The Fed Doubles Down on the 'Melt Up'

We'll do this as long as it takes... What happens between expansions... The Fed doubles down on the 'Melt Up'... Beware the 'Melt Down'... A 'green wave' merger... Where did COVID-19 really start?... Why March was just a warning...

Picking up where we left off yesterday...

As we write again today, Congress is still negotiating some type of stimulus package...

They seem to be caring about the 12 million people who will lose unemployment benefits the day after Christmas if they don't agree to something... but you never know. From Stansberry NewsWire analyst Daniel Smoot this afternoon...

If Congress strikes a deal, the relief bill would likely include another round of stimulus checks, aid for small businesses, and assistance toward vaccine distribution. Schools may also receive some form of relief. Yesterday, stimulus checks were expected to be $600. Now, Congress may increase them to as high as $700.

That's the "fiscal" part of the equation...

Yesterday, we also talked about the Federal Reserve's role in our world today... how it's continuing to pull the strings on the markets... and what more stimulus and "easy money" monetary policy means for stocks, gold, bitcoin, and individual investors like us...

But one thing we didn't get into was how long the current picture of easy money, expensive stocks, low-yielding bonds, and inflationary concerns may last. So to clear that up...

In short, Fed Chair Jerome Powell said yesterday afternoon...

As long as it takes.

Say what you want about his policies, but through his tenure as Fed chair since 2018, Powell has been very outspoken about what the central bank is looking to do...

We don't know many people who add press conferences to their job duties by choice, but he did when he took over... in order to better control the Fed's message and rise above the roughly two dozen other top bank voices and governors in the Fed system.

And yesterday, in the Fed's post-December meeting press conference, Powell very clearly spelled out the central bank's playbook for the next several years... He also gave his take on persistent low inflation.

It appears to be pretty important information for anyone who has money in the market today. But Powell said it about halfway through an hourlong press conference, so we haven't seen much written about it in the mainstream media (bold emphasis added)...

It's going to take some time... We've been having very long expansions in the last several decades. The old model was inflation would come along and the Fed would tighten and we'd have a recession. Now inflation has been low and we haven't had that dynamic and the result has been three of the four largest expansions in recorded history.

We're thinking that this could be another long expansion. What we're saying is we're going to keep policy highly accommodative until the expansion is well down the tracks, and we're not going to preemptively raise rates until we see inflation actually reaching 2%, and being on track to exceed 2%.

That's a very strong commitment and we think that's the right place to be.

So there you have it... That is what to expect from the Fed until further notice. As Stansberry NewsWire editor C. Scott Garliss wrote in his analysis yesterday...

The Fed left interest rates unchanged and remains focused on meeting the dual mandate placed before it by Congress – maximum employment and stable prices.

The central bank remains committed to doing whatever it can to ensure a strong recovery. It wants to limit lasting damage to the economy caused by the coronavirus pandemic so it will continue offering powerful support until it feels the recovery is complete.

We outlined why this matters in yesterday's Digest, so we urge you to check that out if you missed it.

Of course, Powell didn't say what happened between the expansions...

Dot-com bubble... Financial crisis that rocked the system to its core... Pandemic panic...

And the Fed's "solutions" keep growing and growing with each crisis, which are bound to happen again.

Sometimes, we imagine an alien dropping in from another planet in a decade or so and seeing the world's "bar tab" of debt at some new absurdly high number and climbing every second as if it were a scene from the old cartoon TV show Futurama...

Except this is real life.

Longtime Digest readers know that our colleague and True Wealth editor Steve Sjuggerud has described the Fed's behavior over the years – and again today – as fuel for a massive "Melt Up" in stocks.

As Vic Lederman, an analyst on Steve's research team, wrote in the October 15 Digest about the origins of the concept, which was born out of our last crisis (the housing one)...

The idea behind [the Melt Up] was simple...

1. The world had just been through a major economic crisis.

2. The Federal Reserve and the U.S. government were taking massive action to end the crisis.

3. That meant interest rates would stay at rock-bottom levels for longer than anyone could possibly imagine.

4. And the net result would be an asset boom... one that could be larger than any of us would ever see again in our lifetimes.

Those four components are the core of Steve's Melt Up thesis. And the philosophy behind them is simply that policymakers will push markets to ridiculous extremes just to keep things rolling in the "right" direction.

Today, Powell is saying that the Fed is doubling down on the Melt Up for years ahead... so enjoy it while it lasts. But here's the thing...

As we've noted before, during a Melt Up, we'll likely see several corrections of 10% or more along the way. And then, the final stage of a Melt Up is a euphoric blow-off top that precedes a "Melt Down."

As we wrote back in October, in the lead up to Steve's "State of the 'Melt Up'" event...

Don't get us wrong... You can make a ton of money on the way up, if you know what you're doing. And we know that's a big reason why Steve traveled to Baltimore to film tonight's presentation – to show everyday investors precisely how do that.

But as Steve wrote in yesterday's Digest, folks must be prepared for the inevitable downside of a massive government-fueled asset bubble, too. The bigger the bubble, the messier the pop...

So here's the most important thing we can tell you today...

To make the most money you can without losing a fortune, you want to be on the right side of both the Melt Up and the Melt Down. You don't have to time it exactly right to the hour or day... but you want to at least get as close as you can.

And you definitely need to know the best investments to take advantage of and prepare your portfolio for both sides of the Melt Up and Melt Down.

As we near the end of a crazy 2020, I (Corey McLaughlin) am happy to say this yet again...

At Stansberry Research, our editors will continue to do all of their research. And they'll keep sharing the best companies, investments, and guidance that they can with you.

For one thing, the Melt Up in stocks is here... and it's heating up.

Switching gears, let's get to more about the 'green wave'...

We wrote to you last week about the "green wave" – the push for the legalization of cannabis around the country. And more important, we shared what that means for the cannabis industry and companies in general.

Yesterday, news broke that represents a hallmark of a growing industry – a key merger... Canadian-based cannabis companies Tilray (TLRY) and Aphria (APHA) announced they will form one company and trade under the TLRY ticker.

The deal is valued at $3.8 billion, and APHA shareholders will own 62% of the combined company once the deal is complete. Cannabis Capitalist editor Thomas Carroll, a longtime health care sector analyst, gave his take to us in a private note today...

These are two of the most prominent cannabis companies in the world. They operate in Canada and have a growing presence in some European markets. Tilray shares traded up as high as 27% when the deal was announced. Even Aphria, the buyer in this deal, saw its shares rise as much as 4% (often the buyer sees its shares fall on the day a deal is announced).

We have not recommended either of these stocks. They are Canadian operators struggling in a difficult regulatory market. In my view, the reason for this merger is efficiency and scale.

Together, they should be able to lower operating expenses and increase profit margins. In 2020, despite having a combined $795 million in revenue, only $46 million, or 6%, is dropping to the "EBITDA" [earnings before interest, taxes, depreciation, and amortization] line.

But the important observation here is not the financials of the companies... It's that the deal is happening. Just like the health insurance industry 20 years ago, we believe the cannabis industry is on the cusp of significant mergers and acquisitions (M&A), and this will drive investment returns.

But Thomas is skeptical that the combined Tilray company will become one of the biggest market leaders in the U.S.

You see, mergers are likely to happen among American cannabis companies in the future, too...

And they're better businesses now... Plus, the U.S. market continues to grow, while Canadian sales have been lagging.

Tilray and Aphria have grown revenue by 29% and 26% on average, respectively, in the last two years... Conversely, three major U.S. cannabis companies that Thomas recommends in Cannabis Capitalist are growing their revenue by 139%, 97%, and 76%, respectively, over the same period.

As Thomas explains, that means...

The M&A trend will happen in the U.S. with better-run, more profitable companies. These combined companies will have far better revenue and earnings than Aphria or Tilray. It is not a question of if, but when. And with this deal announced, others could be right around the corner.

All industries eventually consolidate. Especially those that are heavily regulated like health insurance or alcohol.

The thing is, though, you need to know which companies are the best ones in order to make smart investments in this maturing industry... and Thomas does.

His Cannabis Capitalist model portfolio has had a great year. Year to date, the average portfolio gain is 80% versus the North American Marijuana Index's 29% return. As he says...

These stock returns are based on revenue and earnings growth alone. Not on the perception of M&A activity. But that could change with the Aphria-Tilray deal.

For more on the best opportunities in this growing sector as the "green wave" gets going, be sure to check out Thomas' Cannabis Capitalist service. Right now, you can get access to this service at 50% off the normal price.

We don't know anyone who covers the cannabis industry as well as Thomas does...

One of his stock recommendations from earlier this year is a U.S.-based "big box" store for marijuana. And it's up roughly 540% in just 10 months since then. In Thomas' original recommendation, he said, "buying this company could be like buying Home Depot in 1981."

So far, so good.

One final thing today – about COVID-19...

We mentioned in Monday's Digest while talking about COVID-19 vaccines and the spread of the virus itself...

Whether you think this all got started by a guy eating a bat in Wuhan, or that COVID-19 was cooked up with a recipe in a Chinese lab, one thing is clear...

Mother Nature is still undefeated.

It's only a few days later... and Mother Nature remains unbeaten. But we bring this up again today because of some interesting information we saw regarding COVID-19's origins...

A team representing the World Health Organization ("WHO") plans to head to China during the first week of January to investigate how the virus that causes COVID-19 really began. It's a year after the initial outbreak, and we still don't know for sure.

From international news service Reuters yesterday...

Health ministers called on the WHO in May to identify the source of the virus and how it crossed the species barrier.

Now a team of 12-15 international experts is finally preparing to go to Wuhan to examine evidence, including human and animal samples collected by Chinese researchers, and to build on their initial studies.

The researchers will be in China for six weeks...

Peter Ben Embarek, the WHO's top expert in animal diseases, said last month the mission would like to interview market workers about how they were infected with the virus.

"There is nothing to indicate that it would be man-made," he added.

This is the WHO we're talking about here... We're not optimistic we'll learn the real story anytime soon, but their findings will be highly anticipated.

For one thing, our colleague Kim Iskyan noted on Tuesday in his excellent essay about the growing conflicts between China and the U.S. that lingering questions about COVID-19 and its origins will be a source of tension between the world's two largest economies for years to come.

Stay tuned.

Why March's Crash Was Just a Warning

Mike DiBiase, editor of Stansberry's Credit Opportunities, joins our colleague Jessica Stone to talk about when investors can expect the "day of reckoning" for all our debt to arrive. And even better, Mike explains how you can prepare today...

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 12/16/20): Altius Minerals (ALS.TO), ARK Fintech Innovation Fund (ARKF), Booz Allen Hamilton (BAH), BlackLine (BL), Siren Nasdaq NexGen Economy Fund (BLCN), Cognex (CGNX), ProShares Ultra MSCI Emerging Markets Fund (EET), Gravity (GRVY), GrowGeneration (GRWG), Green Thumb Industries (GTBIF), Innovative Industrial Properties (IIPR), Match Group (MTCH), Palo Alto Networks (PANW), Flutter Entertainment (PDYPY), ProShares Ultra Technology Fund (ROM), Southern Copper (SCCO), Sabina Gold & Silver (SGSVF), Silvergate Capital (SI), First Trust Cloud Computing Fund (SKYY), Square (SQ), Seagate Technology (STX), Constellation Brands (STZ), Trulieve Cannabis (TCNNF), The Trade Desk (TTD), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), and Vestas Wind Systems (VWDRY).

In today's mailbag, more feedback on Kim Iskyan's essay about a potential Cold War 2.0. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Kim Iskyan wrote an excellent Digest article on Tuesday. It was one of the most concise descriptions of how the war of ideas will be fought over the next 20 years.

"A few years ago one of my family members was giving me an earful about China's desire to conquer us. In rebuttal I sat him down to a clean piece of paper, first drawing China then the countries surrounding it. One after another I pointed to each country and described some of the conflicts I recall over the past millennium. Mongols, Indochina, Japan, skirmishes with Russia and India, then added some of the Colonial European Power grabs as a bonus. That history must weigh on a people.

"China is a successful, rising power. Good for them. I hope the West acts maturely and focuses on building a level and fair economic and ideological playing field. Then it is mostly peaceful competition of ideas. The alternative is just unthinkable." – Stansberry Alliance subscriber John B.

"Kim, thank you again for your nuanced and highly thought-out analysis of U.S. and China. Strength, sanity, experience, knowledge, courage, and clear communication to us and to others are required from us on a national scale. It's possible, but so hard because we have no tolerance for mistakes and perfection is impossible.

"I'm hoping along with you." – Paid-up subscriber Hugh M.

All the best,

Corey McLaughlin
Baltimore, Maryland
December 17, 2020