A Man and His Dog
A mea culpa... The 'meme stock' story is back... Job openings are falling... Credit-card balances are rising... A man and his dog... A two-indicator playbook for the economy and stock market...
Before we get into the meat of things today...
Mea culpa.
I (Corey McLaughlin) want to make sure no one was misled by yesterday's (Tuesday's) Digest. The initial version we sent out last evening included a few errors – dumb mistakes by yours truly, plain and simple – in our discussion about Treasury bill yields...
We published a corrected version of yesterday's Digest later last night that you can find in your inbox and also on our website here. Please refer to this updated version. In short, you'll find the correct information regarding what to expect from T-bill yields...
The gist of the idea we talked about, though – an outrageously simple way to grow your cash – remains the same. And we still suggest you consider it, especially if you've been unsure of what to do with any cash on hand in today's volatile market.
If you missed it yesterday, U.S. government-backed T-bills – which have as little as a four-week duration and pay greater than a 2% annualized interest rate today – are a great place to park some cash. We got the idea when gold-industry veteran E.B. Tucker suggested it to our editor-at-large Daniela Cambone.
But my math about the returns you can expect was off. I appreciate subscribers who wrote in with corrections and their own experiences with T-bills. Some of you own hundreds of thousands of dollars of these securities for the same reasons we shared yesterday.
In today's mailbag, we share some more detail to hopefully clear things up for good. And once again, I sincerely apologize for the error.
Moving on, if you thought the 'meme stock' craze was over – think again...
A new story is making the GameStop saga of early 2021 look like peanuts...
AMTD Digital (HKD), a previously little-known Hong Kong-based technology company, has become the latest darling of Reddit's WallStreetBets crowd.
The company held its initial public offering ("IPO") in mid-July... and its stock is up roughly 14,000% through today. It was even higher yesterday, up as much as 32,000%, to a total market cap of $400 billion. That's more than Coca-Cola (KO) or Costco Wholesale (COST).
And you don't have to be a financial expert to recognize that AMTD Digital is a worse business than Coke or Costco.
AMTD Digital – which markets itself as "Asia's one-stop comprehensive digital solutions platform" – has only $25 million in annual revenue and 51 employees. Just two years ago, it was accused of fraud by one of China's largest private-equity firms.
The company issued a public "thank you" press release to traders saying it doesn't know why the stock has soared and, presumably, to head off any claims of nefarious business. The company said...
To our knowledge, there are no material circumstances, events nor other matters relating to our company's business and operating activities since the IPO date.
There's no reason for its shares going from a $7.80 IPO price to north of $2,000 yesterday – other than people rallying online to push the price higher.
So, first, let me say to please stay away from getting caught up directly in this story – unless you really want to speculate with money you don't care about... Shares were down 34% today.
As our friend and Empire Financial Research founder Whitney Tilson wrote in his free daily newsletter today, AMTD Digital is "one of the most stupidly overvalued" stocks he has ever seen.
Whitney shared concerns from activist short seller Nate Anderson of Hindenburg Research about the stock's connection to AMTD Group, an Asian financial-services firm...
This silliness is more than just a piece of financial trivia. Rather, it shows us that the "meme stock" idea isn't dead yet. And that fact alone says something about the markets in general...
This isn't the kind of thing you expect at a market bottom...
It's the stuff that happens during market frenzies when folks are greedy... or aren't aware of the concept of bear market rallies, which we've seen lately.
All of AMTD Digital's gains have happened in the past few weeks, when the broader markets have been rallying since their most recent low... The benchmark S&P 500 Index is up 13% since its most recent low in June.
As our colleague and Asia-based True Wealth analyst Brian Tycangco shared on Twitter yesterday about this story...
Bubble stocks like HKD is exactly why this bear market is not done yet. Investors are still chasing that quick buck despite the obvious risks. They are also quick to call the bottom on any rebound.
If anything, as Brian suggests, take this meme-stock revival as an indicator that the stock market still has some bubble behavior left in it. And that means potentially more downside ahead as it pops.
In the meantime, we just learned of some more concerning economic data...
Job openings are declining... and Americans are racking up more debt to pay for homes and everyday expenses... which you could tie to the Federal Reserve's tightening policies combined with multidecade-high inflation.
In June, job openings fell for the third straight month, hitting their lowest level since September 2021. As our Stansberry NewsWire team reported yesterday...
The U.S. Department of Labor announced that there were a seasonally adjusted 10.7 million job openings in June compared with Wall Street's expectation for 11 million.
This is down from the 11.3 million openings in May and 11.7 million openings in April. The figure now marks three consecutive months of decline from the record number of openings in March.
As we've written recently, we're watching the jobs market closely...
The Fed is banking on a historically low unemployment rate of 3.6% and millions of unfilled job openings as enough cushion (our words, not the Fed's) for the economy to handle the blows of higher interest rates and slower growth...
So far, it has gone OK. According to the U.S. Bureau of Labor Statistics, the job-openings rate has fallen 0.7 percentage points – or by 1.1 million jobs – since March, while the unemployment rate has remained the same.
But this is just the start... More and more companies are slowing their hiring or even laying employees off to cut costs. And if it gets to the point where the unemployment rate starts to rise significantly with growth still slowing, then it's an undeniable recession.
As for the rising debt levels for everyday folks, the New York Fed's quarterly report just showed that credit-card balances have seen their largest year-over-year percentage increase in more than 20 years... and mortgage balances rose by $207 billion.
In short, a lot of people have significantly less disposable income than they did even just one year ago. Things like food and gas and housing are taking out a big chunk of folks' budgets. That's significant when 70% of the American economy is tied to consumer spending.
We're left with this scenario...
The stock market still has a "greedy" flavor, or at least part of it does... The tech-heavy Nasdaq Composite Index is up 19% from its most recent low on June 16.
Meanwhile, the U.S. economy – which we've said is already in a recession even if no one in authority will admit it – is showing more cracks... And economies in Europe and other parts of the world are even worse off.
What gives? Why are stocks going up when the economy is getting worse? How do we square this incongruent behavior? Well, first, remember the concept of bear market rallies. Stocks have historically jumped, briefly, as part of sustained downturns.
Beyond that, our Portfolio Solutions team has a fantastic analogy for you...
A man and his dog...
If you're an Alliance member or existing subscriber to our Portfolio Solutions products, you ought to check out senior analyst Brett Eversole's latest issue – published yesterday – for the imagery alone. The issue begins...
On a cool autumn morning, a man and his dog stroll through their neighborhood park.
The two walk along together for a full hour. They start at the same place, and they end at the same place. But along the way, despite being connected by a dog leash, they take vastly different paths.
Without giving away all of the rest, just know that the man walks at a steady and consistent pace. The dog, on the other hand, has a very different, often erratic experience.
Read the issue yourself for the colorful story, and then stick around for the advice...
If you've ever wondered about the relationship between the economy and the stock market, this is it...
The man's the economy. The dog's the stock market.
The two are inextricably linked, but they behave in completely different ways.
The economy is slow and steady. It almost always grows a few percent a year, and even down years don't fall by much.
The stock market, by contrast, is dramatically influenced by investor enthusiasm. It can rise 35% in one year, for no good reason, and then crash 40% the next year... with little fundamental change.
Still, both are linked. Growing profits are what allow stocks to boom. So in a terrible economy, stocks can't soar for years on end. For that same reason, you won't see a long-term stock market bust when the economy is strong.
Clearly, what affects the economy also affects the stock market. And right now, they're both in bad shape.
From there, Brett dives deeper into the relationship between stocks and the economy. He shares what's typical in times of upheaval like we're experiencing today, including the difference in stock market performance between bear markets with recessions and ones without.
And maybe most important, Brett shares two simple indicators that will give definitive signals about the economy and a stock market bottom. He calls it a "two-indicator playbook" to know where things are headed or likely to go from here.
It's valuable reading... Existing Portfolio Solutions subscribers and Alliance members can find this terrific issue right here. As always, these monthly issues also include a macro analysis from our colleague C. Scott Garliss and reviews of our allocated model portfolios' performances.
Gold Isn't for Me...
Over Matt McCall's 20-plus years of working in the financial media, he has made some comments that got under people's skin... but nothing gets people more riled up than when he talks about gold.
On this episode of Making Money With Matt McCall, the Stansberry Research senior analyst provides a deeper understanding of where he's coming from and why he believes gold is a bad investment today...
Click here to watch this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 8/2/22): Booz Allen Hamilton (BAH), Centene (CNC), and Option Care Health (OPCH).
In today's mailbag, some feedback on yesterday's Digest and more detail about T-bills... Do you have a comment or question? As always, please e-mail us at feedback@stansberryresearch.com.
"Might want to check your math on the T-bill. $5M would get you 108k in a year, not a month. But it is still a great risk free return to keep your powder dry for future fire sales in the market...
"I started using TreasuryDirect four years ago when rates were higher but stopped when the fed cut rates to zero. But I just started up again. The website is very outdated, but it works.
"Set it up on reinvestment every four weeks and I get a little deposit into my account each month. Might as well take advantage of the rate hikes going on right now." – Paid-up subscriber Beau E.
Corey McLaughlin comment: To Beau and everyone else who wrote in, I appreciate it. I hate to mislead anyone, so I want to make sure I'm abundantly clear about what to expect and what not to expect from T-bills...
If you were to invest $50,000 in four-week T-bills over the course of a year – buying 13 times (52 weeks divided by four) with the current 2.15% annualized interest reinvested – you would end up with a roughly $1,100 profit and your capital returned.
This might not sound like a lot, nor is it as much as I mistakenly suggested yesterday. But these are some of the lowest-risk and shortest-duration assets you can find, backed by the U.S. government.
In a time when inflation is at rare heights and many people don't know what to buy, T-bills are a great option for any extra cash you may have. As we quoted E.B., the author of Why Gold? Why Now? yesterday...
I'm spending all my market time buying T-bills... Why would I be doing that? People say, 'Oh, the U.S. government...' Let me tell you something, if the U.S. government fails, you got much bigger problems than making profits. You're [thinking about] surviving...
T-bills are a good place to hide out. That's what I'm doing now because I think we're going to be in for a problem come this fall, and I'm going to be ready to take action, and most people are not going to be ready.
What E.B. means is that with T-bills, you're not beholden to a long holding period – like from a 10-year note currently paying 2.7%. This makes owning bills a "liquid" way of growing cash, since you'll have access to your capital and the interest in a few weeks.
The more cash you have on hand, the better. As Beau referenced, $5 million is the maximum you can buy of an individual Treasury security. A 2.15% annual rate (or about 0.17% per four weeks) on that would return around $108,000 profit in a year (before taxes).
As a few of you pointed out in your feedback to us on this topic, this scenario is better than the government-backed "risk free" returns most of us have been accustomed to in the low-interest-rate era of the past several decades...
So is the current 9.62% annual yield in I-bonds – indexed to inflation – being offered by the Treasury right now. As we mentioned yesterday, you can buy T-bills, notes, and bonds directly from the government through a free account at TreasuryDirect.gov. Give it a try.
All the best,
Corey McLaughlin
Baltimore, Maryland
August 3, 2022