The Weekend Edition is pulled from the daily Stansberry Digest.
What a difference a year makes...
In March 2020, as the coronavirus rapidly spread around the world, people began stocking up on the "essentials" – like toilet paper.
The major U.S. stock indexes were in the middle of an eventual 30%-plus drop from top to bottom. As we wrote in the March 13, 2020 Digest...
People have been panic-buying toilet paper and panic-selling stocks...
That sounds like it should all wash out at breakeven when this is all over, but who knows.
For sure, the rhetoric and the reality out there is a bit chaotic today...
Those words aged pretty well...
What we said back then wasn't far from the truth that played out... The rhetoric and chaos were just getting started.
On March 12, 2020, the Federal Reserve said it would inject up to $1.5 trillion into the market in an effort to calm it. Three days later, the Fed cut interest rates to zero and announced a $700 billion quantitative easing ("QE") program.
And that was just the start... "Stimmy" checks became a thing – three times.
Today, stocks have been back at all-time highs for months. The economy looks different – depending on the industry, a lot of folks are still working at home – but things are recovering, in the short term at least.
And on the toilet-paper front, it's funny... Stores have too much of it today. And companies that make the stuff want to be selling more...
As it turns out, people stockpiled so much toilet paper (and other essentials) a year ago that the panic-buying trend is still unwinding today.
Take Kimberly-Clark's (KMB) business, for example...
A little over a week ago, the consumer-products company – which makes toilet-paper brands Scott and Cottonelle – reported its first-quarter earnings for 2021. Its revenue fell short of Wall Street estimates, and its stock price was down 5% following the news.
But most revealing to us is what company CEO Mike Hsu said about the overall business. According to our NewsWire team's report on April 23...
KMB is navigating through a post-pandemic decrease in demand for paper products, such as toilet paper. These items were in high demand when the pandemic began, but have since slowed down.
Hsu also said on the company's earnings call... "We expected a consumer destocking to occur, but didn't expect that it would happen as quickly as it appears to be happening."
As much as "stocking up" a year ago told us about consumer "fear"... today, "destocking" speaks to the economic-recovery part of the story that's currently unfolding.
But as always, you need to hear the full story...
As longtime readers know, we've been on an unofficial "inflation watch" for a while.
The story starts and ends with central bank policy – and there is plenty in between. Stansberry's Credit Opportunities editor Mike DiBiase wrote about the idea in the April 14 Digest...
Here in the U.S., inflation doesn't happen overnight. It's an insidious force that slowly – and often secretly – erodes our wealth, perhaps taking a few decades to notice its real impact...
As comedian Henny Youngman once joked, "Americans are getting stronger. Twenty years ago, it took two people to carry $10 worth of groceries. Today, a five-year-old can do it."
It's important to note that we've been expecting inflation to pick up. But we also expect the Fed to step in before "hyperinflation" becomes a reality... at least by the central bank's measures.
The Fed has an easy way of doing that – by raising its benchmark rate range, which is basically 0% today.
Of course, there's a difference between the "Fed world" and the "real world"...
We know we're preaching to the choir in many cases about real-world inflation...
The Fed doesn't include things like financial assets or property prices in its preferred inflation gauge – the personal consumption expenditures ("PCE") index – that it uses to justify interest-rate decisions.
As Mike wrote earlier last month, the most recent PCE reading was 1.6% in February. So to the people who control interest rates and our money supply, inflation is still below 2% – which has been the Fed's goal for "price stability," one of its Congressional mandates.
But Stansberry Research subscribers have reported contradictory information, noting soaring prices in raw materials like lumber.
The salient point is, inflation is happening...
At our home, my wife and I talked to one contractor about inflation. I brought up the prices of lumber futures on my computer screen as he spoke.
Here is the all-time chart of Nasdaq lumber ("LBS") futures. As you can see, the price has surged nearly four times from the March 2020 bottom for one contract. This is what a bubble looks like...
When I showed the contractor this chart and asked if supply-chain issues were a reason for higher prices, as some folks might tell you, he explained that it wasn't the case at all... "There was a shortage, but there's not anymore," he said.
Prices are just going higher, he said, after manufacturers saw what people were willing to pay in the still-booming housing market... where it's cheaper to buy a new home than to renovate an existing one, in some cases.
I can't say for sure if this statement is true everywhere houses are built... But the contractor's comments reflect the sentiment and reality in the construction industry today. Simply framing a house these days can cost tens of thousands of dollars more than it did before the COVID-19 pandemic.
In other words, a widespread price hike from one of North America's most popular consumer-staples makers isn't an insignificant development to us. It's not a one-off thing...
The contractor who was in my house earlier this week... toilet paper on shelves... higher prices across the board for commodities... the Fed... all of this is connected.
It's hard to measure inflation precisely, but as we see it, the price of toilet paper is a reasonably good indicator for one part of the economy. Wood pulp, for one, is the raw material in products like toilet paper and tissues.
Folks can debate whether this inflation will be "transient" or short-lived...
That's what Fed Chair Jerome Powell says it will be. And maybe this will all be corrected if or when pandemic-related supply-chain issues are more broadly resolved...
But once it has hatched, you can't put the chick back in the egg.
Color us surprised if prices in these sectors go lower any time soon. If this isn't inflation being passed on to the consumer, what is?
Kimberly-Clark isn't just raising its prices in one area of its business, like toilet paper, which was stockpiled faster than masks were last spring. The company is raising prices across most of its products – like Kleenex tissues and Huggies diapers. These are things many people will buy no matter what, even if their prices go up.
Most consumers probably won't notice price increases on their credit-card bills. But price hikes will show up in the Fed's PCE inflation measure... which includes prices that consumers pay for items.
Kimberly-Clark said it will increase prices in June. So with that in mind, we should start paying attention to every Fed meeting and Powell press conference in the second half of 2021 for any hints or telling language about the central bank possibly hiking rates.
Powell hasn't done that so far... And he keeps saying he will give the market an advance warning on any moves.
But we know that when the Fed has hinted at raising interest rates... it doesn't go over well in the stock market.
Nobody has a crystal ball...
We can't say for sure if inflation fears will be significant enough to ultimately top off the massive bull market run we've seen since March 2020.
Stocks, in general, keep on going up and up... until they don't, of course. That's the warning Steve Sjuggerud is talking about now. He has been preparing folks for the inevitable "Melt Down" that is on the horizon.
He wants folks to be prepared for the fallout from all the "good times" being dictated by central-bank stimulus today – because that's the only way not to get burned. You can't start preparing early enough...
So, the time to prepare is right now.
First, take the basic step of running through your entire portfolio today.
Have your position sizes gotten out of whack? More broadly, do you still own what you want to own knowing what the world is like today? And beyond that, what do you want to do with your money?
These questions are always worth asking. But we have some more specific advice today...
If you want to keep your portfolio growing – and beating whatever inflation is going to eat from it – you also probably don't want to miss out on the final gains of this Melt Up either.
Steve calls this period the "Final Surge."
It's where some of the most mind-blowing amounts of money will be made in many people's lifetimes. And Steve says he hasn't seen a setup like this since the late innings of the dot-com bubble back at the turn of the 21st century.
Back then, 20 years ago, Steve says he missed out on these gains... and it was a big mistake.
It might seem counterintuitive today...
But while we see reasons for being cautious about the economy, sky-high valuations, and the potential impact on everyday Americans' buying power in the months ahead, Steve actually says there is no better time to be in the stock market... so long as you know what to buy today, and when to get out.
All the best,
Corey McLaughlin
Editor's note: Steve has been waiting for the "Final Surge" of the Melt Up... and now, it's here. This past Thursday, he went on air to detail the sectors he believes will really take off... and what all investors should be doing now to prepare for what's ahead. If you have any money in the markets, you need to hear Steve's message. Click here for the free replay of Steve's event.
