The State of the Union Is...

More new stock market highs... NYCB makes a deal with a former Treasury Secretary… The state of the union… From 'not good' to always 'strong'… Economic promises… The real problems…

Onward and upward...

For the second day in a row, Federal Reserve Chair Jerome Powell reiterated the idea of interest rate cuts to come "later this year." At the same time, central bankers across the pond are telling a similar tale – and similarly giving stock prices a lift...

This morning, the European Central Bank said it was keeping its benchmark lending rate steady at 4%... while it revised down its forecast for inflation in 2024 to 2.3%, and projected weaker than previously expected growth for the year (0.6%).

Between the numbers and ECB president Christine Lagarde's commentary after the bank's latest policy announcement, traders are expecting the European version of the Fed to start to cut lending rates sometime this summer.

The European Stoxx 600 Index was up about 1% today and made a new all-time high... and the U.S. benchmark S&P 500 Index followed suit, up about 1% for a new all-time high above 5,100.

Notably, chipmaker Nvidia (NVDA) was up another 4.5%, and other chip and tech stocks were among the day's biggest winners... And U.S. Treasury yields largely trended lower, with the 10-year falling under 4.1%.

Sometimes, the story is just the same. Sometimes it's not – or slightly different, at least...

An update on our 'worst in show'...

New York Community Bancorp (NYCB) has gotten a billion-dollar-plus capital injection (or life ring) from none other than an investment group led by former Treasury Secretary Steve Mnuchin.

In presenting details about the deal, though, the stressed regional bank revealed today it lost about 7% of its deposits over the past month as clients fled. It also slashed its dividend – for the second time this year – from 5 cents to 1 cent per share.

Shares of NYCB were up about 6% today but are still down about 65% from where they were in late January. That's when it disclosed a $260 million quarterly net loss and said it was cutting its dividend by 70% to build up more than $500 million needed for potential loan losses tied to declining real estate values in New York.

Those challenges are far from gone, and similar ones could reveal themselves elsewhere in regional banks as the year goes on. Here's one more reminder, as I (Corey McLaughlin) wrote last month, last year's regional-bank "rescue program" will expire in a matter of days...

After Silicon Valley Bank and Signature Bank failed last March, the Federal Reserve launched the Bank Term Funding Program as essentially a liquidity pool for banks at low rates. It's scheduled to stop making new loans on March 11...

In the meantime, the Fed also raised the interest rate on the program, which was effectively ending an easy way for banks to make money. At the very least, more talk about the lapse around this program could stoke volatility in the banking sector – again.

Meanwhile, the State of the Union is...

"Not good." That's what then-President Gerald Ford said in 1975. Standing before a joint session of Congress, he uttered an honest line that has since morphed into something entirely different...

I must say to you that the state of the union is not good: Millions of Americans are out of work. Recession and inflation are eroding the money of millions more. Prices are too high, and sales are too slow. This year's federal deficit will be about $30 billion... next year's, probably $45 billion. The national debt will rise to over $500 billion. Our plant capacity and productivity are not increasing fast enough. We depend on others for essential energy. Some people question their government's ability to make hard decisions and stick with them – they expect Washington politics as usual.

And he thought billions of government debt per year was bad. As we wrote just yesterday, Uncle Sam has been racking up $1 trillion of debt every 100 days or so lately... and the total deficit is at $35 trillion.

History rhymes...

If you wanted to, you could reasonably make an argument that the bulk of this passage from Ford's 1975 State of the Union address is as true today, nearly 50 years later... or at least has been in the not-so-distant past.

We don't need to tell longtime readers about how much inflation has eroded the value of a dollar since the 1970s, either... and how high it has been for the past few years, which has led to a lot of the challenges, unease, and unrest in the country today.

Millions of Americans are out of work, even with the unemployment rate below 4%. We had a technical recession in the first half of 2022 – two straight quarters of GDP shrinkage – that went not only rarely acknowledged but disputed by the White House.

And I don't think anyone with a shred of reality baked into their view expects the federal government to "make hard decisions and stick with them." That was as "not good" in 1975, if not better, than it is now. We'll stop there.

But they say it's strong...

The last five presidents in a row – Bill Clinton, George W. Bush, Barack Obama, Donald Trump, and Joe Biden – have maintained the state of the union is "strong" or used a slight variation of the word. In each case, they used language that projected (often empty, false) confidence in their signature annual speech before Congress.

Here's a comprehensive list of the words used by presidents after "The state of the union is..." since Ford, who was speaking in 1975 in the wake of the Watergate scandal and as the Vietnam War was winding down. His bluntness hasn't been repeated since.

Even during the years of gas station lines in the late 1970s, then-President Jimmy Carter chose the word "sound" to describe the state of the nation. In 1983, Ronald Reagan vaguely acknowledged problems when he said that "the state of the union is strong, but the economy is troubled." Clinton started a string of unqualified "strong" (or the like) references in 1996.

And in 2009, amid the financial crisis, Obama said the "state of the economy is a concern" – an understatement. And that came in his first year as a newly elected president, which in the formalized State of the Union speechmaking world is recognized as an "economic address," in which presidents haven't felt compelled to follow "the state of the union is..." convention.

Depending on when you're reading this, you'll know soon or already know what Joe Biden will say or has said in his State of the Union address on Thursday night. We suspect some variation of "strong," but maybe he'll surprise us.

We're hearing today that the speech will discuss economic policies Biden promises to push if he's elected to a second term in November, including higher tax rates for corporations and the wealthy... and legislation to lower the cost of prescription drugs.

Those actually may have some influence on the markets. Investors can digest them as reference points for what could or could not happen in the future, depending on who wins November's presidential election and where control of Congress goes.

What we don't expect to hear about is the "not good"... (Trump, who has promised to share live "play by play" of the speech on his social media of choice, will probably cover some of that.)

But we don't expect any talk from either about the federal government and central bank's gigantic role in fueling higher prices... or the cost of the national debt... or that future Social Security and Medicare or Medicaid payments aren't even part of the number.

Nor do we expect a simple explanation or admission that inflation will never fully die. So long as fiat currency can be printed or lent into existence by bureaucrats "rescuing" the economy from the crisis of the moment, the government will keep making each existing dollar less and less valuable.

Those are real problems, of course, that require "hard decisions."

Perhaps this is why the market often doesn't 'care' about the outcome...

History has been shown to repeat over and over no matter who is running for or wins the White House. That's the story from Marc Chaikin, our friend and founder of our corporate affiliate Chaikin Analytics.

Marc argues that as an investor, it's important not to be swayed by a "national distraction" like the presidential election. What matters most in the markets is the lead-up and timing. As we explained earlier this week, Marc recently sat down on camera for an informative election briefing...

Marc has traded through 13 presidential election years over his five decades as a professional investor and has seen patterns repeat themselves over and over and over every four years.

He said in every election year for nearly 100 years, we see a shift occur in the markets right about now...

He means Super Tuesday, which just wrapped up. And he says, "When you look at the market this way, nothing is a coincidence. It's a pattern."

And understanding this pattern, Marc says – and the right stocks to own and avoid – could make or break your portfolio.

Don't miss his free presentation. The full, unedited version – including all the special bonuses and two free stock recommendations – will go offline at midnight tonight Eastern time. As Marc wrote in a note today, tens of thousands of people have watched his message.

You can watch the full version for just a little while longer. Click here to do so now.

New 52-week highs (as of 3/6/24): AbbVie (ABBV), American Financial (AFG), Applied Materials (AMAT), Advanced Micro Devices (AMD), ASML (ASML), AutoZone (AZO), Brown & Brown (BRO), Colgate-Palmolive (CL), Costco Wholesale (COST), Pacer U.S. Cash Cows 100 Fund (COWZ), Copart (CPRT), Commvault Systems (CVLT), Dimensional International Small Cap Value Fund (DISV), iShares MSCI Emerging Markets ex China Fund (EMXC), Enterprise Products Partners (EPD), Franklin FTSE Japan Fund (FLJP), SPDR Gold Shares (GLD), Intercontinental Exchange (ICE), ICON (ICLR), IQVIA (IQV), iShares U.S. Aerospace & Defense Fund (ITA), JPMorgan Chase (JPM), KraneShares MSCI Emerging Markets ex China Index Fund (KEMX), Linde (LIN), Motorola Solutions (MSI), Neuberger Berman Next Generation Connectivity Fund (NBXG), NVR (NVR), PulteGroup (PHM), Sprott Physical Gold Trust (PHYS), VanEck Semiconductor Fund (SMH), SPDR Portfolio S&P 500 Value Fund (SPYV), Stellantis (STLA), TFI International (TFII), Target (TGT), Thermo Fisher Scientific (TMO), Tenaris (TS), Textron (TXT), ProShares Ultra Gold (UGL), ProShares Ultra Semiconductors (USD), ProShares Ultra Financials (UYG), Veralto (VLTO), and Walmart (WMT).

In today's mailbag, thoughts on gold – which we talked about in yesterday's edition... and another story about "how you found us" – stemming from some comments about CNBC host Jim Cramer earlier this week... Do you have a question or comment? As always, e-mail us at feedback@stansberryresearch.com.

"I think you guys are wise enough to know gold is not breaking out; the value of the dollar is breaking down, again. As it has to do with the Fed's mismanagement of American currency. The same amount of gold will still buy the same amount of property, which illustrates my point precisely." – Subscriber D.M.S.

"I started not with Cramer but with Bill Bonner, Jim Davidson and Lord William Rees-Moog, which led me somehow to Steve Sjuggerud then Dan Ferris, Porter, and Doc Eifrig who all have helped me grow a nest egg over the years to protect my family. I now am trying to educate and help them as I have been helped so thank you all so much." – Subscriber Art A.

All the best,

Corey McLaughlin
Baltimore, Maryland
March 7, 2024