The First in Line to Get Screwed
The rich have gotten richer (again)... And the poor are still poor... What's really happening... Stanley Druckenmiller sounds off... Printing money like there's no tomorrow... The first in line to get screwed... No better time to hear Doc's 'retirement wake-up call'...
They said the stimmy checks would 'lift people out of poverty,' but they've only widened the wealth gap...
Now that the euphoria of getting money from the U.S. Treasury Department has worn off, reality should start setting in – again...
No country can simply "print" or "hand out" its way out of its long-term economic problems.
So far, here's one big result of the great "monetary experiment" we've all been talking about for the past 18 months... The rich have gotten richer, and the poor are still poor.
Look no further than the following chart for proof. It shows the share of total net worth held by the top 1% of Americans over the past three-plus decades...
As you can see, this share shot up 2.2 percentage points in a year through the first quarter of 2021. That might not seem like a huge number on its own, but in context, it's massive...
This gain was matched in size and time only once since the late 1980s. (That's as far back as the Federal Reserve's public data goes.) Back in 2003, investors backed up the truck on assets following the dot-com bust.
Beyond that, you'll also notice that the current 32% "market share" of the richest 1% today is an all-time high for the past 30 years.
Meanwhile, mostly everyone else has lost shares of the 'pie'...
Again, this is according to the Fed's own publicly available data... Fortunately, we have the time to look at it. Not everyone does.
Those folks in the 90th to 99th percentile of wealth in the U.S. today currently own 1 percentage point less of net worth than at the start of the pandemic... The middle 50th to 90th percentile lost 1.7 percentage points over that span... And the poor – the bottom 50% – gained only 0.2 percentage points of wealth, up to 2% overall.
We're not going to argue that many folks needed emergency relief when the pandemic struck and the ensuing shutdowns cost a lot of jobs...
But the poor – the group that politicians purported to want to help the most with the unprecedented fiscal and monetary policy responses that weaken our dollars every day – were outgained 11-to-1 by the rich over the past year (a rise of 2.2 percentage points, compared to a rise of 0.2 percentage points).
This is what the scoreboard shows right now...
The Richest 1% – 32
The Bottom 50% – 2
The game is a blowout. And if you ask most people on the street who Jerome Powell is – the referee pulling the strings as Fed chair – they won't have a clue.
We don't like tooting our own horn about this stuff because it isn't fun...
But longtime Digest readers know we saw this widening wealth gap coming a long time ago...
I (Corey McLaughlin) don't have to tell our longest-tenured readers that Stansberry Research founder Porter Stansberry essentially predicted what's happening today in our society many years ago...
For a refresher, check out this Digest from mid-2020 in which we described Porter's ideas and cited the prescient calls in our book, The Battle for America... as well as the potential solutions.
In the book, our research team connected the dots between cycles of societal upheaval in American history, populist movements, and the concept of a "Debt Jubilee" that typically coincides with times of polarizing politics.
The first element of this Debt Jubilee – when the government essentially steals money from one group and hands it to another – is that the "wealth gap must be getting dramatically bigger"... As today's essay proves, we're still on the pathway there.
This year, in the March 10 Digest, amid the passage of the "American Rescue Plan," we wrote...
After listening to the House of Representatives debate the idea of the now-passed $1.9 trillion COVID-19 relief/stimulus/whatever-you-want-to-call-it bill for about 30 minutes this afternoon, we were again reminded why so many Americans want change from our government...
One side said the bill is "the right thing to do at the right time." And in general, that side believes more direct payments and more additional unemployment benefits to the American people will boom the economy... and single-handedly lift children from poverty.
And while quoting former British Prime Minister Margaret Thatcher, the other side said, "The problem with socialism is you'll eventually run out of other people's money." That side lamented the excesses in the bill, the tax burden, and the one-party nature of the legislation.
So... "Which one is it?" We asked and answered the question in that Digest...
In the short term, another round of stimulus is probably a boon for stocks and more fuel for the ongoing "Melt Up" in the months ahead... Yet it's also more kindling for inflation fears... And it's another sign of "kicking the debt can down the road" at grand scale, too.
Nobody today seems to care about the long run... But we'll surely see unintended consequences of the government's actions at some point in the future. Even folks enjoying the government support today will be caught up in these consequences in the years ahead.
We received hundreds of e-mails in response to just a simple question that day... "What were your thoughts about the American Rescue Plan?"
And today, I urge you to write in again and restart the conversation about the "wealth gap" disparity. We would love to hear your thoughts at feedback@stansberryresearch.com.
Nobody – and I mean nobody – in Washington, D.C., today will admit what has actually happened...
They're still bickering about masks and positioning themselves for reelection campaigns... if they aren't just getting back from – or still on – vacation.
And it doesn't exactly look like we'll be "ending poverty" anytime soon.
But we do know a couple of things for sure...
Our dollars are worth way less than they were 18 months ago. And related to that, the prices of basic goods are higher than they were. Sure, some of that is because of supply-chain issues related to the pandemic... but the wealth gap has also grown because of policy.
The Fed's balance sheet now stands at $8.3 trillion... That's more than double what it was at the end of February 2020. Meanwhile, interest rates in the markets are still at rock-bottom levels so the central bank can monetize its own debt.
Practically, that has boosted asset prices (like housing)... and pushed people into where they can actually make money (like stocks)... or to speculate in riskier bets (like cryptocurrencies) by those who want something different.
(And again, as we've said before, it's fine to speculate in higher-risk spaces like cryptos if you have a good guide... That's what we believe our subscribers have in Crypto Capital editor Eric Wade. So if you're looking to do that, you can learn more right here.)
The benchmark S&P 500 Index is up roughly 100% from its March 2020 bottom... Meanwhile, bitcoin is up more than 700% over the same span.
As we say, "make hay while the sun shines"... But also prepare for the fallout – or at least, for things to just continue to not feel "right" in our everyday lives. That's something you can't put a price on.
In the meantime, you must listen to smart truth-tellers...
I'm not really sure how this talk hasn't reached a bigger audience yet... But I feel obligated to share this epic rant by billionaire investor Stanley Druckenmiller, the 68-year-old former president of Duquesne Capital.
Druckenmiller made his name as a hedge-fund manager for 30 years... He closed his fund in 2010 with $12 billion in assets under management. Many of our editors have found his wisdom useful over the years... and they've often shared it with subscribers as well.
In May, Druckenmiller spoke for about an hour during the University of Southern California business school's 35th annual "student investment fund" annual meeting. And what he said about the state of our financial world today resonated with me...
It's worth watching the entire hourlong event. But if you don't have the time to do that, here's the biggest highlight of what Druckenmiller said...
I don't think there's been any greater engine of inequality than the Federal Reserve Bank of the United States the last 11 years...
I just had the best year I had in 15 years last year. Everyone wealthy I know is making a fortune, and why are we making it? Because this guy [Fed Chair Jerome Powell] is printing money like there's no tomorrow...
For the life of me, I can't figure out why the left is so excited about money-printing when all the data says the people that benefit from money-printing are rich people that know how to navigate the markets.
The odds-on bet is 'we're going to have inflation,' Druckenmiller said during the discussion...
He also said... "Inflation is going to hurt poor people a lot more than rich people."
But Druckenmiller noted that the inflation discussion goes hand-in-hand with the asset bubble... He thinks the bubble will burst before the worst inflation consequences manifest themselves, like with the housing crisis in 2008 and 2009.
Still, though, that doesn't mean inflation won't hurt everyday Americans (it already is, after all)... nor does it mean that those who are most unprepared for a major asset burst won't be hurt the most as a consequence of current Fed policy. More from Druckenmiller...
We've never had a deflationary bust because inflation was too close to 0% or 1.5% instead of 2%. We've had them because we had these tremendous asset bubbles – in [1929], Japan in [1990], and in the great financial crisis.
There is no group that will get hurt more than a bust by the poor. They will be first in line to get screwed, trust me.
The thing is, you don't have to be 'poor' to get screwed either...
You can simply be someone who has any amount of money at all... who wants to keep pace with the rising costs of school for your kids... and who doesn't want to lose a fortune in stocks either.
As we said earlier, on balance, a small number of the bottom 50% got a little wealthier over the past year. Meanwhile, the richest 1% got much richer than them... And everyone else fell behind, relatively speaking.
And remember, the Fed's "official" inflation numbers don't consider many of the biggest expenses for most people – health care, housing, and education.
In what world does that make sense?
If we've seen nothing else over the past 20 years, it's that when a crisis happens, the cycle of bad decisions and "kicking the can down the road" goes into overdrive... The powers that be start throwing money at a problem and adding more debt to our nation's balance sheet.
As longtime investor Peter Grandich says, most folks in the markets today expect that the Fed will come up with some new-fangled way of propping up stocks when a bust happens. (Hear more of Grandich's thoughts in today's featured video with our editor-at-large Daniela Cambone below.)
But that might not help if you get caught up in the crisis in the first place...
What if you're surviving on a fixed income in retirement?
What if you don't have many years of investing left before you want to retire? (I know many of our readers fall into this boat.)
Or what if you simply hate losing money? (As we've said before, that's Warren Buffett's "Rule No. 1.")
We want you to be as prepared as possible for when this crazy asset bubble busts...
And fortunately, we can help you do that in all sorts of ways. But today, we can't think of a much better solution than what our colleague David "Doc" Eifrig recently put together...
You might remember a few months ago, Doc shared his 'retirement wake-up call'...
It was an eye-opener.
Doc talked about how stocks were so overvalued today that it will likely be hard to make a significant return in the years ahead...
He also explained that the conventional wisdom to expect somewhere between a 6% and 10% annual return from the S&P 500 would probably be wrong over the next decade...
Doc also talked about why owning the traditional "60-40" portfolio split of stocks and bonds today could actually lose you money...
With inflation running high and government bonds yielding less than that right now, for example, money put in "safe" government bonds today is actually guaranteed to lose money. From our July 10 Digest...
If 40% of a portfolio is dedicated to a low-return asset class that won't keep up with inflation, it's the opposite of safe. They're going to drain your retirement account and purchasing power... before the government does anything about it, if at all.
As Doc said during his wake-up call, it could take decades to earn all your principal back on a bond purchase. And it's the same story with stocks...
The S&P 500 trading at a "CAPE ratio" of 38 times earnings implies it would take 38 years to earn back your purchase price in earnings.
As we said in July, we can't tell you exactly how stocks and bonds will perform over the next decade... No one can see the future, after all. We can only tell you what we think will happen...
For that reason, Doc is not saying to sell all your stocks or all your bonds. He's just saying that if you're expecting the same old returns from these two massive asset classes over the next decade, you might want to think again...
Specifically, inflation is here... And in Doc's opinion, it's sticking around for a while.
That means you need to consider owning other investments – things like gold, real estate, or other hard assets – more seriously than you might have in the past.
Today, you need to make your money work even better for you...
It's always smart to think of "your money" this way. How can you best put it to work for you and your goals?
As we wrote in July, what we do with every dollar today becomes that much more important every time another one – or a few trillion – are printed. From that Digest...
In times of inflation, when the value of each U.S. dollar is dropping, the relative value of tangible, in-demand assets rise. And the value of certain stocks (those with "pricing power" – meaning the companies can raise prices and still sell as many goods as they're used to) or hard assets with tailwinds (like real estate or lumber, for example) will grow more than others.
So with that in mind, we have some good news today... Doc and his senior analyst Matt Weinschenk have come up with a better portfolio plan than you'll hear from most money managers.
Here are the numbers...
If you would've put $100,000 into a traditional 60-40 portfolio in 1973, it would've grown to more than $7.5 million today. That's pretty good... But you also would've experienced drawdowns – or flat-out busts – as high as 35%.
With Doc's approach, $100,000 in 1973 would've turned into $18 million... And you never would've experienced a drawdown of more than 12%.
It's more reward and lower risk at the same time.
Think of it as a "government nonsense" protection... and an alternative to what you'll hear in the mainstream media. It's how to grow and protect your wealth in uncertain times.
If you want to learn more, be sure to check out Doc's retirement wake-up call right now... We're offering a replay for a limited time. Click here to get started.
Beware the Market's Complacency
The Federal Reserve is the king of "monetary heroin" – and Peter Grandich has never seen markets so complacent. On the heels of the Fed's Jackson Hole economic symposium, our editor-at-large Daniela Cambone catches up with Grandich for exclusive insights...
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 9/1/21): American Homes 4 Rent (AMH), American Tower (AMT), Brown & Brown (BRO), Comcast (CMCSA), CoreSite Realty (COR), Cintas (CTAS), Quest Diagnostics (DGX), Digital Realty Trust (DLR), Facebook (FB), Formula One Group (FWONA), Alphabet (GOOGL), ICICI Bank (IBN), Innovative Industrial Properties (IIPR), Invitation Homes (INVH), IQVIA (IQV), Liberty SiriusXM Group (LSXMA), Cloudflare (NET), Invesco S&P 500 BuyWrite Fund (PBP), VanEck Vectors Russia Fund (RSX), Sea Limited (SE), S&P Global (SPGI), TFI International (TFII), Thermo Fisher Scientific (TMO), and Waste Management (WM).
In today's mailbag, an answer to the "bullish or bearish" question we posed yesterday... What say you? As always, e-mail us at feedback@stansberryresearch.com.
"Well, as I open my portfolio each day, what I can honestly say is I'm floored! Then I get nervous... but then I remind myself that I use TradeStops and have alerts on my positions, so I'm covered! I also look at the trendlines, the 20-, 50-, 200-day [moving] averages, the [relative strength indicator and] other Technical indicators.
"I also remind myself that a correction is normal... And if a position looks to begin turning against me, I can always sell even before hitting my stop if I feel that things might just get too crazy... and keep a bigger chunk of the profits. Either way, I come out covered and ahead.
"I'm also using Doc's strategy in Advanced Options and Retirement Trader... [and] trading with DailyWealth Trader too. I like what Jim Cramer says, 'There's always a bull market somewhere.' I feel the same way. Keep up the great work guys." – Stansberry Alliance member Karen T.
All the best,
Corey McLaughlin Baltimore, Maryland September 2, 2021