This week on the show Dan sits down with Mike McGlone, Senior Commodity Strategist for Bloomberg Intelligence. Mike has more than 25 years experience in futures and commodities trading beginning at the Chicago Board of Trade.
Mike claims “the game is over”… The Federal Reserve will continue to tighten until the stock market goes down. We’re long overdue for a correction, and this country’s inflation is at its highest rate in 40 years. The Fed will take away the punch bowl, and guess what will come out ahead as a result? Cryptos…
Dan and Mike dive into bitcoin, which Mike says is the “least risky” crypto out there. He explains that bitcoin is still in its price-discovery stage, steadily gaining adoption in a world that’s going digital. Bitcoin is currently our benchmark digital currency – well on its way to becoming the global digital collateral.
1:18 – Before the interview, Dan speaks about a blog post by a firm called SL advisors.
10:10 – Dan’s guest this week is Mike McGlone, a senior commodity strategist for Bloomberg Intelligence, who started off his career at the Chicago board of trade.
11:28 – Mike describes what The Bloomberg intelligence service is and how he uses it for work when researching stocks
13:20 – Mike explains how he thinks investors should be observing crypto’s going into 2022 using “the three musketeers of cryptos”
15:10 – Dan brings up the point that bitcoin trades like a risky asset, yet people still trade it because they think it has potential value. Mike replies, saying that bitcoin isn’t a risky asset. It’s just in the process of becoming adopted in the digital market.
15:50 – “The Fed will continue to decrease liquidity until the stock market goes down” -Mike McGlone
18:50 – Mike takes time to explain how the federal reserve is handling the market through macros and the recent trend of inflation
20:00 – Dan explains how bitcoin will hopefully show its true colors and stop being treated as a risky asset. Since the blockchain is gaining more attention as a valuable commodity
29:50 – Mike explains what higher price cure is and how it’s relatable to different commodities that investors could be interested in
31:30 – Mike believes that investors should focus on “buying commodities ahead of inflation consider bitcoin because the world is quickly changing into a digital and technology-focused landscape
34:55 – Mike’s piece of advice that he leaves for the listeners is “don’t fight the feds” and to focus on bitcoin because it’s the least risky asset
38:29 – Dan leaves the listeners with a word of caution on fighting the feds and investing in risky assets during the beginning of 2022
40:49 – This week’s mailbag
Announcer: Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour. [Music plays] Tune in each Thursday on iTunes, Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research. This week, we'll talk with Mike McGlone, commodity strategist at Bloomberg. In the mailbag today, questions about books, gold, bitcoin, and the Federal Reserve. Remember, you can call our listener feedback line – 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my opening rant this week, I'm going to talk about how to absolutely destroy your portfolio [laughs]. That and more right now on the Stansberry Investor Hour. [Music stops]
Well, why would I tell you how [laughs] to destroy your portfolio? Well, I'm referring very specifically to a really interesting blog post by a firm called SL Advisors. A guy named Simon Lack at SL Advisors, sl-advisors.com. And it's called "ARKK's Investors Have In Aggregate Lost Money." And of course, ARKK is Ark Investment Management run by a woman named Cathie Woods. She founded the firm in 2014 based on the idea of investing in disruptive, innovative companies, right? Companies engaged in disruptive innovation.
And of course, post-COVID these funds took off. The ARK Innovation – I think ARK Innovation ETF, which has like 60% of the firm's assets. It was up something like 150%. It soared like a skyrocket. It was incredible. And then, it crashed. But what Simon Lack has found out – he looked at the fund flows and realized – and this is typical. That's why I'm telling you about it. What he found is typical. "Most of the money in it came in around the top in the aggregate," he says. "The fund has, on average – everyone in the fund has lost money. The average dollar invested in the ARK Innovation ETF," he says, has lost money.
Because most [laughs] of the money in came in at the top, and that's what happens – this is a microcosm of what happens in a raging, speculative bull frenzy. At the top is when everyone thinks this is a wonderful idea. That's why it's the top. Because after everyone thinks that, there's nobody left and there's nowhere to go but down. But the flows into stocks were higher in 2021 – this was covered by a number of news sources. We're higher in 2021, the flows into equity funds in 2021 were higher than the previous 20 years combined, right?
So we're setting ourselves up. Investors are setting themselves up to be net-destroyed. Their whole – you understand what this means? This means by getting so excited and putting tons more money in during the top of a speculative frenzy, your whole portfolio winds up at a loss, right? You say, "Well, sure, I invested in the bull market and through the top and everything. But I've been investing for years and years so, you know, I’m going to be OK. All those other investments I made in previous years, they'll still be OK."
Well, that may be true. But if you have participated more heavily, if you got really excited as many people do – I might even say most people do because that's how these episodes happen – then you could be setting yourself up to wipe out all of your gains to have your portfolio at a net loss. And you don’t want that. [Laughs] You don't want to have invested for 20 or 30 years and then be holding a net loss because you got way too excited and put way too much money into a bunch of speculative garbage right at the top. OK?
And like I said. There's a really neat blog post over at sl-advisors.com called "ARKK's Investors Have In Aggregate Lost Money." And I would recommend that you read it because it illuminates – it does the math, kind of – on a phenomenon that is – this is the reason why I've been bearish for four years. Believe me. Being bearish does me no good in the newsletter business. It prevents me from selling newsletters, right? It prevents me from selling anything. Like, you know, my publisher probably hates that I've been so bearish – mostly bearish – for four years, bullish at the bottom of the COVID crash but mostly bearish.
And certainly for the, you know – since like late 2020. And it's no fun, but you got to do it when things are this crazy and this speculative and this expensive. And the reason that I've been OK with doing that, besides the fact that it's the right thing to do, is that I'm trying to save all my listeners and readers from exactly what Simon Lack at SL Advisors has spelled out for us in black and white in this blog post. You pour money in at the top, you pour too much money in at the top, and in the aggregate, you'll wind up losing – your whole portfolio will wind up in the red. It's awful.
So be careful. Be careful out there. And, you know, the opposite of that was covered by a guy named Eric Cinnamond. Eric, if you're out there, I'd love to have you on the show. I think we invited you once or twice and so far, you haven't gotten back to us. But Eric is at Palm Valley Capital Management. Palmvalleycapital.com. And he puts out a fund letter that anybody can read. And he made the point in his most recent letter that, they don't buy all that expensive garbage. So, you know, they miss out on the upside, but they also miss out on the downside.
And he says, "We record valuations and profits are soaring ever higher from the government's money cannons and value is scarce, we'll trade upside opportunity for downside mitigation. The bigger the bubble, the bigger the ultimate mess. Happy new year," he says after that [laughs]. So I agree with that. OK? So be careful out there. I think Mike McGlone's message that he's going to give us today in the interview is one you should listen to. I've been reading his stuff, so I know what he's thinking. And I'll let him spell it out for you.
And I'm giving you a hint, obviously, with talking about SL Advisors and Palm Valley Capital and their message. But just be careful out there these days. Don't be so eager to speculate and try to make big, fast money. Let's leave it at that, and let's go ahead right now and talk with Mike McGlone, our guest today. Let's do it right now. [Music plays and stops] Tonight at 8 p.m. Eastern, we're airing an emergency briefing. In short, the Nasdaq just saw its worst week in almost a year.
And according to our analyst Greg Diamond, "The year 1932 holds the key to what will happen next in 2022. Ninety years of evidence points to a nasty event in 2022," Greg says. Keep in mind, this is the same guy who predicted the 2020 crash to the exact week and whose recommendations could've helped you double your money 26 different times without buying a single stock. Tonight at 8 p.m. Eastern, he's sharing the biggest prediction of his career. If you know what's coming, it could be a once-in-seven-years money-making opportunity.
But if you do nothing, Greg believes you could lose most or all of what you've made in the market since 2020, thanks to an event backed by 90 years of evidence. If you own stocks, you can't afford to miss tonight's events. You can reserve a free spot right now at www.messagefromgreg.com. That's messagefromgreg.com. And by the way. If you plan to skip tonight's event, at the very least you can claim a free crash survival kit. It contains the ticker symbols of three stocks that Greg believes will see the biggest move in 2022.
You can claim that crash survival kit at messagefromgreg.com. And, again, we go live at exactly 8 p.m. Eastern tonight with a must-see prediction from the man who predicted the 2020 crash along with the exact date he believes stocks will crash, and a free recommendation to play at that could double your money. So just go to www.messagefromgreg.com. And if you happen to be listening to this after Thursday, January 13, don't worry. You can still visit messagefromgreg.com right now to get the full details of what could be the worst crash since 2008. [Music plays and stops]
OK. Time for our interview once again. Today's guest is Mike McGlone. Mike is a senior commodity strategist for Bloomberg Intelligence, a unique research platform that provides context on industries, companies, and government policy available on the Bloomberg Professional Service at BI. Mr. McGlone specializes in the broad, investable commodity markets. He joined Bloomberg in 2016 with over 25 years of futures and commodity trading and investing experience, beginning at the Chicago Board of Trade. Wow. Mike, welcome to the show.
Mike McGlone: Hello, Dan. Thank you.
Dan Ferris: 25 years of futures and commodity trading starting at Chicago Board of Trade will teach you a thing or two, won't it [laughs]?
Mike McGlone: Yes. Nothing like getting your face ripped off by markets a little bit. Once in a while, I – actually, it's quite a bit more than 25 years. I started in 1988. But you think – I hope I learned a few things, and hopefully we can bring that out in the interview.
Dan Ferris: Yeah. But before we do that, though, I'm sure that almost none of our listeners have access to a Bloomberg Terminal. A few of them do, for sure. I know they do. But can you describe, like, what is the Bloomberg Intelligence Service? When you get into Bloomberg, you type "BI," what's that all about?
Mike McGlone: Well, it's the research arm of the Terminal. The unique thing we do here is – that I find wonderful – is, we're completely unbiased. I sit in front of this data dissemination machine all day – you know, all 24/7 – and I come up with the best research I can without, you know, the heavy hand of being on the sell side and buy side influencing my views. So they're completely unbiased. I need editors [laughs].
As you'll see by the end of this interview, I'm more of a Southside Chicago [inaudible] guys, which is my connection to the Chicago Board of Trade. But that's what we are. We're basically the research arm of Bloomberg. And that's the advantage we have, is this machine. I'm completely unbiased. And there's a bunch of us that are more senior who just – my main job is put out research as profound as I can to help investors make the decisions. And the cool thing is, it trickles down to events and things like what we're doing right now. And this to me is like the show-and-tell. It's the fun part of the job.
Dan Ferris: Oh, I totally agree. Yeah. Who knew having, you know – getting old would be so valuable, huh? So you wrote a pretty cool piece with kind of a cool title recently. And it was called, "It's bitcoin, Ethereum, dollars, and 16,000 wannabes versus the Fed." Let's talk about that because there's a lot going on in this piece. But maybe you could just sort of tie the whole thing up and generalize a little bit, and then we'll get down into some of what you said in it.
Mike McGlone: Good. Well, I think it's a great start. That's basically my January cryptos outlook, published the first week of the year. And the main focus, I think, that people need to – that we should be focused on for cryptos in 2022... and that's the three musketeers of cryptos. That's the advancing prices of bitcoin and Ethereum and the proliferation of crypto dollars. And so, I'll dig into that a little bit.
I fully expect the price of bitcoin to continue to increase in value versus dollars. Ethereum to do the same, although it's kind of got a little bit ahead, got a little bit – maybe got a little bit too overdone 2021. And the most significant part of that statement too, also, is crypto dollars. People call them stablecoins. But the most significant fact of the digitalization in cryptography and all this crypto market that people are not aware of... and that's the proliferation of crypto dollars.
So there's this term called stablecoins. That to me is misnamed. Virtually all the so-called stablecoins – almost all of them – track dollars. It's basically crypto dollars. So in the most widely traded, Tether's just one of them, and then there's a dozen wannabes. And that's basically the ability to transmit, transact, transport dollars 24/7 on a global basis without having to use a bank and earn interest.
And I say 16,000 wannabes because that's the total number of so-called cryptocurrencies listed in coinmarketcap.com. Last year was 8,000. The year before that was 4,000. So the simple rules of economics, ease of entry in massive supply, do not bode well for overall market, but there is the three stalwarts. And that is bitcoin, Ethereum, and the proliferation of crypto dollars.
Dan Ferris: Yeah. I own two of those. I own bitcoin and Ethereum. You touched on something about bitcoin – well, you sort of referred to it. The idea that – which I've noticed is that bitcoin trades – it trades like a risk-on, risk-off, typical risky asset. And yet, we all recognize we own it because we think it has this – you know, it's compared to gold all the time. It has this ability to become a store of value or maybe even an actual currency. What does it look like to you? Does the fact that bitcoin trades in this risk-on, risk-off manner bother you?
Mike McGlone: Oh, no. To me, the bitcoin is in the price discovery stage of a massive technology-slash-asset that's gaining adoption in a world that's going digital. That describes bitcoin. It's the benchmark digital property right. So do we expect that trend to flatten out, to accelerate or to diminish? I fully expect it to continue to accelerate. And the way I describe it is, my main focus macro for this year, is long-risk assets is fighting the Fed.
The Fed will tighten and continue to tighten, increase, decrease liquidity until and/or unless the stock market goes down. That's just the way it works in history. Cryptos are some of the riskiest assets. It's just, bitcoin is the least risky among the assets. And then, the significance, I think, is bitcoin is at the cusp of transitioning from a risk-on asset to a risk-off digital store of value of global collateral. Now, that's something I've been saying for at least a year, and I think that's happening.
And that's part of my premise this year... is I fully expect the Fed to just take away the punch bowl, be careful fighting the Fed but bitcoin to come out ahead. And I think it's more likely to stock market's going to likely – it could come – I don’t think people have figured it out yet, that there's only one way to slow down inflation. You have to stall, stop or reverse the advancing prices of virtually all assets. That's the only way to really do it. And the Fed is starting to do it. Actually, no, they haven't even started. That's the shocker part. They haven't even started. They're just warning us.
Dan Ferris: Right.
Mike McGlone: And to me, the commodity market's already kind of taken it, the warning. They peaked in October of last year. Now it's inching up to those highs. Bond yields have already taken the hint – the 30-year peak around 2.5% back in March and April, and now it's close to 2%. And to me, that's what this year's going to be about, is I think we're going to look back and we should've learned our lesson, "Don't fight the Fed."
And the best thing that can happen is, you know, we have – some analysts are looking for up to six 25-basis-point hikes this year. And to me, that's not going to happen because the market's going to do it for them. The stock market will just decline or stop going up and kick in the deflationary forces that were in place before we had this COVID distortion global – and basically what was a predominant deflationary trend.
Dan Ferris: Right. You and another couple of folks that I follow on Twitter have pointed out futures are pointing to 100 basis points... which would probably correspond to four hikes in 2022. And even that sounds like a heck of a lot to me.
Mike McGlone: It's a dream. I would love – I mean, as a commodity guy, ex-pit guy, I would love to see the demand pull of inflation and – real demand pull of inflation. Right now, it is just the Fed responding to the 40% increase in U.S. money supply since the beginning of 2020. The massive fiscal and monetary stimulus, all of the above, and the expected inflation – so to me, what's happened is the gain is over.
We all know what started with the stock market crash in 1987, the Fed just pumped the system with liquidity every time the stock market goes down. That can last until inflation tells them they have to stop. It's happened. Fed Chairman Powell said that. So let's focus first on the macro. We have an emboldened Federal Reserve Chairman – this is the same guy who pushed back on Donald Trump who's been reappointed for his second term and has said in his last – in his press conference for the December meeting, said, "I am more concerned with how history looks back at our decisions 25 years from now."
He has to fight inflation and he's being responsible. And we all know we're in a massive bubble. He's got to prick it. So he's got to – right now, we're in the jawboning stage. So getting that – maybe that's what's happened with the macro. And then, you look at things like – copper looks like it's peaked. Corn looks like it's peaked. Crude oil potentially has peaked. Commodities probably are understanding – bond yields probably have peaked and the stock market's usually last.
So my outlook for this year is the stock market's probably going to go down because the Fed's going to just jawbone until it does, and bitcoin's going to come out ahead. Now, that's a bit of a profound statement. I get it. But something's got to come out ahead. So far, I think – even bond yields might do better. But right now, this first week – first couple weeks of the year, virtually everything is under pressure.
Dan Ferris: That's a huge call, actually. Isn't it? That bitcoin is going to cease to be this risk-on, risk-off asset and is going to start to show its true colors – what we hope are its true colors, anyway, those of us who are long. That will be a sea change. This will be a huge moment if you're right.
Mike McGlone: Yeah. So bitcoin's gone through some major sea changes in the last years. 2020 was the first year that it really struck me when bitcoin volatility declined versus all assets on the planet were increased. And then it bottomed, it went up. Last year, 2021 was the year it really jumped into the mainstream in countries like El Salvador adopted it as a legal tender. And China banned it. To me, it showed its value. To me, that's – and this year, I think we're going to look back at it as bitcoin really showed its appreciation.
Now it's hovering around this $40,000 level, basically since March of 2021, almost a year now. And that's – to me just is consolidating a bull market. And I love the things that you and I probably sense a lot in markets... is, when you see something that's an enduring, strong fundamentally bull market that is backed up and you sense pretty significant bearish sentiment, that's just what you want to see [laughs].
You don't want to see much bullish sentiment at extreme highs. You want to see bearish sentiment when you know fundamentals are good... just because, you know, of the leverage people are getting stopped out, and it just means the rightful owners will be scooping it up. And I think that's what's happening. So $40,000 to me, bitcoin, worst case I think we have a major storm. Maybe it goes to $30,000. But to me, it's just a matter of time that it gets to $100,000.
And part of that is just observing the – soon as we know... it's the man versus supply and adoption. Supply is just set in code. It's just – from a commodity guy, it's one of the most unique things I've ever seen. 900 coins a day, period, until 2024 drops to 450, period, and then it halves again four years later. All that matters is demand and adoption. Now, demand is clearly increasing and adoption to me is in very early days.
Something has to trip up that adoption trend, and I only see more institutional demand every day and greater risk for people who are still on... and I'll leave you with this. The key fact is, there is clearly outflows in gold investments and inflows to investments in bitcoin. That's clearly a fact. The question is, "Do I expect that to accelerate or reverse?" And I think it's more the same, trend stays the same, more likely to accelerate.
Dan Ferris: Are the flows why – you talked about bond and bitcoin and gold. You said bitcoin was the highest quality. Is that why?
Mike McGlone: Well, I'd say it's the highest – the greatest risk. It's the greatest 260-day volatility. It's usually around 70%. But I think it is the greatest – we all know it has been one of the best performance assets in history, and I don't see why I should change that view. It's more likely to continue that performance, albeit at a slower pace, lower volatility. But that was kind of my call I started making, oh, a little less than a year ago. Assets I think – a unique combination, I think, is bitcoin, long bonds, and gold.
Because I don't know for sure gold's going away, but overall history proves that you should be buying gold in these types of environments. But it has been replaced with bitcoin, so I just can't put all my assets, eggs, in one basket. And then there's long bonds. And it's a narrative I love, Dan... is, I've been a long-bond guy for almost my whole career, starting in the bond-trading pits in the '80s in Chicago Board of Trade. Got to New York because I correctly called –
Dan Ferris: Who'd you call?
Mike McGlone: The bond bull market. And here's my narrative I like to say about the U.S. bond market. The consensus – absolutely, completely consensus – last year was, "U.S. bond yields have to go higher." That's been wrong, so far. I mean, it's up a little bit. But since the long bond peaked at 2.5%, I like to point out, "OK. It's declining despite all these consensuses it should go higher."
And I'm like, "What are people missing about just looking at a long-term chart?" Bond yields have been climbing for 40 years. I used to trade JGBs. Now, some people say – it's a weird thing. When people – I say that, people will say, "What's that?" I'm like, "OK. I guess you haven't been around as long as I have." Japanese government bonds. And I traded them in the '90s.
And I remember when I first was selling and trading them, every one of – I was trading in sales. All the customers say, "I'm short and I'm happy" – they were all wrong. Then I heard similar in European bonds, because JGB went to negative yields, European bonds went to negative yields. And my quote is, "I fully expect the U.S. 10-year note yield was going to go negative, and it's one stock bear market away from doing that."
Now, we have not had a stock bear market since the 2008 to 2011 correction. Have not had one. And we're overdue for a – now, how you define the bear market, I don't know [laughs] because they're different every time. The consensus is prices will never go down. But to me, that's what's going to happen. And that's why I view the long bond as still attractive for an investment portfolio.
And it's also completely against consensus, and I just click on my Terminal, I put in that long bond chart, I go back 40 years and I see it's going down the whole year and I'm just not smart enough to pick a bottom. And that – because there's a long-term trend when bond yields is down. There's a long-term trend in the adoption. Early days in price of bitcoin, it's up.
And I suspect – and then, there's this issue with the rule of life as you and I well know, "Don't fight the Fed." And anybody's who long risk assets, most know the stock market right now is fighting the Fed. They have to raise rates. They will jawbone until inflation goes down. And the number one way to make inflation go down is, this massive increase in asset prices has to stop or reverse.
Dan Ferris: It's hard for me maybe because my, you know – the bulk of my career in and around the finance industry has been spent during the time of accommodative/hyper-accommodative Fed. And it's really difficult for me to see them getting away. We saw what happened in 2018, right? And it seems like if they go in and do whatever, you know – if they make the futures market's prediction come true and they do four hikes and we're up 100 basis points – the market will hate it and they'll take it all back and then some [laughs]. Then you'll beat your negative, you know, nominal yields.
Mike McGlone: Exactly. So let's just use a hypothetical. The stock market drops 10%. What does that do for inflation? Nothing. Doesn't mean anything, I don't think so. So they have to keep raising rates. And we haven't had this 10% correction since the swoon in 2020. That's what scares me about all assets. I look at the Bloomberg Commodity Index. Since it peaked – it's up at the same level it was in 2008, a little bit higher. It dropped 50% and went back around that level in 2014, then dropped 50% again.
What's the rule in commodities? It's secure, higher prices. What stops that from happening? I think it fully is going to happen again. And now, you have the Fed saying, "Well, we're going to just raise rates until we get back to our inflation targets." They have to do this. And one of the leading indicators for inflation is commodity. And one of the leading indicators of inflation is the bond market. But the 30-year bond's looking ahead. So I view this as just – there's times in a life where you're supposed to just – the bells ringing, and I think the bell's ringing for risk assets. And the Fed just said it.
Dan Ferris: Right.
Mike McGlone: And also, these – by example. When I was pumping gas in 1979 in Chicago, I was a gas jockey. And the price went – you remember this. Remember it went from half a gallon – I'm sorry, from up to over $1 a gallon and we had –
Dan Ferris: Oh, yeah.
Mike McGlone: Yeah, exactly. So I remember I was a gas jockey. And I was like, "OK. So what are we going to do?" Our pumps could not go above $1. Imagine the engineering of these things. They never thought it'd go above a dollar. You know, so they had to price it at half a gallon. To me, that's the inflation we're having the '70s. I remember it. And people say it's different this time. "Yeah, it is." I think I fully expect technology is going to pressure inflation and continue to do. But right now, where's our inflation? Asset price. And where's equivalent rent, which is directly related to housing.
Dan Ferris: So, Mike, you're the commodities guy, and I agree that the commodities index – the GSCI – ripped in 2021. So we expect a correction. But what do you think longer-term? If you think inflation is in the offing, don't you have to be more bullish longer-term?
Mike McGlone: The rule by commodities is – one of the best times in history to buy commodities was on the 2020 swoon. We've had a double, basically. You mentioned GSCI Index. I used to manage that index, that S&P [laughs]. And it's very energy heavy. So the problem with that is... let's just look at its most significant commodity – crude oil. Crude oil's about half the price of the peak in 2008. That's not good. Why? Because there's more supply, less demand, we use less of it.
And just look at it 10 years ago. We're all going to be driving electric vehicles. Not want to but it's just going to be more cost-effective. I already have an electric car. It's great. It runs great and it's more cost-effective than any car I've ever had. Now, I bought that eight years ago. A Chevy Volt. Now, the key thing about commodities, remember, it's a higher-priced cure.
And that's the big difference, is we are right now almost – at least for most of the last year, we are double the cost of U.S. shale production. It's basically got down to $40 a barrel, now it's $50 a barrel. And that's significant because that's been the primary pressure factor in commodities for the last 10 years – is U.S. going from the world's largest importer of crude oil to now a net exporter of liquid fuels. So the problem with commodities and being bullish for inflation is that higher-price cure will pressure them. But they're not really what's driving inflation now. In the past, yes, it did.
[Laughs] What's really driving these inflation figures from the Fed are, in equivalent, rent, appointed cost index, things that are not really directly related to commodities. And we all see it. Like, I was just on the call with a good friend of mine who's out in Illinois talking about the massive bid in pharma. And he's pointed out to me it's up 30 to 40% in over a year. And, "OK, what's the money supply down?" But the thing about pharma is, you can't make more of it and it doesn't, you know – it doesn't have a higher-price cure as much as something like crude oil – you can create more of it and it's being – technology is replacing it. And that's why I look at –
Dan Ferris: Mike, maybe tell our listeners what you mean by higher-price cure.
Mike McGlone: Yeah. The rule in commodities is, the cure for higher prices is higher prices. And that showed up clearly in corn last year. It got to near $7 a bushel, it got to over double the cost of production, more production came on, prices go back down. It's all the rule of commodities. The No. 1 rule also is, markets usually peak when inventories are low. And usually, trough – bottom – when inventories are high.
We have a low crude inventories right now. And the best leading indicator are the grains. It really starts from the grains. Why? Because you can bring on supply in one year. So that's the number-one rule about trying to hedge inflation with commodities. And then, of course, you have to roll futures and it's a pain. That's where gold kind of kicks in. That's why gold has had that enduring bid in terms of overall historically advancing relative to the price of dollars because it has limited supply.
So I'll give you an example. And that is, first of all, the most significant commodity of crude oil's about half the price of the peak for a reason – because OPEC pressure prices made prices so high – well, you know, to that peak in 2008, 2014, it incentivized the U.S. to bring in more shale. And the key fact is, our consumption is declining and our production's increasing because of prices and technology.
Now, one thing I want to leave you with is, the best way sometimes to measure assets is versus gold. So average acre of farmland in Iowa has been about four acres, four ounces of gold, for about 50 years, fluctuating between like three and five. The S&P 500 total return since – I think it's 1994 or 1984 – has been about four ounces of gold over time. It just fluctuates. So what's really changing? Money supply. And gold measures that. But what's changing now is, there's no more interest rates and the Fed's now increasing rates.
And the whole – to me, the game's over. Well, that's the bottom line for my – when you think about commodities and inflation and stuff... is, if you're buying commodities to hedge inflation, you have to roll futures and things like that. I would say consider bitcoin because you have – the world's going digital, technology's pressuring commodity prices, and bitcoin's part of that technology. And then you look at the other side, the other assets, stock market is the most expensive in history versus real estate, versus sales, versus global – and the rest of the world's stock market. And versus GDP, the Warren Buffett model. So don't fight the Fed.
Dan Ferris: All right. You bit off a big [laughs] bite there, but I think we got it. And so, it sounds to me like "Don't fight the Fed right now" at this moment means "Don't be too bullish on stocks."
Mike McGlone: Yeah. Well, I said this before the 2000 – the swoon we had in 2000 was the... we had the little warning in 2018. And then, of course, 2020. And then, of course, we had the most significant amount of fiscal monetary stimulus in U.S. history. Of course, the stock market blasts up. I fully expected gold and bitcoin would be outperforming, and bitcoin did. But now, we're at that stage where there is – we have the greatest amount of stock ownership percentage-wise in the U.S. than ever. I mention how expensive it is.
And the Fed just said, "Sorry. We got to raise rates." And most people in the market have not seen this type of history where – you know, like I said, inflation's at the highest rate since when I was pumping gas in 1979 [laughs]. But everyone has to raise rates. The thing is, the best thing – I look at what Chairman Powell said, is... he's looking at for 25 years from now. I think what they're doing right now is – let's put ourselves forward in history.
If they just jawbone and never have to raise rates – just jawbone and the markets correct, inflation declines and basically have the high base effect kicks in, which I fully expect will... let's say we get a 20% correction in the stock market. In the past, it used to be considered normal. That's the problem. Let's say we get that. All bets are off. Everything is south. The Fed probably will not have to tighten, that inflationary trend will probably be over.
We probably will not see the fiscal monetary stimulus we've seen, because of inflation, markets will stabilize. So everything will be equalized, normalized and I think solved with the 20% correction in the stock market. The question is, "How is it going to happen? When does it happen?" So that solves the problem. If it keeps going up 20%, what do we have? More inflation.
Dan Ferris: All right, Mike. I know you have another call that you want to get to, but I like the way – when I ask you a question – you really scoop up a lot of insight into your answer. So I want to give you plenty of time to deal with my final question, which is the same – and sometimes I follow up, so maybe it's like a penultimate question [laughs]. But it's the same final question for every guest no matter what the topic on the podcast every episode. And that is simply, if you could leave our listeners today with a single thought, what would it be and why?
Mike McGlone: Don't fight the Fed. Risk assets are – long-risk assets are fighting the Fed. And one of the least – cryptos are the riskiest of assets and bitcoin is the least-risky among cryptos, well on its way becoming a global digital collateral.
Dan Ferris: Right. Now, that's an interesting answer considering your prediction for bitcoin for the year 2022.
Mike McGlone: Well, I expect bitcoin to outperform in this period of Fed taking away – basically the game over from the Fed. You see Fed signaling "The game's over" since the 2000 and the 1987 stock market crash. They have to restrain by their laws. They have to push back inflation, and they can't. They have the power to do it. Paul Volcker proved it. We know it can easily be done, but the stock market could do it for them.
Dan Ferris: Right. So outperformance of bitcoin could include, you know, down 5% with the stock [laughs] market down 20 or 30. Right.
Mike McGlone: Oh, sure. Well, if the stock market goes down – if it goes down 20%, bitcoin will go do. I fully expect that. But remember what happened with gold in 2008. You know, hits stops and then it comes back and it goes on an enduring 10-year bull market. That can easily happen. To me, that's the kind of thing we should look forward to. And this is the major reset. Maybe we'll get lucky, and this inflation turns to be more transitory.
I fully expect that will kick in. But we're at the stage right now, I think the bottom line for our listeners is, "Do not fight the Fed. The game is probably over, and the facts are there. We have the highest inflation in 40 years. The Fed has to pull back, has to restrain" – this is not just – this is quantitative tightening. This is the responsible thing for the Fed to do. It has to do that. Market could do it for them, though.
Dan Ferris: Right. And it's worth pointing out, then, that round trip from the peak of the S&P 500 October 2007 to trough March of 2009, gold was higher at the end of that than at the beginning. It was a – it was a – it was a tough trip but higher at the end. We could see something similar for bitcoin then, maybe.
Mike McGlone: Yeah. So remember gold bottomed around $700 an ounce and then peaked – I think it was right around $1,900, almost $2,000 – $1,900 an ounce in 2013... '12, '13. So they had a pretty good run. And it kind of marked the end of the gold bull run. Now, gold was at kind of more of the end of a bull run at the time. It was up for 20 years or so started – actually, about 10 years. Sorry.
My time – but now, we have the situation where I think we've had a pretty significant time correction in bitcoin. And it's replacing gold. That was – we didn't have a bitcoin back then. So it's a new world. Yeah. And my job was to try to be ahead. And being ahead means you got – you lose your head sometimes. But that's just the way it is. And here's the facts, bottom line are – it's just, I can't say enough, long-risk assets is fighting the Fed.
Dan Ferris: All right. I think that's a good place to leave our listeners. I think that sums up your view really nicely. Listen, Mike. Thanks for being here. And I'm really curious. We've got to have you back, you know, maybe end of the year, middle of the year – we have to update this view. You know, you made a huge call on bitcoin, so it'd be great to have you back and see what you say, you know, I don't know, nine or 12 months or something from now.
Mike McGlone: I'm looking forward to it.
Dan Ferris: All right, Mike. Thanks very much [music plays and stops] Well, you heard the man [laughs]. You heard the man clearly. Don't fight the Fed at this moment in time – January 2022 – means be careful about risk assets. You know, be careful about doing all of the things that worked so incredibly well last year, right? You couldn’t go wrong just sort of buying every dip in stocks and commodities last year, and it sounds like Mike thinks you will go wrong, doing that starting right now.
It's an interesting view. His view on bitcoin, I've never heard anyone say that. If that happened, if bitcoin sort of transitions from a risk-on asset to a risk-off asset – that is, something that people buys as a safe haven rather than trading to try and make quick money – that will be a huge moment. We will look back and time and say, "Wow. 2022 was the most amazing moment for bitcoin." It really turned out to be true.
Everything that we thought bitcoin would do, it started doing it for real in 2022. You know, I live every day and I don’t have time to move any faster, but I can't wait [laughs] to find out if Mike is right. All right. Let's take a look at the mailbag. Let's do it right now. [Music plays and stops] If you own gold or gold stocks, please listen to this warning immediately. The man who predicted the 2020 crash sees major warning signs. An event in 2022 could have a massive impact on gold and other sectors. The man is Marc Chaikin.
And he says, "Move your money in the early days of 2022." That means right now, folks. The last time Marc issued a public warning like this, the market went on to see its biggest one-day drop in history. To get the full details, visit www.2022tradingsystem.com. Again, that website is www.2022tradingsystem – all one word, 2022tradingsystem.com. Check it out. [Music plays and stops] In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Send questions, comments, and politely worded criticisms, please, to [email protected] I read as many e-mails as time allows and I respond to as many as possible.
You can also call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. First up this week is Scott B. And Scott says, "Hey, Dan. First time e-mailing but wanted to say I really enjoy the podcast and all the book recommendations. I just finished reading the Doug Casey novels and I'm looking for something new, and I remember one of your guests a few months back talking about a fiction book he wrote about China and what is going on over there. Could you tell me the book and author I am trying to think of? Thank you, Scott B."
Well, Scott B., I think you're referring to – Currency Wars is the name of the book. And the author of the book is Lawrence B. Lindsey. LINDSEY. That was Episode 219, August 12, 2021. You know, I bought it – I haven't read it yet, so maybe you could read it [laughs] and give us the low down on that. Good question. And like I said, I really hope you read the book. Charles L. is up next.
Charles L. says, "Hi, Dan. I followed your podcast from Switzerland since about six months now and appreciate it a lot. What do you think about an investment strategy based on the political orientation of the company or the CEO? If I choose a company with the same political views as me, will it make me hold my positions longer during adverse times? It seems like many great fund managers are following it like Seth Klarman. So why not do the same? As no ETF is replicating it, maybe we have an edge in some cases? Thanks for what you do and go on. Charles L."
Charles, I think this sounds like a mistake to me. But I also – it's nothing that I have [laughs] experience with succeeding with it. When I have made investment decisions and analytical decisions and recommendations based on political movements, it's been – it has not gone well. Now, I'm going to write about cannabis in the January issue of Extreme Value. But in that case, you know, I think being long just makes a lot of sense because it's already legal in a lot of places and there's, you know, a lot of legislation going through Congress that will make it even more legal and hopefully, ultimately legal at the federal level.
But that's different than saying that you choose a company based on the political orientation of the CEO. I'm going to be from Missouri on this one. You're going to have to show me. But thank you. Wade S. is next. Wade says, "I'd like to hear your thoughts on Federal Reserve communication. If you listen to the financial press, you hear them talk a lot about forward guidance. Some even try to assign numerical probabilities to various adjectives and verbs in Fed minutes.
"The Fed has given a half-year warning about reducing bond purchases. Halfway to the tapering, people are wondering if the Fed is making a mistake. Probably because things change and the Fed really has no idea what the economy will be like in six months. I used to think forward guidance sounded wise. I am beginning to think it causes distortions and people to focus on bureaucrats when they should be focused on price signals. Maybe forward guidance is worse than no guidance at all. Wade S."
Yeah. I think forward guidance is worse than no guidance at all. Really good companies tend to not do it, most of them. But it's one of those games that companies play with Wall Street where they say, "You know, we expect to earn $2 a share," and then it comes out and it's $2.01 a share and they can say they beat the guidance or something. It's a silly game. And for example. Warren Buffett has opined on this frequently over the years, and that's why Berkshire Hathaway does not do forward guidance.
They just report their quarterly earnings and move on. It's a silly exercise. And you're right. Forward guidance is worse than no guidance at all. And as far as the Fed communication, that's all just – it strikes me as ridiculous. You know? But another thing Buffett has said is, you know, "The Fed could whisper every move in my ear before they do it and it wouldn't make a damn bit of difference in what I do." And I think that's the right way to look at it. Robert H. is up next. He's an Alliance member, he says. "Hi, Dan. Best wishes for a prosperous new year." Thanks.
He goes on here to say, "In last week's podcast, you responded to a question about gold's performance by stating that gold's runup a year ago showed that it had done so in anticipation of the jump in inflation. Fair enough. Does that mean that its drop since that high is predictive that inflation is not long? Perhaps, dare I say it, transitory? Or is it perhaps an advanced notice that the Fed will jump in completely for yield curve suppression and QE set to ludicrous drive? Such indicators tell one everything, only a little of which is true, and that is generally sorted out in hindsight. Sigh. Alliance member and a fan of your work, Robert H."
Your last comment is really the point, Robert [laughs]. "These indicators tell you everything, most of it in hindsight." And that's the way I look at it. You know, in hindsight it looks to me like gold anticipated inflation, but who the heck knows? I think most of the price movements of most of these assets are noise. You look in hindsight because you can see the longer-term trend, which is, gold has outperformed stocks in the 21st century, it's been a 50-bagger since 1971 when the cord was cut between gold and the U.S. dollar, and I don't think you need to know a lot else.
I think it'll keep doing that. We've been using it for over 5,000 years, we'll probably use it for another 5,000. But I'm glad you asked. Next up is Eric H. And Eric H. says, "Hi, Dan. I love the show and look forward to it every week. I've been thinking about gold and bitcoin and noticed, while they share the same investment thesis – that is currency debasement via runaway monetary and fiscal policies – they trade very differently.
"Bitcoin appears to be more closely correlated to the Nasdaq while gold plods along. If gold is a risk-off asset, is bitcoin a risk-on asset? Happy new year. Eric H." Well, Eric, certainly our guest today – Mike McGlone – talked about this, and I asked hm about it. And you know what I've said. I've said the same thing. bitcoin, up to this moment and including this moment, has traded like a risk-on asset.
And even gold does that too. You know? When people are selling, you know... as Mike pointed out in 2008, when they were really panicking they sold gold, too, and all their stops were hit and it plunged – even though it did finish the bear market in stocks higher than it started, right? So it sort of – it worked over the long-term, but you had to stick with it. And that is the point to me. I think you can stick with both gold and bitcoin over the long-term.
In the short term, bitcoin is still trading risk on. And I don't know how long it's going to be till Mike McGlone's prediction comes true. I think it will come true one day. Will it be 2022 as Mike says? I don’t know. We'll find out. Good question, though, and it's good to think about this. Last up this week is Ludvig H. for the first time this year. Ludvig, great to hear from you and I hope you're doing well.
And he says, "Nothing but the best for the new year. Health and success. A few questions. How long would you recommend to research before making any investment? Just a general perspective." OK. I'll answer these one at a time, Ludvig. So that one, how long, that's a really interesting question. Because for me, it's changed a lot over the years. It used to take me a lot longer to make a decision because I just didn't have the confidence that I have now.
But now, I have confidence that I have a process that works. So, you know, this ongoing process – which is a model that we use in the Extreme Value newsletter – that's mostly maintained by my partner in that endeavor, Mike Barrett – Mike just looks at the model and he says, "Hey, this stock is a buy according to the model," and off we go. So I don't know. "How long did it take us to develop all this," is one way to look at it. So it's a bit of an odd question.
But I would think that if you find a stock, for example, that appears to be undervalued, you should know whether or not you can achieve a yes or a no buy or sell kind of a rating you know, with a few weeks, I would think, at the most unless you're a real novice. And then, you know, it could take you months and months. Now, we have taken months and months with certain businesses. But we're kind of dipping in over several months and coming back to it. So it's not quite the same. Like I said, our model now does so much of the work for us that it's almost instant, the decision-making.
And then, we collect everything to make a recommendation, and that takes a week or two. So sorry I couldn't give [laughs] you a better answer than that. That's all I got. Next Ludvig H. says, "On gold, no, I'll not move. I consider my gold my financial health policy. Unfortunately, I'll make money on my real-life healthcare insurance. If I would ask you about the new year, what is the worst investment? To make it more interesting, why? I don’t care about the industry."
So he's asking me, "What is the worst bet right now for the new year. And I have to kind of go with Mike. I think we're at a point where the danger that's been in stocks for a couple years now is starting to become more apparent. And the way people are, you know, they think the Fed is so important when they start to raise interest rates they start to sell stocks. I don't know why, it's mostly kind of dumb, but they do it. And so, if that happens you could – you know, 2022 could turn into something like 2018 or worse.
So I think it's a bad time to be really excited about making lots of new speculative bets the way people have been doing since the bottom of the COVID bear market in early 2020. I think that would be the worst thing to do, is just to keep on cruising the way you were in 2021. Another question. "The USA is getting to midterm elections. How can I invest in the elections and make money?"
Boom. Stop right there. You went on – there's more of a question there, but I’m just going to stop right there and say I don’t invest this way, and I don't recommend that anyone else do so. It's just too difficult. The connection from, you know, voting and what candidates say they're going to do and whether or not they get elected all the way to the bottom line of some individual business – there's too much distance there and it's too complicated in between. All right?
So that's why I just don’t do politics when it comes to investing. And then, I guess I can ignore the rest of your e-mail, and then you finished up with, "Nothing but the best, Ludvig H." So thanks, Ludvig. It's good to hear from you. I like to hear your questions and I hope we'll hear many more of them in 2022. That's another mailbag and that's another episode of the Stansberry Investor Hour.
I hope you enjoyed it as much as I did. We provide a transcript for every episode. Just go to www.investorhour.com. Click the episode you want, scroll all the way down, click on the word "transcript," and enjoy. [Music plays] If you like this episode and know anybody who might enjoy listening to the show, tell them to check it out on their podcast app or at investorhour.com. Do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts.
And while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @InvestorHour. On Twitter, our handle is @Invesotr_Hour. Have a guest you want me to interview? Drop me a note, [email protected], or call the listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. Till next week, I’m Dan Ferris. Thanks for listening.
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