Long Live Those George Washingtons... For Now

Digesting yesterday's wild day... A first for Mr. Market... What 'pricing in' more inflation looks like... The best house in a bad neighborhood... The U.S. dollar is inversely correlated with stocks... Long live those George Washingtons... for now... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Digesting yesterday's wild day... A first for Mr. Market... What 'pricing in' more inflation looks like... The best house in a bad neighborhood... The U.S. dollar is inversely correlated with stocks... Long live those George Washingtons... for now... --------------------------------------------------------------- After a day like yesterday, we could talk about a lot of things... Like how right when you might be expecting a bear market rally to get going, a few decimal points of "surprise" inflation data crushes the trend... and causes the major U.S. indexes to have their worst single-day return in more than two years... As we reported yesterday, the benchmark S&P 500 Index was down roughly 4%, and the tech-heavy Nasdaq Composite Index fared even worse, losing about 5%. Things stabilized today, but anyone ignoring what happened 24 hours ago does so at their own risk... For the first time since March 2020, every stock in the market-cap-weighted Nasdaq 100 Index (which doesn't include financial stocks) fell. Each of the 11 major S&P 500 sectors was down... Meanwhile, market "fear" – as shown by the CBOE Volatility Index ("VIX"), which measures S&P 500 options activity – didn't even show "extreme" levels, which we consider anything above a VIX reading of 30. In fact, for the first time since the VIX came into existence in 1993, the S&P 500 fell 4% in one day with the indicator closing below 30, according to Chartered Market Technician Steve Deppe, president and portfolio manager at Nerad + Deppe Wealth Management. Now that is interesting. And as I (Corey McLaughlin) will show today, it leads to a conclusion about one part of the market – which went up yesterday – that might surprise you, or even frustrate you. If you believe in logic, yesterday's market reaction makes sense... Yesterday's story was a higher-than-expected inflation number as measured by August's consumer price index ("CPI"). That led investors to believe that the Federal Reserve will raise interest rates next week higher than expected to keep "fighting" inflation. Now, we call the VIX a "fear" index, but it's just as much an uncertainty indicator. And while the Fed's actions will have knock-on effects – higher costs of borrowing and a "stronger" dollar – the first-order effects of its action are predictable. There's only so much the Fed can do to lower inflation... It can attack the bejesus out of demand by hiking lending rates in the banking system (crushing mortgage demand, for example). It can trim its nearly $9 trillion balance sheet, a move which accelerates this month. And it can talk a big game... But those actions have consequences... like the possibility of a painful recession, job losses, and the reaction from Mr. Market we saw yesterday. Stock prices plunged, but for a plausible reason. And, once again, bond prices (which trade inversely to yields) did, too... defying conventional 60/40 portfolio wisdom and hurting a lot of people who aren't paying attention. We could get into heavy details about fundamental share-price analysis and the value of a business's future cash flows, but just know that the market yesterday appeared to be "pricing in" higher real yields (inflation minus nominal Treasury yields)... As [we shared in the June 9 Digest]( just before another key monthly CPI number was published, an increase in Treasury rates hurts any portfolio with a lot of interest-rate risk... [Real yields tend] to inform a lot of other decisions from professional investors, like whether they think it's worth buying certain stocks, bonds, or other assets like gold. They're watching how high inflation is running and weighing how much these other assets would potentially yield over safe, "risk free" government-backed bonds. This is the concept you'll often hear described as the "discount rate." As Stansberry Research senior analyst Alan Gula wrote in the latest monthly issues of [our Portfolio Solutions products]( published on Tuesday... The intrinsic value of a company is the present value of future free cash flows. And the rate used to discount those cash flows is determined by the bond market. Even gold is dependent on interest rates via real yields. And yesterday, after a higher-than-expected inflation read, U.S. Treasury yields spiked. Short-term yields in particular keep rising, with a three-month T-bill paying a 3.2% annualized yield, a one-year Treasury paying close to 4%, and a two-year note offering 3.8%. By comparison, a 30-year bond is yielding about 3.5%. Incidentally, if you're looking for a place to park some cash in the short term, T-bills are a good bet right now. And that brings me to my next point... If you think we're the only people who notice this, you'd be mistaken... The dollar keeps getting 'stronger'... While everything was crashing yesterday – and if you've followed along here for a while, you know I don't use the word "crash" lightly – the good old U.S. dollar was one of the few things on the rise (along with natural gas prices, which we talked about on Monday)... There are many contributing factors, but we'll try to keep this explanation simple... This is because even higher interest rates dictated by the Fed mean relatively less dollar devaluation than expected. And more important, it means strength in the currency compared with those of major U.S. trading partners and the rest of the world, all of which are dealing with inflation and the influence of the war in Ukraine, too. Yesterday, for example, the U.S. Dollar Index ("DXY") – which measures the greenback against the euro, Japanese yen, Canadian dollar, Swedish krone, and Swiss franc – was up about 1.5%. It's up 18% over the past year... and has recently hit 20-year highs. I know saying anything good about the dollar may be considered blasphemy to some of you. After all, we've shared the depressing chart of the devaluation of the U.S. dollar over the years, showing how it has lost nearly 90% of its purchasing power since we went off the gold standard for good in 1971. But what I'm talking about is the present-day context... To reemphasize what we've said many times, [we have concerns]( about the dollar's standing as the world's reserve currency for the next 100 years like it has been for the past 100. But at the moment, the dollar is "winning" against bad competition. The 'best house in a bad neighborhood'... I once worked with stock market analyst Harry Dent (who recently recorded an interview with editor-at-large Daniela Cambone). Harry liked to say, "The U.S. is the best house in a bad neighborhood." I'm reminded of that statement today. The dollar may be central-bank-manipulated fiat currency, but it's our central-bank-manipulated fiat currency... Our Stansberry NewsWire team set the scene really well [in a piece last week](... Largely driven by the Federal Reserve's most aggressive tightening cycle in a generation, the American greenback is pushing rival currencies to devalue at a pace we haven't seen since in quite a while. The Fed's aggressive rate-hike policy is driving up the cost of imported goods for these foreign nations. That's putting tremendous pressure on their economies, and it only worsens inflation. This has placed greater pressure on other global central banks to raise rates at a time when Europe is dealing with an energy crisis and record inflation... And Asia is dealing with a rise in borrowing costs, forcing housing markets and lenders to require government intervention to avoid default. With greater uncertainty building overseas and the Fed's first-mover advantage, investors and money managers are pouring into the dollar as a safe-haven asset with a fair return. The problem, though, is that other central banks were just too late to match the Fed's rate hikes. And now, economic conditions have worsened in these countries, reinforcing investors' intentions to stick with the dollar. To give a better sense of the dollar's strength, look at its performance against the three largest-weighted currencies in the International Currency Exchange ("ICE") U.S. Dollar Index – the euro (57.6%), yen (13.6%), and pound (11.9%)... For those Americans planning a trip abroad, you may be in luck... The dollar now has more buying power than it has had in decades. On a personal level, it's true. You'll likely get more "bang for your buck" if you plan a European vacation right now – as the dollar is stronger than the euro for the first time in 20-plus years and the exchange rate is 16% cheaper than a year ago... The same idea applies for investors... They get more value keeping funds in dollar-based "safe haven" assets like Treasuries since they can earn a higher return than what they'd get in another currency, all while avoiding stock market volatility. Stansberry Research senior analyst Brett Eversole touched on this in an issue of True Wealth in December 2021... Higher interest rates give investors more choices for what to do with their capital. When rates are low, stocks are their best bet... After all, it doesn't make sense to own bonds when yields are near zero. But when interest rates rise, those higher-yielding bonds become more attractive and start to pull dollars away from the stock market. But perhaps counterintuitively, a relatively stronger dollar can be a drag on American businesses. As our NewsWire team also explained last week... Keep in mind that 30% of S&P 500 companies' earnings are generated abroad. This means that a stronger dollar serves as a headwind for profits. This results in downward earnings revisions – and a likely decline in markets in the near term. Looking at the chart below, we can see that the percentage of companies who revise earnings forecasts lower is closely tied to the strength of the dollar... Third-quarter earnings season is right around the corner, starting next month. If you take nothing else from today's Digest, make it this... You need to know one thing about the dollar... For all of the reasons we discussed today – among others – the dollar is weakly correlated to stocks. That means when stocks go up, the dollar might not, or it might even go down, and vice versa... Over the past 20 years, the S&P 500 and the dollar have moved together about 40% of the time, but there are periods when the dollar is inversely correlated to stocks (like times of global uncertainty and slower international trade). Today is one of those times. Here's a chart of the S&P 500 compared with the dollar over the past few years. You can see as stocks have fallen this year, the dollar has taken off... While we don't make formal recommendations in the Digest, if you're interested in adding dollar exposure and hedging against more stock losses, one option to consider is an exchange-traded fund that tracks the dollar, such as the Invesco DB U.S. Dollar Index Bullish Fund (UUP). As I mentioned earlier, because of the world we're living in right now, short-term Treasurys are an attractive place to park cash, with a one-year bill offering a government-backed 4% return. You might even consider booking an overdue foreign trip to take advantage of the currency edge today, too. Just check out the exchange rates first. Now, there will be consequences of a stronger dollar and higher-interest-rate environment, too... For one big thing, that roughly $30 trillion of debt the U.S. government has on its hands becomes a lot more expensive to finance... and someone (i.e., taxpayers) must pay for it. Debt service on what the government owes is running up close to $500 billion for the trailing 12 months. This can't last forever... we hope. And I doubt many other countries' leaders are fond of the dollar right now... You can find all kinds of examples. For instance, one story published today out of the country of Bangladesh said banks there increased the costs of exchanging their local currency through credit cards for dollars by 12% overnight... Among other things, the move directly hurts college students studying abroad in the U.S., according to the Dhaka Tribune (yes, we're quoting a Bangladeshi news outlet for the first time)... Due to the sudden increase in the dollar price, the cost of purchasing various services and products including studying fees, seminar fees and online course fees will also increase by about 10% to 12%. Consider that this example applies to anything or anyone who trades in dollars, and you can see the problem for the rest of the world. At some point, though, the dollar will get weaker relative to its peers again... That could reasonably happen when the Fed stops raising interest rates to fight inflation while other countries playing catch-up continue to raise theirs. It could happen as soon as next year. But that would actually be a tailwind for stocks for the opposite of all the reasons we've discussed today. But, for now, long live those George Washingtons. Horwitz: Fed Is Eyeing a Full-Point Hike There's a very good chance that the Federal Reserve "raises rates above expectations," says Todd "Bubba" Horwitz, the founder of bubbatrading.com. He predicts that the Fed will raise rates a full point at its policy meeting next week, and that would mean trouble for stocks... [Click here]( to watch this interview right now. And to catch all of the videos and podcasts from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: # [Former Goldman Sachs Trader Shows Retirees How to Instantly Collect Thousands]( With a 94% win rate, it's the most successful moneymaking strategy at Stansberry Research... and DOES NOT involve buying stocks up front. If you want to learn how to collect thousands of dollars in extra income (in a way that's usually FAR LESS RISKY than buying stocks), [click here for details](. --------------------------------------------------------------- # [This 73-Year-Old American Entrepreneur Issues Warning]( From his European estate, he says: "It falls on someone like me to warn you clearly. I'm too rich to care about money... and too old to care what anyone thinks." His first three major warnings all came true – will this one, too? [Click here for details](... --------------------------------------------------------------- New 52-week highs (as of 9/13/22): Short position in Capital One Financial (COF). In today's mailbag, feedback on [yesterday's essay]( by Stansberry's Credit Opportunities editor Mike DiBiase and our Digest in general... Do you have a comment or question? As always, send your notes, questions, praise, or rage to feedback@stansberryresearch.com. "Dear Corey: I'm an Alliance member and follow what you write about closely... What you wrote in today's Stansberry Digest has really caught my attention. I would like to know that was it just a coincidence that you presented it on a big down day in the stock market. Could you have released it on a big up day when everybody believed that inflation was coming down?" – Stansberry Alliance member Allen S. Corey McLaughlin comment: The short answer is, yes, it was a coincidence. Mike, who wrote yesterday's Digest, is totally on top of the inflation storyline and he wanted to share his thoughts as soon as possible. Mike filed his essay last week, and we were going to publish it yesterday, no matter what the latest consumer price index number showed or what the market did... It just so happened that U.S. stocks had their worst day in more than two years yesterday, largely because of many of the points Mike wrote about. As he mentioned yesterday, he has also issued similar warnings on up days, like [in December 2021]( when stocks were at all-time highs. Back then, Mike explained why inflation would cause the markets to crash in 2022. This question actually touches on the whole point of Mike's essay... Market-watchers are parsing every decimal point of inflation data today, but many are also missing the big picture. Inflation is still at a four-decade high, and it's going to take a long time for it to return to some normal level... if it gets to pre-pandemic levels at all. In the meantime, one of the consequences is that the stock market and, as Mike wrote yesterday, the corporate bond market are "headed much lower" in his view. Be prepared for the possibility... to protect your portfolio... and for rare buying opportunities in corporate bonds (like the kind he and analyst Bill McGilton recommend in Credit Opportunities). "This Digest writeup [Tuesday's essay by Mike DiBiase] is ridiculously good. Stupidly good if you'll excuse my language. The evening Digest has become a MUST READ part of my daily routine in LIFE since becoming a subscriber. There are enough insights in here to make a subscription to Stansberry worthwhile even if nothing else existed. "I've been a Portfolio Manager for two decades in Canada, am very busy but am enthusiastic and thankful to have Stansberry now a part of my research diet... " – Paid-up subscriber David C. McLaughlin comment: Wow. Thanks for the note, David. We're happy to have you on board as a subscriber. All the best, Corey McLaughlin Baltimore, Maryland September 14, 2022 --------------------------------------------------------------- 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 11/11/10 902.2% Retirement Millionaire Doc ADP Automatic Data 10/09/08 831.4% Extreme Value Ferris MSFT Microsoft 02/10/12 774.7% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 559.2% Stansberry Innovations Report Wade HSY Hershey 12/07/07 530.5% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 413.8% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 393.4% Retirement Millionaire Doc WRB W.R. Berkley 03/16/12 372.0% Stansberry's Investment Advisory Porter FSMEX Fidelity Sel Med 09/03/08 314.4% Retirement Millionaire Doc NTLA Intellia Therapeutics 12/19/19 306.2% Stansberry Innovations Report Engel 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 3 Retirement Millionaire Doc 1 Extreme Value Ferris 4 Stansberry's Investment Advisory Porter 2 Stansberry Innovations Report Engel/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 1,291.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,198.5% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,072.6% Crypto Capital Wade MATIC/USD Polygon 02/25/21 849.4% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 437.1% 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. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberrycustomerservice.com. Please note: The law prohibits us from giving personalized investment advice. © 2022 Stansberry Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry Research, 1125 N Charles St, Baltimore, MD 21201 or [www.stansberryresearch.com](. Any brokers mentioned constitute a partial list of available brokers and is for your information only. Stansberry Research does not recommend or endorse any brokers, dealers, or investment advisors. Stansberry Research forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Stansberry Research (and affiliated companies) must wait 24 hours after an investment recommendation is published online – or 72 hours after a direct mail publication is sent – before acting on that recommendation. This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.