Don't Worry About a Government Shutdown

It's official: China is accelerating... Don't worry about a government shutdown... Is America's heartland finally recovering, too?... Doc Eifrig's favorite 'blue-collar' stock...

It's official...

For the first time in years, the Chinese economy is accelerating.

According to data released this morning, China grew 6.9% last year. This represents the first increase in economic growth in the country in seven years. And it's particularly noteworthy considering the government has reportedly been "cracking down" on speculation and financial risk-taking. As the Financial Times reported...

The annual figure overshot the government's full year target of "around 6.5%." Entering 2017, most analysts had expected policymakers to ensure a solid growth performance in the run-up to October's five-yearly Communist party congress, where President Xi Jinping strengthened his hold on power.

The surprise is that policymakers achieved this goal while also engineering a significant slowdown in credit growth, after years in which economists have warned about risks building from years of aggressive credit stimulus. China's ratio of debt to GDP fell for the first time since 2011 in the first half by some estimates.

This is welcome news for Steve Sjuggerud's True Wealth China Opportunities subscribers...

As regular Digest readers know, Steve has been incredibly bullish on China for the past couple of years.

His thesis wasn't dependent on a broad pickup in economic growth. (Rather, it was focused on an incredible change going on within China's economy and a coming trillion-dollar shift in the investment markets.) But a strong Chinese economy sure doesn't hurt.

Stay long China.

Here in the U.S., the risk of another government shutdown is rising...

The government's funding is set to expire at 12:01 a.m. on Saturday.

House Republicans are reportedly close to passing a short-term spending bill to keep the government running until February 16. However, its passage is far from certain in the Senate, where spending bills require 60 votes to pass, but Republicans hold just 51 seats.

We don't know if a deal will be reached. But we can tell you worrying about a shutdown is a waste of time.

According to data from LPL Financial, the government has shut down 18 different times since 1976. And on average, the S&P 500 has fallen just 0.6% during each.

That's right... for all the hysteria associated with these events, the market typically falls less than 1%. In fact, during the last shutdown in October 2013, the market actually rallied 3%.

History is clear: Events like these have practically no lasting effect on the market. (Or as our colleague Dan Ferris likes to say, "shopping trumps politics.")

Of course, that doesn't mean we can't see a larger selloff this time around...

As we've discussed, the market is clearly "frothy" today, and we're long overdue for a correction.

A government shutdown would be a convenient excuse... But you'll know better.

Meanwhile, there could finally be some positive news for America's heartland...

For years following the financial crisis, it was hard for even a qualified candidate to find a job in many areas of the country. But that appears to be changing...

Today – with demand for real products surging, unemployment rates hovering around 15-year lows, and gross domestic product growth back above 3% – companies are facing critical labor shortages for the first time in years. As the New York Times reported last week...

A rapidly tightening labor market is forcing companies across the country to consider workers they once would have turned away. That is providing opportunities to people who have long faced barriers to employment...

As employers dip deeper into the pool of available labor, workers are coming off the economy's sidelines. The participation rate for what economists call prime-age workers – those ages 25 to 54 – hit a seven-year high in December.

In fact, it's getting so serious that some companies have been forced to lower their employment requirements. Some are hiring folks with criminal backgrounds. Others no longer require a high school degree.

Even retail giants Wal-Mart (WMT) and Target (TGT) have had to keep up...

Wal-Mart recently announced it was raising its minimum wage to $11 an hour for entry level employees – its third increase in as many years. It's trying to keep pace with Target, which raised its minimum wage to $11 in September and has promised $15-an-hour wages by 2020.

Longtime Digest readers know our colleague Dr. David 'Doc' Eifrig has been tracking this for years...

Doc has long argued that the economy was "grinding" higher, slowly but surely. But even he acknowledged that much of the improvement was concentrated in areas like New York, California, and Washington, D.C. Meanwhile, much of Middle America has continued to struggle with high unemployment and low growth.

But Doc says that, too, is now changing.

As he explained in the latest issue of Retirement Millionaire, economic growth in blue-collar regions of the U.S. has recently started to outpace that of the "urban elites." According to the latest data from the U.S. Bureau of Economic Analysis, the biggest growth is coming from America's heartland – states like Texas, Oklahoma, Colorado, New Mexico, and Wyoming.

And as Doc noted, jobs in blue-collar sectors like manufacturing and construction are finally on the rise, too...

Oil has settled at around $60 a barrel – enough to keep oil producers running the drills. Homes are being built, and manufacturing is picking up. The types of jobs that can help rural parts of America are showing the biggest gains.

Wages in China and emerging markets have risen enough to make manufacturing more competitive. Now, it's not as cheap as it once was to move your manufacturing outside the U.S.

Sure enough, the latest data from the Institute for Supply Management's U.S. Manufacturing Purchasing Managers Index (PMI) suggest that managers in the manufacturing sector are more optimistic about their short-term plans than they have been at any time in the last 15 years. And shipments of U.S. manufactured goods are up nearly 11% since 2016.

The market appears to agree...

As Doc's research shows, "blue collar" businesses have been quietly outperforming the market of late. More from the issue...

We built a Blue-Collar Index that holds the stocks of 13 companies that tend to draw customers from rural America and the working class.

It contains things like mega-retailer Wal-Mart, automaker Ford Motor (F), home improvement retail chain Home Depot (HD), campground operator Camping World (CWH), work-boot manufacturer Wolverine World Wide (WWW), and more.

As you can see in the chart below, the index has been beating the overall market since June.

Doc expects this trend to continue...

And he has identified one blue-collar stock in particular as his favorite of the bunch.

Doc says this well-run company will be a primary beneficiary of the recovering heartland. Its customers come back month after month due to extreme brand loyalty. And unlike most consumer businesses today, it doesn't face direct competition from retail behemoths Wal-Mart or Amazon (AMZN).

As regular readers know, 21 major companies succumbed to the "death of retail" and filed for bankruptcy in 2017, closing more than 8,000 locations around the U.S. But the company Doc just recommended was in full-growth mode, opening new locations and growing revenues at an impressive clip. As he explained...

It's rare to find a company with this kind of growth trading at a discount to its long-term average... especially in today's market conditions where valuations are through the roof.

Even if rural areas continue to struggle, [this month's recommendation] is the type of growing business that you want to hold in your portfolio.

But we think things can be even better as growth finally hits the forgotten parts of the country.

Of course, out of fairness to Doc's subscribers, we can't share the name with you here today. But you can access this research with a 100% risk-free trial subscription to Retirement Millionaire. Learn how to get started right here.

New 52-week highs (as of 1/17/18): Apple (AAPL), AbbVie (ABBV), Automatic Data Processing (ADP), American Financial (AFG), AMETEK (AME), Allianz (AZSEY), Boeing (BA), Becton Dickinson (BDX), Biogen (BIIB), iShares MSCI BRIC Fund (BKF), Berkshire Hathaway (BRK-B), Global X China Financials Fund (CHIX), Cisco (CSCO), WisdomTree Emerging Markets High Dividend Fund (DEM), WisdomTree Japan Hedged Equity Fund (DXJ), Emerging Markets Internet & Ecommerce Fund (EMQQ), iShares MSCI Italy Capped Fund (EWI), iShares MSCI Japan Fund (EWJ), iShares MSCI Singapore Capped Fund (EWS), Barclays ETN+ FI Enhanced Europe 50 Fund (FEEU), First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS), CurrencyShares British Pound Sterling Fund (FXB), iShares China Large-Cap Fund (FXI), Corning (GLW), Alphabet (GOOGL), ETFMG Prime Mobile Payments Fund (IPAY), iShares U.S. Aerospace and Defense Fund (ITA), iShares U.S. Home Construction Fund (ITB), Johnson & Johnson (JNJ), JPMorgan Chase (JPM), KraneShares Bosera MSCI China A Share Fund (KBA), KraneShares E China Commercial Paper Fund (KCNY), KraneShares CSI China Internet Fund (KWEB), McDonald's (MCD), iShares MSCI China Index Fund (MCHI), Microsoft (MSFT), AllianzGI Equity & Convertible Income Fund (NIE), Naspers (NPSNY), NVR (NVR), PowerShares High Yield Equity Dividend Achievers Portfolio Fund (PEY), PNC Financial Warrants (PNC-WT), ProShares Ultra Technology Fund (ROM), ProShares Ultra Health Care Fund (RXL), ProShares Ultra S&P 500 Fund (SSO), Stanley Black & Decker (SWK), Tencent (TCEHY), Travelers (TRV), Tractor Supply (TSCO), ProShares Ultra Semiconductors Fund (USD), ProShares Ultra Financials Fund (UYG), VF Corporation (VFC), Wal-Mart (WMT), ProShares Ultra FTSE China 50 Fund (XPP), and Direxion Daily FTSE China Bull 3X Fund (YINN).

In today's mailbag: The "Melt Up" goes mainstream... and more confusion about TradeStops. As always, send your comments, questions, and concerns to feedback@stansberryresearch.com.

"Just a heads up... I found this article today, ['Woe Is Me? Dow Gains 320 Points, Nasdaq Surpasses Dot-Com High as Melt Up Resumes']. It seems Steve's 'Melt Up' is winding its way through the mainstream media. That makes me happy that he has been calling it for several months and they are just now catching on now." – Paid-up subscriber Mike Lovell

Brill comment: You're right, Mike... As we've discussed, Steve's Melt Up thesis has suddenly broken into the mainstream in recent weeks. While the market is overdue for a correction in the near term, Steve and his research team believe today's market excitement is actually a bullish signal for stocks over the next year or two. His senior analyst Brett Eversole explained why in this morning's edition of our free DailyWealth e-letter. You can check it out right here.

"Porter, I signed up for TradeStops Plus a few weeks ago and noticed that several SSI indicators were telling me a stock was stopped out and not a good buy. Some of those stocks are recent buy recommendations from you, including 'Golden Triangle' recommendations. Last week, I wrote to you to ask why your buy recommendations are sell recommendations on TradeStops, but I haven't seen a response, yet.

"A few days ago, after reading your plea to your subscribers to do things such as balance their portfolios for risk, I signed up for the TradeStops Premium and ran the Risk Rebalancer function. It recommends that I reduce positions that I just bought at your recommendation – some of which would result in booking losses – and increase some positions – such as gold producers – that were purposely limited to stay proportional to other gold producers, per your recommendation. Do I just take those positions – there are many – out of the equation when running Risk Rebalancer (thus, skewing the results), or do I just forget your advice once I've obtained a recommended position and let TradeStops manage my portfolio?" – Paid-up subscriber David S.

Brill comment: David, unfortunately, we're prohibited from giving individualized investment advice. But Porter did respond to your initial concerns in the Digest mailbag last week. You can read it here.

On the other hand, if you would prefer more guidance on how we would manage a diversified portfolio, I encourage you to take a look at our Stansberry Portfolio Solutions product. Click here to learn more.

Regards,

Justin Brill Baltimore, Maryland January 18, 2018