The Default Scenarios

A fork in the road... More turbulence at smaller U.S. banks... Decision time for the central banks... The default scenarios... Another case for bonds and gold... Regulate your 'fear center'... Video: Short seller who nailed FTX, Silvergate, and more... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] A fork in the road... More turbulence at smaller U.S. banks... Decision time for the central banks... The default scenarios... Another case for bonds and gold... Regulate your 'fear center'... Video: Short seller who nailed FTX, Silvergate, and more... --------------------------------------------------------------- Today, we reached a fork in the 'bank crisis du jour' road... While trouble continued for smaller U.S. banks, something "good" happened overseas. Today, the Swiss National Bank announced it would let Credit Suisse (CS) borrow up to roughly $54 billion to shore up its balance sheet. Swiss-traded shares of the embattled European bank jumped 33% early today on the news, then settled to a 19% gain. Meanwhile, the failure of Silicon Valley Bank and New York-based Signature Bank last week brought some other U.S. regional banks' weaknesses into the light. Even with the Federal Reserve's new Bank Term Funding Program ("BTFP") in place, their shares continued to drop dramatically... until they didn't. San Francisco-based First Republic Bank (FRC) – whose balance sheet has among the most "uninsured deposits" in America and which has held-to-maturity securities rivaling Silicon Valley Bank's – saw its shares drop 35% this morning before reversing to a 10% gain. The move followed reports this afternoon that bigger banks like JPMorgan Chase (JPM) and Morgan Stanley (MS) were considering a cash infusion to the regional bank, whose debt was recently downgraded to "junk" by multiple ratings agencies. Later in the day, 11 banks – also including Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C), among other recognizable names – announced they were depositing $30 billion combined in First Republic. Meanwhile, in central-bank land... The European Central Bank raised interest rates again today, by 50 basis points, in the effort to fight inflation. And in the U.S., next week marks a critical policy meeting for the Federal Reserve, which will be weighing whether to stick with its rate-hike run. Another key factor has gotten lost in the bank shuffle and the question of "will they or won't they" hike rates again. Next week's meeting marks one of the four Fed meetings each year when its members publish economic projections for interest rates, gross domestic product ("GDP"), and unemployment for the rest of the year and the few years beyond. This round of projections should say a lot about the Fed's intentions moving ahead. We'll also find out whether its members are seriously considering the events of the past week or so in their thinking, or if they remain "full speed ahead" on the inflation fight, bank runs be damned. Either way, I (Corey McLaughlin) expect more volatility next week. Moving on, we want to address another crisis people are worried about... We've mentioned the attractiveness of Treasury bill yields today, like a six-month bill offering 4.7%, even after dropping half a percentage point this week. Stansberry Research partner and Retirement Millionaire editor Dr. David "Doc" Eifrig also wrote much more about T-bills in his latest issue. Existing subscribers and Stansberry Alliance members can check out that issue [here](. Meanwhile, the U.S. Treasury Department earlier this year hit its congressionally approved spending limit of $31.4 trillion... Without Congress eventually raising this "debt ceiling," it would mean the U.S. could no longer pay its debts, placing it in default. So, given all that, Alliance member Jim M. wrote in with this good question... Why would someone buy any Treasury notes past June 1st with the pending gov't default? Is it worth the risk? (I know you can't give investment advice but curious on the take for a default). I'm pausing my 4 week T Bill purchases by mid-May, just in case... First off, generally speaking, pausing T-bill purchases makes sense if one thinks the U.S. government is definitely going to default on its debt. In that case, true, you probably don't want to be lending Uncle Sam any money. Instead, I'd recommend an isolated off-the-grid island with plenty of food. Because after a U.S. government default, American stock and bond prices could crater, just for starters... Then the real crisis would begin once people realize government workers aren't going to be paid, just for one thing. But I don't think a U.S. default is likely, at least this year... Every few years, a "debate" about Congress raising the "debt ceiling" comes up. But it isn't much of a debate at all. It's a game of political football that ultimately ends once a hard deadline finally nears for the Treasury Department to pay its bills. In the end, Congress always green-lights a higher credit limit for the government. It doesn't matter who is in control of Congress or what is happening in the world. Congress has raised the debt limit more than 100 times since its creation. That includes roughly 90 times since 1940 and about 20 since 2001. That covers the spectrum of those who've been in political power. Never say never, but history suggests more of the same. As [we wrote in January](... Technically, the debt ceiling is the congressionally approved limit on the amount of debt the Treasury Department can rack up. It's not "spending," per se, but more like a credit limit for the U.S. government for spending that Congress has already approved... But this limit – a vehicle that originally began to help fund World War I – is set by the same body that approves the federal budget and appropriates funds. It's like the chicken-or-the-egg dilemma. Which came first? It doesn't really matter... The end result of the arrangement is the same: more chickens and eggs. More spending and debt. In December 2021, Congress raised the federal government's overall borrowing limit by $2.5 trillion. The federal budget deficit for fiscal year 2022 was more than $1.3 trillion, and the 2023 deficit is projected to be about $1.2 trillion. This adds up to... $2.5 trillion. Nobody in D.C. wants to be the one who pulls the carpet out from under the largest economy in the world... A default would mean voluntarily giving up the dominant economic position in the world and the U.S. dollar's reserve-currency status. One might argue that a default could benefit the very long-term health of the nation (though an alternative with a similar benefit would be to simply rein in spending). But in the foreseeable future, it would be tremendously dumb and dangerous. Sure, plenty of the folks in Congress appear to be dumb and dangerous. But I don't think they have it in them to choose a default. Politicians rarely choose to inflict serious pain on their constituents, even if they do think it's the right idea. I'll go with the history that suggests Congress continues kicking the can down the road. Odds are it happens again in June, a deadline Treasury Secretary Janet Yellen has given for Congress to act. Even if Congress doesn't raise the debt limit, it could also possibly suspend it and make it more of a campaign issue ahead of the 2024 elections. Fun. But this isn't to say any butting heads over the U.S. debt won't be notable... Here's what to watch... About a month ago, several of us at Stansberry Research and our corporate affiliates discussed the debt ceiling. Our consensus was that a default is unlikely... and we came up with some thoughts about what this could mean. First off, history suggests benefits to two asset classes if we face a prolonged debt-ceiling debate before we inevitably raise it. We've also talked lately about these same assets getting a boost from a real or perceived Fed rate-hike pause. Bonds and gold. Rob Spivey, director of research at our corporate affiliate Altimetry, found that there's one asset that – perhaps counterintuitively – you didn't want to be short of ahead of a debt-ceiling debate: U.S. Treasurys... Rob found that in multimonth periods in both 2011 and 2013, the five-year Treasury yield actually went down (meaning prices rallied) during debt-ceiling "debates" before everything was resolved. Then he zoomed in to the most serious crisis period in 2013, from August to October, when the U.S. government eventually went into a partial shutdown for about half a month until a new debt agreement was reached. Rob said... Every major Treasury yield was flat or down during the crisis (3-month, 5-year, 10-year, 30-year)... meaning that when the U.S. was at the edge of defaulting, everyone bought U.S. Treasurys, because people wanted to be holding the most liquidly traded asset in case there was a crisis. Of course, in the event the U.S. actually defaults, Treasurys would plummet. As Rob said... But heading into any debate about defaulting, just don't bet on Treasury yields going wider. They'll actually likely get tighter. We've already talked about how the Fed pausing its rate-hike plans could push bond prices higher and yields down. Given the perception that it will, some of that has already happened over the past week. A debt debate is another reason bond prices could rise. Some commodity prices might spike, and emerging markets would probably benefit from the weaker U.S. dollar, too. An extended debt-ceiling debate, or even a resolution, could also be a tailwind for gold... Garrett Goggin, an analyst on the Gold Stock Analyst publication, pointed out that when the debt ceiling was raised in 2019, gold nearly doubled from $1,300 per ounce to $2,100 over the following 17 months. The next debt-ceiling increase, he said, could be the trigger for gold to hit $3,000 an ounce. I'd like to reiterate a related point, which most debt-ceiling debates fail to consider, that I made back in January... The biggest idea to keep in mind is that the government loves spending, and we all pay for the problems that come with that... like inflation, an ever-widening "wealth gap," and all kinds of other consequences. Right now, for instance, there's a tug of war between the inflation-fighting Fed and free-wheeling Congress spending more money. We can't change the circumstances on our own right at this moment, but we can do our best to navigate them. Gold has a place in your portfolio as a "chaos hedge" for a few reasons today. Its price was up again for the fifth time in six trading days, and it's about 6% higher than a week ago. I'll close with some advice from Doc Eifrig about how to survive volatile markets – literally... In [the Tuesday edition of Doc's free Health & Wealth Bulletin]( he shared a practical, mostly free way to combat fear. It's an emotion we've talked about a few times this week when reporting on the Silicon Valley Bank failure story. You likely know that exercise is good for your health in all kinds of ways. Whatever medical trouble you face, a frequent prescription is to move your body more. Well, aerobic exercise or "cardio" – through activities like swimming, cycling, or organized sports – doesn't merely strengthen your body. As Doc said... Exercise releases feel-good hormones. Dopamine, serotonin, oxytocin, and endorphins are released when you exercise. Each of these improves mood and lowers the sense of feeling stressed. Because endorphins are the neurochemical messengers that keep you pushing through "flight or fight" situations, they release during aerobic exercise... Here's the part that really piqued my interest, though, as we learned more about the run on Silicon Valley Bank last week and the mob mentality among tech investors during it... Regulate your 'fear center'... As Doc continued... What's more, we've also seen that exercise directly changes the brain's fear center – the amygdala. Some studies of mice found that aerobic exercise prevents dysfunction in the amygdala. (Yes, they essentially gave fitness classes to mice.) Working out keeps the fear center working properly instead of running wild. A paper from the University of Pittsburgh looked at brain function and physical activity as we age. The researchers found that the part of the brain that regulates the amygdala's response, the prefrontal cortex, increased in volume and had improved blood flow with regular exercise. I don't know about you, but I'd welcome less stress and anxiety in my life. As Doc also went on to explain – aerobic exercise can also help slow cognitive declines like memory loss, especially if you start a routine sooner rather than later, and can even be helpful for folks dealing with Parkinson's disease. All it takes... If you haven't worked up a good sweat lately... spend a lot of time in front of screens or otherwise sedentary... or find yourself ready to hit the panic button on any number of things or fire off a nasty text or e-mail... consider starting with Doc's advice... Do what I do and take a brisk walk around the block in the afternoon sun. If I'm having a busy day and can't squeeze in a bike ride, I know I can still make time for a walk. He recommends spending 150 minutes a week (22 minutes each day) doing moderate-intensity aerobics or 75 minutes a week (11 minutes each day) doing high-intensity aerobics to see the benefits. A healthier mind can make better investment decisions. In fact, there might not be a more important characteristic to have today when managing your own money than a correctly functioning "fear center" to decipher what's really a risk and what's not. That's the first step to making good decisions, in investing or anything else. Plus, a healthier body could give you more years to enjoy the fruits of those investments, too. It's a win-win. So get moving. Advice From Short Seller That Nailed FTX, Silvergate "People want to see the bright, shiny object... and the way the system is set up is for the average person to lose," says Marc Cohodes, who exposed FTX long before anyone in the mainstream took notice. "It's a difficult time, and people need to think things through and not be in a hurry. If it doesn't make sense, you probably shouldn't do it." [Click here]( to watch this episode of The Daniela Cambone Show right now. And to catch all of our shows and more videos and podcasts from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: # [Crisis Alert: Our No. 1 Recommendation in the Face of Financial Turmoil]( The fallout from the recent bank failures has barely begun. Recession risk remains high. Many will panic – but YOU don't need to. For the first time in months, we're sharing our firm's No. 1 strategy for times of financial turmoil. It's a way to potentially see double-digit yields and triple-digit capital gains... all virtually guaranteed by LAW. For the next few days, we're sharing it at no cost, [right here](. --------------------------------------------------------------- # [Move Your Money by Tomorrow]( Get out of cash now. But do NOT buy stocks, bonds, cryptos, or any other conventional investment. You could double your money 10 different times by using a vehicle most people have never seen before, recommended by a man who managed up to $900 million a day on Wall Street. [Grab his free recommendation here, including the ticker symbol](. --------------------------------------------------------------- New 52-week highs (as of 3/15/23): Hershey (HSY). In today's mailbag, feedback on [yesterday's Digest]( where we talked about the bank crisis du jour and mentioned government inflation data... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "It's my opinion that the current banking crisis is a byproduct of 'participation trophy parenting' where no matter how irresponsible or incompetent you are there are no repercussions. And now it seems the government is adding fuel to that fire. "This sort of behavior will persist until the entitled rich start feeling the pain. Silly Valley Bank should have been forced to fold under the existing FDIC rules rather than being totally bailed out. I thought oligarchs only existed in Russia!" – Paid-up subscriber B.W. "It would be helpful to point out that optimism on inflation ONLY being 6% is calculated on top of the inflation already in the system in the last year, so last year Feb was 7.9%, this Feb was 6%, so prices this Feb are 13.9% higher than January 2022. Am I wrong?" – Paid-up subscriber Wesley P. Corey McLaughlin comment: You are not wrong in spirit. Just a clarification... The 13.9% inflation number you're talking about would actually be a little higher (14.3% because of compounding). But it would be compared with February 2021, not January 2022, according to the consumer price index ("CPI"). Either way, though, yes... That's too much inflation in either period of time. All the best, Corey McLaughlin Baltimore, Maryland March 16, 2023 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 957.2% Retirement Millionaire Doc MSFT Microsoft 02/10/12 822.8% Stansberry's Investment Advisory Porter ADP Automatic Data 10/09/08 768.1% Extreme Value Ferris HSY Hershey 12/07/07 588.7% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 583.0% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 530.4% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 428.2% Retirement Millionaire Doc AFG American Financial 10/12/12 396.3% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 317.0% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 307.2% Retirement Millionaire Doc 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 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Extreme Value Ferris 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 1,335.0% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,151.4% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,048.9% Crypto Capital Wade MATIC/USD Polygon 02/25/21 923.7% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 548.4% 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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