When the story might change... When will the Fed 'pivot'?... The world's blue chips are hitting new lows... A startling warning from Marc Chaikin... You need a new investing playbook... The 'dollar milkshake theory' creator explains the dollar's behavior today...

Everyone wants to know if or when the Fed will 'pivot'...

Yesterday we talked about "narratives"... and how Federal Reserve Chair Jerome Powell wants to hear them to make sense of all the data the central bank sifts through to make decisions.

Well, as the sun rose on another day this morning, I (Corey McLaughlin) had a thought: Powell should look in the mirror. The biggest narrative driving stocks and bonds today is the story about the Fed itself.

We've beaten this narrative into submission, but only because it matters. And today we have another spin to share on it. In short, our Stansberry NewsWire team recently analyzed when the story might change... and when precisely, to the month, the Fed may really "pivot."

You see, the central bank has been raising its benchmark federal-funds lending rate – making borrowing costs in the economy higher – and is increasingly trimming its massive $9 trillion balance sheet to do what it can to lower 40-year-high inflation.

A lot of folks in the market have been conditioned, especially over the past 15 years, to expect the Fed to step in at the slightest sign of economic weakness with "easier" policies. And they have been disappointed all year long.

Because now, with inflation at nosebleed levels, the Fed is deliberately weakening the economy instead... They're telegraphing higher rates for longer, even with some signs of "peak" inflation already having passed, which will likely cause an undeniable recession in 2023.

The rate hikes so far – from near zero to around 3.25% today, and likely going higher – are already filtering through the economy, notably denting real estate. The average 30-year fixed-rate mortgage now has a 6.3% interest rate, more than double the rate a year ago.

Home prices are starting to rise more slowly after two years of rapid, strong increases... More and more people are putting everyday purchases on credit cards... And many folks are taking on part-time work just to make ends meet.

In the markets, folks are hoping... wishing... even begging for what financial folks call the Fed pivot. In other words, when will the central bank make things easier for businesses and our debt-addicted world again?

The answer, so far, has been not until further notice. Inflation is public enemy No. 1, the Fed repeats. And as the longstanding investing adage goes, it's a bad bet to "fight the Fed."

Eventually, maybe, the Fed will pivot...

We pick things up here with new research from NewsWire editor C. Scott Garliss and analyst Kevin Sanford. They ran some numbers recently, handicapping the possible timing of a Fed policy shift...

You can check out the entirety of Scott and Kevin's research here and here, and I will share the context and highlights here.

Last week during a press conference, Powell said plain as day that the central bank won't consider changing its tune on attacking inflation until its benchmark lending rate is higher than the inflation rate, or until "real" rates are positive...

In other words, that's when Fed-dictated interest rates are weighing on growth, not stimulating it... as could be argued is still the case.

Right now, the annual inflation rate of 8.3% is still about five percentage points higher than the Fed's fed-funds rate range target. That's a big gap to make up, and the Fed has already raised rates higher, faster than during any recent interest-rate cycle.

At the same time, "official" inflation measures like the consumer price index ("CPI") – which we have qualms about as a perfect inflation indicator – may have peaked...

The question is: When do these two rates meet in some economic utopia?...

In our Baltimore office the other day, a group of Stansberry analysts compared this question to a high-school math problem: When does Train A (interest rates) on Track 1 going 20 miles per hour cross Train B (CPI) on Track 2 going 10 miles per hour?

Well, Scott and Kevin recently ran the numbers to try to figure it out... to gauge if or when the Fed might actually "pivot" and reach its 2% inflation target. You may have heard plenty of bloviating opinions on this point, but this is practical research.

First, they made a few different assumptions for the CPI rate moving ahead, or the pace of inflation growth or decline... One was for a slight decline (down 0.1 percentage points from month to month), generous monthly growth (0.5 points), or slight or moderate growth (0.2 and 0.3 points).

Then they plotted out the possible path of "official" inflation data over the next 18 months using these assumptions. For example, a 0.1-point decline in CPI from each prior month would result in 2.3% year-over-year CPI readings by March and deflation in the second half of 2023.

(Without getting too much into the weeds, the headline CPI is an annual comparison, meaning it compares the rate of September 2022 with that of September 2021. What matters in this analysis is the month-to-month change.)

On the other end of the range, a 0.5-percentage-point month-over-month increase in CPI would make for a 6.7% CPI in March... and 6.2% inflation by the end of 2023. In between, 0.2- and 0.3-point monthly CPI growth would make for a roughly 4% or 5% annual inflation rate by March.

After laying out these scenarios, Scott and Kevin plotted these possibilities against the eventual benchmark interest rate of 4.6% for next year that the Fed implied in its economic projections last week. As they wrote...

Here's what all four scenarios look like in comparison with the new implied fed-funds rate...

As we can see in the charts above, policy changes combined with slowing inflation is working... but it will take some time... In other words, in the short and long term, rates must remain high until prices stabilize.

All in all, this shows a variety of possible answers for when Train A (fed-funds rate) might meet or overtake Train B (inflation). A lot depends on the rate of inflation in the second half of this year...

As you can see, if inflation actually decreases month to month, even by a little, "real" rates could turn positive faster than many folks might think... But if monthly inflation grows even modestly, it could be the second quarter of 2023 at the earliest before the concept of a "pivot" becomes a reality.

And if inflation keeps accelerating, the Fed would likely need to keep rates at least where it's projecting today – or maybe even hike them higher next year.

What else matters...

The other big part of this discussion is the jobs market. But right now, the Fed doesn't seem to care all that much about it. It still sees a "hot" market that has near record-low unemployment and millions of job openings that can afford to disappear, at least according to its statistical review.

The other important point to consider is what number the Fed actually uses to gauge inflation when it matters most. It has said in the past that its preferred measure is the core personal consumption expenditures ("PCE") price index, which doesn't include food and energy prices and checks in at 4.6% today.

But Powell has also said CPI matters because that's what people pay attention to – and, of course, ignoring energy and food prices today would just be plain ignorant. So we don't know for sure.

In any case, until we reach a point when enough people think "real" rates are positive or the Fed signals confidence that it's getting closer to this point, the story of the economy and markets today won't change.

In this case, the dollar will keep getting relatively stronger, which is a headwind for stocks... and bond yields should go higher, meaning bond prices go lower. If that sounds like a tough scenario for making money, it can be, though there is at least one silver lining...

Short-term Treasurys are becoming an even better place to park some cash every day. A six-month T-bill, for example, is now offering a nearly 4% annualized interest rate. That yield is more than 7,000% higher than it was a year ago (not a typo).

Simply put, the Fed's position is: "higher rates for longer... deal with it."

In related news...

Let's revisit the Global Dow Index...

Markets were up a little this morning. I was prepared to write something about how to be mindful of "bear market rallies." Then things turned south by midday... which makes it easier to remind folks that the longer-term trend for the U.S. stock indexes is still down.

Same goes for around the world...

Regular readers might note that we shared a look at the Global Dow Index back in July.

This index is a barometer of price action from 150 of the world's bluest of blue-chip stocks. Roughly 40% of the stocks in the index are U.S.-based businesses – like Apple (AAPL), McDonald's (MCD), and Disney (DIS).

The rest of the holdings are blue-chip businesses based in other countries, like French bank BNP Paribas, telecom company China Mobile, and Japan's Nippon Steel. We were looking at this index because, as we explained...

Inflation – the biggest narrative in the market today – is a worldwide issue. It isn't just happening here in the U.S.

With that in mind, when we think about where stock prices could be headed, it's worth zooming out as far as we can go. That's especially true during what has been a confusing time for many people who follow the markets.

At the time we last spoke about the Global Dow Index, it was resting on its 200-week moving average. (Much like a 200-day moving average, this is a good technical indicator of a long-term trend.) And our Ten Stock Trader editor Greg Diamond made note of this point with a simple technical analysis dating back to before the COVID-19 panic.

Greg showed that in the sell-off of late 2018 and into 2019, the Global Dow made a low right at its 200-week moving average... then, during the crash in 2020, this average marked short-term "support" and then "resistance" before taking off higher in 2021. As Greg said...

At a minimum, this average is acting as a short-term inflection point.

Greg was spot-on. From there, the Global Dow rallied to new highs in mid-August... much like the U.S. stock market did. Then these blue-chip stocks started selling off, too.

But here's why we bring this up today: This index is telling us something new.

The world's blue chips have already hit new lows...

And they're going lower...

As we've mentioned lately, in the U.S., the major indexes made their previous lows in June. This is an important marker when thinking about the direction for stocks moving ahead. A lot of savvy market watchers are keeping a close eye on this part of the story.

If the U.S. indexes are above their June lows, that could be considered bullish. But if not, prepare accordingly for more trouble ahead. The story hasn't changed since we discussed it in the August 29 Digest...

As interest-rate and [quantitative-tightening] concerns (and potential unintended consequences) grow, don't be surprised if the major indexes retest their lows from June in the weeks ahead... or make new ones.

And if U.S. stocks dip below previous lows, look out below for longer...

I don't think it's a fleeting coincidence that in the past two days, the S&P 500 Index has traded right at the precise level it was in mid-June.

The U.S. benchmark started to make new lows today by a hair... and certain "growth" stocks are already trading lower than they have previously this year. Social media company/metaverse hopeful Meta Platforms (META) is one. Chipmaker Nvidia (NVDA) is another.

The worthwhile question to think about now is: What's next?

We can't know for sure, but we can look at some potential "leading" indicators.

One is the Global Dow Index...

As Greg shared with Ten Stock Trader subscribers this morning, the Global Dow has recently dropped below its own previous lows (from July, and June before that). It remains in a downtrend. Take a look at its year-to-date performance and recent breakdown...

Obviously, the rest of the world is dealing with a lot of issues – like high inflation and an energy crisis (including, just today, the rumored sabotage of the both Nord Stream gas pipelines running from Russia to Germany). These risks are reflected in global stock prices.

And while the U.S. might be the "best house in a bad neighborhood," it is not isolated from the entire neighborhood's problems either.

So, take the Global Dow's performance lately as a potential leading indicator for U.S. markets... and a signal that the "downtrend is intact," as Greg told subscribers today. The Global Dow finished in the red again today and is down roughly 23% for the year.

Importantly, though, Greg also shared with Ten Stock Trader subscribers an indicator of a possible short-term bounce to come in stocks... which means an opportunity to put on more bearish bets. Using this strategy is one way to actually make some money in a bear market.

Here is one more indicator worth paying attention to today...

We've mentioned our friend Marc Chaikin a few times lately. He's the founder of our corporate affiliate Chaikin Analytics. And he recently teamed up with Joel Litman – founder of another of our affiliates, Altimetry – to deliver a critical message on the markets.

Simply put, Marc's a Wall Street legend... and he has developed tools that are available on every Bloomberg Terminal in the world today. He's been at this game for five decades and has survived nine bear markets.

In short, it might be wise to at least hear him out...

Today, for example, things are so dicey that Marc shared with readers of his free PowerFeed newsletter a startling warning and insight. It comes straight from one of these tools – the Power Gauge – that he has created for everyday investors to level the playing field with Wall Street.

For those who don't know, the Power Gauge assigns "bullish," "bearish," or "neutral" ratings to tens of thousands of stocks, plus industry groups. And it features dozens of other filters and indicators. It's a great tool that can tell you a lot about both specifics and general trends.

As Marc wrote today, one of them is this...

As of yesterday's close, only 12 stocks in the S&P 500 received "bullish" or better ratings.

That means the Power Gauge sees big outperformance potential in the near term with only 12 out of roughly 500 stocks. That's only about 2%. And that's not all we know...

The Power Gauge is also "bearish" or worse on 117 stocks in the S&P 500 today. And the rest are stuck in "neutral" territory.

Now, I'm thankful to have that list of 12 "bullish" opportunities. But when it comes to the broad market, we need to face an uncomfortable truth right now...

Now, some might say... "well, if everyone else is so bearish, isn't this time to get bullish and buy?" In long uptrends like the record bull market we saw last decade, sure, that's a good strategy. But this year, "buy the dip" has been a failure.

You need a new investing playbook...

"Sell the rip" might be a better idea. In Marc's view, this is simply not the time to make a big contrarian bet. In the short term, he says the market could easily continue falling from here...

Only a handful of stocks are pushing against this decline. And no historical truism tells us that a drop of roughly 25% is a guaranteed bottom. Things can always get worse.

So for now, stay patient. Seek out the opportunities that do exist. And make sure you're using tools that keep your emotions in check...

That's sage advice from someone who has been there before. If you want to hear more directly from Marc, now's a great time. He joined Joel, a forensic accountant, for a brand-new presentation that went live last week.

They covered a lot of ground, including warning of a new financial crisis that's already underway and sharing why folks need a new investment playbook to get ahead of what's coming next... You can catch a replay of the presentation here.

Marc and Joel have different stock-analysis systems, but they combined them for the first time to see what's in store for the final weeks of 2022. They also shared a total of eight pieces of stock advice – two stocks each to buy and two to sell if you own them.

The replay includes all of these free recommendations, including a stock of one of the most recognizable businesses in America today that Marc says is headed for disaster. But don't delay... The video won't be online forever. Check it out now.

---

Recommended Links:

[RECAP] Last Week's Severe Crisis Warning Marc Chaikin helped build Wall Street. Joel Litman spent his career denouncing it. But they both agree about the ONE financial crisis that threatens your wealth more than anything else today... plus the EXACT step to take with your money to protect yourself and see 5 times potential gains. Don't get blindsided – see what's coming and how you need to prepare immediately, right here. Huge Recession Loophole (See These Charts) Amid today's market turmoil, THIS is one of the biggest and most bullish opportunities today: a red-hot sector with almost unlimited pricing power and a history of outperforming in recessions. It's also the sector where Dr. David Eifrig spent half his professional life, meaning he's extremely qualified to spot world-class opportunities today. Take a look at the evidence here.

---

New 52-week highs (as of 9/26/22): short positions in Capital One Financial (COF), iShares Russell 3000 Fund (IWV), and iShares U.S. Real Estate Fund (IYR).

In today's mailbag, feedback on yesterday's Digest about the Federal Reserve's "listening" session... Do you have a comment or question – about the central bank or anything else? As always, e-mail us at feedback@stansberryresearch.com.

"I found it insulting that the Fed members who met with a few peasants were baffled to hear that their bone-headed actions are not good for anyone or anything. Any person with two functioning brain cells could have told the dolts in the government and Fed that flooding the market with new currency units and lending money for free to anyone with or without a pulse for years will increase the price of everything.

"To do this right after the government crippled the economy with lockdowns which caused the biggest supply chain disaster in history is as foolish as it is irresponsible...

"The very first thing any economics professor teaches us in basic econ 101 is the LAW of supply and demand. Too many dollars chasing too few goods will push nominal prices higher. That they were flummoxed by the answers they got from the panel shows how out of touch with reality these useless, self-serving morons are!

"Then they have the audacity to ask if the folks were able to raise prices to cover the shortfall! REALLY? What about the wage earner?! What do they do?! Give themselves a raise?

"These unelected bureaucrats have no clue and no business holding their positions. We should strip them of their power AND their wealth and force them to experience the effects of their moronic manipulations of our money first hand.

"The amazing thing is that I thought I couldn't get any angrier about the Fed, Congress and the Treasury's total mismanagement of almost everything they get their fee-grabbing hands on!..." – Paid-up subscriber Tom P.

Corey McLaughlin comment: Tom, tell us how you really feel next time!

So, Brainard says, "I'm still struggling a little bit. We've got this hot jobs market and wages have grown a lot and food security is really fragile and it sounds like no relief in sight. How do I reconcile those things?"

"Does this bozo not know that the Labor Force Participation Rate was 62% in August, meaning that 38% of people in the labor force are not working and no longer looking for work? Further, we're still below the [Labor Force Participation Rate] of January 2020.

"Also, non-farm wages were up 5.2% [year-over-year] in August and that rate hasn't changed since July of 2021. Add 'The Great Resignation of 2022' to all of this and you have a lot of people with no visible means of support.

"You'd have to be obtuse to call this a 'hot jobs market'?" – Stansberry Alliance member Jeff G.

"You write: 'The cozy relationship between the Fed and Treasury, plus the willingness of congresspeople to do seemingly whatever seems best for them in the moment, feels like we're looking at a crime family that has the authority to create its own money.'

"It is a criminal family looking after the interests of large commercial banks while willingly 'printing' whatever is needed to meet the irresponsible spending of Congress and the executive branch. The stock owners of the Federal Reserve banks are large private banks, not the public. Generally the setting of the Federal Funds Rate which is done privately through private negotiations between banks leads to what the Fed eventually sets as the Discount Rate (and which most of the financial community and the media incorrectly call the Federal Funds Rate).

"There really is absolutely no reason for a Fed. M2 [money supply] should rise automatically at the real rate of economic growth, adjusted for secular changes in the rate of the velocity of final exchange.

"There is a dire need for bank regulation and auditing, but these should be assigned to a new agency. Terminating the Fed would have the additional benefit of ridding the government of 2,200 PhD economists who not only don't understand economics, but threaten the entire stability of the economy.

"They are also hatching the extremely dangerous anti-democratic concept of digitizing currency, which would outlaw all mediums of exchange and mandate all people to only have digital bank accounts that government agents (and who else? Amazon?) could appropriate or freeze." – Paid-up subscriber K.M.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 27, 2022