Cutting Through the Nonsense

The myth of the 'strong' economy... Oh, yeah, unproductive government spending... Remembering a prescient prediction... A Kamala Harris presidency... What it could mean... What's on Porter's mind now...

 Something doesn't add up...

This morning, Uncle Sam reported "better than expected" GDP of 2.8% annualized growth in the second quarter... OK. But the unemployment rate has risen each of the past three months, too.

Also this morning, we saw disappointing earnings from companies you can use to gauge broader economic activity – such as major airlines like Southwest and American. (Southwest also announced "urgent" steps to boost revenue and is ditching its well-known "open seating" policy in favor of a strategy that allows for the sale of "premium" seats with more legroom.)

Earlier this month, Delta and United had already said they expected an "oversupply" of flights ahead... and said they'd lowered fares to spur demand.

This dynamic showed up as "deflation" in the latest government inflation report covering June. What gives?

Airlines are just one industry, and the economy is made up of thousands of variables. But those reports certainly don't square with the idea of a "strong" economy...

Ah, here's the rub about the GDP report...

It's government spending. Here's Vance Ginn, the former chief economist of the White House's Office of Management and Budget...

When you correctly subtract volatile inventory investment and redistributionary, unproductive government spending, the productive private sector growth was just 1.3%.

It's good that GDP inflation moderated to 2.3%, but disposable personal income increased by just 1%, and the savings rate declined to a fresh low of 3.5%.

Bottom line: The American economy continues to fluctuate greatly because of bad fiscal and monetary policies that contribute to poor outcomes for many Americans.

That sounds accurate to me. National-defense spending grew at a 5.2% annualized rate in the second quarter, the second-largest quarter of growth in that area since the start of 2021.

Switching gears to a prescient prediction...

We're moving today's mailbag up, thanks to a note that subscriber Mike M. sent in last night... about a prediction that Stansberry Research founder Porter Stansberry made many years ago. Mike wrote...

Somewhere Porter talks about, and actually predicts, Kamala Harris being president. I would like to re-read that but I don't remember where it is. Do you have some index or something – or someone's memory – that could tell me where that is? (Also might be valuable to refresh in print.) His comments, and then her now running for president is very... something.

Thanks for the note, Mike, and I (Corey McLaughlin) am glad you brought this up.

We've been looking to mention Porter's prediction about Kamala Harris – which he originally wrote about in his book, The Battle for America – and probably will discuss it more in a future issue. 

But, for now, here's the excerpt I think you're looking for...

We published it in the Digest back in 2018, under the headline, "We're Screwed No Matter Who Wins the Next Presidential Election."

(By the way, all our past Digest issues – and any past work from any of our publications – can be found in the archives on StansberryResearch.com. The Digest archive is here.)

You'll note that Porter said he expected Harris to be the Democratic nominee in 2020. That didn't work out, though she tried... But here we are four years later, and it's on the brink of happening. Porter wrote...

You've probably never heard her name before...

But few people knew who Barack Obama was two years before he was elected president in 2008.

Sen. Harris is currently the junior U.S. senator from California, where she assumed office in 2017.

Prior to that, she served as the state's attorney general, and before that as district attorney.

Former President Obama is a huge fan of hers, and once described her in these words...

She is brilliant and she is dedicated and she is tough. And she is exactly what you'd want in anybody who is administering the law, and making sure that everybody is getting a fair shake. She also happens to be, by far, the best-looking attorney general in the country.

I believe it's just a matter of time before you see her name and face on every news network as she prepares for an eventual run.

You see, just like Obama in 2008, Sen. Harris is taking all of the calculated steps a candidate with eyes on the White House would be taking at this early stage.

• She's working on a new book that describes her underdog story and political agenda.

• She's headlining sold-out political fundraising events, raising millions of dollars for the Democratic Party.

• She's giving commencement speeches at left-leaning universities, and appearing on highly viewed talk shows.

• She's assembling a campaign team of former Hillary Clinton aides.

• She formally rejected corporate political action committee (PAC) money, and has even launched an online grassroots small-donor fundraising strategy.

Just about the only thing she hasn't done yet is announce her candidacy.

We'll make this our "quote of the week" for this week. Harris eventually did run, losing a bid for the nomination but linking up with Joe Biden to serve as his running mate for a White House run in 2020...

The big point...

In any case, Porter's big point was that if Harris (or any fellow progressive) won the Democratic nomination, they would likely appeal to what was soon to become the generation with the most votes in America...

The one thing I am sure of is that whichever progressive candidate ultimately runs for office in 2020, he or she will be focused on a socialist platform.

And that's because the only way you get hopeless, debt-burdened millennials to show up and vote for you is simple: by making the most radical promises American politics has ever seen.

And those promises – like a "debt jubilee" for the masses, "Medicare for All," or universal basic income – would have drastic consequences for the economy, stock market, and millions of Americans' retirements.

It might be time to consider this scenario all over again...

It sure does align with the history lesson we've given ourselves this week...

That's the record of the economy and markets going through tough times after the kind of presidential election we're about to see – one where a sitting president, eligible for a second term, decides not to run.

It happened most recently in 1968, and before that in 1952 and 1928. In the months leading up to those elections, stocks were actually up... But the track record for what comes after – for whatever reasons, like costly promises to "fix" the future – isn't great.

As we wrote Monday...

Recessions – real "official" recessions – each occurred within a year of the '28, '52, and '68 elections.

First came the market panic of 1929 and the start of the Great Depression under Herbert Hoover.

A Truman speechwriter described the 1953 recession as "relatively brief and mild."

The catalyst was tighter monetary policy from the Federal Reserve ahead of expected inflation related to the post-Korean War era. U.S. stocks were down about 12% in an associated market fall into the middle of 1953.

The last of these recessions, which also coincided with high inflation and tighter monetary policy, lingered for nearly a year. This time, stocks took a more considerable hit of nearly 40% from their pre-recession peak in late 1968 to a bottom in June 1970.

I can't tell you precisely what will happen in the markets or politics over the next year or few. In the short term, the prospect of some kind of "resolution" to the election – no matter what it is – could act as a tailwind for stocks, as it has in the past.

Then history suggests things could get volatile...

What's on Porter's mind now...

Porter wrote to all Stansberry Research readers a couple of weeks ago in a special Friday Digest. This latest call also looks prescient, given that the popular mega-cap names and "incredibly overvalued" S&P 500 Index, as he put it, have sold off since the warning he delivered. As he wrote...

Extremely high valuations, like the kind we see today in big-cap tech stocks, are like someone putting dynamite into a hole. The pressure builds and builds and builds. And the more extreme the valuations get, the bigger the inevitable explosion will be.

Right now, the only thing holding up this market is sentiment – the fundamentals are completely broken. When the stocks start to fall, sentiment will disappear. Then there will be a big crash.

Coincidentally, Porter is sitting down on camera in just a few days to share more about his latest outlook on the economy and markets... This includes explaining why the market crash he has predicted hasn't quite happened yet... and his thoughts now about how to navigate whatever comes next, in politics or anything else.

From what we've heard about the event, you won't want to miss it. It's free, too. You can click here for more details and to register to watch now so you don't miss anything. Given our subject today, I'm curious about what he might be predicting now.

New 52-week highs (as of 7/24/24): Coca-Cola (KO), Lockheed Martin (LMT), and Spotify Technology (SPOT).

We covered the primary piece of mail that came in yesterday above. What's on your mind? As always, e-mail your comments and questions to feedback@stansberryresearch.com.

All the best,

Corey McLaughlin
Baltimore, Maryland
July 25, 2024