The Fed Just 'Moved the Goalposts'

The Fed just 'moved the goalposts'... Let inflation ride... What does this mean for your investments?... A cheaper dollar... More fuel for the 'Melt Up'... A different take on U.S. 'value'...

Today, the Federal Reserve 'moved the goalposts,' so to speak...

If you read nothing else of this Digest, just know what Fed Chair Jerome Powell essentially told the world today...

The Fed will let inflation run higher than normal until the economy gets well back on track.

To which we say... Prepare and invest accordingly, if you haven't already.

Today marked the start of the Federal Reserve's annual retreat, which is traditionally held in Jackson Hole, Wyoming. It's where we typically learn – through reading between the lines of the head-pounding "Fedspeak" – what the central bankers are thinking about doing with their economy-shifting monetary policy in the months or years ahead...

These usually aren't the sexiest events for entertainment value. But they're important because, for better or worse, these decisions color the investment environment for stocks, bonds, and pretty much every available means of investing your money.

This year, because of the COVID-19 pandemic, the Fed governors didn't actually go to a nice resort in Wyoming and charge a select few attendees thousands of dollars to listen. Instead, the event was held virtually and open to the public for the first time.

And via live-streaming video this morning, Powell made what might have been the most important policy speech of his two-plus years on the job...

He laid out what he called "robust changes" to the central-bank's long-term policy, which the Fed started laying out so publicly back in 2012.

As we expected, the Fed's path ahead includes continued rock-bottom interest rates...

The most important takeaway, however, is the change in the Fed's long-term inflation goals while those rates remain low. As Stansberry NewsWire analyst Nick Koziol reported today, shortly after Powell's speech...

The Fed now has a long-term inflation target of 2% "over time," Powell said. This means that the Fed will likely try and push inflation above 2% for a period of time to make up for a sustained period of inflation below the 2% goal.

In Fedspeak, this is a big departure from past policy...

The Fed – whose mandates from Congress include "maximum sustainable" employment and "stable" prices – has been focused on managing the economy to a 2% inflation rate on those prices over roughly the past decade...

That largely hasn't happened, especially lately... Inflation, based on changing prices of U.S. consumer goods and services, has been at or below 2% in 16 of the 20 months since November 2018.

And over the past four months through July, as the economy ground to a halt amid shutdowns and has since recovered some, inflation has averaged just 0.5%... And at least 14 million Americans are receiving unemployment benefits today.

Too much inflation is viewed by a lot of people as an economy-killer, but not enough isn't good either and shows a lack of growth. In between, you'll find the Fed's ideal "goldilocks" economy – not too hot and not too cold.

In the past, during the good times, the Fed has preemptively raised rates to head off higher inflation.

But it has evidently gotten too chilly for the Fed's liking. So the central bank is willing to turn up the heat on the stove, keep interest rates low to encourage borrowing, and let inflation run higher... even if or when employment gets back to full levels. As Powell said today...

The economy is always evolving. Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities and that a robust job market can be sustained without causing an unwelcome increase in inflation.

Powell didn't put any numbers to what would represent ideal employment levels... But he did indicate that the idea is to eventually get to the point where the Fed can raise its benchmark rate range again (so that they could again cut it later, if needed, "to boost employment during an economic downturn").

It might take years, though, to get to that relatively "normal" position.

We said that would be the case back in the June 11 Digest, when we noted that most of the Fed governors expected to see interest rates at or near 0% through the end of 2021.

And we've also said that the Fed is tracking the spread of COVID-19 like everyone else when considering policy decisions.

Take today's news as a doubling down of this stance.

So, what does this mean for your investments?

A few things...

If you've followed the Digest regularly since COVID-19 rocked the markets in March and the Fed cranked up its digital money-printer, you're already in good shape. You know we've been sharing recommendations from several of our editors designed for a low-interest rate, high(er)-inflation, lower-U.S.-dollar value environment...

We saw no way to avoid it.

Every time the Fed prints a dollar, the value of the dollar in general goes down... (This is a big reason why our founder Porter Stansberry is so bullish today on bitcoin, which is designed not to be manipulated in value, as a future reserve currency.)

When "fake money" is printed, the poor get poorer, whether they know or it not... and the values of other investments rise in dollar terms. We've said "hard assets" like gold, real estate, art, and even bitcoin stand to rise in relative value as the dollar weakens.

Just on Tuesday in the Digest, while encouraging investors to consider real estate investments, our colleague Vic Lederman noted specifically that the Fed was signaling its willingness to budge on its inflation target...

The policy focus is shifting from "inflation is scary" to "maybe we could use some more inflation." True to form, the Fed is using "Fedspeak" to communicate this as loudly as it can to the markets.

Fedspeak might be hard to understand at times. But this time, the message is as clear as it gets. Let me provide the translation... "If you stay sitting in cash while we do everything in our power to juice the economy, you get what you deserve."

As Stansberry NewsWire editor C. Scott Garliss put it in an e-mail today...

Lots of liquidity in the financial system keeps the dollar cheap, and items valued in dollar terms like gold, silver, bitcoin, stocks, real estate, etc., should cost more as a result.

Let's look at just gold, for instance...

Gold Stock Analyst editor John Doody spoke about what Fed policy means for gold and the gold stocks in his investing universe in a recent video interview with our colleague Jessica Stone...

The Fed, no question, has an enormous impact on gold prices. The Fed killed the gold-price rally in 1980... They jacked up interest rates to 20%. Gold, which doesn't have any yield, competes against interest rates that the U.S. pays on its debt.

But from 20% down to today's nothing percent, gold in the last few years has really taken off...

The strength of the dollar is the counter to gold, as John said...

When the dollar is strong, gold tends to be weaker, and vice versa. The dollar was very strong in 1980 because interest rates were sucking dollars in from the rest of the world because of that 20%.

Now there's no reason why any investor, U.S. or non-U.S., should buy U.S. dollar investments because they can't get any return on them.

John strongly stands by his call back in April for gold to hit $3,000 per ounce in reaction to the Fed's continued "easy money" policies... The gold price is up about 50% since he went on record with that prediction, with 50% left to go.

Be sure to check out John's Gold Stock Analyst service, if you haven't already, for the best information and analysis in the industry on how to profit from this great gold boom.

As for stocks, 'easy money' behavior is what sparked the last massive bull market...

As we noted back in June, after the Fed indicated low rates for years to come, it was feeling a lot like the start of the last bull market...

The fed-funds rate was between 0% and 0.25% for seven straight years not that long ago, beginning during the financial crisis in December 2008 and stretching all the way to December 2015.

We've been right back there again since the Fed's emergency rate cut in March.

That doesn't necessarily mean a record-long bull market will play out just as it did over the past decade. But with cheap money for businesses and today's yields on U.S. Treasury bonds still at record lows, it pushes investors looking for a decent return toward stocks...

This is fuel for a "Melt Up."

Our colleague Steve Sjuggerud wrote about this in the July 29 issue of his free DailyWealth e-letter, when he compared the ongoing policies under Powell with those of former Fed Chair Ben Bernanke...

Money is now cheaper than ever. And the Fed is pumping more cash into the financial system than ever.

As we saw during Bernanke's time as Fed chair, that's a recipe for a massive asset boom.

Powell is stoking the same coals that sparked the last massive bull market. But he's got a heck of a lot more of them... And he's lighting them with fuel Bernanke never knew existed.

Like the new lending and asset-buying programs the Fed began playing with in March and a massive balance sheet that ballooned when crisis hit, future generations be damned. As Steve explained...

I want to be clear about one thing... I'm not saying this is good. The long-term consequences could be severe. We simply can't know today – we don't know if or how it could go wrong.

What we do know is what happened last time. The Bernanke Asset Bubble sent asset prices on a 10-year boom. And Powell's actions are likely setting up a massive boom in asset prices, too.

Stocks are already on the rise. The S&P 500 is darn close to hitting new all-time highs. And thanks to Powell, the outlook from here is hugely positive.

That's why my advice is that you need to own stocks now.

This doesn't mean we won't see pullbacks and that stocks will continue on a straight line higher forever. Nobody can know the direction of the market for sure, but the backdrop for a Fed-juiced economy is set.

Over the past several months, we've seen a massive rally in U.S. stocks from the March bottom... and a housing market boom, helped by all-time record-low mortgage rates, so strong that contractors can't keep up with demand. As Scott told us earlier this week...

Easy-money policy is not going away anytime soon. This is what we've been dealing with, and what we're looking at now isn't going away.

We'll close today with a different take on U.S. 'value'...

While the value of the U.S. dollar may continue to decline, so has another signal of American strength. This perspective comes from our international editor, Kim Iskyan, who has been doing a lot of traveling lately. And he recently observed...

The travel value of the American passport – which I'm defining as the number of countries that Americans can travel without a visa – has fallen 84%.

This time last year, American travelers could get in 184 countries around the world.

Since the COVID-19 pandemic began, an American passport will now get most people into just 29 countries.

Why the drop?

A lot of countries have restricted foreigners from entering out of fear of visitors bearing germs... The rest of the world is particularly concerned about people from the U.S. – which has just 4% of the world's population, but around a quarter of total reported global coronavirus cases and deaths. More from Kim...

With 5.8 million COVID-19 reported cases, the U.S. has more than 2 million more than the next country on the list, Brazil. What's more, the U.S. has the second-highest rate of infection (in terms of cases per 1 million people) than all but one of the 20 most-infected countries in the world.

And as for the 166 or so countries that people from the U.S. can't visit right now... a visa (or a negative test result) won't help – they can't visit at all. Today, an American passport is about as respected, travel-wise, as the passports of Syria (29 visa-free travel destinations), Iraq (27), or Afghanistan (the world's worst, at 25) were in 2019.

It's a kind of Fortress America – only in reverse. Now, it's Americans who aren't allowed in to other countries.

Fortunately, there are still some countries that will accept American visitors... though it's a motley crew. As Kim continued...

A number of Caribbean islands – hungry for tourism dollars – still allow American tourists. So do countries that have done as lousy a job as the U.S. at managing the pandemic, like Mexico and the United Kingdom. And they're welcome to a handful of countries that only a geopolitical geek or Indiana Jones would be interested in (Ukraine, Albania, Tanzania, Turkey). And if North Macedonia or French Polynesia – also on the green list for Americans – are on your bucket list, there's no time like the present.

You might think that it's just as well that flying off to somewhere isn't an option – since airplanes, where large groups of people share germs in a small enclosed area, might seem to be a great place to pick up a virus.

But in reality, we haven't seen any COVID-19 'super spreader' debacles on airlines...

Only a small number of transmissions have been linked to flying, thanks in part to whiz-bang air-filtration systems and flights that are less full than normal, on average.

Our Director of Research Austin Root recently showed that when he shared his recent experience traveling in this video interview.

And our friend Whitney Tilson at Empire Financial Research recently cited an interesting study from a professor of management science at the Massachusetts Institute of Technology, Arnold Barnett, who has been trying to quantify the odds of catching COVID-19 from flying...

He's factored in a bunch of variables, including the odds of being seated near someone in the infectious stage of the disease, and the odds that the protection of masks (now required on most flights) will fail. He's accounted for the way air is constantly renewed in airplane cabins, which experts say makes it very unlikely you'll contract the disease from people who aren't in your immediate vicinity – your row, or, to a lesser extent, the person across the aisle, the people ahead of you or the people behind you.

What Barnett came up with was that we have about a 1/4300 chance of getting COVID-19 on a full 2-hour flight – that is, about 1 in 4300 passengers will pick up the virus, on average. The odds of getting the virus are about half that, 1/7700, if airlines leave the middle seat empty. He's posted his results as a not-yet-peer-reviewed preprint.

The odds of dying of a case contracted in flight, he found, are even lower – between 1 in 400,000 and 1 in 600,000 – depending on your age and other risk factors. To put that in perspective, those odds are comparable to the average risk of getting a fatal case in a typical two hours on the ground.

Many airlines are requiring passengers to wear face masks. During a recent trip Kim took from Singapore to Ireland, he said passengers had to wear face shields as well...

It felt like I'd stumbled into a convention of welders, but it was good to know that there was an extra layer between me and all those airborne particles.

While the European Union has barred visitors from the U.S. from entering, it has allowed individual nation members to make their own rules... Ireland has broken ranks to permit U.S. passport holders to visit, with a self-regulated two-week quarantine upon arrival.

The irony, according to Kim, is that – if you can get over that cruise-ship-petri-dish-in-the-sky feeling about airlines – now is probably one of the best times in decades to travel. As Kim concluded...

The pre-pandemic, Mad-Max-meets-pinball experience of getting from one gate to the next has been replaced by airports with enough empty space for a baseball scrimmage. More airline personnel – maybe bored by months of lockdown, and happy just to have a job – seem actually happy to help. And depending on where you're going, some flights are crazy cheap.

Just make sure they'll let you in when you land.

Why Warren Buffett Is Buying Gold

Our gold oracle, John Doody, discusses why the "Oracle of Omaha" – legendary investor Warren Buffett – is getting in on the gold rush...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and follow us on Facebook, Instagram, and Twitter.

New 52-week highs (as of 8/26/20): Amazon (AMZN), Alibaba (BABA), Booz Allen Hamilton (BAH), Dollar General (DG), Expeditors International of Washington (EXPD), Alphabet (GOOGL), Home Depot (HD), Innovative Industrial Properties (IIPR), JD.com (JD), Microsoft (MSFT), Flutter Entertainment (PDYPY), Rollins (ROL), ProShares Ultra Technology Fund (ROM), Southern Copper (SCCO), Sea Limited (SE), S&P Global (SPGI), TFI International (TFII), Vanguard Inflation-Protected Securities Fund (VIPSX), Vanguard S&P 500 Fund (VOO), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).

In today's mailbag, feedback on yesterday's Digest about the obesity epidemic in America and the investment opportunity in a potential cure that our colleague Dave Lashmet has identified. Do you have a comment or question? Send us an-email at feedback@stansberryresearch.com.

"Used to be from my generation, 40 was the new 20; now it's reversed, with 20 the new 40 with our ... kids munching their way to a quick death (while we geezers pay for the ridiculous medical payments). Times have changed, but not for the better (depending on whom you're talking to)." – Stansberry Alliance member B.M.

"Never mind Taco Bell building dual drive-through lanes in the future... Here in Maine, Chic fil A has already done it. Two lanes, full of people who are too lazy to walk twenty feet into the restaurant. (And this was equally true before Covid.)" – Paid-up subscriber Charles B.

"Thanks for the piece on obesity. It is something that everyone can control and shouldn't have to take a drug for, but like you hear 'Theres a pill for everything.' Just so you know, the McDonald's near me already has two lanes. Just sayin.' When is that drug comin' out?" – Paid-up subscriber Joe S.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 27, 2020