The Weekend Edition is pulled from the daily Stansberry Digest.
A 'Falling Knife' 100 Years in the Making By Corey McLaughlin
 The effect of higher yields is showing up...
Treasury yields are near historic highs. Last week, the 30-year Treasury yield hit its highest level in more than 20 years. To recap, the trouble stems from a combination of factors, including the war in Iran and the resulting inflation... competition from corporate bonds financing the AI boom... and expectations for Federal Reserve rate hikes. The 10-year Treasury yield, for example, traded around 5.1% yesterday. That's up from near 4% at the start of the war in late February. These rising yields mean two things: Bond prices are dropping... and borrowing is becoming more expensive. And the impact of higher "cost of money" is showing up in the market... One clear example came from banking giant JPMorgan Chase's (JPM) quarterly earnings report this week. The bank missed Wall Street analyst expectations, largely due to weakness in its fixed-income business. With bond prices falling, this segment generated "only" $5.4 billion versus the expected $6 billion. However, JPMorgan Chase also raised its "net interest income outlook" for the fiscal year. That reflects the spread between the bank's short-term borrowing costs and the long-term lending rates that bring in income. In other words, over time, the current rate environment will let JPMorgan Chase issue new, higher-interest loans... boosting its profit. So the recent sharp rise in yields can hurt banks in the short term. But higher rates can help the banks – and fixed-income investors – in the longer run. Treasury bonds have also fallen to tempting prices... Many of the world's largest institutions are telling clients they're interested in buying government bonds again. Long-dated U.S. Treasurys recently reached their worst 10-year rolling performance (down 2%) in 100 years. In response, Bank of America's Chief Investment Strategist Michael Hartnett noted a "generational entry point," or buying opportunity. Jean Boivin, head of the BlackRock Investment Institute, the asset manager's research arm, wrote to clients in a note on Monday...
Higher yields and potentially excessive Fed tightening expectations create room to unwind our U.S. Treasury underweight – a mainstay for most of the last six years... Now, yields have reset toward our long-held higher-rates view, and we want to lock in some attractive income.
If today's market rates align with your goals and timeline, great. But with rates continuing to rise, bond buyers might be catching a falling knife... The U.S. government has proved to be really good at one thing in the past few decades: driving inflation higher... and the value of our dollars lower. The trick to that is running deficits and employing short-term "fixes" whose consequences – like more inflation and fiscal trouble – take years or decades to kick in. The U.S. debt has snowballed, big-time... With the national debt now above $40 trillion, America's interest costs account for almost 11% of government spending. That's just about the highest percentage in any market-based economy. According to estimates from the Congressional Budget Office, net interest on the national debt is projected to more than double by 2036... surpassing $2 trillion in the process. It has already doubled since 2022, and nearly tripled from 2020 levels. Meanwhile, fewer buyers want the U.S. Treasurys that will cover all this debt. Foreign central banks hold more gold than U.S. government debt. We've reached the point where the Treasury Department is increasing its bond-buying operations to "make a market" for long-term debt, as Treasury Secretary Scott "The House" Bessent has put it. These are signs of a problem. As our colleague and Extreme Value editor Dan Ferris recently wrote...
It's rapidly approaching the point where the U.S. will have to print money just to pay the interest on its massive and growing debt obligations.
Does that sound like a "generational" buying opportunity in U.S. debt? Does that sound like something you want to own for many years ahead? To me, it sounds more like the context for a "reset" of U.S. debt. As Dan sees it, and I agree, this change could significantly boost the dollar value of gold. Maybe it's recency bias, but since I began writing in the Digest in 2019, Treasurys have been one of the worst places to park money to try to beat inflation. After rates hit rock-bottom levels in 2020 during the COVID-19 pandemic, inflation and yields have kept moving higher. They're not going to stop "just because." The 10-year Treasury yield was close to 1% in 2021 and only 2.5% in the summer of 2022 before surging above 4% later that year as inflation remained persistent. Then it hit 5% in the fall of 2023, its most recent multidecade high until the latest surge. As Dan wrote in the Digest last Friday, we'd rather own real assets that can't be printed – like gold – to protect our dollars from inflation, even if those assets don't produce income.
Two Ways to Find Value in an Unforgiving MarketToday's also a good time to buy stocks – the right ones, of course. Longtime readers know which ones we mean: High-quality businesses that can make the most of whatever dollars are worth today and in the future... and can reward shareholders with dividends, buybacks, and long-term value creation. Better yet, you want to buy shares of these kinds of companies when they are "hated," when sentiment has turned against them, to get the greatest bang for your buck. Our colleague Whitney Tilson has been covering what he calls the "stealth bear market," in which most sectors have underperformed the trendy AI names... And according to our colleague and CEO Dr. David "Doc" Eifrig, the stealth bear market has opened up buying opportunities in multiple sectors as money rotates around the market. In Doc's latest Retirement Trader issue, published last Friday, he identified one such sector, and it might surprise you: real estate, including real estate investment trusts ("REITs"). This opportunity has to do with our theme of the day – interest rates...
Real estate has been punished recently because of higher interest rates.
The 10-year Treasury has been steadily climbing higher, and currently sits around 5.3%. When Treasury yields spike or stay elevated, bonds become competitive with REIT dividend yields. That leads income-focused investors to temporarily rotate away from the sector.
But these higher rates are now already "priced in." Here's how he explained it (note, we've updated his chart below)...
That means the sell-off in the sector is overdone... and likely headed for a turnaround.
"Stealth bear market" fears pushing down the real estate sector are overblown... Earnings growth projections for this year come in around 10% and then another 6% in 2027.
Here's another corner of the market to consider... Stansberry Research senior analyst Gabe Marshank is excited about the opportunity in one overlooked corner of the stock market right now... spinoffs. When these underlying parts of larger companies are broken off and trade on their own, they can perform very well. But as Gabe – editor of our Market Maven newsletter – explains, Wall Street institutions often won't touch them at all. That drives down their share prices far below their value. This setup is the perfect opportunity for investors who know where to look – and what to look for. All the best, Corey McLaughlin
Editor's note: Gabe has a simple five-part "scorecard" to identify the strongest opportunities Wall Street is overlooking. It's the same strategy that's used by some of the world's greatest investors. And it's drawn from an investment setup that once made Gabe's former Wall Street firm more than $100 million.
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