This week's Stansberry Investor Hour episode features multiple guests...
And they're you, our listeners.
You see, we've been reading every e-mail and listening to every voicemail as they've come in. So for today's episode, we're opening the floodgates and sharing as many of your mailbag missives as we can cram into the show's hour.
We'll share your feedback – both good and bad – and questions that run the gamut from...
What is the most interesting buy-and-hold opportunity considering the crisis in Europe?
Is Dan about to pass away?
Dan and his co-host Corey McLaughlin tackle all your comments and questions. You'll also hear...
Get ready for today's special episode... As Dan says, "There's a lot to unpack."
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today we're going to go through a year-end mailbag, where me and Dan are going to answer some of your questions.
Dan Ferris: Yeah, lots of great questions. And remember, you can e-mail us at [email protected], and tell us what's on your mind. That and more right now on the Stansberry Investor Hour.
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I've got a lot of stuff here. I've got a lot of great feedback. So I just want to dive in because there's so much of it. But we have to start out with Larry B. We must start with Larry B. because Larry says, "Adding Corey was good, but you should have given us more background on the change. Is Dan about to pass away and we need a change?"
I don't think he means what it sounds like. It sounds like he thinks I'm going to die. I don't think it means that. But it continues. He says, "Was it driven by some other thing? Seriously, the show seemed personal before, so it's the equivalent of Dan getting married and not telling us who this new person is."
Corey McLaughlin: There's a lot I love about this one, for sure, so thank you for writing in. If you know when Dan's going to pass away first of all, that would be useful knowledge for anybody... especially you, Dan, I would think.
Dan Ferris: Yeah, I mean, I don't want to know. I mean my mother was 93 and my father was 96 – may they rest in eternal peace. I'm hoping the genes are going to work for me, so let's just get that out of the way. The second thing he says is "What was this driven by?"
And really honestly, in conversations with the show's producer and other folks, I said, "I want to make this show as good as it can be, even if it means firing me and getting somebody else." "Well, we don't necessarily need to do that. But how would you feel about having a co-host?" And Corey's name was at the top of the list, and here he is. I mean, that really is the story.
Corey McLaughlin: Yeah, and I was not seeking this out. You guys came to me. Happy to join and help and do what I can. I'm still getting used to it, but hopefully people are enjoying it, and yeah. I love the analogy of the equivalent of Dan getting married and not telling us who this new person is. It's good, and I hope it stays personal. I hope you think it remains personal. That's the idea here, I think, to make this two people talking and great interviews and insight and hopefully advice that you can't hear anywhere else.
Dan Ferris: Amen, brother. Let's get on to Patrick M. And Patrick M. points out something we've actually discussed once or twice. He says, "Dan, you're right about the difficulty Alliance members have figuring out Stansberry advice. The conflicting opinions drive me absolutely nuts."
So, for those of you who don't know, the Alliance is our top-tier service where you pay a single, rather large, fee. I mean, I think it's like tens of thousands of dollars now. And then you pay a maintenance fee annually. And you get just about everything we publish at Stansberry, almost everything. And if we get a new service that we add to it, you get that. You just start getting it without paying extra.
So they get like 200 stock picks a year or something. It's just a mountain of information. And we try to help them pick through it and figure out what's right for them. But the thing is, Patrick, what you said here, the conflicting opinions... Most folks don't understand. Like Stansberry is not all one voice, you know? There's a whole bunch of us. And we think what we think. We weren't hired to agree with each other. We were hired to do our best and tell you what we each really think.
I promise you, you don't want opinions from people who are ordered to agree with each other. I promise you that is not valuable. This is the opposite of that. These are people who are ordered to tell you what their opinion is, regardless of whether they agree with someone else or not. I just want to make that clear. And otherwise, I feel your pain and hopefully some of the measures we take will help you out here.
Corey McLaughlin: I would think a good place for people to look, you know, Alliance members, because honestly this is a lot of my job with the Digest which I write almost every day. Thankfully, you write on Fridays. So I don't have to write on Fridays. But I read a lot of what is written, you know, as much as I can from the different editors, and try to piece it together in some form or fashion each day.
I think if you're managing your own portfolio and trying to figure out how the different recommendations fit into a complete portfolio, I think a good place to start looking would be our Portfolio Solutions products, which have a fully allocated breakdown-by-percentage portfolio from a lot of the different publications... not all of them, but a lot of them.
And you can get a good framework there as far as whose publication fits with what, or if there's overlap and whatnot. But that's a more broad portfolio-allocation strategy. There's several in there that you could use, and they're pulled from all the different publications.
Dan Ferris: Yeah, those are great products, actually. When they were created, I was like, "Oh wow, thanks, amazing," because there is way too much information. All right, moving on now to investment topics. Here we go.
The first one, it had to be this guy. It had to be Lodewijk H., our faithful listener and frequent correspondent. And Lodewijk H., I took out two e-mails. He sent me about five or six, and I took out two. The first one is actually a little video that he sent. And I boiled it down to a simple question: "What is the most interesting buy and hold opportunity, considering the crisis in Europe?"
And I think it's like U.S. oil stocks, very simply. If you listened to last week's episode with Rick Rule, he's got a fantastic list of ideas in there. And that is the simple answer to that, in my humble opinion. I don't know if Corey has any ideas.
Corey McLaughlin: Yeah, that's a good one. I'm not going to argue against Rick Rule, that's for sure. So it's, I think going into 2023, the theme to me is going to be certain sectors and names within those sectors are going to likely outperform others, which seems simple-minded to say, when you say it out loud.
But basically comparing it to a bull market where there's a lot of rotation and everything's going upward. This could be a sideways year... maybe a little positive, maybe a lot negative, by the end of it. But in between, there's probably going to be a lot of volatility. So if you're looking to buy and hold, I guess you would look for long-term, good-fundamentals stories.
And oil, housing, is one of those. If we have a recession, you would think housing would get hit even more. But they're already down so much that the downside there maybe is a little bit lower than some others. But oil's a good one for sure.
Dan Ferris: Yeah, oil. And generally speaking the U.S. would be a good destination. U.S. dollars... you know, U.S.-almost-anything. And I'll discuss that another time maybe, but oil is really the answer.
The next question from Lodewijk H., he says "What do you make of the massive tech layoffs? It seems Elon Musk was the first, with Twitter, but Meta as well? I would say it will be good for the world. There's a massive shortage of people with coding skills, so they can find another job pretty easily."
You know something? I was thinking about this question. I thought, "Well, how much of a shortage can there be if all these people are getting laid off all at once?"
And also, I had the opposite thought, actually. Lodewijk, I was thinking, well, how much has the enormous bull market fueled by the enormous flood of liquidity of the past decade or so just padded these enormous companies that gush free cash flow so much that they're probably the most profitable businesses. Especially like Meta... not Twitter, necessarily, but Meta and Microsoft and all the big software-based – well, Apple is not necessarily software.
Huge tech companies that just gush free cash flow... more money than they ever know what to do with. And they just lavish their employees with incredible benefits and incredible work environments. And now they're laying people off. And I'm thinking, "How padded up with extra employees have they been all this time?" And what will this really mean going forward? I don't know.
Corey McLaughlin: Yeah, that's a good point. I think Mark Zuckerberg, a few months ago – of Meta Platforms, obviously – said something to the effect, during an employee meeting, like "Most of you or a lot of you don't really need to be here" which you probably don't want to hear... which, to your point, I think every CEO might feel that way about some people.
But to say that on a conference call with the employees kind of tells you where that, you might be right about that. A lot of, I don't know, inefficiencies among the tech companies and over-hiring and then obviously cutting back now. So those things come and go. We'll see what it looks like moving forward.
Dan Ferris: So I've got to give it to Zuck, though, for just sort of doing it in an employee meeting and not leaking it to the financial press. You know, he'll just tell you.
Corey McLaughlin: I agree, yeah. That was, I mean you probably don't like to hear that as an employee, especially if you're one that's not needed. But it will make you think about yourself, I think.
Dan Ferris: Cringey. All right. So that's what we've got for that. Thank you, Lodewijk. Always good to hear from you. And next is Robert H. Alliance member Robert H. And he's talking about our Dead Zone presentation that I did. We called it the Dead Zone presentation. And it's really just a presentation designed to get you to sign up for our new newsletter called The Ferris Report.
And Robert H. says, "Your Dead Zone presentation is not particularly from the Investor Hour, but I have this e-mail address at hand," he says. So, he said, "The Dead Zone presentation is a tour de force. However, I wonder if you should take on the stage name of Cassandra... a little bearish in the presentation. I believe you to be right, and I'm putting my cash hoard, etc., where my mouth is.
"But virtually everyone I discuss investments or economics with believes that this will all be over quickly, as in the first or second quarter of 2023. And then once again to the moon. Hence, I particularly appreciate your consistent calls. Many thanks, Robert H., Alliance member."
I'm glad you liked the presentation. I hope you subscribe to The Ferris Report. Of course, you're an Alliance member, so you get it automatically. But I still feel the same way as in that presentation. When I see people talking about "Hey, this is all going to be over quick." I feel like they failed to appreciate how much everything has already changed... how much the world has already changed.
And I've covered this before. I even discussed it on the podcast here. I've written about it in the Digest a bunch of times. And we just talked last week about Howard Marks's new memo called Sea Change, which essentially makes the same point. And for him, the main change was about interest rates. He's a bond investor, right? So that's going to be important to him.
But he said he couldn't overstate the tremendous influence of low interest rates over the past 40 years. So, we're going from that low, really easing, falling-interest-rate environment to a tightening, higher-interest-rate environment. And interest rates have gone basically from zero – the Fed funds have gone from 0% to 4% or so, here. You know, the range – 4.25%, whatever you call it – with lightning speed... just basically in one year. So, that's a big, big change.
Mortgage rates, they backed off from 7% nationally on the Bankrate.com number. But I think the last number I saw was 6.55%, very recently. And that's still way above like my mortgage on my house I bought in 2021 is like, I think it's 2.8%-something... 2.85% or 2.875%, maybe.
So yeah. I mean, we're at more than double interest rates, just like that... mortgage rates, just like that... the fed-funds boom soars, almost, really. And if you look at some rates, like if you look at the bottom of the 10-year Treasury – March 9, 2020 if I'm not mistaken. And today, it's at 10X, almost, close to it. The bottom was below 40 basis points in yield, and it's 3.5% or so now.
So, you know, this change is enormous. And I think we've only begun to see the changes that are happening all over the world. And when you see things like, I'm writing about this this month in The Ferris Report, so it's fresh in my mind. When you see the Bank of Japan intervening to support the currency... the Bank of England intervening to save the pension funds and support the bond market, which then, the currency tanked to an all-time low against the dollar, too. The British pound did, you know, in September when all that nonsense was going on.
So these are huge things. These are major developed economies that are having currency and bond market crises. Things are different, Robert. I disagree with those folks who say it's all going to be over in the first or second quarter of 2023.
Corey McLaughlin: Yeah, I agree with you. Sorry, we're agreeing again. But –
Dan Ferris: Oh, darn it. That's not interesting.
Corey McLaughlin: I was just reading BlackRock, the world's largest asset manager, published their 2023 outlook last week and basically saying, in other words, it's different now because the Fed is not coming to the rescue. And they really can't, while they fight inflation. And other central banks, too. You know, this is stuff we've been saying for over a year.
But for BlackRock, which actually their assets under management are about the same as the Fed themselves. So, they have outsized impact on things like the Fed. For them to come around and say this, at least thinking it, and acting on that sort of idea as well is a thing. You know, you have Howard Marks. You have BlackRock. These aren't the only people who are seeing this too, I don't think.
Yeah, the more I think about this, and I think about what happened in 2020 with the amount of money that was thrown into the system. This is going to be a long inflation-battle era, whatever you want to call it. Like, you can't just double the amount of money or dollars floating around the United States and not expect some consequences for a long time.
This is not a six-month "The Fed will pause rate hikes or cut rates again and then inflation's gone." I don't think we're going back to life before 2020. I think this is going to be a different era of –I'm not saying this time is different, which we hate to say. You've got to be prepared for this.
Dan Ferris: No, that's the point.
Corey McLaughlin: For the context to change within that. It's not going to be the same old, low-rate thoughts. It's got to be a higher-rate kind of mindset.
Dan Ferris: And the point is exactly that this time is not different. That's what that means. This Time Is Different is, among other things, the title of a book by Reinhart and Rogoff that makes the point that when you get enormous megabubbles in every asset on the face of the planet trading at the highest valuations in all recorded history like we just went through.
It's bad. And it always ends badly. It always ends in some kind of a crisis. And each crisis has its own little mojo, so you can't just look at the last one and say, "That's going to happen again." And a lot of people have said that. And they don't realize that if they're saying, "Well, it's not another 2008," that doesn't mean it isn't something else.
Corey McLaughlin: Right. I thought that, too. If the bar for crises is 2008, you might not ever get back to that point. But it might be worse in a different way. It might be better in a different way. I think this time around, what you really saw, and if you could go back to the things that peaked the earliest, you would say tech stocks, the ARKs of the world, and then, late last year, bitcoin.
Those were the things at the end of this fueled-by-the-pandemic stimulus to final, new heights... especially, I think crypto, the more I think about it. And that's the first thing that's gone down too, in crisis fashion here with SBF and FTX. You just wonder if the Fed keeps going, what other things like that may be on the horizon as far as liquidity drying up in certain parts of the market.
This was an obvious one, if we're going with SBF. Obviously, things were not what they appeared to be for a very long time. But what about other ones that are even more legitimate? What if there's more legitimate situations where people are just not managing risk in a great way as unintended crises pop up?
I'm not saying the SBF, the FTX one was intended. But it was the first one to go, it seems like. Well, one of the first to pop, because it was just done so poorly. The operation was so bad. But other things could happen, like this going ahead. So that's something I'm thinking about, too. I know you wrote about it recently. Like, "Burn these disasters into your mind" in the Digest. I think that was a good way to put it.
Dan Ferris: Yeah. And I was trying to find – I usually have 50 tabs on my computer open at any one moment – and I can't find an article that I just saw recently that discussed a Bank of America report where they said liquidity will make weird things... Liquidity crises will pop up in weird places, or something like that.
And it was really, I think just a statement by a Bank of America analyst like, "Look, you don't know where the next little blowup or big blowup is going to be." You don't know. But you know it's coming because when you tighten the liquidity situation in the whole world, when there's less of everything to go around, when there's less debt or it's more expensive, or however you want to put it, something gets stressed out.
Like, I can't necessarily draw you a straight line from higher fed-funds rate to FTX blowing up. But we know historically, that's the kind of stuff that happens at, you know, those things tend to happen at the same time, right? After a big bubble, if there's inflation in the air and the central bank is tightening, what happens? Well, stuff blows up.
Corey McLaughlin: Yeah, and I'm not saying the Fed directly caused FTX to blow up either. I'm just saying it created the environment for things like FTX to happen, where one crypto exchange CEO can blow up another overnight basically because of the volatility and the speculation and like froth in a certain asset. The Fed can help create those sorts of things. They do... They create bubbles and they create recessions.
Dan Ferris: Yeah. They do. I found the headline, it was actually from Business Insider. And I'll just read the headline, I won't go into the rest of it. It says, "The stock market could fall 24% in 2023 as the Fed's balance sheet reduction sparks liquidity risks in 'odd places,' Bank of America says."
"Liquidity risks in odd places." That's the best you can do. That's the – you don't know. There's no predicting it. It's just "odd places," god knows when the next one will be. Good luck, folks, bye-bye.
Corey McLaughlin: Sounds like a bad sitcom... Liquidity Crisis in Odd Places.
Dan Ferris: "Welcome to the next episode," that's right, starring that zany dude, oh, Dan and Corey. Who knows what trouble –"
Corey McLaughlin: That's a good way of putting it, though. You don't know when these things are going to crop up. You look at how many who-knows-what mortgage-backed securities are actually going to lead to. You know, where do you follow those through to? So, there's a lot to get into there.
Dan Ferris: And again, if I was going to look around for where something's going to break, given that mortgage-backed securities were at the heart of the last crisis, I'd probably not look there first. I'd look in other places. I'd try to find debts and obligations that people don't know anything about. You're not going to find it, probably. Most people aren't going to find it.
So that's, we always say, "Prepare, don't predict," and our past guest Brent Johnson from several episodes back says, "Survive in advance," right? You just have to know how to position yourself to survive bad stuff, right? You want to have some cash, you want to have some gold. And people say, "Well, Dan, but doesn't one negate having the other?" No, they don't... because you don't know anything. I mean, it's just the way it goes.
Corey McLaughlin: I will say one, before we can move on to another one, where the next crisis might come from. And we won't see it. I keep thinking about these "buy now, pay later" companies and just mechanisms that can't possibly end well in an economic downturn... buying a good, with the promise to pay it off later in installments.
I saw something online the other day like, a pair of jeans was going for $30 on Amazon, but you could buy it in four installments. Like, if you need to do that and you're putting it on a credit card... you know, these are small ticket items. But if you think how many people have been using these sort of payment plans, and they add up over time... I don't know, if something bad happens, I think those will be included in it. I can say that.
Dan Ferris: Right. Yeah, I think that's a great one, because more generally, liquidity in the year 2022 means debt. It means the ability to finance or roll over or take on new debt. And that's the thing that tends to suffer. And when interest rates go up, well, all of a sudden people who were good credits when they were paying 3%. Well, 7%, 8%, 9%, no, forget it. But yeah, great point. Look for anything like what Corey just described as based on debt financing.
Next comes J.P. And J.P. has a simple question. He says, "I hear a lot about stock buybacks and was wondering if the shares 'disappear,'" in quotes, "as in the total outstanding shares are reduced. Or does the company hold them on their books? If a company needs money in the future it would seem easier to just sell some of the buyback shares, then issue new shares. Or would that really make a difference? Thanks, J.P."
J.P., you're right the first time. They essentially disappear. They reduce the total number of outstanding shares. Actually, they cancel them. They buy back the shares and cancel them, and then reduce the share count. That's a mechanical question. I think maybe we'll just move on to the next thing here.
Corey McLaughlin: I'll do a Charlie Munger and say nothing to add.
Dan Ferris: "Nothing to add." Very good, Mr. Munger. Next comes "the stock market could fall 24% in 2023 as the Fed's balance sheet reduce." And Alan says, "Dear Mr. Ferris, earlier this month on CNBC, the billionaire Ron Baron was touting Tesla and predicting trillions in future market capitalization. I was reminded of Ron writing you an e-mail in December 2021, the episode with Bubba Horwitz, questioning/urging you to recommend Tesla. You very clearly and politely refused. Tesla's trading at $350 per share in December 2021... one year later, Tesla's below $200 dollars per share."
Alan, I do not remember the billionaire Ron Baron writing me an e-mail. But maybe he did. Maybe he did and I just forgot about it. Or maybe I was reading an article. He tends to show up in Barron's a bit. So maybe I saw that, or some other news outlet had him. But the real point is I told you to stay away from Tesla. And now, you know, now where are we?
And I continue to believe Tesla is dramatically overvalued. It's as overvalued as the meme stocks. These things are all trading for enormous market caps relative to, well, the meme stocks are really, really bad because I think they're zeros, right? They're going out of business and they trade for billions still... even though they're down like 60%, 70% some of them.
But Tesla, you know, maybe Tesla will be around in 10 years. But the competition is coming out of the woodwork. And that was the one thing that I always sort of fell back on. There were other issues with the cars and with how Elon Musk ran the company and all that stuff. And some people even alleged that there was some fraud or something going on. I don't know anything about any of that. I just know that if there's a real demand for these cars, other car companies are going to get in the business.
And guess what? They know how to make cars and make money doing it. So that's a sustainable business. Not, you know, making the most of your money by selling these green energy credits or whatever they're called, I forget the name of them, that Tesla was doing so much profit in. That's not sustainable. And it went away. So I still maintain that Tesla's to be avoided.
Corey McLaughlin: Yeah, it's been hurting... especially Elon Musk with all of his Twitter interests, too. It's, people are tying the two together and seeing what's going on with him.
Dan Ferris: Yeah, I wondered. Recently, he did that poll on Twitter. I forget what the exact question was. It's basically, "Should I resign as CEO?" And 57% of the people said yes. And he said he would abide by the poll.
And I wondered how much bearishness on Tesla was baked into that, right? Or was it just a place to dump on Elon Musk one more time, whether you think he should be running Tesla or not? I don't know. And whether or not he abides by that I think will be very interesting. If he doesn't, boy is he never going to hear the end of it, right?
Corey McLaughlin: Right. I think he's bit off more than he probably wants to chew on Twitter. Although if he's, who am I to say, but he's doing other things than me. But from the outside looking in, what the heck is going on with Twitter these days? It's nuts.
Dan Ferris: It is, that was Alan. The next one is Alan M., who is a regular listener and frequent correspondent as well. He had a whole, long e-mail about this. Alan, I'm just going to put your first statement in there. But he says, "Dan and Corey, I can understand you're not wanting to make statements when you don't know the whole story on SBF. But you make it sound like this poor guy might have had the right intentions."
OK, Alan, I know why you're saying this. And I consider this – this is my fault. I'll take full responsibility for what I was trying to say, or at least even when I wasn't trying to say it, what I should have said and was trying to communicate.
There was a specific, just comment thrown out by Matt Levine of Bloomberg. And he said something like if a bunch of smart but sort of stupid young people who didn't really know what they were doing but thought they were really smart and were going to run the world someday, got together but they didn't really like to do accounting work or administrative work or compliance work, and they tried to run a major financial operation, this is pretty much what it would look like.
But the truth is, we all know SBF's parents are shady folks. He is a shady guy who donated money, like lots of money, and political donations. And where'd he get the money if he didn't take it out of FTX, right? And now it looks like money taken out of FTX was kind of, you know, he's been accused of fraud and conspiracy now for doing it. So yeah. I've written about this guy a lot in the Digest. And I criticized him heavily. And my ultimate point, I believe if I go back and read everything, maybe, my ultimate point was something like who would have heard this guy talk for more than like 60 seconds and said, "There's no way I'm ever giving you a penny"? Like, who wouldn't have done that? And the answer's like, a whole list of people, like Paul Tudor Jones and all kinds of other famous investors. It's unbelievable the people this guy got behind him.
Corey McLaughlin: Yeah, a whole lot of people smarter than me and more experienced than me. But that was the first thing that I thought.
Dan Ferris: Richer and smarter than both of us.
Corey McLaughlin: Yeah. This was a question I picked out too, from Al M., whose name I recognized from writing into the Digest mailbag, too. So, thank you for that as well. Yeah, I think this was back in November, looks like, when it came in. This was when we were still learning a bunch about what was going on, or trying to learn a bunch about what was going on with this story. And it's still, like, obviously he made a lot of mistakes and a lot of errors, SBF. But I don't think his endgame was getting charged with fraud in the Bahamas.
Dan Ferris: Right.
Corey McLaughlin: If anything, I thought, he probably thought that was a safe place for him to be, running this operation.
Dan Ferris: I know. He didn't start out saying, "Let's go... How can I get myself into a rat- and maggot-infested prison? How can I do that?"
Corey McLaughlin: Right. But there's a difference between that and also having the right intentions. And so, I don't think he had the right intentions either, from a sole perspective, you know. Obviously, there's a lot of greed and the fact that he was wrapped up in politics and the regulation piece of it.
And a lot of people are still forgetting that's the part that triggered all of this because the Binance CEO basically had enough of SBF trying to push for regulations that would favor him and not somebody else... and really kind of break the soul of crypto, as we said, when we talked to Eric Wade a couple of weeks ago.
That was the real, all the leverage and all the other crap aside. That was the actual trigger point for this. The environment was right for it. The whole operation was, it seems, like a mess. But the trigger point was this: his personal gain from it. So, there weren't a lot of right intentions there.
But at the same time, I don't think he was trying to intentionally defraud. I don't know. It's a weird kind of line. I mean, he should have known what could have happened. And I don't have any real sympathy for the guy, especially going out and trying to spin it afterward, which probably is ultimately what got him arrested.
Dan Ferris: Right. The way he tells it, I don't believe it. I don't believe that he didn't know, at the very least, if you didn't keep track of this money coming into FTX through Alameda. Like, you had to know at some point that it's wrong to use that money to do anything with, except it's a customer deposit.
It's all "There for is to do what your customers tell you to do. Buy this, sell that," or whatever. "Here, give me my money back." Or "Here, take some more money." Like, that's all those accounts are supposed to do. And he had to know. I do not believe that he didn't know that he was using the wrong money for crazy crypto-gambling trades and possibly other, you know, not-so-savory purposes.
Corey McLaughlin: I don't believe that either.
Dan Ferris: And the other thing is, and one of the points that I wanted to make for Digest readers and also for podcast listeners and anybody who will listen to me for five seconds about this, is to learn to recognize this idea of "I'm going to get rich and do the world some good. I know how to throw money around better than other people." And "I'm an altruist and a philanthropist, and I know what I'm doing." And "I'm going to contribute to politicians and shower money into other crypto ventures." And "I'm going to shower philanthropic venture with money and be a great altruist."
This whole idea is a giant red flag. And in fact, there's even a little bit, much less I think, of this mojo in Elon Musk who says, "Well, part of his pitch is we're fixing climate change with electric vehicles." Dumbest thing in the world. Anybody who thinks electric vehicles will fix climate change, even if you think climate change is an imminent catastrophe, also a really dumb ideal. You're just revealing your ignorance.
It's a horrible idea. It's ridiculous. You're basically saying we don't want people to pull fossil fuels out of the ground. We want them to engage in a lot more surface mining and underground mining of every kind of metal that needs to go in. It's ridiculous.
Corey McLaughlin: Yeah, it's just moving the pieces around.
Dan Ferris: And it all suffers from that same problem of saying, "I know how to do the world some good. I know how to redesign all of society, all of humanity, great swaths of the global economy. I know how to do it." It doesn't know how to do it. And the truth of the matter is economies... they build themselves. They make themselves. They create themselves. Humans don't create them. Humans are in economies and markets and societies the way fish are in water. And fish don't control the tides or the temperature or the currents or the wind or the waves or anything.
Corey McLaughlin: Amen.
Dan Ferris: Yeah, amen brother. OK.
Corey McLaughlin: We're just living here. There's a lot of things out of our control. Certain people try to control more things than others. And it's a wild world. The markets are the world. You can't control everything. It's just not the way it happens. And nobody wants to be controlled by everything. And nobody wants to be controlled by everything. Regular people just want to, Jesus, just have a good day and have some friends and family and move on.
Dan Ferris: I think people do want security –
Corey McLaughlin: Security, yep.
Dan Ferris: – in their personal property.
Corey McLaughlin: Enough. Enough.
Dan Ferris: Enough. Yeah, but what I'm saying, they want it enough to actually be in favor of being controlled in all kinds of ways. They vote for ungodly measures – I won't get into specifics. But they voted one here in my home state of Oregon recently, and I thought, "Oh my god, you just voted to make the world a more dangerous place. Are you an idiot or something?" But they did it anyway because they think it will make them safer.
And things that people think make them safer generally don't. They generally just expose them to greater risk. And they don't understand it. So, you know, the more people think that they can institute hard-and-fast static rules over all of huge swaths of society, the more they screw things up. Anyway, let's get off the soapbox and get on to the next question.
Corey McLaughlin: Amen times two.
Dan Ferris: Derrick writes in, and Derrick says, "Hi Dan. You've convinced me over time to look at free cash flow as a good metric for evaluating a business. But I'm a little confused as to what to compare against it. Surely it must be based upon some measure, the size of the business. Can you help me make this into a valuable metric? What type of businesses might be a poor fit for free cash flow? Thanks, Alliance member Derrick."
I'll just take this one real quick. It's a mechanical sort of investing question. First of all, it doesn't matter what the size of the firm is. But you're right in your last question. What type of business? The poor fit for free cash flow, two of them come to mind off the top of my head. One is banking. You don't look at free cash flow, it's just not a useful metric. It's net interest margin. That's the sort of comparable metric that you want to look at because that's what banks do, right? They borrow, they lend... Net interest.
Another example is real estate investment trusts who use a metric called funds from operations, FFO. And funds from operations, it's what it sounds like. You just want to get to the cash income from the real estate operations. So what you do is you add back the depreciation and amortization because they're non-cash charges... same way as you do to eventually get to free cash flow.
But then, you net out the losses on the sales of assets with the gains on sales of assets, and you also subtract the interest income, right? So you're adding back depreciation amortization. You add losses on sales of assets, subtract gains on sales of assets and subtract interest income. And then you do it on a per-share basis, and that gets you down to FFO per share. And that is the comparable metric for REITs.
Good question. I like the technical investing questions. They're fun. Thank you, Derrick. Next comes Steven H. And Steven H. has a good one here. He says, "I've now heard or read numerous experts or at least wealthy individuals who sound like experts who came out in the last year with predictions of financial collapse, societal collapse, economic collapse. Are you aware of anyone saying things will be just fine? Maybe even people saying they'll get better? Cheers, Steven."
Corey McLaughlin: That's great.
Dan Ferris: Are you aware of these people saying everything will be fine? I don't know.
Corey McLaughlin: No, I'm not. And this was one of my – we're also going to talk about maybe top 10 potential surprises for the new year in a future episode, and this one crossed my mind. Everything will be just fine... because, you know, at least not a lot of wealthy people spouting opinions in the media, as we put it here, are saying that.
Dan Ferris: I won't name any names because I don't want to put words in people's mouths. But I have heard plenty of people saying things like inflation has peaked and I've heard other people just talking like well, the bear market bottom is around here somewhere. There is actually a substantial amount of that.
But I don't know, that sounds different. The character of this question is like societal collapse, financial collapse, economic collapse. I guess if you're looking for a bottom, maybe you don't think any of those things are going to happen. So, maybe an example of that. And I will say that the idea that everyone is too bearish. I think that's baloney.
Corey McLaughlin: Yeah, me too. We've seen that this year. Those sentiment surveys, it's just "Everybody's bearish," and then "Everybody's more bearish." It keeps going.
Dan Ferris: I think it's baloney because if you look at fund flows, I mean, ARK is down... the ARK Innovation ETF, the big one, the flagship ETF – ARKK is the ticker of Cathie Wood's ARK Invest. Cathie Wood's ARK Invest company. That thing is down like close to 80%, if not by the time we're speaking, 80%, from its all-time high in February 2021.
And yet, up to this moment, at the end of the year here, people have added a net, like more than a billion dollars to the thing... like a billion two or three, if I'm remembering correctly... because in the first five months of the year, I think they added something like a billion eight. And they'd taken a couple hundred million out, or something like that. So overall, I think a lot of people are buying this dip.
And there are people still on Twitter, lots of them, who have kept with this meme-stock thing where they're saying it's all going to the moon, and they're looking for the mother of all short squeezes, like they haven't already seen it three times. And the fact that the two big meme stocks, GameStop and AMC Entertainment... the fact that they're not bankrupt yet and that they're still worth billions in stock market value? That alone tells me we're not near a bottom. There's more pain to come in the stock market.
Corey McLaughlin: Yeah, that is certainly a signal for that purpose, I would think. It's wild. The quicker people get bullish, the more concerned I get that things will be worse next year because there's certain signals that would suggest that there's a bottom to the inflation part of the market... like maybe we've hit an inflation bottom.
I was thinking about this today. Maybe we've hit an inflation bottom. But the recession bottom, earnings recession has not happened yet. If that's going to happen, that will happen next year. And so the quicker people are, have a trigger finger on "Hey, this is the bottom." The bottom. You know, the worst is behind us. Like I said before, this whole story is just getting started... the fallout from 2020.
We're not going to end things tomorrow and go to 0% interest rates and 2% inflation and move on with our lives to another bubble in 10 years from now. This is going to be a slow slog, I think, for a while. And there will be ways to make money. You just need to find them. It's not going to be like "throw a dart at the dartboard and make some money."
I remember in 2020, I think at some point, 90% to 95% of stocks were above their long-term moving averages. It was like, you could literally pick any stock and have made money on it. And that's what led to this bubble, and this downfall, the end of the bubble, and the downside of it. It's like, of course people are going to think they can make money at GameStop and AMC – if they actually were for a while. And now it's –
Dan Ferris: Yeah, for 10 minutes they were all rich, yeah.
Corey McLaughlin: And, you know, those 10 minutes are up.
Dan Ferris: All right, next comes Holden C., and Holden C. says, "First time writing, longtime listener." Well, thank you, Holden C. And his question is, "My clarity on how you feel about Cathie Woods is, as Jack Nicholson would say, 'Crystal.'"
Corey McLaughlin: Crystal.
Dan Ferris: However, wouldn't you agree, especially as a person who hates the Fed only slightly less than Ms. Woods, that her point in her letter is spot on? So, we need to say that Holden is referring to an open letter that Cathie Woods wrote to the Federal Reserve, I don't know, a few weeks ago or whatever it was. I wrote about it in the Digest. I think we mentioned it on the show.
And she was writing this letter to the Federal Reserve basically to tell them to stop raising interest rates. They're ruining everything, etc., etc. My point about it was that Cathie needs to look at her own portfolio and take care of her portfolio, and stop blaming someone else. I accused her of basically blaming someone else for her failure as a portfolio manager.
But I would also, thanks to Holden's question here, I would also say there's another point. And I don't think the point in her letter is spot on... because the point in her letter, there's an underlying point, I think. And it kind of credits the Federal Reserve with being able to control things from the top down simply by cutting interest rates again. You know, it's like, cutting interest rates is some magic panacea that just makes everything better.
And what people don't realize is like, cutting interest rates down to zero the way they did is what got us into all the crap that is now unfolding. If you don't do that in the first place, you don't get all of this bear market, worst year in the bond market since 1788, etc., etc., etc. You know, if you don't get the inflation of the bubble, the blowing up of the bubble on the upside, you don't have to put up with the exploding and the popping of it on the downside.
So I'm sorry, Holden. I don't agree with that point. I think the Fed meddling and meddling and meddling is part of the problem. And she didn't say for the Fed to be abolished and get out of the market. She basically credited them with the ability to make it all better by lowering rates. And I totally disagree with that.
Corey McLaughlin: And she doubled down on this a couple of weeks ago with her Twitter comments, right? I forgot exactly what she said. What did she say exactly? Something along the lines of the Fed, now they're overtightening and something like that. Again, like –
Dan Ferris: Yeah. It was more of the same.
Corey McLaughlin: Like where was she saying when rates were, to your point, what was she saying when rates were zero for zero-rate interest policy?
Dan Ferris: Exactly.
Corey McLaughlin: Where was she then?
Dan Ferris: She wasn't saying, "Hey, don't lower rates. You'll inflate everything. "She was saying, "Hey, aren't I a genius because my ARK fund is up like 300% in two years?" You know, whatever it is.
Corey McLaughlin: Right. And she's the portfolio manager, you know. I'm not. But at some point, you've got to just show some respect to people who are putting money in you, and be able to accept some responsibility, some accountability. But maybe that's too much to ask.
Dan Ferris: That is too much to ask. As we're finding out in many cases, I feel like my Friday Digests have become a mission to expose all those people. So, let's move on here because the next question is from Aussie Stu from Down Under. I love Aussie Stu. He writes, he's a very thoughtful guy. He writes great questions.
And he says, "G'day, Dan." And Stu, I chopped your question all up because it's kind of long, so I want to get to the good parts. And you said, "G'day, Dan. I had some questions regarding the last episode with David Cervantes." This was a few episodes ago. He said, "David mentioned many issues... the housing market's rising cost, and issues inflation, economy slowing but strong, earnings falling, etc. If that is the case, what was the 20%-or-more drop that we went through in the stock market? Aren't markets forward looking? Have they not seen what you and David and others are seeing on the horizon? Also, are we simply looking at years for all these problems to wash through the system and therefore find the bottom of the bear market? Love if you could explain all that a bit more. This also leads me to a question about energy. Many Stansberry analysts are very bullish on energy. So would energy stocks continue to rise in this possible bear market scenario, or fall like all the rest? I'm really a bit lost in this market. It's really crazy. Thanks, Dan. Great content and guests. Keep up the good work. Aussie Stu."
A lot to unpack. Let's just take this one at a time. So, on the point about how far stocks have already fallen, and bonds... frankly, aren't markets forward looking? Have they not seen what you and David and others are seeing on the horizon? Well, they've seen some of it, right? But Corey, I bet you have a thought on are we simply looking at years for all these problems to wash through the system, and therefore find the bottom of the bear market? I mean, that's part of your consistent message, is it not?
Corey McLaughlin: Right, yeah. And to this question specifically, I would just say, throughout 2022, there's been hope that things would be over. And that the Fed would pause rates, rate hikes, even cut them. People forget that. People were saying, "Oh, by the end of the year, they'll be cutting rates." That obviously has not happened. So my point is, every time the Fed has one of these quarterly meetings where they project out, economic projections for growth, for inflation, for unemployment.
Every time they've come out with one of those, the market has reacted violently, to the downside, the last two of them. Because the Fed has indicated that they're going to raise rates higher. And unemployment might go up, and growth's going to slow down. So yeah, the market's forward looking. But there's also a large part of the market that is waiting on that Fed outlook. Adjusting to that as the year goes on. And that just happened again.
Dan Ferris: And believing it.
Corey McLaughlin: Yeah, and believing it, which is a whole other story. Like, these things, they are, and even, you know, to be fair. Jerome Powell says, "Listen, we've been changing this all year. But this is what our best guess is at the time." And so enough people in the market go with that at the time, instead of thinking for themselves. And honestly, a lot of people aren't individual investors either, who have the ability to make your own decisions, which is what I like about what we do at Stansberry. And our readers have the ability to figure it out on your own, so you're not beholden to any stakeholders and wherever it may be.
So my point is, a lot of this is in the market, but there's still reactions based on more recent events than you would think. Those Fed projections are just one example. The next one comes out in March. So there's a lot of time between now and then. But I wouldn't be surprised if there's rallies and up in, you know, then pullbacks, until then. And then we'll see you again in March.
Dan Ferris: Yeah, we'll see you in March.
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Actually, Corey, that's my list of questions in the mailbag.
Corey McLaughlin: OK, you covered a bunch of them there, including the ones I pulled out. One other one I pulled out, I just want to maybe comment on from Bob J., who – a few weeks ago, the episode with Eric Wade – he says the comment by Corey McLaughlin about U.S. banks is actually laughable, considering their behavior during the subprime mortgage fiasco.
So let me just clear that up. I was actually trying to make a point that what happened in crypto could happen anywhere, and that maybe wouldn't happen at a bank but maybe it would. Like, that was basically it, and I wasn't clear enough saying that. And Eric was kind enough to point that out to me during our interview with him. And that's that. Basically, what happened with FTX and SBF, I think in some ways, it was exclusive to the crypto world... But in a lot of ways it wasn't.
Dan Ferris: Well, Eric is passionate.
Corey McLaughlin: Yeah, I would agree with that.
Dan Ferris: He's a passionate guy. And he knows what he's talking about.
Corey McLaughlin: Correct. Yeah. So, I just wanted to clear that up, since I'm a newbie here. And don't want to be making anybody think that I'm in love with the bank system and everybody in it.
Dan Ferris: So now that we've gotten through our questions, maybe I should turn my final interview question on both of us. If we had to leave the listeners with a single thought today, what might yours be and what might mine be? And I have to say, I just thought of this now as we're recording at the moment. And so I'm totally unprepared for it.
Corey McLaughlin: As am I.
Dan Ferris: And I'm sure you are too, yes.
Corey McLaughlin: But I like it.
Dan Ferris: Is it cowardly for me to ask you to go first, or not?
Corey McLaughlin: No, just let me gather my thoughts for a second. I would just say know thyself, in terms of your goals and what you want to do with your money... why it's there in the first place. You know, a lot of stock pickers and market analysts just won't even come up, ever. But I think it's the thing you really need to start with, and then it will just make a lot of decisions easier from there.
Like, are you relying on your money to live on next year, or are you not? Meaning, are you retired and living on a fixed income and don't want to lose 20% more of your nest egg in a bad recession? Or are you really long term, are you on the younger end and can afford to take on more risk and stay invested and compound and all those good things? You know, 10, 20 years, 30 years, 40 years... however long people live nowadays.
If that's the case, yeah. I hate losing money. I would hate losing 20% on anything. And I've been really conservative this year, since the beginning of this year, protecting what I have. But at some point you also need to think about what comes next. And to think about what your goals are will help you make decisions to that, so. That's probably a general kind of thought, but I think it's one that's not said enough.
Dan Ferris: As soon as you started talking, I was nodding my head and saying "yeah, yeah, yeah." My comment is maybe like a subset of that. It's a portion of that. And I would say knowing yourself then involves one very important skill that too few people have, which is the ability to admit all that you don't know.
Too many times in life we find ourselves in situations for one reason or another, one doesn't feel one is permitted or one is absolutely not permitted to say, "I don't know." But what you don't understand, in a world awash in information, an Amazon river of information coming at you 24/7, relentlessly, just a fire, you want a sip of water and it's a firehose in your face 24/7. It's horrible... in a world like this, saying "I don't know" is knowing, you know, in a more primitive world where, just figuring out fire, and you're the guy who knows fire, knowing is everything. In this world where it looks like anybody can be made to look like they know a lot and they really don't, being the one who admits, who is honest and admits all that they don't know is hyperimportant. And that is the equivalent now of knowing how to make fire.
And that's what you've got to do. That's how you're going to position your portfolio because all those people who bought garbage and held onto it. All the people buying the dip in ARK and meme stocks, they think they know but they don't. They thought they knew just because they were rich for 10 minutes. And they say, "Well, I'll be rich again soon. I'm just going to keep buying." No, they're not. They're going to go broke. They're going to lose all they have in those stocks, anyway.
You see the difference there? That is what you have to do. That's why I say, "Prepare, don't predict." And I sometimes repeat our previous guest Brent Johnson's advice to "survive in advance," right? That's why I say hold plenty of cash and also hold gold and also hold stocks and also maybe hold some real estate.
And if you're an expert in some other kind of asset, hold some of that, too, of course... because that's the kind of portfolio you wind up with when you admit that you don't know all that you don't know.
Corey McLaughlin: Well said. And you don't know what you don't know... which is a problem for a lot of people, too.
Dan Ferris: Yes, right? The things that you know that you don't know, then the things you don't, you're unaware that you don't know. There's a lot you don't know.
Corey McLaughlin: There's a lot.
Dan Ferris: And you've got to figure out how to prepare for it, yep. All right, well it's been a pleasure discussing our mailbag with you today, Corey.
Corey McLaughlin: Yeah, I enjoyed it, Dan. Thank you. It was my first edition here and was fun to speak directly to the listeners.
Dan Ferris: Yeah, maybe we'll do this again soon, you know? Maybe in another month or two or three or four... however long we need to wait to get a nice long list of questions like we had today. In the meantime, that's our mailbag for now. And that's another episode of the Stansberry Investor Hour, too. I hope you enjoyed it as much as we did.
We do provide a transcript for every episode. Just go to InvestorHour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you like this episode and know anybody who might like it, tell them to check it out on their podcast app or at InvestorHour.com. And do me a favor... subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts.
And while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram – our handle is @investorhour. On Twitter, our handle is @Investor_Hour. If you have a guest you want us to interview, drop us a note at [email protected], or call the listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host Corey McLaughlin, till next week, I'm Dan Ferris. Thanks for listening.
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