Higher for Longer... and Longer

The Fed makes moves (again)... What's happening to real estate already... What 'shelter' means to the government... Not a time for bull market geniuses... The opportunity ahead... Jim Rickards: It's worse than you think... The Federal Reserve thinks trouble is coming... But it's plowing ahead with more interest-rate hikes anyway – maybe one or two […] [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] The Fed makes moves (again)... What's happening to real estate already... What 'shelter' means to the government... Not a time for bull market geniuses... The opportunity ahead... Jim Rickards: It's worse than you think... --------------------------------------------------------------- The Federal Reserve thinks trouble is coming... But it's plowing ahead with more interest-rate hikes anyway – maybe one or two more after the one the central bank announced today. Fed Chair Jerome Powell said so at the start of a press conference today... We've covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do. The nitty-gritty of today's Fed announcement – coming out of the central bank's two-day policy meeting – is that it raised its benchmark lending rate by 50 basis points to a range of 4.25% to 4.5% and is continuing to trim its balance sheet. This was largely expected. But as we mentioned yesterday, the thing to watch that could move the markets would be the economic projections by Fed board members and presidents for next year and the years following. It's getting a little bit worse... The Fed does this Summary of Economic Projections ("SEP") once a quarter... This time around, the projections showed, on balance, that the central bank sees everything getting just a little bit worse over the next 12 months than what the Fed was projecting in September. Still, the central bank is planning to hike rates at least one more time after today. While their expectations for real gross domestic product ("GDP") growth in 2022 grew from 0.2% to 0.5% and their unemployment projection remained about the same through year-end, the Fed members expect things to deteriorate next year... They project a median real GDP growth of 0.5% next year compared with the 1.2% they thought in September. Their unemployment figure is a bit higher at 4.6% versus the 4.4% projection three months ago... an estimate that means 1.6 million Americans out of work. Meanwhile, the Fed expects core inflation to be higher in 2023 – 3.5%, by its preferred measure – than it indicated before (3.1%). That's not exactly a bullish picture. And yet the Fed says rates and the costs of doing business will keep going up... Most Fed board members seem to see the benchmark fed-funds interest rate hit a minimum of 5% next year, then remain above 4% in 2024 and above 3% in 2025. And they don't see the core personal consumption expenditures ("PCE") index of inflation getting below 3% until 2024 or close to 2% until 2025, despite inflation coming down from its peak in the summer. As Powell said... We made less progress than expected on inflation. That's why unemployment goes up because we're having to tighten policy more... That's the idea: slower progress on inflation, tighter policy, probably higher rates, probably held for longer just to get to where you need to get inflation down to 2%. Yet on the other hand, in its written statement announcing its policy moves today, the Fed said... The Committee is strongly committed to returning inflation to its 2 percent objective. It doesn't add up, or maybe it does. Fed members are committed to an economy with 2% inflation, but they're not expecting it to happen anytime soon – and certainly not next year while unemployment rises and growth slows. It's right there, written out for anyone to see. Place your bets... To me, this means at least another 50-basis-point hike is coming at the Fed's next policy meeting to get close to 5%... followed by another 50- or 25-point raise depending on the central bank's mood in the early part of the new year. And then still inflation will be higher than 2% for the next three years... unemployment will be heading higher next year... and economic growth will slow in general. Powell stopped short of saying the Fed is projecting a recession, but he did say... It won't feel like a boom. It will feel like very slow growth. Before the Fed released its press release at 2 p.m. Eastern time, the major U.S. stock markets were enjoying a slight up day. The release promptly turned that into a slight down day – a reversal of about a percentage point... and the S&P 500 Index closed down 0.64%. In his comments, Powell said more rate hikes will be coming, although the speed of them is not a priority anymore... and he noted 17 or 19 Federal Open Market Committee ("FOMC") members expect a peak rate of 5% or more. But he also said rates could eventually go higher... That's our best assessment today for what we think the peak rate will be. You will also know that at each subsequent SEP during the course of this year, we actually increased our estimate of what that peak rate will be. And today the SEP shows overwhelmingly FOMC participants believe that inflation risks are to the upside, so I can't tell you confidently that we won't move up our estimate of the peak rate again at the next SEP. I don't know what we'll do. It will depend on future data. In other words... everything will depend on the path of inflation and, as Powell also said, whether monetary policy is "restrictive enough" to cool higher prices. And he's not saying it now, but it will also depend on how much damage comes with that. We'll find out as the next few months – and years – unfold. Either way, the housing market is already feeling the effects... With mortgage rates having blasted above 7% in October, the housing market has ground to a halt. I keep seeing pictures of empty open houses being posted online by disappointed real estate agents... no more lines out the front door. It's not surprising. This is what happens when dollars get incredibly more expensive, loans become harder to afford, and folks aren't able to sell homes with dozens of bidders... And it's what the Fed wanted and still wants – to cool demand in a high-inflation economy. And the Fed can make a big difference with real estate... Other than its dealings with banks directly, the central bank has no greater influence than on the housing market. And that just so happens to be where most Americans have most of their net worth locked up. First off, the Fed is a huge owner of mortgage-backed securities. It has $2.6 trillion of them on its balance sheet, down only relatively slightly from a high above $2.7 trillion in the first half of 2022. Second, its benchmark lending rates filter throughout the economy eventually... to banks... then to all kinds of businesses, including mortgage lenders, and ultimately to people looking to buy homes. Over the past few months, the country has begun to experience the end of the pandemic real estate bubble. Nationwide home prices went up 40% from June 2020 to June 2022 while the Fed and Congress threw trillions of stimulus dollars into the economy. No longer. As Stansberry Research senior analyst Alan Gula wrote in [the most recent editions of our Portfolio Solutions products]( published last week... Home prices across the country have started to drop. The S&P CoreLogic Case-Shiller U.S. National Home Price Index has fallen for three months straight. These are the first price declines on a nationwide basis in more than a decade. If you paid peak price for a house after mortgage rates had already jumped to their highest point in two decades, you're losing money on the deal. Now, this is a small fraction of total U.S. homeowners, and even they'll likely do fine in the really long run. After all, the U.S. is still fundamentally short on housing supply compared with demand. But for the time being, the real estate market is experiencing and starting to deliver pain. As Alan wrote in Portfolio Solutions... "The market is falling off a cliff," said one homebuilder in Wilmington, Delaware. "Traffic has completely dried up," another griped. "October was the worst sales month in 12 years..." "[We're] preparing for a very sluggish 2023..." The bearish sentiments in an October homebuilder survey conducted by John Burns Real Estate Consulting ("JBREC") went on and on. Rick Palacios Jr., the director of research at JBREC, said the commentary was about as negative as he has ever seen it. One problem wreaking havoc for homebuilders is a rising cancellation rate, which soared from 8% nationally in early 2022 to 26% in October. More and more homebuyers are backing out of purchase contracts as they see home prices decline and economic uncertainty increase. The thing about 'shelter'... In Portfolio Solutions, Alan went on to explain why this weakening housing demand won't show up in widely followed inflation numbers until mid-2023... That's because of a convoluted way the consumer price index ("CPI") calculates "shelter"... the biggest single component of the CPI, making up one-third of the index. Home prices aren't actually included, but "owners' equivalent rent" is. As Alan wrote... This is basically what homeowners would pay if they were renting their own homes. This measure lags the overall real estate market, because lease terms prevent rents from jumping or falling as quickly as home values. As Alan said... Rent inflation for new tenants leads the official rent inflation in the CPI by about 12 months. Therefore, shelter inflation in the CPI will remain strong into the beginning of next year. The weakness in home prices and new rents will eventually filter into the CPI by mid-2023. At that point, we expect shelter inflation to moderate. But by then, the Fed will have hiked rates even further. This means we'll likely see the real estate market slow down even more... drag down the economy beyond that part of the slowdown... and not show up in inflation numbers for months. You might be able to see where things could be headed for the economy. Prepare yourself. Of course, you want to keep making money – and there will be ways to do that over the next year – but be sure to protect your wealth, too, from the risks out there today. As we've said recently, the days of the 'bull market genius' are long gone... This might sound bad, but only [if you think like Dave Portnoy]( – that "stocks only go up"... Look around and you'll see this is a great opportunity. It's time to go to work and beat the competition. There are ways to do it... For one thing, own shares of businesses that generate tons of free cash flow and reward shareholders in any market conditions. Our editors have recommendations. Or invest in stocks or make trades that provide risk-reward opportunities skewed in your favor. Take advantage of the Fed's mismanagement of its economic manipulation and earn some nice yield on short-term Treasurys if you're looking for a low-risk way to put some cash to work. Some other bonds might be trading cheaply, too. Eventually, hard assets like gold should also rise in value as the dollar weakens once again... And despite the inevitable downturn in real estate that is unfolding now, over the long run, the U.S. is short of homes for all the people who'll need a place to live. In other words, there's tangible value in owning the right real estate despite the headwinds the sector is facing now. But maybe most importantly, since we're getting to the point of the year where a lot of people like to reflect and look ahead, I'll end today with what many market analysts never get around to saying... Know thyself... If nothing else, first know your goals for your money, and then make the best decisions you can to fit those goals. What are you really looking to do with your hard-earned savings? And what's your timeline for investing it? There are more questions you can ask, too. Just thinking about these simple questions can help a lot with making seemingly complicated decisions... and avoiding costly mistakes in the market. And if you ask anyone who has been at this a while, that's a large part of succeeding over the long run. Knowing the Fed's next move is helpful in the markets. But knowing thyself sure is more fulfilling. It's Worse Than You Think Bestselling author Jim Rickards tells our Daniela Cambone that there's a major risk of recession as inflation tumbles down... and it may eventually pair with a global liquidity crisis like in 2008... [Click here]( to watch this episode of the Daniela Cambone Show right now. And to catch all of the podcasts and videos from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: [Urgent Fed Warning: TOMORROW at 10 a.m. Eastern Time]( "The Fed's next move will decide if you make huge gains or suffer massive losses in 2023," says Marc Chaikin. But tomorrow at 10 a.m. Eastern time, Marc will reveal the ONLY Wall Street indicator with a 100% success rate of predicting where the Fed will send the stock market next – going all the way back to 1955. And he'll explain exactly what to do with your money before January 1 to prepare. [Click here for full details](. --------------------------------------------------------------- [The Market Hasn't Done This in 15 Years]( Wealth has evaporated. Companies are announcing salary freezes and unpaid furloughs. The price of everything keeps climbing, while the values of our most precious assets like our homes and investment accounts are depreciating. There's a strange reason why, but Wall Street won't tell you about it. [Click here to get the full story](. --------------------------------------------------------------- New 52-week highs (as of 12/13/22): Atkore (ATKR) and Novo Nordisk (NVO). In today's mailbag, some feedback on inflation, which we covered [in yesterday's Digest](... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Too much discussion regarding changes in CPI and drawing long term lines through just a few points, when the Fed is primarily basing policy on Core Inflation and targeting 2%. Core inflation eliminates volatile components, most importantly oil prices which move primarily with world market pricing and not domestic policy. "Despite all the political rhetoric, the core number is still stuck around 6%, as per the latest report, and that should be most disturbing of all." – Paid-up subscriber Barry N. Corey McLaughlin comment: Thanks for the note, Barry. The Fed does prefer to look at core inflation, which strips out energy and good prices – specifically, the core PCE index. Core PCE measured at 5% for October, the most recent data available, still well above the Fed's 2% goal. Importantly, though, core PCE slowed to 0.2% in October, from 0.5% in August and September. The November data comes out on December 23. Yesterday, as you note, core CPI did check in at 6% year over year for November... and it's also slowing down month by month, from 0.6% in August and September to 0.3% in October and 0.2% for November. If that monthly pace keeps up, the headline year-over-year core CPI number will drop too in 2023, as the current monthly pace will be less than it was at the same time a year earlier, when the monthly numbers were at 0.5% and 0.6%. But I'm with you on still being concerned... The headline inflation numbers could stick higher than 2% for longer than many folks may want. Ultimately, there's a good chance the Fed might throw in the towel and say 3% or 4% inflation is as low as we can get "in these unprecedented circumstances," or something like that. And that presumes the Fed hasn't overtightened already or won't do so over the next few months, thus causing deflation ahead. Neither scenario helps real people, of course. In my opinion, above-average inflation – and perhaps more in isolated sectors than others – could be "sticky." Even if I'm wrong, it's a possible outcome worth preparing for as the dollar gets relatively weaker and inflation – or deflation – is "there" one way or another. All the best, Corey McLaughlin Baltimore, Maryland December 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 ADP Automatic Data 10/09/08 924.4% Extreme Value Ferris MSFT Microsoft 11/11/10 923.0% Retirement Millionaire Doc MSFT Microsoft 02/10/12 792.9% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 566.2% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 482.3% Stansberry Innovations Report Wade BRK.B Berkshire Hathaway 04/01/09 453.8% Retirement Millionaire Doc AFG American Financial 10/12/12 437.1% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 412.6% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 318.8% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 308.2% 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 1,150.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,091.6% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,066.5% Crypto Capital Wade MATIC/USD Polygon 02/25/21 870.8% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 391.6% 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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