Video Update: These Exciting Growth Headlines Are Misleading All of Us

We’ve recently gotten great news about the forces driving economic growth in America.

That includes positive corporate results, productivity and wages, and gross domestic product (GDP).

But as Chief Analyst Adam Galas warns, there are some alarming reasons we’ve reached this point today… And we shouldn’t take these headlines at face value.

That’s why right now is not the time to give into euphoria and expect good times to last forever. By inspecting the cracks in the system, we know exactly what we need to do to prepare for the inevitable comedown.

Adam will also dive into one Fortress pick that will help us do just that.

Click below to watch the video or scroll down to read the transcript.

Happy SWAN (sleep well at night) investing,

Brad Thomas Editor, Fortress Portfolio

Welcome Fortress Portfolio members to another weekly video update.

Now – like you – I'm a patriotic, red-blooded American capitalist. And I love reporting great news about American boom times.

And recently we had some fantastic news: 4.9% GDP growth.

Now, that's impressive, but there's even better news, at least initially...

If we take a look here, we can see that the current economic growth rate since the pandemic is at 5%.

(Source: Charlie Bilello)

This most recent quarter is the best growth rate in 83 years, even adjusted for inflation.

But what gets me really excited, is this news.

(Source: The Daily Shot)

Now, you might be wondering – why does this matter? Well, productivity is just the output divided by hours worked.

This, combined with how many people are working, is what drives real economic growth over time.

It's also what drives inflation adjusted wages. Now, JPMorgan estimates that over the next decade, the workforce is going to grow at about 0.2% per year.

So the Fed and the government are both planning on 1.8% economic growth, which means we need 1.6% productivity.

Well, right now we have productivity three times higher than that.

Now, to give you an idea of how impressive this is… Take a look at the chart below.

JPMorgan has modeled the potential productivity boom from A.I.

(Source: J.P. Morgan Asset Management via The Daily Shot)

And they think that in a best-case scenario that productivity could be boosted to another 4% and we are close to 5%.

Now, if we take a look here, we can see Goldman Sachs has its own models for what A.I. could mean for productivity.

(Source: Goldman Sachs Global Investment Research)

Base case, a 1.5% increase in productivity to around 3%. Best case, about 2.9% boost to around 4.5% growth in productivity.

Now, here's why that would be absolutely amazing.

If we could maintain today's 4.7% productivity growth, it means wages could grow by 6.7%.

You could make 6.7% more every single year and inflation would still be 2%.

So the Fed wouldn't have to push us into recession.

Now, what that would mean for the economy, of course, would be an absolutely incredible growth of nearly 5% – potentially for a decade.

What would that mean for earnings growth? According to Bank of America, they estimate that would mean around 20% earnings growth.

So as you can see below, that would mean potentially a repeat not of the 1990s, which of course were a boom time… But of the 1950s when the stock market roared higher by 20% annually.

(Source: Asset Return by Decade via Ben Carlson)

That’s Buffett historical returns for an entire decade. That's turning $1 into $6 had you invested in index funds if they had existed back in the 1950s. The best decade for stocks ever.

Now, of course, this also means that corporations are thriving today, as we've seen with this recent earnings season.

Starbucks raising prices by 6% and still selling 2% more coffee.

Coke raising prices by 9% and selling 2% more soda.

Pepsi got too greedy, raising prices by 14% and selling 2% less soda… But still had 12% sales growth.

And Americans are spending like there's no tomorrow.

Corporate profits are hitting record levels.

And some people might think the good times could last for another decade…

But that is not true… Just a story Wall Street has been dreaming about for the last week when stocks soared 6% higher. Tech rose 7% higher, and some beaten down sectors rose as much as 9%.

And heck, some of the most heavily shorted speculative names rose 18%.

So what's going on with the economy? Well, let's take a look below.

We can see that when we decompose what's actually causing the big GDP spike… it's largely inventory supplies, basically companies ordering new stuff.

(Source: The Daily Shot)

So here's what actually happened.

Remember that the pandemic threw everybody for a loop.

In the pandemic, everyone was stuck at home. We couldn’t go out to eat. We couldn’t go to concerts. We couldn’t go to sporting events. We couldn’t travel.

We couldn’t’ do anything we wanted to do.

Services were 65% of the economy… but we were all locked at home. And the only thing that we could actually buy in terms of services was Netflix, Amazon, and DoorDash delivery.

Meanwhile, the government was sending people checks – not once, not twice, but thrice – for a total of $4 trillion in stimulus.

And don't forget, the Fed.

As you can see, the Fed was busy printing $5 trillion in free money for a total stimulus of $9 trillion.

(Source: The Daily Shot)

But wait, there's more.

That wasn't just $9 trillion in stimulus because – what did people do with it all?

They invested it.

They bought houses with it. And so what that led to was an asset price inflation of almost $38 trillion.

(Source: The Daily Shot)

So now what happened when everyone's locked at home, flushed with cash and feeling super rich?

Well, we bought stuff. Physical stuff. Stuff we could get delivered by Amazon or pick up at Target.

And Target's earnings soared 112% in the pandemic.

Amazon, which had spent 20 years building the most advanced delivery logistics network in history, doubled its capacity in just two years to keep up with demand.

Target and everyone other company could not buy physical goods fast enough.

Supply chains were insane. Shipping costs were up 500%.

And do you know why? Because every retailer, every car manufacturer, everyone and their mother who was trying to sell any physical goods, had to double or triple order everything to keep up with the demand.

Imagine you have to sell a million widgets.

Well, you better order a million from three different suppliers and pray that one of them can actually get you that delivery… So you have them in stock for your customers.

So then what happened? Lockdowns ended, and vaccines became available.

The pandemic faded, and the reopened economy.

Revenge travel became the new hotness. Airline ticket prices more than doubled. Some tickets from JFK to Paris in business class sold for over $40,000.

U.S. concert prices more than doubled from their pandemic lows. Taylor Swift, Beyonce, Pink, sold out billion-dollar concert tours.

And the average prices for these tickets were $500 with some going as high as $9,000.

And then suddenly, physical goods – which had the biggest boom in history – saw a major bust.

Clorox, which had 65% earnings boom because Americans were drowning themselves in Purell… Had a 44% earnings crash.

And Target’s fell almost 60%.

So what happened?

Inventory gluttons become the bane of every retailer. So they simply slammed the brakes on their inventories.

But there's only so long you can keep old inventory that’s not selling… Before you have to write it off at a complete loss and order new stuff before the holidays.

And that's exactly what we just saw.

A major binge of new inventories driving up the GDP numbers.

And remember, productivity is GDP divided by hours worked.

So if we have a spike in GDP, it looks like productivity is flying to the moon.

Now, the good news is the economy is not yet disastrous.

It's not going to be. If you just look at the latest jobs report, for example, now headline say 150,000 versus 186,000 expected.

However, 33,000 UAW workers were on strike there. And that strike is now over.

So you add those back in, it was 183,000… pretty much as expected.

Now, compare that to 320,000 from the previous month – the blowout jobs report – and things look a lot weaker.

And of course, that report was also revised down by about 100,000.

So you can see that the labor market is strong, but not humming along at 5% growth levels.

So what does this bring us to? Well, this brings us to what this means for your Fortress Portfolio.

Today, I want to highlight MPLX (MPLX) as a perfect example of our investment strategy, which should make you a very happy member of the Fortress Portfolio.

MPLX is up 10% since we recommended it. And it's paid 7% in dividends. That's a total of 17%, which is basically keeping up with the current market.

But remember, that the Magnificent Seven (Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA)) are the only reason the S&P is even up around 17%.

Almost everything else outside of the Magnificent Seven are actually down.

But MPLX is kicking butt. In fact, it just raised its dividend 10% for the 10th consecutive year. MPLX has been raising its dividends pretty much every year that its existed.

Now, what we love about MPLX is that it is similar to a utility business. You can see below that in 2020, cash flows only fell 2% during the pandemic.

(Click to Enlarge) (Source: MPLX via FAST Graphs)

That was an absolutely atrocious time, of course, for the economy with -$38 oil. But MPLX had rock steady cash flows.

Notice that its cash flow is growing steadily.

Don't worry about 2025 estimates. They’re down because of the number of analysts estimating the growth for this chart.

Through 2024 you can see steady growth… even in the coming recession. And steady dividend growth every single year.

With a solid BBB investment grade credit rating and a nearly 10% dividend yield, MPLX is one of the safest almost 10% yields on Wall Street.

Now, what we love about MPLX is that this is such a strong company. Even in the pandemic, when it bottomed at 33% yield, we knew the dividend was safe.

So those who bought it in the pandemic, achieved 50% annual returns since then… and over 300% total returns.

And most importantly, they locked in a safe 33% growing yield for life.

They pretty much already retired.

But you might be wondering – how much juice is there left in this squeeze?

Because it is still undervalued, but how undervalued is it?

Well, we can see that even if we use this assumption here of -9% growth in 2025.

We still have 37% upside in the next two years, 16% annually.

For comparison, the S&P is just a 13% upside or 6% annual return potential.

And actually, this is likely to be 4% growth based on management guidance.

So this means around 51% upside and nearly 20% Buffett level returns for the next two years. That's three times better return potential than the S&P 500.

And here is the most important thing for Fortress members to remember.

This is an absolutely amazing company with a very safe 10% yield.

But, where have you heard of MPLX before?

You've heard it about it as a member of Fortress Portfolio.

But not many people have heard about it elsewhere.

As I’ve mentioned before, I watch Bloomberg and CNBC so you don't have to.

And believe me, you don't want to. It's no way to live. I watch about 20 hours per week.

I review about 150 experts’ opinions a week on the economy and stock picks.

And guess how many times I heard them mention MPLX.

None.

MPLX is a hidden gem of a company.

It’s also an MLP or midstream limited partnership. And no one likes to talk about MLPs.

If you’d like a refresher, I broke down the basics of MLPs when we first recommended MPLX in our special report: The Fortress Portfolio: 17 Stocks to Buy and Hold Forever (Or Until The World Ends)

All in all, MPLX’s 10% safe yield and 4% long term growth… gives you around 13.5% long term expected returns according to management guidance. And that’s right in line with Nasdaq's historical returns.

And in the future, the Nasdaq is going to give you about 12.5%.

So how would you like to beat the Nasdaq with a 10% safe yield and triple the market's returns over the next three years? And with a company so strong and safe that on April 17th, 2020 (when oil hit -$38), it kept right on hiking its dividend.

MPLX has been doing this since 2014.

This is the kind of dependability you get as a Fortress Portfolio member.

We find you the kind of hidden gem ultra yields that you can trust when hell comes knocking and everyone else is losing their mind in panic.

When you practice disciplined financial science, you can make your financial dreams a reality.

And Fortress Portfolio is part science-based magic and dividend fueled sorcery.

Thank you for joining us for this weekly update.

I hope you join us next week when we talk about another one of our favorite recommendations as well as help demystify what's going on in the economy and stock market.

Please remember to send us your questions and feedback so I can respond to them in these videos and our monthly issues.

Just a quick reminder, I can't provide personalized investment advice.

Until next week, this is Adam Galas, wishing you and your family safe investing and a healthy, relaxing, and joyous weekend.