A Suggestion for Avoiding 'Hell in America'

Don't miss the Financial Lifeline Event... Big bankers go to Washington... A suggestion for avoiding 'hell in America'... Jamie 'the Hurricane' Dimon with the smackdown... A new analysis of the 'yield curve' and stocks...

They're sending out a 'lifeline'...

We begin today with a "last minute" reminder...

In less than two hours, Marc Chaikin and Joel Litman – the founders of two of our corporate affiliates, Chaikin Analytics and Altimetry – are going live with their brand-new Financial Lifeline Event.

We've shared background on Marc and Joel and some of their general market outlook this week. For one thing, both are warning of "earnings recessions" on the horizon, but they also say you can still see great gains ahead in pockets of the market.

We've been sharing a similar message in the Digest lately. We doubt we've reached a bottom in the stock market yet, but as always – yes, even in this volatile bear market – you can still take steps to protect and grow your wealth.

The key, of course, after having enough capital to put to work, is knowing where to find the opportunities and what mistakes to avoid the most...

If you ask me (Corey McLaughlin), any good advice on these points is worth hearing out today. Not that we need another example, but the benchmark S&P 500 Index again closed down more than 20% from the start of the year... and more losses could be ahead.

For more detail – and to catch their "lifeline" – be sure to tune in to Marc and Joel's presentation tonight. It's free, and just for watching...

• You'll hear why this pair of Wall Street legends says what's coming before the end of the year will trigger both huge gains and massive losses, depending on which side you're on...
• Why a new financial crisis isn't coming, but is already here... and how it could devastate millions of Americans' retirements...
• And toward the end, Marc and Joel will share a total of eight free portfolio recommendations. They will each give away two stocks to buy and two to avoid or sell from your portfolio immediately.

Just sign up here to watch so you don't miss a minute. (Note: This is a corporate affiliate event, meaning Stansberry Alliance members will need to register to watch or listen to the talk, including the free picks.)

Moving on...

What happens when big bankers go to Washington...

Jamie Dimon hogs the spotlight...

Seven CEOs, representing most of the largest banks in America, testified before the House Financial Services Committee yesterday during annual testimony about banking regulations and policies.

They said a lot, but we're going to focus on the words from just one of these big bank leaders... Dimon, the outspoken JPMorgan Chase CEO.

Few corporate executives are better for the financial media or newsletter writers... Dimon might have a shot as a screenwriter or television commentator given his well-timed use of clever analogies, sharp one-liners, endless opinions, and proclivity to share them.

He also just happens to run America's largest consumer bank. Yesterday, he again made the most headlines during the bankers' visit to Washington. And we share his comments because they are relevant to a few of our ongoing discussions...

First, Dimon told Congress to forget about a 'soft landing'...

He said the Federal Reserve stands only a "small chance" of pulling it off... and lawmakers should "be prepared for the worst" for the economy. If a formal recession is ahead, Dimon said it may not be mild because of the backdrop of the uncertainties from the war in Ukraine.

None of these statements should surprise regular readers. We've shared more than enough evidence about the long odds for a "soft landing"...

A few months ago, we also highlighted when Dimon told a group of Wall Street analysts and investors to "prepare for a financial hurricane." So his personal position is not surprising, either.

One important note, though... Consider the source... Dimon has been an outspoken critic of the Fed and its capital reserve requirements for banks for a long time. Of course, we all still remember the financial crisis and how banks like Dimon's were deemed "too big to fail." So nobody has tons of sympathy for Dimon's argument on that point.

Still, we happen to agree with him that a "soft landing" is a long shot.

He said thank you, Congress, for inflation...

Asked by Republican Bill Posey of Florida if congressional spending was responsible for the high level of inflation in America, Dimon replied... "I don't think you can spend $6 trillion and not expect inflation."

No argument here.

If you want 'hell in America,' do this...

An exchange between Dimon and Democrat Rashida Tlaib of Michigan was probably the highlight of the entire hearing. Tlaib asked each of the CEOs to say with a "yes" or "no" if their banks had any policies against funding new oil and gas products. She started with Dimon. He replied without hesitation...

Absolutely not, and that would be the road to hell for America.

I can hear the announcer now over the video clips: Jamie "The Hurricane" Dimon with the smackdown...

Tlaib responded with some grumbling about how anyone who just got student-loan relief and newfound money in a JPMorgan Chase account should close it, and she later said he doesn't care about working-class people and their health...

Yet the other bank CEOs who answered the same question yesterday said the same thing, just with substantially less flair and more diplomacy. For example, Bank of America CEO Brian Moynihan said...

We are helping our clients make a transition, and that means we're lending to both oil and gas companies and to new energy companies.

This is precisely the tug of war in the 'energy transition' to expect in the years ahead...

Our colleague Brett Eversole highlighted this story – and the breakdown between perception and reality that investors can take advantage of – recently...

Enough policymakers in the U.S. and around the world seem to want to go "all in" on a fossil-fuel-free world, but many don't appear to realize that this can't happen overnight just because they want it to. As Brett wrote in the September 7 Digest...

The reality is that we're going to need oil and gas for another decade or two.

The International Energy Agency ("IEA") – an autonomous energy-policy organization with 31 member countries, including the U.S., U.K., and Germany – predicts oil demand will peak in the mid-2030s. And it says demand will remain significant even in 2050.

This is all to say that you should expect this trend – politicians fighting for green-energy initiatives amid the realities of current energy supply, infrastructure, and regulations – to be a major point of contention and confusion in the years ahead...

As Brett said, it also makes for a huge breakdown between perception (green utopia is here) and reality (it is decades away) that could lead to much higher energy prices (and inflation) in the interim. The amount of pressure put on the oil and gas industry by D.C. could be a driving factor.

That's bad for consumers. But it also creates opportunity for investors who know what's coming. As he wrote...

[H]igh prices will mean record revenues for these companies. That's typical in a boom. But the companies usually reinvest those sales into future production.

Today, Wall Street is telling them not to. So this boom will lead to record sales... record margins... and record profits. These companies will turn into cash-gushing machines the likes of which we've never seen.

So, in sum, Dimon's suggestion to policymakers and industry leaders for avoiding "hell in America" lands as good, practical advice here... and his quip illustrates a big thread in one of the biggest stories in the world today.

Turning our attention to more 'nuts and bolts' market indicators...

We've shared plenty about the yield curve this year... and how it "inverted" – meaning short-term Treasury rates have gone higher than longer-term rates, suggesting trouble ahead for the economy...

More than 60% of Treasury yield spreads – accounting for the various combinations of durations, from three months to 30 years – are now "inverted," according to Ned Davis Research.

Arguably the most widely followed spread for this kind of analysis is the difference between the 10- and two-year Treasurys... For fear of overusing our typical "10-2" yield curve inversion chart, we won't again today.

We'll just say that the trend is still in place... and it is still getting worse.

Yesterday, two-year Treasury yields were more than 0.50% higher than the 10-year yield, making for the strongest "inversion" since 1981. Today's inversion is even deeper than the one in 2000, just before the dot-com bubble burst... the last time the yield curve approached the 1981 inversion.

In short, this remains a screaming warning sign of trouble ahead...

An inverted yield curve has preceded the last eight recessions, going back 60 years, with only one false positive.

So, yeah, it's saying a recession is incredibly likely, an outcome that more and more investors are realizing...

However, if you're looking out over the long term, we're also reaching a point where we can at least discuss what this extended inversion may mean next – after the trouble becomes obvious to everyone else and stops getting worse...

Specifically, what can we see about how stocks respond to such inversions like we're seeing today? Stansberry NewsWire analyst Kevin Sanford ran the numbers recently, looking at seven historical bond yield cycles that saw a "deep inversion." As he wrote yesterday...

We tracked the three-, six-, and 12-month annualized returns of the S&P 500 from the date of the deepest curve inversion of the two-year Treasury minus the 10-year Treasury.

Take a look at what we found...

Six out of seven cycles (or 86%) witnessed a three-month positive return, with the average return yielding 6.08%.

Four out of seven (or 57%) witnessed a six-month and 12-month positive return, with the averages yielding 6.22% and 13.76%, respectively.

The main takeaway here is that despite the volatility a yield inversion cycle can bring to markets, investors typically see a healthy positive return in the near term.

In other words, things typically get better for stocks after yield curve inversion "peaks," or when the trend of short-term yields being higher than long-term yields begins to reverse... though the timing and performance of stocks during the dot-com bubble burst is a notable exception.

The big question now is when does the yield curve start reverting to normal?

We have two potential outcomes to consider most...

Yields of all kinds of Treasury securities are rising today as borrowing rates are rising in the economy. We've chronicled that lately.

But does the trend of shorter-term yields rising higher than longer-term yields stop soon – around today's levels, like it has in each of the last four instances the past 40 years?

One day does not make a trend, but this is what happened today. The 10-year Treasury yield spiked by 19 basis points to 3.7%, and the two-year rose, but by 12 basis points, to 4.1%.

Or do things get worse, like they did in the 1980s?

In 1980, inflation was in the same area it is now, and rates were also rising. Back then, the 10-2 spread inverted by a full 2% and was upside down by as much as 1.4% later that year and hit 1.3% in 1981.

We can't know for sure what will happen this time, but this is an indicator to watch...

Whenever the yield curve does start to reverse its current behavior, it will be a signal of a potential stock market "bottom."

On a related note, I'm considering creating a "bottom is (probably) in" checklist based on several indicators we've shared here the past few months. If you'd be interested in something like that, let me know with a short note at feedback@stansberryresearch.com.

The yield curve starting to "revert" would be one signal to watch... A weaker dollar – relative to other major currencies – would be another. As we wrote yesterday, the dollar and the S&P 500 have been inversely correlated all year long...

For now, just know, it doesn't look like we're at that point yet.

In the meantime, if you want to chew on some good market discussion...

Here's one more final reminder...

Consider tuning in to Marc and Joel's Financial Lifeline Event tonight. It goes live at 8 p.m. Eastern time. Come for the discussion, and stay for the free recommendations. Click here to sign up to watch now.

What 'Bad Inflation' Really Is

Altimetry founder Joel Litman joined our editor-at-large Daniela Cambone and said demand-driven inflation – which the Fed says it is now fighting – is bad. But it's not as deadly as inflation driven by currency devaluation. Hear the details...

Click here to watch this interview right now. And to catch all of our shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 9/21/22): Eve (EVEX), General Mills (GIS), Xometry (XMTR), and the short position in Capital One Financial (COF).

In today's mailbag, feedback on yesterday's Digest about the world's inflation fight... and a reply to a comment in yesterday's mail... What's on your mind? As always, send your notes, questions, and suggestions to feedback@stansberryresearch.com.

"So the U.S. is 'leading the inflation charge'? Leading from behind I'd say, relative to the 'transitory' dogma of a year ago. And likely the Fed will 'lead' us into another wall as we go – too much and too late as usual. And these are the smartest guys in the room?

"Who is really leading the inflation charge? Try some unheralded economies like Brazil, which started raising rates in early 2021, from 2% to now 14%: inflation has peaked and rolled over. I wonder if our smart guys will have such courage, as late as they are..." – Paid-up subscriber Mark P.

"Some advice to reader Rodger G. who stated: 'I've been a proponent of keeping growth in the global economy intact to deal with this existential crisis.' i.e. climate change.

Watch this lecture by Prof. Michaux of the Univ. of Queensland, Mineral Research Center on how much stuff needs to be dug up to build out the clean energy infrastructure..." – Paid-up subscriber H.T.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 22, 2022