We're Now on the 1980s Recession Clock

In today's Masters Series, originally from the September 14 issue of the Chaikin PowerFeed daily e-letter, Pete compares today's high inflation with the rampant inflation that happened in the early '80s... details how we're on a similar path toward a recession... and reveals how you can protect your portfolio amid this ongoing market volatility... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: [It's only a matter of time](... The Federal Reserve has been relentlessly increasing interest rates this year in an effort to temper inflation. And many market experts believe that if inflation doesn't slow down soon, a recession is imminent. But this isn't the first time we've seen something like this play out... You see, Pete Carmasino – chief market strategist of our corporate affiliate Chaikin Analytics – believes this current economic environment is eerily similar to what the U.S. experienced in the 1980s. And that means a recession might be inevitable... In today's Masters Series, originally from the September 14 issue of the Chaikin PowerFeed daily e-letter, Pete compares today's high inflation with the rampant inflation that happened in the early '80s... details how we're on a similar path toward a recession... and reveals how you can protect your portfolio amid this ongoing market volatility... --------------------------------------------------------------- We're Now on the 1980s Recession Clock Pete Carmasino, chief market strategist, Chaikin Analytics When inflation is this high, a recession always happens... It happened in the early 1980s. And it happened every other time inflation rose above 5%. The reason is the Federal Reserve. It needs to raise interest rates in response. That's the central bank's primary tool to fight inflation when it gets too high. Specifically, in times like this, the Fed raises the "federal-funds rate." That's the overnight lending rate between banks. And importantly, it influences all other interest rates. The thing is, it's not pretty when the Fed goes to work. When inflation is in the 8% range like today, the Fed needs to hike rates higher. And that's painful for stocks... In fact, Fed Chair Jerome Powell even acknowledged that these actions will create "some pain" for Americans. Fighting inflation will bring some pain. But not fighting it would bring far greater pain. Now, the question is... how long will the pain last? Let's use 1981 as our guide since we're starting at a similar inflation level today... Back then, it took 16 months to finally escape the recession. And with that time frame in mind, we can figure out how long our current recession will likely last. Let me explain... --------------------------------------------------------------- Recommended Link: [These Two Wall Street Legends Have Just Joined Forces... Why?]( Marc Chaikin helped build Wall Street. Joel Litman has spent his career denouncing it. But they both agree: If you think the stock market has been crazy this year... get ready, because the coming weeks could determine your wealth for the next decade. [Here's what you need to know](. --------------------------------------------------------------- Interest rates are going higher. And we can't do much about it except manage our risk. We'll start by looking at what everything meant for folks in the early 1980s... The gray boxes show the two recessions. The blue line is the federal-funds rate. And the orange line is the year-over-year percentage change for the Consumer Price Index ("CPI")... Notice how the Fed cranked up the federal-funds rate as inflation climbed heading into 1980. Then, it loosened this rate a bit in response to the first recessionary period. But when inflation remained stubbornly high, the Fed went to work. And then, after the second recessionary period, it kept the federal-funds rate above inflation for years. Now, let's look at the same two data points today... As you can see, the federal-funds rate and inflation are far apart. It's a large gap to close. That won't happen overnight. And that's critical... Inflation hasn't been at this level since the early 1980s. Back then, the federal-funds rate needed to get above inflation – and stay there – to be effective. Inflation is always the same. It's too many dollars chasing too few goods. And in the post-COVID-19 economy, we're facing a double whammy. Goods became dangerously scarce due to the lockdowns. And in response, inflation ran even higher. Now, the Fed must raise the federal-funds rate. And since inflation went so high, the federal-funds rate needs to go even higher. It will need to go higher than the inflation level. The Fed hopes demand can slow enough to push inflation down. Then, it won't need to raise the federal-funds rate too high. Still, it could be at 4% by the end of this year. (It's at a range of 2.25% to 2.5% today.) That's like a "tightrope act"... You see, recessions stop rates from going higher. So we're in a "no pain, no gain" situation. I'm not saying we'll see bread lines and food stamps for everyone. Not even close. Folks, it simply means you need to mind your money and take less risk. And to do that, you need to know which sectors do the worst when rates get too high. Here's the bottom line... We find ourselves in a not-so-different situation than in the early 1980s. But even if history rhymes, it doesn't always repeat. So we can't expect the exact same outcome this time. Did the CPI peak in June at 9.1%? I can't know that for sure. No one can. But if so – and if history is a good guide – it looks like the pain of higher rates could last at least another 12 to 14 months. That's the timeline we're looking at today. So to protect yourself in the months ahead, avoid heavy exposure to sectors that don't do well when rates rise. By that, I mean sectors like technology and consumer discretionary. Real estate is another sector to avoid right now as well. And don't forget bonds. As rates rise, their prices fall. Pain might be inevitable. But looking back at history and following the current trends can help you avoid too much of it. We can learn from the past. And right now, it's sending us a clear message... Be careful with your investment money today. Good investing, Pete Carmasino --------------------------------------------------------------- Editor's note: This bear market has been unlike any other. You see, investors usually have a plan for making profits during times of crisis. But that blueprint is failing right now... Gold is on the decline... bonds just entered their first bear market in 30 years... and the real estate market is in complete turmoil. So if you're asking yourself where you can possibly invest, it's critical to circle Thursday, September 22 on your calendar. On that night, at 8 p.m. Eastern time, two investing titans are joining forces to give you a financial lifeline that could potentially erase all the pain you've experienced this year. It's free to attend, but a reservation is required. [Click here to reserve your spot](. --------------------------------------------------------------- Recommended Link: [Prepare Now: 'A Gold Storm Is Coming']( Some of the richest men in the world are jumping in right now... And it's because evidence suggests we could see MUCH HIGHER gold prices before the end of this year... But if you're not taking advantage of this little-known way to invest (for less than $10), you're missing out. [Click here for the full details](. --------------------------------------------------------------- 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.