Central bankers don't know anything... Two words for the Fed... Russia defaults on foreign debt... Hey, do you want an airplane?... A furniture fire sale won't help this time... Eric Wade talks more about cryptos... The tulip bulbs were passive participants...
 The theme today is 'you can't make this stuff up'...
I (Corey McLaughlin) kid you not... Today, I watched a panel of central bankers, including Federal Reserve Chair Jerome Powell and European Central Bank ("ECB") President Christine Lagarde. Not more than one minute into my viewing of the video – about 50 minutes into the chat – I heard a comment that made me want to scream. Here's what Powell said on the topic of inflation at an ECB forum on central banking (fun times, I know), while seated between an interviewer on one side and Lagarde and the chiefs of the Bank of England and the Bank for International Settlements on the other... Powell: "I think we now understand better how little we understand... about inflation." Interviewer: "That's not very reassuring." Powell: "Honestly, this was unpredicted." Sure, unpredicted by him... and those of his ilk. Powell went on to say that one year ago, in a survey of 35 "professional forecasters" – evidently an important group to the Fed that I've never heard him mention before – 34 of them projected inflation below 4% for 2021. Powell also said that "everyone had the same model." He mentioned the Phillips curve, which central bankers have used for decades to project the correlation between unemployment and inflation. But that model leaves out a critical factor, as Powell finally acknowledged today... long after he should have. That's the influence of a supply collapse – one big problem that started with the pandemic and is still unresolved more than two years later. What [the model] was missing was something that's completely missing in the data for 40 years, a collapse in the supply side... You had very strong demand hitting effectively a vertical supply curve. What did we get wrong?... That supply-side issues would be resolved relatively quickly. That didn't happen. To be fair, no one could have completely predicted the full extent of what we would see (and are still seeing). Waves and waves of supply shocks are slamming the global economy, stemming first from the pandemic and now (for certain commodities) war in Eastern Europe. But while we could give Powell the point of not being able to predict the future, he dashed any chance of even a small sympathy vote (or me writing about something else) when he also said this today in the same exchange... It wasn't something wrong with our model, because it wasn't in our model at all. Seriously? This anecdote is all you need to know about central bankers... Powell and the Fed sure could have prepared a bit better for the possible scenarios, like inflation. This isn't complicated neurosurgery. We're talking about supply and demand. Maybe considering these possibilities is important when you're in charge of monetary policy for the biggest economy in the world. The Fed employs more than 400 Ph.D. economists. Perhaps before shooting new money from a digital firehouse and bringing the Fed's balance sheet to near $9 trillion, the central bank could have tried out a more complete model. Instead, an insular group of so-called experts said the status quo was fine. That's called groupthink, Jerome... From the early days of the pandemic, I'd already heard the mainstream media talking about supply issues... how they needed to be considered by everyone, policymakers included... and how they might take a long, long time to resolve. And in the Digest, I started covering this topic way back on February 27, 2020... The virus has disrupted normal supply and demand across many industries already. Our colleague Dan Ferris addressed the topic in more detail the very next day. He cited warnings from a former Goldman Sachs (GS) partner that monetary policy couldn't do much about companies' pandemic-related earnings struggles. As Dan wrote... [This] could blindside millions of investors, as well as confound central bankers who believe they have the power to fix anything. My point is, the supply-side issues were a known threat to experienced investors. What's more, at this time last year, inflation was already on the rise to unusual levels. Instead of merely poring over the outlooks of "professional forecasters," maybe Powell should have listened to independent folks like us at Stansberry Research... The value of independent thinking... For example, we wrote on July 1 of last year about "safe" government bonds, which traditionally are a big part of millions of people's retirement accounts. In that Digest, Dr. David "Doc" Eifrig shared a warning about these bonds... It doesn't take much to see the problem... A 10-year U.S. Treasury note pays a 1.5% yield today, while a 30-year U.S. Treasury bond will pay 2.1%. If the Federal Reserve's "official" inflation numbers are running higher than that (around 4% year over year, as of May)... and many prices elsewhere are rising by greater rates... on balance, you're losing money by owning "safe" bonds. If 40% of a portfolio is dedicated to a low-return asset class that won't keep up with inflation, it's the opposite of safe. They're going to drain your retirement account and purchasing power... before the government does anything about it, if at all. Inflation also presented a big risk for stocks, Doc said, with valuations rarely higher in recorded history. We shared a similar warning about the threat of inflation on businesses' balance sheets – from our colleague Mike DiBiase – later that month, too, on July 11... (On a related note, you will hear an update from Mike in a guest essay here tomorrow.) And here's what I wrote in the June 1, 2021 Digest in an essay called "A Trip Around Inflation Nation"... Everywhere we look – or everywhere we go to buy something – we notice another shortage. It started with microchips, one of the most in-demand goods in the world. Now, we're talking about paint cans. Would the environment look the same without more than $850 billion of direct payments to Americans over the past 14 months... record-low mortgage rates in the housing market... and unemployment benefits that, in many cases, pay people more money not to work than to work? It's hard to imagine it would... With more than half of the U.S. population having received at least one dose of the COVID-19 vaccine, a lot of what we see in today's environment now lays squarely at the feet of the Federal Reserve and those who make up fiscal policy, too. We're clearly in overkill stimulus territory now – where it looks like the only result of more short-term stimulus is the failure to solve long-running, deep-seated economic problems rather than jump-starting an efficient economy. In June 2021, monthly year-over-year inflation as measured by the Consumer Price Index ("CPI") was 5.4%... up from 1.4% at the end of 2020... You didn't need to be a "professional forecaster" to see that. In fact, you'd be better off if you weren't... You probably saw prices going up everywhere but paychecks staying about the same (or, if they did rise, still not keeping up with the rise in prices). That's the impact of inflation. The trend was higher costs... That would have been the time for the Fed to act on inflation, before this year's near-double-digit CPI increases. Like a little bit of, "Hey, maybe we don't know what's going to happen here, let's cool some growth." That's why Doc came out with his alternative to the conventional 60/40 stock-bond portfolio. He thought high inflation was going to take many folks by surprise and send bonds lower along with stocks in the years ahead. If the Fed did anything at all at this time last year, even trimming some of its asset purchases (bonds and mortgage-backed securities), it would have helped. The real estate market definitely wouldn't have overheated so much... and the economy would have had a better shot at central bankers' desired "soft landing" today. Instead, with inflation already at 15-year highs (now it's the highest in four decades), the Fed kept interest rates near zero for eight more months... with stocks going higher and higher. Worse, the central bank kept throwing new money into the economy via its balance sheet until March of this year. The bubble got bigger. By October 2021, the year-over-year CPI growth was above 6%... Today, it's closer to 9% – and prices of many individual items are much higher year over year... We're now supposed to believe these are the same people who'll save the economy from a recession? I hate to belabor my criticism of central bankers in high places (I really do), but unfortunately what they do is oftentimes a risk that we must consider in the markets... They need to be pointed out... The more I hear Powell speak, the more I wonder how he actually believes what he's saying. Two words for the Fed: Do better... There's too much at stake. "We the People" – you know, the people you've never met and don't even know who you are – need a central bank that acts as if it understands its own power and how it can help or, more often, wreck people's everyday lives. We won't hold our breath for better performance... Hope is not a good strategy in any endeavor. Instead, we'll keep on with our work to prepare folks for the possible outcomes. We'll read between the lines of what the Fed is saying... share what it can and cannot do... and evaluate what its decisions or indecisions might mean for your portfolio. Boy, those couple of minutes got me fired up. Switching gears to news out of Russia... Earlier this week, Russia defaulted on its foreign debt... The country failed to pay around $100 million in interest on two bonds within a customary 30-day grace period, which expired on Sunday. The last time Russia defaulted was in 1918, when the Bolsheviks made a political statement by disavowing the country's external debt. That's the historical note you'll see and read about most elsewhere... But Russia defaulted on local – that is, ruble-denominated – debt much more recently. In August 1998, the country couldn't pay interest on its domestic government bonds (rather than its dollar-denominated sovereign bonds that are in the news today), and the $40 billion local-bond market collapsed. At the time, our international editor Kim Iskyan was working for an investment bank in Moscow. Today, he's sharing his firsthand account of the Russian default of 1998 and how it compares with today... Here's Kim with the story... The investment bank I (Kim Iskyan) was working for was making a killing in part by selling local bonds to international investors, who were enticed by the triple-digit bond yields offered in Russian government bonds. The Russian bond market had devolved into a kind of state-sponsored Ponzi scheme. The government was so desperate to raise money from Peter to pay Paul, it offered to pay back to investors more than twice as much as it was lending. When markets are demanding rates of 200%, it means that a country's economy is completely broken. And Russia's was... Its international reserves amounted to pocket change. And the country was generating almost nothing in foreign exchange because the price of oil – the blood and oxygen of the Russian economy – had fallen to a generational low of $11 per barrel. Nobody could pay anyone else because there was so little trust in the entire financial system. It was the economic equivalent of a person going into a coma. Meanwhile, the government was asleep at the wheel... The definition of a good day for Russian President Boris Yeltsin was staying upright until evening and dodging a cardiac event. Just three days before the country's currency devalued on August 17, 1998 – precipitating the bond default – Yeltsin announced... There will be no devaluation – that's firm and definite... I'm not simply fantasizing. Everything has been calculated. Every day, work is done to control the situation in this area. Afterward, the government was in such disarray that it blew through three prime ministers within a year, before a largely unknown former spy named Vladimir Putin took on the post. The ruble went into freefall... In August 1998, the currency fell from around 6 to the dollar to 15 (it hit a low of around 140 to the dollar earlier this year). Before long, the bank where I was working got so desperate, it started selling boardroom tables in an effort to raise cash. Take a look at this companywide e-mail I saved from early 1999... Needless to say, bonuses at that bank that year were meager. Here's another keeper from my old inbox... This counterparty didn't have cash, but it offered an airplane – yes, an airplane – as an alternative... if the bank could liquidate it. (If you're not familiar with 1970s Soviet passenger jets... a Yak-42 is not an airplane you'd ever fly on if you had a choice.) This was also before the technology existed to automatically reprice goods on store shelves. That meant quick shoppers could score some great bargains – in dollar terms, at least – in the hours and days after the music stopped for Russia's ruble. And over the next few months, sales of cars and refrigerators exploded, as Russians holding rapidly devaluing rubles scrambled to spend them on goods that would do a better job of retaining value. Russia's bond default sparked a wave of volatility through global markets, too. Bond spreads jumped, and liquidity dried up as investors shied away from risk. The biggest casualty of this was the near collapse of the Long-Term Capital Management hedge fund and, with it, a feared chain reaction throughout the markets. This fund was run by a bunch of supposedly smart people with Nobel prizes... but they allowed themselves to fall victim to one of the most basic investing mistakes: borrowing too much. The Federal Reserve arranged a bailout of the fund, and a far bigger calamity for global markets was averted. I share these examples so you can see the crazy fallout that can happen in a default... Now, though, Russia's default is hardly causing a ripple... Today's default is quite different from 1998's in multiple ways. For one thing, it has been clear for weeks that this default would happen, and most investors holding Russian stocks and bonds have long since written down their value. What's more, Russia could easily pay the bond coupons that are due many times over... Despite sanctions stemming from the Russian invasion of Ukraine, Russia's economy is getting by just fine on its revenues from oil and gas exports. But sanctions have locked Russia out of the global payment system – and thus it isn't able to transfer the bond payments. It's kind of like standing in front of your bank with a fistful of cash to make a mortgage payment – but the burly security guy won't let you enter the building to give the cash to the teller. Even though you can pay, you miss your payment. Russia has offered to make the bond payment in rubles... but investors don't want rubles – and in any case, the terms of the bond call for repayment in dollars, not another currency. Just a few weeks ago, though, my former employer announced that it would be shuttering most of its operations... It survived the 1998 currency devaluation, along with the global financial crisis of 2008 to 2009 – which actually hit Russia harder than any other major world economy. But it turns out, being locked out of the global financial infrastructure makes it difficult to run a financial institution focused on international capital. Selling off office furniture won't help this time around. Finally today, Eric Wade answers concerns from another crypto skeptic... Yesterday, our Crypto Capital editor Eric Wade responded to one reader's concerns about investing in cryptocurrencies. Today, we'll wrap things up with Eric's response to another note we received following his pair of Masters Series essays over the weekend. Howard G. wrote in... I don't see any mention about how the Fed would manage the U.S. economy if crypto became the common currency. Using money supply and interest rates would no longer be viable tools, right? So would the U.S. government allow that to happen? You acknowledge hacking happens. So if I hold my crypto key offline, but the system my wallet relies on is hacked, couldn't my coins disappear anyway? I think the vast majority of investors don't understand crypto and alt coins and the realization that there is really nothing of intrinsic value there, just empty promises by the promoters. Just popular excitement, which seems to mirror the Dutch tulip fad. Thanks for your views and research. Here is Eric's reply in full... Covering all the bases... Thank you for your letter. Am I (Eric Wade) to understand your point to be that we shouldn't consider crypto because it would hamper the Fed... and, uh... we don't want to do that? Not to belabor the point, but are you completely pleased with how the Fed is "managing" the U.S. economy now? I sure hope the sincerity with which I am asking this comes through, because I'm trying to understand if you really mean this. Assuming you do, then maybe we can meet in the middle and speculate that the Fed can do an even better job if it has some competition driving it to be the best it can be. I will agree with you that the vast majority of investors don't understand crypto. But that doesn't mean crypto has no value for those who do. And as for "nothing of intrinsic value" – that critique is leveled against crypto all the time. I guess I'd challenge you to define "intrinsic." Bitcoin powers the most powerful decentralized computer network ever built. Ethereum is a global virtual computer that literally anyone can interact with. Basic Attention Token is helping millions of people take back control of some of their personal data. One last point that I actually agree with you on: the Dutch tulip mania... as long as what concerns you is human investor mentality. We're all smart enough to know the tulips themselves were passive participants. Sure, cryptos have had some Semper Augustus moments, but that's not an indictment of the technological advancements we're receiving as a benefit. | | | | Our Biggest Event of the Year Want to hear and see our Stansberry Research editors and analysts – in person? Here's your chance. There's no better place than our annual Stansberry Research conference, which we're hosting this year on October 24 and 25 at the luxurious Encore Harbor resort in Boston, Massachusetts... In addition to hearing from a lineup of your favorite editors, including Dr. Steve Sjuggerud, Dr. David "Doc" Eifrig, Dan Ferris, and Eric Wade, you'll have the chance to hear exclusive stock recommendations and market insight from a host of special guests... including Scott Galloway, the popular professor of marketing at New York University's Stern School of Business. Tickets are already selling fast, so make sure to reserve your spot today... Click here for more details and to see our entire speaker lineup. 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New 52-week highs (as of 6/28/22): None. In today's mailbag, feedback on Crypto Capital editor Eric Wade's comments in yesterday's Digest... Do you have thoughts you want to share? As always, e-mail your notes to feedback@stansberryresearch.com. "Thoroughly impressed at [Eric's] response [yesterday]! That's why I'm a subscriber to Crypto Capital. The guy is simply brilliant! I started subscribing in November 2020, and I am currently down about 20%. But I'm not worried whatsoever. I'm a long-term holder and have no doubt blockchain is the future. Anyone who ignores Eric's wisdom is a fool." – Paid-up subscriber Rob B. All the best, Corey McLaughlin with Kim Iskyan and Eric Wade
Baltimore and Olney, Maryland and Southern California
June 29, 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 | 916.6% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 787.3% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data | 10/09/08 | 759.2% | Extreme Value | Ferris | HSY
Hershey | 12/07/07 | 516.9% | Stansberry's Investment Advisory | Porter | AFG
American Financial | 10/12/12 | 432.6% | Stansberry's Investment Advisory | Porter | ETH/USD
Ethereum | 02/21/20 | 429.1% | Stansberry Innovations Report | Wade | BRK.B
Berkshire Hathaway | 04/01/09 | 385.6% | Retirement Millionaire | Doc | FSMEX
Fidelity Sel Med | 09/03/08 | 288.7% | Retirement Millionaire | Doc | NTLA
Intellia Therapeutics | 12/19/19 | 270.3% | Stansberry Innovations Report | Engel | ALS-T
Altius Minerals | 02/16/09 | 268.4% | Extreme Value | Ferris | 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 | | 3 | Stansberry's Investment Advisory | Porter | | 2 | Extreme Value | Ferris | | 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 | ONE-USD
Harmony | 12/16/19 | 1,163.7% | Crypto Capital | Wade | POLY/USD
Polymath | 05/19/20 | 1,064.0% | Crypto Capital | Wade | ETH/USD
Ethereum | 12/07/18 | 1,052.6% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 756.9% | Crypto Capital | Wade | TONE/USD
TE-FOOD | 12/17/19 | 479.5% | 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%. | 
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