We're in the Eye of a Financial Hurricane

Get ready for a wild 2023... We're in the eye of a financial hurricane... The year of the hangover... A crappy new year for many folks... The villain of 2023... Predictions for the year ahead... 'Our' time is coming back... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Get ready for a wild 2023... We're in the eye of a financial hurricane... The year of the hangover... A crappy new year for many folks... The villain of 2023... Predictions for the year ahead... 'Our' time is coming back... --------------------------------------------------------------- In the markets, an eerie calm often precedes bad times... Think about the end of 2021. The stock and bond markets were perched at all-time highs. No one was thinking about a new bear market back then. Well, almost no one... I (Mike DiBiase) didn't expect the calm to last. On December 23, 2021, I published an essay in the Digest titled "[2022 Will Be the Year the Markets Crash]( As we now know, 2022 was the worst year since 2008, for both the stock and bond markets. Why did I think the markets would crash? One word: inflation. I've been warning about the dangers of inflation since [April 2021](. Back then, virtually no one was worried about it. Today, as we've just kicked off a new year, I feel another sense of calm coming over the markets. After a brutal year in the markets, I'm seeing more and more optimistic articles and news stories these days... Folks are saying that the worst is over... that inflation is under control... that the Federal Reserve will stop raising interest rates and will soon begin lowering them again... that the next bull market is about to begin. Today, I want to warn you this calm will be short-lived... I believe we're in for a wild ride in 2023... Remember, there can be an eerie calm in the middle of a storm, too... Think about a hurricane. After the devastating outer bands of the storm arrive, the calmer "eye" moves over. The center of the hurricane can be quite peaceful. Winds are less than 15 mph, and you can see blue sky or stars above. Many people are fooled into thinking the storm is over when the eye reaches them. The last thing you want to do is venture out into the eye. Behind the eye are more devastating hurricane-force winds that are sometimes worse than the first part of the storm. Today's calm in the markets reminds me of the eye of a hurricane... I'm here to tell you the financial storm is far from over. I realize many people don't share this view. They think the Fed will somehow navigate a proverbial "soft landing"... meaning a kind of mild recession, or no recession at all, as a result of the central bank's multiple interest-rate hikes in 2022. For example, Treasury Secretary Janet Yellen says the U.S. will avoid a recession in 2023. So does President Joe Biden. I wouldn't put too much stock in the economic predictions of politicians. Yellen and Biden didn't see the calamity of 2022 coming. And neither even acknowledges we were in a recession last year, despite the fact the Bureau of Economic Analysis confirmed that U.S. gross domestic product ("GDP") contracted in the first and second quarters... the textbook definition of a recession. But that's all behind us now. Since then, GDP grew 2.9% in the third quarter and is expected to grow 3.9% in the fourth quarter. For many investors, that's an "all clear" signal that the worst is behind us. Investors are also getting overly optimistic because inflation appears to be headed down. The consumer price index ("CPI") was 7.1% in November. That's down from the high of 9.1% in June. Based on Treasury futures prices, investors are betting the Fed will be able to start cutting interest rates this year. This is highly optimistic, considering Fed Chairman Jerome Powell hasn't given any indication that he's even considering cutting rates in 2023. All of this optimism is based only on hope... Investors hope that inflation is under control. They hope the Fed will stop raising rates early next year. And they hope the central bank will start cutting rates and easing again. Investors want their punch bowl refilled so they can go back to partying without worry. I wish all of this were true. I'd love to tell you that we're at the starting line of a new multidecade bull market... and that we're about to enter a new period of low interest rates and easy credit. But that's not my job. I am here to tell you the truth as I see it. The truth is inflation isn't anywhere near being under control yet. It won't even approach the Fed's 2% target this year. That means both interest rates and inflation are going to stay elevated for longer than most folks think. Earlier, I mentioned I was warning about high inflation back in April 2021. You might wonder how I understood what was going to happen with inflation before nearly everyone. It's simple and logical... I turned to the source who understood inflation better than anyone else... I'm talking about the late Nobel Prize-winning economist Milton Friedman. Using his framework, it was easy to predict that prices were going to soar in 2022. Friedman understood that inflation is always caused by the same thing... a more rapid increase in the supply of money than in the output of goods and services. Never before in history had our nation's money supply increased so much so fast than following the pandemic in 2020. Here's what's important today... Friedman not only understood what causes inflation, but also what it takes to cure it. His analogy to alcoholism is worth repeating... When you start drinking or when you start printing too much money, the good effects come first, the bad effects only come later. That is why, in both cases, there is a strong temptation to overdo it – to drink too much or to print too much money. When it comes to the cure, it is the other way about. When you stop drinking, or when you stop printing money, the bad effects come first and the good effects only come later. That is why it is so hard to persist with the cure. Friedman understood that it's difficult to get rid of inflation once it takes hold. He explained that there's no easy, painless way to cure it. The only way is to persist with a combination of higher interest rates, higher unemployment, higher taxes, and a contraction in credit and the money supply. These are the "bad effects" he was talking about. In other words, to cure inflation, we have to go through economic pain. There's no avoiding it. A 20% drop in the stock market doesn't qualify as economic pain under Friedman's framework. Using Friedman's analogy, 2020 and 2021 were the party years. We were all happy and drunk on the Fed's money printing. In 2022, we began feeling dizzy and sick. We realized we "drank" too much and that the party was over. We haven't gone through the real pain yet. We're now about to pay the price for our excess. 2023 will be the year of the hangover... Last year's recession wasn't deep or long enough to bring demand and prices down. Until that happens, I predict that inflation is going to stay elevated above 5%. You can't bring down inflation with record employment. Last month, the Fed said the unemployment rate needs to rise to at least 4.5% from today's near-record low of 3.7%. That means around 1.5 million folks will lose their jobs as the economy contracts. And that means big trouble for our economy. A recession in the U.S. is all but inevitable this year... The best recession predictor just flashed a major warning signal. The spread between the three-month and 10-year Treasury yields recently inverted. Over the past 60-plus years, this spread has inverted eight times. And every single time a recession followed... with no false signals. It's the recession predictor the Fed uses. This spread today is the most inverted it has been since 2001. Other recession indicators are foretelling the same. The more widely quoted indicator – the "2-10 spread" – is now more inverted than at any other time since 1981. (It measures the difference between two-year and 10-year Treasurys.) Folks who are predicting a mild recession – or that we'll somehow avoid a recession entirely – remind me of the folks who said inflation wouldn't be a problem. They were wrong back then, and they'll be wrong again. If you don't believe me, all you have to do is look at the deteriorating financial condition of the American consumer. It's going to be a crappy new year for many Americans... You're not hearing enough of this story in the mainstream media. The reality is that the U.S. consumer is in deep, deep financial trouble. As conditions worsen in the coming months, you should expect to read more and more headlines about it. Many investors don't realize how bad things are for the average American. They remember how the Fed lined their pockets with stimulus money after the pandemic. Back then, consumer balance sheets were in fantastic shape. The U.S. personal savings rate – the amount families have in savings compared with their disposable incomes – soared to a record 34% in April 2020. That was more than triple the 9% average savings rate over the past 60 years. But things have changed dramatically for the average American in a very short period of time... Those savings have been depleted. The U.S. savings rate recently dropped to 2.4%. That's near the record low of 2.1% set in 2005. Take a look... Americans used some of the stimulus money to pay down credit-card debt. Households cut their credit-card debt by $157 billion from the beginning of the pandemic to the end of March 2021. But since then, as inflation has soared, credit-card debt has skyrocketed 20% higher to $925 billion, just shy of a new record. Credit-card debt rose by 15% last quarter, the fastest annual increase in 20 years. It's almost certain to break the record this quarter. This debt is a huge problem for consumers because credit-card interest rates just hit an all-time high in December... soaring to more than 19%, according to financial website Bankrate. In other words, credit-card debt is now far more burdensome than it has ever been. Folks are getting poorer... and deeper in debt... Household debt – including mortgages, credit cards, car loans, and student loans – now totals a record $16.5 trillion. That's 17% higher than before the pandemic, and it's 30% higher than it was at the peak of the last financial crisis. Debt amounts to an average of $126,000 for every household. That's a 100% increase over the past 20 years. The bigger problem is that wages haven't kept pace with rising debt or prices. Household income, adjusted for inflation, has only increased 9% over that span. Despite near-record-low unemployment today, "real" wages – wage increases minus inflation – have fallen 8% since the pandemic. More than 60% of all Americans are now living paycheck to paycheck. These are startling numbers. They should worry any investor, considering that consumer spending is tied to about two-thirds of the U.S. economy. Interest costs are eating up more and more of consumers' budgets... And conditions are getting worse. Interest rates are still rising. The Fed just raised the benchmark federal-funds rate by another 50 basis points ("bps") last month to a range of 4.25% to 4.5%. That's the highest rate since December 2007. The central bank is projecting it will raise the fed-funds rate to around 5% in 2023. That has driven up interest rates across the economy. Mortgage rates have more than doubled since the middle of 2021, to around 6.4% on a fixed 30-year loan. That's the highest they've been in 20 years. The average home price in the U.S. is around $350,000. The monthly mortgage payment on a loan to buy a $350,000 house is 43% higher today than before the pandemic. Housing, cars, and food make up around two-thirds of consumer budgets. Those costs rose 9% in 2021. They've risen even faster this year. In the latest[] CPI data for November, shelter costs are up 7%... transportation is up 14%... and food is up 11%. That doesn't sound to me like inflation is subsiding. Adding this up, the American consumer is faced with... - Near-record-low savings - Record-high debt - Record-high (and still rising) credit-card interest rates - 40-year-high inflation - And falling real wages The math simply doesn't work. This is going to end in financial disaster. Here's the unavoidable truth... The middle class is being systematically wiped out. The economic reality for most Americans is getting worse by the month. Knowing all of this, it's not difficult to see where things are headed... Discretionary spending and consumption will fall sharply in 2023. The economy will contract. Businesses' sales and profits will fall as a result... leading to more layoffs and pressure on wages. Credit-card and auto-loan delinquencies will rise in 2023. Car repossessions will soar. Americans will default on these loans at levels not seen since 2008. And credit will tighten. This is not some worst-case scenario theory. It's already happening. We can see this in the Fed's latest surveys of bank loan officers... They are getting concerned and lowering their risk. More and more of them are saying they are "tightening," meaning they are making loans harder to get, shrinking loan sizes, and offering terms that are more favorable to lenders... As you can see, credit is becoming more difficult across all categories... from loans to both large and small companies to consumer loans. Higher-risk companies are already seeing the impact. Junk-rated companies issued fewer high-yield bonds last year than in any year since 2008. The last time credit tightened to these levels was in the months following the onset of the COVID-19 pandemic. The Fed stepped in back then and printed trillions of dollars to stimulate the economy and loosen credit. Now, with inflation at 40-year highs, the Fed is out of bullets. It can't save the credit market this time. Lowering interest rates and printing stimulus money will only cause inflation to soar to new highs. That's exactly what happened in the late 1970s, when the Fed began easing too soon. Lenders are bracing for a recession. And so are corporate leaders. Workers are being laid off en masse across corporate America. More than 90,000 workers have been laid off from high-paying U.S. tech jobs alone in 2022. And the layoffs are just starting. Online mega-retailer Amazon (AMZN) plans to cut 20,000 jobs in the coming months. When Amazon is cutting jobs in large numbers, it tells you consumers are in trouble. Michael Burry, the hedge-fund manager best known for being one of the first people who saw the 2008 financial crisis coming, predicts we're about to enter a multiyear recession. I'm not going to predict how long the recession will last. That depends on what the Fed does. But it's going to be both unavoidable and painful. But I will make a few predictions for how 2023 is going to play out... Europe will enter a recession first. Things are even worse there. European banks printed trillions of euros during the pandemic too. And thanks to Russia's invasion of Ukraine, Europe is in the midst of an energy crisis. Natural gas in Europe is trading around five times higher than in the U.S. (last month it was seven times higher). Normally, it trades in a range from roughly zero to three times higher. Higher energy prices have driven inflation across the European continent to record highs... even higher than in the U.S. You'll see civil unrest throughout Europe in 2023 from stagflation, the toxic combination of a slowing economy and high inflation. These deteriorating conditions are likely to trigger a new European sovereign-debt and banking crisis. Of course, problems in Europe will only add to the problems in the U.S. I predict the U.S. will enter a new recession after Europe and that the deteriorating financial health of everyday Americans will be the catalyst. But soon, consumers' troubles will spill over into corporate America. Corporate America has a debt problem, too. Corporate debt totals $12.8 trillion. That's nearly double the $6.6 trillion it reached at the peak of the 2008 financial crisis. This debt is also getting more expensive as interest rates rise. And it will get even more expensive for another reason... The hit to profits... Corporate profits will fall sharply this year for the first time since 2008 (not counting 2020, the year of the pandemic). That will happen because of persistent inflation, higher interest rates, and a contracting economy. Investors haven't priced this in yet. The stock market is priced on Wall Street's projected earnings estimates. Wall Street is currently forecasting corporate earnings will grow 7% this year and another 9% in 2024. Don't count on that happening. During recessions, corporate earnings almost always fall. Take a look... []Over the past five recessions (the gray areas on the chart), corporate earnings fell by an average of around 25%. You can see that Wall Street's profit estimates for the next few years (the red line) are highly optimistic, considering we're headed for another recession. []I predict the stock market will hit a new bottom in February, after companies report their fourth-quarter earnings. That's when most will have provided guidance on the coming year for the first time. Disappointed investors will have to reset their earnings expectations, and the stock market will be revalued. I predict the Fed will stop raising interest rates after its May meeting when its federal-funds rate is another 100 bps higher than it is today. That will provide a temporary lift to the markets. Investors will become optimistic again. But the recession will continue to worsen throughout 2023, and the Fed will be under tremendous pressure to "fix" the economy. It will be tempted to start easing again (in the form of lowering interest rates or printing more money). What the Fed does at this point will be the pivotal moment of 2023... If the Fed doesn't ease – as the late Milton Friedman would advise – the recession will deepen throughout the year. Bankruptcies will soar, and many "zombie" businesses – that can't afford to pay the interest on their own debt – will go under. If this happens, the credit bubble will burst in 2023. Although painful, this is a necessary outcome. It will cure our economy of inflation and its excessive debt. On the other hand, if the Fed can't persist with the inflation cure and instead begins easing, the economy will temporarily recover. Credit will loosen, and we'll avoid a credit crisis... at least for a short while. This is what I believe is the most likely scenario. Milton Friedman would agree. He has seen the central bank give in many times in the past. As he once explained... In the United States, four times in the 20 years after 1957, we undertook the cure. But each time we lacked the will to continue. But a so-called Fed "pivot" will only make things worse, as short-term solutions always do. Later in 2023 and into 2024, inflation will soar once again, just like it did in the late 1970s when then-Fed Chairman Arthur Burns eased too fast. If that happens, I predict the credit bubble will pop in 2024. No matter what happens, Jerome Powell, the current Fed chair, is going to be the villain. If he doesn't ease, folks will blame him for tightening too much, too long, and too fast. On the other hand, if he gives in to political pressure and eases, he'll get the blame for easing too soon. The coming economic pain is the unavoidable consequence of printing more than $6 trillion of new money and keeping rates near zero for far too long coming out of the depths of the pandemic. Now, the credit bubble is on the verge of bursting. It's only a matter of "when." The Fed is out of bullets. The weapons it used in the past don't work in an inflationary environment. They do nothing but add more fuel to the fire. To put it simply, inflation and interest rates are going to be higher for longer than investors expect. These factors will finally pop the credit bubble that has been inflating since the last financial crisis. Howard Marks, one of the world's best distressed-debt investors, thinks the credit bubble is on the verge of bursting... Marks started the world's first institutional distressed-debt fund back in 1978. He has made a fortune for his investors over the years. He's a favorite of several Stansberry Research editors and analysts. Marks recently said he expects interest rates to stay near the 5% mark for the next five to 10 years. This will push many companies into financial distress. He said he also sees "great bargains" to be had in the coming recession. Marks' investment firm, Oaktree Capital, is gearing up for the best buying opportunity since the last financial crisis. Oaktree has $163 billion of assets under management. More than $100 billion of that capital is devoted to credit opportunities. As Marks told Bloomberg last month, "Now our time is coming back." By "our" Marks means distressed-debt investors. My colleague Bill McGilton and I recommend distressed corporate bonds in our Stansberry's Credit Opportunities newsletter. A credit crisis would be a good thing for our subscribers. Our strategy performs best in times of crisis... That's when the perfectly safe corporate bonds we recommend – which many folks simply don't know about or how to buy – sell off to absurd, distressed levels. Savvy investors like Marks scoop them up for pennies on the dollar and make a killing... In a true credit crisis, investors dump bonds... even safe ones. As a result, bonds trade at huge discounts to their par value, the amount investors are legally owed. But while many folks will be scared, this is exactly when you want to buy these bonds... These bonds pay a legally obligated return on a set schedule, meaning you know what your return will be when you buy them. That's why we call these bonds safer than stocks, whose returns are always uncertain outside of a dividend payment. Buying safe bonds when they are cheap is a strategy the world's best investors use to grow their fortunes when everyone else is losing money. There's no reason you can't, too... You just have to know where to look and what to do. In Credit Opportunities, Bill and I identify these investments for you. And as I shared today, we're on the verge of the next credit crisis. There truly has never been a better time to join us. As a special holiday season gift, we're offering access to two full years of our exclusive research – before the financial crisis hits – for our best price ever. You'll also get a newly updated special report with all the details you need to know. [Click here to learn more]( – including hearing the firsthand account of how a Stansberry Research subscriber used this same strategy to retire early and worry-free at age 52 – and then get started with this "safer than stocks" investment vehicle today. --------------------------------------------------------------- Recommended Links: [Be Warned: A Specific Type of Market CRASH Is Coming Soon]( It's actually much bigger and more important than what happens to the Nasdaq or S&P 500. Some of the world's best investors are practically drooling in anticipation because this crash will create a slew of 100%-plus opportunities... backed by legal protections that stocks can only dream of. A top analyst believes this could happen within months – and you must prepare now. [Get the full story here right away](. --------------------------------------------------------------- [The No. 1 Gold Play for 2023]( Some of the richest men in the world are jumping into gold right now... because evidence suggests we could see MUCH HIGHER prices in the coming weeks. But if you're not taking advantage of a little-known way to invest for around $5 today, you're missing out. [Click here for the full details](. --------------------------------------------------------------- New 52-week highs (as of 1/3/23): Alamos Gold (AGI) and Novo Nordisk (NVO). We've covered a lot today. What are your thoughts? Do you think we're in the eye of a hurricane? Or is the worst for the markets already behind us? What's your take on the state of the American "consumer"? Let us know with an e-mail to feedback@stansberryresearch.com, and we'll pick back up with the mailbag tomorrow. Regards, Mike DiBiase Atlanta, Georgia January 4, 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 11/11/10 858.6% Retirement Millionaire Doc ADP Automatic Data 10/09/08 844.0% Extreme Value Ferris MSFT Microsoft 02/10/12 736.6% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 640.4% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 543.0% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 450.4% Stansberry Innovations Report Wade BRK.B Berkshire Hathaway 04/01/09 449.5% Retirement Millionaire Doc AFG American Financial 10/12/12 439.1% Stansberry's Investment Advisory Porter ALS-T Altius Minerals 02/16/09 315.7% Extreme Value Ferris FSMEX Fidelity Sel Med 09/03/08 302.4% 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 1,091.7% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,050.2% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,035.5% Crypto Capital Wade MATIC/USD Polygon 02/25/21 830.7% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 375.8% 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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