There's Always Coal
Sit in on one of our meetings... Tracking the market's 'big moment'... An important jobs report is on tap... There's always coal... A consequence of the green-energy push... Why the Fed will fail...
We start today with a meeting – sort of...
If you haven't seen it yet, our Portfolio Solutions team decided to let subscribers into one of their recent brainstorming sessions... As our Director of Research Matt Weinschenk put it...
At Stansberry Research, we love talking stocks. This month, we want to let you into one of our Portfolio Solutions meetings so you can hear how we work through conditions in the market.
Overall, 2022 was a strong year for Portfolio Solutions... but it wasn't perfect. In this talk, we on the Investment Committee dig into what we messed up, as well as what we got right.
Dr. David Eifrig, Alan Gula, Brett Eversole, and C. Scott Garliss join me for a discussion on what's happening with inflation, energy stocks, high-quality stocks, Meta Platforms, China, and more.
We also look forward to where we will put money next.
It's a really great, honest conversation... Existing Portfolio Solutions subscribers and Alliance members can check out this brand-new video or read the transcript here, and then take in their latest Portfolio Solutions issue, published on Tuesday.
Tracking an important correlation...
Picking up where we left off yesterday – tracking the "big moment" we see in the market along with the correlation of bond yields and stock prices – there wasn't much movement today until some new jobs data hit the public...
And what happened leaned bearish.
The latest weekly jobless claims report for the U.S. was published midday. It showed the largest increase in five months (up 21,000 from the previous week), but still at a level closer to longer-term lows (211,000 overall).
In response, the major U.S. indexes turned sharply down... The benchmark S&P 500 finished the day off nearly 2%, and the small-cap Russell 2000 was down closer to 3%. Financials were down as a sector by 4% amid some other breaking news of a leading regional bank – Silicon Valley Bank (SIVB), which lends to a lot of technology startups – being under stress.
At the same time, shorter-term yields fell, with the 2-year Treasury off roughly 17 basis points to 4.90%. The 10-year was also down, but by less (about 6 basis points). So this benchmark yield-curve spread tightened a little, but it's still inverted below negative 1%.
The 30-year yield was down a smidge to 3.88%.
As we said yesterday, we're going to keep an eye on the movement in the bond market compared with stocks over the weeks ahead and after the upcoming Federal Reserve meeting on March 21 and March 22. The relationship could indicate whether the market is expecting more Fed tightening – and also what the consequences of that might be... like more of an economic slowdown in the longer run.
Should yields fall on longer-term Treasury securities like the 10-year and 30-year bonds, with shorter-term yields still higher, and stocks sell off in the weeks ahead, that would be a bearish development. And it would tell us that Mr. Market is preparing for more of a "hard landing."
On the other hand, if stocks continue to hold what have been higher lows since October of 2022, that would be bullish.
Another important jobs report...
Tomorrow brings another key update on the jobs market with February "nonfarm payroll" data. Wall Street analysts are expecting the government to report that the U.S. economy added 220,000 jobs last month... and that the five-decade-low unemployment rate of 3.4% held steady.
The biggest thing worth watching in this report, though, may be wage inflation. Based on comments from Fed officials in the past, so long as the pace of wage inflation is decelerating, they likely won't panic. But should it not... they'll be more inclined to raise rates higher in their inflation fight.
Another strong jobs report and strong wage growth could put wind in the sails of the idea of a 50-basis-point federal-funds rate hike at the Fed's upcoming meeting. Next week brings a fresh monthly consumer price index ("CPI") update that will add more to the discussion.
And then there was coal...
According to global news service Reuters...
Britain's National Grid called on reserve coal-power units for the first time to provide electricity during a period of expected tight supplies on Tuesday as a cold snap sweeps the country.
The energy grid operator warned in October that homes could face three-hour rolling power cuts this winter if the country was unable to secure enough gas and electricity imports.
This particular case is of course complicated by the political ramifications of the war in Ukraine, but that's the point...
All kinds of unexpected events are going to happen in the years ahead while world leaders seem intent on transitioning cars to electric power... businesses to solar... or a host of other alternative-energy initiatives.
This story about Britain's National Grid firing up its coal plants for the first time ever serves as a reminder, though... Demand for existing "dirty" energy sources, like oil and gas – and coal – isn't going away overnight.
Yet, importantly, supply of these energy sources is being discouraged in many ways. (We won't get into them all here.) The result is the most significant for investors... The whole green-energy story could drive prices of existing "hated" commodities to new highs before they're eventually fully phased out. That could be years, decades, or even a century from now...
Remarkably, even after a 50% pullback in coal prices over the past three months, this dirty energy is up 176% over the past three years. 176%! In three years! In that same span, West Texas Intermediate crude oil – the U.S. benchmark – is "only" up about 85%.
Germany presents another example...
Germany had to curb oil and gas supply from Russia amid the war in Ukraine. Last year, it reactivated previously closed coal plants after ditching plans to build nuclear-energy facilities in recent years.
Now? More than a third of the electricity fed into German power grids between July and September 2022 came from coal-fired power plants.
The point is, the "green" revolution for new energy sources is taking place with perhaps too little practical concern for how we regular people live right now. That means the world's current energy sources could get even more expensive... stoking already-high inflation.
This is part of the story Dan talked about in his recent video event...
Last week, Dan debuted his new talk and explained the details of a once-in-a-lifetime shift that he says will touch nearly every asset you own... stocks, bonds, real estate, and – most of all – your cash...
Just taking a few minutes to listen to Dan's presentation could help you navigate this fundamental change that is happening right now in the markets. Most people will ignore this story, but you ought to consider it.
It's as much an opportunity as it is a warning...
The last time a "market event" like this happened, Dan says, you could have made more than 400% on the lowest-risk investment in the space he's talking about... and as much as 1,000 times your money on others.
Click here for all the details. Dan is joined by several special guests, including one of the foremost investing minds in the natural resources space.
The Fed Will Fail
"The Fed is cutting off supply chains," says Keith Neumeyer, president and CEO of First Majestic Silver (AG). "We're going to have long-term inflation... I think we are going to have an inflationary period that's going to last the next decade."
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 3/8/23): W.W. Grainger (GWW), inTEST (INTT), and Parker-Hannifin (PH).
In today's mailbag, feedback on the Federal Reserve's inflation fight... and some of your thoughts on the length of our Digests... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I began my 43 year career in banking and finance in 1973. I vividly remember the Arthur Burns fiasco failure to combat inflation. And I also remember how the talking heads and financial journalists of the day kept telling us that raising interest rates couldn't kill inflation. But boy howdy, Paul Volcker proved them all wrong.
"It makes me chuckle to hear that same song today from the financial media. Volcker learned that inflation is not just 'sticky', but insidious. He had to take a financial sledgehammer to crush it. I was doing 12-13% mortgage loans and 21% new car loans for the bank I worked from 1980-82. Every contractor in the area either left the business, went out of business, or went bankrupt. The unemployment rate in the adjoining county hit 25% at the worst. No new home was built in the area again until 1986. Depositors were getting 15.50% on 2.5 year CDs. Many shopping malls were totally empty or just had their anchor stores survive.
"That was the price to pay to truly get rid of inflation. Thank God, Volcker had the stones to do it... and the cure lasted for decades. If the U.S. had a hall of heroes, Paul Volcker should be in it.
"It is understood that eliminating high inflation is no picnic, but it is absolutely necessary... WHATEVER it takes. And we should try to remember this time that the willy-nilly printing of money and borrowing and spending money like drunken sailors is the path to disaster." – Paid-up subscriber Paul Y.
"What's needed is stimulus on the supply-side of the economic equation. Production has to expand to absorb the excess liquidity, something the government is not allowing to happen." – Paid-up subscriber M.P.
"Corey, I appreciate the recent adoption to the shorter format. When they were lengthy, I just had to skip. Only so much time. Keep up the good work, well appreciated." – Paid-up subscriber Judge B.
"Length is just right!!" – Paid-up subscriber Mike S.
"I read all the Digests. As one subscriber suggested, they are getting shorter. That's fine. But I certainly enjoyed [Tuesday's] Digest quoting (your) highlights of Powell's testimony. I'm not going to read the full transcript. So keep putting 'Fed Speak' in there. It boggles the mind." – Stansberry Alliance member Jeffrey G.
"Don't shorten the Digest!
"Corey occasionally goes into more detail on a topic than I care to read about, but I can easily skim through until I get to something of more interest to me. Your readers have a variety of interests and attention spans and you'll never be able to please all. Continue to give us your best shot each day and know that you have my thanks for a job well done." – Paid-up subscriber Paul H.
Corey McLaughlin comment: Thanks for all the feedback... It seems most of you say shorter can be better, but don't change what we're doing too much. So we'll keep on keepin' on...
All the best,
Corey McLaughlin
Baltimore, Maryland
March 9, 2023