The New Hero of a New Banking Crisis

The current stock market rally may have you fooled… But we’re still in the middle of a banking crisis.

And although this crisis is different from those in the past for a few reasons, there are still lessons we can learn and apply from previous market disasters.

In this month’s issue, Chief Analyst Adam Galas shares the story of a market crash you may have never heard of. And the hero who arose to save America’s economy.

These days, we have a different kind of crisis. Which means we need a different kind of hero.

Thankfully, we’ve pinpointed a company that has the experience, assets, and strong fundamentals to do just that. The market is undervaluing it today, but it has several catalysts on the horizon that can give us 120% gains in under two years.

Read all about this bargain blue-chip that’s offering the best deal in U.S banking today… and delivering a safe 6.5% yield along the way.

Happy SWAN (sleep well at night) investing,

Brad Thomas Editor, Fortress Portfolio

Otto Heinze knew he was in trouble when the stock stopped going higher.

What he didn’t realize at the time, though, was that the mistake would nearly crash the entire stock market in a matter of weeks.

And it all started with copper.

In 1907, a man named F. Augustus Heinze moved to New York from Montana after making a fortune in copper mining.

Augustus had a reputation back home for being ruthless. He was implicated in bribing judges and turning public sentiment against his competitors – but never formally charged for any crimes.

When court-ordered to cease mining at one of his properties, he moved his people to a neighboring rival’s mine.

Fights between the two groups of miners broke out. They threw grenades, sabotaged the property, and eventually collapsed the entire thing, wiping out all evidence of wrongdoing.

Augustus was fined $20,000… but not before his miners had removed 100,000 tons of high-grade copper ore – worth millions – for his company, United Copper.

Setting his sights on entering the banking business, Augustus came to New York. He formed a business partnership with Charles Morse, another man history remembers as a corrupt fraudster. And the two made their way onto the boards of national and state banks, trust companies, and insurance companies.

Along with his two brothers, Otto and Arthur P. who worked at a brokerage firm, they hatched a plan to “corner” the copper market and make a big profit.

This was Otto’s plan – to start aggressively buying shares of United Copper, sending their price higher. Short sellers of the stock would then have no choice but to buy back shares at the much higher price. And Otto, who had command of the Heinze family stake of the stock, would make a fortune.

But he made one grave mistake. Otto overestimated the family’s stake. Short sellers found other people to fill their orders at a lower price. And once everyone realized what was happening, shares of United Copper collapsed.

But it didn’t stop there.

Otto and Arthur’s brokerage house went bankrupt trying to cover the losses. It also sent the State Savings Bank of Butte Montana, which Augustus owned, into insolvency.

This sparked a panic. Since Augustus was involved with multiple banks and financial institutions – and had gotten financing from some of them – people feared for the safety of the money they held there.

They began to withdraw funds from the dozens of institutions Augustus and Morse were involved with, including the Knickerbocker Trust Company.

This was the third-largest trust in New York. And after depositors took out $8 million in less than three hours, Knickerbocker had to suspend operations.

Other bank runs followed. Feeling nervous, banks and trusts around the country stopped lending money.

The chain sequence of events wiped out multiple banks, confidence in the banking sector, and nearly 50% of value from the New York Stock Exchange.

The Panic of 1907 is remembered as the eighth largest decline in U.S. stock market history. And it could have been even worse if one man hadn’t stepped up…

That man was J. Pierpont Morgan.

Morgan, recognizing the threat to America’s financial system, sprang into action. He summoned a meeting of the country's top financiers to his mansion in New York City. It was a war council created to save the American economy.

Morgan's plan was bold. He proposed a bailout of the failing banks, a massive infusion of cash to stabilize the financial system. It was a risky move, one that would require a fortune. But Morgan was determined to save America.

He pledged 40% of his fortune to the cause, an astounding $25 million. In today’s money, that’s almost $1 billion. And he refused to let anyone leave his office until they had cumulatively matched his pledge.

But Morgan didn't stop there. He also took control of the clearinghouse, a key institution processing bank transactions. If Clearinghouse failed, banks around America wouldn’t know whose money was and which banks would die next.

Under his leadership, Clearinghouse issued loan certificates to banks, providing them with the cash they needed to stay afloat.

The results were nothing short of miraculous. The panic subsided, the banks stabilized, and the economy began to recover. J.P. Morgan had saved America.

When the dust settled, it was clear that Morgan’s decisive action and fearless leadership had averted a total collapse of the financial system. He was hailed as a savior.

The Panic of 1907 was a turning point in American history. It highlighted the need for a central bank to stabilize the financial system. In the 19th century, America averaged one panic and depression every three years. The average economic decline was 22%.

That’s why the U.S. government created the Federal Reserve System on December 23, 1913. It needed to be prepared for the next disaster when it struck.

That’s how it was able to step in and save the global financial system during the Great Financial Crisis. And pledge to do “whatever it takes” in 2020 to prevent the COVID-19 pandemic from becoming another Great Depression.

The St. Louis Fed estimates that without the Federal Reserve’s actions in March 2020, unemployment could have soared to 50%, and the U.S. economy might have contracted 32% within a year. That would have made it twice as bad as the Great Depression but four times faster.

By inspiring the creation of the Federal Reserve, J.P Morgan saved America’s economy not once, not twice (he also saved the economy during the Panic of 1895), but thrice.

That's why his legacy remains strong today as the greatest financier in American history.

And what of Augustus Heinze?

He died alone at 44 and in comparative poverty…

His tale serves as a cautionary reminder to avoid the dangers of greed, risk, and speculation.

Today’s world of banking and finance is a far cry from the early 1900s. But we’re facing another banking crisis. And just like J.P. Morgan, our system will need a hero to step up and save it.

At Fortress Portfolio, our goal is to find the best plays to help your portfolio withstand all market conditions. By earning income through the ups and downs, you can reach a safe and wealthy retirement.

And today’s recommendation is one J.P. Morgan himself would be proud to see.

It’s set to deliver triple-digit gains in less than two years and a healthy 7% dividend along the way.

By helping to save the economy once more, we can earn reliable income from America’s next banking hero.

JPMorgan Chase, the bank Pierpont created, is famous for helping rescue American banks in crisis. (Note: We use J.P. Morgan when referencing the financier and JPMorgan when discussing the financial services company.)

In 2008, it bought Bear Stearns and Washington Mutual. Washington Mutual is still the largest bank failure in U.S. history.

So the company is no stranger to its founder’s practice of bailing out large American financial institutions.

It’s no simple task. Taking on an institution's problems – even when the government offers to help – means spending billions to absorb and fix them. So big banks like JPMorgan must make sure it still makes financial sense for them at the end of the day to do so.

And our current ongoing crisis highlights this problem in even greater detail.

The regional banking crisis that began with Silicon Valley Bank, spread to Signature Bank, and ultimately killed First Republic… is far from over. Which means there can still be opportunities for banking institutions to step up – and make a nice profit.

When JPMorgan bought First Republic in May, it struck a wildly profitable deal with the U.S. government. It bought $213 billion worth of quality loans for $10.6 billion. That’s 5 cents on the dollar.

The government pledged $50 billion against any potential loan losses. This deal was so sweet that the moment it closed, JPMorgan reported an instant $2.6 billion profit.

You might imagine that after scoring an instant $2.6 billion profit, JPMorgan would be eager for more bailout rescue deals with the government… But that’s not the case.

That’s because buying banks has hidden risks that might not come to light for years.

In 2008, JPMorgan bought Bear Stearns for $7 billion. That was a fraction of what Bear Stearns was worth just months before. And it only agreed to the deal after the Federal Reserve promised to cover the first $30 billion in mortgage losses from the subprime crisis.

JPMorgan estimated it would have to pay $6 billion over several years to fully integrate the company into its investment banking business.

In exchange for spending that much, it estimated it would get a permanent $1 billion annual business. In other words, pay $6 today for $1 per year forever. That’s a return on investment of about 15%, a very good deal on Wall Street.

But that was what JPMorgan expected on paper. The reality was a lot uglier. It ultimately spent $19 billion to cover lawsuits and losses above the Fed’s guarantee.

After seven years of dealing with Bear Stearns headaches, JPMorgan CEO Jamie Dimon told CNBC in 2015, “We would not do something like Bear Stearns again — in fact, I don’t think our Board would let me take the call.”

JPMorgan only bought First Republic because the government directly asked it to and because no one else had the financial firepower to offer a higher bid.

But now that it’s saved the day yet again, Dimon has indicated that JPMorgan is focused on digesting First Republic and isn’t looking for more deals, especially of that size.

He told Fortune in May this year that he won’t be buying any more failed banks, saying, “It’s a lot of work.”

But that doesn’t mean we won’t have more crises ahead. And with JPMorgan out of the picture, that leaves the door wide open…

You see, the Fed’s historic inflation-fighting crusade has seen interest rates soar 5% in 14 months. And it says it’s not done yet. The fastest interest rate hikes in 42 years have caused almost $700 billion in unrealized bond losses for U.S. banks.

This is what caused three of the biggest bank failures since 2008 earlier this year.

And now, the commercial real estate market is about to blow a $120 billion loan loss hole in the sector.

Loan losses are the losses suffered when loans go bad, usually during a recession.

A bank is naturally leveraged, taking $1 in deposits and lending $6 to $7 to businesses and consumers. That’s in credit cards, mortgages, commercial, and personal loans. If all customers don’t ask for their money back at once, there is nothing unsafe about $1 in deposits being lent out this many times.

That is, unless the loans go bad. Most banks are so conservative that they only earn 1% or 2% returns on such loans after accounting for the inevitable loans going bad.

A 1% or 2% return using six- or seven-times leverage results in a 7% to 14% net profit for banks, which is how banks make money.

But when loans go bad in a recession, that leverage works in reverse. If 5% of loans go bad and have to be written off, then 7X leverage means 35% of a bank’s equity, or its cumulative net earnings throughout history, get wiped out.

The leveraged nature of banks is why the U.S. periodically has banking crises, such as the Savings and Loan crisis of the 1980s and the Great Financial Crisis. And it’s what could be in store for the regional banking crisis ahead.

Regional banks are expected to lose $80 billion from commercial loans during this recession. That’s more than the annual profits of the entire industry.

And that’s just from loan losses from a single sector of the economy. According to the Fed’s models, total bank loan losses could hit $180 billion in this recession.

More banks will fail, potentially as many as 200, according to a study from Stanford. Meaning 5% of America’s remaining banks that could soon join First Republic on the ash heap of history.

The stage is set for a savior to step in… and I know the perfect company that can take the prize.

Today, there’s an A-rated super regional bank also rescuing failing banks in this crisis. And it offers a safe dividend yield of almost 7%.

It was a key bidder alongside JPMorgan to bail out First Republic. But thanks to its smaller size, it could score a future sweetheart bailout-style deal that’s as much as 7X better than what JPMorgan Chase got with First Republic.

It’s expected to deliver almost 120% investing profits in 1.5 years and almost 200% by 2029. That’s a potential tripling of your money in just over five years… While you collect a safe dividend of almost 7%.

And that if this bank scores those bank bailouts, those numbers could soar even more.

Plus, even better, we have the opportunity today to get in on the ground floor of a world-class banking titan that’s 50% undervalued. Meaning it’s trading at the same valuation as the Pandemic lows and darkest days of the Great Financial Crisis.

I’ll tell you all about this opportunity to buy what could be America’s next great banking rescue hero and earn incredible profits… all before the rest of the market catches on.

Truist Financial (TFC) is the third-largest super regional bank and the sixth-largest bank in America.

And today, we’re adding it to our Money In the Bank portfolio (more on this below.)

Truist was created by the $66 billion 2019 merger of SunTrust and BB&T but traces its roots to BB&T's founding in 1872.

BB&T has survived and thrived through:

Source: Truist Investor Presentation

Truist now has over 2,100 branches in the Southeast U.S. It serves over 15 million customers, courtesy of over 50,000 employees.

Unlike more traditional banks like US Bancorp or even Wells Fargo, Truist does investment and retail banking. Its specialists can help companies raise money in the bond and stock markets and combine mergers and acquisitions.

But Truist is like a mini-JPMorgan. It also offers retail, commercial, advisory, wealth, and insurance services. And these services are available to companies with $100 million and individuals with $100.

Last year, Truist made $5.9 billion in profit. Even with the regional banking crisis throwing regional banks into chaos, analysts expect the company to print $5.3 billion in profit this year.

Truist’s longevity and success are due to its smart management and operating efficiency. According to Morningstar, Truist is in the top 25% of regional banks by operating efficiency. That means it’s very good at generating profit, better than 75% of other regional banks.

Part of this profitability and diversity comes from a history of smart acquisitions.

In the last two years alone, Truist has bought three financial technology companies that let it keep up with industry titans like JPMorgan.

And that was after an even more productive 2020 acquisition year when Truist used market volatility to buy distressed companies with great financial technology assets.

That fintech includes everything from consumer point-of-sale readers like Square… to specialty financial companies focused on homeowners and home improvement projects.

Truist’s success is from getting deep into the details with its customers and knowing how to help them reach their goals at every stage of life.

And the ratings agencies all have a positive outlook for its future thanks to its success and competence.

Sources: S&P, Fitch, Moody's

The rating agencies estimate the probability of Truist failing in the next 30 years at under 2%. That’s just a 1 in 54 chance of losing all your money if you buy it today.

And the “smart money” on Wall Street agrees.

I’m talking about bond investors, the most conservative and risk-averse people in finance. They’re obsessive about analyzing risk and not losing money.

And thanks to credit default swaps and our FactSet Research terminal, we can tell you with real-time precision the risk bond investors associate with Truist failing in the next few years.

These estimates haven’t changed by so much as 0.01% in the last six months.

Even as the regional banking crisis erupted and Truist stock was cut in half, the bond market told us that this bank was just fine.

Right now is a great time to purchase shares.

Truist recently bottomed at 6 times earnings. In the Great Recession, it bottomed at 6.1 times earnings. During the pandemic, it bottomed at 7 times earnings.

In other words, through tens of millions of income investors, the market has concluded that Truist is never worth less than six times its earnings. Not even when the global economy is locked down and the financial system is in full meltdown.

Here’s the trick to knowing whether or not a stock will hit new lows in the coming recession.

Will the coming recession be worse or better, in terms of Truist’s fundamentals, than was priced at the bottom?

Truist was priced for Great Recession-level economic carnage. In the Great Recession, Truist’s earnings fell 65%.

And the current analyst consensus for Truists earnings to fall during this recession is just 14%.

This means that if Truist beats already conservative estimates or meets expectations, this coiled spring is likely to keep rocketing higher.

The stock market was scared that Truist’s earnings were going to implode completely. And when that doesn’t happen this blue-chip stock is likely to rapidly head towards historical fair value of 14 to 15 times earnings.

Today, even after a 25% rally, it’s trading at eight times earnings.

Analysts expect 5.2% long-term growth. When combined with its safe 6.5% yield, that means almost 12% long-term returns for decades.

That’s what the Nasdaq is expected to deliver. But Truist yields more than eight times more than the Nasdaq.

Next, let’s look at Truist’s investing return potential over the next few years based on expected growth and a return to historical market-determined fair value.

And in case you think Truist, from these absurdly wonderful valuations, isn’t capable of such returns, look at the returns it delivered the last time it was this cheap.

(Source: Portfolio Visualizer Premium)

Truist delivered 1,420% returns over the 15 years following its Great Recession lows. So, if you’re wondering if Truist has likely bottomed, history and fundamentals say yes.

If you’re wondering whether it’s too late to board this train to profit town, the answer is heck no! Truist’s profit-generating is just getting started.

Remember how I told you that Truist could soon be pulling off JPMorgan-style rescue deals for failed banks?

JPMorgan’s $10.6 billion buyout rescue of First Republic earned it $2.6 billion in instant profits. But JPMorgan is the fifth-largest bank on earth. That means its earnings boost from First Republic is just 6%.

Truist is a much smaller bank. But still one of the strongest in the country. How do I know? Because the U.S. government asked Truist to be part of the rescue coalition that deposited $30 billion into First Republic to try to stabilize it.

When the regional banking crisis first erupted, these were the 11 strongest banks in the country that the U.S. government turned to. They are the rescue banks, the ones that were bidding on First Republic’s corpse.

JPMorgan had the highest bid but just barely beat out PNC and Truist.

First Republic was the 14th largest bank in America, and the government ultimately decided that only the largest bank could handle that deal.

But there are no more First Republic-sized banks at risk of failure. The largest at-risk bank, according to Moody’s is  KeyBank, the 21st largest bank. It has $195 billion in loans that would probably be sold for $9.75 billion. That’s assuming the same 5 cents on the dollar that JPMorgan paid for First Republic’s loans.

This is a potential deal that’s 90% as big as First Republic, but that JPMorgan says its wants no part in.

Truist and PNC are the two most likely rescue banks to buy out  KeyBank if it fails.

If Truist gets the same terms as JPMorgan in that event, then it stands to earn an instant $2.4 billion profit from buying KeyBank. That potential $2.4 billion profit would boost Truists earnings by 44% overnight.

On March 26, First Citizens Bank announced it was buying Silicon Valley’s assets in just this kind of sweetheart deal. That day, it soared 53%. And since then,, it’s up 122%.

Now, I’m not saying KeyBank is necessarily doomed or that Truist is the one that will buy it if it is.

But this is just one example of how Truist is poised to potentially see its profits soar and take its undervalued stock to the moon.

Banks could already be among the walking dead due to the coming $180 billion in expected loan losses in this recession.

About $90 billion of those loan losses are expected to hit the regional banks like a wrecking ball. That’s 18 months’ worth of industry profits gone.

Who else might be about to go the way of First Republic and Silicon Valley Bank? Here are just some of Moody’s highest-risk banks, and what Truist buying them in a First Republic-style deal would mean:

Source: Federal Reserve, Moody’s

The Wall Street Journal estimates that within a decade, half of today’s banks will have been acquired by the other half. Not all of those will be in the coming recession.

But as you can see, there are plenty of high-risk banks for Truist to potentially to gobble up. It can’t afford to buy all of these. Not even JPMorgan has that kind of cash.

But you can see the incredible boost to earnings that would give Truist the moment the deal closed.

Truist is one of the best-positioned banks in America to gobble up its rivals and supercharge its earnings.

When we launched Fortress Portfolio, we also offered a portfolio of alternative picks called the “Money in the Bank” portfolio.

If, for whatever reason, you want to choose a different pick for your own portfolio, you can select one of the ones in this list.

And the one we suggest using Truist as a replacement for is US Bancorp.

Now, we’re not selling US Bancorp. But Truist offers another amazing super regional bank deep value high-yield opportunity. One that only comes around during recessions (every six years on average).

So, let’s take a look at the differences between US Bank and Truist to help you decide which one, possibly both, is right for you.

But we don’t recommend allocating more than 4.4% of your Fortress Portfolio into either one or a combination, if that’s what you choose to do.

Source: Wide Moat Research Terminal

US Bancorp is a pure traditional bank. It’s like Wells Fargo – before Wells Fargo drowned in an ocean of scandal, and the Fed capped its assets.

US Bancorp doesn’t do investment banking like underwriting IPOs or trading stocks or bonds.

Truist is like a mini-JPMorgan and does everything the mega banks do, including investment banking. That results in more volatile earnings. Its credit rating is slightly weaker, though it’s still an A-rated bank.

US Bancorp is growing slightly faster, meaning its yield is slightly less. But its expected long-term returns are better than Truist.

Truist is slightly undervalued, so it offers a tad better return potential through 2025. But only if regional banks don’t start failing.

Truist has the capital reserves to buy failed regional banks. US Bancorp could buy a handful of small banks or one medium-sized bank.

However, it bought Union Bank in December of 2022, and its capital ratios have thus been reduced. Management is planning on raising those over several years.

Thus, if your goal is to cash in on the likely wave of regional bank failures, then Truist is the better choice.

If supreme safety and the highest long-term returns and dividend income is your goal, then US Bancorp is a better fit.

Or you could own both and enjoy some of the best banking values of the last 12 years.

We’ll compare Truist’s potential risks to our recent banking recommendation, US Bancorp. Read the box above on how both fit into our overall portfolios.

Truist’s business model is slightly riskier than US Bancorp’s for two reasons. First, it’s more regionally focused in the South East.

I’s also exposed to investment banking, which is more volatile than traditional consumer and business banking, which is US Bancorp’s exclusive focus.

In the 2023 Federal Reserve stress test, the Fed evaluated a severe recession that was more extreme than anything we’ve experienced since the Great Depression.

It was an impressive simulated economic collapse with unemployment soaring to 10% (great recession peak)… GDP falling 9% (like in the Pandemic)… U.S. bond yields falling to zero (due to Fed being negative or zero)… stocks falling 45% (like they did in the Panic of 1907)… home prices falling 38% (more than the Great Recession)… and the VIX (S&P volatility index known as the Fear gauge) soaring to 75 compared to its historical 19 average.

This kind of doomsday scenario is extremely unlikely. However, in that simulated catastrophe, Truist’s net losses were about twice as large as US Bancorp’s despite US Bancorp being a slightly larger company.

The reason is its exposure to investment banking. Which means that if the stock market crashes, Truist is likely to experience more pain than US Bancorp.

However, in that 2023 stress test, Truist’s earnings per share only fell 15%. Its dividend payout ratio never exceeded 65%.

The reason rating agencies consider 50% a safe dividend payout ratio is because banks are highly levered companies by nature. They run with 5.5:1 to 6.5:1 leverage.

That means for every $1 in deposits, they loan out $5.50 to $6.50. If some of those loans go bad, earnings can take a drastic hit.

If a bank has a 50% or lower payout ratio, then even if earnings fall by 50% due to loan losses of 9%, the dividend is still covered.

Here are the peak dividend payout ratios analysts currently expect in this recession.

US Bancorp’s dividends, even after accounting for expected loan losses from the recession, would still remain safe.

Truist’s are expected to go slightly above safe levels. But that is perfectly fine for a bank in a recession. They have a safety buffer to use when needed.

However, if the recession is more severe than currently expected, Truist’s payout ratio might climb into the 60s or 70s.

The Federal Reserve, which regulates banks, has announced it will raise capital requirements for large banks, including Truist and US Bancorp.

The specifics haven’t been announced and should not be an issue for Truist’s long-term growth outlook or dividend safety.

However, should the Fed be too aggressive with extra capital requirements and the recession worse than expected, Truist might feel pressure to cut its dividend to shore up its capital buffers.

In which case, we’ll reach out to you and give guidance on how best to protect our profits.

J. Pierpont Morgan died worth $2.4 billion in today’s money. He became one of the richest men in the world by knowing when to take smart, calculated risks.

Unlike the August Heinzes of the world, he knew when to stand up for the country instead of trying to make a quick buck.

Truist is a deep value, high-yield, blue-chip opportunity. One that’s straight out of J.P. Morgan’s playbook.

If the Fed manages to achieve the first soft-landing in history with inflation starting above 5%, Truist will thrive and soar. The 14% earnings decline analysts expect won’t happen, and the market will celebrate.

If the recession that the bond market says is 100% certain by July 2024, happens, then Truist likely has very little downside risk. It’s unlikely to hit new lows.

It could fall a bit from here, and if the recession is severe enough, even retest its May lows. But at these levels, I’m confident anyone buying this anti-bubble blue-chip bargain today will not hit their 30% stop loss.

With all the potential risks in front of us, it’s still worth adding Truist to our Money in the Bank portfolio for the chance to triple our money in five years or less. In the meantime, we’ll lock in a safe 6.4% yield and Nasdaq-like returns for decades.

Action to Take: Buy shares of Truist Financial (TFC) Buy-up-to Price: $62.94 Position Sizing: 4.4% of your Fortress Portfolio. Or up to 7.5% in an individual portfolio. Risk Management: 30% hard stop loss ($23.14 for our tracking purposes)

The economy is proving more resilient than expected. At the end of 2022, data was pointing to a recession beginning at the start of 2023 and being over by July.

This would have been a very rapid start to the recession. According to five Federal Reserve studies, the 3-month-to-10-year yield curve is history's most accurate recession forecasting tool. It has never been wrong since its creation in 1953. That’s 70 years of 100% accurate predictions, ranging from eight months to 21 months after the curve inverted.

The curve inverted on October 31, 2022. Historically speaking, a recession was expected to begin by June 31, 2023, to July 31, 2024.

Economists agree with our model that the recession is now most likely to begin in the first half of 2024, most likely in April or May.

The reason for this is resilient consumer spending. This is what powers 70% of U.S. gross domestic product, or GDP.

Record government stimulus in the Pandemic created an estimated $2.5 trillion in excess savings. This is money consumers wouldn’t normally have had they not gotten checks from Uncle Sam.

American consumers have been spending down these excess savings as well as borrowing on credit cards. Along with the best job market in 54 years, this has allowed the economy to withstand the fastest interest rate increases in 42 years.

However, those excess savings are expected to be gone by the end of the year. In addition, credit card interest rates have reached a record 22%.

New credit card spending in May came in 75% below economist expectations.

The average peak in consumer spending since 1950 is 18 months after the first rate hike. That means September 2023 is likely to be the high-water mark for the engine of the U.S. economy in this economic cycle.

By the end of the year, my research expects two consecutive months of declining consumer spending, just one sign among many of the approach of recession.

The good news is that financial stress stays near record lows. There is zero sign of an impending severe recession like the Pandemic or Great Financial Crisis.

And that means we shouldn’t be hiding with our heads in the sand. Instead, we should be looking for bargain deals in the market – exactly like we’re doing today.

Wide Moat monitors 123 financial metrics, courtesy of the St. Louis and Chicago Federal Reserve Banks. We check these along with 18 leading economic indicators and dozens of weekly real-time indicators for signs of recession or financial calamity.

Recession is almost certainly coming within a year. It would be historically unprecedented if it did not.

However, while the broader market is likely to take a massive hit, Fortress companies are nearly all significantly undervalued. Their dividends are safe, meaning Fortress will do its job – which is to protect us under all economic conditions.

The highest risk of a dividend cut in a severe Great Recession-level economic decline within our portfolio is just 3%. So, take heart that in the coming months, when the market might panic, your dividends are safe and very likely to keep growing.

Enterprise Products Partners raised its divide 2%. It now has a 25-year dividend growth streak, making it a dividend champion (non-S&P dividend aristocrat)

(Source: Federal Reserve)

All three of our recommended banks easily passed the Fed’s stress test, even the doom scenario. Toronto-Dominion’s conservative Canadian banking practices resulted in trough capital ratios that were 2.5X higher than our American Banks.

This is why it’s an AA-rated bank. Rating agencies say it’s also the 20th safest bank on earth. And among non-government-owned banks, it’s the 10th safest.

This isn’t a surprise given that there hasn’t been a banking failure in Canada since the 1840s, outside of one case of fraud.

Source: GuruFocus Premium

I welcome your questions and will try to answer as many as I can in the weekly update videos and these monthly newsletters.

Just remember I can’t give individual investment advice. But I can supply information and general guidance for the average investor. Write in with your questions here.

Safe investing,

Adam Galas Chief analyst, Fortress Portfolio