The White House's spin cycle... The metric system doesn't feel right... Seven words versus four paragraphs... 'Sparkling poverty' stinks just as much... The difference between 'constrained' and 'unconstrained' visions... Playing God with your money... Beware the Fed...
 If you're sick of hearing about recessions, just stop reading right now...
Today's Digest mentions the word "recession" roughly 20 times. And I don't want to ruin your weekend. But if you're like most folks, you probably still can't figure out whether we're in one or not. So if that describes you, then I (Dan Ferris) have the perfect Digest for you... The latest recession talk ratcheted up a little over a week ago... Last Thursday, July 21, the White House published a blog post on the topic. And my colleague Corey McLaughlin broke everything down in Monday's Digest. The White House began the blog post with the common definition of a recession – two quarters of falling real gross domestic product ("GDP"). But then, the spin cycle started... The blog post quickly jumped to the point that we're not likely in a recession even if the common definition is met. (And for the record, that happened yesterday when the latest official data showed a 0.9% contraction in U.S. GDP during the second quarter.) As Corey pointed out, U.S. Treasury Secretary Janet Yellen chimed in recently. The former Federal Reserve chair also said we should ignore the definition of a recession. From there, the White House's spin cycle kicked into overdrive... President Joe Biden added to the noise. Fresh off a bout with COVID-19, he boldly proclaimed on Monday, "We're not going to be in a recession." White House economic adviser Brian Deese told CNN on Monday that debates about the definition of a recession aren't necessary. I agree. But then, he lost me with more spin... Deese tried to justify his claim by saying we've never had a recession when the economy was "creating 400,000 jobs [per month]" as it did during the second quarter. But the definition of a recession doesn't say anything about "job creation." So you can't wish it away simply by citing job creation. It was a clear attempt to front-run yesterday's news that we're now in a 'common definition' recession... Gee, it's almost like these political officials knew it and couldn't accept it. So instead of trying to fix it, they did the only thing they know how to do... They tried to gaslight us into believing otherwise. They simply played with words while millions of Americans pulled their belts tighter and braced for whatever comes next. Before we go any further, let's get something straight... The common definition of a recession as a contraction in real GDP lasting at least two quarters is arbitrary. I'm not arguing with that point. First of all, why measure it in quarters? Why not days, weeks, or months? The obvious answer is because the government reports GDP growth quarterly. So it's easy to analyze the data that way. But why two quarters? Why not one or three? After all, if it were three quarters, it would be easier for all the blathering government cronies to deny we're in one for longer. I'm honestly not sure how the two-quarter definition came about. But it's here. It's far from perfect. And yet, it's widely accepted and easy to understand. Widely accepted, (usually) simple definitions are mostly better than new, complicated ones... Simple definitions become commonly accepted for a reason. But it's not what you might think... It's not just because they're simple to understand. The real reason matters less than their simplicity and ease of use, which generally helps them gain widespread acceptance. Author Nassim Taleb covered this point in his must-read 2012 book, Antifragile. He advocated for accepted traditional definitions by comparing traditional weights and measures with the metric system... [N]aturally born weights have a logic to them: we use feet, miles, pounds, inches, furlongs, stones (in Britain) because these are remarkably intuitive and we can use them with a minimal expenditure of cognitive effort – and all cultures seem to have similar measurements with some physical correspondence to the everyday. A meter does not match anything; a foot does. I can imagine the meaning of "thirty feet" with minimal effort. A mile, from the Latin milia passum, is a thousand paces. Taleb similarly explains the origins of other measurements – like the stone, inch, furlong, and pound. And finally, he concludes... There is a certain nonrandomness to how these units came to be in an ancestral environment – and the digital system itself comes from the correspondence to the ten fingers. In other words, measurements based on everyday experiences are easily and widely adopted. If it isn't based on something in our daily lives, it's harder to accept... For example, the meter of the metric system was originally based on the shortest distance from the North Pole to the equator. That isn't part of anyone's culture or everyday experience. Sure, the meter has lasted as a unit of measurement for hundreds of years. But it will never feel as right to us humans as a foot or yard does. They're more recognizable. (I can hear the keyboard cowboys already. They're pounding away about how I'm just an ignorant American. And they'll tell me how much more efficient the metric system is... while failing to acknowledge the efficiency of a simple metric that achieves widespread use.) OK, it's reasonable to ask at this point... Whose everyday experience led to the traditional definition of a recession? Again, I don't know. But quarterly reporting has been around for a long time. That's good enough for me. The fact that the common definition is simple and widely accepted is all I need to know about it. Frankly, the government making it more complex than needed is suspicious. And it feels like a prelude to manipulation for political purposes. If you don't believe me, just look at the amount of space in the White House blog post devoted to two different concepts... The common definition took seven words, "two consecutive quarters of falling real GDP." The National Bureau of Economic Research ("NBER") occupied four of the remaining seven paragraphs. Now, tell me again how four paragraphs are more useful than seven words? And really, what else do you need to know? It's like this Internet meme I saw earlier this week...  Imagine if the White House said something like that. But like Juliet might've said to Romeo, "That which we call a steaming pile by any other name would still stink up the place just as much." As often happens, what was not said is more important than what was said... Nobody in the government or at the Fed is talking about real families suffering. These folks are paying a lot more for rent, food, fuel, and basically everything else than this time last year. Instead, our elected representatives and their allegedly brilliant appointees are playing word games with definitions. Does that seem like the best use of our tax dollars? More people need to learn about "Wittgenstein's ruler." Then, maybe politicians would lose some of their ability to make up convenient stories... Wittgenstein's ruler is another idea from Taleb. It's named for Austrian philosopher Ludwig Wittgenstein. From Taleb's book Fooled by Randomness... This mechanism I also call Wittgenstein's ruler: Unless you have confidence in the ruler's reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler. The less you trust the ruler's reliability... the more information you are getting about the ruler and the less about the table. Economics is especially vulnerable to Wittgenstein's ruler... Economists less often measure reality. Rather, they're measured by reality for making bad predictions. Researchers Spyros Makridakis and Michele Hibon published a paper about economic forecasting methods in 1979. In the paper, they explained... Simpler methods perform well in comparison to the more complex and statistically sophisticated [methods]. Then, Makridakis and Hibon ran a series of five economic forecasting competitions over the next several decades. After the third one, which ended in 1999, they said... Statistically sophisticated or complex methods do not necessarily provide more accurate forecasts than simpler ones. So the more economists use their convoluted methods to make predictions that never come true... the more you know they're on the wrong side of Wittgenstein's ruler. Just days before the country goes into a recession by the most accepted measuring stick, the political class comes out in full force to try to tell you the measuring stick doesn't work. That seems like more than a coincidence. But the problem is... It's all too clear that they aren't measuring reality. Reality is measuring them. And reality finds them lacking in anything needed to solve our collective woes. Politically motivated, recession-focused word salad is symptomatic of a greater problem... The government and the Fed don't understand (or care?) that it's impossible to manage, tweak, and otherwise control a hopelessly complex, $24 trillion economy from the top down through a set of crude price manipulations that would get anybody else thrown in jail. And we as Americans have no choice. We're forced to live with the often painful consequences of their management, tweaks, and control. I've previously asserted this point about the Fed and U.S. government. But now, I've found a new way of thinking about it... I recently started rereading economist Thomas Sowell's book, A Conflict of Visions. The book compares what Sowell calls the "constrained" and "unconstrained" visions of human wisdom and morality. It takes the whole book to make his point. But for the purpose of today's Digest, the following passage will suffice... The two visions differ fundamentally as to the sources of human survival and progress. According to the unconstrained vision, the patterned behavior of society is successful, just and progressive insofar as it reflects the articulated rationality of man in general and of the most intellectually and morally advanced people in particular. Order – and especially a just and progressive order – is the result of design, backed by the commitment of people dedicated to the general welfare... In the constrained vision, where man – individually and collectively – lacks both the intellectual and moral prerequisites for such deliberate, comprehensive planning, order evolves historically without design, and more effectively than when it is designed. The constrained vision sees man's wisdom and morality as limited... On the other hand, the unconstrained vision sees no limits. And it emphasizes experts' ability to take control of others and generate optimal (or perhaps "utopian") outcomes. Those folks with unconstrained vision believe deeply in their (and no one else's) ability to manage society from the top down due to their moral and technical superiority. It seems like Sowell could be talking about the Fed and the government when he says... Given the constrained vision of man's wisdom and morality, he cannot successfully prescribe results but can only initiate processes, whose consequences are often the direct opposite of his intentions. Unconstrained visionaries believe they can control financial markets and whole economies. And they think they can achieve better results than if those markets and economies were left alone. The constrained folks – whose 18th-century forebears, the physiocrats, invented the term "laissez faire" – know that nobody can design or control a $24 trillion economy. And they know that all attempts to do so will backfire badly. Humans don't build markets and economies. Markets and economies emerge out of other intentions. When humans purport to design and control them, we become hubris-addled idiots and generally fail. The unconstrained visionaries find problems everywhere. And they believe they're the only ones with solutions. Constrained visionaries accept the limits of humanity. They understand there are no solutions, only trade-offs with different costs. These two visions are coming to a head on many fronts in our society today... The Fed kept saying it wanted higher inflation, never acknowledging that higher inflation would mean untold suffering for millions of families. The government, aided by the Fed, pursued the insane policies that generated inflation that eclipses 9%. Now, the Fed claims to want less inflation... not acknowledging that it will likely add insult to injury if it's effective. And it will likely crush the twin sources of wealth that sit at the heart of much economic activity – home equity and stocks. The problem isn't rising or falling interest rates – or even rising and falling inflation. It's that some humans insist on seizing the levers of power so they can play God. They distort market signals, making it harder for businesspeople and investors to allocate capital. We quoted billionaire investor Stanley Druckenmiller on how the Fed has distorted bond market signals in our July 8 Digest. As he recently said at the Sohn Investment Conference... Unfortunately, the last 10 [or] 11 years, the bond market has not signaled anything because the central banks took it upon themselves to manipulate bond prices... The 10-year Treasury is the most important price in the world and they took that price out of the equation as a signal. I remember last summer, when certain forecasters who had a different forecast than my own, kept talking about, "Well the bond market is saying this, the bond market is saying that," when the 10-year [yield] dropped all the way from [1.7%] to [1.15%]... But the bond market wasn't saying anything. What was going on is central banks were buying trillions of dollars [worth of bonds] and manipulating the price of bonds, so there was no signal. And as we concluded, in our own words, that day... In other words... the "most important price in the world" is broken. And therefore, it can no longer be used as a reliable signal by capital allocators. It's easy to see the extent of the Fed's bond market manipulation... The Fed currently holds about $8.4 trillion in U.S. Treasury securities, mortgage-backed securities, and debt of various agencies (including Fannie Mae and Freddie Mac). The combined outstanding total of all three of those markets is about $37 trillion, according to the Securities Industry and Financial Markets Association. That means the Fed owns about 23% of a $37 trillion U.S. bond market. I promise if you buy 23% of a company, market, or anything else... you could push the prices around quite a bit. You couldn't do it forever because nobody can get permanent control of a $37 trillion market. But you could wreak plenty of havoc in a short period. Maybe you think I'm contradicting myself... On one hand, I'm saying the Fed doesn't control markets the way everyone thinks. Then, I'm saying it manipulates bond prices so much that you can't rely on bonds as an economically meaningful signal anymore. It can't be both, can it? Well, let me ask you... If someone poisons you, would you say they were in control of your health? Do you gain control of a car's engine if you pour sugar in the gas tank? Let's not confuse control with the ability to vandalize... All too often, the Fed and government officials are arsonists posing as firemen. People praise the Fed when it shows up after the fire is raging. But they seem to forget that the Fed has been there all along – and in fact, it lit the match that started the blaze. This idea helps market participants maintain the delusion that the Fed and the government make asset prices and economic activity do what they want. But it's not in control. I hope that is painfully obvious by now. The self-directed creation and growth of whole markets and economies over time is unfathomably greater than that of destruction. Never infer that anyone can manage, tweak, or otherwise control something just because they can manipulate, distort, or destroy it. Investors today show no signs of getting any of this, though. They've responded to the Fed's latest announcement with a panicky round of buying. They believe the Fed knows what it's doing, will soon have inflation in hand, and will save them once again. I believe the opposite... The more it looks like the Fed knows what it's doing, the more vulnerable investors are to its ultimately distorting and destructive effects. The many 'peak inflation' calls seem especially wrong-headed... Inflation is a far stickier phenomenon than the stock and bond markets currently reflect. It's a dragon. And dragons aren't slayed with baby steps (hat tip to macro investor Alf Peccatiello for the imagery). Many investors like to talk about not fighting the Fed. But I say... Beware the Fed. More importantly, as I often help you understand here in the Digest, it's critical to prepare your portfolio for a wide range of outcomes. That includes much more volatility over the next decade than we've had over the previous one. Stay cautious. Don't get confused with worrying whether we're in a recession or not. The government's word salad and spin cycle are meant to misdirect reality. But don't fall for it... Keep holding a diversified portfolio. That includes plenty of cash, gold and silver, and the equities of the best businesses. They're more likely to fare well (or at least not too much worse) during difficult times like what we're in today – official recession or not. No matter how wonderful the recent rally feels, we're not out of trouble yet.
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New 52-week highs (as of 7/28/22): Booz Allen Hamilton (BAH), Option Care Health (OPCH), and Texas Pacific Land (TPL). Our inbox is full with your feedback on the "Inflation Reduction Act" and the changing definition of a recession. We'll share some of your replies today. And we'll continue with other responses next week. In the meantime, keep sending your thoughts to feedback@stansberryresearch.com. "On the nose. Excessive spending caused present inflation. What is the definition of insane? Spend some more. By the way, we'll pay for that by increasing corporate taxes and spending more to bolster IRS's enforcement capability. "Isn't high corporate taxes what drove jobs overseas? The Fed had to start jacking up interest rates to try to compensate for the effects of previous spending bills. Will the fix for this inflationary anti-inflation bill be economy-crashing interest rates? "It is certain that Schumer and Manchin know nothing of economics." – Paid-up subscriber R.P. "I believe the problem is even worse than you make it out to be. "First, let's make a simple statement of what money is. It can be defined as a proxy of value, necessary to consummate a barter agreement. All taxes we pay are generated by providing value, either to a customer or to an employer. "However the government spends more money than it takes in. That must be made up by issuing debt of which there is so much it cannot be paid back. "Thus, the government is paying out dollars that do not exist. That is, they have no value, since they exceed the amount paid in taxes. "That is a debasement of the value of the dollar, which is the definition of inflation... The bill promotes, not reduces, inflation." – Paid-up subscriber Norm R. "The proponents of this spending have the financial acumen of a potato." – Paid-up subscriber Norman E. "Yellen, Powell, et al. aren't stupid. They certainly must know that eventually someone is going to have to do a Volcker. Of course, they also know that the Democrats are almost certainly going to be creamed in 2022 and 2024. Maybe someone is thinking that it should be the 'other side' that takes the hit for doing the Volcker." – Paid-up subscriber Edward S. "I couldn't agree more with your post. Sadly both matters are evidence of what's wrong in Washington and frankly the country. It's all spin and zero truth. There's no accountability either. Where is the press?" – Paid-up subscriber Mike F. "You can't reduce inflation by pumping more money into the system. Stop unnecessary spending and tighten the belts. It's time to push away from Uncle Sam's table." – Paid-up subscriber Bruce A. Good investing, Dan Ferris
Eagle Point, Oregon
July 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 | 990.5% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 852.1% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data | 10/09/08 | 842.5% | Extreme Value | Ferris | ETH/USD
Ethereum | 02/21/20 | 604.2% | Stansberry Innovations Report | Wade | HSY
Hershey | 12/07/07 | 531.4% | Stansberry's Investment Advisory | Porter | BRK.B
Berkshire Hathaway | 04/01/09 | 421.1% | Retirement Millionaire | Doc | AFG
American Financial | 10/12/12 | 418.0% | Stansberry's Investment Advisory | Porter | WRB
W.R. Berkley | 03/16/12 | 341.1% | Stansberry's Investment Advisory | Porter | NTLA
Intellia Therapeutics | 12/19/19 | 314.3% | Stansberry Innovations Report | Engel | FSMEX
Fidelity Sel Med | 09/03/08 | 305.2% | 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 | | 3 | Retirement Millionaire | Doc | | 4 | Stansberry's Investment Advisory | Porter | | 1 | 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 | ETH/USD
Ethereum | 12/07/18 | 1,374.0% | Crypto Capital | Wade | ONE-USD
Harmony | 12/16/19 | 1,193.1% | Crypto Capital | Wade | POLY/USD
Polymath | 05/19/20 | 1,069.1% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 873.9% | Crypto Capital | Wade | BTC/USD
Bitcoin | 11/27/18 | 534.7% | 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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