An Antidote for 'Crisis Spending'
Apple to the rescue... Fed decision and inflation report coming tomorrow... The brutal scale of government spending... A map for navigating 'fiscal dominance'... The case for bitcoin... The next 'mega catalyst' for cryptos...
First, here are the nuts and bolts of the day...
The major U.S. stock indexes were mixed today.
The benchmark S&P 500 and tech-heavy Nasdaq were up slightly, the latter buoyed by a 7% jump in Apple (AAPL) shares. Investors loved the company's announcement of AI initiatives (dubbed "Apple Intelligence") at its annual developers conference in Silicon Valley.
The bullish case is that Apple's new planned AI tools, like an overhauled Siri, writing assistance, and ChatGPT integration, could motivate people to buy upgraded iPhones and create a new buying cycle and growth for Apple.
Meanwhile, the small-cap Russell 2000 Index again led things lower, off by almost 1%, and volume was generally relatively low again.
Remember, though, that we're on the eve of what should be an active day in the markets...
Another inflation report, May's consumer price index ("CPI"), drops tomorrow morning... And the latest Federal Reserve policy decision and press conference from Jerome Powell press conference will be tomorrow afternoon. Powell and the Fed typically move markets one way or another.
We don't expect the Fed to change its benchmark lending rates tomorrow. But this is one of its meetings where it publishes its quarterly economic projections, which should cause some form of debate about what might come next for monetary policy.
We'll have a report in tomorrow evening's edition.
In the meantime, let's look at the bigger picture...
I (Corey McLaughlin) want to revisit the topic of "fiscal dominance." Simply put, as the days go on, I see this idea driving what's happening in the economy and markets more and more.
Not enough people are discussing this concept... But it's what I would want to know if our roles were reversed, one of our guiding principles at Stansberry Research.
So, as I wrote in the May 14 Digest, which highlighted the recent Stansberry Investor Hour interview that Dan Ferris and I held with macroeconomic analyst Lyn Alden...
The term "fiscal dominance" is finance-speak for when a government spends so much money – or lends it into existence – that it reduces the effect of "tighter" monetary policy on inflation.
As Lyn said, "The fiscal side becomes more important on the economy than the monetary side."
This scenario may sound familiar, as it has increasingly been happening in the U.S., which is running a multitrillion annual deficit as we speak.
In a report published yesterday, the Congressional Budget Office ("CBO") – which attempts to educate and inform members of Congress – said the federal government has borrowed roughly $1.2 trillion over the past eight months. According to The Hill...
The nonpartisan budget scorekeeper said the figure is $38 billion above the federal budget deficit recorded during the same period in fiscal 2023.
Total outlays were up 8 percent in the past eight months, reaching $4.5 trillion, as the CBO noted a 42 percent increase in net outlays for interest on the public debt. The percentage represents an estimated $185 billion increase over the same period in fiscal 2023; the office pointed to rising interest rates as a key contributor.
Spending for programs like Social Security, Medicare and Medicaid jumped 6 percent on net during the same time frame, amounting to a $117 billion increase, the CBO estimated.
The news also includes a silver lining for Uncle Sam, though not for "We the People"... Tax revenues are also up, with "total receipts" up by an estimated 10% in the past eight months and more than $290 billion from the same period in fiscal 2023. In other words, the U.S. sees more spending, more inflation, more taxes, and inevitably more waste.
On it goes.
What's going on here?...
Every time the government creates a new dollar (or a trillion), it devalues every existing dollar... which leads to more inflation... and more of the same problems in various walks of life you've likely become familiar with over the years.
This has been going on for decades, but right now, the scale is notable, shocking, and still somehow underreported. Check out this post from The Kobeissi Letter on social media platform X, which our founder Porter Stansberry shared today...
The facts about how much the government is spending today compared with actual production, and in the context of nearly all of U.S. history, are brutal and reminiscent of other major "crisis" eras...
The trend: debasing the currency to "fix" the present by spending more dollars and causing more problems (and inflation) in the future.
Today, government spending as a percent of GDP is at a level only seen during World War II, the great financial crisis, and the onset of the COVID-19 pandemic. Plus, as we noted last month, debt as a percentage of GDP is around 120%, a level also last seen shortly after World War II...
And the U.S. government hasn't finished a year with a surplus since 2001, with the annual deficit trending higher since then...
All investors need to be aware of this environment...
The government knows only one solution to problems: spend more money, and create it if it doesn't already exist. This has consequences that many might not expect. As I wrote last month...
The last few decades, the pace of inflation wasn't an outsized issue, or at least a widely Fed-recognized problem. Bank lending rates were generally trending lower or low, near zero in some cases. But prices for all kinds of things were certainly getting higher along the way.
The difference today is that with high(er) inflation out of the bag after the trillions of dollars of government stimulus during the pandemic, the government-spending part of the equation is more obvious. Prices are higher and rising, and the cost of borrowing is higher.
So what worked in the last few decades – like the conventional 60-40 stock-bond portfolio, which benefited from an environment of interest rates that were steadily falling over the long run – isn't the best recipe now...
So what is?
One map for navigating 'fiscal dominance'...
If this scope of government spending continues, it's wise to expect high(er) inflation and higher interest rates for the longer run, even with the Fed signaling that minor cuts might be coming this year...
In this case, you'll want to own stocks – specifically of high-quality businesses that will reward shareholders no matter what comes next – and only buy them when they're fairly priced. That will ensure you get the most value from your dollars since the value of those dollars is, unfortunately, likely to erode over time...
Remember, stocks are inflation protection.
In one way or another, our editors and analysts are constantly working toward identifying the best buying opportunities.
As Lyn suggested during our conversation on the Stansberry Investor Hour, having exposure to the energy sector, precious metals, and other "hard" assets is wise... as is looking at companies with solid balance sheets that locked in debt at low rates.
She's also a proponent of bitcoin as an alternative to this fiat mess – as are we.
Results matter...
Remember, bitcoin started from nothing in the wake of the great financial crisis, as a response to the frustration about big banks being bailed out while many "regular" people dealt with losing jobs and the implosion of real estate...
This cryptocurrency was launched in January 2009 by the pseudonymous inventor Satoshi Nakamoto as a "peer to peer" electronic cash-transfer system with no middleman. Baked into its code is a fixed supply and "halvings" every four years designed to slow its inflation rate via the rewards given to bitcoin "miners."
Since then, demand has steadily grown and grown for this asset, whether people realize it's in large part because of out-of-control government spending or overreach or not. While the value of the dollar (and other global currencies managed by central banks) keeps falling, bitcoin's value per dollar has skyrocketed from a tenth of a penny per BTC to today's level of around $67,000.
We're not telling you to ditch stocks completely for bitcoin. But the world's most popular cryptocurrency and other cryptos also have a place in a portfolio that can protect and grow wealth over the long term.
Even some pension funds agree...
As you know, earlier this year, the U.S. Securities and Exchange Commission green-lit the launch of spot bitcoin exchange-traded funds ("ETFs"). Billions of dollars have flowed into these funds, and the firms that run them hold actual bitcoin as part of their regulatory requirements.
The State of Wisconsin Investment Board, which runs one of the better-regarded pension funds in the country, bought more than $160 million worth of shares in a pair of spot bitcoin ETFs from BlackRock and Grayscale in the first quarter...
Our Crypto Capital editor Eric Wade mentioned this in his new free presentation...
They're doing it because, like a lot of other big institutions, they're waking up to the fact that the profit upside of bitcoin... not to mention dozens of other cryptos... just can't be beat by any other investable asset.
This is an expression of Eric's thesis of the spot bitcoin ETF launch earlier this year being the first "mega catalyst" of 2024 for bitcoin and cryptos in general. He talked about this in an emergency briefing back in January. As Eric says...
This may have been the biggest step towards mainstream adoption we've ever seen.
I don't think there's any way you can look at tens of billions of institutional dollars moving that quickly into bitcoin and make any other conclusion.
And it's only just getting started. The success of these ETFs here in the U.S. have started a global storm.
As Eric noted in a weekly video update to his paid Crypto Capital subscribers on Friday, bitcoin ETFs and other funds are available now on nearly every continent.
Then came the bitcoin "halving" in April – the fourth such event in the cryptocurrency's relatively brief history – ahead of which bitcoin's price rose to a new all-time high above $70,000. And now the real fun can start...
The next 'mega catalyst' for cryptos...
As Eric talks about in his new presentation, bitcoin's price has fallen since its rise to an all-time high ahead of its latest "halving"... But this is normal, Eric says. And if anything, it suggests higher highs to come...
Everyone who's freaking out about bitcoin dropping from its all-time high of over $75,000 down to the low $60,000's just hasn't done their homework...
As you can see, each of the previous three halvings served as a launching point for bitcoin's next bull run. It's plain as day here for you to see.
But those big run-ups didn't just kick off immediately. Look closely and you'll see that's not the case. Each time it's taken at least a year for bitcoin to hit its new all-time high.
And Eric fully expects this behavior to play out again... He says bitcoin will hit another new all-time high this year... with the catalyst being a "super convergence" of two of the most significant technologies in the world today.
This convergence is increasing demand for bitcoin and many other lesser-known cryptos (with 10x or more profit potential) at the same time that demand for alternatives to "real world" currencies is increasing.
What Eric's talking about is that crypto is the "only real solution for how to establish and maintain" the type of fast-paced commerce that the world is now seeing online every single moment of every day.
As he says, "you can't rely on the big, slow financial institutions to have the technology infrastructure... the level of security... and the willingness to cut through red tape safely"... to complete the type of transactions that the market demands today.
I'll add that you also can't rely on governments to spend less money anytime soon. Put it all together, and demand (and prices) for bitcoin will keep growing... while the value of things denominated in dollars falls. The same will also apply to the lesser-known cryptos that Eric is an expert in.
As I wrote yesterday, the "super convergence" part of this argument isn't even a "prediction." It's playing out right now. It's just that most people don't understand the scope of it...
If things play out as Eric expects, prices of the headline cryptocurrencies and many other lesser-known cryptos that he recommends could soar to even greater highs by the end of the year.
And that's saying something... considering that since Eric's initial emergency briefing in January, he has already closed out six recommendations for triple-digit gains, plus his 14th 1,000%-plus winner since 2020.
This convergence is setting up a rare "10x profit window" ahead of what could be a massive bull run for cryptos, Eric says.
In his free presentation, he shares more details, including how to access his three favorite crypto recommendations right now – all of which he says have 10x to 20x profit potential – along with his entire Crypto Capital model portfolio and a host of special reports.
Click here to watch now. (And Crypto Capital subscribers and Stansberry Alliance members, feel free to check out the free presentation, though you can find all of the research that Eric is talking about here.)
New 52-week highs (as of 6/10/24): Applied Materials (AMAT), Costco Wholesale (COST), HealthEquity (HQY), Intuitive Surgical (ISRG), Nuveen Preferred & Income Opportunities Fund (JPC), Eli Lilly (LLY), Motorola Solutions (MSI), Micron Technology (MU), Nuveen California Quality Municipal Income Fund (NAC), Neuberger Berman Next Generation Connectivity Fund (NBXG), Novo Nordisk (NVO), ProShares Ultra QQQ (QLD), RadNet (RDNT), VanEck Semiconductor Fund (SMH), ProShares Ultra S&P 500 (SSO), Texas Pacific Land (TPL), and Vanguard S&P 500 Fund (VOO).
In today's mailbag, another recommendation about a story on a maritime disaster, stemming from Dan's Friday Digest... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Into the Raging Sea by Rachel Slade." – Subscriber Jerry G.
All the best,
Corey McLaughlin
Baltimore, Maryland
June 11, 2024