What Should Frighten Everybody
Take a deep breath... Porter Stansberry's big warning... What should frighten everybody... The better news... Why a chocolate bar is better than a gold bar... The only thing Porter knows for certain will work in these markets...
Just a few hours ago, our founder Porter Stansberry went live with his latest market outlook...
And it marked an urgent warning. I (Corey McLaughlin) will cut right to the chase...
As Porter said about halfway through his brand-new free broadcast...
The No. 1 thing that I want you to understand from this presentation is I believe we're going to have a very serious recession next year. I believe we're going to have another financial crisis.
There's a reason our Director of Research Matt Weinschenk said at the outset of this presentation, "If this is your first time hearing Porter Stansberry, take a deep breath. I can safely guarantee this will be unlike any other financial presentation you've seen in years."
Porter didn't just warn about a dire recession hitting the U.S. economy in 2024. That was his main point, but he covered many other concepts as well.
As I sit in our Baltimore headquarters here today aiming to give you a summary, it's daunting... and makes me say you should just check it out for yourself. You can do so here...
But here's a taste...
Porter shared precisely why he thinks a recession is coming...
While sitting at his 130-acre farm north of Baltimore, Porter detailed data to back up his view, like the state of consumer spending and debt... And he also shared his take on what might come amid this recession, and how the likely response to it will change the future of the dollar's status as the global reserve currency.
Porter also revealed a large sector of the American economy that is particularly prone to the next financial crisis... talked about why he thinks unemployment will go above 10%... and outlined the threats he sees to the banking system today, including one of America's best-known banks. As he said...
I can't know if there will be a run [on this bank], but I know that there could be. And that should frighten everybody.
Because it means there can be a run on the entire U.S. banking system.
As Porter said, as high inflation has remained sticky and interest rates have kept moving higher for nearly two years, long-term bond prices are down 50% since 2020 highs – a stunning rout that just keeps on going beyond most mainstream analysts' expectations.
This has rattled the markets over the past few months...
The 10-year Treasury yield has jumped nearly 100 basis points (a full percentage point) since its last low on August 31. That was right around the time the folks at the Federal Reserve started to signal that higher interest rates than expected could last into 2024... and inflation numbers reaccelerated.
As Matt wrote in this month's issue of Portfolio Solutions, this dynamic matters because when interest rates move, stocks tend to move after. As he explained...
Stock markets don't like high interest rates, for two simple reasons...
- Higher interest rates make the future earnings of companies less attractive.
- The higher yield on a bond looks more enticing compared with the expected return on a stock, so money moves from stocks to bonds.
With long-term yields moving higher since August 31 (and bond prices lower, since they trade inversely), the benchmark S&P 500 Index is down about 8%. The small-cap Russell 2000 Index is down more, off 12%. I don't think it's a coincidence.
Yet there has been less demand on balance for bonds, too. The Treasury Department has been unloading a lot of bonds into the market to finance Uncle Sam's ballooning debt while the Fed is trimming its balance sheet. As Matt explained...
With confirmation that interest rates will hover above 5% for the foreseeable future, investors are finally realizing it makes no sense to hold a 10-year Treasury bond that yields just 4.1% (as it did a month ago).
There's also a practical effect...
This bond rout has banks sitting on billions of dollars in unrealized losses (that they don't need to overtly report in their financials). And if people realize this, well, think of what we saw happen back during March's relatively brief regional-bank crisis.
We could see it again, Porter said, which would rattle the financial system to its core – again – and he explained why...
We've adopted socialism in lots of different ways... but most importantly, by continually bailing out the banking system by printing more and more money. And so how are you going to deal with that? It's not going away.
The crisis in '08 wasn't the last crisis. The crisis in 2015 wasn't the last crisis. The crisis in 2020 wasn't the last crisis, and the crisis that we're going to see, I believe in 2024, will not be the last crisis. It's going to continue.
All in all, we're seeing the knock-on effects of the most recent pandemic interventions, which we've described before, including in yesterday's edition. A lot has happened over the past three years, but it's still the early days of the consequences.
Now that you may be scared, here's the better news...
If you're reading this at all, you are already better off than most other individual investors with money in the markets... and have a great head start on what might be coming for the economy and markets in the next year.
If Porter is right, the next several years could be a very difficult period for investors and everyday Americans. But they will be better for those who prepare the right way and understand a few important fundamentals.
We have talked here frequently about how the next crisis, specifically the next "credit crisis," will present rare buying opportunities in things like corporate bonds that sell off as the market panics. What Porter is talking about is all part of the same story.
But the steps he is talking about taking today to prepare have to do with stocks.
The greatest stocks to own...
Without giving too much away, consider the chocolate maker Hershey (HSY). It's no secret that the business is a longtime favorite of Porter's and several Stansberry Research analysts. But the "why" is the important thing to understand.
The secret is pricing power. This lets Hershey generate tons of cash no matter what's going on in the economy. It can then reinvest that cash in the business or reward shareholders when others find it impossible to do so.
As Porter explained to Matt...
There's a reason why Hershey can raise its chocolate bar at a faster pace than the price of gold is going to go up. And it's because everyone knows exactly what a Hershey bar is. It has great global distribution. It doesn't have to reinvent the product ever. It just keeps selling what has been selling for the last 150 years.
Owning shares of businesses like this will be critical to protecting and growing your wealth in and coming out of the next recession, Porter said, and he referenced his last major recommendation to buy these kinds of stocks back in March 2020...
Back then, the rest of the world was panicking, but he said it was the perfect time to buy what he calls the Greatest of All Time stocks. A half-dozen of his recommended high-quality stocks, even after a down year for everything in 2022, are up double or more today. As Porter says now...
It's the only thing that I know for certain will work in these kinds of markets. And so I hope that me coming back will get more people interested in it, and we'll get some more people involved in something that can really safely compound their wealth. It is the real solution for this kind of long-term inflationary outlook.
We plan to share more from this new presentation in the Digest over the next few weeks. But I suggest you check out the entire video for yourself now to hear all the details and get access to Porter's recommendations on how to prepare for what he believes is coming next.
Our summary here only scratches the surface.
As for the markets today...
The number of the day today was reported 4.9% annualized GDP growth for the third quarter, but jitters continue to show in the market.
The benchmark S&P 500 was off more than 1% and has now closed below its 200-day moving average, a technical measure of a long-term trend, in four of the past five trading days... That's a dangerous place for stocks to be trading.
The CBOE Volatility Index ("VIX") – which measures implied volatility based on options bets on the S&P 500 and is sometimes called the market's "fear gauge" – ticked a bit higher today to 21. That's what we consider the low end of the "high" range.
Yet volatility is still not in the "extreme" territory above 30 that you might see during times of crisis. If current trends continue, more downside could be ahead. But should they turn around, that could be a bullish signal. (Our Ten Stock Trader editor Greg Diamond explained this to his subscribers in a pair of updates here and here.)
At the same time, another Fed meeting is upon us next week. Debate about interest rates, the jobs market, and economic growth will take center stage again. And we'll be treated to another long, winding trip through the mind of noted fly-by-the-stars sailor and Fed Chair Jerome Powell on Wednesday.
New 52-week highs (as of 10/25/23): Sprouts Farmers Market (SFM) and Sprott Physical Uranium Trust (SRUUF).
In today's mailbag, feedback on yesterday's Digest about what's really happening in America... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"America is still 'the best house in a bad neighborhood'?? Pfft, I don't think so." – Subscriber C.F.
"Hi, Great synopsis as usual. Thank you for all your great research.
"My question is about your graph regarding the wealth gap. Can a net worth be put to each group you're identifying?" – Subscriber Thomas V.
Corey McLaughlin comment: Thanks for the note, Thomas. I can get close, but not all the way there. The Fed actually publishes a Survey of Consumer Finances every three years, which includes its net worth data, and it just released the latest update last week.
The central bank didn't publish the percentiles precisely as I did on the chart yesterday (the richest 1% and poorest 5% aren't included), but hopefully these numbers satisfy your curiosity enough...
The Fed says families in the richest 10% in 2022 had a net worth of at least $1.9 million. The 75th percentile was roughly $659,000, the 50th was around $193,000, and the poorest 25% had net worths of less than $27,000.
Another interesting point is that the median net worth jumped an astonishing 37% since 2019, the largest three-year rise on record in this survey that began in 1989.
So, nominally, a lot of people got and/or felt "richer." But, you know, we had $6 trillion of stimulus pumped into the economy that spiked real estate and other asset prices... 40-year highs in inflation... and no tightening of the relative gaps between income groups... all while the dollar has become weaker.
All the best,
Corey McLaughlin
Baltimore, Maryland
October 26, 2023