Never Forget and Looking Ahead

Never forget 9/11... Looking at the markets... A concerning indicator... The gap between growth and income... What it says about the economy... What it could mean for stocks... Podcast: 'It pays to be an optimist'...

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Never forget...

I (Corey McLaughlin) can't write another word in this Digest without acknowledging the significance of today's date.

Obviously, we all know that the 9/11 terrorist attacks happened 22 years ago.

I grew up outside New York City. And like so many others all over the country, I'll never forget what happened.

Life changed during that morning in 2001 in ways that are still felt two-plus decades later. Thousands of innocent people lost their lives. And millions more watched the horror on TV.

As we in the U.S. deal with a seemingly increasing number of challenges, conflicts, and crises these days, it's important to keep 9/11 in perspective. And I also find it appropriate and valuable to think of the brave, selfless acts of so many folks that day...

The anniversary of the 9/11 attacks helps us remember who the real heroes are...

As regular Digest readers know, my grandfather was a former fire chief.

So on this day every year, I think of the firefighters who ran toward the destruction at the World Trade Center in lower Manhattan. My grandfather was already retired in 2001. But folks like him were just doing their job – as they do every day – with the intent of rescuing others...

A total of 343 New York City firefighters died on September 11, 2001, as they tried to rescue innocent folks when the twin towers collapsed. And in the 22 years since then, 341 more firefighters or first responders have died from post-9/11-related illnesses.

Exposure to the dust at ground zero has been linked to a heightened risk of cardiovascular disease. Respiratory disease and thousands of cancer diagnoses have been tied to the toxins released during the attacks.

On this day, I also always think of Welles Crowther, an equities trader at Sandler O'Neill and Partners in New York. The so-called "Man in the Red Bandana" was credited with saving more than a dozen lives while running into and out of one of the World Trade Center towers multiple times. He died when it collapsed. He was 24.

And I think of many others as well – most notably, the heroes aboard United Airlines Flight 93 who thwarted a third hijacked plane from possibly crashing into another symbol of America in Washington, D.C. (likely the Capitol building or White House).

Unfortunately, I also think of the terrorists, the geopolitics, and the security breakdowns that led to such horrific attacks on U.S. soil. I think of the two decades of war in Iraq and Afghanistan that followed. And I hope that enough people learned lessons from all that, too.

Never should anyone who sacrificed on 9/11, their family or friends, or anyone else be compelled to think what the heroes did that day was in vain.

Now, let's roll on to an economic indicator worth tracking...

There's no great way to transition into the markets after one of the most horrific events in the 247-year history of our nation. But I do have a few other things to talk about today...

The first idea comes from our colleague Dr. David "Doc" Eifrig.

Specifically, in his latest Retirement Trader advisory, published last Friday, Doc examined one of the most important economic indicators that he and his team watch...

The issue focused on the difference between U.S. gross domestic product ("GDP") and gross domestic income ("GDI"). We've spilled some ink here lately about fluctuating U.S. GDP and expectations for it moving ahead. But GDI is worth looking at, too...

In short, this indicator puts numbers to the economic story we've been telling lately. Life for the everyday American consumer isn't great – even though the "official" data shows the pace of inflation declining and GDP growth accelerating.

As Doc explained in Retirement Trader on Friday...

For every dollar someone spends on a good or a service – such as a movie ticket, a new watch, or a haircut – another individual earns a dollar of income to deliver that good or service. GDP captures the spending side of these transactions. GDI captures the income side.

In a perfect world, GDP and GDI would be the same. But we don't live in a perfect world... There is always some difference because these statistics are measured using different data sets and different sources. But the difference should be minimal, and it typically is.

When we see a large gap between GDP and GDI, it can be a warning sign for the economy. And the gap is large right now...

What should we make of this gap today?

To me, it suggests that since early 2022 – the last time GDP and GDI were tracking together – the amount of income people, on balance, have been making compared with the amount they're spending has drastically declined.

Again, it looks like a U.S. consumer who isn't "resilient." Instead, he seems "resigned" to the current state of the cost of living.

To that point, credit-card debt continues to climb to record levels. And the latest quarterly GDP estimate from the Federal Reserve Bank of Atlanta's tracker is at 5.6% annualized.

As Doc explained, some studies have shown that when estimates of GDP and GDI differ in a notable way, the true number is closer to the average between the two. As Doc wrote...

This means today's GDP estimates might be overly optimistic... and America's true economic output might be lower than folks think.

This possibility paints a slightly bleaker outlook for our economy. We're still optimistic, but it's something we're keeping an eye on.

Flat or declining "real" income while the economy is allegedly growing at an almost 6% clip is significant...

For one thing, it can't last without everyday people suffering. And in that case, if spending were to slow significantly or debts were to go unpaid, it would result in a major economic slowdown. And it would put delinquent loans on a path higher.

This is yet another reason to watch the unemployment rate, too...

If it continues to move higher, it will show an economy in which fewer and fewer people who want to work are able to find jobs. Meanwhile, these same folks will need cash more than ever before.

And yet, reported strong headline economic growth – as measured by GDP and inflation (if energy- and food-price growth keeps accelerating) – could also spur the Fed to keep monetary policy tight, where it is now. If they consider the economy too "hot," they could also hike rates more.

What's next?

Now, the better news is that this scenario doesn't have to be bad for stocks over the long run. And perhaps more importantly, it serves as a reminder of why we want to own stocks of high-quality businesses in the first place...

Let's not forget that the major U.S. indexes sold off around 20% to 30% – with many individual stocks down much more – last year on the expectation of the Fed's rate hikes and the anticipation of what they could do to the economy.

Expectations became very low. And since October 2022, the stock market has been climbing a proverbial "wall of worry" – which is typically a sign of a bull market.

Is this gap between income and "growth" another thing that can be overcome?

Yes and no, depending on the timeline...

If the unemployment rate rises in a world where people's incomes haven't kept pace with economic growth for more than a year, it won't be a great economy or a happy U.S. While the folks at the Fed will never say it out loud, this is essentially what they want – specifically, just enough of a slowdown to put the story of 40-year-high inflation behind them for good.

Whether it happens in a neat fashion is another matter.

It's wise to be prepared for a mess. And we should take great care to own shares of good companies that sell in-demand products or services, no matter what comes next for the economy.

If it all blows up spectacularly in a recession, stocks are likely to take an associated hit. Of course, at that point, I'm willing to bet the Fed will step in, cry "Uncle," and cut interest rates – which could boost stock prices.

If your head's spinning thinking about all this...

I suggest you check out what two of our top analysts are saying about the markets today.

Stansberry Research senior analysts Brett Eversole and Matt McCall decided to get together to share their takes on the market. And I expect them to cover how they see these uncertainties in the economy playing out over the next several months and into next year.

Without giving too much away, I can tell you that Brett and Matt are both bullish right now. And in particular, they both believe they've found the next group of stocks poised to rally.

If you want to hear why, they're sharing a new message that goes live tomorrow night...

It's a 100% free presentation. So if you've been confused or uncertain about what to do in today's market... if you want to know if it's worth buying into or better to stay away from... this conversation is worth your time. Click here to register for tomorrow's big event now.

The action starts roughly 24 hours from now. And you don't want to miss a minute.

New 52-week highs (as of 9/8/23): Alphabet (GOOGL), Eli Lilly (LLY), Novo Nordisk (NVO), Phillips 66 (PSX), and Walmart (WMT).

In today's mailbag, feedback on Dan Ferris' latest Friday essay. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"At last, someone at Stansberry has stated that 'the emperor has no clothes' with regard to the economy: the interest rate is the most important price, not the [government] promoted disinformation of PCE, PPI, CPI, etc., etc. Who is going to be the first to say what may (but hopefully does not) occur – a worldwide interconnected debt-fueled depression?

"No country has the funds to pay off the interest on their debts without inflating ala Argentina, which of course is broke anyway despite inflating like crazy for how long now?" – Subscriber Robert B.

"Hey Dan, The AMC well-fed ducks (apes) have been fattened up for two years for the slaughter. The credit event will bring in tough times that could make the financial crisis of 2008 look like a cakewalk. Thanks for all of your warnings!" – Subscriber Larry N.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 11, 2023