When Being Right Isn't Fun

I guess you could say I was right... When being right isn't fun... It pains me to keep doing this... A whole list of ways everything is different now... Goodbye, low interest rates... The biggest ideological capital-allocation disaster... Why this ideological quest is good news for us as investors... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] I guess you could say I was right... When being right isn't fun... It pains me to keep doing this... A whole list of ways everything is different now... Goodbye, low interest rates... The biggest ideological capital-allocation disaster... Why this ideological quest is good news for us as investors... --------------------------------------------------------------- 'You must be feeling pretty good these days'... One attendee said that to me (Dan Ferris) during a break at our annual Stansberry Conference last week. And several others mentioned versions of that line to me as well. I knew what they meant. I didn't need any further explanation. Sure, most folks feel good when they're right. A lot of folks love to let everyone around them know, too. So I can't fault these subscribers for assuming I fit into that group... They probably figured I would be strutting around the Encore Boston Harbor resort, asking everyone in my path if they remembered my presentation from the previous year in Las Vegas. (I shared all the key points with you [in the October 29, 2021 Digest]( As you might recall, in 2021, I asked everyone in the audience to repeat the title of my presentation... This. Is. A. Bubble! Then, I proceeded to show them how history suggested a bear market would follow. And as I explained, all the evidence indicated that it would be one for the record books. That's already true, of course. As I've noted more than once, so far in 2022, we've seen... - [The worst first six months in the stock market since 1970](. - [The worst six months for U.S. Treasury bonds since 1788](. - [The biggest quarterly decline in household net worth](. I'll probably cite those same three stats over and over until the next wave of bear market extremes. And yes, they align perfectly with my 2021 presentation. However... That doesn't mean I feel good about it. It would be normal for me to feel vindicated – or even a bit triumphant... But I don't feel that way. I don't wish the aftermath of the biggest mega-bubble in recorded history on anyone. It has already caused a huge decline in household wealth. And if my worst-case scenario – or even anything close to it – comes true, millions of people will suffer. Nobody wants that. The closest I come to feeling good about what's happening in the financial markets today is that at least I can say somebody warned folks about the likelihood of a bear market. But as I told everyone in Boston last week... If you believe what just happened was the biggest mega-bubble ever, it's illogical to also believe that it will end this pleasantly and that good times are right around the corner. So while it pains me to keep doing this, we need to look ahead today... We need to understand how bear markets tend to signal a larger economic and financial regime change. And we need to understand that we're watching [the end of the world as we've known it](. In fact, I made a whole list of ways everything is different now – and likely will be for longer than you want. I most recently shared the list in [our October 15 Digest Masters Series](... The list outlines how you should think about the present – and what I believe is our likely future. As you can see, it's a long list. And it's all critical to what lies ahead of us. If we wanted to give everything the proper explanation, it might take us weeks to get through it all. So today, we'll just focus on a couple of the most important ideas. And perhaps in one or two future Digests, we'll dive deeper into some of the other ways the world has changed. Let's start with an easy one... The interest-rate transition in the first line of my list is clearly underway. We're now beyond the days of low or no interest rates and loosening monetary policy. It's hard to believe anybody thinks the Federal Reserve is about to "pivot." But I almost can't blame them. The central bank's actions for the past 20 years or so conditioned investors and analysts to believe it will always favor loose monetary policy. However, the evidence doesn't support that this time... As Digest editor Corey McLaughlin [discussed Wednesday]( the Fed raised its target range for the federal-funds rate another 75 basis points (0.75%). It's now between 3.75% and 4%. The federal-funds rate hasn't been this high since 2008. Everybody knows what the Fed has been doing lately. But I still bet that most investors will be surprised by how high rates eventually go – and how long higher rates are with us. Fed Chair Jerome Powell continues to beat it into our heads... [At his press conference on Wednesday]( it seemed like Powell really wanted to say... "Get this through your thick skulls... I'm nowhere near pausing or pivoting or whatever you idiots think. We're gonna jack rates up until we break something. Gabish?!" But in reality, Powell told us what numbers he looks at. He repeatedly referred to ongoing labor-market tightness. And he said the Fed doesn't care about the spread between two- and 10-year U.S. Treasurys nearly as much as everybody else does (if it even cares at all). As he explained, the Fed looks at forward yield spreads at the short end of the curve. That's the difference between the yield on three-month U.S. Treasury bills and their expected yield in 18 months. While the "10-2 yield curve" is inverted (at around negative-0.6% today), the forward curve isn't. Sure, it's close (at around 0.2% recently). And for perspective, it was 2.7% in April. So it's clearly narrowing at a rapid pace and could invert any minute... But it's not inverted yet. Maybe that could slow the Fed's pace of rate hikes. But I suspect that Powell and his cohorts would downplay if it inverted and instead focus on the tight labor market. After all, Powell already mentions that several times at every press conference. Sorry, that's a ton of technical gobbledygook. You just need to know that the numbers the Fed likes are telling them to keep the pedal to the metal and continue jacking up rates. I doubt the forward curve inverting slightly would change that. Maybe Powell should take a page out of my 2021 presentation... Like I did in Las Vegas last year, he should start his next press conference by telling everyone to repeat after him. But instead of our bubble chant, he should shout... "We. Are. Not. Pivoting!" If you're not convinced yet, please allow me to bludgeon you with more evidence, straight from the horse's mouth. Powell actually said each of the following at his press conference... - "Restoring price stability will likely require maintaining a restrictive stance of policy for some time." - "We still have some ways to go. And incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected." - "The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done." - "We may ultimately move to higher levels than we thought at the time of the September meeting." - "I don't have any sense that we've overtightened or moved too fast." - "We still think there's a need for ongoing rate increases. And we have some ground left to cover here – and cover it, we will." - "If we overtighten, then we have the ability with our tools... we can support economic activity strongly if that happens." That brings us to my favorite comment of the entire press conference. In response to a follow-up question from a reporter, Powell said very clearly... It's very premature, in my view, to think about or be talking about pausing our rate hike. Did you get that? He said very premature to even be thinking about it. If that doesn't scream right in your face that Powell isn't planning to pivot, I don't know what will. The Fed is intent on crushing inflation back down to its target. It's still around 8% these days. The Fed wants 2%. Do the math. Make of that what you will... But it seems more than a tad bearish to me. So much for the first line in my list. Gosh, that was more fun than dental work. So let's do another one. And man, this one is a doozy... Look at the bottom line of the list of ways everything is different these days... It says the economically driven capital allocation that has prevailed in recent decades will give way to more ideologically driven capital allocation. That might sound complicated, but it's not. And like higher interest rates, this one has already arrived, too. I mentioned the easiest example [in the June 24 Digest](... I'm talking about Elon Musk's recent deal for social media giant Twitter. At the TED2022 conference in April, Musk said acquiring Twitter was "not a way to make money." And he clearly stated, "I don't care about the economics at all." Rather, he said it was "very important for there to be an inclusive arena for free speech." Maybe you're thinking this ideological capital-allocation thing doesn't sound so bad. Not all ideological capital-allocation decisions need to be a disaster for investors and consumers. So maybe the Twitter deal isn't an example of anything getting worse – just different. And if that's the case, maybe I need a better example to make the point clearer... The biggest ideological capital-allocation disaster is the global energy industry... Just about any investment in energy these days is ideologically driven. And it's not just renewable-energy technology. It has a huge effect on the oil and gas industry, too. For at least the past few years, President Joe Biden has been saying that he wants to put the entire fossil-fuel industry out of business. And he's still more interested in making life difficult in that industry today... If oil companies don't lower energy costs for consumers, Biden said on Monday that he wants Congress to pass a law to make them "pay a higher tax on their excess profits and face other restrictions." The Wall Street Journal reported that Biden's administration has wanted to do that for months. If you're an oil and gas executive tasked with making new investments on behalf of your shareholders, that threat might make you think twice. Why would you want to commit capital to large, long-term projects in such a hostile political climate? After all, these investments aren't something you turn on and off whenever you feel like it... Development of new oil and gas resources can take several years. And it's only worth doing at all if the resource can produce for a decade or two. When you have no idea what your industry will look like in five years, your job is nearly impossible to do. President Biden and other D.C. ideologues like Vermont Sen. Bernie Sanders and Massachusetts Sen. Elizabeth Warren post regularly on Twitter about inflation being caused by oil and gas companies "price gouging" consumers and reaping "windfall profits." For example, after Biden's threat on Monday, Warren ranted on Twitter... Big Oil companies' record profits are a windfall of war and this profiteering has got to stop. [President Biden] is right: Congress should consider a windfall profits tax and provide Americans with relief at the gas pump. [Sen. Sheldon Whitehouse of Rhode Island] and I have a bill to do just that. Anybody who knows basic economics can tell that Warren is full of it... I can't tell if Warren really believes what she's saying or not. But she appears to think that eliminating incentives to increase oil and gas supply will somehow give Americans "relief at the gas pump." In other public statements this year, Warren has said oil companies are partly causing inflation. But that's impossible... Inflation is an increase in the supply of money and credit. And as their name implies, oil and gas companies produce oil and gas – not money and credit. So it's economically illiterate for Warren and her buddies to accuse the oil and gas industry of doing something that's absolutely impossible for it to do. Likewise, the whole idea of "price gouging" is an idiotic nonstarter... If you're willing to pay what someone asks and no one is holding a gun to your head, there's no gouging. Plus, oil and gas companies don't set prices. The market does that. It's like these politicians sit around figuring out how they can get everything as wrong as possible. And once they figure that out, they just start screeching as loudly as possible. Biden, Sanders, and Warren likely haven't even tried to look at the financials of the industries they want to demonize in the name of ideologically driven power-mongering. You've likely heard the old adages... "The cure for high prices is high prices," and "The cure for low prices is low prices." Whether they're high or low, prices tell capital allocators all they need to know. In reality, higher prices would normally signal to oil and gas companies that it's once again economically feasible to develop new resources and increase production at existing ones. But when price signals must be augmented with guesses about what some unhinged politician might do next, what do you think will happen? Do you think companies will allocate more or less capital to production? The truth is, the government doesn't need to be anywhere near the oil and gas industry. Ideologues care more about virtue signaling than about helping real folks lead better lives... Worse than that, once again, the government's ideological war on the capital-allocation process will ultimately hurt the very people politicians purport to help. If folks like Warren simply didn't show up for work, we would all be paying $1 per gallon to fill up our cars. It's no surprise that Warren has either never heard or simply doesn't understand that if you tax something, you get less of it. If government has any role in the oil and gas industry, it should be to encourage the safe and efficient production of a large-enough supply to meet domestic demand. Otherwise, these politicians are just in the way. And we'll all be paying more at the pump because of it. Lately, Biden has been releasing supply from the country's Strategic Petroleum Reserve. It seems like an obvious attempt to reduce gas prices before the midterm elections. Let's see what happens after that. Regular Digest readers know that I don't make predictions. But if I did, I wouldn't predict that oil and gas prices will keep moving lower after the coming elections. The Musk example shows that ideologically driven capital allocation doesn't need to be a disaster. But when the government's monopoly on violence forces the issue, we all suffer... Of course, the oil and gas industry has dealt with this struggle for most of its existence. The breakup of John D. Rockefeller's Standard Oil in 1911 likely wasn't necessary. In fact, Standard's near monopoly on refining at the time likely benefited consumers. That's what historian Paul Johnson suggested in his 1997 epic, A History of the American People... Moreover, the story of Standard [Oil] seems to illustrate the argument, now better understood than it was then, that temporary monopolies may benefit the public interest. The per-barrel cost of refined oil at a plant with a 500-barrel daily throughput was $0.06 per gallon. With a 1,500-barrel throughput it fell to $0.03 a gallon. It was as simple as that. In its first big phase of expansion Rockefeller's company was able to reduce the retail price of kerosene, used by every household in the US, by [70%]. Comparable figures could be quoted for a whole range of products... whether the total impact of Rockefeller's Standard Oil ran against the public interest is doubtful. The rapid fall in oil prices, first in domestic oils, then in gasoline for transport, was largely its doing. Please don't waste your time telling me that markets work differently than they did 100 years ago. As Benoit Mandelbrot said in his 2004 must-read book, The (Mis)Behavior of Markets, "Markets in all places and ages work alike." The changes I'm talking about are a normal part of the development of bear markets. They happen precisely because things are not different this time – and they never are. Basic economics hasn't changed since oil was first discovered in the U.S. in Titusville, Pennsylvania in 1859. The same thing is true today as every day over the past 163 years... Increasing economies of scale lead to falling costs. And that is passed along to consumers. But who wants to invest on any scale with ideologues threatening to eliminate the "excess" profits, which are the only reliable signals for companies to know when to boost production? It's simply not that hard to figure any of this stuff out. We've known all of it for ages. So let me ask you this... Do you want to live in the early 21st century or the mid-19th century? For all its faults, I like the early 21st century. And yet, with their ideological quest against oil and gas, Biden and Warren seem to want us to teleport back to the mid-19th century. But hey, go ahead, all you misguided, virtue-signaling fools... You see, that brings us to why this ideological quest is good news for us as investors... If their ridiculous windfall-profits tax passes, it will just signal to the oil and gas industry that new investment is riskier today than in the past. So the industry will invest less. That will keep supply tight and prices high. And of course, that's great for oil and gas stocks. Don't overthink the issue of taxes harming oil and gas companies, either... Higher taxes lead to less investment in new resources. That will support oil and gas prices. And in turn, that will support the share prices of oil and gas companies. It's as simple as that. So ultimately, I guess we should be saying... We appreciate you, Joe and Liz. Thanks to you, oil and gas remains a good bet today. --------------------------------------------------------------- Recommended Links: [A Stansberry Celebration: 140 Straight Wins, 94% Win Rate [Midnight Deadline]]( Would you bet on a 94% success rate? How about if that also had 140 wins in a row (with NO losers) spanning 2.5 years... in THIS market? That's exactly what Dr. David Eifrig has just achieved... beating his previous record of 136 wins... in his No. 1 all-time favorite strategy. Until midnight only, get the full details and claim your celebration "gift" from Doc [right here](. --------------------------------------------------------------- ['A Gold Storm Is Coming']( Some of the richest men in the world are jumping in right now... because evidence suggests we could see MUCH HIGHER gold prices before the end of this year. But if you're not taking advantage of a little-known way to invest for less than $10, you're missing out. [Click here for the full details](. --------------------------------------------------------------- New 52-week highs (as of 11/3/22): Black Stone Minerals (BSM), Freehold Royalties (FRU.TO), Gilead Sciences (GILD), W.W. Grainger (GWW), Humana (HUM), RenaissanceRe (RNR), Rollins (ROL), and Texas Pacific Land (TPL). Today's mailbag includes your feedback on the jobs market, which we wrote about in [yesterday's Digest](. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I enjoyed your comments about the jobs market as I'm immersed in the topic daily. I am not a small business owner, however, I work for a distributor of mechanical equipment to small/medium size mechanical contractors with top-line sales between $750k and $10mm. "Every day I hear their stories of hiring someone who fails to show up the very first day. Or, the new hire arrives but does nothing unless they are repeatedly told what to do. Once a task is complete, it's back to texting friends or playing games on their phones. This repeats for several days and then the new-hire inexplicably disappears, never to return. "These folks bounce from job-to-job without giving reference to their previous job. The goal is to find a position that gives them a higher starting wage than that they just left. These young folks make their moves rapidly so that they do not need to explain large gaps in unemployment. Business owners offer higher starting wages and increase their benefits as they're exhausted with the game and need to fill positions. "The lack of qualified workers is now resulting in a consolidation of mechanical contractors and similar trades. It's a fact that many small businesses are not well-run as many internal processes are weak and performance is not tracked. If work goes undone, these weaknesses are magnified to where they destroy the business. "Stronger business owners take advantage of the weaker competitor and buy the business with hopes of getting enough new employees to fill their own job vacancies. Businesses are being purchased, to gain employees who are already trained in the industry, as the value of the trained employee becomes the focus of the purchase. So we have a wash in jobs lost versus filled and we still have the newcomers that disappear, on a weekly basis, only to be rehired by another business the next week. "I don't know that we can sift through job statistics and see a true picture of this economy. "So how do we address the jobs market when employment looks like the Eastbound and Westbound gates of the PA Turnpike? We lack qualified people who have the motivation and pride to improve their skills and self-worth (and help those who hire them). We're heading down a path where young folks can enjoy their freedom and social time, at the expense of their parents' generation, whom they disrespect for being the capitalists that fund their carefree lifestyle. Once Mom and Dad's money is gone, it's up to the rest of us to send checks so folks can enjoy a life unencumbered by greed and capitalism. "While I'm disappointed that we leave our Southern borders open, to many who may not be good citizens, I am given hope that the majority making the trip here arrive with a strong work ethic and the sense of responsibility to improve their life. It may very well be these same people that help us to remain a leader and contributor to the world and give real meaning to the word 'employment'. "Here's to better days ahead!" – Paid-up subscriber Eric H. "I chuckled when reading [yesterday's] article. "That is the very reason why my supervisor at the driving range that I worked at – after I retired and wanted to get my 'free' golfing – had told me he preferred to hire only retirees. As he said, these are the only ones who know that they have a responsibility – to show up and to do the job. He had previously thought he should hire young, strong workers. "But, after having frequent calls from these young ones saying they had some reason for not being able to show up for their shift, he soon realized he needed to change his thinking and hire us retirees. We couldn't have retired if we didn't dedicatedly work those many years at our jobs. "Interesting that many of the youngsters nowadays do not seem to have the feeling that they need to work for their living. They seem to think that just getting by is OK. I wonder what they will be expecting when they get to be our age?!" – Paid-up subscriber Rodney Y. "While the misanthropes at the Fed and the Bank of England target a recession and unemployment, I wonder if they are happy about this: 'for every 1% rise in unemployment there are 40,000 deaths'. "It is not just a line from the Big Short. It is a fact. "In 'The American Economy: How it Works and How it Doesn't' by Thomas and Carson, on page 300 under the subheading 'The cost of unemployment', they cite their source Bluestone, Harrison and Baker, 'The Causes and Consequences of Economic Dislocation' from 1981... "For a 1% increase in unemployment there are: 37,000 deaths... of which 20,000 are heart attacks, 920 suicides, and 650 homicides." – Paid-up subscriber S.I. Corey McLaughlin comment: S.I., I'm typically hesitant to make a broad conclusion based on one study. But you raise a great point about one of the potential consequences of manipulating the economy – and in a way that doesn't make headlines until it's much too late (if ever). Good investing, Dan Ferris Eagle Point, Oregon November 4, 2022 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst ADP Automatic Data 10/09/08 834.8% Extreme Value Ferris MSFT Microsoft 11/11/10 762.1% Retirement Millionaire Doc MSFT Microsoft 02/10/12 652.1% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 553.2% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 546.1% Stansberry Innovations Report Wade AFG American Financial 10/12/12 456.6% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 422.1% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 403.3% Retirement Millionaire Doc TPL Texas Pacific Land 11/05/20 384.4% Stansberry's Investment Advisory Gula ALS-T Altius Minerals 02/16/09 306.4% Extreme Value Ferris Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 2 Extreme Value Ferris 2 Retirement Millionaire Doc 1 Stansberry Innovations Report Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst ETH/USD Ethereum 12/07/18 1,267.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,165.3% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,093.8% Crypto Capital Wade MATIC/USD Polygon 02/25/21 878.3% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 480.6% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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