A 40% rebound in stocks and riots in the streets... Porter's prediction was spot-on... A story as old as the Bible itself... Lessons from the 1930s and '60s... The resurrection of the Insurrection Act?... The only difference today is 'unlimited QE'... Get The Battle for America for just $4.95 right now...
It's happening right before our eyes – again...
Protests in the streets... American cities literally on fire... More than 40 million people unemployed.
Meanwhile, the "reality" gap between Main Street and Wall Street is as large as it has ever been...
The tech-heavy Nasdaq Composite Index is back near its pre-pandemic February highs, while the benchmark S&P 500 Index and the Dow Jones Industrial Average have each rebounded 40% from their March lows...
... in the same week that a U.S. president threatened to invoke the 213-year-old Insurrection Act, which has typically been used during civil unrest stemming from racial and labor conflicts... and frustration of the poor.
Most recently, the act was used to help quell the 1992 Los Angeles riots... and to stop looting in the U.S. Virgin Islands after Hurricane Hugo in 1989.
It was the same story in the 1960s after Martin Luther King Jr.'s assassination, including here in Baltimore, where violent protests happened just blocks from our headquarters.
We can't go back and rewrite history, of course... All the things that have led to where we are as a country today have already happened, for better or worse.
The only thing we can do now is live in the present and prepare accordingly for the future... while maybe learning a bit from the past.
As students of history and human nature, we know the story that's being written about America today is one as old as the Bible itself...
Longtime Digest readers know Porter essentially predicted what we're seeing unfold today...
He wrote an entire book, The Battle for America, about the idea.
In the book, Porter, our company's founder, connected the dots between cycles of societal upheaval in American history, populist movements, and the concept of a "Debt Jubilee" that typically coincided with times of polarizing politics...
The book is now in its fourth edition, as our editors keep adding evidence to Porter's thesis. Most recently, we addressed the massive government response to COVID-19, how the crux of the book is more timely than ever today, and why investors should be prepared for the fallout of the next Jubilee. As Porter writes...
If you study American history, you'll see that Debt Jubilees occur only in a unique type of extreme political environment.
After all, a Jubilee is a radical measure.
The government essentially steals money from one group and hands it to another. In order for this to occur, four elements must be in place...
- The wealth gap must be getting dramatically bigger.
- There must be cultural threats from those with different values or from outsiders (in other words, minority populations and immigrants).
- The government must be ineffective at providing solutions.
- And there must be growing anger toward the "elites."
Sounds familiar, doesn't it?
The economic part of the story is many centuries old...
As Porter writes in the second chapter of The Battle for America...
The concept of a Jubilee comes from the Bible (The Old Testament), the Book of Leviticus, Chapter 25.
A Jubilee in the Jewish tradition was said to occur roughly every 50 years. It was a time for total forgiveness of debt and the freeing of slaves.
Pope Boniface VIII proclaimed the first Christian Jubilee in 1300. And rulers throughout history have occasionally used a Jubilee to reset the financial system – especially when the poorest citizens are threatening revolt.
And there are, of course, consequences for everyone when one of these events happens.
Now, Porter couldn't have imagined largely disorganized and massive "stay at home" orders and an expensive economic shutdown in response to a dangerous pandemic as the catalysts today...
But much like the coronavirus outbreak has accelerated trends that were already in place, it has also exposed existing problems and an underlying movement that has been happening for years...
In fact, Porter even put a year on when the peak of this phenomenon would arrive again – 2020...
The pandemic may have been the trigger, but the gunpowder has long been in the chamber...
The frustration has been simmering...
When you've heard ideas from Democratic presidential candidates like Bernie Sanders and Elizabeth Warren about "Medicare for All," free college, and universal basic income... this was part of the story...
When COVID-19 hit our shores, not only were those with lower incomes the most likely to lose their jobs (40% of those making $40,000 or less lost a job in March), they were also infected with the actual virus most frequently, as we wrote in the April 22 Digest.
And more recently, when Congress decided to send stimulus checks directly to these and other Americans, and the Federal Reserve printed trillions of dollars to pay for it and other bailout programs that may or may not have reached "Main Street," it was part of the story...
Today, when you combine everyday Americans' glaring economic stress – most don't have a few hundred dollars in savings – with coronavirus anxiety (a reported 1.8 million cases in the U.S. and counting) and the flash point of racially charged police brutality and the potential resurrection of the Insurrection Act, you have a familiar American socioeconomic story that has reached a breaking point once again...
These movements, Porter writes in chapter two of The Battle for America, happen "every 30 to 40 years." And as he noted...
There's actually a name for this type of political and social phenomenon. It's called "Populism."
In the U.S., it happened in the 1930s...
Just like today, back then, the wealthy acquired a much higher share of the nation's wealth...
In addition, the foreign-born percentage of the population was higher than normal, creating animosity among the "common man."
In order to deal with mounting debts and print money to pay for dozens of new social programs, President Franklin D. Roosevelt made two extraordinary changes to the financial system.
First, he closed banks for four days and forced Americans to turn in each ounce of gold they owned for $20.67 in paper money. Then, the government raised the price of gold, wiping out 69% of the savings of anyone who followed these rules.
And the government essentially reneged on commitments to investors in government bonds – to the tune of an estimated $700 million a year – to wipe its own debts clean.
It was a short-term Band-Aid... The stock market boomed, but then soon fell 50% in a single year.
'Today' happened again in the mid-1960s...
As Porter wrote in The Battle for America...
If you're old enough to remember, think about the anger and resentment of the 1960s.
The Black Panthers' slogan was: "Power to the People." The idols of the day were people like Latin-American guerrilla leader Che Guevara, Malcolm X, and Muhammad Ali. All over the country, there was one clash after another...
Small farmers fought banks and railroads... union workers battled their bosses and federal judges. On college campuses, students fought anyone with authority. Election rallies routinely ended in violence.
Things were so bad, Lyndon Johnson decided not to run for re-election. Martin Luther King Jr. and Robert Kennedy were assassinated.
Here in Baltimore, the National Guard and Maryland State Police were called into the city in 1968 to quell violence and looting. And at the same time...
A major financial crisis was brewing...
The government had borrowed extraordinary sums, and were having a hard time repaying creditors.
That's because at the time, every dollar was required to be backed by gold. So the government couldn't print unlimited amounts of money out of thin air.
The government was scared again, Porter wrote...
It knew there was only one way out... another Debt Jubilee. First, we eliminated the gold backing of every dollar. Then, in 1971, President Nixon completely defaulted on our promise to pay gold for dollars to our foreign creditors.
Once again, the government simply wiped the slate clean.
Today, as we know, the vast majority of America is in bad shape...
We have societal and economic upheaval happening at the same time...
The rich get richer... and the poorest citizens, like broke and debt-saddled millennials, are again calling for a radical solution.
Millennials will be the country's largest generation of voters for the first time this November. They largely blame capitalism for the world's problems and could usher in a new era of socialist policies, including a Jubilee.
But this Jubilee will be different from the ones in 1933 and 1971, according to Porter.
This time, the Federal Reserve has "unlimited QE" at its disposal and has said several times that it will print digital dollars until its computers break to take care of every stakeholder of the financial system. But the only way that private debt of everyday Americans can be resolved is if it's paid, defaulted, or forgiven...
And you can bet politicians, no matter the affiliation, will never allow tens of millions of our poorest citizens to go bankrupt... One round of government paychecks has already arrived in direct deposit accounts (even to people who have died, in another glaring example of government ineptitude), and another round of stimulus payments might be on the way.
President Donald Trump has floated the idea of "back to work" bonuses... or "vacation" incentives for workers... all in the name of keeping the economy afloat – for this year at least, and likely for years to come.
But throughout history... almost on a schedule... times of 0% interest rates, seemingly endless money-printing, and populist pushes for change have eventually had unintended second-order economic consequences.
It's just that today, like back then, most people either didn't think or know about them. Or if they were in a position to understand the possibilities, they didn't admit what they thought the knock-on effects would be.
The point is, there's something you can do with this knowledge...
First off, if you already have a copy of The Battle for America – and all Alliance Partners and Stansberry's Investment Advisory subscribers do right here – there is no better time to go back and skim through the pages or read it again.
And for those of you who haven't yet read the book, we urge you to grab a digital copy now.
Given what we've been seeing on the streets of America over the past week or so, we've put together a special sale for the most recent edition of Porter's book. And it's yours for just $4.95.
In the book, you'll find much more detail on the ideas we discussed today, plus thoughts on what to expect in November's presidential election and why the results will be so important...
You'll also get actionable information and recommendations on how to protect – and even grow – your wealth during these uncertain times...
Porter looks at the main investments you should own and the ones you should avoid... discusses the largest part of wealth that most Americans overlook – but could prevent your entire retirement nest egg from disappearing... and much more.
Click here to grab your copy of The Battle for America right now.
Now, this isn't just an American phenomenon, either...
Our international editor, Kim Iskyan, reminds us of that today with his most recent Digest report... Kim takes it from here with an analysis of what's going on in the emerging market and coronavirus hot spot of Brazil...
With 555,000 cases (as many as New York and Pennsylvania combined), Brazil recently overtook Russia for the dubious distinction of being the nation with the second-highest number of coronavirus infections in the world... trailing only the U.S.
But Brazil, which is a bit larger in land size than the continental U.S., has been conducting tests at one-tenth the rate of the U.S. That means that the actual number of cases is probably a lot larger than reported.
For now, Brazil's official death rate from the coronavirus is less than half of that in the U.S. Forecasts suggest that Brazil – with around two-thirds of the population of the U.S. – will hit 100,000 deaths by early August. In response to Brazil's emergence as the latest global coronavirus hot spot, the U.S. last week imposed a ban on travelers arriving from the country.
Even as Brazil's curve is steepening – rather than flattening – the quarantine in the country's financial capital, São Paulo, is slowly loosening. Not that it means that much anyway...
According to the Economist, only around half of the city's 12 million residents – that's four times the population of Chicago – have stuck to lockdown rules, due in part to Brazilian President Jair Bolsonaro's aggressive anti-lockdown stance.
Bolsonaro is sometimes called the "Trump of the Tropics"...
He is a loud, plain-talking president who called the coronavirus "a little flu." He has downplayed the policy advice of epidemiologists and medical professionals... aggressively antagonized China, his country's biggest trading partner... and actively flaunted the most basic rules of virus personal hygiene by wading into crowds of supporters.
Here's the problem the media isn't talking about...
I (Kim Iskyan) recently had a long chat with an old friend who was a journalist in Brazil for years and now lives in São Paulo. He was leaving the city for the family farmhouse... a 12-hour drive to the west, near the border with Paraguay. And he told me...
Anyone able has long since left town.
The big problem that the local media isn't talking about, he told me, is in the favelas. Those are the enormous slums in Brazil's cities – where social distancing and self-isolating isn't a physical – or economic – option.
Bolsonaro is so eager to ease the lockdown – regardless of the health consequences – in part because Brazil's economy was barely growing at all even before people knew about the coronavirus.
Brazil is on track for the worst recession ever...
The International Monetary Fund estimates Brazil's economy will shrink by 5.3% this year, making it the country's worst recession in history.
Bolsonaro will face less resistance from his own government after installing a military general with no medical training as health minister. He did that after the previous two health ministers, within the past four months, clashed with his unscientific approach to pandemic control.
Investors aren't buying Bolsonaro's blustery populism, or where he comes down on the "deaths vs. economy" trade-off. The country's currency, the real, has lost more than a third of its value against the U.S. dollar since the beginning of the year.
A currency is like a real-time referendum on the perception of the prospects of a country and its economy... and it's clear that the markets are voting "no" to Brazil.
To make matters worse for the real, that country's central bank last Wednesday cut interest rates to a record-low 3% to try to spur the economy. (Low interest rates encourage borrowing... but they also make it less attractive to hold a currency, leading investors to sell.)
Brazil's economy indirectly benefited from the U.S.-China trade war, as it increased sales of soybeans – the country's biggest export last year – to China.
So by publicly blaming China for the coronavirus, as he has in a bid to deflect his own responsibility, Bolsonaro will only hurt the country's already-reeling economy.
And if the virus continues to spread, Brazil's coffee, sugar, and orange juice crops – the country is the world's biggest producer of all three – could be threatened, potentially leading to lower supply to global consumers.
'Operation Car Wash'...
On another front, Brazil is home to Operação Lava Jato, or Operation Car Wash – one of the world's most spectacular corruption scandals. It helped bring down the past three Brazilian presidents.
Bolsonaro, a former Army captain who cultivates a tough-guy image, was elected in October 2018 as a clean pair of hands to drain the political swamp.
But now, he's under investigation for corruption and obstruction of justice. Political risk consultancy Eurasia Group estimates a 25% chance that Bolsonaro will be impeached.
If Bolsonaro's popularity continues to fall, as more people die from COVID-19, he may not last a full term in office.
Through it all, the country's stock market is up 36% since its March lows. But in dollar terms – reflecting the decline of the country's currency – investors are hurting, with the biggest U.S.-listed exchange-traded fund, the iShares MSCI Brazil Fund (EWZ), still down nearly 40% this year.
Analysts at investment bank Goldman Sachs (GS) recently called Brazil's market "an ideal bounce-back candidate."
If the coronavirus curve starts to flatten – and if Brazil's market follows the recovery trajectory of the S&P 500, for example – the worst indeed could be over for investors in the emerging market.
But in the meantime, I bet Brazil will see a lot more volatility and uncertainty – of the epidemiological, economic, and political brand. Be careful for now.
How to Take Advantage of Silver's Rise
In this video with Jessica Stone, Ten Stock Trader editor Greg Diamond shares what's driving silver's recent rise, and how investors can position themselves to take advantage...
Click here to watch this video right now. And make sure you subscribe to Stansberry Research's YouTube page to get all of our free videos as soon as they're posted.
New 52-week highs (as of 6/2/20): Booz Allen Hamilton (BAH), BlackLine (BL), Dollar General (DG), Quest Diagnostics (DGX), DocuSign (DOCU), GrowGeneration (GRWG), Home Depot (HD), JD.com (JD), Match Group (MTCH), NetEase (NTES), Flutter Entertainment (PDYPY), Rollins (ROL), and Sea Limited (SE).
In today's mailbag, a subscriber clarifies an attribution made by another in yesterday's mailbag. What's on your mind? As always, e-mail us at feedback@stansberryresearch.com.
"[From yesterday's Digest mailbag]...
In addition many in government are greedy and dishonest. The Willy Loman principle. He kept robbing banks, 'Because, your Honor, that's where the money is!' Lots of money in government. Attracts thieves.
"It seems that you got inadvertently confused between Willy Loman, the fictional Salesman in Arthur Miller's play, Death of a Salesman, and Willie Sutton, the famous bank robber, to whom the remark mentioned in the paragraph is attributed. In reality, Sutton himself denied ever saying this, and it was supposedly said to a reporter, not a judge." – Stansberry Alliance member Gary C.
All the best,
Corey McLaughlin and Kim Iskyan
Baltimore, Maryland and Singapore
June 3, 2020