A Drift in the Right Direction

Wall Street drift... Americans have racked up record debt... The case for 'recession proof' businesses... 'Cordial' debt-ceiling negotiations... Montana bans TikTok... TikTok sues Montana... A reminder for Stansberry Alliance partners...

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The market has been drifting – slightly higher...

The benchmark S&P 500 Index is up roughly 1% over the past week, so it might be unfair to say U.S. stock prices have been going "sideways" since we last brought up the description last Monday. More accurately, the market has been drifting... and a little higher.

Unless you have a reason to root for lower stock prices, this is a positive.

As our DailyWealth Trader editor Chris Igou showed subscribers yesterday, the S&P 500's long-term trend – as measured by the 200-day moving average (200-DMA) – has ticked up lately...

This behavior – an upward-sloping long-term trend – has caused Chris to turn a bit bullish, as he explained...

We've been in the "false rally" camp so far this year. But with the S&P 500 climbing the wall of worry, and our U.S. system flashing "buy," it's time to put those worries aside.

Yet still, after a nearly 1% drop today, the most widely followed U.S. index isn't noticeably higher than previous highs from earlier this year, in February. But the bottom isn't falling out, either. Call it "sideways plus" for now.

We could speculate on the reasons why... and we will for a moment...

A couple of factors are things we've discussed recently: the worries in the mainstream about the debt-ceiling "debate"... and maybe some uncertainties around the Federal Reserve's rate-hike "pause," or what the central bank is now calling a potential "skip."

Whatever the case may be, though, the backdrop of the past few months hasn't changed all that much. I (Corey McLaughlin) think this is reflected in Mr. Market's behavior over the past few months. It's still a high-inflation world, and we're increasingly seeing more and more consequences of it... be it in earnings reports from businesses or spending trends.

But people are still spending whatever money they do have – or can borrow.

Notably, Americans are racking up record credit-card debt...

Data from the Federal Reserve Bank of New York published recently showed that U.S. credit-card holders now owe $986 billion in debt. That's nearly $60 billion higher than the record set in the fourth quarter of 2019 and 17% higher than the first quarter of last year.

U.S. consumer debt had taken a dip in 2020 and in the first part of 2021 as stimulus checks and other pandemic programs sent cash Americans' way. Of course, those things also helped send inflation Americans' way, too... And the bills for higher prices are coming due, as wages haven't kept up.

Counting all household debts, Americans owe a record $17 trillion, according to the Fed data, including $12 trillion in home loans, $1.5 trillion in auto loans, and $1.6 trillion in student debt (which hasn't been forgiven yet).

Ultimately, more debt and higher interest payments will lead to more debt...

The average credit-card annual percentage rate is close to 21%, the highest since the Fed started tracking it in 1994. More debt without the ability to pay it off will also lead to delinquent payments... and, more imminently, less spending on discretionary items (or the "wants") and more on the "needs" like food and energy.

This might sound like bad news for the economy, and it's not great for industries that may rely on discretionary spending to make profits. But for the right business, the trend toward more expensive money can be bullish. Americans are still spending, even if they can't afford to pay "cash," and increasingly are shifting their dollars to the necessities.

It's a large reason why businesses like Walmart (WMT), which we wrote about last week, can be "recession proof." They sell the things that people buy no matter what's going on in the economy – even if more and more of their customers can't afford to pay with "cash."

They haven't thrown any punches...

Debt-ceiling negotiations at the White House are ongoing...

Yesterday, President Joe Biden called the talks "productive." House Speaker Kevin McCarthy said late Monday that "we're getting closer." And Senate Majority Leader Chuck Schumer, taking it all in, said the discussions were "more cordial" than last week.

Then today, some politicians questioned the validity of the so-called "X date" of June 1 that Treasury Secretary Janet Yellen has said is date at which the U.S. government would start being practically broke.

All in all on this story, I'm with our Ten Stock Trader editor Greg Diamond, who wrote today, "I'm still waiting on this debt-ceiling drama to pass."

Greg also wrote he'll be paying attention to the fresh gross domestic product ("GDP") numbers coming out Thursday, and then the Federal Reserve's favorite inflation indicator – the personal consumption expenditures ("PCE") price index – which will be released on Friday.

If you actually care about Fed policy, the PCE number is worth keeping an eye on.

Another battle line in tensions with China...

Last week, the governor of Montana signed a bill banning the popular video and social networking app TikTok in the state "to protect Montanans' personal and private data from the Chinese Communist Party." It's the first state to attempt such a move.

The bill is intended to go into effect in January. Notably, it marks some movement in an issue that has been debated in Washington, D.C. for a while regarding the Chinese-owned app – the way it may collect data and/or influence Americans' behaviors.

Scott Galloway, the New York University professor of marketing who served as keynote speaker at our Stansberry Conference in Boston last October, wrote about this in a special guest Digest last year...

Though it's wrapped in dance and dog videos, TikTok comes with many of the problems linked to algorithmically generated content and platforms. A Wall Street Journal investigation found new accounts registered as belonging to 13- to 15-year-olds would veer down "rabbitholes" of sex- and drug-related videos in just days, simply by lingering on initial, tamer videos with those themes.

And TikTok comes with an additional, unique externality: its links to the Chinese Communist Party. The potential risks in that relationship have been recognized by our last two presidents. I'm particularly concerned with the propaganda potential of the platform.

To be clear, there is no evidence the CCP has manipulated content to undermine American interests. What is also clear: A headjack installed on America's youth, who spend more time on TikTok than any other network, that connects them to a neural network that may be shaped by the CCP is a risk we cannot tolerate.

If the product cannot be separated from the ownership (e.g., spun off or acquired by a Western firm), I believe the app should be banned. Putting the term "ban" so close to the term "media" justifiably raises concerns. An easier argument may be that we should have a reciprocal approach with China regarding media businesses. (See above: Ban TikTok.)

In response, TikTok sued the state of Montana arguing against the ban, citing a violation of First Amendment rights... Plus, a few TikTok users in the state also filed a lawsuit seeking to block the state's ban.

You ban our chipmakers. We'll ban your apps. On it goes. Does anybody think this ends well?

A reminder for Alliance members...

Today, I found myself reading a useful resource that we haven't highlighted in the Digest for a while.

Be sure you are checking out your weekly Stansberry Alliance Executive Summary, delivered to Alliance partners' inboxes each Monday and available on our website here. This is an exclusive rundown of all the actionable trade recommendations available to you.

Consider this one from Income Intelligence editor Dr. David "Doc" Eifrig, who wrote to subscribers last week about a good regional bank whose shares have been beaten down lately – and why to buy them now.

As editors Dean Jones Jr. and Haley York wrote in this week's Alliance summary...

Although another wave of fear in the sector is still possible, [Doc] believes the worst part of the banking crisis is over... [This] is a sturdy, safe regional bank with an outsized dividend. Subscribers could collect a 6.7% yield while its business and share price grow.

Alliance members can find all the details about this company here, and the weekly Alliance Executive Summary with a complete description of recommendations made by our editors each week here.

New 52-week highs (as of 5/22/23): Array Technologies (ARRY), ASML (ASML), Copart (CPRT), DraftKings (DKNG), Alphabet (GOOGL), Innodata (INOD), Meta Platforms (META), Microsoft (MSFT), OMRON (OMRNY), Flutter Entertainment (PDYPY), and Vericel (VCEL).

In today's mailbag, more feedback on Dan's Friday essay about the U.S. debt... and more discussion about what is and isn't a recession... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I totally agree with your assessment of the debt ceiling and the sorry future of the U.S. Politicians have one and only one goal, and that is to get re-elected. They are NOT going to vote for anything that will put that at risk. Even if that means they have to tack on more debt and deficit spending. Which is what has happened now for decades.

"To look to the future we only need to look at the past. The Roman Empire lasted over 1,000 years. The beginning of the end was when Caesar was assassinated and his son Augustus took over leadership. Augustus decided that the military (which became grossly populated because the logistics of the empire was increasingly crazy) needed a pay package and bonuses beyond what the ordinary citizens received. And consequently other government expenditures didn't get money because there was none.

"Corruption then crept into the empire and it eventually collapsed. Thus spending and management was the death of the empire. Does that sound like what is happening in the U.S. today? Are we going to meet the same fate?" – Paid-up subscriber John M.

"The only reason we did not have a recession in 2022 is that the crooked government changed the definition and everybody, including the Stansberry analysts who should know better, went along with the lie. Odd things are happening in the market and the economy thanks to out-of-control Federal Government spending and the recession we have been in since 2022 is going to give us a major depression, which will then be called a recession." – Paid-up subscriber Michael U.

Corey McLaughlin comment: I don't disagree that we already had a recession in the first half of 2022, and we were pretty clear about saying so back then. In fact, we got letters telling us to stop ranting about the definitions and move on to other things. (I agreed then and now that your recommended approach is more useful, but we had to get the context and absurdity of the recession "debate" off our chest back then.)

Here's what we wrote back in the July 28, 2022 Digest, titled "It's a Salamander Wearing a Top Hat"...

The long-awaited (at least by me) and about-to-be-debated second-quarter gross domestic product ("GDP") number from the U.S. Department of Commerce was published this morning...

And as we've been expecting for months, it showed a 0.9% contraction of the U.S. economy. (I guess they didn't feel like rounding to negative 1%.) Given first-quarter GDP shrank by 1.6%, this means the U.S. economy has contracted for two consecutive quarters.

That's been a commonly accepted definition of a "technical" recession for decades. And if you've prepared the right way, it's something that can be navigated. But apparently, the mainstream media would rather delay the truth...

Last quarter, CNBC reported negative GDP was due to some inventory anomaly. Today, its website's main headline said two quarters of economic contraction is a "strong recession signal."

And it wasn't alone. CNN's website said, "U.S. economy contracts again, fueling recession fears." And the Washington Post's said, "U.S. economy shrinks again in second quarter, reviving recession fears." Fears? Guys, it's already here...

Somewhere in the White House, some people might be smiling that the "this isn't a recession" spin is working, but not here in Baltimore. Our colleague and Stansberry's Credit Opportunities editor Mike DiBiase sent this note to me this morning, with a clever analogy...

People don't want to see what's right in front of their eyes anymore.

This just in from the sports desk...

The New York Mets outscored the New York Yankees 3 to 2 last night, fueling fears the Yankees lost the game. Major League Baseball is gathering and assessing more data to confirm the result.

It's sadly funny and true.

So yes, it's wise to not get caught up in the definitions you might hear from economists, talking heads on TV, or the "deciders" at the National Bureau of Economic Research. If they ever "call" a recession, they will do it well after it has begun anyway and even longer after it's helpful to make portfolio moves.

I said this to Dan on this week's Stansberry Investor Hour... and talked about it in that July 2022 essay, too. The more important thing is to think about your goals and what you want to do with your money... make investment decisions based on that... and consider the macroeconomic environment when doing it.

Today, the economy has high inflation, higher interest rates than we've seen in 15 years, and slower growth compared with the stimulus-fueled years of 2020 and 2021. Call that what you will.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 23, 2023