In This Episode

It seems like a distant memory with May’s headwinds for markets, but technically the “Everything Rally” is back this year, with 90% of 70 financial classes showing gains through this spring.

Of course, the market action of this week, leading up to the S&P 500’s nearly 1% on Thursday morning, calls the entire rally into question.

Luckily, there’s a kind of insurance available for investors against this kind of market movement – and it actually gets cheaper when it’s needed most, like property insurance premiums falling right before a Category 5 hurricane hits.

In this episode, Dan explains how he used to double his money last week after a bet that May would be a horrible month for markets paid off.

He then gets to the concept of diversification, and why it’s so often misunderstood. You especially won’t want to miss his warning on how many investors, who own a wide array of securities, think they’re diversified when they’re actually horribly exposed.

Dan then gets to Uber’s IPO tomorrow. At an estimated $80 billion valuation on $11 billion in sales last year, Dan says “that ain’t cheap” – especially for a company losing $3-$4 billion a year.

While Dan loves the service, he doesn’t love the prospects for making money on this IPO – though he pinpoints one question that, if Uber gets right, could make it all worth it.

Dan then gets to this week’s podcast guest.

Eric Wade is an Editor and Analyst with Stansberry Pacific Research. He’s an internet entrepreneur and investor who began picking stocks and trading futures contracts in college, using his expertise to become a Certified Financial Manager at the largest American retail brokerage. He eventually sold the internet domain of his nickname – Wallstreet.com – for over $1 million.

In 2015-2016, Eric began mining cryptos in a big way, and as an investor, he’s made huge profits in the space, from 30x to 22x gains on various cryptos in a matter of weeks.

“This is an exciting interview for me,” Dan says, “because I know I’m gonna learn a lot!”


Featured Guests

Eric Wade
Eric Wade
He’s an internet entrepreneur and investor who began picking stocks and trading futures contracts in college, using his expertise to become a Certified Financial Manager at the largest American retail brokerage. He eventually sold the internet domain of his nickname – Wallstreet.com –  for over US$1 million.
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Episode Extras

NOTES & LINKS

  • To follow Dan’s most recent work at Extreme Value, click here.
  • To check out Eric Wade’s Crypto Capital,” click here.

SHOW HIGHLIGHTS

02:52: People take it for granted these days that bonds are an adequate diversifier for stocks, with one security going up when the other falters. But Dan shows that’s a historically recent phenomenon, sharing research going back 140 years concluding there’s no strong relationship between performances.

06:28: The “Everything Rally” is back this year, with nearly 90% of 70 financial asset classes posting positive total returns this year through April. Dan explains how a lot of people might be lulled into a false sense of security, believing themselves to be diversified when they’re actually dangerously concentrated.

08:50: Dan explains his take on diversification, and how valuation and timing are the two biggest factors behind it.

12:20: Dan explains why diversification isn’t just an errand taken care of with a few trades at once. “I tend to think of diversification as something happening across time.”

15:00: It’s counterintuitive, but the cost of “insurance” from market drawdowns actually gets cheaper the longer the bubble continues – that is to say, the more it’s needed. Dan explores the few assets that are likely to get cheaper as well.

31:11: Dan introduces this week’s podcast guest. Eric Wade is an Editor and Analyst with Stansberry Pacific Research. He’s an internet entrepreneur and investor who began picking stocks and trading futures contracts in college, using his expertise to become a Certified Financial Manager at the largest American retail brokerage. He eventually sold the internet domain of his nickname – Wallstreet.com – for over $1 million.

33:41: Dan asks Eric about the device he had growing up in his home that so few American families had access to at the time. Eric explains how his father’s prediction that “this is the future” gave him a head start in possibilities.

38:39: Dan asks Eric about the term “peer-to-peer transactions” in cryptocurrencies and what it really means. Eric explains how this concept is at the core of Bitcoin’s value.

41:39: Eric explains Bitcoin’s origins and tries to get inside the mind of its mysterious founder. “Bitcoin was created by someone trying to solve the problems that led to the financial crisis about a decade ago.”

1:04:45: Dan asks Eric about the goal of his newsletter, Crypto Capital, which is published by Stansberry Pacific Research. Eric explains how his team analyzes cryptos with a strong user base, and a strong team of entrepreneurs behind it.

1:10:15: An anonymous listener from the mailbag asks why Elon Musk is held up as such a brilliant businessman, no matter how badly Tesla flounders. “What is the magic Elon has to fool so many?” Dan explains the general case that Elon musk is brilliant, while his company is a land mine for investors.

 


Transcript

Male:                          Broadcasting from Baltimore, Maryland and all around the world, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here is your host, Dan Farris.

Dan Farris:                 Hello and welcome everyone to another episode of the Stansberry Investor Hour. I'm your host, Dan Farris. I'm also the editor of Extreme Value, a value-investing service published by Stansberry Research. We have a really cool show and let's just get on with it. Let's start with the rant.

Now, last week's rant relates to this week. In fact, this week is kind of a continuation of last week's. It may even be a little shorter just because this is something I would have liked to have done last week. Now, last week you will recall that I told you a little story about the fish and the water.

And the idea was that fish are unaware of water. The thing that sustains them, the most important factor of this existence, their whole world is water. And yet, they are perhaps unaware of its existence until you pull them out of it. And I said that water for investors meant anything that's super-dooper important that you take so for granted that you are mostly unaware of its existence. And the ultimate example with no stupid pun intended was liquidity.

Liquidity you take for granted. You take it for granted that you go into the market and you can sell at the market. And you can sell 100,000 shares of just about anything in the U.S. stock market and you won't move the price. The market barely knows you're there. It's a very deep, very liquid market and there are other markets like that, too. And futures and currencies are probably the deepest markets in the world. They just trade trillions and trillions a day.

That was the point of last week. It was just things that you may want to think about that you're taking for granted that, if they're not there, it's going to hurt you as an investor. And one of the things we talked about was bond yields and the relationship of stocks and bonds. And we, at this point in our history in the market, we kind of take it for granted, I feel a lot of people do, that bonds are an adequate diversifier for stocks. In other words, when your stocks are going down, your bonds are going up and you just kind of count on that. People leave stocks and they retreat to the perceived safety of bonds.

Well, historically speaking, that is a fairly recent phenomenon as we discussed. It's probably just in the last – I know it's just in the last 20 years. And for example, there's a lot of stuff on the Internet about this and a lot of really good work that you can get to. One piece is by a company called Graham Capital Management. It's from September 2017 and it goes by the just riveting, exciting, sexy name of "Equity Bond Correlation: A Historical Perspective." Wow. But it's good work. And it shows some charts of stocks and bonds and correlations together over a very long period of time. They looked at 140 years of data. And the point is similar to the one I made.

And they conclude rather nicely here – I'll just read a bit of this. "Equity bond correlation is not a static number. It can be both positive and negative. The observed correlation is the result of rich and dynamic information between a multitude of macro-economic factors. There's no economic theory or empirical model that fully captures this dynamism. And they go on to say that they used 140 years of data.

And the most recent period of negative correlation, they say, began in the '90s, the late '90s probably. Prior to that, the relation was positive for over 40 years. Before the '90s, you didn't make this assumption that we make that when my stocks are doing poorly, my bonds will save me. And for quite a bit of history, you couldn't make that assumption.

And the point this week that I'm trying to make here is about diversification. Are you truly diversified? Because if all you own is stocks and bonds, in terms of recent history, you could say, "Yeah, I'm diversified. When my stocks go down, my bonds go up and save me. And I'm good."

But maybe that's a more dynamic thing than you think it is. And maybe you shouldn't take for granted and maybe you shouldn't assume that if that's all you're holding, that you're diversified. This week, what does it mean to be diversified? Should you even be diversified? Are you holding a diversified portfolio or not? How do you think about that? And obviously the first point we've already made. If all you own is bonds and stocks, maybe you're not as diversified as you think at the very least.

And there's some stuff recently to suggest this is especially worth thinking about now. There's an article recently in The Wall Street Journal and the title is very long but it's "Stocks, Bonds, Oil, Bitcoin Are All Up: The Everything Rally Is Back Worrying Some Investors." Nearly 90% of financial asset classes posted positive total returns this year through April." And the reason why this correlation thing is important, we found out in 2008 that you thought you were diversified.

But everything went down because anything that's liquid enough will be sold. If you have assets that are losing value like real estate assets were losing value then – homes, especially and commercial real estate, too – you can't just click a button in your Ameritrade account and sell your house. People sold stocks and bonds. And anything they could sell during that horrible time.

And that's sort of, that can be a real test of how diversified you really are. If you're holding a bunch of financial assets, you should really question your level of diversification. If it's all stocks, bonds, REITs, ETFs, MLPs, anything that trades on the stock exchange and has a fairly deep and liquid market, maybe you're not as diversified as you think. And I think if you do want to hold lots of stocks and bonds, maybe one way to get truly diversified is through geography.

For example, one could imagine if you hold lots of stocks and you could imagine that your U.S. stocks might be doing really poorly at a time when China or India or some other country is doing really well. That could be a good way to be diversified, geographically speaking.

And I know there's a guy named Meb Faber who does a lot of really good research and has a pretty good Twitter feed, too. And he's kind of a friend of Stansberry. He's around a lot and he does really good work. And one of his constant things that he's saying is that people are just so overweight, the United States, in their portfolios. They're not truly geographically diversified.

My personal take on diversification is that there are two factors. The two factors that I think lead to true diversification are actually valuation and timing. If you think theoretically, say you start out 100% in cash at any moment. Say I'm 100% in cash right now and I come onto the scene. And I say, "I want to be an investor. What should I look at?"

Right now, I'd say, "At least be underweight U.S. stocks because we're bumping up against the all-time highest valuates ever. Be careful what you own there." But obviously, in the newsletter I write – Extreme Value – we're going to recommend a new stock this week. There are long ideas out there. You just have to be careful.

Maybe you think that and then maybe you look round. You say, "Geez, gold is at a cyclical, looks like a cyclically low moment and gold stocks are – the companies themselves are becoming more efficient. And it's becoming a little bit more of a real business compared to what it was in the past. There's good value there. And cyclically. And in terms of the evaluation, it's kind of the right moment. And some of the best business models – the royalty companies and other things and prospect generators – are dirt-cheap. And can be had for good prices so maybe I'll put a little allocation there."

And at other times, you might – and there could be anything. You could be reading the newspaper or just looking around. And notice that an apartment building in your town is trading for a really cheap price or offered on the market for a price that seems reasonable. And you go look into it. And you find out that, indeed, it's consistently occupied. And maybe there's a few little things wrong with it. And you could fix them for not much money. And it's a good idea. And so, you allocate a little bit to that.

That would be – I think Porter Stansberry has talked about this. It's fine – you allocate to value at any given time, you're looking at the things that provide the most value. And no matter what you buy, the price determines the return. If you pay twice as much as everybody else, you're going to make half as much. At any given time, there is something around that's attractive and that's what you want to own.

And I'm not saying this stuff is easy to find. None of this is easy. Anybody who says – like Charlie Munger says, "Anybody who says it's easy is a moron." I said valuation and timing. And they kind of go together. All I'm saying is be aware of cycles. And be aware that there are moments when if we get another March 2009 moment, maybe you want to get really overweight U.S. stocks and really overweight high-yield debt. You want to be less diversified at that moment.

And so, when I say "timing," I tend to think of diversification as happening across time. It's not a static recipe that you follow and these people on Wall Street put out these numbers where they'll say, "You should be in 60% stocks and 40% bonds." And then, they'll come out a week or a month later and say, "We're changing this to 55% stocks and 45% bonds." As if they could actually tweak anything to that degree. It's absurd. It's stupid. It's ridiculous. No one can tell you what those numbers should be.

And if you just allocate across time to value. And you know good assets when you see them, I think you'll wind up over time being quite well diversified. And for me, the ultimate diversifier is cash because that is not going to lose its value when other things lose their value. And of course, you can't stay in cash. You can't be 90% in cash all the time You won't make any money but at any given time, you want to have some cash available so you can take advantage of what's happening.

And I saw an interesting article. All kinds of things can get cheap. interesting Bloomberg article was about, it's about the simple fact that right now, one of the things that's cheap is really volatility or protection against a big down turn, especially in the stock market. And there is a guy named Mark Spitznagel who runs this fund that's called Universa Investments and that's their thing is tail-risk hedging. They help investors hedge the big, bad, ugly drawdown risks.

And so, the point of this article – I'll just read a sentence or two here. It says, "Prepping for Armageddon has rarely been so cheap. Just ask Mark Spitznagel, the Miami-based investor whose $4.1 billion Black Swan Fund specializes in hedging against cataclysms on the scale of the dot-com crash and the 2008 financial crisis." And there's a couple things you look at.

One of them is the VIX, he mentions the VIX and he says, "It's funny that the richer the markets get, which ultimately leads to crashes, the cheaper the insurance." It's really crazy because it's sort of like if you were living on a coastline somewhere and the weather was just, if it was known to be very volatile and yet for some reason it was really sunny and calm for an extended period of time, everybody knows a hurricane is coming at some point. When the weather gets really, really good for an extended period of time there and in the market, the price of insurance falls. It should probably go up because in the market, like Spitznagel says, the richer it gets, the more likely you're going to get one of these sort of cataclysmic events.

Right now, one of the things that you want to allocate to – and I recently did this myself on Friday. I thought, "The thing that's cheap right now is basically volatility. Way out of the money put options." And maybe you allocate a very small amount. But the neat thing about that is that your put options can expire worthless so maybe you want to go out as far as you can in time without overpaying. The point is to pay as little as possible. And so, I tend to go way out on the money, as far out in time as I can and still not overpay. And that'll treat you good.

I mean, just the last few days earlier this week, I actually took my Friday bet off the table because it was essentially a bet that May would be a terrible month. And it just kind of surged first thing on Monday. And I thought, "Well, among other things, I have a busy month. I don't want to pay too much attention to this. I've made well more than twice what I put in on Friday. Just like that, when the market swooned. I'm good." And the expire on that was really short term. It was the end of May.

I was thinking, though, in terms of allocation and in terms of value. And in terms of how things are at this time, this is really general. I hope it's worth something to you because my main point here is simply that diversification is not a static recipe. It's dynamic and changes over time.

A good example of that is the fact that equity bond correlations have changed over time. That means that the nature of whether or not you're diversified changed over time. If you took that expectation that you had in the '70s and '80s about the relationship between bonds and stocks. And if you just carried it into the '90s and 2000s, you'd be wrong. You can lose money doing something like that. Don't acknowledge the changing nature of diversification, the dynamic nature of it.

And that really is my message here. I'm going to leave it right there and just look around. And think about that. And maybe write in. If I've been kind of too vague and too general and not specific enough, maybe you can write in. And ask me a question. And maybe we'll get to it in the reader feedback. But that's the rant and let's talk about what's new right now.

 [Music Plays]

                                    What's new in the world this week? IPOs are what's new. We talked last week about the Beyond Meat IPO, the meat alternative. The plant-based meat company and I still recommend reading the letter of the founder, Ethan Brown, of Beyond Meat. It's a very good letter.

And so, this week looks like Uber's going to go public on Friday. Uber, the ride-hailing service. I use Uber all the time. I used to park at the airport. Now, I don't bother. I just Uber to the airport and it's cheaper than parking there. And obviously, a lot more convenient because I don't have to worry about my car. I can just get right in, right out of the car, and right into the terminal. And I know people who live in places like my old hometown of Baltimore who actually don't – if they own a car, I've never seen them use it. They Uber everywhere all around town when they're in the city. It's really a cool thing and I can tell you, having been in situations where I had to wat for a cab, Uber's really cool. As a service, it's really cool. As an investment, I don't – hmm. It's tough.

Let's talk, actually, about – I said you've got to read that Beyond Meat letter, the letter to shareholders, because it was so good. And I just want to contrast that with the letter from his name is Dara – I'm sorry – Khosrowshahi. I hope I didn't butcher that too badly. He's the CEO of Uber and his letter, it's just full of lots of fluffy-sounding stuff. There's a few little numbers and things. "Today, Uber accounts for less than 1% of all miles driven globally."

And I've heard also that the global automobile fleet is this trillion or multi-trillion-dollar asset that sits idle 90%+ of the time. You drive somewhere. It sits. Your car mostly just sits. It's this underutilized asset, which is an interesting thought. Maybe there could be fewer cars on the road, which would be great for everybody.

But otherwise, this letter is really just the – it's kind of a more typical, fluffy thing "We will optimize for the happiness and loyalty of our customers. We will not shy away from making short-term financial sacrifices when we see clear, long-term benefits." That's nice. That's really nice if you can do that but I'd rather he were more specific. There was something really specific and educational from that letter from Beyond Meat that I just don't find here and it's sounding just too much like a typical corporate thing. There's that.

Then, let's talk numbers. It looks like they're going to assign a valuation, according to what I've read in the press, looks like we're going to get a share price between $44 a share and $55 a share, which puts the total market cap around between maybe $70 and $80 billion. Just call it $75. Well, actually, call it $80 billion. And they did a $11.7 billion in sales last year. Pushing towards seven-times sales, which ain't for a company that just loses and loses and loses money.

The funny thing about this is that the losses seem to grow. They've grown with sales, generally speaking. Normally, if you have really good scale, if your business is scalable, sure. You'll use a lot of money in the beginning when you're making very few sales because you just have a certain amount of fixed costs. And you've got to meet that. And exceed it to start making a profit.

But these guys, they lost $3 billion in 2016, $4 billion in 2017. Actually, they lost $3 billion in 2018 so maybe that'll go in the right direction from now on. But still, a lot of losses considering sales were half-a-billion in 2014. But $2 billion in 2015 and then, really, in just the roundest numbers, $2 billion 2015, almost $4 billion 2016, almost $8 billion 2017 so it's like doubling every year and yet, still, the losses rose throughout that time. Apparently, the scale of this business needs to be way, way bigger. But the sales did not double again in 2018.Went form about $8 billion about – actually, 11. I said $11 billion. 11.7, $11.3 billion so about $11 billion. We are at $80 billion. We're at seven-times that.

It's really rich. It's a typical IPO of our time and, by the way, the Beyond Meat IPO, that thing has taken off like a rocket ship and the thing now trades at, like, 50-times sales. And they make losses. They don't make a profit. And they're not showing any sign of approaching the kind of scale they need to make, to make a profit. And there's competition. There's another product called Impossible Meat, I think it is. And there's some stuff in the press that suggests that on taste alone, which is all anybody's going to care about with this, it beats Beyond Meat in tasting. 50-times sales for the inferior competitor just doesn't sound quite right to me.

And when we look at Uber, too, Lyft, the competing ride sharing service, that thing is down 30% since it went public. If Uber performs similarly, that's just not good and I don't think we have any reason to suspect that it will perform differently. Now, obviously, we had no reason to suspect Beyond Meat would be up whatever it is, 70 or 80% a week in its first week when it's clearly, clearly way overvalued and in a hyper-competitive market.

And I'll tell you a little secret here. In the Beyond Meat IPO filing, the SEC filing, it's called S1. In their S1 filing, they mentioned a one-point, I think it's $1.4 trillion meat market globally. And the classic thing that you'll hear of with an entrepreneur is, "The market is $1 trillion and if we just get 1% of it, etc., etc., we'll be great." But the thing, the problem with that is that's not the way it works.

And in fact, when you hear that pitch, "1% of a gargantuan market, addressable market," you just put your hand on your wallet, back away. And when you're far enough away, turn around and run because that is the opposite of a rally good setup.

A really good setup – and I think this was dealt with, I've read too many books lately. Like, portions of too many books. I think it was in Zero to One by Peter Thiel. I'm going to take a wild guess there. Where the point was that you want to hear somebody say, "This market is pretty small and we can capture 30 to 50% of it overnight." That's what you want to hear. When you hear the opposite of that, you should be very skeptical and that's what Beyond Meat was pitching.

Uber, maybe it might not do so well. Who knows? I'm not predicting anything, but it doesn't look attractive in terms of valuation. It looks like it has a long way to go before it makes a profit. I'm not saying they never will make one but it's not sexy, man. It's not sexy. I don't like the look of it.

We already talked about the Beyond Meat IPO. Let's talk about Tesla, because we like to do that so much. The story is just getting more and more interesting. And we did talk last week about an equity raise. They launched a combined – they did it. They launched a combined equity and convertible debt offering that'll bring in $2.3 billion.

Elon Musk, the founder of Tesla, says Tesla's promise that it will have one million robo-taxis on the road by the end of 2020 is, that promise is still intact. I mean, this is the middle of 2019. These guys have, he's overshot the projections on production in a rather glaring and some people say fraudulent way. But they're going to put one million robo-taxis. Robo-taxi, you get it? Where you get in and nobody's driving but the computer. That's insane. It's just an insane projection.

This guy, we'll talk more about him in the mailbag today, but he just – the things he says, he just gets – it sounds like he's getting more and more desperate. And raising equity when the price is well off the all-time high. He should've raised when the stock was pushing toward $400. But now, it's pushing down, towards $200 and he's raising. It just strikes me that Elon's getting more desperate. And we'll see how all this plays out.

Remember, our newest editor at Stansberry Research, Whitney Tilson, says that Tesla will be under $100 by the end of the year. I think it's an excellent call. I do agree with him. I think the time has come. People are starting to figure out that this is not going to happen and the share price has already reflected some of that.

A few little things happening. Disney is selling some assets. They acquired Twenty-First Century Fox for $71 billion and what happens in mergers every now and then, the regulatory people get involved and say, "You own too much stuff. If you want to buy this gigantic company, you'll have to sell some stuff so you won't own too much stuff." And they're being forced to sell off regional networks, 21 regional sports networks for $10.6 billion.

They're going to be scooped up by the Sinclair Broadcast Group which, if I'm not mistaken, that was recommended in the Stansberry Investment Advisory and they did pretty well with it. They understood the business quite well. Of course, they're both based in Maryland – Stansberry and Sinclair – and they did some research. And made a good pick.

And so, that'll change the economics of Sinclair. And it's probably worth another look just to see because, when you see something in the market like this, this is a forced sale of assets they probably would rather not sell. And that is something that I learned from Seth Klarman, the value guru and one of the most successful investors of the past three decades or so. He looks around the market for forced sales of various kinds and that's what's happening here.

One more little item. Facebook is hit with a $5 billion fine and U.S. senators are saying the $5 billion fine is a bargain. That's a bargain for Facebook because, of course, they've got billions and billions, so it's easy for them to pay it. And same thing with Google. The European Union has hit Google with these multi-billion-dollar fines. These people, they've just got – they're gushing tens of billions in cash flow. They have no problem paying a few-billion fine.

And of course, this is when Facebook had improperly shared the data of more than 80 million of its users. And Mark Zuckerberg sat in front of Congress. And said, "We don't do that." And of course, they do, do it. We all knew at that moment he was lying and it cost him five billion bucks. It probably should've cost him $50 billion. That data is, that's our privacy. You may as well walk into the bathroom and throw the shower curtain open while we're in there.

Let's get onto our interview. We have a great one today. We're going to learn about something I know nothing or very little about.

 [Music Plays] 

                                    Today's interview is very exciting for me because I know I'm going to learn a lot. Our guest is Eric Wade. He is an editor and analyst with Stansberry Pacific Research. He's an entertainment entrepreneur and investor who began picking stocks and trading futures contracts in college using his expertise to become a certified financial manager at the largest American retail brokerage. He eventually sold the internet domain of his nickname, WallStreet.com, for over U.S. $1 million. Nice play, Eric.

Eric has also been an angel investor, a movie script writer, and the founder of a family business that was recognized locally and internationally. He has also worked with some of the largest companies in ad agencies worldwide to expand their marketing reach.

Eric's cryptocurrency career began by mining bitcoin. Soon, he turned to mining Ethereum. Then, he even taught himself how to build and program his own miners. That is so cool. As the wave of interest in cryptocurrencies grew in 2016, in 2017, Eric began mining dozens of other cryptos and, as an investor, he's made huge profits in this space, 30X by buying Verge under a penny, 22X profit on Siacoin, and a 30X profit on Substratum ICO, a 4X return on Stratus and Civic in 60 days. Please welcome Eric Wade. Eric, welcome to the program.

Eric Wade:                  Hello. Thank you.

Dan Farris:                 Eric, I want you to tell us all a bit about your background, specifically when you were growing up in the '70s. You had a device in your house that most of us didn't have, didn't you?

Eric Wade:                  I sure did. I was raised in New Mexico and specifically just outside of Los Alamos, New Mexico where there were national laboratories that my father dealt with computers very early. He would get access to computers and wanted to make sure that our family knew that was the future.

And computers would come home with us. We had terminals that we could log into the university and use computers back when the modem was something that was attached to the back of the computer. And you would physically push your phone into the soft-cups of the modem so that the two computers could talk to each other. I was raised from an early age just being really comfortable with computers and networking and the possibilities of that.

Dan Farris:                 That is very cool. How did you get from, I mean, you've had a really varied career. How did you get from sort of being raised with computers in the house at a time when nobody else had them all the way to cryptos. There seems like there was a lot of stuff in between those two things.

Eric Wade:                  That's a good point. When I graduated from college, I had been studying economics and I went into finance stock brokerage, financial management. And always had in the back of my mind a love for privacy and cryptography. And like I said, being around Los Alamos, New Mexico where there's a lot of secrets held and the ability to keep secrets is important, that's just something I was always comfortable with.

And the longer I spent with economics and the number of huge market changes and rallies that you go through, I'm sure you could probably agree with this is that it helps shape your psyche in some ways when you see a – well, you just talked about some of the exuberance that's coming into the market and the irrationality. And you see that. And you live through it a few times.

And you start thinking, "I wonder if there's something out there that can somewhat be attractive economically speaking but also secure. And also in some respects, self-guided. Like a person could be in charge of their own finances." And the world we live in, we're getting further and further away from that. We're getting more into a world of convenience where all of our finances running through online and digital. And the same online bank account. And less and less, fewer and fewer of us hold less and less actual cash or hard assets. We're getting really comfortable with these digital assets.

I was a financial manager during the time when we changed over from people actually having physical fact certificates or paper bonds. And they were all turned in. And digitized. And even those assets, where someone has held a certificate in their family for generations, those were turned in. And turned into digital assets. And obviously some measure of security, so to speak. Some measure of individuality is lost in that.

And crypto address that, for me. Specifically, bitcoin which was obviously created to be a peer-to-peer, independent type of currency. And the idea that there was something out there that if you had the program running on your computer and I had it running on my computer. And you and I agreed on the terms of a transaction, we could bank between ourselves without an intermediary. And that's the promise that Bitcoin held to me was peer-to-peer transactions. And I think a lot of Americans, a lot of Europeans –

Dan Farris:                 Eric, I'm going to interrupt you.

Eric Wade:                  No problem.

Dan Farris:                 I'm going to interrupt you, I'm sorry. Let's assume that maybe there's a few listeners, like me, who have heard the phrase "peer-to-peer" a million times and sort of kind of think we know what it means. But what does it really mean?

Eric Wade:                  That's a great question because that's at the core of the value of bitcoin and then a lot of the other crypto currencies that are out there. What peer-to-peer means is I can literally directly send you something, almost like if I was to see you at work and I hand you a piece of paper, then that paper – whatever was written on it – just went from peer to peer.

I didn't mail it through a system. I didn't e-mail it. I didn't put it in a FedEx envelope and I may be able to send you something using FedEx but t's not peer-to-peer. It's me handing something to Federal Express that, then, they drive across the country and then they hand to you as opposed to me handing you something directly.

And I think we're in a stage now where a lot of us have the luxury of not caring about that because our service providers do a pretty good job. If I need to transfer some money using Bank of America, I don't really even think about the fact that I'm not holding the money and I'm not handing it to the end user. I've got this luxury that every time I log into Bank of America and I send money to wherever I send it, Bank of America is holding the money. And they're handing what they call money to the person on the other end. No part of that is peer to peer.

But if I ever wanted to be able to conduct peer to peer, almost like an olden days barter or something like that, you wouldn't – if you were trading an ox for a mallet, you wouldn't mail the ox or the mallet back and forth. You would hand them to each other and you'd verify, "Yep, this looks like a good ox and that looks like a good mallet." And the transaction would take place.

But with digital goods, that's harder. Especially if you're trying to go around the world. What the bitcoin idea was, was could I send a digital good from myself, point A, Alice to Bob without somebody else having to be involved? Without it going through a middleman who could either stop it or inspect it or control it. And that's another aspect of crypto that's really appealing is I don't necessarily want someone else to have the power to stop my transaction.

Or, in the case of, let's just say pick on a bank that's had problems being uptime before is Wells Fargo. There's been times that Wells Fargo wasn't able to conduct transactions and, if your money is in Wells Fargo, you're stuck.

Bitcoin was generated from the mind of someone who was trying to solve the problems of what looked like a financial meltdown about a decade ago and going, "Well, what are some of these problems?" We're really dependent upon these institutions to do what we tell them to do with our money. How do you break away from an institution that is the connection is you create something peer-to-peer?

And if I want to send you my digital money, nobody can get in the way. And, on the other end of it, you can recognize it and say, "Good. Eric send me three bitcoins or five bitcoins or whatever it is, bitcoin." And you're assured that they were, that they are something that I actually own.

A lot of people feel that the notion of cryptocurrencies is overly confusing, but I like to think of it as almost common sense. If I wanted to build a system that I could send you digital money, the first question I'd expect you to ask would be, "Well, how do I know it's real?" Common sense would tell you how do I know, if this is digital money and there's no one assuring me that it's real because, remember, we're peer-to-peer. If I send you money through Wells Fargo or through Bank of America, then Bank of America is assuring you that it's real. But if I take them out of the mix, then you need some other kind of assurance that it's real. And you need some sort of assurance that I actually have that money.

Dan Farris:                 And that assurance is?

Eric Wade:                  Well, that's the algorithms and the programs that run on the bitcoin network. It's basically a network of computers that all talk to each other and share information. If I send you two bitcoin, the whole network finds out about it in 10 minutes and approves it. And says, "Now, Eric no longer has those two bitcoin and Dan does." And that way, you can then spend them or send them on. Or hold onto them because now, the whole network knows that you own them without any one point of the network being in charge of it. The whole network works together. It's like a ledger system where it keeps track of everything and then secures it with cryptography, with a very powerful algorithm.

And since they're all computers that are talking to each other, the ledger is held on the computers, it's also a pretty savvy system that says if anyone tries to attack this computer network or hack it, it makes itself more difficult so that if you were to think to yourself, "Well, now that I know Eric has bitcoin, I'll try to overwhelm his computer. I'll try to hack that computer and take the rest of his bitcoin." Well, the more you try to attack the network, the more difficult it makes itself and that was built into it. And those are the components that I feel make it common sense.

If you were to have a digital network of an intangible store of value, let's call it, these bitcoin, then you'd want it to be something that can be verified. And the program does that. And the ledger that we all share on the network verifies what you own and what I own. And you'd also want it to be secure. If we were to do business with digital goods, all of your common sense questions that would come next have been answered with bitcoin. And that's what kind of drew m to it because, realistically, there was – bitcoin wasn't the first digital cash.

Dan Farris:                 Actually, Eric, I'm going to interrupt you one more time. I have one question there. What you described, you said, "When bitcoin goes from Eric to Dan, the whole network knows about it." Can you describe for me – that doesn't sound private. Where does the privacy come in? Is that because everything is cryptographically encoded so maybe they just know that this user sold to that user, but we don't really know their identities? Is that how it works?

Eric Wade:                  Yes, somewhat. That's a very common misconception about bitcoin because the network does use cryptography. There's a presumption of some sort of privacy and there's not as much privacy as people think there is. By that, I mean, if my – when I'm sending bitcoin or when I'm receiving bitcoin, they're going to my bitcoin wallet, my digital wallet which is basically a program that runs on my computer. And the computer doesn't know who I really am so I have a little bit of anonymity. But the transactions are 100% public information that anyone who's running this program can watch the transactions.

As far as privacy goes, as we've come to understand privacy meaning, "I can do something and nobody can find out," bitcoin doesn't offer that and it was never even part of the idea other than a measure of anonymity that I can hold bitcoin and you may not know who I specifically a unless I start doing transactions with it. And then, you can actually track – with the software – you can track all of the transactions because that's the value of the Bitcoin network is if you at one time had 100 bitcoin and you spent 50 of them, the network needs to know about that.

As far as privacy goes, the fact that these transactions are all written down, onto the ledger means you're giving up some measure of privacy in that once I know your address, I can basically look at your history of it. Because it is a public ledger. And that's how the ledger is secured is if the same public ledger is shared across every computer on the network.

Once this notion of you're not really receiving any kind of privacy, some notion of anonymity but not privacy well, then, there were other coins that came out and said, "We've got to fix that." There's other cryptos that were literally designed so that your identity or what you do with them can't be tracked. And those are privacy coins that solve that problem.

But bitcoin really never was worried about that. It was more worried about tracking that if someone has a certain number of bitcoin, that we can tell that with 100% certainty that they haven't spent them in two places or if they, if I'm accepting bitcoin as a measure of payment from you, I need to know that you really have them and that they're genuine. And bitcoin said that that was a higher value than your privacy in the transaction. But like I said, there are other coins that have said, "No, privacy is a higher value."

Dan Farris:                 Bitcoin, then, prioritized what you might think of as the security and reliability. And they said, "We're going to be the first one of these so we better make sure that everyone trusts that a transaction has happened and that it hasn't been interfered with."

Eric Wade:                  Absolutely because – and this winds all the way back to the beginning of the conversation which was – because it's peer to peer, because there is no central authority like the old story of if you lose your credit card, who takes responsibility for any expenses or anything that's spent on your credit card? In most cases, the bank takes some responsibility or maybe even the merchant. And that system of credit cards has done everything they can to make the consumer assume the smallest portion of liability.

But if there was no bank, there was no central authority watching out for that, then you'd have to have, you'd have to make sure that the system protects the integrity of itself so that I can't fake how many bitcoin I have. Or I can't spend them twice. That was the highest goal for it was since there's no central authority to verify that you have what you claim is in your account or to transfer you the money when you click send on your bank account, there's no central authority so what you tell me has to be accurate when you and I are doing a transaction on the bitcoin network.

Dan Farris:                 Now, I have a quick question. I have engaged in a grand total of one bitcoin transaction in my life and it seemed kind of – yeah, I'm a real expert. It seemed kind of complicated. There were a lot of steps to it and it seemed that, that peer to peer thing that you described would be a lot less complicated and more direct. Was it more complicated just because I ultimately wanted to get into U.S. dollars at the end of it? That seemed to be a couple of the steps.

Eric Wade:                  That definitely adds a complication to it. And what you've experienced is par for the course for crytpos. And I think a lot of people, because it's something that was built completely independently, it was difficult for me, as well. It was very difficult to get started, difficult to mine. I had a lot of learning to do and I think the first decade of crypto's development, it is moving in a direction of getting less difficult, less confusing.

And I think that 2019, we're about to see I would call it maybe a watershed event where some of the large, financial organizations that we're used to dealing with are making moves to be able to allow you to be able to buy and sell cryptos. And convert them into U.S. dollars, etc., easy like we do with a stock. Like when I want to buy Apple stock, I log into Fidelity, I click, click, I type in AAPL and I buy the stock. It's easy and Fidelity has the money or they understand where my dollars are coming from and going to. It's pretty easy. Same with transferring money through banks.

And I'm absolutely 100% certain that 2019 we're going to see all of the bitcoin and other currencies that these large institutions, they're getting on board with it. Fidelity already has the capability for institutional investors to buy bitcoin and hold it through Fidelity. The New York Stock Exchange is working on a solution for this where they'll have a company called Bakkt and Bakkt – B-A-K-K-T – Bakkt has raised $182 million from investors who want the convenience of dealing with stocks to apply to cryptos.

And there's rumors that Fidelity will allow retail customers within the next couple of weeks. Within the next few days, that rumor may start being less of a rumor and more of news that Fidelity is getting on board. In fact, a lot of people are saying that's probably why bitcoin is starting to see a bit of a rally because – and I talk about bitcoin hand-in-hand with cryptos a lot because right now, of the bitcoin market, of all the cryptos out there, Bitcoin is about 56% of the value of the entire market.

If the entire market is worth, let's say, $200 billion of all the cryptos that are out there, bitcoin is 56% of that. It's usually the first one to get adopted. Whether you're an institution or a VC or a private office or something, bitcoin is usually where people start. And as you said, that was the first crypto that you did. It was the first crypto that I did. We expect to see eTrade adding bitcoin soon and Fidelity already has their institutional clients. We expect to see them do that for their retail clients soon. And by soon, I mean this could be happening over the summer. It could be happening in the month of May that what your experience of it was difficult could be going away, could be changing drastically.

And I think that's going to be what drives the next wave of adoption, that people will start seeing the ability to buy these cryptos in their brokerage account.

Dan Farris:                 Eric, what do I own when I won bitcoin? What the heck is it?

Eric Wade:                  That's another great question. And that's why I like to pin things back to common sense because the common sense questions that you have to ask are the best questions. What you own is a record of some bitcoin that were generated and that, the bitcoin that are out there that we buy and sell from each other are all bitcoin that are used, that are paid out as rewards for the computers that are protecting the system. They're called nodes and anyone that wants to mine bitcoin can have a computer – it takes a pretty powerful computer now but they're publicly available. You can buy this computer and attach it to the bitcoin network and start mining for more bitcoin.

And what mining is, mining is the process where we're verifying each other's transactions. If you remember that I had said that a peer to peer transaction, I send you a bitcoin and now you own a bitcoin. What you're owning is a spot in the memory of these long chain of transactions that says, "Now, Dan has this one bitcoin." That's why the primary use for this right now is store of value because what you're storying is the fact that you own one bitcoin.

And as humans, our human nature is to say, "Well, how much is it worth in dollars?" And we try to assign a dollar value to it but what you own is you own a string of digits that says, "At this point in time, Eric sent Dan one bitcoin and it's immutable." It will never go away. If later on you choose to spend that, you own the right to spend it as well.

If you think of it as a store of value, almost a credit in the digital ledger of bitcoin, that's what you own is you own a bitcoin. And the reason why I was talking about the mining is these are powerful computers that suck up a lot of electricity, so there's an award paid out to the guys, to the organizations I should say that are doing the mining and that reward is more bitcoin. You can spend them to pay for your electricity or to pay for your resources.

And that's why the bitcoin market is constantly growing with more bitcoin. But at a fairly slow rate because there's ever only going to be 21 million bitcoin generated by its system as rewards. We started off with zero bitcoin and, over the course of 10 years, every 10 minutes, new rewards are paid you. And that's the bitcoin that you might want to buy was, at some point, it was a reward paid o someone for securing the network to each other.

Dan Farris:                 One question. Now, see, you just really educated me a lot because I thought the process of mining was kind of like cryptographically unlocking a bitcoin but you're saying no. You're helping establish the security of the network and you get rewarded for that? Is that an accurate summary?

Eric Wade:                  Yes.

Dan Farris:                 A-ha.

Eric Wade:                  An there is crypto involved in it because think of the fact that – this is a tough concept to explain and pretty tough to understand. But if I had a computer that the goal of that computer was to protect a ledger, say something on the computer. I had a very important spreadsheet and I wanted to protect that. But I also wanted to have access to it. Those are the two halves of the scale that are trying to balance against each other.

If you found out that I had that very important spreadsheet on my computer, you might take a better computer ad try to hack my computer. We're all comfortable with the fact of hacking computers. I'm not saying it's a good idea but if you knew something valuable was located on my computer, you'd try to hack – well, not you – but someone would try to hack it and get that information.

Bitcoin protects itself. This is where the crypto comes in is it protects itself by saying, "In order to get access to this data, you have to solve a problem." And we're going to create a problem that can make itself more difficult the more people that attempt to solve it. And they try to key the difficulty in so that every 10 minutes, the number of computers that are working on it will come up with a solution. And that's the blocks of time and the blocks of information that bitcoin uses as its record so that it updates itself and says, "Okay, we found another block. Let's move onto the next one."

The unlocking that's going on is all of the computers competing to find a solution to the problem that unlocks that algorithm and the algorithm can be easy or difficult based on how many people are working on it. For example, when I said I started off mining bitcoin, I started off with a laptop a long, long, long time ago. And laptops aren't known to be powerful computers. But that was how difficult bitcoin was at that time. There wasn't that many people mining it so my laptop was powerful enough that it could solve the problems, the crypto problems, in order to secure the network.

And I think one thing that I really like about bitcoin that – this is what appeals to me is that every block, every 10 minutes, 12.5 bitcoin are rewarded to the network who's trying to secure the network. You can almost, in common sense terms, you'd think of it like paying a bank security guard in bank notes. You protect the bank and we'll pay you for that with money that the bank is holding.

And a lot of people understand that because if I had a security guard, I'd need to pay him something. These computers are the banks security guards but they're protecting the bitcoin and they're being paid in bitcoin. Every 10 minutes, 12.5 bitcoin are generated and right now, those are worth around $6,000 a piece. Do the math. 12.5 of those – what's that? $75,000 or so? If you knew that there was a reward coming in 10 minutes that was worth $75,000, you might point your computer towards that and say, "Hey, I'd like to solve that. I'd like to solve that puzzle and, as you say, unlock the reward because if I solve the puzzle, I'm the one that receives that 12.5 bitcoin reward."

And the reward is there to pay people to take the time because remember you said it was kind of confusing to set up the first transaction of bitcoin? That's what the reward is to incentivize people to say, "Well, go ahead and do the work to set that computer up and allocate your resources to it."

Because Bank of America or New York Stock Exchange, they have computers and they have IT guys. And their job is to protect the network. Well, with bitcoin, there is no central authority. There is no IT guys who are protecting the network. It's the users. There's a reward paid to them in the reward of bitcoin and once I've put that thought out there to you of, "Wait, if my computer solves the bitcoin problem to prove out that block and I get paid $75,000, I'm going to point a computer towards it. There's not many other things that my computer could do right now that would send me $75,000 every 10 minutes."

Really, the competition because enough people have said, "I'm going to point my computer towards that and solve that problem, unlock that block." Now, it's a competition among all the computers of who do we award this block to? Who do we award this reward to? Because it's significant. $75,000 every 10 minutes of new bitcoin being generated.

Dan Farris:                 Wow. Eric, we're getting toward the end of our time, so I do want to move on and talk about Eric Wade's Crypto Capital, which is published by Stansberry Pacific Research.

Eric Wade:                  Thank you.

Dan Farris:                 What do you do in your newsletter? You recommend cryptos, right?

Eric Wade:                  I recommend cryptos and I look at, I've actually got a whole team that looks at cryptos that have a very strong use and user base, like if they're solving a problem that we think a lot of people need that problem solved. And if it's a good, strong team of entrepreneurs that are behind it. And we try to be early into cryptos that have recognized a problem that we're all having that crypto can solve. You talked about privacy or, let's say, advertising. Or any other measure of securing data. Is there a crypto that's solving these problems? We're constantly scanning all the other cryptos out there.

And we believe that, because we've been going through a bit of a bubble stage with all of these cryptos, we believe that 90% of all the cryptos out there probably are going to fail. In some respects, it's a lot like NASDAQ back in the ate '90s, early 2000s. The dot-com boom. I know people use that analogy a lot but there's some truth to that because there were a lot of dot-com companies that couldn't withstand the test of time.

Or what you were talking about before we started talking with we've got a lot of IPOs coming out that don't have any profits behind them and, in some case, not even enough revenue. Fifty times sales. There's a lot of cryptos that were put into that position where they're not going to withstand the test of time. What our research does is try to find the ones that are going to and take a small, reasonable, early position in them. And most of our holdings, we end up holding for about six months. We try to find them before the rest of the investors come rushing in and then sell them into strings.

Dan Farris:                 Wow, that sounds really cool. We have a special deal for listeners for your newsletter. Two years of Eric's Crypto Capital for $2,500 ad you can get that if you go to a website called Crypto Flaw Today, three words. Crypto, C-R-Y-P-T-O, Flaw, F-L-A-W, Today, T-O-D-A-Y. CryptoFlawToday.com is where you can get that deal.

Eric, I sometimes like to ask my guests if you could leave our listeners with one thought about your topic, what would it be? And let's make it something that we could all understand.

Eric Wade:                  I will say that a lot, the newsletter and the weekly updates that we send out and then the timely updates are a lot more actionable than the conversations that we just had. Most of them are what you can buy on what exchange and exactly how to do that. And we'll walk you through every step of it. A lot of common sense involved in this.

But the one piece that I would say is the most important thing to take away from this is cryptos are still very young. And even though they got a lot of press in the bull run up of 2017 and then this prolonged bear market of 2018, they're still relatively young. And that's an opportunity for an asset class that's not going away. And institutional investors are coming on fast. Like I said, like the Fidelity and the eTrade, etc. It's going to be easier and easier for more people to get involved.

If you ever wanted to participate in an asset class that you somewhat discovered before the majority did, this is your chance. This may be your last chance to still get involved with cryptos while it's still somewhat early.

And that's what I try to remind my readers is that we're trying to get into these early, before the general public discovers it, before it becomes the retail flavor of the day, before they become irrationally overvalued. If something like that is going to happen, we want to be the ones that are in it when it happens, not because it happened.

Dan Farris:                 Very good. A very good place to leave us. And one more time, people You can get two years of Eric Wade's Crypto Capital for $2,500. Just go to CryptoFlawToday.com. Eric, thank you very much and we will definitely have you back on at some point to kind of catch us up and educate us more about cryptos. Thank you.

Eric Wade:                  I appreciate the great questions you asked as well. Thank you.

Dan Farris:                 You bet. My pleasure.

[Music Plays]            

                                     Folks, time for the mailbag. Remember, your feedback is very important to the success of our show. You can simply e-mail us with a comment or question at [email protected] I read every single one of them and I try to respond to as many as possible. And this week, I've got a few good ones here.

Let's start out with, gosh, this guy. I guess he's anonymous here. I didn't write his name, but he said, "Hey, Dan. Been listening to the show since Porter and Buck started it. Something has irked me for at least a decade. I cannot for the life of me understand why Tesla and especially Elon Musk are held up as such a brilliant investment or Elon is such a great businessman. No matter how many times Tesla flounders or Elon makes decisions that should bury the company, the stock rallies and stays way overpriced and overvalued.

"After so many of your guests pointing out the problem with Tesla, please explain if you can, Dan, why do investors and entrepreneurs continue to hail Tesla and Elon when you think they should know better? What is the magic that Elon has to fool so many? How can he do no wrong in your eyes? Thanks, Dan. I hope you can help me not hate my short-sighted entrepreneurial friends when they praise Elon and Tesla."

This is a good question. There's a more general case here. I have no doubt that Elon Musk is a brilliant guy. He started PayPal and made a ton of money on that. And he's got these other companies he takes on these big projects and does them. They're blasting rockets off in SpaceX so you have to give credit where credit is due. He has built a company here. They do make electric cars and if you've ever driven a Tesla, it is a mind-blowingly awesome experience. I've never driven anything like it. I drove a Tesla Model S last year and I just came this close to coughing up six figures to buy this car because it blew my mind.

And we're driving along in it. And the guy says – he was still driving before I took over. And he was driving along. He says, "Who's your favorite musician?" And I named an obscure guitar plyer named Allan Holdsworth. And he leaned forward and said, "Plaed Allan Holdsworth," and it just started playing Allan Holdsworth. And I thought that was really cool. And the car just went zero to 60 like a rocket ship. No gears. Very few moving parts. Completely unlike an internal combustion engine.

But the company is a different story. And it's a different thing altogether to be a credible CEO and to represent a large publicly traded company. And what happens at times like this is people get really excited about the technology and the story. And the guy behind it. And he's a maverick. And he smokes pot on the Internet with Joe Rogan. That's a very famous – you can just Google that and get images of Elon Musk smoking pot with Joe Rogan. And so, he's a controversial guy. And people like that. Americans especially like it. It's really culturally, we dig it. There's that.

And when you lay that over the chance to make a lot of money on a new company, it's easy for me to see how people can get excited about all this. This is classic investor behavior. Don't take it personally. Be tolerant with your friends and thank you for the question.

Here's another one. It says, "Will Porter and Buck ever come back? New host is too negative and has been pushing the overvalued market narrative for years. Maybe you will start another podcast? Craig F." I don't usually read these kind of negative ones but I'm going to read this one because, look, Porter and Buck are not coming back to Stansberry Investor Hour. Porter's off doing his own thing and Buck is off doing his own thing. And I think they're both working on – I know Porter is working on another podcast so yes, he will be back in some way, shape or form.

As far as me being too negative and pushing the overvalued market narrative for years, I don't think you're talking about me. I have identified successfully several moments throughout the past more than a decade. I've said in early 2008, I said, "This is going to get a lot worse. Hold onto your hats." And it got a lot worse. Hold onto your hats.

And I was pounding the table in Walmart and it was up 21% that year including dividends. And I recommended W.R. Berkley and he also showed a positive return that year. You can tell me I'm the negative guy all you want to, but you're way overstating and you're not paying attention. And in 2015, I refused to recommend stocks which everybody hated. And it turned into worst year since 2008 until last year.

And last year, October 1, I stood in front of hundreds of people at the Stansberry event in Vegas and said, "First time in my career, October 1, 2018, it might be a good time to buy some put options." And guess what? It was a frickin' phenomenal time to buy some put options so I'm identifying risk. I'm not being too negative. And I've been consistently negative or consistently concerned about overvaluation in the stock market since May of 2017. That's two years, so technically speaking, you're right. Years.

But the overvalued-market narrative, it really does me great injustice. I've come up with several great ideas. I picked Starbucks last August. The thing is up 50%. I don't know what you're talking about. I'll move on.

Eric H. writes in and says, "In Episode 99, you mentioned a number of different valuation metrics that indicate the market is at all-time highs and, therefore, subject to a crash or very marginal returns for a long time. But what none of those metrics seem to take into account is interest rates.

"If a stock price is, in essence, the present value of all future earnings, it makes sense that all-time low interest rates would result in all-time high stock prices. If rates stay where they are or fall over the next 20 years, then current valuations don't seem unreasonable. What role should interest rates play when valuing the stock market? Love the show. Keep up the good work. Eric H."

Thank you, Eric. What role should interest rates play when valuing the stock market? Well, that's important. You have to choose – when you're doing the calculation that you referred to, the present-value calculation, you have to choose some rate, some interest rate or hurdle rate of some kind. And what better rate than current interest rate? The problem is the lower and lower the current interest rate you use, the higher and higher the value. Other things being equal, how can it be that the intrinsic value of a business goes way the heck up just because interest rates are lower? To me, there's a disconnect there.

And look, Warren Buffett has said the same thing you did. He said, "Look, if interest rates stay like this for the next 30 years, I think he said, then stocks are cheap today. Not realizing when I hear that, I think that's a big "if." If interest rates stay at their all-time lowest ever for decades? I just think that's a bad assumption. That's my point. I think it's a bad assumption to assume that rates will stay low and prices will stay exorbitantly high indefinitely. That's all. That's all I'm saying. Let's move on.

Let's see here. "Dear Dan, this is Terry I." Terry says, "Dear Dan, after listening to your last few episodes which I truly enjoyed, I get the feeling I should short the market and invest in metals and royalty mining companies like all Altius Minerals and maybe raise some cash due to high valuations in the market. Am I taking this right? I realize you cannot give financial advice. Also, did you not advise using Yahoo Finance for information? Can you advise a better source for gathering information on stocks in the market? Thanks. Terry I."

Last question first. The best source of information is the original SEC filings, period. You just can't get a better source than that. The other question is, yes. You took it wrong. I absolutely do not want people to go all in cash, short the market, and just buy metals and royalty mining companies. This month in Extreme Value – we're going to put out another issue in a couple days here, actually, tomorrow – and it's going to tell you the name of a stock that we think is undervalued that's not anywhere near the mining industry or metals. It's just a good business. And when you find them and they're priced right, you should buy them.

It's very difficult to say, "I'm going to stop buying stocks. I'm going to go into cash." You can be wrong for years and years and years at a time and miss out on all that return. My point in identifying these things is that, like I said, it's very rare that you should think about this stuff but you should think about the valuation of the overall market when it's either very, very high near all-time highs or near all-time lows. And we're near all-time highs so you've got to keep it in mind. You've got to ask yourself, "Should I really be paying 50-times-sales for the Beyond Meat IPO? Maybe not." That's the kind of thinking. You start with that and then you go back down. And say, "Should I be paying 40 or 50 times earning even though such-and-such might be a really great business." And as I pointed out, really great businesses can treat you horribly. As horribly as not-so-great businesses. Great businesses won't save you when the stock market crashes, in other words. But that doesn't mean you should sell out your entire portfolio.

If you're a rational, long-term investor and you've found some really great companies, you don't want to sell one out just because we're in a bear market. You may even want to buy more. Having said that, what most investors do is the exact wrong thing. They panic at the bottom and sell out for a huge loss. And that's why I've started talking about using trailing stops because I realize most people are going to do the wrong thing and most people are just – they just can't grasp the discipline of buying low and selling high. They want to wait until it's high and buy. And pray for higher. And that's not how it works.

This is a great question. I'm glad you asked it. No, I do not intend to tell everyone to sell everything and short the market although recently – and really, even right now – put options on the overall market in various, through various underlying instruments are kind of cheap. I can't talk about it because I'm contractually forbidden to talk about things I actually own so I can't talk about them specifically but it's not a bad time to kind of hedge your bets a little bit. Especially in the U.S. stock market. Great question. Thank you very much.

That's it. That's it for the 101st episode of the Stansberry Investor Hour. Listen, thanks so much for being here for 101 episodes. Be sure to check out our recently revamped website. You can listen to all the episodes there and get all the latest updates. Just go to that same address, www.InvestorHour.com. That's it or this week. I will talk to you next week. Thank you so much. Bye-bye.

Male:                          Thank you so much for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to InvestorHour.com an enter your e-mail. Have a question for Dan? Send him an e-mail at [email protected] 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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