Last Call for Our 'Bull vs. Bear Summit'

The debt-ceiling 'debate'... The first time since February 2020... Last call for 'Bull vs. Bear Summit'... A 'Reopening 2.0' trade... Talking yield curves... It doesn't matter if we're 'right'...

We begin today with a 'last call' notice...

Our "Bull vs. Bear Summit" goes live at 8 p.m. Eastern time tonight, and you don't want to miss it. Sign up here if you have not already.

True Wealth editor Dr. Steve Sjuggerud, Retirement Millionaire editor Dr. David "Doc" Eifrig, and Extreme Value editor Dan Ferris are sitting down together for a very important talk...

Among other things, you'll hear their takes on the state of today's market... what they suggest doing with your portfolio now... and their No. 1 way to know when to sell your stocks.

As I (Corey McLaughlin) wrote yesterday and a subscriber shows in our mailbag today, this is the critical "taking the next step" part of investing – planning, instead of worrying about being "right" – that most people never get around to doing.

I can also tell you to expect an important update tonight from Steve about his "Melt Up" thesis.

If you haven't signed up yet, be sure to now...

After registering, you will get all the information you need to make sure you don't miss a minute of this event...

You'll also receive a link for immediate and free access to an all-new special report, "The 7 Most Overvalued Stocks in the World Today."

This information alone might be worth taking the minute to register.

But just for tuning in, you'll also get the name and ticker symbol of the No. 1 most dangerous stock in the world today, according to Steve, Doc, and Dan.

While they have different opinions on the markets today, this is a stock that they all agree you do not want to own.

Click here to sign up now. The "Bull vs. Bear Summit" kicks off in less than two hours.

Moving on, two important market notes...

The first is about a story we've been tracking here in the Digest: The debt-ceiling "debate."

I put debate in quotes because we all know the back and forth about who wants to or doesn't want to raise the government's credit limit is largely political posturing – for decades, people of all party persuasions have agreed to raise the debt limit – but we would be negligent if we ignored the outcome if it doesn't actually happen...

Here's the short of it... If the U.S. government defaults on its debt, nothing less than an economic crisis follows in the short term. (Whether the default is actually better for the long-term health of the nation is another story.)

For now, if Congress doesn't raise the debt ceiling – it has raised it roughly 100 times since its creation, and 80 times in the last 60 years – apparently the U.S. Treasury Department won't be able to pay any bills in just a few weeks...

Today, as Stansberry NewsWire analyst Nick Koziol reported, Treasury Secretary Janet Yellen put a date on it: October 18.

Although we don't like to make predictions, we do find value sifting through the mud in D.C. and sharing what will most likely happen. The mainstream media just won't do this for anyone, or if they do, it's in a footnote...

As I wrote last week, the expectation is that Congress raises the debt ceiling through a Democratic-sponsored "reconciliation" bill... and people talking and writing about this now (like us) will move on to something else shortly thereafter.

Republicans have said Democrats can raise the debt ceiling on their own... and they're right. With simple majorities in the House and Senate, Democrats can pass this kind of legislation without a single Republican vote. Now that we have a date when it "needs" to happen by.

For some reason, Democrats thought holding off on doing this would be a good negotiating chip in their infrastructure and general government funding talks... It might end up helping down the road.

All it's done for us right now is remind us how dangerous massive debt can be, especially when it is mishandled, monetized, and politicized.

For the first time since February 2020...

We've said before that anytime we see the words "for the first time since February 2020," we would take note of the information, because in some way it signals a return to pre-pandemic times...

In April, our colleague Mike DiBiase noted one such instance – that global investment managers were worried about the threat of inflation again, more than they're worried about COVID-19, for the first time since February 2020.

In January, we noted another example. We said it wasn't sexy or good for cocktail party conversation, but it did have important implications for markets... The 10-year Treasury yield had risen above 1% for the first time since March 2020...

This basically showed that – ever so slightly – enough investors saw a recovery from the depths of 2020, or economic expansion, ahead.

Remember, when bond yields rise, prices fall... and bond prices falling means the money that was in them is going somewhere else... and most everything else are "riskier" assets, like stocks.

Well this week, we saw another important indicator tick off...

The five-year Treasury yield crossed 1% for the first time since February 2020... while the 10-year has jumped to 1.55%, its highest number since June.

Frankly, these yields are still near historic lows and they're negative in "real" terms when accounting for inflation... This is like celebrating a one-yard gain when you need 10 yards for a first down in football (American football, to be precise, as our overseas subscribers remind us).

But we're making an observation about what these "directional" moves in Treasury yields tell us...

This could be the 'Reopening 2.0' trade developing...

If I've learned one thing about the bond market, or any market really, it's that there is often not a one-size-fits-all explanation. A market is more like a collection of opinions – some that carry larger bank accounts and power than others.

But there are a few things you can see on balance. First, higher, market-driven interest rates mean that enough investors think the economy is growing and that higher inflation is threatening...

This is expressed in lower bond prices because in theory, their future cash flows become less desirable when inflation begins to rise.

At the same time, money can move into certain "inflation friendly" stocks, like we saw late in 2020 and early 2021 when inflation expectations were also rising on Wall Street as a vaccine rollout projected there to be economic growth ahead.

In higher-rate environments, entities like banks – that borrow at lower short-term rates and lend at higher long-term rates – make more money. So do companies that have pricing power because of high demand.

Conversely, because borrowing costs rise with higher rates, companies that borrow a lot of money to fuel growth – like technology firms – become relatively less attractive.

As Nick from our Stansberry NewsWire team wrote today, as the tech-heavy Nasdaq dropped nearly 3% and bond yields spiked – the same story is playing out again, with one important difference...

Earlier in the year, with inflation numbers obviously rising, many Wall Street investors were anticipating that the Federal Reserve Board would act earlier than they said they would to "cool" the economy. Turns out they didn't really care all that much, but last week (and again before Congress today) Fed Chair Jerome Powell admitted what many have been saying for months now – that inflation growth could continue for months.

Now, Powell is saying inflation and jobs numbers have reached the point where the central bank could start "tapering" its $120 billion in bond purchases per month ($80 billion in Treasury debt), as early as November... and indications are they might want to end the purchases completely in a year.

That's one big buyer of U.S. Treasuries saying they're going to be buying less soon. It would make logical sense for money managers to get out ahead of the central bank's moves if they believe them... sending prices down and yields up.

On a related note, here's what the 'yield curve' is saying...

As longtime Digest readers know, our editors track the "yield curve" as an early warning signal that a stock sell-off may be coming soon...

It's part of the Complacency Indicator available to all subscribers of our flagship Stansberry's Investment Advisory.

In the plainest English we can use, the yield curve is the difference between long- and short-term interest rates.

You can measure this curve in a variety of ways...

The most common method is to look at the difference between the benchmark 10-year U.S. Treasury notes and the two-year Treasury notes, but you can also look at the difference between the five- and two-year notes for an "early" indicator as well.

In both cases, long-term rates are higher than short-term rates to compensate investors for tying up their money for a longer period of time. Today, longer-term rates are rising more than short-term rates, which is healthy.

This is generally called "steepening."

Things get messy for the economy when that relationship "flattens" or flip-flops or "inverts." Bank margins shrink, for example... We saw an "inverted" yield curve near the end of August 2019, six months before we entered the pandemic-induced recession.

That continued a streak of this indicator remarkably predicting the previous eight recessions. As we said in January and we will say again today...

That's important because this is not what we're seeing today...

More recently, for four months starting in March, the 'yield curve' was 'flattening' again...

But it looks to have started a new trend...

The difference between the 10-year and two-year today is at 1.17, up from its most recent low of 0.98 in mid-July. That 0.19 jump might not look like a lot in nominal terms, but it's actually a 20% jump, and the highest reading since February.

The five-year and two-year difference is now 0.97, a 50% gain from its August 3 low of 0.65. This is bullish for financial stocks and other inflation-friendly sectors like energy stocks and similar reopening plays from earlier in the year.

We don't suggest making large investment decisions off one indicator – that's why today there is so much room for a bull vs. bear debate – but we've learned it's silly not to follow the "yield curve" as a sign of general weakness or strength for U.S. stocks ahead...

It's generally a pretty reliable indicator about the economy.

Today this indicator is bullish... Paired with these facts, more money could be flowing into stocks because: A lot of money is still on the sidelines compared with pre-pandemic, inflation is rising, and bond prices are headed lower in general.

But, as we said earlier, it doesn't matter if we're "right" or not... and there is room for debate... so long as we have a plan for any outcome.

To that point... Last, last call here: Don't miss our "Bull vs. Bear Summit" tonight.

The Thin Line Between Inflation and Deflation

The Federal Reserve Board is walking a very thin line between too much inflation and deflation and the result will drive more investors to gold and cryptocurrencies, Equity Management Associates founder and managing partner Lawrence Lepard tells editor-at-large Daniela Cambone.

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 9/27/21): Atkore (ATKR), American Express (AXP), Black Stone Minerals (BSM), Continental Resources (CLR), Formula One Group (FWONA), Home Depot (HD), JPMorgan Chase (JPM), Cheniere Energy (LNG), Manchester United (MANU), McDonald's (MCD), Royal Dutch Shell (RDS-B), United Rentals (URI), and Viper Energy Partners (VNOM).

In today's mailbag, feedback on yesterday's Digest about what's more important than being "right"... Do you have a comment or question? E-mail us at feedback@stansberryresearch.com.

"I was fully invested and day trading in March of 2000. One time, in a charting seminar a few years later, the instructor pointed to the peak of the QQQ chart and asked if anyone in the room knew what day this was. I shouted 'March 24, 2000.' He said, 'There's always at least one person in each session that knows the exact date.' So I shouted, "2 p.m." It got a great laugh. It was only a joke. I did not know the time, but I definitely knew the date. As the bear swept in, Jim Cramer kept yelling 'buy the dips.' I studied long and hard after that. Many stocks were already half-off by the time the indexes rolled over. The indexes hide the major funds who are sneaking out of the minor stocks, while supporting the major stocks. They do this to keep everyone from heading for the exits before they are at the exits, then they shout 'fire' and run.

"Irrational exuberance is irrational. Like most fools. I kept buying the dips and finally threw in the towel on July 10, 2002, the absolute worst possible time. Irrational fear is also irrational. Like most rookies, I learned a very painful and expensive lesson. Most of the bull market from 2002 to 2007 had run its course before I decided to get back in, then along came the 2007 to 2009 bear market. This time, I simply gritted my teeth and held on. I went from being a day trader to being an investor. Fortunately, I had a good portfolio of dividend-paying stocks. Some I still hold today. I wish I had held more.

"The lesson I want to convey to anyone who will listen is that each time the market hits another peak, sell a few shares and be sure to have a good supply of cash on hand as the market declines. Value is at the bottom of the chart. Premium is at the top. Never forget that. Always have some cash on hand when value is obvious. It is not when the S&P has a P/E in the mid-30s." – Paid-up subscriber Rob M.

All the best,

Corey McLaughlin Baltimore, Maryland September 28, 2021