In This Episode

This week it’s an American Consequences takeover on the Stansberry Investor Hour. Guest Co-host and Chief Editor of American Consequences magazine, PJ O’Rourke, sits in with Buck to welcome Senior Editor of Extreme Value Dan Ferris, and author Turney Duff of the best-selling Wall Street expose’, The Buy Side.


Featured Guests

Dan Ferris
Dan Ferris
Editor, Extreme Value
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P.J. O'Rourke
P.J. O'Rourke
P.J. O’Rourke was born and raised in Toledo, Ohio, and attended Miami University (Ohio) and Johns Hopkins University. He began writing funny things in 1960s “underground” newspapers, became editor-in-chief of National Lampoon, then spent 20 years reporting for Rolling Stone and the Atlantic Monthly as the world’s only trouble-spot humorist, going to wars, riots, rebellions, and other “Holidays in Hell” in more than 40 countries.
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Turney Duff
Turney Duff
Turney is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where their founder and several Galleon employees were found guilty of insider trading. Turney was an unlikely Wall Street trader as a “B” student from Ohio University but soon rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol and power. Encouraged to socialize with the sell-side and siphon from his new broker friends for as much information as possible, Turney chronicles his spectacular rise and fall in his book, The Buy Side; A Wall Street Trader’s Tale of Spectacular Excess.
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Transcript

Male 1: 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: Welcome everybody to the Stansberry Investor Hour. I'm Buck Sexton, nationally syndicated host of Buck Sexton with America Now and your cohost of the Stansberry investor Hour. Of course, Porter Stansberry is the other half of this podcast but he's up in New York this week at the Grant's [Interest Rate Observer] Conference and can't be with us. So we'll look forward to hearing from him next time as he fills us in on what he learned from everyone at Grant's. This week, Stansberry Investor Hour's happy to present you with an American Consequences takeover featuring best-selling author of 19 books and now, editor in chief of American Consequences, P.J. O'Rourke.

American Consequences is a new online magazine and it's about what's really happening in American finance and what's about to happen next. It's all based on ideas that matter and it's about you deserving better from what passes as "journalism" and "news" these days. You deserve better than the pollsters who've gotten every important event of the last few years dead wrong from Brexit to Trump and everything in between. You deserve better than the fake news journalists who rewrite press releases from lying politicians and you deserve better than Wall Street's so-called "experts" whose advice always seems to align perfectly with their own interest well before yours.

Enter American Consequences. American Consequences is a new 100% free online magazine for people just like you, people who want real, unfiltered stories about what's really going on in American finances. Just go to www.AmericanConsequences.com to read the latest issue and sign up for a free subscription. On today's episode of Stansberry Investor Hour, we're gonna give you a taste of what you'll find in American Consequences. You'll hear P.J. and I interview Stansberry Research analyst, Dan Ferris as well as best-selling author and American Consequences contributor, Turney Duff. As you might know, Dan Ferris is the editor of Stansberry's Extreme Value publication. Dan focuses on providing his readers with investment ideas in line with classic Warren Buffett style value investing, where the investor understands a business from the ground up before putting any money to work.

And guest, Turney Duff is the author of the 2015 Wall Street exposé, The Buy Side and is a frequent consultant to the hit TV series, Billions. Turney's latest contribution to American Consequences was a two-sided tale of the IPO offering for food-delivery surface Blue Apron. Today, Turney will reveal why it's usually best for most retail investors to simply avoid IPO deals altogether.

All right. We've got Dan Ferris on the line with us right now. Dan is the editor of Extreme Value at Stansberry Research and also, a contributor to American Consequences. Dan, welcome to the show.

Dan Ferris: Thanks. Great to be here.

Buck Sexton: All right, P.J. You first.

P.J. O´Rourke: Dan, yeah. We really appreciate it. I'm trying to give a picture of American Consequences and maybe you can help me here that – we're not into conspiracy theories and we're not into contrafactual stuff. We're centered on the idea of getting clear information and clear debate across to the readers. We're not signing up a bunch of people who all agree with each other and who have just one strategy like to buy cougar ants and bury them in the yard. Would you care to speak to that?

Dan Ferris: Well, debate itself, of course, it's a wonderful thing. We don't really see a whole lot of it these days. So American Consequences sounds like a refreshing change to me and I'm happy to have contributed to a recent issue of it with a piece on Amazon.com and e-commerce in general, which was actually framed as a debate itself. You guys, I noticed, published another piece that sort of took the opposite view of me. So yeah. American Consequences sounds like a great idea to me.

P.J. O´Rourke: Well, I mean so far, we've put out four issues so far and the response has been pretty good and we're having fun with it. And bring us up to speed, Dan, if you will on the pro/con debate on e-commerce. Which side did you take on this? You're really optimistic about Amazon and the sort of e-commerce, other e-commerce sites that it has bred or were you skeptical?

Dan Ferris: I think I come down on the skeptical side. It really is not necessarily a black line issue, however, there is a – there is a black line aspect and that is this. Amazon, of course, has been fabulously successful and it has grown an enormous business very rapidly and it has done it by not making a whole lot of profit over this whole life of the business, going back to its founding in 1994. So other companies see this and they wanna imitate it because people who start in Amazon are rich. They're billionaires. So you get other start ups, e-commerce start ups and social media start ups and all kinds of things.

P.J. O´Rourke: Kind of thinking, "Hey. They're not making a profit. We can not make a profit too."

Dan Ferris: Exactly. So they've replaced sort of – there's an analyst, a guy named Scott Galloway who says that they've replaced profitability with vision and growth and my contention is that there's no substitute for profitability, especially when you're talking about owning equity in these things because equity only has value if there's excess cash left over for equity holders after paying all the bills and all the taxes and investing in the business and growing it. So maybe –

[Crosstalk]

P.J. O´Rourke: Well, yeah. When I get the tuition bill for my daughter at Tulane, I am … I've tried telling them, "Well, I would send you money but what I've got instead is – can I send you an envelope full of vision and growth?"

Dan Ferris: [Laughs] Yeah. They don't take it at the grocery store, do they?

P.J. O´Rourke: Yeah, yeah, yeah. Grocery store's the same way. They seem to look askance at my attempt to pay them with vision and growth, especially with vision.

Turney Duff: Yes. So investors, however – so far as we sit here in late 2017 – seem to wanna be paid in little else and it seems against all rationality to be working in many cases. Though, not in all, and I think eventually, the piper has to be paid and these episodes come and go. We've seen them come and go before. We saw the dot-com era come and go. We saw the housing bubble come and go and this will come and go as well.

P.J. O´Rourke: Yeah. This is a little bit like … this has echoes of 1929 when all anyone was concerned about was the stock price. And old Joe Kennedy – Jack Kennedy's dad – is said to have claimed that he got out of the stock market when the shoe shine boy at the Biltmore Hotel started talking about stock prices.

Dan Ferris: Well, 1929 and other episodes are not bad analogies because they all tend to come with a more or less technology oriented boom along with the wider boom. And in 1929, the big one was radio. General electric created Radio Corporation of America. Of course, RCA. And they were sort of like the Sirius XM of their time. Right? They made the radio, the actually radio sets, and they also started creating the first radio network across the country so people could listen to something. And the stock went from something like $1.50 to, like, $500 and then back to, like, $2.50 and it crashed. So that's sort of –

P.J. O´Rourke: And right before the crash, there was a period there where you could sell anything by saying the word, "radio." "New radio shoes." "Get your special radio baking powder at the grocery stores." It was like the dot-com boom and if you attached the – where you could take any idiot idea and put ".com" after it and sell it for a while.

Dan Ferris: Yeah. That's the really manic, crazy phase just before it all falls apart. I don't think we're there yet.

P.J. O´Rourke: I wanna take this back a century or more than a century. There was a time when there was an equivalent to Amazon. It was called Sears and Roebuck and they were really dominated. They had one fairly good sized competitor, Montgomery Ward, but they really – Sears really dominated the catalog, mail order catalog industry at a time when ordering things by mail was a really astonishing new technology.

Dan Ferris: Right. So Sears followed the – it's almost like the Amazon playbook. They started out as a catalog company, only they didn't have the Internet. They had the postal system and they started, like Amazon started with one product, books, Sears started with one product, watches. Then, they added a bunch of products.

Then 1925 or so comes along. Sears doesn't have one physical store, one retail location, and all of a sudden, they find they're competing with, as you say, Montgomery Wards in rural areas and Woolworths in urban areas. So they said, "Well, we're gonna build stores," and they looked at the census report and they saw that people were moving from farms to urban areas and to suburban areas and they said, "We're gonna build stores everywhere they do." And we know what happened next.

And then after that, they became very big, for example, in auto parts and auto repairs and that led them into services. And what did Amazon do after a while? Well, they started Amazon Web Services. So it's a similar playbook and Amazon has yet to really get the physical store piece of it and they are aggressively attempting to do so today, which is why they – one huge reason why they bought Whole Foods. They got almost 500 physical locations with it. So yeah, the Sears story is extremely important in understanding what's going on today. I agree.

P.J. O´Rourke: Doc Eifrig wrote an article saying, "Boy, there's still a lot of value to be gotten out of investing in Amazon." Kinda taking the contrary view. Not exactly the opposite view from Dan because I think the people we've got writing for American Consequences are too sensible to just have to have one of those TV screaming matches where you get head in refrigerator, feet in the oven, and call it a balanced report. Both what Dan wrote and what Doc wrote were pretty balanced reports – but Buck, can you speak to the upside of this?

Buck Sexton: Well, I'm most familiar with the way it affects advertising revenue on the Google side. Right? I mean, there's a similar phenomenon happening to what you see with Amazon where now Amazon controls the marketplace, in a sense. People that have products that they wanna sell themselves, they realize they have to get it into Amazon. And the same thing is increasingly true for better or for worse and P.J., I think a lot of journalists would argue for worse with Google and Facebook in terms of advertising revenue dollars.

And so there's still a lot of room to roam because there's more on the Amazon side. They have all the logistics. They have the tech and now, it's just a question of continuing to increase market share, I think, by acquiring, well, anything. Everything, really. My girlfriend works in fashion and she had to point out to me now that this is gonna be affecting the fashion industry very directly. Wal-Mart wants to try and compete. There are some –

And that's actually just a question I'm wondering what Dan thinks about. Dan, Wal-Mart... there are a couple of possible competitors in the digital space with Amazon that realize that this is all going – that it is gonna be all online and that that's all the wave of the future and it's already happening. Do you think they'll be able to catch up? How does somebody – how does somebody compete with Amazon even theoretically in the next year or two?

Dan Ferris: Well, I think Wal-Mart is getting more competitive with Amazon all the time. Remember, Wal-Mart – right now, 90% of all retail sales take place in stores. Amazon has no stores. They just picked up about 500 stores from Whole Foods but you're looking at 4,700. Actually, if you include Sam's Club, over 5,300 stores just in the U.S. for Wal-Mart and nearly 12,000 worldwide. So Wal-Mart's ahead there. Right? They already have that store network. They already have that logistical capability and they're building online grocery capability. They've just announced their 1,100th store of online grocery ordering and they got all kinds of e-commerce initiatives.

After they bought Jet.com, the guy who runs that thing, he used to work for Amazon and so he knows what he's doing and he went and bought a bunch of new businesses to add to the online capability. They used to have something like $10 million products available. Now, it's upwards of $50 million. Still a lot less than Amazon but they're ramping it up very quickly. The first half of the year, Wal-Mart grew online sales mostly organically. Mostly not through acquisition by more than 60%, and they just announced this morning on their investor day webinar that they're probably gonna come in around 40% for the year once they sort of build in the Jet.com acquisition to those results.

So that's huge. They're doing fantastically well and they're frankly, sort of – they beat the daylights out of Amazon by building this enormous store network. They've got stores within 10 minutes or I think, actually 10 miles. I'm sorry. Within 10 miles of 90% of the population of the United States. That's gonna be tough to compete with.

P.J. O´Rourke: And I'm part of that 10% because I live way, way, way out in the country in New Hampshire and the distance from me to a Wal-Mart store is, get this, 12 miles.

Dan Ferris: [Laughs] There you go. An extra two miles for P.J.

P.J. O´Rourke: Yeah. Extra two miles for me. But then, first place, I think we're giving listeners a taste of the kind of thing American Consequences is doing. We're using one particular example here but I think it is a good example. And I just wanna speak for a moment to something else that we brought up when we were talking about innovations. And the issue is that it can be easy to over-exaggerate or to over emphasize break through new technology like online shopping.

I spent all of yesterday afternoon getting – I'm about to go hunting in Canada. I spent all yesterday afternoon online trying to get my Canadian hunting license and it was – I used to – I've been doing this for 30 years. I've been going up to New Brunswick to go bird hunting. Used to be you stopped by the department of natural resources and you showed them your old license. They gave you a new license. You paid the money. It took 10 minutes.

It took me yesterday – you now have to get an outdoors card number and then you have to – it just went on and on and then there was a glitch in the system and I didn't finish it up until this morning. It's been, like, six hours I'll never get back. And that's just one little example of there are drawbacks to online shopping.

Dan Ferris: Well, there's drawbacks to any innovation. Right? The pioneers get the arrows and the settlers get the gold. And Wal-Mart is a settler.

P.J. O´Rourke: Yes. Yep. We had fun with the innovations issue of American Consequences because one thing we did was "unnovations," things that need to be unnovated and sent away forever.

Buck Sexton: We have a whole section coming up on that one, P.J.

P.J. O´Rourke: As a matter of fact, I think we killed one product before even as we went to press, there was some Juicero juicer out in California selling for a gagillion bucks and you had to buy the packets of special, little juices, and then you had to buy this extremely expensive machine to squeeze the juices out. And it turned out you could squeeze them out by hand.

Buck Sexton: Well, Dan Ferris, we really appreciate you joining us this week on the Stansberry Investor Hour. Dan, everybody, is the editor of Stansberry's Extreme Value publication. Dan, anywhere else you should direct people or any other work you wanna bring to their attention?

Dan Ferris: I wanna direct them straight to Extreme Value because I think we're covering what's going on right now in the financial world at least as well as anyone else. We have a genuine bonafide mania in the stock market and yet, we're finding a couple of value-priced opportunities and we're finding some good short sales and I think we're – I think we're right on point, not on the popular point of just buying and buying and buying anything but I think we're right on point and people who follow our advice are gonna do very well, even if the stock market does fall apart over the next few years – which I think is likely.

Buck Sexton: All right everybody. Dan Ferris. Dan, thank you so much.

Dan Ferris: OK. Bye-bye.

Buck Sexton: All right Stansberry friends and family, it is Turney time. We've got Turney Duff on the line. He is the author of the New York Times bestseller, The Buy Side, a torrid tale of coming of age as a New York trader from Kennebunk whose eagerness to please the Wall Street culture almost cost him his life. Now, a consultant to hit TV shows like Billions, Turney is also a frequent contributor to American Consequences. Mr. Turney Duff, welcome to the Stansberry Investor Hour.

Turney Duff: Thank you. Thank you for having me.

Buck Sexton: P.J., start the noise.

P.J. O´Rourke: Well, Buck, what are we gonna pester Turney about today?

Buck Sexton: I wanna ask him about the show Billions because I'm an avid watcher but I'm sure those listening to the podcast would probably like some wisdom about [laughs] the IPO market, for example. Maybe I can ask him questions about Billions later.

Turney Duff: [Laughs] Yeah. I know. I mean –

P.J. O´Rourke: Oh, no. Won't you ask him now and then we'll get to the IPOs.

Turney Duff: Yeah, sure. So back in December of 2014, I was sitting on my couch and I got a phone call from the two show runners, Brian Koppelman and David Levien and they knew about my book and they said, "Hey. We'd love for you to read the pilot." And so I was like, "Yeah. I'd love to. No string attached." And over the weekend, read it a couple of times and came in on that Monday with a few pages of notes and just said, "Oh, I had this one guy would never say this. This is how he would say it," or, "This is probably not right but you might wanna look at this," and just kinda wanting to make it authentic. And soon as the meeting was over, they said, "We'd love for you to be a consultant."

And so basically, my job was just to redraft the episodes and make tiny notes and then I sit on set and just watch the actors do their thing and occasionally, they would have a question and Damian would come up and say, "Hey. What does this exactly mean?" and I'd try to explain it like – and not insulting Damian because he's a brilliant guy, but just like I would explain it to my mom. And it just probably helped the actors a little bit more in really kinda making the show authentic.

Buck Sexton: So for those who don't watch this series, it's about kind of a rogue billionaire hedge fund guy who's got a U.S. attorney who really wants to take him down and all the stories around this. I think it's very well done. I think Paul Giamatti and Damian Lewis do a great job. But just to the point you made or tell us a bit, Turney, about how you add some authenticity into this, I have zero exposure to people who work in hedge funds other than seeing them in bars often hitting on the same women when I was a single man.

[Laughter]

So what are some of the things that you've been able to bring into the discussion that made their way into the show so that you do have an authentic reflection, at least somewhat authentic reflection of the way that actual mega hedge funds work?

Turney Duff: A lot of it, like the minor stuff, could be – like the vernacular. And it's probably similar, Buck, to, and you, P.J., when I watch House of Cards. Right? I don't know that much about politics but I know when something rings true or not. And so obviously, that show kind of jumped the shark after season two but there are moments where I don't necessarily know exactly what's going on, but it just feels true so I think when the creators of the show really want it to be as authentic as it can.

And so it could be as simple as just a little line. Axe saying, "Go whack some bids." That's how a hedge fund manager would tell someone to go sell some stock. And so it's just small things like that and then obviously, in the bigger picture stuff, you have to get right whether it's you're trading currency or a town is defaulting on their bond. Whatever it is, you have to make sure that it's just – it's true. And it's funny, very, very talented guy, Neil LaBute, he directed one of the episodes and he's a big Broadway guy.

But he came up to me and he said, "Turney," he goes, "It has to be possible. Not plausible, it has to be possible." And so that's kind of the bar. You don't wanna sacrifice story and just make it literally exactly what a hedge fund would be like because otherwise, no one would wanna watch that.

Buck Sexton: A lot of dudes with spreadsheets.

P.J. O´Rourke: The slang among gangsters was so opaque, Mario Puzo was aware of this, that he made up his own language basically making it sound like it sounded right. And it turns out that ever since my – I know this because my father in law was an FBI agent on organized crime, the gangsters have been using that language ever since the Godfather movie came out in 1972.

Turney Duff: Right. And similar to that, I remember there was some talk when that show, The Wire came out. The FBI was having such difficult understanding or knowing the language of the calls that they were listening into that it almost became impossible for them to do their job. But yeah, you could walk onto any trading floor or hedge fund trading floor and you would think they were speaking a different language.

Buck Sexton: I will say that having had some exposure to law enforcement side as somebody who worked on the counter terrorism part of the house for the NYPD and so you deal with the various prosecutors' offices there, the notion of prosecutors who make decisions based on how much they like or do not like a particular target of investigation, what it will look like for the prosecutors' career, that is very important for everyone at home watching to understand because it is true.

[Laughter]

Turney Duff: Right. Right. One quick question for Buck – and maybe this is just Wall Street conspiracy theory but it's interesting how with the financial collapse happening in 2008 and then with all of the insider trading busts, to some people, it feels like that was the low hanging fruit and that's one of the reasons that they went after, stating with my former boss Raj Rajaratnam, but that's why they really were going after inside trading, has nothing to do with the collapse but it was good headlines. Do you have any thoughts on that?

Buck Sexton: Oh, absolutely. It was because they were getting all this heat for not taking people who were involved in the mortgage meltdown on Wall Street and frog marching them out of offices, in many cases, because they no longer had offices to be frog marched out of but because that didn't happen, they were looking for a political win and you mentioned your boss, Rajaratnam, look who went after him, Preet Bharara. Look what Preet Bharara is now. He is a guy who is a CNN contributor on his way to running for higher office in New York State and who knows how far that guy's ambitions go.

And he is a partisan and has been all along who's looking to increase his own profile. So that is reflected, I think, in the showBillions with the character that Paul Giamatti plays and that is very true to life.

Turney Duff: Yep. Yep.

P.J. O´Rourke: As a reporter, let me chime in and say ditto, ditto, ditto. Turney, you see it from one side of the triangle and Buck, you see it from the other, but at least the guys who are honestly reporting on this see it all the time too from our corner of the triangle.

Turney Duff: Yeah. No. It makes sense and yeah, I can see it from all angles and it's – I guess it is what it is. Right?

P.J. O´Rourke: Yeah. And it's an important thing. I think it's something that we try and point out in American Consequences is that when you're looking for motivation, it's not as simple as following the money. You also gotta spend a lot of time following the ego, whether it's in business or it's in legal problems or certainly when you're covering politics. Politicians are corrupt but most of them are not corrupted with money. They're actually rare and they're low hanging fruit. Most of them are corrupted with ego.

Turney Duff: 100% and whether you're talking about politicians or these hedge fund billionaires, like my former boss or if you wanna talk about Axe from Billions, there's something about some of these people where whether you've got $50 million or $60 million, it's literally the same thing. So it's not about greed and it's not about money. It's literally about winning and –

P.J. O´Rourke: Yeah. It's about ego and power.

Turney Duff: And some people can't check themselves.

P.J. O´Rourke: In fact, I was just gonna say that ego, of course, is the most wicked, to me… The most evil motivator is the desire for power over other people.

Turney Duff: Right. Right. Yep.

Buck Sexton: P.J., do you have an IPO question for Turney?

P.J. O´Rourke: Yeah. Well, I guess my question would be WTF [laughs]? You know what I mean?

[Laughter]

IPOs seem like a case of investor – it's just opaque. The company doesn't exist yet so how do you measure the value of that company and how do you know how to bet for it and how can you physically bet against it?

Turney Duff: Well, the company does exist. Right? And it's at all different levels. But back in the late 90s, early 2000s, these companies would go public and there was no revenue in sight that they were ever gonna make a profit, something like Snapchat today. Who knows if it's ever gonna make money? So a company usually goes to the IPO when it either wants to raise money, whether it's for debt or to expand and to invest in R&D or upgrade technology or whatever it is. And it's usually a small piece of the company.

But the other thing that happens is you have these people who started companies who are also looking to cash out. Right? So the people from Snapchat are billionaires now and the people below them are millionaires now and what happens to the company is it's – I don't wanna say irrelevant but … so as an investor, you're obviously limited to the financials that are supplied to you and there's usually a road show. The lead managing banker will take the company around to a bunch of different cities and they'll sell their story but if you're sitting at a hedge fund, it's almost as easy as one phone call and if you've got a friend at the bank, let's say it's a Goldman Sachs deal, you call up your friend and just say, "Hey. How's the deal looking?" and they can tell you, "Hey. It's 15 times over subscribed," which means (a) you're probably not gonna get a ton of shares but (b) the stock's gonna be up immediately.

And so on the article that I wrote about Blue Apron, when I started making calls, I was literally getting laughed when I said, "Hey. Did you play Blue Apron?" and they're just like, "Are you kidding me?" And so quote on quote smart money knew that there was no reason to play this deal whereas a retail investor clearly would not have that look. And the other thing I would say is like, it's tough from the retail side to try to play an IPO because why is one of these banks gonna give shares to a tiny account who doesn't pay them millions of dollars a year in commission.

So I would almost say unless you've got 10, 15 million dollars at a retail account at a larger bank, you're probably not gonna ever get shares of an IPO that are worth owning unless you know something that other people don't.

P.J. O´Rourke: Turney, now, speaking of knowing something that other people don't and I once asked Robert Martin with Longterm Capital Management when he was flying high, I once asked him, "OK. OK, Mr. Martin, how do you get rich?" and he said, "Asymmetrical information. Information you've got nobody else has." Is that the phone call to the banker saying, "Hey. How's it going?" and he goes, "Hey," or he goes, "We're oversubscribed up to our neck"… Is that technically inside information?

Turney Duff: I guess if you're talking about it like an IPO call, just saying, "Oh, how's the book shaping up?" that happens all day, every day. So I don't think that technically is illegal but other various calls along those same lines could be… But one of the interesting things that has happened over the last 10 years is that insider trading, insider information used to be very ambiguous and especially after Raj got pinched, there was a lot of fear. And so people were literally operating at a much higher level in terms of trying to do the right thing because nobody wanted to go to jail, obviously, and it's – well, it will end your career and your firm.

But as the core cases kinda went on and on and on, insider trading has become more defined and interestingly enough, it's easier to cheat now. So technically, the rule is you have to know that the tipee was rewarded, which very often, that's hard to define. But if you don't know that the tipee was rewarded, it's technically not inside information. Those are the kinda calls I would get all day, every day. You don't know if someone got a cash payment on the sidewalk or a job promotion...

So the fact that insider trading has become more defined, it's almost become easier to cheat. And not trying to drag anyone's name through the mud, but if you look at the SAC CB Cohen case and he's never been charged… Or, he was charged with managed to failure. He had a system set up where a guy would come to him and literally just say, "I'm very certain," and then Stevie knew that it was a good call. So by the textbook definition, he wasn't doing anything wrong. It's interesting that the fact that it's become more defined has actually kinda made it easier to cheat, if that makes sense.

P.J. O´Rourke: Which brings us back to the retail investor. The retail investor is kind of left out in the cold on this.

Turney Duff: Yeah. It's interesting because I don't know if you guys remember. It might have been two years ago. Michael Lewis was on 60 Minutes. His Book Flashboys had just come out and he made this comment that the market was rigged and I remember being like, "Oh, really? Dude, come on." Because when I hear the word, "rigged," I think carnival game. Right [laughs]? Where you basically can't win. It's a basketball hoop with an eight-inch diameter and the ball is –

P.J. O´Rourke: It's a little too small for the basketball [laughs].

Turney Duff: Yeah. And so I was like it's not rigged, but it's difficult. But what's funny is, and especially since all this insider trading stuff has come out, if you look at the performance of hedge funds since 2008 versus just having your money at Fidelity or somewhere else in the index, you're much better off having your money just in an index fund. So it's tough to be a trader if you've got no edge. It is tough for the retail guy. But not impossible.

I don't know if I would go as far as saying rigged, but you need some edge and that's not easy to come by.

P.J. O´Rourke: Well, that's the whole purpose of Stansberry Research, is to try and give the retail and retail investor some manner of edge and we've got all these newsletters that would do a really great analysis. And I guess the purpose of American Consequences spinning in a way off of this is to give just what we're doing here… to give retail investors and people who are just interested in economics and politics and business some sort of – some of the theoretical background, some of the deeper background on these questions so that when they look at specific advice and specific analysis, they will have a sort of general knowledge, it is to be hoped, with which to apply.

Turney Duff: Yeah. 100%. It's all about gathering information and making a smart educated bet. Someone like Stansberry can provide that. And just sort of a side note, some of my best trades have literally been from me walking down the street and just noticing something. I think it was about a year and a half ago or something – my daughter, she's about to be 12. I think she was 10 at the time and she begged me, begged me, begged me for one of those Fitbit things for her wrist. And so I was like, "All right," and I spent the $150 and I got her one. And then three days later, I saw it collecting dust and I just sat there and I was like, "Oh, my God. This company is the biggest short ever."

And sure enough, I think the stock went down 30 or 40 points a few months later. But sometimes, just simple observations are money making ideas.

P.J. O´Rourke: I'll watch my kids all the time, what they do… My theory of money management is marry a wife who is a business major and never think about it again, which has been pretty successful for me, I think, or if it hasn't been, I'm not being told –

[Laughter]

Which is fine with me also [laughs]. But I watch. The kids are really alert. The fidget spinner thing, that fad lasted about 18 minutes. For 18 minutes, every kid in the world had one of these fidget spinner things in their hands and now, they're gone. And on the other hand –

Turney Duff: Yeah. They're completely gone.

P.J. O´Rourke: Twin tip skis which looked like the stupidest thing I'd ever seen in my entire life are now everywhere and in fact, are making an impact on the snowboard business because these little twin tip skis are actually much more fun and you don't spend as much time sitting on your behind as you do with a snowboard.

Buck Sexton: All right. Turney, thank you so much for joining us here. Turney Duff, author of The Buy Side and consultant to the TV show on Showtime, Billions. Turney, man, great to have you and thanks for your piece in American Consequences.

Turney Duff: Thank you. Thank you, Buck. Thank you, P.J. Have a good day.

Buck Sexton: All right, P.J. That was great talking to Turney. I know we wanted to spend a little time on the – well, I'm now introducing my own piece in a sense but it's in your magazine so we'll go back and forth on this one, "How The Real World Becomes The Web." This is what I wrote for you in American Consequences. I'll just start out by saying I don't really like that I walk around my apartment now constantly aware in the back of my mind that there are cameras, video cameras, and microphones that are around me that I'm just hoping are not operating, not on, and have not been hacked.

P.J. O´Rourke: Yeah. It's absolutely creepy. I had an experience, and just minor creepiness – let's not even talk about the major creepiness. The fact that if you are like I am, 69 years old, and you log in on anything, the Viagra ads pop up. [Laughs] You know what I mean? It's just like they know your age, they know you're male, and that's that.

But I bought a pair of suspender for my tuxedo from Brooks Brothers. Now, your suspenders for your tuxedo wear out about once ever 30 years but once every 30 years, you need a new set, depending on weight loss and so on, you need a new tuxedo every now and then, weight loss or weight gain, but you don't need the suspenders more than about twice in your life. And then for the next six months, I got nothing from Brooks Brothers except ads for suspenders, which I'd already bought, which made me think (a) this is creepy that my little buying thing like this is tracking me all over the place no matter what website I go to but secondly (b) this is stupid. It's a stupid website that's tracking me.

So yeah. I go around in fear of evil of course but in fear of stupidity as well.

Buck Sexton: I feel like there's been a progression, P.J., in the public consciousness of just how much of our lives are being recorded and data mined and this is a process that ahs been evolving as well. To your point about buying something and then you get all these ads – not even just getting ads. You see all of a sudden, things popping up on your screen. You could be looking for a history of the Taliban, maybe this is what I do, and all of a sudden on the side, it says, "Oh, you must wanna buy some Sperry topsiders." You're like, "Wait. What's going on here?"

People have figured this out in the last, I'd say, five to 10 years, the general public, but what's been fascinating is that even as everyone realizes, "Wow. Google isn't just giving us all this stuff for free because they're so nice. They're actually making unbelievable amounts of money and have a tremendous amount of control over advertising. On top of that, they are pulling all this information together and it then becomes vulnerable to people getting access to it who aren't supposed to." I think this has been kind of a moment of, "Oh, wow. You mean Equifax could lose all of our personal data?" The answer is yes.

P.J. O´Rourke: Yeah. And at the same time, your car is telling on you, where you've been and what stores you've visited and who's been riding in it with you who maybe shouldn't be. It totally creeps me out. I saw something from a retired military guy, some general who'd been in the military intelligence saying, "We don't have a surveillance state per se but we have all the equipment in place to produce one." And so I'm not worried about this getting into the hands of Whole Foods or Jeff Bezos. What happens when government comes under the control of people that I am really creeped out by (and I'm not saying this might not have happened already) – and they have all these tools to watch me that make what the commies and the Nazis did look like you're playing hide and seek with three-year olds.

Buck Sexton: We have a turnkey surveillance state that would make the Stazi jealous in this country, and I think it's important for everyone to at least know that technologically speaking, that is a true statement. There is more information that is being gathered, assuming that we're talking about people that are not off the grid. Right? But if you're using a cellphone and a computer on a regular basis, you are giving more information that is kept, that can be tracked and mined, and that could be used for future purposes, is used for future purposes, than anything that the true totalitarian states of the 20th century could have managed by threatening your neighbors into snitch – or your family into snitching on you. But what's fascinating to me, P.J., is that even as all this is playing out and these so-called "Internet of Things," which means that not only is it now your cellphone and your computer and other things around you are collecting all this data, now, it's gonna be your toaster and your car and all these other things.

People are still willing to trade convenience for privacy or rather, they're willing to make the trade off that if their life is easier, quicker, more efficient, yeah, they'll let this data be out there. We haven't reached the tipping point on that yet where it goes in the other direction.

P.J. O´Rourke: We haven't and but we ought to and I'm hoping that we will. And incidentally, this is a great subject for a future issue, a theme for American Consequences and let's go there. You and me, especially, on this. But I don't think people are even trading convenience for surveillance. They're trading gadgetry. I am not sure that all these things, that a refrigerator that tells you you're out of orange juice actually makes life more easy and convenient. Witness what I was just talking about earlier in the podcast of my day spent trying to get a hunting license that used to take me 10 minutes, my day spent lost on the Canadian Natural Resources website – is that refrigerator nagging you to buy orange juice and maybe you're sick of orange juice and don't want any – it's just like one more annoyance, one more little pressure in modern life, which is not lacking in other annoyances and pressures.

Buck Sexton: Those of us, P.J., who also have a libertarian streak, have to be very aware that whenever you have Internet-enabled devices in the home, and this goes directly to your power usage, water usage, areas of day-to-day life – particularly for the climate change activist wing of the Democratic Party – where there is a role for big government to play and a much bigger one that they want it to play. Once that data is not just collected but is accessible from the outside, meaning everything you're doing in your home. Right? Whatever activities you're essentially up to, then all of a sudden, there's a big, not just incentive, I think, but there's a big opening for government to dictate even more of your day to day life. So for libertarians, the Internet of Things poses some major concerns.

P.J. O´Rourke: My thermostat is watching me. OK. So when we were out for the Stansberry Alliance Conference in Las Vegas – I got Stansberry very nicely fixed me up with an extremely fancy room and I sat down to do certain business and discovered I was sitting on an electronic toilet. Now, I'm not saying that toilet was watching me, but the toilet had all sorts of electronic features, which I don't think we really need to go into on a family podcast [laughs]. But I mean all sorts of water-squirting, air-drying thing-a-ma-bob and how do I know – was that toilet talking to the minibar? Was the minibar talking to the – there was also a huge panel of complicated things about opening and closing the drapes and turning the lights off in the room. Are these all things talking to each other? The answer is "probably."

Buck Sexton: And increasingly, the answer will be "absolutely," so that's what we're heading for. I would hope that if folks haven't gotten a chance, first of all, they can go and reads the latest issue or even back issues of American Consequences at AmericanConsequences.com. Subscription is free. It is a fantastic magazine and you can read the piece, which I am the author of so now, this is very self-promotional, How The Real World Becomes The Web and also P.J., as editor in chief has stuff in every issue and is overseeing this whole enterprise. So it is magnifique, P.J. It is a great magazine. And so with that –

P.J. O´Rourke: Well, I think we're having a lot of fun and it's got – and perhaps, we haven't gotten that across in this podcast but it's also got a lot of fun stuff in it, things that'll make you laugh or I hope they'll make you laugh. I'm trying [laughs]. And for instance, we have in the latest issues, it's all out and something I would like American Consequences free subscribers to add to is we have a whole list of unnovations in our innovation issue, things that need to be gotten rid of.

And I would love to hear from our reading public some additional – I think there might be a possibility for a regular column in there about things, so-called "innovations" that need to be unnovated.

Buck Sexton: I think we have to start that American Consequences tradition right now here on the Stansberry Investor Hour podcast, P.J. Instead of doing a mail bag this week because our fearless leader Porter Stansberry is not with us, I say we get into some unnovations. The following unnovations are things that maybe we would all be better without. So let's get started. P.J., you first on the list.

P.J. O´Rourke: Well, texting [laughs]. You know what I mean? And I personally, I'd go further and get rid of all smartphones. I'm just sick and tired of dealing with people whose faces are stuck in the phone and yes, I'm talking to you, my three children at the dinner table going, "Huh? Did you say something, Dad? Sorry, I was just texting Grace" [laughs]. Texting just hits that sour spot between the immediacy of a phone call and e-mail, which is just kind of a sped-up version of a postcard.

Buck Sexton: And I have to say this. This idea that people have that it's OK to all leave out their, in some cases, multiple smartphones on the table at a restaurant while you're eating with them. Not OK with me. Air conditioning is also on your list of unnovations here, P.J., which this one, I gotta say I'm not sure I'm along for the ride on this one. I kinda like my AC.

P.J. O´Rourke: Yeah. I know. This one's really kind of a tough sell but the thing is it's air conditioning – have you ever been to Washington in the summer? We've all been to Washington in the summer.

Buck Sexton: I lived there.

P.J. O´Rourke: What a sweat pot that is? Air conditioning is what allows our government to operate 52 weeks a year. Government used to just kinda come to a halt in the dead of summer and Mark Twain once said there's no distinctly Native American criminal class except Congress and he also said that when the crime rate is way down, Congress is out of session. Well, Congress is really never out of session anymore and certainly the bureaucracy isn't. And so I think we could sweat it out a little bit in the hotter parts of our country in return for a whole bunch less government.

Buck Sexton: Juicero juicer is next on the list. I don't even know what this one is, this unnovation, P.J.

P.J. O´Rourke: [Laughs] Well, and you won't either because the Juicero juicer – managing editor Steven Longenecker found this – it's a $400 juicer that had just been the total darling of Silicon Valley and also of Silicon Valley gadget startup funding. $400 bucks for a juicer and you also had to pay for weekly deliveries of the special Juicero prepackaged fruits and vegetables and then the Juicero would press them but people discovered you could press them with your hands. You just cut off a corner of the thing and you could just press it with your hands.

And before we got the press, Juicero went out of business [laughs].

Buck Sexton: So they have in fact been unnovated.

P.J. O´Rourke: It got unnovated. Yeah. So we were ahead of the curve on that one.

Buck Sexton: PowerPoint presentations. Cannot agree with you more on this one. In fact, during my time in government, I saw so much PowerPoint that I have flashbacks to it and it is a form of torture because people seem to think that the best way to do a PowerPoint presentation is jam everything onto a slide and read it all, or put practically nothing on a slide and then you wonder why do you have to read segment two off of the PowerPoint?

P.J. O´Rourke: Buck, I have this rule of thumb that if it's complicated enough to need a PowerPoint presentation, it is too complicated to be explained with a PowerPoint presentation.

Buck Sexton: Fair. I think if you ask any folks who are former military about their experience with PowerPoint, I think they would say, "Oh, yeah. There's a lot that goes into PowerPoint slides that it just doesn't suffice as the 'explanation of all things.'" But male rompers is up next which I gotta say, I'm not sure this even counts as any kind of innovation so that it can be unnovated because isn't it already gone, P.J.? Didn't we already decide as a society to abandon the male romper?

P.J. O´Rourke: [Laughs] I didn't know about the existence of male rompers. I had, again, Steven Longenecker, my invaluable right-hand man, alerted me to this. I Googled the thing and all I can really say to listeners is Google it yourself. You will be appalled.

Buck Sexton: And I'm learning something new on the show. Because I live in New York City so the notion of a car loan is foreign to us because ownership of a car is foreign to us. Right. The 84-a-month car loan though.

P.J. O´Rourke: Yeah. Just think it over [laughs]. You know what I mean? OK. The average price of a car in the US, it's the average price with the latest figures we've got, it's $28,900 and change. It's like $29,000. The average car loan interest rate is 4.6% and the average loan term is 67 months and this means that you pay almost $4,000 interest with a regular car loan in addition to what you pay for the car. Well, if you go for an 84-month car loan, you pay almost $5,000 more for then what you paid for your car. And considering your car depreciates massively the moment you drive it off the lot, do the math and drive a junker. Save up for the nice car.

Buck Sexton: All right, everybody. That's gonna be it for this week on the Stansberry Investor Hour. Thank you as always so much for joining us. If you haven't already, please subscribe to the podcast on your Apple podcast app, Google play, Stitcher, or wherever you find the podcast. Leave us a review or comment. Your feedback is essential to helping us grow the show.

Don't forget. Sign up today for your free subscription to American Consequences. Just go to AmericanConsequences.com. There, you'll find the free signup as well as the latest issue ready to read. Have a question for us? Write to [email protected] Remember, if we use your question on the show, we'll send you some Stansberry Research swag. Love us or hate us, just don't ignore us, and next week, Porter's back from the Grant's conference and I'll be traveling down to the Baltimore studio to do the show in person. Paying a little visit to Stansberry HQ, the Stansberry mothership, so that's gonna be some fun.

We'll also be joined by special guest Kevin O'Leary, from ABC's hit show Shark Tank. Kevin recently gave a presentation at the Stansberry Conference in Las Vegas where he shared the secret to the perfect "shark pitch" and the one key ingredient to all his most successful shark investments. You can watch Kevin's presentation along with Porter and all the Stansberry analysts right now by going to StansberryVegasVideo.com. Again, StansberryVegasVideo.com. Thanks team for listening this week. Have a great rest of your week and we'll see you all again next time on the Stansberry Investor Hour.

Male 1: Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Porter and Buck? Send them an e-mail at [email protected] If we use your question on air, we'll send you one of our studio mugs. This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investor Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio network.

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