A New Recession Warning

The ECB confirms 'easy money' is here to stay... New highs for oil... Steve's latest thoughts on crude... A new recession warning... Restaurant bankruptcies surge... How to profit, rather than panic, as the crisis unfolds...

Note from Porter: In 1999, the wealthiest and wisest man I had ever met invited me to join him for a small private dinner in Shanghai. We sat a dozen stories over the "Bund" – the bend in the river that sits at the center of that giant megalopolis. Behind us, the enormous towers of capitalist Pudong were just rising, and across from us, the ugly, old, dirty, and used-up communist city sprawled like an endless dirty carpet.

It was that night, at dinner, when my life changed forever. I was put upon the philosophical and intellectual path where I remain today. What my mentor taught me that night was so profound and powerful that it led me to create tremendous value in business, and more important, to build meaningful and genuinely honest relationships. I learned how to pursue an objectively moral life. Nothing I've ever learned was more valuable to me.

The man who taught me? Doug Casey, the legendary global speculator.

He may never invite you to dinner in the midst of the largest free-market revolution in history, but the lessons he taught me that night are all explained, in even more vivid detail, in his new novel – Speculator. The story is about a young man learning the ropes of junior-mining speculation in Africa. It's a story Doug could have easily written about our trip to China nearly 20 years ago. This isn't mere fiction.

It is a must-read for every fan of adventure and of capitalism, and for anyone who is seeking a far more thorough understanding of the modern world.

I can't endorse this book strongly enough.

Here's how I described it on Amazon...

Stunning. Brilliant. Essential. Sound.

Worthy in every respect as a must-read, modern companion to Atlas Shrugged. Rather than fleeing a world corrupted by coercion and fraud, Casey's heroes fight back with the tools of a speculator. This book resonates and educates, with concepts and ideas that will shock anyone educated in public schools, but unlike the Randian polemics of the 1950s, this is a modern thriller in style. The action is original. The dialogue is savvy. And the characters are just as real as a few of our mutual friends. I didn't put the book down for three sleepless nights – not until I finished it. The end was unlike any other I've ever read. Brutal and real.

Superb fiction is always more true than not. And, with this tale, Doug shows his readers a side of reality most people have never considered... A view of modern life most people will find shocking, confounding, and challenging. Simply brilliant fiction and the best book I have read in a very long time. – FPS

Please buy this book. And after you've read it, give it to a friend.

The European Central Bank held its latest policy meeting this morning...

As expected, the European Central Bank (ECB) kept its short-term interest rates steady again this month. But it also reaffirmed rates would remain at "present or lower levels for an extended period of time."

The central bank also shot down speculation that it is planning to "taper" its quantitative-easing ("QE") program, noting that the Governing Council confirmed "monthly asset purchases of 80 billion euros are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim."

In his post-meeting speech, ECB President Mario Draghi reinforced several of these ideas...

He said the recent report suggesting the ECB would begin tapering before March was based on "unauthorized and uninformed" sources. He also said that whenever the bank decides to conclude its QE program, it would not come to a "sudden stop." Finally, he noted that there is still no sign inflation is moving higher, and said the bank ECB would share more details about "what we're going to do in the coming months" at its next meeting in December.

In short, it still appears the ECB's "easy money" policies are unlikely to end any time soon.

Crude oil jumps to a new 15-month high...

West Texas Intermediate ("WTI") crude oil – the U.S. benchmark for prices – rose 2.6% to $51.60 per barrel on Wednesday. WTI hasn't traded at this level since July 2015.

The rally followed news that crude-oil stockpiles plunged again last week. The U.S. Energy Information Administration said crude oil in storage fell 5.2 million barrels, compared with analyst expectations of an increase of 2 million to 3 million barrels.

U.S. stockpiles have now declined in six of the past seven weeks. More important, stockpiles have been falling at a time of the year – the end of the summer-driving season – when they usually rise. As the Wall Street Journal reported last night, some analysts believe this is a sign that the worst of the oil crisis is over...

"There is a strong possibility that global demand is already outstripping daily oil output," Phil Flynn, senior market analyst at the PRICE Futures Group in Chicago, said in a note. "Extraordinary cutbacks in global energy spending (are) starting to show up... We are seeing U.S. oil supply tighten very quickly."

Regular readers know our colleague Steve Sjuggerud turned bullish on crude oil earlier this month. It was a bold call, but as we noted last week, he cited two reasons why higher prices were likely...

First, oil finally met all three of his ideal investment criteria. It was cheap, in an uptrend, and investors finally hated it.

Second, and more notable, his True Wealth Systems computers had just confirmed a "double bull" signal in oil for the first time in more than two years. As we wrote in the October 13 Digest...

The details behind these signals are beyond the scope of the Digest, but you really only need to know a couple things...

First, Steve has two different systems that track the oil market in different ways. And history shows that oil's biggest gains come when both systems are in "bull mode" at the same time. Second, the longer oil goes without one of these double-bull signals, the greater the gains have been.

So far, Steve's call appears to playing out as predicted. However, last night, Steve shared an important update with his True Wealth Systems subscribers. In short, a big change has taken place in the oil market since he made his original recommendation two weeks ago: Sentiment is already nearing an extreme. Here's Steve...

We haven't changed our minds. And we're not selling our energy-stock trade. But it's important to understand what has happened since our recent issue. Here are the details...

It rarely happens this quickly... But sentiment in the oil market has gone from "who cares" to "all aboard" since our report two weeks ago. Remember, our systems moved to double-bull mode at the end of September. Oil prices are down slightly since then. But more importantly, sentiment in the oil market has moved toward an extremely optimistic level.

The simplest way to see this is in the Commitment of Traders ("COT") report for oil. The COT shows us what futures traders are doing with their money. Like any sentiment gauge, we see it as a warning sign when the COT shows traders all betting on a similar outcome. And like we said earlier, in the last two weeks, futures trades have moved from "who cares" to "all aboard" on the bet for higher oil prices.

Again, Steve says this isn't a reason to sell. Extreme sentiment is a sign folks are interested in oil once again. But it isn't a precise timing indicator... And oil remains in double-bull mode. Steve is staying long, but he will be watching the situation closely...

Sentiment was more extreme before oil peaked in 2014. And it could get more extreme before the trend reverses again.

We can't know exactly how this will play out. But it's important to know that investors are catching on to the oil trade.

We still believe we can make money. And we're staying long until our systems tell us to sell. But this is an important warning sign for investors...

Restaurants are signaling tough times ahead...

Speaking of warning signs... If the restaurant industry is any indication, the U.S. economy could be even weaker than many of the government's official numbers suggest.

So far this month, two large chains – Don Pablo's Mexican Kitchen, and Garden Fresh Restaurant Corp., the parent company of Souplantation and Sweet Tomatoes – have filed for bankruptcy protection.

They follow the bankruptcies of flatbread-pizza chain Cosi and Zio's Italian Kitchen in September... steakhouse Logan's Roadhouse and Last Call Guarantor – the restaurant holding group of sports bars Fox & Hound, Champps, and Bailey's Sports Grille – in August... and the parent company of all-you-can-eat buffets Old Country Buffet, HomeTown Buffet, and Ryan's Buffett earlier this year. And plenty of other struggling restaurants could join them. As the Journal reported this week...

So many filings in such a short time has surprised industry experts, who say more restaurant bankruptcies or closures are likely, as well as some consolidation. Some chains have been closing locations and shaking up management. Famous Dave's of America, which has been closing many of its barbecue restaurants, last week named its fourth new CEO in four years.

In August, Ruby Tuesday announced plans to close nearly 100 restaurants and Bob Evans Farms closed 27 restaurants in April on top of 20 it had shut down last year.

While table-service restaurants have been hit the hardest so far, industry analysts expect fast-casual chains – where customers order at the counter – will be next.

What's behind the trend? As Garden Fresh's CEO John Morberg noted in the company's court filings, "Restaurants have been facing substantial pressures due to sales declines, as well as cost increases."

Part of it may be simple overcapacity. The Journal notes the number of restaurants in the U.S. grew by 7.3% over the last 10 years, while the U.S. population grew by just 6.9%. But many Americans – particularly younger folks – are also staying home to eat more often...

Once the heaviest group of restaurant customers, 18- to- 35-year-olds have scaled back. In the past 10 years, older millennials have made 50 fewer restaurant visits per capita, according to NPD. Although people under the age of 20 are increasing their visits, they go out to eat at a far lower rate than older millennials and members of Generation X did at their peak.

Folks could be cutting back on restaurant visits due to a number of potential reasons, but saving money is likely at the top of the list. While prices for rent, energy, health care, and many other goods and services have been rising, grocery prices have been plunging this year. As Bloomberg reported late last month...

In a startling development, almost unheard of outside a recession, food prices have fallen for [10] straight months in the U.S. It's the longest streak of food deflation since 1960 – with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters.

According to U.S. government data, food prices have fallen 2.2% in total over the past year. But as our colleague Dr. David "Doc" Eifrig recently noted in his Retirement Millionaire Daily e-letter, many relatively expensive staples have fallen even more...

According to the Bureau of Labor Statistics, the index for meats, poultry, fish, and eggs has declined 12 months in a row – and is down 6.5% from this time last year.

Raw ground beef fell nearly 9%, frozen fish and milk are each down 5%, and coffee is down about 4%. Also, eggs are down 38%... though if you recall, last year around this time we were going through the bird-flu scare that drove prices up.

Meanwhile, restaurant prices have risen 2.4% over the past year. As a result, the average cost difference between eating in and eating at a restaurant hasn't been this great since the mid-1980s.

To make matters worse, many restaurant chains – like the rest of corporate America – are struggling to service the massive debt loads they've taken on in recent years. As Darren Tristano of restaurant-data provider Technomic told the Journal, "Many of them are a bad quarter away from folding, despite doing their best to improve and get by."

As we alluded to earlier, restaurant sales have long been a leading indicator for the economy... When spending at restaurants slows, the broader, consumer-driven American economy typically follows.

In other words, it's one more sign that a recession is approaching. As Porter warned in the October 7 Digest...

I'm 100% certain we're going to enter another recession next year...

I've been writing about the warning signs for a long time – falling industrial production, declining trade, falling corporate profits, and rising corporate defaults. And I told you that employment would roll over next. It has. The jobs report today showed that unemployment ticked up to 5%. The employment situation has been getting steadily weaker for the last year.

If we're in a recession next year... look out. All of these debts will be seen as unfinanceable. The bond prices of highly leveraged companies will seriously collapse as these liquidity problems spread. As for stocks, the damage to share prices will be much worse.

A reckoning is coming – and it's long overdue.

As we've discussed in recent Digests, we're launching our new service – Stansberry's Big Trade – to allow you to profit, rather than panic, as the reckoning unfolds. You can get all the details now by clicking here.

New 52-week highs (as of 10/19/16): ProShares Ultra MSCI Brazil Capped Fund (UBR) and short position in Hertz Global (HTZ).

The mailbag is overflowing today... Readers respond to Steve Sjuggerud's gold note, weigh in on the "friends and family" indicator, and share their thoughts on the new Stansberry Research website. Send your notes to feedback@stansberryresearch.com.

"I'd like to weigh in on subscriber Lary R.'s challenge to Steve. I understand the frustration of feeling like you missed out on something big. However, I believe Lary R. is missing the bigger point.

"Stansberry Research is actively teaching us how invest/trade/'fish' ourselves. Sometimes, that means we'll make a bad call or two ourselves. That's fine. I've made plenty of mistakes venturing out on my own trades. Those trades are what Porter once referred to as 'no tears' trades. When you use proper position sizing and/or stop losses, you eliminate the chance of being wiped out (and hitting the jackpot). That's not an issue because you guys bring us fantastic, actionable ideas on a daily basis. It sounds like Lary R. has more eggs in his gold stocks basket than he should have. Otherwise, he wouldn't be upset.

"I'm grateful every day for the value and knowledge that Porter, Steve, Doc, Dan, Matt, and the entire Stansberry crew bring. I am wealthier (and hopefully a little smarter) than I was in 2011 when I found Stansberry Research. Please keep up the great work and know that there are lots of us out there with changed lives thanks to you guys With Stansberry Research's guidance, I've never felt more confident and excited about what the future holds. Take care guys!" – Paid-up subscriber Jesse Haro

"Steve, a fine, fair, honest answer to a subscriber's complaint. All of us often make gut decisions that work out and then there are those that don't. Heck, although I follow Porter's work, I don't always follow his suggestions, often to my dismay. Sometimes, however, events prove me right. It's still a free world where we can make our own decisions and, if so, live by them. No one as yet forces us to blindly follow a pied piper. You pays your money, you takes your chances, but the outcome is always your decision, no one forces you to follow along." – Paid-up subscriber A. Rutherford

"In today's Digest you asked, what are you hearing from friends and family? Recently I have had friends who for years have not wanted anything to do with the market ask me for investment advice. These are the same people who bought bitcoin at the top and another who has always thought the market was for gambling. They are my contrarian indicators, so it may be a possible sign of the top." – Paid-up subscriber Steven H

"There isn't one person that I have talked to recently that believes the economy is good. In fact, I keep getting 'there's a market crash coming I am getting out of harm's way.'" – Paid-up subscriber E.C.

"I have to be truthful and tell you I don't hear anything from them about the market so maybe they're not investing or maybe they let professional advisers make their decisions for them. In any case it doesn't bother me and I just follow as much reliable information from different sources as I have time for. So far it's working- I haven't lost money this year unlike other years when I lost quite a bit. So far so good as they say." – Paid-up subscriber David G.

"Gee, I wonder why your friends and families are bearish!!! Are you kidding me??? You guys and everyone else associated with Agora are ground zero for bearishness! Print this PLEASE it will at least make people laugh and/or wipe your clouded mirrors..." – Paid-up subscriber AJ Tulp

Brill comment: You may be surprised to learn that most of our friends and family members are no more interested in investing and the markets than the general public. (Remember, there is no teaching, only learning.) They rarely ask for advice unless they're afraid... afraid of missing out on gains their friends are making, or more often, afraid of losing money in another crash. This means they're often a great short-term indicator of extreme market sentiment.

"Just pulled up the new homepage and really like it. I can see everything/one at a glance without having to click into subscriptions, then search for the service I want. Now I can see the analyst and the service at a glance, which will be helpful going forward. This is clean looking and well organized. Nice uptick." – Paid-up subscriber Stephanie T.

"Great new site!" – Jim H.

"Hello Porter! I just checked out the new home page. I like it soooo much better than the old one! I hated the old one. Something had to change. I am so glad that you have finally come up with something that works. Congratulations!" – Paid-up subscriber Dave H.

"I just checked out your beta website. I like it a lot – it is a big improvement over the previous website. The layout is nice and clean, easy to navigate. I like the search feature. Nice job." – Paid-up subscriber Tim C.

"I just went through it and it is such an improvement congrats to the entire team. Awesome! Keep the updates coming." – Paid-up subscriber Terry P.

"Home Page is MUCH better. The old site was rather messy and required a lot of extra clicks." – Paid-up subscriber Woody P.

"Just did a quick drive through the beta Stansberry Research website, and it looked awesome! Huge improvement over the current site, which now that I think about it, isn't very easy to use WRT switching between various newsletters." – Paid-up subscriber Jim K.

"At first glance, it appears easier to navigate to recent news. Perhaps less useful to get to slightly older news, as has been useful for me who can not check daily. Thanks for everything. I keep learning... :-)" – Paid-up subscriber Paul M.

Regards,

Justin Brill
Baltimore, Maryland
October 20, 2016