We're Officially on Another Planet

Most Americans haven't heard this story... We're officially on another planet... A broken pinky promise... A sign of things to come?... Where euros will be treated best... Steve has the answer...

'Most Americans have never heard of this story'...

That was one of the standout lines from our colleague Dr. Steve Sjuggerud's latest True Wealth Systems issue, published last week. It really hammered his point home for us...

Banks in Europe are doing the unthinkable...

They're turning away large cash deposits. This isn't a belated April Fools' Day joke or financial news satire from the Onion. Here are the facts, as reported by Steve...

Deutsche Bank, one of Germany's top lenders, is effectively turning away many deposits of 100,000 euros or more. And if it does accept your deposit, then it will charge you a 0.5% annual fee to keep your money in the bank.

Yes, that means these folks would be paying the bank to hold their cash. And at 100,000 euros, they would be losing 500 euros a year in negative interest. More from Steve's latest, must-read True Wealth Systems issue...

If this sounds a bit crazy... well, it is. We've gotten used to near-zero interest rates at major banks since the global financial crisis. But paying them interest on your savings? That feels like an idea from another planet.

But what might sound like an investment idea better suited for Pluto (if that's still considered a planet) is real here on Earth... This is happening just across the pond in Europe.

In Germany alone, more than 230 banks are charging deposit fees like this to private customers today. As Steve wrote, one customer moved his money away from Commerzbank – Germany's second-leading lender – for incredibly obvious reasons. As the customer said...

I wouldn't mind receiving nothing for my deposit, but being asked to pay is just too much.

I (Corey McLaughlin) will surely agree... That's like voluntarily asking for another "inflation crocodile" to chase you when one is already nibbling at your money.

Longtime Digest readers know things have been heading in this direction for a while...

First off, a 700-year downtrend in interest rates across the world is in play.

Records show real rates averaged around 15% in early 14th-century England... and they have steadily declined – with volatility up and down – in many parts of the globe all the way down to near zero or below today.

This is a jumping-off point that most investors either never think about or simply don't want to consider.

In the U.S., it's more of the same story, but with a shorter 200-year downward trend... with of course, the extended detour of the rate spike in the 1970s and top of roughly 16% in 1981.

More specifically, negative interest rates have been around in Europe since 2014, as countries all over the world tried to navigate the fallout of the financial crisis. But this whole charging-people-money-to-take-their-cash thing is still relatively new...

When the European Central Bank – the U.S. Federal Reserve's cousin bank – first started charging negative rates to banks, the European banks pledged – pinky promised! – not to pass the costs on to customers.

That had been the case for the past six years.

But as Steve writes, with COVID-19 pandemic uncertainty and people saving more due to staying home, folks have flooded banks with more cash than they want.

Now, you rightfully might think...

Isn't cash a good thing for banks? Isn't that what they do? Don't they hold it for you?

In a normal world, sure, that's what they want. But this is how upside down our world has become over the past decade, and especially in the pandemic. As Steve explains...

Deposits are a liability for banks. The more deposits a bank holds, the more money it has to store away at the central bank to cover those liabilities. Before the pandemic, this wasn't a big deal... Banks could cover the negative rate charged by the European Central Bank and still profit on large deposits.

But with deposits through the roof, they can't afford to eat that negative rate anymore. So they are either charging fees or turning away potential customers, using new online tools to guide folks elsewhere.

Said another way... for six years, European banks were able to eat the negative cost of holding folks' cash and still be profitable. But that has all changed now. As Steve writes in True Wealth Systems...

This is truly crazy. Banks thrive when they're able to grow deposits. But now, they're actively trying to avoid it. And everyday customers are facing the unbelievable scenario of paying to deposit their cash.

This new paradigm, of course, brings up many ideas to consider...

Most practically, what is a person with euros burning a hole in his or her pocket supposed to do? For investors in Europe, this is top of mind today. And as we'll explain, Steve has a good idea of where money is likely to head...

But looking at the bigger picture, these developments in Europe have broader impacts on investors everywhere. We'll touch on this idea just briefly...

It shows what could happen here in the U.S. – not today or tomorrow, but at some point down the road. There is only a razor thin line to cross...

The Fed hasn't "gone negative" yet and has taken steps to make sure banks' balance sheets are strong (so, you know, they can hold cash in reserve and still be profitable). But the central bank has "gone to zero" twice in response to the past two crises we've faced...

We hear about this a lot in general terms, but let's get specific and Wall Street-y for a moment... When we talk about the Fed raising or cutting rates, most people are talking about what plays out in the effective benchmark federal funds rate.

This is the rate that regulated institutions, like banks and credit unions, lend cash to other banks and credit unions. The banks with bigger balances lend to those that need cash... and on the "liquidity" flows about the system.

When you look at the effective benchmark federal funds rate over the past decade, you'll find that it has been practically zero (at 0.16 or less) almost 50% of the time (57 months out of 122 months since February 2011... and the percentage will likely climb higher into next year at least, per what the Fed has told investors lately).

A clear trend exists here over the past 40 years. Take a look at the following chart...

The Fed is trying to avoid going negative, but which way are you willing to bet this goes?

At the same time, though, this might be a discussion for the next crisis...

That will come, of course. It always does... the busts and the booms, the booms and the busts.

But the next likely move for the Fed is to raise rates, eventually... It might be next year or the year following, but that is the outcome that the Fed wants – or will be forced into at some point if inflation runs too high, too quickly.

In the meantime, the "yield curve" in the U.S. has been widening over the past several months... and these trends don't often reverse overnight. That's good news for banks... They'll make more money that way.

As we've said before, banks make their money by borrowing money at short-term interest rates, and then lending it out at long-term interest rates. The spread between the two is called net interest margin ("NIM").

So with the Fed keeping short-term interest rates near zero, banks don't have to pay much to borrow money. And now, with longer-term interest rates having risen in 2021, banks can see their earnings grow.

For people "in the system"... this behavior also indicates a strengthening economy, albeit from a lower low this time last year.

Frankly, as you can begin to see, to fully detail the many tentacles of central bank policy could fill several trilogies. That is beyond the scope or ability of where we wanted to go with today's Digest.

We can – and will – pick up this part of the discussion again. We always do somehow.

But for now, let's get back to the practical matter, which Steve raises in his True Wealth Systems issue...

Where are euros supposed to go today?

If not to the bank, then where?

Some people might choose bitcoin, gold, or other stores of value – like real estate. And we could see that happening... Those are reasonable choices to keep your purchasing power alive and beat inflation anywhere in the world.

But as Steve says, "Money goes where it is treated best." And for euro-holders today that likely means a lot of cash that would be normally held at banks will soon head into European stocks instead.

Think of this idea as the across-the-pond answer to the 'There Is No Alternative' ("TINA") environment in the U.S., where many of the same themes are at work.

To be frank, not all banks in Europe are charging negative rates... But if they're not negative, they're giving folks barely anything – or more likely, zero – to hold their cash, just like here in America.

Plus, in Europe, bonds pay even less than they do here. While you can still earn a yield of more than 1% on 10-year U.S. Treasury bonds, you can only get 0.038% by owning European bonds.

(Related, we'd love to hear from our European subscribers on this point. Let us know what you see at feedback@stansberryresearch.com.)

What is the European alternative in a money-printing, inflationary world?

The answer is European stocks... They are and will treat people best, according to Steve. There is little competition as there was back in 2011, when European bonds paid a 5% yield. Here's more from Steve...

Once you think through all of these scenarios, the reality of the situation becomes clear... Money is about to pour into European stocks.

For example, if bonds pay 10% yields, that's major competition for stocks. There's no incentive to own riskier assets such as stocks.

But when bond yields are low, investors are willing to take the extra risk in search of greater returns. And with banks charging customers to hold deposits, money is treated absolutely terribly as cash in Europe.

Most people, at least those who don't track the European markets, haven't realized this trend at work... But the STOXX Europe 600 Index, which tracks Europe's 600 largest companies by market cap, recently went back above its early 2020, pre-pandemic highs.

And looking out to the longer term, this index is now up nearly 140% since the end of 2011... Our friend and technical analyst J.C. Parets of All Star Charts recently noted the Europe 600 Index looks like it broke out from a 20-year "base" last month, like it did just before the pandemic hit.

In short, European stocks are in a strong uptrend, checking one of the three boxes that Steve always considers when making a recommendation.

The other two boxes, as longtime readers know, are that the stocks be "cheap" and "hated."

Today, European stocks check all of the boxes...

Overall, Steve says his True Wealth Systems computers are giving the "green light" for buying European stocks today. And in the past, this signal has delivered terrific returns – like 38%, 55%, and 57%, sometimes in as little as 13 months.

What's more, with the interest rate policy from another planet in play, Steve sees this opportunity as potentially more lucrative than past uptrends have been.

In the same way many U.S. investors have hometown bias and look to buy American stocks first, we're willing to bet folks in Europe are likely to do the same and push prices higher. And as Steve wrote...

Even better, nobody is paying attention... or had a reason to care about it. That's what makes it such a good opportunity.

European stocks are also cheap, meaning they trade at a significant discount compared to U.S. stocks. You might have heard us talk about how U.S. stocks are expensive...

To top it all off, European stocks are also hated, based on a specific indicator that Steve likes to follow. We might have given too much away already, so we won't get into much more detail here today. Steve invested millions of dollars in his system, after all...

But we do want to make one final note...

If this all sounds well and good to you, don't just go out and start blindly buying any old individual European stocks that sound appetizing... We're talking about a broad trend, and Steve has a particular basket of stocks in mind that could benefit the most.

He shared them, along with specific buy and sell instructions for this trade, in his latest issue of True Wealth Systems. If you're a subscriber or Alliance Partner and missed it, please do check out the April issue. You won't regret it.

And if you don't already subscribe to True Wealth Systems and are interested in learning how you can get started, click here right now for more information.

Yellen and Biden Need to Wake Up

U.S. Treasury Secretary Janet Yellen is pushing for a global minimum corporate tax rate, as President Joe Biden's administration looks to fund its infrastructure plan and prevent companies from shifting profits overseas to evade taxes.

Our colleague Daniela Cambone speaks with Todd "Bubba" Horwitz of Bubbatrading.com about the news... and whether Yellen will be successful in convincing G-20 countries to accept a tax floor...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 4/5/21): Automatic Data Processing (ADP), CBRE Group (CBRE), Crown Castle International (CCI), Eagle Materials (EXP), Expeditors International of Washington (EXPD), Facebook (FB), SPDR Euro STOXX 50 Fund (FEZ), Comfort Systems USA (FIX), Alphabet (GOOGL), Home Depot (HD), Huntington Ingalls (HII), Intel (INTC), IQVIA (IQV), iShares U.S. Home Construction Fund (ITB), Lennar (LEN), LGI Homes (LGIH), Markel (MKL), Microsoft (MSFT), Motorola Solutions (MSI), NVR (NVR), Oshkosh (OSK), Invesco S&P 500 BuyWrite Fund (PBP), Invesco High Yield Equity Dividend Achievers Fund (PEY), Scotts Miracle-Gro (SMG), ProShares Ultra S&P 500 Fund (SSO), Seagate Technology (STX), Vanguard S&P 500 Fund (VOO), Waste Management (WM), and W.R. Berkley (WRB).

In today's mailbag, a frequently asked question about bitcoin and more feedback on last Thursday's Digest from our colleague Dan Ferris. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Why can there only ever be 21 million Bitcoin? Won't there be an unending need for another crypto to do something new?" – Paid-up subscriber Greg G.

Corey McLaughlin comment: Greg, this is an important and common question that Crypto Capital editor Eric Wade has answered before. Here's what he has to say about it, which we shared earlier this year in the Digest...

This is one of the most important questions about bitcoin (and money) and needs to be asked over and over by everyone.

My answer might surprise you... because it has already happened. And the results of that are billions of dollars of new, "unlimited" bitcoin floating around today. They aren't worth anywhere close to bitcoin.

They are "forks" of bitcoin... or changes to the bitcoin protocol.

You see, any change to the bitcoin software can only result in two possible outcomes... Either the majority of bitcoin miners and "nodes" – a computer in bitcoin's peer-to-peer network – accept the change, or they don't.

If the majority accepts the change, bitcoin changes. An example is the changes that took place on July 21, 2017, which the bitcoin community called "Bitcoin Improvement Proposal (BIP) 91." On that date, the majority of bitcoin miners implemented BIP 91, so bitcoin changed. By August 8, 2017, 100% of miners had accepted BIP 91.

On the other hand, bitcoin can fork into two different chains if miners try to make a change that doesn't achieve a majority. This creates a "fork" of bitcoin... and it has happened numerous times.

So, it's not a stretch to think that the code could be changed to create 210 million or even 21 trillion bitcoin. A good programmer could do it in a weekend...

[But] since a group of miners, developers, investors, and users who were against the BIP 91 consensus "forked away" Bitcoin Cash from the main chain in 2017, the miners mining bitcoin have increased their hashing, or processing power, by a factor of 10.

Yes, bitcoin is literally 10 times stronger than it was when it forked.

Said another way, to implement a change that creates new bitcoin – while technologically easy – would require convincing all of the miners, all of the nodes, and all of the users to abandon the superior bitcoin and start to use your inferior version.

Making that change is not in their financial best interest or their philosophical interest... so most likely, the fork would fail.

"Hello Dan, thank you for the clever and entertaining way to share some macro truths on 'hold my beer' scenarios. I love your sense of humor. I will share [Thursday's Digest] around with my close friends.

"As I am mostly retired now (only flying part time for Air Ambulance Worldwide and a few private individuals) I have less resources to invest in new ideas. I believe the timing is good as most equities appear to be in elevated valuations. I am hearing your alarm bells that euphoria is elevated. The dilemma is that currencies are also being undermined by central bank printing so cash positions that are too heavy are also at risk. We are embracing the True Wealth Real Estate opportunities as a way to hold more hard assets (along with some precious metal positions) outside of equities.

"History usually rhymes, but we may be facing a whole new repertoire of songs in another language with the mess we see today in world economies and currencies. There is no foolproof plan that can be written, but I still appreciate the wisdom and candor of you and your colleagues at Stansberry Research.

"Hope your family enjoyed a joy filled Easter. He is risen!" – Paid-up subscribers Howie and Marti C.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 6, 2021