On the Brink (Again)

The war in Ukraine escalates... A touch of volatility... Unemployment fears eased... The case for gold – again... Profit from other people's fear... The story of a Stansberry subscriber...

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And on the 1,000th day, things changed...

Today marked the 1,000th day since the Russian invasion of Ukraine in February 2022... And with it came a new level of escalation in the conflict that has created a new set of uncertainties about how it will develop from here.

Last night, after months of urging, U.S. President Joe Biden authorized Ukraine to use U.S.-made long-range missiles to attack deeper into Russian territory.

Today, Russia said Ukraine carried out its first strike using six such missiles. Russian President Vladimir Putin responded by updating the country's nuclear doctrine to say that it will consider aggression by a nonnuclear state (like Ukraine) supported by a nuclear power (the U.S.) a "joint attack" that could warrant a response from Russia using nuclear weapons.

In other words, Putin is now saying the U.S. has effectively attacked Russia – and that a nuclear response is on the table... Where? How? Will it happen? Nobody knows for sure, but the threat is now in writing, which is different. At a press conference today at the ongoing G20 summit in Brazil, Russian press secretary Dmitry Peskov told reporters...

You will be able to read the paragraphs yourself, but in general it also states that the Russian Federation reserves the right to use nuclear weapons in the event of aggression with the use of conventional weapons against it or the Republic of Belarus [a Russian ally], which creates a critical threat to sovereignty or territorial integrity.

Other Russian officials evoked the idea of World War III, like one Russian senator who told Russia's state-run news agency that Biden's decision represented "a very big step toward the beginning of the third world war."

Why all this escalation now?...

After all, Ukraine has been asking to use these U.S. weapons (ATACMS missiles, which have a range of about 190 miles) on targets inside Russia for a while. And Putin had telegraphed in September this would be the response should such attacks take place.

Well, as CBS News reported last night...

Over the weekend, however, the calculus apparently changed. The decision came almost 1,000 days into the full-scale war in Ukraine, and with Mr. Biden about two months away from handing over the White House keys to President-elect Trump, who's seen as far less supportive of Ukraine's ambitions of hanging onto all of its Russian-occupied territory.

It also came as Russia hit Ukraine with a devastating missile attack, highlighting Ukraine's desperate desire for the ability to target Russian weapons systems deeper inside the country before they're launched, which [Ukrainian President Volodymyr Zelenskyy] has stressed for more than a year.

Russia attacked critical Ukrainian energy infrastructure in that most recent attack, and reportedly killed 11 civilians. But attacks like that aren't new in this conflict. What has changed recently, however, is that Russia has enlisted at least 11,000 troops from ally North Korea to fight in the war...

According to John Sullivan, who served as U.S. Ambassador to Russia under both Trump and Mr. Biden, it may have been that move by Putin – "really solidifying this as a global conflict with troops from North Korea fighting in Europe" – that proved to be "the last straw" for the current U.S. president.

Or, perhaps, the decision could be the start of an entirely new, higher-stakes environment involving multiple countries more directly... or it could be mostly posturing that doesn't lead to nuclear attacks.

In any case, what happens next is far from certain. That, I (Corey McLaughlin) know is true.

So, throw in the prospect of escalations about in the war in Ukraine – and questions about energy, trade, and national security, to put it broadly – into the mix of what investors are considering (again).

The markets were on edge this morning, at least...

As this news broke overnight, futures were down, and volatility spiked some today. The CBOE Volatility Index – a measure of options activity on the S&P 500 Index, which some consider the market's "fear gauge" – rose above 16, a jump of more than 4% from yesterday.

We've certainly seen bigger one-day spikes before. Still, this move is notable and is a sign of what could come should things in Ukraine take further unexpected turns in the days, weeks, or months ahead.

The major U.S. stock indexes opened lower, and bonds rallied in apparent "safe haven" fashion. This brings up an interesting dynamic to consider right now, as our Ten Stock Trader editor Greg Diamond wrote this morning...

Ukraine launched a missile attack within Russia's border... Russia said it would respond with a nuclear option if this continues. Hopefully, cooler heads will prevail.

Stocks dropped and bonds rallied on the news.

We also saw Canada print higher inflation than expected... This weighed on stocks as well.

Now, things get tricky with bonds... Will we see a "flight to safety" if the war escalates, or will inflation reign over the price action?

We shall see. It may end up being a bit of both. It's hard to imagine the war in Ukraine coming to a resolution soon, and the pace of inflation in the U.S. and elsewhere has been picking up in the past few months (as the Federal Reserve seems intent on lowering interest rates).

By closing today, most of the U.S. stock indexes were higher... The benchmark S&P 500 was up 0.4%, the small-cap Russell 2000 Index was up 0.6%, and the Nasdaq Composite Index was 1% higher, while the Dow Jones Industrial Average was 0.2% lower.

Some reassurances from the labor market...

Thirty minutes after the market opened this morning, new labor-market data from the Bureau of Labor Statistics helped stocks recover from their shaky start.

This was state unemployment data for October, and it appeared to confirm the belief that last month's slowdown in "nonfarm payrolls" growth – to only 12,000 jobs – had much to do with short-term hurricane impacts and the labor strike at Boeing (BA).

Washington state, Boeing's main manufacturing center, saw 36,000 fewer jobs in October than September (a 1% decline), while Florida reported 38,000 fewer (a 0.4% drop) in a period that included two brutal hurricanes.

These were the only two states with significant changes from September to October... So the paltry headline jobs growth reported in October could be an outlier when it comes to the ongoing broader trends in the labor market, which has seen the unemployment rate decrease in the past few months.

Said another way, as the Fed delivers juice to the economy, the overall American jobs market seems to be holding up fine.

In any event, gold moved higher today, too...

The "chaos" and inflation hedge was up 0.8%, recovering from its recent turn lower. The precious metal had reached an all-time high of around $2,785 per ounce in late October before the U.S. presidential election, and it now stands at about $2,630.

Gold has a place in any well-diversified portfolio, and as we've said throughout this year, we have several reasons to be bullish on the precious metal. As I wrote in the August 20 Digest...

There are at least three fundamental catalysts that support a bullish case for the centuries-old store of value...

1. The threat of escalating war in the Middle East and the ongoing war between Russia and Ukraine. Simply put, more developments in these wars could lead to further "shocks" for stocks and send investors into "safe haven" assets like gold or bonds.
2. It looks like the Federal Reserve is comfortable returning to "business as usual" and will lower interest rates. This isn't that long after the economy endured a 40-year-high rate of inflation (and still-rising prices). Cheaper dollars means rising prices for dollar-denominated assets... like gold.
   

   Other central banks are also buying gold as a way to hedge against the dollar... to the tune of more than 1,000 tonnes in each of the past two years.

3. Campaign promises from the U.S. presidential candidates to "fight" inflation. We've seen this story before... The proposed policies, in one way or another, will only exacerbate U.S. debt and inflation, and certainly won't get to the root of the problem: fiat currency and money printing.

Count today as an example of Point No. 1, and No. 2 and 3 also remain in play.

From a technical perspective, gold remains in a long-term uptrend solidly above its 200-day moving average and is up about 28% year to date.

If history is any indication, this could be just the start of a massive bull run...

Check out this chart, shared on the social platform X by "In Gold We Trust," comparing gold's path this year with the start of other major runs higher for the precious metal in the 1970s and amid the great financial crisis...

Of course, there's no guarantee of history repeating, and this is a small sample size. But if you're bullish on gold, this history should probably get you excited.

Another path today...

Profit from other people's fear.

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You might use this strategy already yourself to collect thousands of dollars in income each month – we've heard from many subscribers who do – all without touching a stock or bond.

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Doc recently traveled to Oregon to talk to one subscriber who learned this, wrote us a thank-you note with his story, and said he has gone from "money anxious" to making up to $8,000 per month in income using the strategy. Again, this approach thrives during volatile times.

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

"Mr. Ferris, The best, most positive you have been in the years I have been reading your missives. Thank you!" – Subscriber Donald T.

"Excellent essay [on Friday]. Hope and trepidation." – Subscriber R.H.

"Hey Dan, I too want to be optimistic that the DOGE group will be successful in tearing down our wasteful and overbearing government. However, I think the most we'll get will be some minor reductions in staff and a lot of recommendations. This was actually tried before during the Reagan Administration (the original 'Drain the Swamp' president) when he appointed J Peter Grace to run the Grace Commission in 1982. And though they made a lot of recommendations, most of them were ignored by Congress because they involved changes to policy which is under the purview of the Legislative Branch.

"And yes, it isn't lost on me that Republicans control both the House and Senate this time around, but it isn't a supermajority and many of the budget/funding decisions require a supermajority. Those that don't might be changed but there will be a midterm election between now and the point at which the recommendations will come under consideration and neither party tends to hold the majority longer than 2 years.

"Here's hoping I'm wrong." – Subscriber Bryan B.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
November 19, 2024