No Running From the 'Toilet Paper Indicator'

A year later, stores have too much toilet paper... Prices of paper products are on the rise... We're preaching to the choir... No running from the 'toilet paper indicator'... The 'final surge' is coming... Prepare now with Steve Sjuggerud...

What a difference a year makes...

In March 2020, as a vague-sounding "coronavirus" rapidly spread around the world, people began stocking up on the "essentials" – like toilet paper.

The shelves were empty... Mainstream media reports showed long lines of buyers at grocery stores and places like Costco Wholesale (COST). And folks were in no mood to "spare a square," as the sitcom Seinfeld once terrifically put it.

In the meantime, the major U.S. stock indexes were in the middle of an eventual 30%-plus drop from top to bottom. As we wrote in the March 13, 2020 Digest...

People have been panic-buying toilet paper and panic-selling stocks...

That sounds like it should all wash out at breakeven when this is all over, but who knows.

For sure, the rhetoric and the reality out there is a bit chaotic today...

Those words aged pretty well...

What we said back then wasn't far from the truth that played out... The rhetoric and chaos were just getting started, really.

In the stock market-toilet paper trade at least, things have "washed out at breakeven" – and then some... As we'll show in today's Digest, the toilet-paper hoarders back then were way ahead of the curve, though not in the way you might think.

On March 12, 2020, the Federal Reserve said it would inject up to $1.5 trillion into the market in an effort to calm it. Three days later, the Fed cut interest rates to zero and announced a $700 billion quantitative easing ("QE") program.

And that was just the start... "Stimmy" checks became a thing – times three.

Today, a little more than 13 months after peak panic, stocks have been back at all-time highs for months... The economy looks different – depending on the industry, a lot of folks are still working at home – but things are recovering, in the short term at least.

And on the toilet-paper front, it's funny... Stores have too much of it today. And companies that make the stuff want to be selling more...

As it turns out, people stockpiled so much toilet paper (and other essentials) a year ago that it made for a significant-enough panic-buying trend that's still unwinding today.

Take Kimberly-Clark's (KMB) business, for example...

Last week, the consumer-products company – which includes toilet-paper brands like Scott and Cottonelle – reported its first-quarter earnings for 2021.

Kimberly-Clark's revenue was not a small amount ($4.74 billion), but it fell short of Wall Street estimates of $4.97 billion for the quarter. Its stock price was down 5% following the news, as our Stansberry NewsWire team reported.

But most revealing to us is what company CEO Mike Hsu said about the overall business. According to our NewsWire team's report on Friday...

KMB is navigating through a post-pandemic decrease in demand for paper products, such as toilet paper. These items were in high demand when the pandemic began, but have since slowed down.

The company's tissue sales spiked 14% in the first quarter of 2020... and declined by 12% year over year in the first three months of 2021. That all makes sense, of course. You can only use so much toilet paper at once, after all.

We think the experience that 62-year-old New Yorker Marjorie Greenberg recently shared with the Wall Street Journal is a common story. Well, except for the quantity of toilet paper she still holds today...

"You never knew when you weren't going to be able to get it, so every time we went out, we got some... They just kept amassing."

Ms. Greenberg still has 54 rolls, stored in various places throughout her home: in a guest room, the back of a linen closet, the laundry room in the basement. "I'm not planning on buying for a while," she said.

Hsu also said on the company's earnings call... "We expected a consumer destocking to occur, but didn't expect that it would happen as quickly as it appears to be happening."

As much as "stocking up" a year ago told us about consumer "fear"... today, "destocking," as the CEO puts it, speaks to the economic-recovery part of the story that's currently unfolding.

But as always, you need to hear the full story...

Two weeks ago, Kimberly-Clark said it's not just experiencing a demand shortage...

In a brief press release (we find the bad news is always delivered in short bursts), the company said it will raise its prices "across a majority of its North America consumer products business" to help offset "significant commodity cost inflation."

And here is the second and final paragraph of the press release...

The percentage increases are in the mid-to-high single digits. Nearly all of the increases will be effective in late June and impact the company's baby and child care, adult care and Scott bathroom tissue businesses.

As you can see, the announcement was short. But to us, it didn't need to be any longer...

We saw the word we've been talking about for the past few months – inflation...

As regular readers know, we've been on an unofficial "inflation watch" for a while here in the Digest. We've covered the topic here, here, and here...

The story starts and ends with central bank policy – and there is plenty in between. Stansberry's Credit Opportunities editor Mike DiBiase most recently wrote about the idea in the April 14 Digest...

Here in the U.S., inflation doesn't happen overnight. It's an insidious force that slowly – and often secretly – erodes our wealth, perhaps taking a few decades to notice its real impact...

As comedian Henny Youngman once joked, "Americans are getting stronger. Twenty years ago, it took two people to carry $10 worth of groceries. Today, a five-year-old can do it."

We won't rehash all of Mike's – and our other editors' – points here today. But in general, it's important to note that...

We've been expecting inflation to pick up. But we also expect the Fed to step in before "hyperinflation" becomes a reality... at least by the central bank's measures.

The Fed has an easy way of doing that – by raising its benchmark rate range, which is basically 0% today.

Of course, there's a difference between the "Fed world" and the "real world"...

We know we're preaching to the choir in many cases about real-world inflation...

The Fed doesn't include things like financial assets or property prices in its preferred inflation gauge – the personal consumption expenditures ("PCE") index – that it uses to justify interest-rate decisions.

As Mike wrote earlier this month, the most recent PCE reading was 1.6% in February. So to the people who control interest rates and our money supply, inflation is still below 2% – which has been the Fed's goal for "price stability," one of its Congressional mandates.

In the meantime, you, our subscribers, have reported contradictory information... For one, you've written in about the soaring prices of raw materials like lumber.

In the wake of Mike's essay, a few of our editors shared their thoughts about inflation and how to measure it in an e-mail exchange among a handful of folks at our company. In the end, Mike reemphasized his point from his April 14 Digest...

Truthfully, no perfect way exists to calculate inflation... It's different for every consumer. And no matter which method is used, someone will point out all the flaws in the numbers.

The salient point is, inflation is happening...

At our home today, my wife and I (Corey McLaughlin) talked to one contractor about inflation. I brought up the prices of lumber futures on my computer screen as he spoke.

Here is the all-time chart of Nasdaq lumber ("LBS") futures... As you can see, the price has surged nearly four times from the March 2020 bottom for one contract (which covers 110,000 feet of random-length board). This is what a bubble looks like...

When I showed the contractor this chart and asked if supply-chain issues were a reason for higher prices, as some folks might tell you, he explained that it wasn't the case at all... "There was a shortage, but there's not anymore," he said.

Prices are just going higher, he said, after manufacturers saw what people were willing to pay in the still-booming housing market... where it's cheaper to buy a new home than to renovate an existing one, in some cases.

I can't say for sure if this statement is true everywhere houses are built – real estate is a local investment, after all – but the contractor's comments reflect the sentiment and reality in the construction industry today...

Simply framing a house these days can cost tens of thousands of dollars more than it did before the COVID-19 pandemic, according to the contractor I spoke with today.

This is all to say...

A widespread price hike from one of North America's most popular consumer-staples makers isn't an insignificant development to us. It's not a one-off thing...

Kimberly-Clark's rival, Procter & Gamble (PG) – which makes Pampers and Luvs diapers and other popular products that a lot of Americans buy regularly – said recently that it will raise prices in mid-September to protect its profit margins because of higher "commodity costs."

Here's the thing...

The contractor who was in my house today... toilet paper on shelves... higher prices across the board... the Fed... all of this is connected.

Toilet paper is actually a pretty good indicator of lumber inflation...

Of course, paper products come from trees. Hardwood pulp, for instance, is an ingredient used in tissues and toilet paper.

And wood prices have been skyrocketing lately... to meet the demand of the booming housing market... which has been heavily driven by the Fed's low interest rates, encouraging buying and selling and building new homes.

It doesn't need to be complicated to reach the result here...

Call it the 'Toilet Paper Indicator' of inflation...

As Procter & Gamble Chief Operating Officer Jon Moeller told analysts last week...

This is one of the bigger increases in commodity costs that we've seen over the period of time that I've been involved with this, which is a fairly long period of time.

Folks can debate whether this inflation will be "transient," or short-lived... That's what Fed Chair Jerome Powell says it will be. And maybe this will all be corrected if or when pandemic-related supply-chain issues are more broadly resolved...

But once it has hatched, you can't put the chicken back in the egg.

Color us surprised if prices in these sectors go lower any time soon. If this isn't inflation being passed on to the consumer, what is?

Kimberly-Clark isn't just raising its prices in one area of its business, like toilet paper, which was stockpiled faster than masks were last spring... The company is raising prices across most of its products – like Kleenex tissues and Huggies diapers, too.

These are staples of everyday American life... Babies need diapers.

These are things many people will buy no matter what, even if the price is going up... And most folks won't notice the nuances of the price hike on their credit-card bills.

That is another story altogether that we won't get into today.

But importantly, the price increase will show up in the Fed's PCE inflation measure... which includes prices that consumers pay for items – except for food and energy because of the volatility involved in those items, according to the central bank.

As for the timing, Kimberly-Clark said it will raise prices by June...

So with that in mind, we should start realistically paying attention to every Fed meeting and Powell press conference in the second half of 2021 for any hints or otherwise telling language about the central bank possibly hiking rates.

Powell hasn't done that so far... And he keeps saying that he will give the market an advance warning on any moves.

For a while, we didn't see reason for the Fed's business to change. But now... not even central bankers can run from rising toilet-paper prices.

One other thing we do know...

In the decade-plus since QE entered investors' vocabulary, when the Fed has pulled the rug out from under the market and hinted at raising interest rates – or "tightening" in Wall Street parlance – it doesn't go over well in the stock market.

With that in mind, it appears the 'final surge' is coming...

We can't say for sure if inflation fears will be significant enough to ultimately top off the massive bull market run we've seen since March 2020. Nobody has a crystal ball, after all.

But if the "tech sell-off because of rising rates" story we saw earlier this year is any indicator, and we sense it might be a good one, inflation might be just the pin that pops the bubble that everyone is talking about...

And let's be clear, a lot of people are talking about it. If you've followed us this year, you know we've remarked many times about the trademark "Melt Up" behavior we've seen.

We've covered everything from a band of stimulus check-fueled merry day traders taking on Wall Street short-sellers... to friends and family asking us about bitcoin and other cryptocurrencies... and plenty of craziness in between.

Stocks, in general, keep on going up and up... until they don't, of course. That's the warning our colleague and True Wealth editor Dr. Steve Sjuggerud is talking about now...

As we shared over the weekend in our Masters Series, Steve has been preparing folks for the inevitable "Melt Down" that will come for some time now.

He wants folks to be prepared for the fallout from all the "good times" being dictated by central-bank stimulus today – because that's the only way not to get burned. You can't start preparing early enough...

So, the time to prepare is right now...

First, take the basic step of running through your entire portfolio today.

Have your position sizes gotten out of whack? Most broadly, do you still own what you want to own knowing what the world is like today? And beyond that, what do you want to do with your money?

These questions are always worth asking. But we have some more specific advice today...

If you want to keep your portfolio growing – and beating whatever inflation is going to eat from it – you also probably don't want to miss out on the final gains of this Melt Up either.

Steve calls this period the "final surge."

It's where some of the most mind-blowing money of many people's lifetimes will be made. And Steve says he hasn't seen a setup like this since the late innings of the dot-com bubble back at the turn of the 21st century.

Back then, 20 years ago, Steve says he missed out on these gains... and it was a big mistake.

So it might seem counterintuitive today...

While we see reasons for being cautious about the economy, sky-high valuations, and the potential impact on everyday Americans' buying power in the months ahead, Steve actually says there is no better time to be in the stock market.

So long as you know what to buy today... and when to get out. In short, if Steve is right, we're about to enter a period of great risk and great reward.

'This is it,' Steve says, 'This is the moment that I've been waiting for'...

This Thursday, at 8 p.m. Eastern time, Steve will host a free event for everyone who is interested...

He'll share all the details about this final surge, including the sectors he believes will really take off... and the top moves all investors should make to prepare their portfolios for what's about to happen. If you have any money in the markets today, you'll want to tune in.

Click here to sign up for Steve's event right now. Like we said, it's free... But we just ask that you sign up in advance to make sure you don't miss a minute.

Gold Versus Bitcoin: Who Won?

Last week, billionaires Michael Saylor and Frank Giustra went head-to-head in a debate moderated by our editor-at-large Daniela Cambone. Since we posted the video to YouTube late last week, it has gotten more than 360,000 views already – for good reason.

These guys left it all out on the field, so to speak... while making their cases for the best asset to own today to store your wealth. For Saylor, the MicroStrategy (MSTR) CEO, it's bitcoin. For Giustra, an accomplished Canadian gold-mining financier, it's gold...

Who won the great debate? Let us know what you think by sending an e-mail to feedback@stansberryresearch.com. And don't forget to subscribe to our YouTube page for more great video content from Daniela and her guests – absolutely free – right here.

New 52-week highs (as of 4/23/21): Automatic Data Processing (ADP), American Financial (AFG), Altius Minerals (ALS.TO), American Homes 4 Rent (AMH), Axis Capital (AXS), Bunge (BG), Brown & Brown (BRO), CBRE Group (CBRE), Crown Castle (CCI), Corteva (CTVA), SPDR Euro STOXX 50 Fund (FEZ), Alphabet (GOOGL), IQVIA (IQV), Ingersoll Rand (IR), Nuveen Preferred Securities Income Fund (JPS), McDonald's (MCD), 3M (MMM), Microsoft (MSFT), Oshkosh (OSK), S&P Global (SPGI), Seagate Technology (STX), Trane Technologies (TT), United States Commodity Index Fund (USCI), Visa (V), W.R. Berkley (WRB), Health Care Select Sector SPDR Fund (XLV), and Zimmer Biomet (ZBH).

In today's mailbag, thoughts on the bitcoin versus gold debate... a take on Amazon (AMZN) founder Jeff Bezos... and more feedback about electric vehicles ("EVs"). What's on your mind? Let us know at feedback@stansberryresearch.com.

"I own both [bitcoin and gold], weighted more heavily to bitcoin. Frank will eventually buy in and I bet Saylor owns some gold. [Peter] Schiff vs. Max [Keiser] next." – Paid-up subscriber Gregg R.

"I do not do Twitter so comment here...

"The interview presented a lot to think about. Each did a great job of painting an overall picture. The question 'Who won?' is not my focus, because I consider the answer is 'both won, and not as a draw.' We are on the verge of a new world.

"Governments will continue to seek to control currencies and regulate actual goods and services, in order to keep their powers. World debt has gone beyond the tipping point and, without a financial reset, will cripple economies and foster civil wars – especially because the debt effects are causing an increasing income (and assets) inequality gap.

"Gold will be a key part of world financial reset. Most larger economies in the world have been given time to acquire sufficient gold in central banks for a reset (as Jim Rickards and many others have noted), to all participate successfully in post reset era. So, the next crisis occasion could see that reset. Individuals keeping gold is another issue, but we now know what Lucy does with that football.

"Centralized government digital currencies will also be a part of future controls –experiments beginning now in China and the Marshall Islands, with post-reset population financial control – scary overtones of individual surveillance and control on what you can buy with centralized currencies.

"And bitcoin and other decentralized crypto coins will exist, because those in financial power see ways to profit; hopefully crypto will provide a general-in-population decentralized counterbalance – to allow a peaceful coexistence instead of world civil wars and endless power struggles. And in a way, the underlying digital age is leading us to develop cyborg humans who will better be able to travel and enter outer space." – Paid-up subscriber Christopher P.

"I guess Mr. Ferris is all out of confetti and ticker tape after his glowing corporate report on Jeff Bezos and his juggernaut called Amazon. However, this past year, [Bezos] has turned a rather sinister corner. His success has elevated him to the point of being able to enjoy the power and privilege of being an oligarch. Now he can join with his new associates in destroying the system that, with tremendous sweat equity, enabled him to be where he is today. I salute his success. Jeff's hard work, intelligence and drive has resulted in him becoming the world's richest person. Underlying all that is his service to his customers. Not bad for the son of a Cuban refugee!

"His story parallels many of the financial giants of the 19th century. But things have changed over the last 100-plus years. Mr. Bezos does not desire to put his name on a library, put his name on a church, an opera house, a university, a business school or any myriad other ways to share his accomplishments with the Americans who helped him achieve financial greatness. Gaining unfathomable capital gains on Amazon stock is not everything.

"How about being a good corporate citizen Mr. Bezos? Since when is it allowable to trample on others' constitutional right of free speech? Are your business goals now reduced to just two: more money and power? How does it feel to 'deplatform' the President of the United States? How does it feel to be 'in tight' with a cabal of rogue corporate powers out to rule with an iron fist. Wow! One party rule! It's all within reach!

"This is why I don't do social media and I haven't done a Google search in years. I will not hold FAANG stocks. I no longer deal with Amazon and go out of my way to circumvent the company's many distribution channels. I WILL NOT buy the product if it has to come through Amazon! Sometime, I hope you rue the day you turned on the American people. There are many more of us out here that feel just as I do and we hope to see the proud group of 1%ers fall to new anti-trust laws... P.S. Jeff, you are welcome to 'deplatform' my credit union Visa card!!" – Paid-up subscriber James S.

Corey McLaughlin comment: James, thanks for your note. You bring up a lot of ideas. We want to follow up on just one detail, though – about Bezos being the son of Cuban refugee. Not that it directly connects to a lot of the points you made, but it's an interesting story...

For those wondering, it's true.

The man whom Bezos calls "Dad" is Miguel Bezos. He came to the U.S. from Cuba by himself as a teenager in 1962 and didn't speak English. A few years ago, Miguel and Jeff Bezos told the story in a video produced by Amazon...

Miguel Bezos' father owned a small lumber mill in Cuba that was taken over and nationalized by Fidel Castro's government. He sent his son to America for a better life, he hoped.

But there's one big part of this story that Amazon and the Bezos men did not include in the video. And frankly, many people don't know it, so we just wanted to share...

Miguel Bezos is the adoptive father of Jeff Bezos. The biological father of the richest man in today's world gave up custody of his son when he wasn't yet two years old.

Bezos' biological father, Ted Jorgensen, married the now Jackie Bezos when both were teenagers, and he gave up custody when their marriage fell apart in the early 1960s. "Big mistake," Jorgensen said in an interview several years ago, before he passed away in 2015, "but at the time I thought it was the best."

Little Jeff Bezos was four years old when his mom remarried Miguel Bezos, who by then was in school at the University of Albuquerque in New Mexico and soon started working for oil titan Exxon. He worked for the company in engineering and management for more than 30 years... And his son picked up a few things from his father's experiences at the company.

Now, let's move on to another letter about Tesla (TSLA) car battery fires...

"I contacted my son who is currently a Safety Manager for Tesla and who majored in Fire Protection in college. Tesla's website has information specifically for firefighters responding to a Tesla car fire at https://www.tesla.com/firstresponders.

"While the information Dave [Lashmet] shared [in Wednesday's Digest] may work for many Lithium Ion batteries in devices such as cell phones or laptops, it is incorrect for Tesla batteries which are designed to be safer.

"Tesla battery cells are designed, if they catch fire, to burn themselves out. The suggested method for firefighters is to use copious amounts of water to cool the battery and adjacent cells to prevent an exothermal reaction and allow the burning battery cell to burn itself out." – Paid-up subscriber Richard L.

"Has ANYONE thought about making a vehicle WITHOUT all the electronic crap.

"I am an Electronics Engineer and a Mechanical Interface Engineer.

"I know from my early days that my car, when I was young, had a simple electric ignition and also had a few electric instrument gauges in the dash.

"But I do like the newer simple electronic ignition as opposed to the old 'points and capacitor' system. And even that electronic ignition system uses very simple electronic items (not a ton of electronic chips).

"Cars can run just fine WITHOUT a ton of electronics and computers. When properly adjusted, they can run very clean and efficiently.

"The ONLY way the sales of battery-run cars can exist, for the present, is with huge amounts of 'free' money from the government. This country can NOT afford any more government help!" – Paid-up subscriber Bob M.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 26, 2021