Why the Fed's in a 'Lose-Lose' Situation

Fed-watching season (again)... Why the Fed's in a 'lose-lose' situation... The future car might not have a steering wheel... AVs are coming... Congratulations are in order... Lessons from pro golfer Kevin Kisner...

First up today, for better or worse, it's Fed-watching season again...

Today, the string-pullers of the Federal Reserve are meeting... and tomorrow, eyes and ears will be trained on Chair Jerome Powell when he speaks to the media about their meeting...

He'll talk about what the central bank is doing about interest rates (likely a small raise)... and maybe about plans for pulling back more monetary stimulus from the U.S. economy (which Mr. Market probably won't like).

We also know Powell won't describe inflation as "transitory" anymore... He "retired" that word in December – about six months too late, in our opinion, a mistake that's probably the biggest reason many folks are worried about runaway inflation today.

Now, it's all but certain that the Fed is going to be raising its overnight lending rate – essentially making dollars "more expensive," relatively speaking, throughout the economy – in an effort to slow high inflation...

At the same time, though, it'll be doing this in an economic environment that might see slower growth in the months ahead for a number of reasons. If you find that troubling, you are not alone...

Tomorrow and in the days following, we'll see how the market reacts.

And I (Corey McLaughlin) will keep you posted... In the meantime, be sure you're following our Stansberry NewsWire team for round-the-clock updates on what the Fed says... and everything that's going on in the markets.

For now, it looks like the Fed's in a 'lose-lose' situation...

That's according to our Ten Stock Trader editor Greg Diamond.

In his Weekly Market Outlook on Monday, Greg previewed the Fed meeting and wrote that its next policy moves will be seen by the market as "sacrificing" either inflation... or asset prices and growth.

As Greg explained, the central bank's best hope is to address one or the other... and whatever it does probably won't "fix" the market anyway. As Greg wrote...

Inflation was out of control before the war in Ukraine. And now, it's worse...

And that's why the Fed is in such a precarious position... It must choose to sacrifice growth or inflation.

If it chooses to hold off on aggressive rate hikes and bond purchases, we'll see a rally in stocks, but inflation will rage...

If it chooses to be more aggressive on rate hikes and bond purchases, stocks may still rally – for a while. But eventually, such a higher-interest-rate environment is going to weigh on growth. We'll see a repricing of a new capital market environment where higher rates are the new normal.

This circumstance is a significant reason why many growth stocks have sold off dramatically the last few months... the thought being that more expensive borrowing can eat into growth prospects. The uncertainty about rate hikes is also why the markets in general have been wildly gyrating every day lately.

For better and worse, what the central bank does matters a lot to investors who push a lot of money around the markets... and many will be hanging on Powell's every word tomorrow. As Greg wrote...

We're in a "wait and see" environment. What the Fed does this week will be very important for the markets, but I don't see how it can escape this lose-lose situation.

Stay tuned... and prepare accordingly.

Don't be surprised to see more volatility in stocks in the weeks ahead... especially with the overhanging uncertainties of the war in Eastern Europe still in place... and expect high inflation to keep "sticking" until further notice.

Moving on to something wildly different that made us say "wow"...

Put simply, the car of the future might not have a steering wheel or pedals...

While headline volatility has gripped a lot of market discussion lately, there are other things going on... leading to far-reaching developments that long-term investors should keep an eye on.

We detailed one last week, with what was basically a White House position paper of sorts on cryptocurrencies. Today, we bring you another...

It has to do with those self-driving cars we've heard so much about for years... Well, based on a recent key ruling, it looks like they will really be self driving... as in no human needed – or wanted.

Last week, the National Highway Traffic Safety Administration ("NHTSA") released a ruling outlining requirements for the next wave of autonomous vehicles ("AVs")... and it got our attention.

The agency essentially said that self-driving vehicles might not be required to have steering wheels or pedals. No hands, no feet ‒ no problem! In short, the agency said car manufacturers will not be required to have a human act as an emergency backup.

Currently, these types of safety measures are required in cars that have AV capabilities for safety purposes... like cars from Tesla (TSLA).

While Tesla has some self-driving capabilities, it still requires drivers to be attentive and have hands on (or near) the steering wheel... That's so humans can take over in event of an emergency or a system failure.

After this ruling from the NHTSA, that will no longer be the case.

Now, self-driving cars won't lose their steering wheels overnight...

The NHTSA said that AVs would need to meet other safety regulations in order not to have steering wheels or pedals...

The agency said driverless, steering-wheel-less cars would have to have "the level of crash protection [that's] currently provided [to] occupants in more traditionally designed vehicles."

In other words, if a company can prove that its self-driving technology is as safe ‒ or even better, safer ‒ than a traditional driver, it can remove the steering wheel and other manual controls.

Achieving this is not a guarantee of course, but in any case, this is a huge step in the right direction for the AV industry... and it gives us a sense of what the future of transportation could look like.

Is this the future 'driver's seat'?

Tesla CEO Elon Musk has said that there is a 100% probability of AVs removing steering wheels in the future and that it would happen as soon as regulators are comfortable with the technology.

As Stansberry Research senior analyst Matt McCall wrote in his free Daily Insight newsletter yesterday, Tesla may be one of the first companies to take advantage of this new rule...

Three years ago, it unveiled a concept design that didn't include a steering wheel, so it could be ready for mass production sooner than its competitors.

As these next-generation vehicles become a reality, there will be major changes to their aesthetics. The seats will be able to face any direction. There will be monitors that allow you to watch movies or sporting events. The vehicle might even include a table for dining! In other words, there will be a greater focus on entertainment over functionality.

While last week's ruling doesn't give AVs the full go ahead, it shows that regulators are certainly getting more comfortable with self-driving technology... At the same time, some of the world's largest companies are investing heavily in the space.

Tech giants like Alphabet (GOOGL), Apple (AAPL), and Intel (INTC) are doing so already. INTC's self-driving unit has already filed to go public in the near future. But it's not just the biggest names in tech getting into the AV space...

"Traditional" auto companies like General Motors (GM) and Ford Motor (F) want to keep up with industry advances and are building out their own self-driving businesses too.

The point is, AVs are coming...

And, according to Matt, they will be a "disruptive" industry, more than many folks probably realize.

This latest ruling from the NHTSA is just more evidence of that fact, though we're still in the early stages of this trend. Here's a final thought from Matt in his Daily Insight note yesterday...

Ultimately, the self-driving car of the future will be a powerful computer on wheels.

These changes will require more sensors, more semiconductors, more battery materials, and more connectivity devices. And that opens up a whole lot of investment potential. Long-term investors should be getting in position today to capitalize on what will be one of the biggest changes to the transportation industry in more than a century.

Matt's subscribers in his McCall Report newsletter already have a head start... with a basket of recommended stocks he calls the Transportation 2.0 portfolio. Existing subscribers and Alliance members can check out that research here.

Lastly, today, congratulations are in order for a friend of Stansberry Research...

Some longtime readers know that we've sponsored professional golfer Kevin Kisner, a University of Georgia alum and four-time winner on the PGA Tour, since 2018... You can see the Stansberry Research logo and name on his shirt when he's on the course playing.

As such, when he notched his most-recent win at the Wyndham Championship last August and got significant airtime on television, we received several notes of congratulations for Kevin in our inbox. Today, we want to share one of our own...

Yesterday, Kevin posted a fourth-place finish at The Players Championship, considered by many to be pro golf's "fifth major." For his 10-under-par effort and high finish, Kevin won $980,000 in prize money. We trust he'll invest it wisely...

For you golf nuts, a few more notes...

Here's a video Kevin shared on Twitter yesterday of him taking on the Players' famous 17th-hole island green during Monday's final round. We hope you enjoy the video and the money-themed caption...

If you watched any of the tournament since it started last Thursday, you know it was by no means an easy competition to perform well in, much less finish in the top five and win a ton of money...

Winds as high as 40 miles per hour and heavy rain in north east Florida made the course nearly impossible to play at times and the weather pushed the final rounds into a Monday finish.

During the final 18 holes yesterday, Kevin also had to switch his caddie – the person who gives the golfer yardages to the hole, helps read greens, offers moral support, and carries his clubs – which is a rare thing.

Kevin's regular caddie, Duane Bock, was sick and couldn't keep up with him walking, so Kevin's swing coach, John Tillery, hopped on the bag on the sixth hole at TPC Sawgrass... Hilarity ensued, with Tillery not exactly filling the role of caddie seamlessly.

Here's what Kevin, who has a great sense of humor, told reporters yesterday about the midround caddie change...

[Bock] does everything, we've been together 13 years, he's like my second wife who takes care of everything, and then I got the most disorganized human in the world caddying for me in John.

It was a whirlwind because they switched kind of midround and a lot [was] going on, trying to figure out who had what information and who had golf balls...

Funny as the comments are, there's a few investing lessons embedded in this experience for everyone...

First, stay focused on your goals... Second, consider adjusting to conditions as needed... And third, there is a lot of value in knowing how to do things yourself.

That goes for figuring out how many yards you should hit a golf ball to get it close to a tiny hole... or how to best diversify an investment portfolio... and navigate a volatile stock market.

What 'East vs. West' Could Mean for the U.S.

"We have a war between the East and the West with sanctions to punish Russia," best-selling author Willem Middelkoop, founder of the Commodity Discovery Fund, tells our editor-at-large Daniela Cambone.

And there's a lot at stake for the U.S. in this conflict. "Once Saudi Arabia, Russia, and China agree on a new oil trading system, then things get very interesting very rapidly," says Middelkoop, who has been writing about the world's financial system since the early 2000s.

Daniela and Willem talk about what's happening with Ukraine, oil, and inflation and how it will influence U.S. markets... They also cover the latest on cryptos and a potential "digital dollar." Watch now...

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 3/14/22): AbbVie (ABBV), Berkshire Hathaway (BRK-B), and Travelers (TRV).

In today's mailbag, Stansberry's Credit Opportunities editor Mike DiBiase responds to a reader question about bonds... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Mike, you mentioned in the March 7 Digest that corporate bonds may soon be trading for pennies on the dollar.

"My question is this: Do municipal bond funds tend to piggyback the corporate bonds and drop equally during inflationary times or are they considered 'safer' and act independently of the rest of the bond world?

"Thanks for your great financial insights by the way." – Paid-up subscriber Thomas G.

Mike DiBiase comment: Thanks for your question, Thomas. First, I want to make sure you and other readers understand, not all corporate bonds are going to trade for pennies on the dollar in the next "credit crisis."

The vast majority of bonds are known as investment-grade bonds, which were issued by companies with solid credit. The prices of investment-grade bonds will fall also, but don't expect them to trade for pennies on the dollar.

It's the non-investment grade, or "junk" bonds, that will trade for pennies on the dollar during the next credit crisis. You can think of these bonds as loans to companies with subprime credit.

The reason they'll be so cheap is simple... the corporate junk-bond market is much less liquid than the stock market. When everyone wants to sell junk bonds at the same time, their prices crater.

This is where the opportunity is. Today, everyone is ignoring credit risk... the risk of getting paid all of the interest and principal you're owed on a bond. But during a credit crisis, that reverses...

Everyone becomes overly fearful they won't get paid. So they rush to dump their junk bonds all at the same time, causing their prices to fall much further than they should. In Stansberry's Credit Opportunities, we find the undervalued bonds worth investing in.

To your question, municipal bonds in general carry much lower credit risk than corporate bonds because they are backed by a government's taxing authority... or revenue from a specific project, like a highway.

Most corporate bonds aren't even backed by specific assets. And corporations don't have the luxury of guaranteed revenue or price increases. So there is a much greater risk corporate bonds will default during economic downturns.

That's not to say some municipal bonds aren't riskier than others. Or that municipal bonds and bond funds won't fall during the next credit crisis. They will. But they won't fall nearly as hard or fast as corporate bonds.

That's why you won't find the world's wealthiest investors buying municipal bonds during a credit crisis. They'll be loading up on safe, cheap corporate bonds... In Credit Opportunities, we plan to do the same. If you don't already, follow along with us.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
March 15, 2022