One Outrageously Simple Way to Grow Your Cash

Gas is getting cheaper... What history tells us about the recession risk... Survive and advance... E.B. Tucker's top place to hide... One outrageously simple way to grow your cash... Dip your toe in the water...

We'll start with the good news...

We're starting to see some signs of inflation coming down from its record highs. You may have noticed this most prominently at your local gas station lately...

According to AAA, the average cost of a gallon of regular gas nationwide is now $4.19. That's still absurdly high and 30% higher than a year ago, but it's down 13% from a month ago.

I (Corey McLaughlin) am not saying our inflation nightmare is dead. Inflation won't ever be totally gone anyway, so long as fiat currency exists. But the point is, gas prices falling over the past month is not the worst news we've seen lately.

We'll keep watching gas prices – for a few reasons...

First, we rarely believe there is one silver-bullet indicator of anything in most cases, but gas prices are ubiquitous. They touch all parts of the economy... and unlike many other costs, they hit everyone in the face.

Anywhere you go in America, they're listed on a giant sign on the side of the road.

If only health care costs were advertised the same way... Then we'd know what we're getting ourselves into before visiting the doctor or hospital. Alas, they're not. But gas prices are a good barometer of the realities of inflation and general sentiment about it.

Second, as our colleague and Stansberry NewsWire editor C. Scott Garliss wrote today, gas prices have also closely tracked the "headline" inflation gauge that many market observers are following – the consumer price index ("CPI").

Check it out. Gas prices are in blue and the CPI in black...

Energy prices account for about 9% of the CPI calculation – a lot of other items go into it – but these prices have been a leading indicator of inflation. We get more information on inflation from gas prices than the monthly CPI report. As Scott wrote...

When June ended, the Dallas Fed said gas prices would add 4.4% to the Bureau of Economic Analysis' Personal Consumption Expenditures ("PCE") Index. That's noteworthy because it's the Federal Reserve's preferred inflation gauge. It uses the metric to make interest-rate decisions.

The commentary was an early warning sign that inflation measures for the month would run hot. But CPI figures come out in the middle of this month while PCE numbers don't come out until the end of August. So, on July 13, the June CPI reading was higher than expected, rising above 9% for the first time in more than four decades.

Now, with July in the books, the Dallas Fed is saying the opposite as it relates to July's inflation numbers. It's saying that on a seasonally adjusted rate, July's gasoline price index will subtract 2.4 percentage points from headline inflation metrics.

The Bureau of Labor Statistics' next CPI update is due out on August 10, while the next update to PCE – which we wrote about yesterday – is August 26. These data could lean toward inflation growth cooling when the metrics are released.

But here's the bad news...

We've been saying that until we see some kind of change in the inflation story, we'll be taking a "hope for the best, prepare for the worst" approach with it. Lower gas prices over a sustained period are a nice start for changing this stance... but they're only a start.

As we've also written, the most relevant history to today's high-inflation era is what happened in the 1970s...

Back then, inflation "peaked" on three occasions before Federal Reserve Chair Paul Volcker hiked interest rates to 20% to finally kill it in the early 1980s (while inducing a deep recession with massive unemployment).

But wise market veterans like Stanley Druckenmiller and Bill Ackman have been pointing out the important part for months – if anyone would just listen...

Those interim inflation peaks only happened after the Fed's benchmark interest rate went above the rate of inflation... Right now, that's nowhere close to happening...

Today, the fed-funds rate range (2.25% to 2.5%) is still well below the inflation rate. That's 9.1% as measured by CPI, 6.8% by PCE, and 4.8% by core PCE, which doesn't include energy or food prices.

With this history as context, we'd need to see another 250 basis points of rate hikes to get above the bare minimum inflation gauge that the Fed uses... In other words, the fed-funds rate would have to nearly double.

And that's just as of now. These numbers will change... And that's why we'll watch them closely over the next several weeks.

We're not saying history needs to repeat itself, but it does often rhyme...

Here's the concern today: If the Fed keeps raising rates to help fight inflation (which is good, if inflation goes down), it could slow growth so much that the economy falls into an even deeper recession.

Based on our observations of the Fed and comments we saw today from those who work for the central bank, we'd say this is a likely scenario. Here's Mary Daly, president of the San Francisco Fed, in an interview with the social-networking site LinkedIn today...

It really would be premature to unwind [what we've done so far] and say the job is done... and really getting too confident that we've already solved the problem.

She added that the Fed needs to "keep committed until we actually see it in the data." That statement got my attention. As I mentioned yesterday, the Fed's preferred inflation gauge is PCE, which is publicly reported with at least a monthlong lag.

We'll learn July numbers at the end of this month, for example, like we learned June numbers at the end of last week. There will also be a slew of other data coming out between now and the Fed's next policy meeting on September 20 and 21.

The producer price index ("PPI") – considered a leading indicator for inflation as well because it measures the costs that producers face to make goods (and then sell them to consumers) – was still on the rise at last check, up 11.3% year over year in June...

At the very least, the Fed has indicated it plans to raise rates by 50 basis points at its next policy meeting in September. And that expectation doesn't entirely account for what might happen between now and then... including the Fed's annual symposium in Jackson Hole this month.

That's all to say, it will be at least another few weeks until we get any further substantial clarity on one, the path of inflation... two, what the Fed will do in response to it... and then three, what Mr. Market thinks about that.

So keep watching those gas prices. They might say a lot more than you think about what comes next...

This is undeniable...

At least one market veteran is on board with our suggestion in last Thursday's Digest that reporters in Washington start asking about stagflation (slowing growth amid high inflation). It would be more valuable than continuing to work through frustrating explanations about what a recession is and isn't.

Noted investor Jeffrey Gundlach – whom Barron's once anointed the "Bond King" – is the CEO of DoubleLine Capital, an investment firm with more than $100 billion of assets under management. He wrote on Twitter yesterday...

The debate about whether or not the U.S. is in recession is tiresome, and off point. On point, and undeniable is the fact that the U.S. is experiencing stagflation.

Hear, hear, Mr. Gundlach.

Costs keep on going up (and wages by not as much) and growth is slowing down...

Now, before the definition-arguers get to it, I will acknowledge that another common definition of stagflation includes high unemployment. We're told we don't have that today.

But let's not forget the "unprecedented-ness" the job market has gone through the past two years. As I wrote in the January 18 Digest...

When the term stagflation was coined in the 1970s on the floor of the British House of Commons, persistent, high unemployment was also part of the definition.

To that point, today the comparison is not necessarily identical ‒ the unemployment rate is historically low at the moment ‒ but has a similar result, with fewer people working.

You see, labor-market participation is also near multidecade lows, signaling people just don't want to work.

The Labor Force Participation Rate measures the percentage of the U.S. population working. That's different from "unemployment" (those seeking a job but unable to find one). Today, this rate is 62.2% – several million people less than at the start of the pandemic.

By a few decimal points, outside of the lockdowns in March and April 2020, the rate hasn't been this low since the summer of 1977, another era of high inflation. Maybe that's a coincidence, maybe not.

In the meantime, though, unemployment is at a historically low 3.6%. People who want a job have been able to find and hold one. But we also know most of the new jobs in the economy in June went to people who were taking it on as a second job.

And we're starting to see reports of more and more companies pausing hiring and a few cutting the size of their workforces. That's not good for business, profits, stock prices, and on and on... Stack enough of these situations up and you have a big problem.

So what to do? Outside of doing what you can to maintain the income streams in your life, what does this mean for your investments? Simply put, this is a time to remember to protect your wealth... so you can grow it to greater heights in the future.

If we were coaching in the 68-team NCAA men's basketball tournament, we'd call the strategy "survive and advance." In other words, win this one game so you can play another one... and then think about winning the title.

Here's what we mean...

A dollar doesn't go as far as it did a few months ago... or a year ago... or two years ago... or, you get the idea...

But if you leave your savings sitting in cash, inflation eats away at it. Banks pay barely any interest... Bonds have been getting crushed... and many stocks, too... A lot of people get stuck at this point, freeze up, and do nothing.

But there are things you can do today to protect and grow your wealth... even if you just want to dip your toe back in the markets.

We just got done over the past few weeks telling you about one big idea that comes via our colleague and Stansberry Research partner Dr. David "Doc" Eifrig. It's about one sector that could compound your wealth at 20% per year and famously beats inflation...

You can still read Doc's thoughts on that here, though note that the special offer to become a charter member of his newest research service – based around this opportunity – is now closed.

On a similar point, our editor-at-large Daniela Cambone put together a great video with the best recent responses from her guests about their best methods to protect your wealth. If you're a Stansberry Research subscriber in any capacity, this video is totally free.

I suggest you check it out for all of the suggestions... Many are focused on owning precious metals like gold and silver or having exposure to oil – three asset classes that all seriously outperformed in the 1970s.

But a different strategy caught my attention the most...

And, again, this idea is totally free... and it's outrageously simple... and the more cash you're able to put into it, the more it will help you out. And it's all but assured to work.

This idea comes via E.B. Tucker, a former Stansberry Research analyst who's always a terrific guest on Daniela's shows.

Tucker is the author of Why Gold? Why Now? and a veteran of the gold industry. But his focus lately has been elsewhere... a part of the financial world you probably wouldn't expect.

U.S. Treasury bills.

For brevity's sake, I normally like to lump all Treasury securities under the description of "bonds," but in this case there's a critical distinction. Today, we're talking about Treasury bills – government-backed securities with a duration of one year or less.

That's in contrast with Treasury notes (maturity between one year and 10 years) and bonds (maturity longer than 10 years).

Typically, longer-term bonds pay a greater yield in return for your money than short-term notes because it's riskier and less convenient to have your money locked up for a longer period of time. But the risk-reward in the Treasury market is out of whack today...

The "yield curve" is inverted in almost every way, meaning shorter-term Treasury yields are higher than long-term yields. The 10-year/2-year Treasury spread, for example, dipped to negative 0.30% yesterday, the lowest since the dot-com bust.

As we've said before, an inverted yield curve is as good of a recession indicator as they come and always warns about tougher economic times ahead. But as Tucker indirectly told Daniela, it's also an opportunity...

Playing the flip side of the yield curve...

Short-term government-backed yields haven't been this high since 2019... and buying Treasury bills today can significantly boost your cash reserves and soften the impact of inflation in as little as one month.

Today, a four-week Treasury bill pays an annualized yield of 2.16%. The eight-week version yields 2.26%... and 13-week Treasurys give you 2.48% interest. (In comparison, a 10-year Treasury note yields not much more, at 2.75%. Wild.)

These may not sound like eye-popping numbers from the Treasury bill yields, but keep in mind we're talking about incredibly short-term investments, and as risk-free of a purchase as you can find, backed by the U.S. government.

Plus, they're returning more than zero... or what cash is earning in a bank account. Even a small allocation generating a few percent will soften inflation's blows to your portfolio.

Tucker says he's spending most of his "investing time" today bidding on and buying four-week, eight-week, and 13-week Treasury bills directly from the U.S. government. They're one of the only things worth buying today, he says.

The best part is anyone with a bank account can buy Treasury bills – and other government-backed securities – by setting up a free account at TreasuryDirect.gov.

I've done this myself. For a government operation, TreasuryDirect is refreshingly simple to use and navigate, even if it looks like the website hasn't been updated since the 1990s. (That might be why it works.)

As Tucker said, he suggests folks set up an account and buy short-term Treasurys to grow their cash today with little risk...

I'm spending all my market time buying T-bills... Why would I be doing that? People say, 'Oh, the U.S. government...' Let me tell you something, if the U.S. government fails, you got much bigger problems than making profits. You're [thinking about] surviving...

T-bills are a good place to hide out. That's what I'm doing now because I think we're going to be in for a problem come this fall, and I'm going to be ready to take action, and most people are not going to be ready.

In other words, he's building up his cash while keeping it relatively liquid and not locked into anything too long term... to be ready to use on buying opportunities when they inevitably present themselves.

This is similar to the I-bond idea we mentioned several months ago – getting 9.62% from the government virtually risk-free through October – but with a smaller nominal return and more flexibility.

You can't redeem I-Bonds for 12 months and can only buy up to $10,000 per year per individual. You have more flexibility with Treasury bills...

A way to break the ice...

Short-term Treasurys are what they sound like. They have a shorter duration, and you can buy up to $5 million in each security per household.

If you happen to have $5 million to work with, a 2.16% four-week Treasury would give you $108,000 in a year...

If you have a more reasonable $50,000 in cash doing nothing today, buying a four-week bill would net you close to $1,100 in a year.

Assuming the U.S. government doesn't go bankrupt during the brief period you're invested in the bills, you'll get your capital back plus interest in four weeks, eight weeks, or whatever the duration is... That's good liquidity.

All in all, if you've been feeling stuck or frozen in these markets the past few months – and aren't sure what to do with any cash you might have on hand – there might be no better low-risk strategy than the one Tucker offered up to Daniela.

Give it a try and let us know if you do. Buy some four-week Treasury bills, earn the interest... survive and advance. You'll have more money to put to work down the road... while protecting your wealth in the present. You can do a lot worse than that.

A Few More Ideas for Protecting Your Wealth

The U.S. economy shrank for the second straight quarter, and inflation is arguably the highest it has ever been. What is the best way to protect your wealth? We mentioned E.B. Tucker's recommendation... here's what our editor-at-large Daniela Cambone's other recent guests have to say...

Click here to watch this video 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 8/1/22): W.W. Grainger (GWW) and Hershey (HSY).

In today's mailbag, more feedback on the changing definition of a recession... and more kudos for Dan's latest Friday Digest. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Corey, I'm afraid if I saw a lizard with a termite in its mouth on my deck, it would be a sign of depression.

"I'd be depressed that I was about to spend hundreds, if not thousands on an exterminator getting rid of those damn wood eating pests!" – Paid-up subscriber Steve R.

Corey McLaughlin comment: I was sort of thinking the same thing. Depression is a more accurate word for the "lizard with a termite in its mouth" image.

But I'm just glad the "salamander with a top hat" analogy has some legs... I'm happy to keep this conversation going as long as anyone wants.

"The average Joe doesn't care if the current economic conditions are called a recession or Aunt Mary's underpants.

"Average Joe has noticed increases in gasoline and groceries and has cut back on buying unnecessary items. He will take care of business in the upcoming election." – Paid-up subscriber Ed M.

"Dan, Very well done! You hit the nail on the head again with this Digest.

"When your government and media is trying to muddify the stream it doesn't help to hope you can rely upon them. It's probably a lot better to use your own thinking, not propagandized, to understand what is going on by looking at the policy effects." – Paid-up subscriber Al M.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 2, 2022