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What our subscribers are reading today

The Worst Bear Market on Earth

Feb 20, 2024 | Stansberry Digest | Corey McLaughlin

Who has it worse?... The world's worst bear market... The Chinese government
cries uncle... A big interest-rate cut... Recessions in the U.K. and Japan...
Central bankers are all the same eventually... Greg Diamond on Nvidia and
more...

--------------------------------------------------------------------------------


SINCE THEY STOPPED REPORTING THE NUMBERS...

I (Corey McLaughlin) am going to presume that China's youth-unemployment rate is
still above 20%, which is what it was last June. That's when the country's
communist government stopped reporting the ugly numbers, a clear sign of an
economy in distress...

Since then, the world's second-largest economy has continued to go through its
share of struggles following its extended pandemic lockdowns.

Foreign investment from Western financial institutions has decreased...
Once-mighty real estate developers still can't fill "ghost towns"... And as we
wrote in December, the Chinese economy has been seeing widespread deflation for
years as measured by its consumer price index ("CPI")...

> Since the start of 2020, China has seen 4.7% deflation, based on CPI data.
> It's the only country in the world where deflation is occurring, and the trend
> is ongoing.

A few months later, it's the same story. China's CPI in January rose 0.3% versus
December, but it was down 0.8% versus a year ago. That might sound good for
people with a budget, but for a system reliant on fiat currency and central
bankers, deflation is the most feared of the 'flations.

Take China's producer price index ("PPI"), for example. This index reflects
costs taken on by businesses, and indirectly is a sign of profit potential. It
has been showing annualized deflation for 16 straight months dating to September
2022.


THIS IS ALL RECESSIONARY AND POSSIBLY DEPRESSIONARY...

As I wrote in December, in an understatement...

> Deflation is typically "bad news" for stocks in general as lower prices begin
> and then persist in an economy. It's what happened for seven consecutive years
> leading up to what became known as The Great Depression.
> 
> And it happened in a handful of other more narrow periods in the 1940s and
> '50s, and then in the Great Recession 15 years ago.

As Stansberry Research senior analyst Brett Eversole wrote in the latest issue
of the True Wealth newsletter, stocks sure have been behaving like investors are
depressed...

> The overall Chinese stock market is down nearly 60% over the past three years.
> And the technology sector is down around 75%. Take a look...

Going back even a little further, since 2019, Chinese stocks have returned just
10%. For comparison, U.S. stocks have returned 88% in the same period.

And since Chinese PPI deflation began 16 months ago, the Shanghai Composite
Index is essentially flat and has been trending down... toward the key multiyear
low from March 2020 when the pandemic took off.

Despite all this, China's economy allegedly grew by 5% in 2023... if you take
the Chinese data with no grains of salt. But the government admitted that real
estate activity and investment were down by around 10% late into the year.

And we hadn't seen an emphatic "rescue" policy response out of the Chinese
government to stem what Brett describes as the worst bear market on the planet.
We so often see government interventions here in the U.S. and other nations...
And they can boost stock prices.


FINALLY, THE GOVERNMENT IN BEIJING LOOKS LIKE IT'S CRYING UNCLE...

On Tuesday morning in China, the People's Bank of China announced it was cutting
its key five-year interest rate – the peg for most mortgages – by 25 basis
points to 3.95%. That may not sound like a lot, but consensus expectations were
for a 5- or 10-basis-point cut.

It's the first time China's central bank has cut the benchmark five-year rate
since June. (It left alone the one-year rate – which most Chinese household and
corporate loans are tied to – at 3.45%, however.) And this could be just the
start of "easier" monetary policy...

Yesterday, the Chinese premier called for "pragmatic and forceful" action to
boost the nation's confidence in the economy. To that report, our Asia-based
analyst Brian Tycangco wrote on X (formerly Twitter)...

> Yes, that's exactly what China needs at this point. Do more things conducive
> to boosting confidence and expectations. Admitting the problem is the first
> step to finding a solution. I'm interested in knowing what Beijing's growth
> targets are for 2024. Could give us a picture of what measures can be
> expected.

We won't hold our breath on seeing that picture, but it would be nice to know
those numbers (and youth unemployment, too).

Maybe you think this is all half a world away and it doesn't matter to your
portfolio... But what happens in China is linked to and perhaps can reflect
trends in much of the rest of the global economy, certainly the leading
economies.

As history tells us, there's also a good argument to be made that a struggling
economy can fuel internal unrest and perhaps fan the flames of war from those in
power. (Here's looking at Chinese officials, looking at Taiwan.)


BUT GET YOUR POLES OUT FOR 'BOTTOM FISHING'...

If you are at all interested in Chinese investments – and I know from hearing
from many of you over the years that you might not be for various reasons...
that's fine – right now is a time to pay attention...

China's government is signaling that more stimulus measures might come. It's
also making notable leadership moves in the financial sector. As Brett explained
in True Wealth last week...

> One of the biggest steps happened last week, when China replaced the head of
> the China Securities Regulatory Commission ("CSRC"). The organization is
> effectively China's version of the U.S. Securities and Exchange Commission
> ("SEC").
> 
> The last CSRC chairman took over in 2019, just before the regulatory crackdown
> began. His successor – Wu Qing – has a history of aggressive regulation as
> well. But it's telling that the former chairman was removed during a market
> plunge. Most view the switch as Beijing acknowledging that it has been too
> aggressive and is shifting toward a less antagonistic stance.
> 
> The second move from Beijing happened last summer. More than two years after
> the death of Ant Group's IPO, the government ended its campaign against the
> company by fining it 7.1 billion yuan. Industry experts see this as Beijing
> bringing its crackdown on tech to a close.
> 
> Regulators announced that "most of the prominent problems in the financial
> business of technology giants have been rectified."

This is a critical turning point, according to Brett. He said things simply
can't get much worse from here in China, which makes for an opportunity to act.
As he shared in True Wealth...

> Chinese stocks have been crashing. Tensions with the U.S. have been rising.
> Practically everyone hates the idea of putting money to work in this part of
> the world. But as far as I'm concerned...
> 
> We're watching a "blood in the streets" moment for Chinese stocks right now.
> 
> You've almost certainly heard the famous quote, "The time to buy is when
> there's blood in the streets." It means that just when things seem like they
> can't get worse, they stop getting worse... And that's when you want to put
> money to work.

In the latest issue of True Wealth, Brett details much more about recent
developments in the Chinese economy and stocks. And he recommends a "one click"
investment opportunity that limits downside and offers a seemingly unbelievable
46% dividend.

That's not a typo. Existing True Wealth subscribers and Stansberry Alliance
members can find the full issue here with the tailwinds Brett sees in China...
the risks involved... and also where else he suggests being invested now.


RECESSION WATCH AND REALITY...

Last week, the U.K. and Japanese governments reported GDP data confirming
ongoing recessions, with two straight quarters of declining growth...

Curiously, the global and U.S. financial media was quick to report on the idea
that these nations were in a recession based on the conventional definition. But
when the U.S. experienced six months of declining growth at the start of 2022,
the definition somehow didn't apply.

Anyway, much like in China, monetary policymakers in the U.K. are already
signaling that they're ready to step in for a rescue, even if it means allowing
higher inflation.

Just today, Bank of England head Andrew Bailey in talking to the U.K. parliament
put a positive spin on the U.K. economy, which grew by a measly 0.5% in 2023.
But he also signaled that interest-rate cuts could be ahead even if inflation
doesn't get to a 2% target. Bailey said...

> We don't need inflation to come back to target before we cut interest rates, I
> must be very clear on that, that's not necessary.

Japan is, for now, considering going the other way, as it continues to weigh
higher inflation risks, its current negative-interest-rate policy, a currency
that's depreciating against the dollar, and now recession.

So far, the Fed here in the U.S. has been publicly more resolute about fighting
inflation. But if signs of recession emerge in the U.S., I'm willing to bet
Federal Reserve Chair Jerome Powell will act materially similar to Andrew Bailey
and the People's Bank of China.


AFTER ALL, DEFLATION SCARES CENTRAL BANKERS MORE THAN INFLATION...

As I wrote in December, in the U.S., the rare deflationary times got scary
enough for central bankers that they tended to make moves to reverse the trend.
Whether it's through cutting interest rates or employing whatever newfangled
money-printing or stimulus plan they could come up with, they'll do something.

This appears to be what central bankers around the world are on track to do
today.

Alternatively, the pace of inflation could just keep running higher, like it has
the past few months in the U.S. In that case, interest rates could stay higher
for longer... which comes with its own set of challenges.

As I wrote earlier this month, when talking about Powell and the Fed's messaging
that rate cuts are coming, it's just a matter of the timing...

> If everything is going so great with the economy, you might be wondering why
> the Fed doesn't just keep rates where they are instead of cutting them.
> 
> This might be part of your answer... Consider the nearly $9 trillion in
> government debt (of $34 trillion total) that will mature over the next year.
> Corporate debt, topping $13 trillion, and consumer debt levels are part of the
> calculus, too, as are unrealized losses in bonds (prices trade inversely to
> yields) that banks are sitting on since rates went from near zero to above 5%.
> 
> Add it all up and Powell is interested in lowering debt costs at some point
> this year.

Either way, the value of the U.S. dollar is likely to continue to be among the
biggest losers in the long run.

For much more detail on this part of the story, I suggest you check out a new,
thought-provoking presentation that Dan Ferris recently sat down to record on
camera.

To start things off, Dan makes a bold prediction about November's presidential
election... then he delves into financial history as only he can... turns his
analysis on the current state of the economy... and explains why we could see
another banking crisis soon.

Be sure to check it out here for free... Stansberry Alliance members and Dan's
subscribers have access to these ideas already, but it still might be worth your
time to hear his fresh thoughts on camera.

TAKING STOCK OF THE 'MAGNIFICENT'

In this week's episode of our new Diamond's Edge series, Greg Diamond looks at
the "Magnificent Seven" stocks – including chipmaker Nvidia (NVDA), which
reports quarterly earnings after tomorrow's close. Watch here...




As a Digest reader, you get the first look at Greg's new Diamond's Edge video
each Monday (or Tuesday... on weeks when the markets and our offices take Monday
off).

For more free videos, check out our YouTube page... and, if you're interested in
more research and analysis from Greg, click here for information on how to get
started with a subscription to his Ten Stock Trader advisory.

New 52-week highs (as of 2/16/24): ABB (ABBNY), AbbVie (ABBV), Applied Materials
(AMAT), American Express (AXP), Berkshire Hathaway (BRK-B), Diamondback Energy
(FANG), GEO Group (GEO), Intercontinental Exchange (ICE), Linde (LIN), Eli Lilly
(LLY), Novo Nordisk (NVO), Repligen (RGEN), Sprouts Farmers Market (SFM), Sprott
(SII), Spotify Technology (SPOT), TFI International (TFII), Viper Energy (VNOM),
Waste Management (WM), Walmart (WMT), and Health Care Select Sector SPDR Fund
(XLV).

We hope you enjoyed the long weekend. In today's mailbag, feedback on Dan
Ferris' Friday Digest, which focused on "mega-bubble valuations" in the market
today... Do you have a comment or question? As always, e-mail us at
feedback@stansberryresearch.com.

"Dan: Your Friday column warning of overvaluation and Chauncey Gardiner
investing resonates with me. Every week I see the lengthening 52-week high list
at the bottom of the report and it scares the hell out of me." – Subscriber
Larry B.

"Dan, Great analogy. Thank you. I fear that too many analysts tend to quickly
brush off the risk and reward of market peaks and valleys. Thank you, Greg, Doc,
and Porter for not doing so. Courageous...

"Like many followers, I indeed believe in well diversified high-quality
portfolios. I believe the secret to wealth is 'don't lose money... (repeat)
don't lose money'. And the secret to this rule is all about market 'extremes'
and diversified investing. This even includes taking some profits from high
flyers and buying back in on a 'correction', but certainly includes income and
inflation (in commodities) strategies.

"Thanks again. Great article. Great advice." – Stansberry Alliance member Bill
B.

All the best,

Corey McLaughlin
Baltimore, Maryland
February 20, 2024



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LATEST ARTICLES

--------------------------------------------------------------------------------

This Pharma Company's 'Crown Jewel' Is Up for Grabs

Feb 21, 2024

Editor's note: Many companies are facing big piles of debt that are about to
come due. But according to Joel Litman – founder of our corporate affiliate
Altimetry – that's a good thing for strategic acquirers. In this piece, adapted
from a recent issue of the free Altimetry Daily Authority e-letter, Joel details
one pharmaceutical giant's sacrifice to stay afloat... and explains how
investors stand to gain from moves like these. Bausch Health (BHC) is looking
for a lifeline... The pharmaceutical giant has a staggering amount of debt
coming due. Its problems began when it tried to force growth from 2013 to
2015... buying up competitors and raising the prices of their drugs. Bausch was
still known as Valeant Pharmaceuticals back then. And Valeant's shopping spree
impressed investors... at first. The stock jumped from $47 per share to start
2012... to more than $250 per share before folks noticed how much debt the
company had tacked on. It's still carrying that debt to this day. Total
long-term debt stood at more than $30 billion in 2015. While Bausch has paid
back some of its debt in the intervening years, it still sits at $21.9 billion.
With even more debt coming due soon, Bausch has been racing to fix the
problem... and as I'll explain, investors should be paying close attention.
Bausch is running out of time to get its house in order... We can see this
through our Credit Cash Flow Prime ("CCFP") analysis. The CCFP gives us a more
accurate sense of a company's overall health. It compares financial obligations
against cash positions and expected cash earnings. In the following chart, the
stacked bars represent Bausch's obligations through 2029. This is what it needs
to pay in order to keep the lights on... to prevent the company from collapsing.
We compare these obligations with cash flow (the blue line) and cash on hand at
the beginning of each period (the blue dots). As you can see, starting next
year, Bausch won't have enough cash flow to cover all its obligations... Bausch
is facing a "Wall of Debt" in the coming years. And according to credit-ratings
agency Moody's, over 90% of rated health care providers are in the same boat.
More than half don't have enough cash on hand to deal with it. These companies
are now scrambling to raise enough cash to stave off bankruptcy. Bausch started
with a failed spinoff of its medical-aesthetics business, Solta Medical. The
company announced the spinoff in 2021... but it never materialized. Starting in
2022, recessionary concerns caused a lot of initial public offerings to raise
less than expected. Bausch worried that a Solta spinoff would end the same way.
So it withdrew those plans – and instead, it turned to its Bausch + Lomb (BLCO)
eye-care business. Bausch + Lomb was the company's crown jewel... It's one of
the biggest names in eye care... and eye care itself is a stable, predictable
business. Bausch + Lomb was a huge cash cow for Bausch Health, bringing in
nearly $4 billion in revenue each of the past six years. Bausch was reluctant to
part with it... But it had no choice. So the eye-care business struck out on its
own back in May 2022. And now that Bausch + Lomb is an independent company, any
competitor can scoop it up for cheap. We'll see a lot more setups like Bausch in
the coming months and years... and not only in the health care industry. Faced
with a mountain of debt and nowhere near enough cash, companies will be forced
to sell their top assets. But smart strategic acquirers will snap up these deals
as fast as they can. In the meantime, keep an eye on Bausch + Lomb. One pharma
giant's painful loss might turn into a big gain for investors. Regards, Joel
Litman Editor's note: Joel is "sounding the alarm" today. A hidden crisis is
putting 1 in 3 U.S. stocks in danger... But prepared investors can leverage
events like these to make fantastic gains in one corner of the market – even if
other stocks suffer. That's why Joel recently teamed up with Dr. David Eifrig to
deliver an urgent message. Together, they shared how you can protect your
portfolio from this looming event... and why it could lead to opportunities
you've likely never considered before. Click here to learn the details. Further
Reading Many U.S. companies have debt coming due soon. It's likely some
companies will sell assets to get extra cash on hand. As the wave of obligations
comes due, 2024 could be the "year of divestitures." And this could create a
unique opportunity for investors... Read more here. Businesses that apply
"Kaizen" are great targets for smart investors. This Japanese philosophy is all
about "continuous improvement." Right now, two companies in particular are great
examples of why it pays to embrace forward-thinking strategies... Learn more
here.

Keep reading...

Things Aren't as Rosy as They Seem

Feb 21, 2024

Things don't feel all that great in the U.S... I get a sense of it every time I
stroll into the office and talk to co-workers... or when I hop in an Uber and
start up a conversation with the driver. There's trouble brewing in the economy.
And it's not that hard to see. Let's start with the headlines that keep popping
up day after day... Many big companies are laying off their workers... by the
thousands. Late last month, delivery giant UPS popped up on the news as it
announced it was laying off nearly 12,000 employees to "align resources for
2024." (Whatever that means.) Global bank Citigroup announced it will be cutting
20,000 jobs by 2026. That comes out to about 10% of its workforce.
Payment-processing company PayPal is laying off about 2,500 employees, 9% of its
workforce. Even beauty titan Estée Lauder announced it would shed roughly 3% to
5% of its workforce. We could go on and on... Snap, Zoom, DocuSign, iRobot,
Paramount Global, and Cisco have all announced significant layoffs. We're seeing
the most carnage in the technology sector. The chart below shows that layoffs in
the sector have been picking up steam lately, getting closer to levels seen in
late 2022 and early 2023. Even though the headline unemployment rate is still
historically low at 3.7%, things don't feel all that cheery. With higher
interest rates, families all across the country are feeling the effects. Since
our cash pile from the COVID-19 stimulus checks is mostly gone, folks have
reverted to their old ways... using credit cards. Before the pandemic struck, I
issued multiple warnings about the growing credit card debt in America. We're
starting to see signs of that again. Credit card debt has now surpassed $1
trillion, well above pre-COVID levels. Take a look... Today, the average credit
card balance is a record of $6,360. That's 10% higher than a year ago. Worse,
delinquencies on credit card debt keep rising... The average family is starting
to show signs of pain. Even though most analysts will tell you that our economy
is strong and humming along, there's no doubt cracks have been forming. Aside
from individuals dealing with higher debt, corporate America is also facing
similar issues. Higher interest rates are taking their toll. According to S&P
Global Ratings, the number of companies that defaulted on their debts last year
was 153... That's up from just 85 companies the year before – an 80% surge. In
total, corporate debt has risen by 18% since 2020. This year may be even tougher
for corporate America than last year. And the years to follow may continue to
get worse... You see, my colleague Joel Litman believes we are facing a "Wall of
Debt." And by that, he means many companies' debt piles have become so
exorbitant that there's simply no way they can be expected to service it...
given how much cash they're expected to generate. These companies will
hemorrhage money, employees (we're seeing a lot of that already, as I mentioned
earlier), and assets to try to keep up... and they'll ultimately be forced to
make some incredibly difficult business decisions. Some will be forced into
bankruptcy. It's hard not to agree with Joel on this point... especially when
you do a deep dive into the numbers and see how much debt is coming up for
maturity in the following years. I believe Joel is right about his warning. And
that's why I recently joined Joel on camera to talk about what may happen with
this Wall of Debt. It's scary. If you haven't already, I suggest you watch our
presentation carefully... We talk about ways to protect yourself in the years to
come and how to ultimately come out on top by betting on the right companies –
companies that will take advantage of the coming pain. Click here to watch our
presentation before it is taken offline. What We're Reading... Average credit
card balances jump 10% to a record $6,360, and more consumers fall behind on
payments. Corporate-debt defaults soared 80% in 2023 and could be high again
this year, according to S&P Global. Something different: Walmart inks deal to
acquire TV-maker Vizio. Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research TeamFebruary 21, 2024

Keep reading...

Episode 349: Now Is a Great Time to Be a Bond Investor

Feb 20, 2024

On this week's Stansberry Investor Hour, Dan and Corey welcome fellow Stansberry
Research analyst Mike DiBiase back to the show. Mike is the editor of
Stansberry's Credit Opportunities and senior analyst on Stansberry's Investment
Advisory. He joins the podcast to talk about a potential credit crisis in 2024
and all things corporate bonds. Dan and Corey kick things off by discussing Lyft
shares soaring after a numeric typo in the company's earnings report, market
volatility after the latest consumer price index release, the possibility of
"Volmageddon" 2.0, and the harms of passive investing. When speaking about all
the trouble brewing in the markets today, Dan notes, "Risks don't register until
they happen." Next, Mike joins the conversation and shares his concerns about
the bond market. Specifically, he believes that we're in the early stages of the
next credit crisis. He goes into detail about why we're overdue for such an
event, which specific indicators are signaling turbulent times ahead for the
market, and whether the Federal Reserve could do anything to lessen the
inevitable damage. But as he clarifies... It's not the type of thing that makes
big headlines, so a lot of people that don't follow these closely are not going
to be that aware of them. Mike also analyzes the stock market and how it paints
a bleak picture. As he explains, corporate earnings declined in 2023 even though
many companies had a fantastic year and posted incredible numbers. And despite
this "earnings recession," stocks are still trading at all-time highs... With
all these negative signs I'm seeing, recession indicators are all saying the
same thing: There's going to be a recession. It has never not happened when
these indicators are going off... You have earnings that are contracting and yet
the market is hitting all-time highs. And it was already expensive at the start
of 2023. How much longer can this disconnect go on? Then, Mike covers why he
believes the struggling U.S. consumer is going to usher in the next credit
crisis, how today's market is so similar to 2008's, and why corporate bonds
still make for good investments. Lastly, Mike discusses how this new era of high
interest rates has irreversibly altered the investing landscape that people have
grown accustomed to over the past 40 years. He explains that stocks were the
favored investment when the Fed was keeping rates near zero, but bonds are back
on a more equal playing field thanks to high interest rates... Times have
changed. It's good to be a bond investor now. And I don't think we're ever going
to go back to that world of zero-percent interest rates again... Yes, interest
rates may not be back to the teen and 20% that they were in the early '80s and
late '70s, but they're not going back to zero either. That's a big change that
most people haven't fully grasped yet. Click here or on the image below to start
listening right now. (Additional past episodes are located here.) The transcript
will be on the website soon.

Listen to the episode



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