Fuel for a Debt Crisis, From Near and Far

Escalation in the Middle East... The inflation risk... Hearing about supply-chain disruptions again... Why it could matter to markets... Fuel for a debt crisis, from near and far... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Escalation in the Middle East... The inflation risk... Hearing about supply-chain disruptions again... Why it could matter to markets... Fuel for a debt crisis, from near and far... --------------------------------------------------------------- The war in the Middle East is escalating... I (Corey McLaughlin) wrote to you in the January 2 edition with a "[Red Sea Alert]( Nothing like that pleasant news from thousands of miles away to start the new year, right? But we felt it was important information to share... Two weeks ago, U.S. helicopters and military personnel had just sunk three boats in the Red Sea and killed 10 militants from the Iranian-backed Houthi rebel group that had been attacking commercial ships from coastal Yemen. In response, Iran moved a warship into the area... where the U.S. and other nations have already had a presence over the past two months with the idea of protecting a shipping channel through which about 15% of global trade passes. As I wrote, this development (and another related conflict breaking that day) was a concerning sign from the perspectives of peace and, when it comes to the global economy and markets, lower inflation. From the January 2 Digest... Obviously, the presence of U.S. and Iranian ships closer to each other than a few days ago raises the risk of direct conflict, in addition to the militants from Yemen already creating impacts. (A separate escalation came today in Lebanon, where a blast killed a Hamas leader in territory controlled by the Hezbollah militant group, which is also clashing with Israel.) Today, a Houthi official vowed revenge on the U.S. and the United Kingdom for the attack on [the] boats... Things have kept escalating in the two weeks since. It's hard to keep up with the reports, but notably over the weekend, the U.S. and U.K. attacked Houthi bases in Yemen, and the Houthi responded with further attacks on freighters in the Red Sea. It's just one of the many attacks tied to Israel's war with Hamas in Gaza and decades of conflict in the region. They're now spreading (again) around the Middle East and manifesting in attacks in Iraq and Syria, with Iran – a backer of Hamas – squarely involved. In the latest development, Iran launched missiles in Iraq and Syria, including deadly strikes near an under-construction U.S. consulate in the northern Iraqi city of Erbil. In those attacks, Iran reportedly launched at least 11 missiles targeting what it said was an Israeli intelligence headquarters in the city. This is all to say the war in the Middle East has and is spreading – and it's still just starting to influence the global economy... Your portfolio could feel the effects... It comes down to an inflation risk. War is always that in one way or another. Today we're seeing the latest example. The boiling Middle East pot may also stoke market volatility in the months ahead, which we'll explain momentarily. If you own shares of high-quality companies that reward shareholders in various economic environments, you're probably just fine no matter what happens next. But if you're in the group betting on multiple interest-rate cuts in the first half of 2024, it's worth considering this discussion... Here's the practical matter... Major shipping companies have diverted cargo away from the Red Sea and around Africa instead. Global spot-freight indexes have more than doubled since mid-December when Houthi attacks started to present real security risks... So, first, I want to repeat what we said two weeks ago... You might be wondering why we're spending all this time on the policy aims of a Yemeni rebel group. Now, I can't tell you exactly what's going to play out in this multifaceted Middle East war in the next few weeks and months or years... But I do know that it's going to matter. With violence in the Red Sea, formerly routine major shipping channels and businesses at the heart of global trade are being disrupted. Freight prices have been on the rise for weeks as shippers have been adjusting plans to go around the southern tip of Africa instead. That takes about nine days and costs at least 15% more than going through the Red Sea to ship cargo between Europe, Asia, and beyond. Some shipping industry sources say redirecting ships around Africa costs up to $1 million extra in fuel for every round trip between Asia and Northern Europe. Rates for some freight from China to the United Kingdom have doubled since October to around $4,400 per container. Shades of pandemic-era supply-chain disruption... As industry publication FreightWaves reported yesterday... Red Sea diversions mean container lines need more ships to carry the same amount of cargo. The security situation – which is even more precarious in the near term due to coalition air strikes in Yemen – has already driven spot container freight rates much higher. Now it is starting to push up the price container lines pay to rent ships. "This week saw a scramble for prompt tonnage," said MB Shipbrokers (formerly Maersk Broker) in a market report on Friday, referring to ships that can be chartered immediately... The initial diversions away from the Red Sea caused delays in return trips to Asia, prompting liners to charter ships for short terms as "extra loaders" to pick up the slack. Now that diversions are more ensconced, liners will need to add additional vessels to service strings to maintain weekly schedules, given the longer voyage distance around the Cape of Good Hope. To the extent newbuildings and existing fleets don't fill the gap, they would need to charter or buy more ships. The Harpex index, which measures six- to 12-month charter rates for ships with capacity of up to 8,500 twenty-foot equivalent units, has risen 12% since mid-December. How this all plays out, once again, I can't tell you... But higher freight rates will pass through to the global economy – and they haven't been reflected in the Federal Reserve or other central banks' backward-looking economic data yet. Remember, we're talking about 15% of global trade being directly affected, not to mention the knock-on consequences. As of early January, for example, shipping rates from Shanghai to Los Angeles had spiked 30% and are well above pre-pandemic levels. Oil prices have also rebounded slightly in the past month... Brent crude, the international benchmark – is trading around $78 per barrel, up roughly 6% from a recent low on December 13. West Texas Intermediate, the U.S. standard, though, is notably lower at $72. Why the conflict might matter for a while... As we reported last week, the latest consumer price index ("CPI") inflation data for December showed the monthly pace of headline inflation accelerating to 0.3%, from a 0.1% gain in November and flat growth in October. That's not disinflation, just inflation. On the other hand, on Friday, the producer price index ("PPI") for December came in at negative 0.1% for the month. That's deflation. (I've also said that – outright lower prices, beyond disinflation – is a risk to consider for the economy.) So, you can find evidence of all the 'flations... Still, overall, the full picture of the "data" tells a story of disinflation and a labor market that hasn't "broken" yet. That's great – for now. But anything to shatter that narrative and turn one of the other 'flations into the dominant one could lead to volatility. Here's Fed Governor Christopher Waller at a speech today in Washington, D.C. As long as inflation doesn't rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year... For a macroeconomist, this is almost as good as it gets. But will it last? Time will tell whether inflation can be sustained on its recent path and allow us to conclude that we have achieved the FOMC's price-stability goal. Time will tell if this can happen while the labor market still performs above expectations. Those are some big questions. Waller also said today that if any rate cuts were to come, their size and timing would depend on the "data." Higher costs in global supply chains and oil could influence whatever numbers the Fed considers... Amid those comments, suggesting that cuts could be smaller than some anticipate, the 10-year Treasury yields rose today closer to 4.1%. The 30-year yield was up, too. The major U.S. stock indexes were down, with the small-cap Russell 2000 leading the losses, off 1.2%. Interest rates could stay higher for longer than much of the market believes right now... As of today, fed-funds futures traders are putting 65% odds on the Fed cutting rates at its meeting in March... and are betting with nearly 100% certainly that the Fed's benchmark lending rate will be lower by May. That leaves plenty of room for error. That is to say war in the Middle East, be it by proxies or large nations themselves, could shake up the markets if it continues to be a reason for higher inflation... Remember, the Fed has signaled it will be less inclined to cut interest rates if higher prices persist, and enough of the market is whole-hog on the idea of cuts happening in the next few months. This doesn't necessarily mean all "bad news" for stocks in the short term. This scenario could also be more fodder for the "Fed pause," which historically is great for stocks and has led to double-digit gains as the central bank holds rates steady in a Goldilocks environment. But it does mean that the markets could be choppy ahead if the path of inflation and interest-rate expectations change... or if factors like war simply keep uncertainty about the global economic picture high. And it doesn't mean "bad news" in the longer run. Fuel for a debt crisis... Now, let's think about the effect of a world in which interest rates stay higher... for longer... be it for war or any other reason... Higher rates matter for the rates on Americans' credit card bills, and those balances are already hitting new highs and revealing signs of a strained U.S. consumer... Lending rates matter for real estate and mortgage demand... and they'll matter for the debt costs for the U.S. government and businesses. Among other things, that means a tougher life for the type of companies that can't handle high interest costs and won't be able to afford refinancing loans at higher rates. It's one of the reasons why folks like our Stansberry's Credit Opportunities editor Mike DiBiase sees a "reckoning" ahead for the U.S. economy in 2024 and why "we'll see the first true credit crisis since 2008." As he wrote in [the November 27 edition](... Higher inflation, and therefore higher interest rates, are here to stay. We aren't going back to near-zero interest rates again. Most folks haven't fully grasped this new reality. In this new reality, the math no longer works. We have far too much debt to afford today's higher interest rates. Much of this debt simply cannot and will not be repaid. The only way to get rid of it is through bankruptcy. All of the things you'd expect to see before a recession and credit crisis are already happening. Corporate profits have shrunk over the past three quarters. Delinquencies, defaults, and bankruptcies are rising... and rising at the fastest pace since the last financial crisis. Mike pointed out more than 560 companies had gone belly-up through October alone, nearly double the number in 2022. He expects the trend to continue if rates remain where they are. Mike also argued that the U.S. money supply was the biggest driving factor of inflation and that he didn't see the effects of its pandemic spike wearing off anytime soon. This fact will ultimately sink the stock and bond markets, he says (and incidentally create great buys in his Credit Opportunities advisory). Our friend Joel Litman is thinking the same way... Joel is the founder of our corporate affiliate Altimetry and a world-renowned forensic accountant. He has consulted for Wall Street clients and the Pentagon and taught at big business schools. You may remember Joel's terrific presentation on the debt markets several months ago on the "force that affects everything." He was talking about the credit market, and he described how borrowed money "makes America go." As we wrote in September... And if you understand this $10 trillion market and whether it's healthy or weak, it can telegraph what's coming next, not only for the debt market but also for other assets like stocks. The thing is, almost no one understands the credit market... Despite its size and influence, relatively few individual investors even know to look at the credit market, much less see what signals it's sending about its health. Even fewer know how best to profit from investments in it – which can be safer than buying stocks. And fewer still can explain how to navigate the credit market to others. This is why war tens of thousands of miles away matters to us (as investors) today. It matters to inflation... which matters to interest rates... which matters to the credit market... which matters to everyone... including the stock market. When the credit market sneezes, the entire market can panic... like in 2008... 2000... even 1929. As Joel says now, since his presentation in September, nothing has changed his view, even increased talk of a "soft landing." Just the opposite. If you have some time, I urge you to [check out Joel's presentation for the full details](. It's available again for a limited time, through midnight Eastern time on Wednesday, so don't hesitate to listen. If you're a fan of Mike's work in Credit Opportunities – and are looking for even more recommendations in the credit market and ways to prepare for the next crisis – this is a perfect complement... And if not, and this is the first you're hearing about this type of investment, I can say you'll learn something listening to Joel's presentation. In fact, you might be saving yourself a lot of trouble if it's the first financial talk you ever listen to. Joel talks about how he's seeing many of the same red flags – and worse – as he saw in the lead-up to the financial crisis in 2008... what some of the world's biggest investors will do in the next crisis... and the one high-yielding strategy with tremendous upside he says will crush the market when it happens. [Click here to watch now](. You'll hear a brand-new update from Joel and then the full details of what he calls the most important recommendation of his life. --------------------------------------------------------------- Recommended Links: # ['2024's Market Is a Trap']( If you're holding stocks, you can't afford NOT to see this urgent warning from Joel Litman. He famously predicted the financial crisis in 2008 and is now sounding the alarm on a similar crisis unfolding on Wall Street – one that'll have dire implications for investors over the next three years. [It's time to move your money](. --------------------------------------------------------------- # [The Top Five AI Stocks to Buy in 2024]( Investors are getting very rich in AI stocks right now. And according to 50-year Wall Street veteran Marc Chaikin, there are FIVE AI companies Wall Street is buying hand over fist that need to be on your radar immediately. [Click here for the names and tickers](. --------------------------------------------------------------- New 52-week highs (as of 1/12/24): Cameco (CCJ), Canadian National Railway (CNI), Cencora (COR), Costco Wholesale (COST), Salesforce (CRM), CyberArk Software (CYBR), Denison Mines (DNN), Franklin FTSE Japan Fund (FLJP), Alphabet (GOOGL), W.W. Grainger (GWW), Eli Lilly (LLY), Microsoft (MSFT), Palo Alto Networks (PANW), Regeneron Pharmaceuticals (REGN), Sprouts Farmers Market (SFM), Spotify Technology (SPOT), Stryker (SYK), Travelers (TRV), Trane Technologies (TT), Tyler Technologies (TYL), Sprott Physical Uranium Trust (U-U.TO), Global X Uranium Fund (URA), Sprott Uranium Miners Fund (URNM), Vanguard Short-Term Corporate Bond Index Fund (VCSH), and Waste Management (WM). In today's mailbag, thoughts on politics and electric vehicles ("EVs")... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "If Trump wins the election and he turns on the oil spigot won't the EV train be run off the rails? We recently were faced with a shortage of gas cars to rent at Logan Airport. They gave us the option to rent electric for $1,200 (gas rental $575) vs. waiting on a gas car to be returned. We waited. The people don't want electric. City folks maybe. Guess I just like driving my Corvette." – Subscriber Harry P. Corey McLaughlin comment: Harry, thanks for the note. It is interesting that you bring up this subject when you did because Dan Ferris and I talk specifically about it on the newest episode of the Stansberry Investor Hour, which should be online [on our YouTube page]( later this evening. Just last week, car-rental company Hertz said it would be selling one-third of its EV fleet (at a big loss) and is planning to reinvest in gas-powered cars... because of a lack of demand from renters for EVs and high maintenance costs of the vehicles. Mind you, Hertz just started buying this EV fleet – which includes a lot of Teslas – in 2021... Stemming from the news, Dan and I got into a discussion about what this story might tell us about the green-energy "revolution" in general... and a lot more. I couldn't help connecting it to being another reason to expect more inflation. Enjoy your 'Vette. All the best, Corey McLaughlin Baltimore, Maryland January 16, 2024 --------------------------------------------------------------- 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 1,311.0% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,229.5% Stansberry's Investment Advisory Porter wstETH Wrapped Staked Ethereum 02/21/20 1,011.3% Stansberry Innovations Report Wade ADP Automatic Data Processing 10/09/08 855.3% Extreme Value Ferris WRB W.R. Berkley 03/16/12 660.7% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 544.7% Retirement Millionaire Doc HSY Hershey 12/07/07 464.5% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 414.8% Stansberry's Investment Advisory Porter BTC/USD Bitcoin 01/16/20 374.6% Stansberry Innovations Report Wade PANW Palo Alto Networks 04/16/20 348.2% 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 4 Stansberry's Investment Advisory Porter 3 Stansberry Innovations Report Engel/Wade 2 Retirement Millionaire Doc 1 Extreme Value Ferris --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 2,053.7% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,115.9% Crypto Capital Wade POLYX/USD Polymesh 05/19/20 1,046.2% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,032.7% Crypto Capital Wade MATIC/USD Polygon 02/25/21 849.0% 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 Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc 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 ^ 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}. 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