A portion of the yield curve inverts … a recession is “unavoidable” unless this one thing happens … a no-brainer sector that will boost your portfolio for years to come
The macroeconomic clues continue pointing toward a recession.
But if that makes you want to hunker down and lock up your wallet, hold on.
There are some great long-term buying opportunities in today’s market.
To explain, let’s begin with the macroeconomic situation with the help of legendary investor Louis Navellier.
From his Platinum Growth Club Flash Alert from yesterday:
The biggest news right now is the yield curve has inverted twice this week.
Not that long ago, the two-year yield was higher than the five-year yield, and (yesterday) morning before the market opened, the five-year yield rose above the 10-year yield.
Before we continue, a quick clarification:
The yield-curve inversions Louis references are not what we’ve been tracking here in the Digest. We’ve been monitoring the 10-year Treasury yield relative to the two-year Treasury yield.
This 10/2 comparison is the most widely-referenced part of the yield curve. It’s also the one that, historically, is a highly-reliable predictor of recessions and economic downturns.
Bank of America notes that an inverted 10/2 curve has preceded the last eight recessions. If we go further back in time, the inversion has preceded 10 out of the last 13 recessions.
We have not yet seen a 10/2 inversion, though we’re only 20 basis points away as I write. That said, the inversions that Louis references are not good signs.
(If you’re a newer Digest reader and unfamiliar with yield curves and their significance, click here for a past issue that explains those details.)
Back to Louis’ update:
We have dramatically rising interest rates but we also have a remarkably flat-to-slightly-inverted yield curve.
So, now all the talk is that the Fed might move in 50-basis point increments instead of 25-basis point increments. All this was stirred up by St. Louis Fed President James Bullard who called for the Fed to raise rates to the 3% level.
As we’ve noted here in the Digest, this is an awful, rock-and-a-hard-place position for the Fed.
If they push rates high enough to squelch out today’s runaway inflation, it greatly increases the odds of slamming the brakes on the U.S. economy, sending us into a recession.
But if the Fed moves slower on rate hikes, it’s likely that inflation will continue to wreak havoc on the monthly budgets of Main Street Americans.
This is the Fed’s tightrope to walk.
***A key “recession watch” variable
The U.S. consumer makes up about 70% of the U.S. GDP.
So, if we want to predict the odds of a recession, we should evaluate the health of the American consumer.
And what drives the health of the American consumer?
Well, it’s largely the extent to which they have disposable money to spend and feel confident enough to spend it.
And where does this disposable money and confidence come from?
Generally, it boils down to how expensive (or inexpensive) the basic costs of living have become.
The three biggest expense line items in personal budgets are shelter, gasoline, and food. They accounted for 63% of total expenses for the average household in 2020 (the latest data we have).
In February, guess what were the largest contributors to inflation?
You guessed it – shelter, gasoline, and food.
Shelter costs are up nearly 5% over the last year, food is up almost 9%, and gas is up 38%.
These soaring costs are eating into Main Street budgets, which ramps up recession risk.
Zeroing in on gas, a new report by The Federal Reserve Bank of Dallas finds that a global recession is a certainty if we’re unable to resolve the Russia/Ukraine war and resume Russian energy exports.
From the Dallas Fed:
If the bulk of Russian energy exports is off the market for the remainder of 2022, a global economic downturn seems unavoidable. This slowdown could be more protracted than that in 1991.
The reference to 1991 is a callback to Iraq’s invasion of Kuwait, which resulted in a relatively brief recession that lasted less than one year.
Back to the report:
Unless the Russian petroleum supply shortfall can be contained, it appears necessary for the price of oil to increase substantially and to remain elevated for a long period to eliminate the excess demand for oil.
This demand destruction is likely to be assisted by the recessionary effect of higher natural gas prices and other commodity prices, especially in Europe.
So, big-picture, watch out for this growing recession risk. But this is also incredibly bullish for the oil trades we’ve been tracking here in the Digest.
By the way, Louis has been adding all sorts of inflation hedges to his portfolio, including oil, commodities, and fertilizer plays. For more details as a subscriber, click here. You can also access these trades as an Omnia subscriber.
***Recession or not, there’s one corner of the market that’s going to make investors huge returns over the coming quarters and years
To set the stage for this opportunity, let’s turn to our hypergrowth expert, Luke Lango, who’s the editor of Hypergrowth Investing:
(The Cybersecurity industry) is entering a “Golden Age” in 2022, wherein cybersecurity spending is going to accelerate to unprecedentedly high levels — and cybersecurity stocks are going to soar to new heights…
The Russo-Ukrainian crisis has emphasized many things about the world. It’s emphasized the need for energy independence, the importance of sanctions, and that Vladimir Putin is an absolute madman.
It’s also emphasized that modern warfare is cyber warfare.
That is, modern warfare isn’t exclusively fought on battlefields between people — it is also fought in the cloud between computers. Indeed, the Russo-Ukrainian conflict has been characterized by relentless cyber warfare.
To Luke’s point, U.S authorities have been warning Americans about the possibility of an impending cybersecurity attack from Russia.
From CNN, earlier this week:
As Russia’s war in Ukraine and its diplomatic conflict with the United States both continue to escalate, the warnings that Russian hackers could go after US businesses have gained new urgency.
U.S. President Joe Biden on Monday urged business leaders to strengthen their online defenses, warning that his Russian counterpart Vladimir Putin could use cyberattacks as a means of escalating the crisis…
In a March 18 advisory to US businesses obtained by CNN, the FBI warned that hackers linked to Russian internet addresses have been scanning the networks of five U.S. energy companies.
Back to Luke:
Of course, this 2022 Cyber War between Russia and the U.S. will result in a cybersecurity spending surge as the U.S. government, intelligence agencies, and businesses prepare to defend their systems and data over the next 12 months and beyond.
Amid that spending surge, cybersecurity stocks should surge — and that’s why, in our flagship research advisory Innovation Investor, we’ve backed up the truck on cybersecurity stocks.
***On this note, a quick congratulations to Luke’s Innovation Investor subscribers
Just two weeks ago, Luke issued two new cybersecurity Buy Alerts to subscribers.
Since then, those stocks are up 23% and 31%, respectively.
By the way, had you invested in the broad-sector cybersecurity ETF, HACK, you would be up less than 4% over the same period. This illustrates the power of finding small, explosive companies that are fundamentally superior.
If you missed this early pop in share prices, you’re too late to make big money on this trade.
Back to Luke:
The reality is that the party is just getting started in cybersecurity stocks…
Even right now, you can buy (my recent recommendations) at huge discounts, before they soar 100%-plus over the next few months…
Our analysis suggests that we are in the first few innings of a multi-decade breakout in the cybersecurity industry.
We believe that cybersecurity spending will grow to roughly 6% of I.T. budgets by 2030 and 8% of I.T. budgets by 2040, powering what we see as 11% annualized growth in cybersecurity spending throughout the 2020s and 8% annualized growth through the 2030s.
In other words, this industry is just getting started.
This isn’t about cybersecurity stocks having a Golden Year in 2022 — it is about these stocks benefitting from a Golden Age throughout the 2020s.
To that end, you shouldn’t look at cybersecurity stocks as great stocks to buy now and sell in a few months for 20% or 30% profit. Indeed, we’re already up 30% on some of our cybersecurity positions in just two weeks — and we aren’t selling, because we see these stocks doubling, tripling, and even quadrupling over the next few years.
Coming full circle in today’s Digest, yes, recession risks are rising – especially if we can’t resolve the war in Ukraine.
But that doesn’t mean now isn’t a great time to put your money to work in specific corners of the market.
Look at the state of the world today and ask yourself: “Are we more or less likely to need strong cybersecurity defenses in the coming year?”
The answer is a no-brainer, and it’s why we continue to be highly bullish on top cybersecurity stocks, including Luke’s recent picks.
Have a good evening,
Jeff Remsburg
