When Being Right Isn't Fun

In today's Masters Series, originally from the November 4, 2022 Digest, Dan recaps the chaos we've experienced over the past few years... compares today's bear market with previous historical crises... and explains how the pain we're experiencing right now could create buying opportunities in the oil and gas sector... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: [Don't let the storm clouds ruin your portfolio](... Investors who hid their money on the sidelines in 2022 to avoid today's uncertain market could be tempted to reenter stocks as the impact of the Federal Reserve's interest-rate hikes settles into the economy this year. But with the markets still in disarray, many folks remain unsure about what to do with their money... That's why Extreme Value editor Dan Ferris believes it's crucial for investors to closely monitor various asset classes in order to uncover buying opportunities amid this bear market. In today's Masters Series, originally from the November 4, 2022 Digest, Dan recaps the chaos we've experienced over the past few years... compares today's bear market with previous historical crises... and explains how the pain we're experiencing right now could create buying opportunities in the oil and gas sector... --------------------------------------------------------------- When Being Right Isn't Fun By Dan Ferris, editor, Extreme Value "You must be feeling pretty good these days"... One attendee said that to me during a break at our annual Stansberry Conference in October 2022. 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. 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 true, of course. As I've noted more than once, in 2022, we saw... - 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 at our conference... 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... --------------------------------------------------------------- Recommended Link: [Major Contagion Warning]( ONE signal has correctly predicted eight out of the past eight recessions (100% accuracy). And it just lit up again. This means, on the heels of the second-largest bank failure in U.S. history, we could now be days away from a total market crash. Millions of Americans could lose their jobs... while huge masses lose their homes. Don't get blindsided as this economic contagion spreads. [Click here for our No. 1 defensive recommendation](. --------------------------------------------------------------- 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. Take a look... 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... Everybody knows what the Fed has been doing lately. But I still bet that most investors will be surprised by how long higher rates are with us. Federal Reserve Chair Jerome Powell continues to beat it into our heads... But in reality, Powell told us what numbers he looks at. He has 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 1.0% today), the forward curve isn't. Sure, it's close (at around 0.2% recently). And for perspective, it was 2.7% in April 2022. So it's clearly narrowing and could invert any minute... But it's not inverted yet. 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 boosting rates. I doubt the forward curve inverting slightly would change that. 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, 2022 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. 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 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." 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. 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... 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 moving forward. The Musk example shows that ideologically driven capital allocation doesn't need to be a disaster. You see, 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. Good investing, Dan Ferris --------------------------------------------------------------- Editor's note: That isn't the only opportunity forming in the markets right now. Dan believes a once-in-a-lifetime market event is about to happen – one that could earn you massive profits if you start preparing right now. That's why he recently teamed up with an investing legend to discuss how folks can prepare for what's coming and position themselves to take advantage of this market shift. 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