21 months.

But once it survived that hazing, it went on to 40X over the next decade…

And of course, AMZN was just getting started. From its lows in late 2001–early 2002 up to the present moment, Amazon has appreciated a staggering 640X.

“This is a classic example of an echo trade,” Enrique says, “a company with huge potential that sees its stock soar.

“Often the stock goes much higher than it should in the near term on investor excitement…

Then it crashes — not because it’s a bad company, but rather because it was way ahead of itself.

“Eventually, the company survives and continues to execute on its business plan and potential. The stock also stabilizes and moves higher. It remains, however, well below its previous heights.”

Amazon bottomed at a split-adjusted 31 cents a share in late 2001. By the end of 2002, it had tripled to $1 share. But that was 80% less than its $5 peak in early 2000.

“As the company realizes even more of that potential and executes its huge opportunity,” Enrique says, “it begins to go even higher.

“That’s when the trade becomes an ‘echo boom.’”

Amazon is the most dramatic example from that era — but hardly the only one.

Another round of echo trades emerged in the aftermath of the 2007–2009 financial crisis.

Enrique points to the robotic-surgery firm Intuitive Surgical (ISRG). It soared 4X in the run-up to the crisis… gave it all back… then appreciated 20X over the next decade. Its growth from the bottom in 2008 up to the present is 50X.

Here’s the point: Remember the wicked stock-market sell-off in 2022? The S&P 500 taking a 20% spill? Many of today’s “Magnificent 7” names tumbling far worse than that?

Enrique is seeing this very same “echo trade” setup emerge in dozens of stocks right now. Come back tomorrow for details…

“Taking off the Handcuffs”

To hear the mainstream tell it, the latest escalation in the Russia-Ukraine war is proving to be a drag on the stock market today.

With a new go-ahead from Joe Biden (or whoever’s calling the shots for him), Ukraine has launched its first volley of ATACMS missiles inside Russian territory.

At the G20 summit in Brazil, Russian foreign minister Sergei Lavrov reinforced what we told you yesterday: “Without the Americans, use of these high-tech missiles, as Putin has said many times, is impossible."

Thus the Kremlin just approved changes to Russia’s nuclear doctrine: Any attack by a non-nuclear state (i.e. Ukraine) that’s backed by a nuclear power (i.e. the United States) will be treated as a joint assault on Russia.

Not coincidentally, the government of Sweden — which formally joined the NATO alliance last March — has begun distributing a 32-page handbook to its citizens titled In Case of Crisis or War.(Here’s the English-language version.)

“Regrettably, we are witnessing a replay of what occurred the first time Donald Trump was elected, back in November 2016,” writes Gilbert Doctorow, an American political analyst and keen observer of Russian-language media.

“The reaction of the Obama administration was to use the couple of months before handover of power to sabotage the most salient aspect of his intended foreign policy initiative, to normalize relations with Russia.

“I say ‘salient’ not because it was Trump’s first priority but because in Hillary Clinton’s vicious campaign to portray Trump as a Russian asset all that we heard for months was Russia, Russia, Russia.

“In any case, it was during the transition period that the United States illegally seized Russian consular properties with the intention to create a scandal that would poison relations with Moscow.

“That dirty trick was child’s play compared to what Biden & company are intent on doing now.”

If you’re tempted to blow this off — on the theory Putin will exercise patience and Trump will reverse Biden’s decision — don’t.

On the day before Election Day, Rep. Mike Waltz (R-Florida) did an interview with NPR. Asked how he thought Trump could bring the warring sides to the bargaining table, he suggested ramping up the sanctions on Moscow and “taking the handcuffs off of the long-range weapons we provided Ukraine.”

Waltz can now implement Biden’s new policy seeing as Trump has chosen him as national security adviser.

Then again — and let’s hope this is the case — maybe it’s all theater, sound and fury signifying nothing.

“The US/NATO lack the capability to launch any meaningful strikes ‘deep into Russia,’” tweets the military analyst William Schryver. “In terms of ATACMS, they don't have anything even approaching an adequate stockpile, nor do they have more than just a mere handful of HIMARS/M-270 launchers in the theater of battle.

“As for Storm Shadow/SCALP cruise missiles, they don't have airframes in Ukraine, and they would not even attempt to launch strikes from Poland or Romania using NATO aircraft…

“If they launch long-range Tomahawk cruise missiles, the Russians will rightly regard it as a nuclear first-strike, and will act accordingly, including counterstrikes against the launch platforms, and against NATO bases throughout Europe.

“I think this is very likely a manufactured tempest in a teapot.”

“Past Performance” Matters

War worries notwithstanding, the U.S. stock market is on track for a stellar 2024.

The aforementioned Enrique Abeyta returns with some facts and figures: “Through the end of last week, we have seen the S&P 500 hit a new all-time high 51 times. That would rank as the seventh-best year in the almost century-long history of the index.”

What’s more, Enrique says the hoary old disclaimer about “past performance is no indicator of future performance” does not apply here.

“Technical analysis teaches us that (recent) past performance is actually the BEST indicator of (near) future performance.

“The awesome strategist Charlie Bilello recently published a chart showing all the years where the S&P 500 was up 20% or more through the 218th trading day.

“It has happened 19 previous times and it has been higher 89% of the time into year-end.

It is also up on average 2.9% over the next 30 trading days. That is an extremely impressive performance over a short period.

“Maybe THIS time is different, but we like the odds of a strong finish here for the stock market!”

Indeed as we write the major U.S. averages are shaking off their early-day war worries.

The Nasdaq is up a half percent on the day, back within striking distance of 19,000. It helps that Nvidia is rallying 3.5% ahead of its earnings release after the close tomorrow. NVDA is also helping to push the S&P 500 up slightly, back above 5,900. The Dow, however, is in the red once more today.

XBI, the big biotech ETF, continues to climb back from its Friday smackdown — up another half percent today.

We said yesterday the Friday sell-off after Trump named Robert F. Kennedy Jr. to run the Department of Health and Human Services was overblown. What we did not know at the time was what Trump’s Truth Social account posted over the weekend.

Once again, reinforcement of our Alan Knuckman’s guidance: Don’t react to anything Trump says or does — like the RFK nomination — for 48 hours.

Gold is adding to yesterday’s gains, now $2,625. Silver is flat at $31.11. Crude is likewise flat at $69.11. Bitcoin continues to hold the line on $92,000.

Trump Transition Tangle

For all the speed with which Donald Trump is naming top aides and cabinet officers… questions loom about several major economic posts.

“Our best information is that there is a three-way struggle going on for the role of Treasury secretary,” says Paradigm macroeconomics maven Jim Rickards, drawing on his extensive list of inside-the-Beltway contacts.

Jim identifies the leading contenders…

• Howard Lutnick, CEO of Cantor Fitzgerald — “a brokerage firm that lost almost all of its employees in 9/11 and struggled to rebuild its business under Lutnick’s leadership,” says Jim. “Lutnick is also co-head of the Trump transition effort along with former SBA head Linda McMahon”

• Scott Bessent, investor and hedge fund manager. “He was a major contributor to Trump. Much of his career involved managing funds for George Soros”

• Robert Lighthizer, S. trade representative in Trump’s first term and deputy U.S. trade representative under Ronald Reagan. “Lighthizer is credited with saving the U.S. auto industry from Japanese competition in the 1980s,” says Jim, “and is positioned to save it again, this time from Chinese competition.”

So now that we know the players, Jim describes the game…

“Lutnick may have hurt his chances by giving an interview to CNBC regarding the transition before Election Day,” says Jim. “Trump is said to be superstitious and wanted no comments coming from the campaign about transition before the election. Lutnick also said that RFK Jr. would not be secretary of HHS. That’s exactly whom Trump nominated for HHS, almost as if to put Lutnick in his place. Lutnick also donated money to the Hillary Clinton campaign in 2015.

“Bessent is highly seasoned on Wall Street, but his management of funds for the neo-fascist Soros could complicate his chances. Trump is said to want Lighthizer for U.S trade representative, but Lighthizer will want a higher position since he was already USTR for four years and Deputy USTR before that. Treasury secretary is the only position likely to interest Lighthizer at this stage in his career.”

Jim won’t hazard a guess about who emerges the winner. “Trump will have the last word, but he does like consensus on his team before the decision is made. Trump is also entirely capable of choosing someone not on the short list just to show who’s in charge and put an end to any jockeying for position.”

In any event, “the selection is unlikely to have any impact on Trump’s economic policies because those are well-known and will be carried out regardless of his choice of Treasury secretary.”

[Just in: Not official yet, but CNN and The Wall Street Journal both say Trump will name Lutnick secretary of Commerce. Which is doubly interesting because Elon Musk was pushing for Lutnick at Treasury…]

Mailbag: Rickards, Recession, Reagan…

Two readers wish to take issue with Jim Rickards’ outlook shared here yesterday — that Donald Trump will inherit a looming recession.

“So for years, you have predicted that the incompetent Biden administration fiscal policies would jettison our country into a deep recession,” writes one of our regulars.

“And now that you have been proven totally wrong on that account, we have settled into a soft landing. You predict a recession while Trump begins his term. And, if that happens, it couldn't possibly be his fiscal irresponsibility with more tax cuts for the rich and tariffs, but rather blame it on Biden, of course. 

“Considering the COVID economy that Biden was handed from President Trump, with no employment, no supply chain, etc., the subsequent inflation was inevitable both here and throughout the entire world. It is a miracle that Biden was able to navigate the abyss. 

“All the expert economists agree that our economy is strong. Why muddy the waters and give Trump an alibi even before it happens? No one expects you to be right all the time; it's OK to admit mistakes, no judgment.”

Dave responds: As the financial newsletter legend Doug Casey often says, events that are inevitable aren’t necessarily imminent.

The economy is “strong” for those who belong to the 15% in this country. But for the proles who lack substantial financial assets, it’s been a huge struggle to keep up with price increases on the order of 50% since 2020 and not the 20% you see in official statistics.

(And yes, Trump started that dirty snowball rolling downhill by locking down the country and going on a $2.2 trillion spending spree.)

Increasingly economists are acknowledging this current reality with talk of a “K-shaped recovery” — rather than a V-shaped recovery in which everyone benefits.

As for Jim’s analogue between a recession inherited by Trump 47 and Ronald Reagan…

“Please review the deficit numbers under the Reagan administration,” a reader implores. Factual objective numbers and not subjective at all.

“Please take a look at budget deficits in Trump’s first term. I think the deficits will go up under a second Trump term.”

Dave: I mentioned only the other day that Reagan tripled the national debt during his two terms, a feat unmatched by any of his successors.

Reagan cut taxes without cutting spending. The “supply side” economists surrounding him thought that the economic growth made possible by his tax cuts would generate so much additional revenue that it would offset the mad spending spree.

But it didn’t work out that way. Instead, the spending spree ultimately generated a sugar high in the economy that was destined to come crashing down — which it did during the 1990–91 recession.

Something very similar happened under Trump in only one term. The economy grew, yes, but nowhere near enough to generate revenue to offset a mad spending spree. Result: Trump ran up a $1 trillion annual budget deficit in 2019 — and he didn’t have Barack Obama’s excuse that it was necessary to combat the “Great Recession.”

Once again, massive deficit spending generated a sugar high in the economy that was destined to come crashing down. Throughout 2018 and 2019 I warned that we were in the late boom phase of the boom-bust cycle. A 2020 recession was almost inevitable even if COVID hadn’t come along.

Will deficits go up under Trump? Almost certainly, unless the Elon/Vivek DOGE can get traction. We’ll see. Interesting times these are…

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets