In This Episode
In the wake of Tuesday’s market carnage, with almost all of the major indices losing 3% of their value, Dan sees a rough slog ahead for almost all U.S. stocks. By any reasonable metric, stocks are a bad deal – but a few diamonds exist in the rough.
Of course, there are not just bad deals to be found, but also outright land mines for investors, as is the case with GE, whose rotten pension dilemma Dan breaks down this week for listeners.
Later on, Dan and Buck are joined by Dr. David (Doc) Eifrig and Stansberry Senior Analyst Matt Weinschenk. Doc has a storied past working for years trading derivatives at Goldman Sachs before leaving Wall Street to become an eye doctor before finally joining Stansberry in 2008. Matt has spent over a decade as an investment analyst and six of those have been here with Doc.
Doc’s Retirement Trader options trading service has achieved a 95% success rate since its debut in 2010, a time spanning hundreds of investment recommendations made in all sorts of market conditions.
But now, he says it’s time to think even bigger.
In unleashing his newest, upgraded options trading service, Advanced Options, Doc, Matt, and the rest of their team are unveiling a service that’s designed to magnify the upside of some of Stansberry Research’s biggest wins, while helping to cut risk to the bone.
We think you’ll want to keep an eye out for Doc’s special offer made at the end – which includes two years of Advanced Options, one year of Retirement Millionaire, and one full year of True Wealth and Stansberry’s Investment Advisory.
You can get the full details at www.investorhouroptions.com
NOTES AND LINKS
For more information on Advanced Options – Click Here
To see more of Dan’s work in Extreme Value – Click Here
1:17: Buck asks Dan for his take on the yellow-jacket protests erupting in Paris over the last week, and the victory in ending a gas tax President Macron concedes “is not worth our national unity.” In one sense, these kinds of wins restore Dan’s faith in humanity – but he’s still watching for the fact that most protests are inevitably demanding more government, not less.
7:29: With GE facing a new round of pension problems – owing workers $100 billion in payments despite having just $71 billion in assets – Dan reveals why this kind of financial house of cards is rampant in the Fortune 500 right now. “It’s not just a GE problem.”
11:37: Despite epic amounts of Fed meddling in the trillion-dollar variety over the last 10 years, America hasn’t seen its central bank buy equities – yet. Dan reveals what a strike force of “shadow buyers” in market meltdowns similar to what China and Switzerland’s governments have could look like in America.
22:52: The markets are up just 3-4% for the year, cash is holding steady, commodities continue to stagnate… so why haven’t we seen a big rush to gold yet? Dan explains why gold, rather than an investment, is an insurance policy. And a demand for the kind of insurance gold provides “may not happen again in my lifetime.”
26:30: Buck introduces this episode’s special guests – Stansberry income and retirement strategist Dr. David (Doc) Eifrig, and Matt Weinschenk, a Senior Analyst at Stansberry Research. Doc has a storied past working for years trading derivatives at Goldman Sachs before leaving Wall Street to become an eye doctor before finally joining Stansberry in 2008. Matt has spent over a decade as an investment analyst and six of those have been here with Doc.
31:13: Matt asks Doc about his first month on Wall Street, and Doc describes the days after the infamous 1987 crash, after he had been at Wall Street for around a year. “That was my first experience with portfolio insurance, when that all fell apart.”
38:15: Doc explains why his options strategy he recommends to readers isn’t about getting rich fast, even when his recommendations can lead to near-instantaneous payouts in the thousands of dollars. Matt jumps in to shed light on the strategy – the worst case scenario, the way Doc’s team pursues option plays, is that they’re paid to own shares of a stock that’s highly desirable in the first place.
40:10: In the last year, both Doc and Dan have grown increasingly bearish, with Dan advocating investors move into cash while Doc warns of an overheating economy. Dan asks Doc exactly how bearish he is in the wake of Tuesday’s 3% dip across almost all major indices.
43:04: Doc explains why the debt situation is making him more nervous than before. “Corporate debt as a percentage of GDP – that’s at all-time highs, higher than it was at the tech bubble, the housing bubble, that’s got me nervous.”
49:55: Dan asks Doc about his new, elite options-trading system he’s about to unleash on the world, and Doc explains why Advanced Options is designed to harness both time and volatility to collect big premiums on stocks – whether you own them or not.
Voiceover: Broadcasting from Baltimore, Maryland and New York City, you’re listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour.
Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show: Buck Sexton and Porter Stansberry.
Buck Sexton: It is time for another wonderful episode of the Stansberry Investor Hour. I’m radio host, Buck Sexton, and with me is the man himself, Dan Ferris, Editor of Extreme Value and longtime Stansberry Member. Mr. Dan, good to have you, sir.
Dan Ferris: Oh thanks, good to be back.
Buck Sexton: All right, so let’s get to it with these protests in France because this is – I think it’s the most interesting news story of this week, so far at least. We could get some more interesting stuff kicking up later on but the yellow vest protests.
So the French government now is saying that they’re gonna suspend a controversial rise in the fuel tax there. Now the fuel tax that was supposed to go into effect was specifically to raise money to address climate change, and yellow vest protestors are these people that wear the yellow vest that commercial drivers in France have to wear.
It’s like a – it looks kind of like a high-visibilty, you know, construction crews on the side of the highway wear them, those kinds of vests. They’ve had some really raucous, nasty protests go on across the country, some of them where there’s a lot of riot police, tear gas, all that stuff.
Dan, it turns out that people don’t wanna fight climate change quite as much as they thought, if it means they’re gonna have to actually pay for it.
Dan Ferris: No kidding [laughter.] This is – you know this actually, it’s terrible of course that people are rioting in the streets and there’s violence and people are getting hurt, but it kind of reassures me. It restores my faith in humanity that people eventually do get enough of this type of nonsense to literally take to the streets.
You know, it makes me wonder why they aren’t marching down Pennsylvania Avenue sometimes but yeah, I love this actually, although I will tell you this, Buck. Every time I see a story like this, I’m just waiting for the subtle detail that tells me well, you know, the protestors really want more government, not less.
It almost always goes that way, but for right now, I’m gonna ride the high. I like what these people are doing.
Buck Sexton: I think that the gas tax was 30 cents a gallon, roughly 30 cents a gallon is what they’re proposing, but French gas is already something like in the high fives, or I think six dollars a gallon. I think that sounds about right.
Dan Ferris: Yeah, I thought it was six bucks.
Buck Sexton: Yeah, it’s about six bucks, whereas in the U.S. right now, there are – I think there are multiple gas stations in – or sorry, multiple states where there are gas stations with gas at around two bucks a gallon.
Dan Ferris: Right, yeah. I’m paying two-something. I don’t pay attention to it at all, but yeah, you know, half, less than half.
Buck Sexton: Well, it makes a big difference, and you know, it also translated into a lot of – or for a lot of people resonated because there’s a sense, especially in Paris and the surrounding area, but this is true in a lot of major French cities, and for people listening to live in cities, they probalby understand this dynamic in their own – in their own way that the city is now too expensive.
It’s too expensive to live anywhere near where you work. So you have people that are commuting longer and longer distances.
So it really kicked up the class warfare feelings when people who have to drive pretty long distances to get to work in the city they can’t afford, which is full of politicians that make these kinds of decisions for them, turned around and said you know what, we’re gonna make it even more expensive for you to drive back and forth those long distances, to flight climate change.
And oh by the way, even if you think that climate change is gonna melt the planet, which is a whole other discussion, they’re not even sure that the money they were gonna raise from this was gonna go to that issue.
There was discussion of well, we’ll put this effectively carbon tax in place, but maybe we have to use it for other things too.
Dan Ferris: [Laughter.] The ultimate flexibility.
Buck Sexton: Yeah.
Dan Ferris: Yeah, well you know, none of this surprises us that the French government would be the ones to try to pull something like this.
Buck Sexton: And Macron, you know, he’s the guy that they went with that was at least the establishment consensus candidate. I don’t know if anyone could say that he’s – there is – was such a thing in the last French election for a true establishment guy – I’m sorry, or a true consensus candidate, he is the establishment guy.
Dan Ferris: Right.
Buck Sexton: You know, the bankers liked him. The financial types tended to like him, but turns out that he doesn’t have a magic wand to deal with pension shortfalls and rise in taxes, and lower standard of living, and all that stuff.
It’s harder than just electing a guy that looks good in a suit and is kind of the French equivalent of Beto O’Rourke.
Dan Ferris: [Laughter.] Yeah, you know, of course you and I know that there is a magic wand that no one will ever wave called shrinking the government dramatically, right, spending a lot less on government. That’s the magic wand and no one will ever wave that wand, which is really just sad in my opinion.
Buck Sexton: One of the best examples of that discussion or that debate as it plays out was you know there was this fierce partisan back and forth some years ago over what everyone was calling the sequester, right, when there would be essentially a mandatory cut in the budget, and what you had to do was read past the headlines in that.
You know, this is back in the Paul Ryan – when Paul Ryan was somebody that people paid attention to days, and the whole fight though wasn’t about an actual – you know people were saying oh, they’re slashing the budget and how could they do this, and what’s gonna happen to our military?
You know, at the national level, it’s always military first, at least on the right, and at the local level, it’s police and firemen. You know, this is the discussion. It’s always firemen first. Any time you wanna cut the budget, what’ll our fire department do?
You know, well in conservative circles, really nationwide in general, they say oh, well you know, how are we gonna cut the military budget? You know, Dan, the sequester was a fight over the degree of the increase in the budget.
It wasn’t actually even a cut to the budget. It was how much more should the budget grow over a period of time, and it was a decrease in the increase, and they were fighting over that.
Dan Ferris: Right, so that’s one of the sort of bits of – call it fake news if you will that we constantly get.
This – until the Trump era here, this was a constant thing. People were talking about – they’d use the word cut sometimes but what they meant was a cut in the amount that they wanted to grow; a cut in the amount they wanted to increase, so yeah, I actually do remember that.
It’s you know, yet another in an endless long line of pet peeves I have with the way government is represented.
Buck Sexton: I think we’ve got another in the greatest hits of G.E. here that I wanted to as you about, G.E. pensions look like they’ve got some problems. Workers have been promised $100 billion in payments. The company only has $71 billion in assets.
G.E., this just – it just keeps getting worse and worse, it sounds like, or reads like.
Dan Ferris: It does read like – and it is like, and you know this is not just a G.E. problem. Other companies have the same problem and they’ve had it for years though, and you know, one of the things and maybe, to me this isn’t big news but I think a lot of people just don’t appreciate it.
So you know if you’ve heard this, listeners, apologies in advance but you know, they use the wrong assumptions when they calculate their pension obligation.
They assume that they’re gonna make a lot more money in the stock market than is reasonable, and they’ve been doing this for a long, long time. So – and you know it’s a cumulative effect; the longer you do it, the worse it gets.
So you know, any pension plan that’s still around, that still has a defined benefit, you know, component to it, is going to experience a problem because they’ve – you know they basically commit to x, and they’re gonna wind up with half of x or something you know when --
Buck Sexton: You know when I do – when I do radio, you know, a lot of the people that I’m speaking to are, you know, a lot of people I’m speaking to aren’t as interested in the stock market in general as for example this audience is.
You know the general – I think what is it, about 20 percent of the U.S. population owns any equities or debt instruments. I think it’s something like that. It’s a pretty – it’s definitely less than half, and I think it’s a pretty small fraction of the U.S. population overall.
But when I try to get everyone’s attention, because people say ah, the market, you know, the market’s not really – unless you own stocks, who cares.
Then I say well, I know from my time at the NYPD when I didn’t get a pension obviously, I wasn’t there for very long but I knew a lot of guys who were very concerned with their pensions, that the way this is structured, you mentioned defined – define benefit pension plans.
They will have you know okay, well we’re gonna pay out x to all the people that qualify for the pension in the next – you know from years 10 to 30 from now, and they’re assuming they’re gonna make like $5.00 or $6.00 a year compounded, or sorry, five or six percent a year compounded every year.
Dan Ferris: Oh yeah, and higher in some cases, like seven percent. So yeah, they’re – I think they’re gonna make a lot more than they are, and I suppose you know --
Buck Sexton: And this is how if you’re a fireman, I mean the stock market effects you, right, I mean if you’re –
Dan Ferris: Sure.
Buck Sexton: Or if you’re somebody that’s looking to retire and you’re a state employee or you’re a government employee, or anybody on a pension, this matters.
Dan Ferris: Right, right. You care about something that you probably ought not to have to worry about at all, but you know what, I found this story in Bloomberg. There’s an economist, Buck, to the rescue. This fellow in Bloomberg, an economist named Roger Farmer says you know, it’s only a matter of time before the rest of the world governments imitate what China does.
Apparently, China has this group of government-related entities they call the national team. This will sound familiar to some people, the national team is just a group of entities that come into the stock market and start buying shares of mainland China based companies on a big scale when the stock market plunges, and this fellow, Roger Farmer says you know, eventually this is gonna be the way every government operates.
And what caught my attention, this is a recent story, this is within the past week or so, and I thought to myself well, haven’t they been doing that for over a decade, and what they really have been doing – we all look at it that way.
We all look at the Fed and say they’re propping up the stock market but we don’t see the Fed buying equities, right. We saw the – you know the Swiss National Bank has bought equities.
You know, Japan, the Japanese government has bought equities but you know, we look at these programs as a little bit crazy and how is this gonna turn out, but this guy is saying this is gonna be the norm, and it’s truly insane.
And it’s probably – I have to wonder, you know, if we hadn’t all gone to the stock market for pensions over the past many decades, almost a century, would we be in the pickle we’re in where governments are feeling more and more, and more pressure to prop up securities markets? And it bothers me a lot because the more we do this, the worst the effect, the worse the crash in the end.
You know, you’re constantly putting a penny behind the fuse, and so the lights stay on, but one day, you come home from the grocery store, you’ve gone out to dinner, and your house has burned to the ground and it’s a pile of ashes, and that’s what you get in financial markets.
That’s why we had what we had in like 2008, 2009, this huge crisis. We just did every wrong thing that you could do, including the action of the Federal reseve and the government; every wrong thing you could do, and of course, the glory of the world, the U.S. 30-year mortgage became the ultimate piece of absolute toxic waste and – and I think that’s you know, these things like this pension thing, it just – it’s one more thing that kind of pushes us down the wrong pathway. I worry about this stuff, obviously. Obviously, I worry about it.
Buck Sexton: Yeah, well you know, you said we did all the wrong things back in the 2008 crash. I just think it’s fascinating that the general narrative that you hear from the people that spend their time forming narratives, right, the media, news, news media, financial journalists is – and I think a part of this is that it all turned into Barack – you know the Barack Obama narrative was that he was the one that saved the economy.
That we were shedding x-amount of jobs when he came in, and by the time he left, you know, we were in a better place, and there were a lot of reasons why people tried, you know, eight years later, there were a lot of reasons why people try to do this.
But you know what you really don’t hear are very many people who say not only did we not have leaders doing amazing things in 2008 to save us, and we should be grateful but we did all the wrong things, and I think that’s really compelling.
I just wish that that message would get out there more, exactly what you just said, and the why.
Dan Ferris: Yeah, and you know, well, Obama too, I mean we have Jamie Diamond telling the whole world that American business was basically waterboarded for eight years during the Obama administration, you know in addition to the – to the you know, wonderful, helpful things that I’m calling the wrong things, you know just shoving home ownership down people’s throats and you kow, Fed manipulating interest rates and so forth.
We’re making it sound a lot – we’re making the world sound like a not fun place. Don’t we have any good news, Buck?
Buck Sexton: Oh, we do, kind of. We have Trump in China, calling it a truce, a cease fire of sorts in the trade war. This came after the G20 meeting down in Buenos Aires. By the way, you ever been there? I’ve always wanted to go, never made it down there.
Dan Ferris: Never been.
Buck Sexton: I hear very good things, so one day, but the G20 meeting is over, so now the U.S., as a result of this sit-down with Xi Jinping, the President of China, Premiere, and Trump, they talked to each other and they’re – they’ve got essentially a 90-day window, although I think there’s some disagreement as to when the – did the window just start or does it start January 1st?
A 90-day window where they’re going to negotiate more over trade and China also agreed to buy more U.S. agricultural goods, will not impose – the U.S. will not impose a 25 percent tariff on Chinese goods that Dan, this – is this just a – the economic equivalent of a stay of execution, or you think this is signalling good things to come?
Dan Ferris: You know, Buck, this whole trade war thing, it falls into the category of stuff that I try not to get too worked up about because in the end, it usually winds up being a lot less important than everyone thought at the time, and I think politics in general, I’ve reacted to politics over the years and it’s always been a mistake.
Having said that, you know poor Donald Trump, I mean I really think he doesn’t quite understand the way tariffs work because he tweeted out saying that we’re making billions on tariffs.
You know it’s like he really doesn’t understand that the tariffs we impose wind up as a tax on U.S. consumers of those Chinese goods and you know I just – I don’t know how all this is gonna end.
But I half-think that it constitutes so much political maneuvering and that he’s kind of testing China and seeing how much he can actually sort of open up trade, you know, genuinely in the end reduce tariffs between the two countries.
I don’t worry about this too much but you know I get a kick out of it sometimes and that’s – you know, that’s where I am on it. I’m not – I’m not losing sleep over tariffs, and when the – you know when the news is good, like yesterday the market goes up, I’m like yeah, okay, wait ‘til tomorrow, and here we are, and it’s back down [laughter.]
Buck Sexton: Bitcoin has fallen eight percent. It’s nearing its last week’s multi-month low, the second-largest drop in the history of Bitcoin. You know, it’s funny, I bring this up with Dan every time I’m like Dan’s probably like yeah, I’m not into Bitcoin. All right, there you go [laugther.] There’s not – anything you wanna add to – this is not your jam, you’re not a Bitcoiner.
This – I assume you expected that this would happen or that this – not just this one downturn but that Bitcoin isn’t something that you get that involved in, but I cede the floor to you on this.
Dan Ferris: Okay, so guilty, you know, I’m not really worried about it. It’s not something I do. I should give a shout out to our guest last week, Whitney Tillson who will be the first to tell you that he got kind of lucky, but his head was in the right place when he called the top in Bitcoin to the day.
I mean it was almost to the hour, you know, when it was pushing like I think $19,000 or $20,000 at one point and he came out with an email. You know, this is it, I never do this, it’s silly to make predictions but I’m calling the top in Bitcoin, and he was dead right, as right as you could ever be, and the thing just keeps falling, and falling and falling.
You know, currencies are supposed to be a good store of value but I don’t really see that happening here, but you know, who knows, because today, the U.S. Dollar looks like it’s still a good thing to own, and you know, considering that cash has been like just about the best-performing thing, you know, S&P 500 is up about I guess about three or four percent, year to date.
But you know, and a close second would be like if you take the S&P three to six month treasury index, so that’s up about two percent, I think. So you know, and that’s outperformed every other kind of you know debt instrument, or gold or what have you so far this year, and maybe you know so maybe if – if the U.S. Dollar doesn’t do so well one day, it’ll be good to have Bitcoins but I guess we won’t know until then.
Until then though, I’ll tell you Buck, I just don’t even know what it means to own Bitcoin. It’s not tied to anything I get or understand. It’s not tied to gold. It’s not tied to anything.
Buck Sexton: Do you think that that would change? Would that change things? Let’s say Bitcoin was somehow tied – I don’t even know how that would work but if there was a tangible asset that it was – because haven’t they tried this? I mean Venezuela tried to create its own cryptocurrency that I think they were pegging to oil or something.
I mean they’ve tried to make this switch. Would that change anything?
Dan Ferris: I don’t know but we’re gonna find out because there are products that are coming into existence right now. There’s a company called Tradewind Markets that has some initiatives in this direction, and so they’re just – what they’re doing though is what it amounts to is an electronic token that represents gold ownership in a vault at someplace like the Canadian Royal Mint, pardon me, and so you know maybe – maybe that could ultimately become a – you know these things tend to be taxed in a certain way by governments, right.
You know, we get just gold boullion coins in the United States are taxed like collectables, but if one day you know, some horrible calamity strikes and the U.S. Dollar just becomes – just goes to its intrinsic value of nothing, maybe we will be trading gold via some kind of you know, Bitcoin-like electronic token. That’s the close.
Buck Sexton: You dropped that scary little thing in ther of its intrinsic value of nothing about the U.S. Dollar. You just sort of blithely passed by that. Can you expand on that for a moment, Dan?
Dan Ferris: Well, what is U.S. Dollars? I mean it used to be just pieces of paper. Now it’s just – you know electronic stuff in your checking account when you log-in on-line.
So you know, it’s not backed by anything. It’s just a full phase, and credit to the U.S. government, which means their power to tax us until we put on our gilet jaune, our yellow vests and take to the streets in the United States.
So you know, these things can only go on so long and they can – we know they don’t. They never go on forever in history. You know, all fiat currencies have tended to go to zero.
So I’m just saying right now as I – you know, look out my window in the neighborhood, I don’t see any rioting and you know, everything seems to be fine, but we know ultimately fiat currencies tend to go to their intrinsic value, which is nothing, and I’m just speculating here.
We’re kinda looking at Bitcoin and electronic tokens here just to – you know from 10,000 feet up or 30,000 feet up, and I’m just suggesting yes, blithely however it comes out of my mouth, it is true that – you know history happens.
Fiat currencies have behaved a certain way very consistently throughout history, and who knows, maybe you’ll wanna own a little bit of Bitcoin and a little bit of electronic tokens representing gold, and a little bit of physical gold in your possession one day.
Buck Sexton: What has to happen for gold to have another – have another big move? And now I remember – you know I got into media in 2011 and it just felt like gold was white hot at the time, you know, people were really into gold and they’re – you know had this big – what was the – what was it, $1,900 was the – I mean it got way up there.
Dan Ferris: Yeah.
Buck Sexton: And now people feel like ah, it’s been a while, we’ve had all – you know the debt is over -- what is it, $21 trillion now. How come you haven’t seen a move in gold?
Dan Ferris: If I knew that, boy, yeah, why we haven’t seen a move to this, you know at this time or you know, why did it move a certain way last week or last month, or even last year, next year, whatever, that’s hard stuff that I don’t really get into, and I would say that anybody who does get into it is probably wasting their time.
Gold, as I see it for me personally, and what I advise to readers of extreme value, gold, physical gold is – it’s an insurance policy and I don’t know what has to happen, Buck, but I know that over – you know history suggests that whatever it is that has to happen will happen eventually, maybe not even during my lifetime.
I just turned 57. What if I live to be you know 100 or something? You know, I could be holding onto gold for another four decades here and have it – watch it go sideways and stay around $1,200 an ounce, or it could go to $10,000 or it could go to – you know, $500.
I just don’t even know and I have to say frankly, the idea of pricing it in dollars is a bit strange if you’re holding it as a hedge against the currency itself, you see?
Buck Sexton: Yeah.
Dan Ferris: What sense does it make if I think one day my dollars are gonna be useless and I’m gonna have to use gold. Something tells me that the dollar scale is gonna give way to the ounce scale, and it’s not gonna be how many dollars is your gold worth. It’s how many ounces do you have and how many ounces does it take?
Buck Sexton: Well yeah, and this is why even though you know in my world, we come across a fair amount of people that talk about the catastrophe scenario of a dollar collapse and how you’ll be so happy to have gold. I always look around, I’m like if that were to happen, you’re gonna have bigger problems than how much physical gold you have on-hand.
Dan Ferris: Absolutely.
Buck Sexton: I start to feel like this becomes – this becomes an insurance policy that you never really get to collect on because you’re gonna wanna have a lot of ammunition, a lot of food handy, you know, potable water.
I think if the – if the dollar fully collapses the way that some people think it should, although maybe there’ll be other things. Hey, maybe it’ll be Bitcoin that’s tied, you know that’s pegged to something and people just transfer over.
I don’t know but if people are waiting for their gold to be the thing that bails them out, I always feel like you know, do you really wanna be around for that? I don’t know how that goes.
Dan Ferris: Right, so more things can happen and will happen, and we can’t predict what the future is gonna look like but it’s not hard to imagine a scenario in which hey, maybe there isn’t so much rioting in the street but the U.S. Dollar is worth a whole lot less, let’s just say, and having gold becomes a lot more important, and the fact that we can trade it with electronic tokens, hey, that becomes really great. You know, so who knows?
I don’t know. I don’t know how it’s all gonna work out. I mean if I knew that, man, I’d probably be a lot richer but you know, it’s insurance and I think everybody should have a little.
Buck Sexton: All right, so we have Doc Eifrig and Matt Weinschenk on this week. Those are our speical guests. You’ve got Dr. David Eifrig, his formal name. He’s one of the most impressive resumes you’re gonna find anywhere. He was an elite derivaties trader at the investment bank, Goldman Sachs.
He became a board eligible eye surgeon. He’s been published in scientific journals and helped start a small biotech company that was sold to Rauche for $125 million. He’s the author of five books; owns and produces his own wife called Eifrig Cellars which I have tasted by the way, and it is delicious.
You know him best for his work at Stansberry Research as Lead Editor of Retirement Millionaire. Retirement Trader and Income Intelligence. Doc is joined today by Matt Weinschenk. Matt is a Senior Analyst at Stansberry Research. He spent over a decade as an investment analyst and six of those have been here with Dr. Eifrig.
He has a Master in Applied Economics from Johns Hopkins and is a CFA chartholder. They’re both here to give Stansberry Investor Hour listeners an inside look at their incredible new product, advanced options. Stansberry Investor Hour is pleased to welcome Dr. David Eifrig and Matt Weinschenk.
Dr. David Eifrig: Hey Buck, thanks for the welcome. Thanks, and kudos for the wine and bottomline is I’m an over-educated derelict.
Buck Sexton: [Laughter.]
Dr. David Eifrig: [Laughter.]
Dan Ferris: So this is Dan, Doc. What I would love to hear, you know, we’re gonna talk about some things that you and Matt are up to lately but I wonder – you know I know the read – some of our listeners have heard some of this but can you tell us about your background at Goldman Sachs as a – as a derivaties trader?
I really personally, you and I haven’t like talked much about this and I haven’t gotten a chance to you know, ask you what you did and how much darn fun it was.
Dr. David Eifrig: Yeah, sure. So you’re asking me to go way back into the – into the barrel of time. It was essentially in the mid-80s when I started at Goldman, and at the time, you know, probably from you’re young enough to know.
You probably had to read it in history but Solomon Brothers had started this large derivaties group, Liars Poker sort of alludes to some of this stuff in the fixed income groups and the high-yield junk bond stuff.
And I’d interviwed for a job at Drexel and thought about trading government bonds out in San Fran for Bank of America, and an offer to do the long end of the curve, and Goldman in New York was kinda too big, too fun to pass up, but they were starting up a derivaties group to sort of compete with all the others, and Goldman sort of classically does not like to be first mover.
They don’t really believe in first mover advantage. They believe in first move watching them, see how they fail, and execute it much better and perfectly, and take over the market.
So that’s what we were doing, and the group was kind of a hybrid. It was in the fixed income division but we traded derivaties, so futures, options on futures, options on kind of any and everything that moved, and we also, our charter was to educate and teach large institutional clients how to do it as well.
So you know, we’d have positions, we’d have a desk right on the floor with us, but we’d also have another fixed income floor that traded, you know, mortgages, off the rung, anything, and we would gosh, futures, we wanna trade futures on cattle, gold, currencies. It was all right there within 30 feet of where I sat, and it was an old, classic trading desk.
You had eight, nine, 10 different screens in front of you. You had a board that was angled that had buttons that light up to all of Goldman and customers of the firm, and you basically were sort of – your task was to make money first and foremost, but was also to help customers and expand sort of the use of derivatives, so that we could take other sides of those things and/or use it to – every time something traded or moved, you could take a little bit of a commission or spread off stuff. So yeah, it was kind of a fun, exciting time and --
Dan Ferris: Well, just speaking of exciting times, what was your – what was your first month on Wall Street?
Dr. David Eifrig: What was my first month?
Dan Ferris: Yes.
Dr. David Eifrig: You mean like what --?
Dan Ferris: Yeah, well didn’t you start like basically on Black Monday in ’87, wasn’t that your first week or your first month, or something like that?
Dr. David Eifrig: No, I’d been there for a year, actually a little more than a year, but it was definitely we were there, and we were the young guys, so there were I think five of us that were hired in my group and yeah, I was there on Black Monday, the Sunday before Black Monday, all weekend between the Friday and the Monday, and yeah, crazy time.
I mean that was sort of the first experience with portfolio insurance, and when that all fell apart, so I don’t know if that answers your question, Dan but you know it was very, very interesting times.
We had a line of Lincoln Continental limos that lined up outside on the door, and if we left after 6:00 o’clock at night, we’d grab one of those home and it was pretty – pretty fun and crazy.
Dan Ferris: Wow, limo service; nice, nice perk. So you know, I mean can you get like a little bit down and dirty, like when you come in for a day, what would – you know you’re buying and selling Malaysian Palm Oil futures or what do you – did you have a personal area of focus for you?
Dr. David Eifrig: Yeah, I mean my – my first interest was futures and options on futures and equity. So the S&P and the VIX, and one of my first tasks was to educate Prudential Insurance Company and Fidelity at the time, you know, really didn’t know anything, had never used them before.
So you know we – there was a time where I flew up to Boston on the shuttle between La Guardia and Boston probably I don’t know, six times a month and stayed there for three, four days in a row to teach and educate, and show them how to do stuff, and hold their hands on different things.
But also at the same time, trying to coordinate with our desk to sort of – I don’t know, take other sides of things, if you will to be able like I said to sort of take money, scalp money off the table.
But everything from let’s say somebody at Fidelity wanted to buy an Argentine bond but wanted it to be in a you know either basically value-track gold, or track the dollar, or track a different currency.
We’d find a way to show them how to hedge that and/or using our desk, and then using whatever exchange traded derivatives. So it was a mix of foreign currency fixed income but I really enjoyed the VIX, the S&P 500 stuff.
So yeah, so that’s about kinda some of the stuff I did. I don’t know if you have more questions but happy to share more.
Dan Ferris: That’s some pretty high-brow stuff. That’s really what I would – that’s what I wanted to get to. I just wanted the listener to know that Doc has done some pretty high-brow stuff with some pretty – with some real folks at Goldman, I mean they’re some real power players, so that’s really all I was getting to, Doc.
Dr. David Eifrig: Yeah, so --
Dan Ferris: But you got --
Dr. David Eifrig: If you want me to name drop and stuff like that, so I’m still --
Dan Ferris: Yeah.
Dr. David Eifrig: -- friends with a person who is – maybe I won’t name drop but titles. She was at Fidelity and now she’s been the Chief Investment Officer for Goldman Sachs Asset Manaement for a long, long time, and some other guys, a guy that ran London office, he just retired.
I’m still friends with him and I’ve got you know the people, somebody went over to GMO, another guy who I’m very good friends with him and so there’s still folks I stay in touch with and connected, and you know these people stayed in the business, in the industry, and kind of moved on to a different level but yeah, it was fund, and it definitely worked with some really smart, good, fun people.
Dan Ferris: And you learned a giant mountain of stuff that you can teach, you know, Stansberry, Stansberry readers who wanna be option traders.
Dr. David Eifrig: Yeah, that’s fine.
Dan Ferris: And I have to tell you you’re like – you’re one of the two or three people in my life who I’ve heard say you know, most of the time, you ought to be selling options, not buying them.
Dr. David Eifrig: Now I also heard on your prior show, you guys sort of hammered the option world, like the James Coyer, the OptionSelling.com and all that sort of had like a hate fest on option stuff.
So I kinda wanna set you straight or what can I do to help you? How can I convince you that option selling is okay.
Dan Ferris: I don’t know. You would have to describe the expectation for me and not – you know I would have to understand how – how it’s not gonna blow me up, period.
Dr. David Eifrig: Yeah, yeah. So I can tell you this: one of the things that we did, the first requirement was we were okay that we knew people were gonna do the levered put selling, so if you do a naked put, and don’t have to put up any cash for it, that’s a levered position andy ou can do 20 percent of the value.
And for listeners that don’t undersetand it, just trust me that you can get up to five times leverage the amount of the stock that you potentially could be required to buy, if things went sour, and early on, we knew people were doing it but we felt we were sort of a bottom market where we could pick stocks.
And then the requirement became stocks that we thought would – you would describe them you could sleep well at night if you owned them. They were stocks you’d wanna own and to retire upon, not necessarily by an old strategy but you know for the period of time of our – I’d say a year or two as the bull market went higher and higher, we had success with that.
So that led to the streak of 136 in a row winners, it led – it’s led to a streak of I think we’ve closed 95 percent of our positions have been winners. We use stop loss protection but a while ago, Dan, we moved from and told people listen, we don’t want you, we don’t want anyone.
We cannot under any circumstances recommend you do anything other than a cash secured put selling. So we immediately removed the leverage component, and yeah, I think the guys at OptionSelling.com got killed because of like one of their trades was selling it on – you know, selling naked puts on natural gas, and you saw what happened to natural gas.
I mean nothing plummeted and you’re looing at a completely sort of foolish strategy, I would say. So first and foremost, we were only picking stocks that we think we’re okay with owning. That’s the first requirement, and not own to get rich.
You know, the general sort of overall guiding principles is this is not to get rich. This is to hit singles and doubles. So I think that’s where we differentiate ourselves and where I’m a little more --
Matt Weinschenk: Yeah, if I could expand on that a litlte for people who don’t – maybe don’t understand the options and might not know what we’re talking about, when you sell options, the way we do it, the worst case scenario is you end up holding shares of a company, and we only do that with companies we’d wanna own, and you could make a case that stocks tend to go up.
You know, if you have something like McDonald’s, or Apple, you know, it could go down in any given period but you could be reasonalby sure over the long term, it’s a productive asset, it’ll go up.
Some of the other things, like OptionSelling.com, some people get too aggressive on what they try to make from the option, and they end up holding something that they shouldn’t have held or you know in the case of those guys who blew themselves up, they were actually sold calls on natural gas, and when natural gas went way up, they were stuck, and you can’t really say that oh, natural gas has to go back down.
You know, it’s a commodity. It can kinda go up and down, and there’s no long-term sort of expectation like there is for stock. So that’s how we’re different specifically from them but as long as you’re doing it on stocks that you want to own, it’s a little less risky than owning stocks in general.
Dan Ferris: Yeah, and to be fair, it wasn’t a hate fest. Look, every time I talk about options, I always say you know, Doc and Matt and you know, Ben Morris, and Greg Diamond, these other people that we have at Stansberry, you know they can teach you how to do this, and I’m always talking about the – you know, what Matt just mentioned, the really foolish end, when you – you know, sell calls on natural gas and it goes way the heck up, so I hear you [laughter.]
Dr. David Eifrig: Okay, all right, good, good, good. So let the record show, we convinced Dan Ferris that we’re okay. Let’s see, Dan, you and I haec had some fun conversations on the side over the years. I’m gonna turn the tables on you for a minute.
How bearish are you, and there was a note that went back and forth between us where I – not only where you pointed out how bearish you have been in the last year, but I also sort of reminded the group that I also had sort of – the last slide was essentially hey, everybody, go to cash, go to cash-like stuff now, and okay, I had to give an Ingersoll-Rand pick because you know what – no one’s gonna let me get credit for saying go to cash.
So I did that but how bearish are you and what’s your sort of take on stuff? And I’m happy to go kinda anywhere with you on it, because I am curious what you’re – you’re feeling right now.
Dan Ferris: Well you know, of course we had a roughly 10 percent correction in the month of October and that put us, you know, 10 percent off the most egregiously over-valued moment in stock market history, including the top of the dotcom bubble, and including 1929.
So you know if you’re 10 percent off of that, you know you haven’t exactly created lots of you know value opportunities and you’re still way up there.
So which is a way of saying you know most U.S. stocks are over-valued and by the measures that matter, by things like well, the easiest one to understand is price to sales.
Price to earnings does not correlate nearly as well with subsequent 10-year returns from the S&P 500 as priced to sales. You know it’s like a 60 percent versus like 90 plus percent kind of a thing, and you know that’s – we’re still right up near those levels.
So bsically from these levels, historically speaking you know, 80 to 90 percent of the time, pardon me, U.S. stocks have performed really – the S&P 500 I should say has performed really poorly over the next 10 years, you know, just about flat to one percent a year, or something like that, and with an event in-between of something like minus 60 percent off the highs.
So you know I don’t – I don’t necessarily need teo be bearish. We still make long picks and it’s bringing value. We just made a new one. So we’ve made it—we’ve made eight so far this year and you know, so you don’t like – I’m not the kinda guy who says I’m predicting the stock market’s gonna crash next week and sell everything.
I’m just kind of explaining why it’s really, really hard to find good value opportunities and that you shouldn’t have high expectations about returns on U.S. stocks from here. That’s really it.
Dr. David Eifrig: Yeah. I think one of the things I’ve shown a couple of these slides, I’m sure you’ve seen them and where your listeners may or may not be but the debt situation has got me a little bit more nervous because corporate debt, and you know, forget about global debt for a minute.
I mean that’s a whole ‘nother discussion of whether or not sovereign debt of other countries can do qualitative using successfully over a 10-year period but corporate debt, as a percentage of GDP, right, you wanna have it be relative to something that’s meaningful.
That set all time highs. That’s higher than it was at the tech bubble, the housing bubble. That’s got me nervous but I’m sure you look at margin debt, just margin debt as a percent of nominal GDP is closin on three percent, which is way above the all-time high, just so people know back in my Goldman days, that number was at one percent for most of that period.
So we’re talking at there percent. That’s – that’s got me. That’s margin debt, New York Stock Exchange. So yeah, one of the things that struck me was you know, not trying to predict when things’ll turn, but have you ever looked at the chart of unemployment in stocks, and put that on the same chart?
That’s almost like a simultaneous predictor when it – unemployment hits the bottom, I mean that’s almost within a six-month period, and when I say hits the bottom, I mean we just went to new lows in unemployment rate, and then some. I mean that’s – that’s almoset a set-up for stock market top.
Dan Ferris: Yeah, see Doc, that falls – to me, that goes into a kind of a macro consideration that frankly I just – actually I don’t do things like that because I don’t think I need to.
As long as I’m finding value somewhere, I’m kind of happy and it’s only at these extreme – like I don’t care about the overall market 99 percent of the time.
I only care two times, and that’s when we’re, you know, a whisker away from all-time low valuations in the overall market, and when we’re a whisker away from all-time high valuations in the overall market, where we have been lately over the past several months. So yeah, but I hear you.
Dr. David Eifrig: Yeah, and I think you know the part that’s missing for a lot of investors in this generation, when I say this generation I mean the last 15 years, 20 years, nobody appreciates inflation and we are about to go into wage inflation and price inflation for labor like you haven’t ever imagined.
And I don’t know if you’ve seen it out there but I’ll give you an example. I’m in Calistoga right now and over in Sonoma, and out in the vineyards yesterday, and a vineyard manager, so this is a Hispanic guy who is a U.S. citizen now but you know he has a crew this time of year that comes and helps smaller vineyards prune their vines to set up for the winter dormancy period that set them up to get the right kind of shapes, so the grapes are lined up and spaced properly and all that.
Normally this time of year, he says by December 1st, he has 40 guys working for him. Take a guess how many guys he’s been able to get, and he’s so short-handed he’d like – he’s working them overtime and double-overtime and charging, you know, people that own vines.
He’s got 16 people is all he can get now and it’s getting worse and worse.
Dan Ferris: Less than half.
Dr. David Eifrig: And last year, the harvest I mean this – when I say last year this two months ago during the harvest, it was the same story. You’d ask for a picking crew and they’d be like sorry, we can’t get there until three, four days, and of course you’ve crossed your fingers and prayed that it didn’t rain, because rain late in a harvest can ruin and destroy your crop.
And so anyway, I don’t think people realize that, and almost any shop out here, and again, this is Northern California but the Starbuck’s, the Carl’s Jr., the McDonald’s, the local restaurants, the hardware store, they have signs up saying we need help, you know; help wanted, one or two people and we happen to be – these vineyards happen to be right by a Carl’s Jr.
So sometimes in the afternoon we’ll go in and get a simple burger and a large iced tea, and I’m not kidding you, those are days we – it was so short-handed, we waited.
We probably could have gone, gotten a grill at the hardware store, assuming we’d have to wait in line at the hardware store, gotten a grill, gotten charcoal, went to the grocery store, so we didn’t have to wait in the grocery store in line, gotten burgers, we probably could have cooked that back on the vineyard in the time it took them to make a burger at Carl’s Jr. So I don’t know, it’s --
Dan Ferris: It’s funny, Doc, that I should be talking to you right now because I heard recently about a program in Mendocino County where they were vetting, you know, a few prisoners who they were gonna let out of jail and pay like $11.00 a day to help in the vineyards. Have you heard about anything like that?
Dr. David Eifrig: I haven’t heard that but I think – I mean what a great idea. The problem is if you own the vines and you’ve got someone that doesn’t care about how they’re pruning, and that might or might not happen. I can’t say it wouldn’t. You know you could – I mean what – I forget what percent of California prisoners are in there for having an ounce and a half of marijuana three times and selling it to their friends.
That’s a whole ‘nother story but yeah, I’m telling you it’s – we’re gonna have to figure out something and automation is a long way away, you know, I certainly can’t – if you have 15 acres of vines, you can’t buy a robot that makes it economical.
Dan Ferris: Right, and we also – Mike Barron and I in extreme value have been looking at truckers, just we’re thinking you know, free shipping is probably gonna become the norm across you know, all on-line vendors, and at you know, at some point, and so we wanna know what the impact is gonna be there and we keep seeing one thing after another in these, in these truckers where they’re just having a lot of trouble finding people.
You know and we thought they were gronna be talking about one thing they but they’re talking about the larbor shortage, is all they can talk about.
So I hear you. It makes a lot of sense to me and when you see things like you know, $15.00 minimum wages, yeah, it’s true, you know the government does it but the fact that it – those things wind up sticking, you know, makes it more a function of the market too, you know.
So anyway, you and Matt have – you’ve created a new something, a new product, a new way of thinking and talking about options that you wanna unleash on the world, have you not?
Dan Ferris: Yeah, so Matt can add a little bit to this but you know, Buck when he introduced it, I thought we’re gonna be talking more about economics. This sort of selling our products over and over gets a little bit tiresome sometimes, so I’ll kinda let Matt sort of run with that. I’ll be the good guy and Matt can be the bad guy, the bad salesman, but um --
Matt Weinschenk: Thanks, Doc.
Dan Ferris: You’re welcome.
Dan Ferris: [Laughter.]
Dan Ferris: Essentially, it comes with age and privilege, see. So what happened, Dan was we were – I was really contemplating a way for – and this is where Matt will roll his eyes because Matt will say oh, I thought of the idea or something.
But it was we hired a new guy on the group, a young junior analyst, and I was kinda looking for a way to have sort of more option training but real life, and somehow, I don’t know who thought of it, or how it exactly came up but we were like let’s take all of the picks that Stansberry does and look at them, and ask the question, would we do that ourselves? Do we agree with the argument?
So let’s say you had picked Apple or something like that, then we would create using just derivatives a trade on Dan Ferris’ Apple pick and this became sort of a lot of fun, and a little more work than I think both Matt and Jeff were expecting but it became this sort of fun thing, and super successful with limited risk because as you know, when you buy an option, you know up front that you’ve paid a premium, and so your fixed loss is known, but then we u se selling options around that position, either above it or below it, either with a different maturity date, the so-called calendar spreads, and this created this incredible use of time.
So it became both volatility neutral and in some cases, not time neutral, some of the spreads, you can make them time neutral but you can play with this, right.
So you can play with volatility and time in a spread, and you know, our alliance members have been chomping at the bit, and some of the ones, after you kinda get them teaching the basic stuff sorta ran with it, and wanted to learn more, and have been asking me over and over again, year after year, hey, when are you gonna do spreads, and have you done the iron condor, half-wing eagle, blah, blah, blah.
And we’re like I’ll let Matt run with it from here but that’s kind of my – what sort of drove us to create this thing, and then these guys published it for a year, and then came out you know, internally to a handful of folks with an incredible track record.
I’ll let Matt talk about that but – and it was so fun, these guys loved it, and then people said well, let’s try it and see if we can let it loose on the world, and we actually may, even a little more conservative in how we’re presenting it, but Matt, go ahead. Have I missed anything? Is the – it’s the --?
Matt Weinschenk: No, that’s a – yeah, that’s a very good summary and just to kind of loop people in on the way options work and what we were thinking, and I’m sure you would probably agree with this, Dan, is that most people who go and try to trade options, lose money because it’s difficult and it’s tricky.
And it doesn’t work the way you think it works right away, and you know, there’s a whole other class of people who are – you know, market makers or option experts, and they’re doing very complicated things and they – when they understand what they’re doing, they can make money doing that.
So we were like – we were trying to decide can we sort of bridge that gap, and can we show people how to speculate with options in a way that’s fun but it’s still profitable. Can we you know, take them past you know, the first options 101 or something like that.
So we just started – we just started doing the trades and we use the stuff that Porter Stansberry and Steve Sugarud and Doc come out with. We use those stocks that they’ve done all the research on, and we’ve done all the research on, and then we just sort of slap an options trade on it, and we’ve done so much educational stuff for this product.
We’ve got hours of video and this huge book, and all these things, but it’s really focused on the trades that we think people should do. So I don’t know if there’s anything like this but it’s just so much fun. You know this is you know, speculative in the sense that we’re going for big gains, we’re going for exciting gains.
They happen pretty quickly and it’s – you know, there’s certainly, certainly, certainly risk involved. There’s definitely losses along the way. It’s something to do, you know, for fun, for something exciting but we take it very seriously, but it’s not you know – it’s not the rent money or it’s not your retirement account.
But it’s just – it’s just worked phenomenally well for us so far and the features of it that make it so exciteing are a little compolicated. We teach people all about it when they get in but for instance, Dan, I know you’re not a big fan of betting on volatility; you’re against volatilty.
These options trades, the way we do them, you know if you buy or sell an option, you’re making a bet on volatility, the way we do these, we take that out of the equation. You don’t have to worry about which way a volatility goes.
So it’s just a really fun way for people to get into the markets and get an exciting trade, and make some fast gains, and you can do this with $100, $200, $300 or the size of some of these bets.
So it’s just a lot of fun and it fixes the things that people do wrong when they try and trade options, and we explain why and we explain how. So that’s the approach. I hope I – you know and Doc put me on the spot to try and sell it.
I’m definitely not a salesman. I – we just think this is really fun and that people can – people have been asking us for this for quite a long time. So we just wanted to go out there and finally put it together.
Dan Ferris: If anybody thought that you, me, and Doc were gonna sell anything, they picked like the three worst people in Stansberry. So I hear you.
Buck Sexton: So if you want more, here’s how to do it: two years of Advanced Option Strategies at $2,500. With this, you receive one year of Retirement Millionaire, True Wealth, and the Stansberry Investment Advisory.
Again, two years of AOS, that’s Advanced Option Strategies at $2,500. Just go to InvestorHourOptions.com; again, URL InvestorHourOptions.com.
Mailbag this week is empty, folks. Send us your thoughts. What do you want on the show? Do you want some random fun guests, or do you just want more in-depth finance? Tell us what you think: [email protected] Again, that is [email protected]
That’s it for this Investor hour, everybody. Thank you so much for joining. We’ll see everybody next week.
Dr. David Eifrig: Thanks Buck, thanks, Dan.
Matt Weinschenk: Thanks, guys.
Dan Ferris: See you all next week.
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