| The Weekend Edition is pulled from the daily Stansberry Digest. The Danger of Trusting 'Fake Money' By Corey McLaughlin The dead received $1.4 billion in stimulus checks... And it took about six weeks for any decision-maker to put a stop to it once word got out. The Government Accountability Office ("GAO"), a watchdog group that first reported the size and scope of the errors, said last month... The mixup happened because the Treasury Department and its Bureau of the Fiscal Service – which distributed the payments – do not have full access to the death records maintained by the Social Security Administration and used by the IRS. Stimulus payments were also determined based on 2018 and 2019 tax returns, meaning Americans who died after filing those returns could have still been included. On top of all this, the IRS then had the gall to ask for the money back, even though the agency had no way of enforcing it, or even giving directions to next of kin – or anyone else – to mail back a return... Those who have passed away certainly can't do it themselves. You won't find a brighter example of government waste than mailing direct cash payments to dead folks. But, of course, it's not the only example we can cite... Today, the living are getting screwed... The government is about to slice a week off millions of Americans' unemployment payments. You've probably heard a lot by now about July 31. That's the date when the $600-per-week federal unemployment benefit is supposedly set to run out. The government instituted the extra benefit back in April as a way to kick-start the economy in the midst of the COVID-19 shutdowns. Except July 31 is not actually the date... You see, it seems no one in Congress cared to look at a calendar – or actually knows how real people live – when they made the $2.4 trillion CARES Act official. Stansberry Venture Technology editor Dave Lashmet sent along an article from Slate with the details... It turns out everybody circled the wrong day. The problem is that July 31 is a Friday, and states pay unemployment benefits based on weeks that end on a Saturday or Sunday. As a result, the last week of this month won't actually be covered by the $600 top off. The extra cash will disappear after July 26 in every single state. Even if the benefit is extended beyond the end of this month, checks may take weeks to arrive given the cumbersome logistics of the unemployment system. (Hello, blockchain, where are you when we need you?) Worse, the people who put these policies together should have been aware of the issue for weeks and months... Several media outlets reported on the situation weeks ago, and the Department of Labor actually spelled it out very clearly in a document issued all the way back on April 4. So, on balance, the message to us from the government is this... We're not really thinking of you. They're instead thinking about appearances and politics, as always... Most Democrats and Republicans have not agreed on much lately. But in the past few months, they've aligned on one big point (in addition to going on vacation)... More "fake money" – meaning more Federal Reserve-created debt that gooses stocks in the short term, yet sticks on the central bank's balance sheet for generations to come. And now, they're talking about more, more, more. More money to be created from nothing... More potential administrative gaffes that no one cares about until it's too late... More nonsense. Now, the market may be signaling its concern about our path toward a debtors' prison... The government leads the way. And many public companies and people follow, for better or worse. Credit-card debt... Student debt... Auto debt... Paycheck Protection Program ("PPP") debt (a new one) for the banks... Home debt... Debt on debt. It's all at record levels. We'll take a look at two different sectors to make a point today about the dangers of relying on borrowed money... and the benefits of not doing so. Maybe someone at the U.S. Treasury or the Fed might read this and remember simpler times. One is a business – the banks – that relies on all debt. The second is a sector of business – cloud-based Software as a Service ("SaaS") – whose model includes no debt. The Nasdaq Bank Index, for instance, is down more than 30% this year. It hasn't recovered from March's initial panic drop. In the meantime, the leading SaaS companies are making gobs of cash and have outperformed the benchmark S&P 500 Index by roughly five times since the start of the year. This narrative says something. Let's first look at the big banks, the nation's biggest lenders... The banks reported second-quarter earnings recently. And as Dr. David "Doc" Eifrig wrote in his July issue of Income Intelligence, "the results have been mixed." JPMorgan Chase (JPM) and Goldman Sachs (GS) posted fantastic results. But banks are preparing for losses. And as Doc noted, it could mean continued volatility in the months to come. Despite strong revenues, JPMorgan Chase set aside $8.9 billion for expected losses ahead. And as Doc wrote, Wells Fargo (WFC) is on the other end of the spectrum... The third-largest bank in the U.S. posted a net loss of $2.4 billion for the quarter, its first quarterly loss since the Great Recession. Wells Fargo set aside $8.4 billion in loan loss reserves because of the coronavirus pandemic, which was more than expected. And beneath the individual headlines about banks raising cash is a concerning collective number... The five largest lenders in the U.S. – JPMorgan Chase, Wells Fargo, Bank of America (BAC), Citigroup (C), and U.S. Bancorp (USB) – say the financial stress caused by the pandemic could cause borrowers to default on a total of $104 billion in debt. JPMorgan Chase, for one, is predicting the bank might have to cover $32.1 billion in bad loans. That's nearly triple the $13.2 billion that it was predicting a year ago. In other words, that $600 benefit expiring early, even by one week, counts big-time in the grand scheme of things when it leads to folks defaulting on their debts. While a lot of stocks have recovered significantly from their March lows, banks have not... As you can see in this chart, updated from Doc's latest Income Intelligence issue, Wells Fargo is down more than 50% this year, JPM is down almost 30%, and Goldman Sachs is down around 10%... And financial stocks in general remain down more than 20% for the year. On the other hand, the companies with loads of incoming cash are doing quite well... We're thinking specifically about the cloud-based systems and SaaS companies that have experienced about five years of growth in five months... like DocuSign (DOCU) or Zoom Video Communications (ZM) and cloud giants Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL). These companies are allowing business to happen and people to connect... without exposing anyone to virus-filled micro-droplets that can linger in the air. And not only are these "future of work" companies, but they're also incredibly capital-efficient. Their products can be used at scale, with largely fixed costs... It's not like they're spending money to build a new car to turn a profit, or make a loan and hope the interest and principal is returned like the banks. The share prices of cloud-based companies have absolutely taken off this year... You can see this through the Bessemer Venture Partners Emerging Cloud Index, which tracks the performance of public companies that rely heavily on cloud-based software. We were tipped off to the index by the anonymous and incredibly smart and insightful blogger John Street Capital. We shared this chart in the Stansberry Digest earlier this week. And it looks a bit different than the one of the banks... The companies in the basket of stocks are up almost 50% year-to-date... compared to up 15% for the Nasdaq Composite Index, down about 1% for the S&P 500, and down 8% for the Dow Jones Industrial Average. From the June 17 Digest and research from our colleague Mike DiBiase... Software is nothing more than computer code. The "cost" of producing another copy of a software program is next to nothing... Because software companies' capital needs are low, most generate lots of cash. No matter what's done with the cash, it benefits shareholders. In virtually any period you look at, software companies produce market-beating returns. This idea lies at the heart of so much that we believe at Stansberry Research... The government, in most cases, has no idea how to really benefit its people. And as a result, a "Battle for America" is playing out before our very eyes. A virus is still swirling around the country... We've recently seen riots in the streets with police brutality as the flash point... The wealth gap between the rich and the poor has never been greater... And the astronomical rising debt levels in our country – which have only ballooned since COVID-19 hit our shores – have a lot to do with the angst and anger we see today. At the same time, the government continues to believe that printing money – even for dead people – is the solution to our problems. In 10 days in March, the Fed created and added more money to its balance sheet than it did in the previous 30 years before the 2008 to 2009 financial crisis... Trillions today compared to "only" $700 billion pre-financial crisis. America is doubling down on debt. It'll likely fuel a rise in asset prices – at least in the short term. But in the long term, these actions will create a long-term financial crisis... one that will fundamentally change our country for decades to come. All the best, Corey McLaughlin Editor's note: On Thursday, July 30, at 8 p.m. Eastern time, our founder Porter Stansberry will discuss how life is about to change for Americans. You see, the government's recent "cash dump" in response to COVID-19 has created a rare investment opportunity with the potential to grow your money at least 1,000%. And it could completely upend the way every kind of asset is priced, traded, and owned... Sign up here to reserve your spot. Tell us what you think of this content
We value our subscribers’ feedback. To help us improve your experience, we’d like to ask you a couple brief questions. | 