An Eye for an Eye
Protests in China... What the markets are making of it... An eye on the U.S., too... The Federal Reserve is thinking about easing rate hikes... That's not necessarily bullish... A sector you don't want to ignore today...
A lot of eyes are on China again...
As our Stansberry NewsWire editor C. Scott Garliss reported in his morning market preview today...
Chinese citizens protested the government's "zero-COVID" policies in Beijing, increasing concerns about reduced factory production and rising supply-chain delays.
You may have seen the footage or pictures of protestors in the streets of Chinese cities. Folks are upset over the renewed "zero-COVID" restrictions in the country amid surging cases three years into the pandemic, and in an already slowing economy.
Young people are usually the first to take to the streets, and that appears to be the case here, with the gatherings happening in cities and on dozens of university campuses in China.
Here's the economic story... China's youth unemployment rate (covering ages 16 to 24) is 20%.
With millions of young adults unable to find work, it's easy to see why they're upset with more of the same "zero-COVID" policy, especially after recent indications from the communist government that restrictions may finally loosen.
The catalyst for protest...
According to global news service Reuters...
The catalyst for the protests was an apartment fire last week in the western city of Urumqi that killed 10 people. Many speculated that COVID curbs in the city, parts of which had been under lockdown for 100 days, had hindered rescue and escape, which city officials denied.
Crowds in Urumqi took to the street on Friday. Over the weekend, protesters in cities including Wuhan and Lanzhou overturned COVID testing facilities, while students gathered on campuses across China.
I (Corey McLaughlin) am never sure what exactly to believe out of media reports from China, but this case doesn't seem too complicated. A tragic fire, blamed on unpopular COVID restrictions, sparked protests in distant cities.
The point is, enough young people are upset with never-ending pandemic restrictions that they are willing to publicly protest... or illegally use messaging services banned in China like the Telegram app. That's a bold risk to take in authoritarian China.
Even under this rare public pressure, China's leadership isn't backing off its COVID-related restrictions, at least not yet. That's the key takeaway for the markets.
The consequences...
China's continued lockdown-inclined stance, in turn, has renewed concerns about global supply chains (and inflation) for products originating in China as well as energy demand and supply dynamics. In the world's second-largest economy, domestic policies have global repercussions.
The price of Brent crude oil – the international benchmark – hit a new low today below $84 per barrel, the same level at which it traded way back in January. Meanwhile, West Texas Intermediate – the U.S. benchmark – was actually up more than 1%.
All that said, after a morning panic sell-off of 2% at the opening bell, the Chinese benchmark index rebounded for less than a 1% loss today... and food, hotel, and tourism stocks outperformed.
As Asia-based Stansberry Research analyst Brian Tycangco wrote on Twitter today...
Chinese investors are anticipating a faster reopening, possibly due to increased pressure from the recent protests, but also [the] realization that it's where things are ultimately headed.
Indeed. That's why the reports over the week in China were a bit surprising. It was just a few weeks ago that the Chinese government said it was intending to loosen COVID restrictions, not tighten them. Easier said than done, I suppose.
Moving on, we have an eye on the U.S., too, of course...
We mentioned last week that the latest meeting minutes from the Federal Reserve were due out on Wednesday afternoon, just before the U.S. markets went on holiday break...
Given the timing, the release didn't generate much attention. But the gist of the disclosure was that a "substantial number" of Fed policymakers feel the central bank should begin to slow the pace of interest-rate hikes in December.
This points to the federal-funds rate increasing by 50 basis points when the Fed meets next month. If that prediction proves correct, that would be the first slowdown of rate hikes since the central bank went to the 75-basis-point hike plan back in June.
But before you start cheering...
Remember why Fed officials are apparently clamoring to ease rate increases. They want to make dollars more expensive to slow down inflation, but they're concerned about doing too much to slow the economy in the process. Such is the trouble with trying to manipulate a giant economy.
It's also the first step toward the Fed stopping rate hikes altogether. That might sound like a good thing on the surface. But when the central bank stops raising rates, it's because it likely sees problems in the economy and doesn't want to make things worse.
And remember the historical precedent at work here, too... It suggests we might not have seen a low for stocks yet.
As we wrote in the October 25 Digest, citing Chaikin Analytics founder Marc Chaikin's presentation at our annual Stansberry Conference that day in Boston...
Marc pointed out that every bear market since 1955 has ended only when the central bank lowered interest rates. So far, Fed officials have only suggested they will pause hikes in 2023.
In other words, the latest insight into Fed discussion showed that it plans to slow down the pace of rate hikes but still plans on raising rates. And not too long ago, its planned increase would have been an unthinkable number at a single policy meeting.
That's still not a tailwind for higher stock prices across the board. It doesn't mean some stock prices can't or won't go up, but it does mean that the Fed's monetary-policy influence on markets isn't bullish quite yet.
That said, some sectors have been performing better than others lately...
And they've been "boring" old names like consumer staples – businesses that make products everyone will need, no matter if we have a recession, are already in one, or not...
Today, energy stocks are leading the market and keep grabbing headlines. But another sector – tied to a huge chunk of the U.S. economy – is also on the move. It represents a huge industry hiding in plain sight...
This sector has outperformed the benchmark S&P 500 Index and tech-heavy Nasdaq Composite Index in every market crash of the past three decades... and right now, the opportunity to invest in this sector is bigger than usual given our high inflation circumstances.
But if you're interested, you'll need to act before 2023 or you'll miss the biggest gains. For more details, consider listening to a brand-new message from Stansberry Research partner Dr. David "Doc" Eifrig.
In this new video, Doc explains what he describes as potentially the biggest opportunity he has seen in his 15 years with our company (and four decades in the markets)... and he shares where exactly to put your money to take advantage of it. Click here to learn more.
Don't Blame Bitcoin for Crypto's Existential Crisis
The FTX fiasco has kneecapped the crypto industry, says Nicholas Prouten, chief operating officer of LODE Payments, a global payments platform. But he also says this is a moment for the decentralized-finance space to make its mark on the future...
Click here to watch this episode of the Daniela Cambone Show right now. And to catch all of the videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 11/25/22): Automatic Data Processing (ADP), Aehr Test Systems (AEHR), AutoZone (AZO), Flowers Foods (FLO), Gilead Sciences (GILD), General Mills (GIS), O'Reilly Automotive (ORLY), Ryder System (R), RenaissanceRe (RNR), iShares 0-3 Month Treasury Bond Fund (SGOV), Travelers (TRV), and Valmont Industries (VMI).
In today's mailbag, feedback on last Monday's Digest about the latest shortage in America (of antibiotics)... plus an observation about cryptocurrencies... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Corey: As usual, you have an overabundance of common sense that our leaders desperately lack. No, I can't even be that nice to them. They are, in my opinion, totally overpaid morons, and the perpetuation of globalization and greed proves my statement.
"Fact: Given inflation and the increased wages in China, the production cost difference between the two nations is a paltry 2% to 3% at this time. With that in mind, why would anyone go to the trouble to set up accounts with this questionable overseas entity, possibly even finance them, pay shipping costs back to the U.S., and then be totally dependent on reliably receiving a critically essential product or any other product for that matter, on time, when it could easily be manufactured here, and probably was at one time?
"And you wanna talk essentials, let's take this idiotic behavior one big step further – why on earth would this country sell any of our high tech weapons systems to ANY foreign nation, given that they could be our enemy tomorrow?
"To put it simply, globalization, save for certain elements or items that the U.S absolutely can't supply or produce for whatever reason, has deteriorated our manufacturing processes to all-time lows, and downgraded our mentality to non-existent." – Paid-up subscriber Don R.
"The Wall Street Journal just released an article 'Crypto's Final Price Could Be Zero.' If this doesn't scream that the bottom is in for crypto (or very near bottom) then I don't know what does." – Paid-up subscriber Mike B.
All the best,
Corey McLaughlin
Baltimore, Maryland
November 28, 2022