A Q&A With Porter Stansberry

Porter Answers My Questions on Inflation, Energy, and the Debt Default Crisis

Porter Stansberry is one of America’s leading financial writers and investment analysts.

Called a visionary by Barron’s, he has an uncanny knack for spotting opportunity and risk in the financial markets. Today, Porter is the founder of Porter & Co., where he heads a team of respected market analysts and industry veterans.

In this Q&A, I put some of my big questions about the economy to Porter.

During this conversation, we discussed the collapse in U.S. wage growth… the future of fossil fuels and nuclear power… what comes next with inflation… the possibility of a U.S. debt default… and whether America has a road back to normalcy.

Check out our conversation, below…

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Jeff: Looking at the data, you could argue that the assault on the American middle class began with the deregulation of the 1980s and the various laws and policy changes that took wealth from ordinary families and gave it to the corporate class. Since that time, productivity has continued to grow in the U.S. at the same pace it was growing in the post-war years, but worker wage gains have all but flatlined.

Do you share that view, and what kind of stresses does that put on the system (financially and socially) as we look out over the remainder of the 2020s?

Porter: Yes, data from the Economic Policy Institute shows that from 1948 to 1979, average American wages tracked gains in productivity nearly one-for-one. But starting in 1980, that correlation broke down, and productivity gains outpaced wages by more than 300%.

This trend has only accelerated in recent years. Despite the highest nominal wage growth in 40 years, real American wages are falling, as inflation is far outpacing increases in pay. As a result, Americans have gone deeper into debt just to finance an unsustainable rise in the cost of living. The result is a record amount of credit card debt, which is approaching $1 trillion for the first time ever.

Borrowing money to pay for basic necessities won’t end well, and sets the stage for widespread defaults, a sharp recession, and social unrest—as millions of Americans default on their consumer loans and can no longer tap their credit cards to keep up with the spiraling costs for food, rent, and auto loan payments.

Jeff: There is a global rush to build out green energy infrastructure. But the reality is that it’s impossible to essentially re-wire the planet to meet the aggressive zero-emissions timelines that governments are establishing.

It would seem that governments and environmentalists are driving us toward a Thelma & Louise cliff, where demand for power outstrips the capacity of green energy to provide it, yet there’s not been enough investment in finding adequate fossil-fuel reserves to cover the gap. Which means, I would assume, that we’re looking at an oil/gas price boom in the near future?

Porter: The fatal flaw of the green movement is pushing for an end to fossil fuel development before there’s a viable replacement that meets the “green” criteria. This has set the stage for devastating shortages of fossil fuels across the board. And it’s not a problem for our children and grandchildren—we’ll start feeling the impact as early as 2024.

Most major energy forecasting agencies project new record highs in global crude oil consumption in 2023-2024. The U.S. Energy Information Agency, for example, projects global oil consumption will reach 102.3 million barrels per day in 2024.

Last year, despite oil prices reaching triple-digit territory, the world produced only 100 million barrels per day. Looking around the world, there’s very few places that can add the incremental 2.3 million barrels per day of supply needed to balance the market in 2024… and that’s why we see good odds of a global oil shortage and a devastating price spike at some point over the next 12 to 24 months.

Jeff: Where do you see natural gas prices settling in terms of a “new floor price” as the world comes to the realization that natural gas is probably the best option to bridge us from a fossil-fuel present to a green-energy future?

Porter: Natural gas is a much more volatile commodity than oil, in which winter weather plays the key swing factor in demand each year. As we saw in 2022, despite the real prospect of a gas shortage due to disrupted Russian supplies into Europe, the global energy markets were bailed out by one of the warmest winters on record.

That makes forecasting natural gas prices a tough challenge in the short term. But over the long term, prices are headed much higher, as Europe is forced to wean itself off cheap Russian supplies—which provided 40% of European gas imports before the Ukraine invasion.

This means Europe will increasingly buy a major portion of global LNG [liquefied natural gas] shipments, and force global prices higher as a result. The U.S. will be a major winner from this development, as it’s poised to replace Russia as the single-largest gas exporter into Europe, via LNG.

Jeff: Japan has recently announced plans to restart its idled nuclear power plants. France is restarting its plants, too. Britain wants to build eight new plants. Even Germany is looking to extend the life of some nuclear plants. All due to a sudden realization that relying on Russia for energy security was probably not the wisest course. So, looking out over the next 7 to 10 years, where do you see uranium and nuclear power fitting into the energy mix?

Porter: Nuclear is the obvious solution to the world’s energy crisis, as the world’s most abundant source of cheap and reliable carbon-free energy. It’s a great long-term solution. But given the complexities of the design, permitting, and construction process, nuclear power plants can take a decade or longer to come online.

There are some very innovative solutions to this problem emerging in the form of “small nuclear reactors” that can accelerate this timeline, but again, these efforts are still in the early days and will take years before we might see them deployed at scale.

In the short term, fossil fuels will have to bridge the gap.

Jeff: I have been writing for some time now that the Federal Reserve is effectively hamstrung in its fight against inflation because the causes of inflation are out of its control—China’s tangled supply chains… war in Ukraine… global droughts causing food shortages, etc. The Fed has no control over any of that. So, it seems the Fed is quickly approaching an end game where it must stop raising rates and concede that inflation has won. How does that acknowledgement ultimately flow through the markets and the economy?

Porter: The Fed finds itself in an impossible situation between allowing inflation to run rampant or attempting to squash demand with a devastating recession. The choices are a repeat of the 1970s stagflation… or a Volcker-like resolve that crushes the economy. [Editor’s Note: Then-Fed Chair Paul Volcker raised interest rates to a peak of 20% in 1981 to tackle double-digit inflation that had plagued the U.S. economy since the 1970s. The plan worked, but caused a deep recession.]

The problem is the U.S. economy has built up a record amount of unsustainable debt over the past 13 years of ZIRP [zero-interest rate policy]—particularly among Corporate America. And all that cheap debt will go bust at today’s higher interest rates.

That’s why we believe the stage is set for a record-breaking default wave across the U.S. corporate sector. We recently built out a team that will help investors navigate this cycle and buy up corporate debt at pennies on the dollar in what we’re calling the “Greatest Legal Wealth Transfer in History.”

And that said, eventually the Fed will be forced to relent, and that likely means a higher-for-longer inflation rate for years to come. In that environment, commodities—energy in particular—will outperform. That’s why we believe investors will need to maintain energy exposure, which will benefit from both the global energy crisis and entrenched inflation.

Jeff: Given the nature of inflation this time, and the tendency of governments to lean on free money and ultra-low interest rates to survive, are we looking at a hyperinflationary crisis as this decade plays out?

Porter: Hyperinflation can’t be ruled out, but the more likely scenario is a repeat of the 1970s high inflation that lasts for a decade or longer. In either case, real assets like energy, precious metals, and bitcoin will be “must own” hedges within a portfolio.

Jeff: Along the same lines, how do permanently higher interest rates flow through the federal government? Already, debt servicing costs exceed what the CBO [Congressional Budget Office] expected because rates rose markedly higher than anticipated.

We seem to be approaching a debt-spiral moment where the government is forced to sell more and more debt just to make higher and higher interest payments as low-cost debt from the last decade or so begins to roll over. Do you see this as a risk, and what does that future look like?

Porter: It’s a very real risk that investors should prepare for—that is, where governments have to print more and more money just to service the debt. That’s the road to high inflation or even hyperinflation, at the extreme.

The only alternative is a sharp recession, that drags interest rates back down at the expense of the economy. Investors should be prepared to capitalize on either scenario, or possibly both—as one could naturally lead to the other.

Jeff: Is there a legitimate road back to normalcy… back to a financially stable America? What has to happen to bring about that reality?

Porter: As optimists, we’d like to believe we can return the country back to its founding principles of limited government, balanced budgets, and fiscal conservatism. But as realists, it’s clear that no politician can get elected by promising to take an axe to defense spending and entitlements like Social Security, Medicare, and Medicaid—the only way to get to a balanced budget.

In the meantime, the growing debt burden will eventually make it impossible to ever get back to a sustainable fiscal path—a point of no return which we may have already passed.