In This Episode

Dan gives us an update on the handling of the Coronavirus by the Chinese government. Did they increase the risks by trying to cover it up? What are investors to do, if anything?

He then introduces this week’s guest, David Collum, who is Professor and Chair of the Chemistry and Chemical Biology Department at Cornell University. David writes an annual “Year in Review.” It’s a macroeconomic assessment of the markets that is a must-read. Dan and David hit it off like old friends, discussing a wide variety of topics like the Coronavirus, the Fed, and the chance of an upcoming recession. They even do a deep dive on controversial topics like climate change and the Jeffrey Epstein story. David makes a stunning claim, calling the Epstein story, “the biggest story in American history…”

Featured Guests

David Collum
David Collum
David Collum is a professor and chair of the chemistry and chemical biology department at Cornell University. He authors an annual macroeconomic assessment titled “The Year in Review,” which gives one of the best synopses of anything that mattered in the markets during the previous 12 months. His blog has appeared in popular websites such as Zero Hedge and Peak Prosperity.

Episode Extras


  • To follow Dan’s most recent work at Extreme Value, click here.
  • To check out David’s “Year in Review”, click here


1:12 – Dan revisits the Coronavirus once again. “Looks like the Chinese government was too worried about covering it up and not worried enough about preventing the virus from spreading.”

12:35 – Dan gives some actionable advice on how to best play the situation.

15:00 – Dan introduces David Collum, Professor and Chair of the Chemistry and Chemical Biology Department at Cornell University. They discuss a yearly macroeconomic assessment titled “The Year in Review”, one of the best synopses of the markets you can find.

22:05 – David  gives us some insight on share buybacks. “You end up with net reduced value of the share, while net increased price of the share, so investors feel richer when in fact they’re getting poorer.”

28:10 – Dan and David discuss rumors about the Fed and their latest insane move… something that hasn’t been implemented since WWII.

35:37 – Dan and David then talk about gold vs bitcoin, and the merits of both. “I think gold will have its day in the sun…”

37: 15 – Fire up your hate mail… Dan and David discuss climate change, and the flaws in climate science industry. “I’m a denier. I deny you know diddly-squat.”

47:51 – Dan and David dig into the Jeffrey Epstein story… “They’re happy to have us talk about  whether Epstein killed himself or got murdered… what they don’t want to talk about is the enormous web of people connected to him.”

55:00 – Dan confronts David, “Are you a conspiracy theorist?” His frank response may surprise you.

59:27 – You don’t often hear University professors with these strong viewpoints, so Dan asks if he’s had any backlash for his opinions. “I think Cornell’s very pro free speech… but if they pick a fight, [email protected]#k, I’ll take em on…”

1:04:00 – Dan asks David, “Is there one idea that you’d want to leave our listeners with?”… “I see a 50% correction ahead of us… the next recession in my opinion will be a very mean recession.”

1:07:00 – Dan fields some comments, questions and politely-worded-criticisms from the mailbag… Does the rise of indexing prevent recessions? Can’t the Fed just prevent recessions with interest rates? Is it different this time?


Announcer:                 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 Here is your host, Dan Ferris.


Dan Ferris:                 Hello, and welcome to the Stansberry Investor Hour. I’m your host Dan Ferris. I’m also the editor of Extreme Value published by Stansberry Research. I hope you enjoy today’s show as much as I expect to, man, because today’s interview with Dave Collum promises to be really interesting. We’re going to get into some weird areas, I just know it, but it’s slightly off our usual track. I hope you enjoy it.


Dave is a very bright guy. He’s a Cornell chemistry professor. He publishes this big "Year in Review" document on financial markets, and his 2019 year in review is out. It’s great. I encourage you to read it, and we’ll talk with him about some of that in the interview. But first, of course, I have a few thoughts to share. Let’s just talk about coronavirus again for like the third week in a row. I keep talking about this because there’s a clear financial implication and there’s a nice trade that goes along with this, so it’s definitely worth talking about in terms of dollars and cents and for other reasons too, of course.


I’ll end this segment with the investment implications which I don’t think have changed and I think they’re stronger now. I won’t say I predicted anything, but I definitely talked about how this might work out, and it’s how it’s kind of working out. So the Johns Hopkins coronavirus dashboard, which if you want to find it you can probably Google those words, at the time of this recording it’s more than 73,000 cases of the virus, 1,870 deaths, and more than 13,000 people who have recovered from the virus.


99% of all the cases are still in China. All but one of the deaths are in China. It looks like the folks in China were really caught flatfooted with inadequate medical facilities, and plus, the Chinese government was probably it looks like too worried about covering it up and not worried enough about preventing the virus from spreading. It’s of course highly suspicious that this thing comes out of Wuhan where they have a biological research facility.


I’m not saying they did anything on purpose, but could be like a biological weapon accident or something. I don’t know. I have no idea, but it’s a coincidence. But I’ll tell you, it’s a good sign that the mortality rate outside of China is virtually nonexistent. It’s still just that one guy in the Philippines who died, otherwise zero outside of China.


The next biggest concentration of cases outside of China is the Diamond Princess cruise ship quarantined in Tokyo. Johns Hopkins reports 542 cases and no deaths on the Diamond Princess, and it looks like they’re under quarantine. Looks like that’ll be lifted maybe even by the time you’re listening to this, but who knows? They could say, hey, we’re going to do another two-week quarantine.


Next in line is Singapore with 81 cases – again, no deaths. 74 cases in Japan, 61 in Hong Kong. There’s 35 cases in Thailand, and not near that many anywhere else just about. Small numbers, not looking too bad. What does unfortunately look bad is the economic activity in China. I saw on Twitter recently where someone showed the graphics of the air traffic before the virus and then very recently.


So they still have planes in the air, but it’s dramatically reduced, and you can see the current level of Chinese air traffic if you go to It won’t show you the comparison I just mentioned, but you’ll be able to compare it with all the traffic in countries around China, which look really busy, and China looks like a wasteland. There’s hardly any planes in the air over it. It looks like there’s more planes in Siberia than in China.


It’s just really a big hole in global air traffic, and Chinese air traffic is normally 12.5% of the global total, so you know something is up. A dramatic reduction in Chinese air travel can’t be good for that, for that economy or for the global economy. Considering the importance just generally of transportation as an economic indicator, it’s looking like the Chinese economy is really getting hit hard by the coronavirus and how they’re dealing with it.


Financial Times reports that the government is clamping down hard on civil society. President Xi Jinping has ordered a much tighter grip on online media because the Chinese people are outraged by the government’s handling of the virus. A prominent Chinese activist named Xu Zhiyong has disappeared, according to the Financial Times. He was on the run for 50 days, sleeping on the couch in people’s houses and evading the government, but he’s gone missing now.


Frankly in that regard, China is a bit weird to me. If you live there or have spent lots of time there, write in. Help me understand. Write in to [email protected] I want to be in love with the place. I want to be in love with China like Jim Rogers, but central control, that authoritarian central government of theirs – it creates tail risk.


All they have to do is handle one crisis badly enough and they can set themselves on a course of economic disaster, whereas if you have a more open economy and things are more distributed and the decision-making is more distributed, the handling of a crisis will be a more distributed thing and not necessarily a top-down disaster. The central government control, it actually makes me think of a little thought experiment I use to illustrate the nature of risk. I may have mentioned this once on the program before, but I’ll repeat it now.


Tell me this, do you think there would be more automobile accidents if we left things the way they are right now with all the seatbelt requirements and airbags and all the rest of it, or if we took all of that stuff out and simply required that every car be built with a six-inch steel spike pointed straight at the driver’s heart? No, I don’t advocate that we actually do this. It is a thought experiment. But the point is, I think we’d probably have a lot of people walking and riding bikes, and I think there would be not even a fender bender and people would be driving much more carefully.


And it’s just an absurd way. It’s an argument ad absurdum to illustrate how people handle risk when they’re exposed to the full brunt of it versus when they believe it has been adequately mitigated for them by some means like seatbelts or airbags. They drive in a riskier way when they’ve got seatbelts and airbags than when there are none... and when they’ve got this steel spike showing them that there’s enormous risk if they so much as bump into the car in front of them even a little bit.


And I think the more centralized an economy becomes, the more the population will tend to believe that they are protected from tail risks when the opposite is true. They’re more exposed to them. Now look, I’m not the last word on anything, really, and I’m fully aware that people like me make all kinds of arguments right when a country is in the process of opening up and being a more attractive place for capital. And who knows? 20 to 30 years from now, folks might look back and say, “All you had to do was buy China and wait a decade or so and you’d have made a fortune.” I get that.


But I also believe that central authority, top-down decision-making like that, it increases tail risk. It’s a multiplier effect. Every decision a government makes for everybody multiplies, makes absolutely certain the consequences of that decision will hit the maximum number of people. What if it’s a bad decision, right? And there’s lots of headlines about this economic effect affecting other countries. Investor sentiment in Germany is down sharply. South Korea says it’s time to take emergency steps.


South Korean president said all possible measures should be taken to fight the huge economic impact. South Korea trades a lot with China, so I hate to use this horrible analogy... but it’s true literally, I guess at this point, as well as figuratively. When China sneezes, South Korea catches a cold. Singapore recently unveiled a $4.6 billion financial stimulus package. It also is affected by what happens in China economically.


Malaysia is putting the identical amount, $4.6 billion into the stock market, and another big country, Apple – just kidding, Apple is not a country of course, but Apple announced on Monday that it will not meet its revenue projections for the current quarter due to the coronavirus limiting iPhone demand in China. Remember, iPhone is still more than half of Apple’s total sales, and you get much higher margins and returns on capital from the software and online advertising businesses like you had with Google and Facebook than you do from making and selling hardware, which is what Apple does. That’s more than half the revenues.


And Apple’s CEO Tim Cook knows this and they’ve invested in things like the Apple Watch and Airpods just to diversify the hardware offerings, and then Apple Music, TV Plus, News Plus, Arcade, to name a few things. This is great because it makes the company less dependent on iPhone – just slightly less dependent so far – but less dependent on iPhone and more engaged with the customer... So the customer uses their iPhone more and there are more business steams running through the device, but Apple gets to diversify away from it.


So they’ve got to continue doing that, and they’re only so far along that path. When we hear that one of their big markets is experiencing limited iPhone demand, it hurts. Apple hasn’t yet provided an update for the revenue projections, but they previously said they do between $63 and $67 billion in sales. Already a wider-than-normal range due to the impact of the virus, so who knows? South of $60 billion? I don’t know. No idea. Hopefully they’ll let us know that.


Somewhat related but not quite is Japan’s GDP fell 6% last quarter. That was due primarily to a hike in the country’s consumption tax. You tax something, you get less of it, right? Japan has been tough for a long time. It’s been a difficult situation for a long time. You remember we discussed this with Tobias Carlisle and he was saying how value investing works, right? So it's not impossible to make money, but it’s economically been a tough situation for a long time.


But all of this, the coronavirus, Japanese GDP, all of it points in the same direction for an investor. The implication is of a depressed global economy. That hasn’t changed. So where are we? Gold, treasuries, if you’re the kind of investor who likes to be tactical in the medium- and short-term, you bulk up a little more on the golden treasuries, especially short-term treasuries as the virus and China’s response to it kind of dampens their home economy and then that effect spreads around the world, you can get long the short-term treasuries with the two ETFs.


One is ticker symbol SHY. The other is ticker symbol VGSH. You can also buy the TLT. You remember we had Raoul Pal on the show a couple weeks ago. TLT is your friend. He said "buy bonds, wear diamonds" and TLT is an easy way to do that along with those other two. You can get long gold any number of ways, right? Big royalty company like Franco-Nevada.


In the Extreme Value newsletter, we have two smaller companies which I think will dramatically outperform Franco-Nevada. They haven’t done so yet, but I think as the cycle continues, as we push up to $1,600, $1,700, who knows? $2,000 gold I think they’ll really start to rip. One is my No. 1 recommendation since January 2018, up about 35% versus an 18% rise in gold, not bad. So longer term, I suspect coronavirus won’t be a big deal.


I think the odds are it won’t be such a big deal, not directly, but the handling of it (and the depressing effect and the handling of that depressing effect), it’s already set things in motion. All this economic stimulus is just I think the tip of a bigger iceberg to come, and that’ll continue and it’ll include substantial cuts of interest rates by the Federal Reserve. So also, Raoul Pal said that on the program a couple weeks ago he thought maybe as much as 100 basis points of Fed rate cuts maybe as soon as June but certainly this year.


I must say, he mentioned euro dollar futures as another player in this, and they’ve done nicely so far. You know what? Euro dollar futures – smoke them if you got ‘em but not necessary. Gold and treasuries are the way to do this, and they’re behaving just like they should. So that’s really all I have to say about that right now. It's time for our interview. Let’s talk with Dave Collum. You’re going to love this.


OK, it’s time for our interview. Today’s guest is David Collum. David Collum is a professor and chair of the chemistry and chemical biology department at Cornell University. He authors an annual macroeconomic assessment titled "Year in Review" and that is what we’re talking about today, folks, which gives one of the best synopses of anything that matters in the markets and in the culture, also as you’ll find out, during the previous 12 months.


He just published the 2020 "Year in Review" and that’s what we’re going to talk about. Dave’s blog has appeared in popular websites such as Zero Hedge and Peak Prosperity. Please welcome to the program Mr. David Collum.


David Collum:            Hey, it’s my pleasure. I like interacting with you guys.


Dan Ferris:                 Yeah, well I’ll tell you what, Dave, I like interacting with your year in review, man. That thing is serious business and I got the impression this year, I haven’t read all of them, but this year it seems like you really kind of – it’s a two-partner. It’s longer than normal, right?


David Collum:            Actually, that’s about the normal length. What differed this year was I kind of wrote it from my lizard brain a little bit more than usual. I had all these topics and I wrote it in order of how strongly I felt, and then I just reached a logical stopping point and I realized it was much more about social change and less about finance this year, I think in part because it kind of feels like the financial system is treading water and I can talk about all the things that still feel wrong to me about it, but it feels like it’s at kind of a plateau.


Dan Ferris:                 Yeah. You talked about a bunch of financial topics, though, gold, bitcoin, modern monetary theory, the Federal Reserve and the repo issues, and share buybacks. You’re not a fan of share buybacks, are you?


David Collum:            No. I think they could be good, but I think they’re abused. In that buyback section I did a little mathematics showing how much the average investor is getting duped by the storyline. It’s not to say that they’re always bad, but the product we get sold is not correct. It’s being sold in I think a fairly slimy way.


Dan Ferris:                 Well, yeah, so the sales pitch is that it returns cash to shareholders, which is weird, and also that it raises earnings per share. Is that what you mean by the sales pitch?


David Collum:            Yeah. Well, first of all, try to buy a pizza with that cash and can’t. Of course, everyone knows the obvious thing is that we know that they’re using it to pump the shares to get the options to be worth more. We also know that if instead of doing a share buyback they paid out a dividend, dividends necessarily erode the value of the options, especially if you think of one of those one-off dividends where they say, “Look, we’re going to give you 10%.”


You can watch shares drop after those big dividend payouts, and so clearly dividends do not help option holders. There’s that sort of level-one sliminess to the whole thing, but where it gets really slimy is that as they take cash off the balance sheet – or should we say tangible assets off the balance sheet to buy back the shares –  let’s forget about the debt-based buybacks. That’s just a Ponzi scheme. But if they take assets off the balance sheet and buy shares, and assuming they extinguish the shares, then it’s a wash.


Where it becomes a good deal is if the company returns a higher return than the assets that were on the balance sheet, but that’s not necessarily the case, right? That can be the case but it’s not necessarily. Where that becomes a disaster is when the company chases up the shares because as you’re gutting your balance sheet, you’re pumping your shares up. So the stockholder feels like they’re getting richer based on price, and so their portfolio is going up, but the actual assets backing each share is actually dropping because they’re chasing the price up. The minute they chase the price up, the per-share tangible assets goes down, not up.


Dan Ferris:                 OK. Explain that to me a little bit more, but explain the difference, though, between dividends and buybacks. You’re taking cash off the balance sheet. You’re reducing equity either way, right?


David Collum:            Right. If you take cash off the balance sheet and give it to me... Let’s say there’s a company worth a billion of which $900 million of it is what we’ll call the company, and $100 million of it is balance sheet, just the stuff that they often call cash, but it’s never just cash. The question is, if you take that 10% and you give it back as a dividend, now you’ve got a company worth $900. You’ve got shares that have dropped by 10% as well, so it’s a wash. You’ve got cash in your pocket. So that’s the simple model.


If on the other hand they take that 10% off the balance sheet and they buy back the shares, now you’ve got 10% fewer shares, and you’ve got a 10% less valuable company because you’ve lost the essence on the balance sheet, so that’s a wash. So what it really comes down to is if the assets on the balance sheet return less than the company (the company that you’re buying), then if they return less, then it was a good deal, maybe. I mean, return less as its real earnings, wealth creation, stuff like that, and not just pump and dump share price.


If on the other hand you take cash off the balance sheet or assets off the balance sheet and buy shares and the shares are not worth that (they’re not wealth-creating company), then you’ve taken wealth-creating assets and forfeited them for non-wealth-creating shares. So it’s very much up to which is more valuable, the assets on the balance sheet or the shares themselves, or the company itself. The problem is, it really gets dicey when you realize that let’s say a company by virtue of share buybacks jumps 40%. Let’s say they chase it up, the goal of the CEO, right? They love that.


Well, now you’ve got shares that are going up by 40%, but since they’ve chased the shares they’ve paid more and more and more, so you actually get a smaller and smaller share count reduction. In the year review, I lay out a balance sheet of a company and go through it, and you end up with reduced value of the share while net increased price of the share. So the investors feel richer when in fact, they’re getting poorer. It’s arithmetic... it’s not even complex math.


Dan Ferris:                 Right. I saw the example. It is pretty simple.


David Collum:            It’s very simple.


Dan Ferris:                 But you started out saying that – we’ll get off of the share buyback thing in a second – but you started out saying that it can be done right, so I assume you mean like if you’re buying a share back and it’s well below intrinsic value... that’s the model we’ve been fed by Warren Buffett. Is that what you mean?


David Collum:            Yeah, so if you’ve got a company that can return 20% on investment, if you’ve got a fast-growing company and your assets on the balance sheet are not returning squat, then it’s essentially a reach for yield. So you say OK, I’d rather get 20% off that money than the 2% I’m getting off the balance sheet. So that can be a good buy, right?


But if the company is not earning anything, you have to account for what’s on the balance sheet. Here’s one of the ways I handle this problem. Remember back in the '70s when inflation was pretty crazy and companies would actually hold back on paying out checks and stuff to customers and stuff because the longer you held it, the more money you got. So if you were a company and you had, say, 20% of your tangible assets for your balance sheet and you could park them in a money market and make 15%, why would you take that 15% and buy shares?


So it very much depends on the value of those assets on the balance sheet and what kind of return you can get off of them. Now, the argument is that the Fed has screwed up the system so badly that now the tangible assets on the balance sheet that the companies are using, their return is so bad that the Fed is causing the companies basically to reach for yield by buying their own shares.


Dan Ferris:                 Yeah, so let’s talk about the Fed. That’s another big topic for you. My thing with the Fed is I always ask people, "Can you please draw me a straight line from the Fed dorking around in the overnight market, pushing interest rates this way or that way, and the level of the S&P 500?" That’s my standard Fed question.


David Collum:            OK. So first and foremost, if you just wish to say that Wall Street is a bunch of crackheads and the slightest hint that more crack is coming will get them to party, the animal-spirit argument is easy to make, right? So you say anything favorable to the leverage speculating community and that will move markets, right? That’s sort of the superficial analysis.


The more deeper banking analysis is that if the Fed buys non-reserve assets from banks, treasuries for example, which cannot be used as reserve assets, and replaces them with reserve assets which is cash, which they get about the same return on by leaving the cash with the Fed, what you’ve done by replacing non-reserve assets for reserve assets that now can be loaned again, so they don’t loan the reserves, they loan against the reserves. That’s a critical distinction.


So now let’s say you swap out $1 billion worth of treasuries. You buy them up as the Fed and you put $1 billion worth of cash. Now the bank can loan, say, $10 billion against that cash. By putting reservable assets on the bank’s balance sheet, they can lever up more, and then they can start lending to leverage speculators, hedge funds. I saw that Bill Miller made 100% last year. He did that with four- to five-fold leverage. Bill Miller can’t borrow that money if it can’t be loaned out.


Dan Ferris:                 Right, and he sure can’t borrow it dirt cheap if it isn’t -


David Collum:            Right. So the Fed is attempting to get the banks to leverage up, but when they do that asset swap, when they swap cash for treasuries. Now they’re buying up mortgage-backed securities. Real good question why that is. Why do they have to do that? Why can’t they just buy treasuries? My suspicion is there are some big one or more financial institutions that doesn’t have that quality capital left, so they’re saying, “OK, we’ll take mortgage-backed securities then, because the Fed should just be buying treasuries.”


Dan Ferris:                 Yeah.


David Collum:            It’s kind of a slippery slope to it.


Dan Ferris:                 It is a slippery slope. You wind up like the Swiss... Swiss National Bank buying Apple.


David Collum:            Yeah. That’s pretty ridiculous, isn’t it? Here’s a question that I sort of rhetorically ask. Let’s say every central bank decided they wanted to pump money into the system by buying shares of companies. Wouldn’t we basically have a system where this kind of financial war would turn into a case where every company has been nationalized?


Dan Ferris:                 Effectively, right? Absolutely.


David Collum:            Yeah. The fact that it’s only the Swiss means it’s sort of contained, but if you start hearing the nitwits at the Fed start talking about how they should be able to buy other assets, then we should all be ducking. Maybe there’s a bet, right? But Joe Sixpack – I try to think like Joe Sixpack because I am. Joe Sixpack can’t play this game. Stevie Cohen can play this game. David Tepper can play this game. Dave Collum can’t play this game. So we all get hosed. We can’t make fancy bets on Fed movements the way the pros can.


Dan Ferris:                 Well, yeah. We can’t exploit them the way they can. We can make a few bets here and there. You can open a little futures account or something.


David Collum:            If you hear I make a bet like that, _____ _____ that position. That means I’m about to get thrown in the pool with a toaster oven.


Dan Ferris:                 That’s true. OK, so the latest thing the Fed is doing, you’ve heard about this? They’re contemplating interest-rate caps, which I think the last time they did this was just post-World War II or during World War II maybe and it extended beyond the war.


David Collum:            When did that get announced?


Dan Ferris:                 I think at this point it’s talk. It’s not –


David Collum:            That’s what we call price controls, right? The history of price controls is awful. The idea of a price control during World War II you can live with because you say, "Well, we’re bombing the hell out of half the world," and this is a special situation and so they did all sorts of awful things during World War II to fight the war and justify the war, but the idea of using interest-rate caps which is essentially putting a floor on the price of the bonds, then it further illustrates my assertion that the Fed institutionally has lots all memory of two things, and one is price discovery, and the other is a fear of inflation. So the Fed does not fear inflation and they don’t believe in price discovery. I think they are a bunch of wretched, mid-level bureaucrats based on those two conclusions.


Dan Ferris:                 You won’t get any argument from me about the wretched bureaucrat thing. My view, I guess it is a very Joe Sixpack view. It’s just a bunch of people who think they’re better and smarter and want to use their power to shove their way of life down my throat by all manner of various devices including central banking.


David Collum:            And they’ve lost the sense that – here’s the bottom line. Complex systems always evolve. You don’t engineer them, you don’t create them, they evolve. Someone could say, “Well, what about a microchip?” I go, “It evolved.” The trial and error, the failures, the successes, the constant culling – they evolve. Economies evolve. Ecologies evolve. Anything evolves that’s of any serious complexity.


They have lost sight of that. They think they get to engineer it, and that’s the problem. So when economists and ecologists stop studying their field of pursuit and started thinking that they could engineer it is when they lost their minds.


Dan Ferris:                 Yeah. I like that. I like the sound of that. That word “engineer” rankles me. It makes me feel like somebody sticking their nose in my business. In the financial section of your year in review, which I encourage everybody to read, it’s a fascinating read. It’s a critique, isn’t it?


You like gold, but it’s a critique of the Fed, modern monetary theory, certain aspects of bitcoin, share buybacks, the Fed’s repo program. All of it is a huge critique of the financial system, but you started out saying you thought the financial system was kind of in a holding pattern. Does that mean you’re sort of waiting for all this to fall apart?


David Collum:            Yeah, so again, there’s people who tell me I’ve just been wrong for so long and therefore, why would anyone listen to me? I have to defend myself. So from 1980 to ’87, I was pure bonds. After the crash of ’87, I woke up to the merits of equities, and so I actually bought equities aggressively after the ’87 crash, which wasn’t a brilliant dip buy... but it meant I caught a big chunk of the secular bull market still.


By mid-’98, I started getting nervous about valuations to the point that I couldn’t do the back-of-the-envelope calculation and come up with anything rational. So from mid-’98 to mid-’99 I liquidated all my equities, and by a mechanism I can’t fathom now, I cannot piece together, I was convinced by obviously a very small handful of people, guys like Jim Graham maybe, to buy gold. So by mid-’99 ,I swapped out all my equities and was pretty heavily gold, a lot of cash. I even shorted the market. I’ve done it twice and never again, but I shorted the market through the _____ marathon.

I thought that it would topple, and then it toppled. Then from January 2000 to December 31 of 2009, because I had a very big energy position and a very big bull position, I compounded it 13%. That was by far my most extraordinary decade. Now, where I got it dead wrong was from January 1, 2010 through the present, and that is what I failed to see coming – completely and utterly failed to believe it could even be possible – was this equity "roid rage" that it went on.


So I’ve been on the sidelines for that. I’ve done OK with gold. JP Morgan showed a plot where the last 20 years of gold versus S&P, gold has beat the S&P 2% annualized, and so I still beat the S&P over 20 years, but the last 10 years has been painfully pathetic for me watching from the sidelines. But I also believe that if the GDP grows 50% and the equity market goes up five times that, then we’ve got a day of reckoning coming that I think will make the coronavirus look pretty tame.


Dan Ferris:                 Right. So yeah, if it makes you feel any better, I’ve been an equity guy through this whole period, but I’ve been a value-oriented guy and that hasn’t worked so great. I don’t know what you’ve missed. Correct me if I’m wrong, the bottom in gold, you said ’99. I thought the bottom... wasn’t it like December ’99? It was like $200-something?


David Collum:            No. The bottom in gold was two years later, which is what made that move painful, because I made the move while the Nasdaq was roaring, and so I had to watch the Nasdaq do its final blow-off top. Gold went from – I was buying from $290 to $280 to $270, and then I finally said, “Uncle. I can’t take this beating anymore.” So I stopped, and then it bottomed. It felt like it bottomed.


A couple of things, Bank of England made some moves that should’ve hurt it and it went up, so I started buying again and I bought it up to maybe $450 or something. Then I stopped because I had a lot at that point. I was feeling pretty good. Everyone else had gotten the crap kicked out of them and I was feeling pretty good. I went all the way through $1,900 and then back down the other side. I went from, say, averaging $300, something like that, to down to about $1,100. It felt painful on the way down, but integrated out of the curve it was fine.


Then I bought a bunch around $1,200. I’m not a TA guy, but it felt like it was bottoming. It felt like the sellers kind of gassed out. So I bought a couple of annual salaries worth, around $1,200. That’s so far looked like a smart move, but there’s no cushion under me that’s big enough for me to feel smug about it. It’s been OK. I think gold will have its day in the sun, and if it doesn’t, then I’m wrong. It’s that simple. I can’t price gold – no one can in my opinion – but I think it will because I think these idiots are going to break the system.


Dan Ferris:                 Yeah, so you think gold will be the sort of call it safe haven of choice, and that Bitcoin won’t catch a bid?


David Collum:            No, it might. It’s just too weird for me. I’m not a missionary investor, and they’re kind of doing weird stuff. So I follow Bitcoin as a social movement, and I’m rooting for them at one level and rooting against them at another level. If Bitcoin does well, gold will probably do well, but if Bitcoin becomes the global currency and I don’t own any, I’ll feel pretty stupid. I’m just watching them. Why I even wrote about them is a good question, but it’s part of that social movement thing.


Dan Ferris:                 Yeah, so let’s talk about the social movement thing. I've got to tell you, Dave, the stuff that you wrote in your year in review on climate change and the Epstein affair, it kind of made me sort of push my chair back. I was like, whoa.


Especially with the Epstein thing, I see headlines and I haven’t thought about it at all. I see tweets and headlines, but you connect so many dots. I feel you’ve gotten your hooks into me actually on both these topics. On climate change, I’ve resisted and resisted and resisted and resisted, and really, there I continue to resist because people ask me about this now and I say I’m a climate denier. I deny you know jack-diddly-squat about it.


David Collum:            Well, that’s exactly right, actually.


Dan Ferris:                 Yeah. Who knows what this is going to look like in 10, 20, 50 years? No one. How can they?


David Collum:            For your listeners, I was one of the only people I knew who was openly agnostic, and people would ask me about it and I would just say, "Look, I probably put in 10,000 hours which gives me some right to bitch about the Fed, right?" I don’t know the Fed the way anyone on Wall Street or in Chicago understands the Fed maybe, but I put in enough hours that I get a seat at the table.


I had not put in the hours for climate change, and so when people would ask me I’d say, “Look, it’s probably true, but I just don’t know, so you shouldn’t take my opinion seriously at all.” I started to get baited by my brother and by another guy saying, “What’s the evidence it’s true? I don’t think it’s true.” So I would throw back arguments and they were the standard arguments... like every scientist seems to believe it, and this and that, and they would counter it. I finally got baited into digging in.


What you find is that the climate change story is really, I can’t say whether climate change is a serious problem or a minor problem or even a problem. What I can tell you is that what we’re told and if we’re not paying attention, there is a serious number of lies in the story. When I start getting lied to... when I start detecting the lies is when my antennas shoot up. And so, there’s a whole series of things that I go through, and I don’t think any of them condemns the model of climate change, but it reminds me of the social movements of today.


I come from the right and they have their limitations, and there’s people from the left. What’s been stunning to me the last couple years is how I don’t think the right has changed that much, but the left has developed this “at any cost” model, by any mechanism, by any means we’ve got get this, we’ve got to achieve that, and climate change has picked up that feeling.


And so, when I start finding lies – so for example, you hear 97% of the climate scientists say it’s a serious problem... that’s a lie it turns out. It’s not even close to true. It’s a seriously fabricated poll and I wouldn’t have known it. And then they say no one famous, no prominent scientist, no scientist of any chops doesn’t believe in climate change being a serious problem, and you dig in and you discover that there’s scientists with incredible repute who say it’s crap.


I mean, not just that you’re not quite sure about the magnitude. That would be fine. That’s what scientists are supposed to do. They’re supposed to doubt themselves and check their data and constantly revise their models. That would not catch my attention. That’s life. But these are serious players like Freeman Dyson from Princeton and Will Happer from Princeton and Howard Windsor from MIT, who was former head of the National Academy of Sciences and Stanford physicist, saying that it’s baloney.


They’re saying the science is shoddy. There’s fraud everywhere, right? You start to read this and you go, “Boy, I’d better be more careful here.” So I dug into it and I just kept finding lies, and I didn’t find the deniers lying. I found the climate change crowd lying. They’ve got this attitude that if they fess up to anything, they’ll lose the narrative, and so they lie. That’s a problem, and they’re not cleaning up their own messes.


I think there’s probably some phenomenal climate scientists who really get it, who really understand how hard the problem is to understand and really understand how ignorant they are and are struggling like crazy to figure it out, but they’re buried. They also – by the way – if they stand up and deny, their careers can be destroyed, and that’s happening with some regularity. If you’re a climate scientist, if you find something that doesn’t square up with the narrative you just shut your mouth, and that seems to be a serious problem.


So yeah, I wrote about climate. I’ve had a lot of hate mail, a lot of people saying, “You’re ignoring the entire scientific community/” I go, “Yeah, when it’s this politicized.” There’s $600 billion a year spent on climate change, $600 billion if you add up all the companies, all the wind companies, all the solar companies, all the federal dollars being spent, $600 billion a year, and if climate change turns into a dud, that goes away.


So what are the odds climate change is going to be declared a dud by the group collecting $600 billion a year? The answer is none. Zero. So it’s not about Exxon buying off the deniers. It’s about the entire global climate change industry buying off the changers.


Dan Ferris:                 That certainly sounds reasonable, but Dave, Dave, aren’t those doubters and deniers – aren’t they in the pockets of big oil?


David Collum:            No. I’ve asked for evidence. I’ve asked changers to give me evidence and send me stuff, and it’s not good evidence. There’s a demographic to the deniers which is inescapable and I’m in it. The deniers are a bunch of old white men. The reason it’s white is because old scientists are white guys, right? The weren’t a lot of women back when they were in their infancy. The oldness is the part – these are guys who got nothing to lose.


These are the smart guys who are looking at it, saying, “Look, you can’t even fire me now.” So they’re out there. They’re carrying the standard into battle. There’s a lot of Nobel Prize winners out there who are carrying the standard into battle. I don’t know if they’re right or wrong, but I find the denier case to be pretty compelling, and I find the science in which they make all these adjustments for things to be pretty shabby.


That’s the kind of stuff where I go, boy, that doesn’t really pass the science in my world. It’s way too loose. I’ve gotten in battles with activists and they say, “Read this.” I read it and I go, “It’s crap.” One time I got into it with this woman who thought she knew everything. She pointed me to some document and I said, “Figure 2 looks like a fabrication to me.”


She says, “Why would you say that?” and I pointed out why, and she said, “Well, you have to read the primary literature.” I went to the primary literature and I found the lie. I found how they had morphed the primary literature into a more palatable narrative for the document she sent me.


Dan Ferris:                 Well, Dave, the shot heard ‘round the world on this is a fake, right? Michael Mann?


David Collum:            Oh, yeah. Mann just lost _____ _____. He’s a disaster. Now, he could’ve polluted the system and had other people going, “Oh my god, I can’t believe he did that,” right? So if all of a sudden there was a big scandal in chemistry, doesn’t mean all the chemists are bad. The problem is, Michael Mann’s hockey stick showing temperature spikes was such a fraud, best I can tell, and it was taken down with prejudice, and the problem is the climate change community still cites these things.


If the climate change community said, “You’re right. That’s crap” and there’s a number of things like those surveys. If they denounce those I’d say, OK, they’re cleaning up their own mess. They’re not doing it. They circle the wagons. So I have to be knocked off the stand. Someone is going to have to show me something.


Some guy came out this year and published a paper and got a lot of press. Now the climate change models have all way overestimated the rise in the temperature over the last 30 years. They developed the models and they said the temperature is going to do this, and it didn’t. The principal investigator of NASA’s satellite monitoring system said it isn’t moving. The temperature is not moving.


One of the guys did a deep dive on climate events back to 1900 –  hurricanes, twisters, the type of things that make headlines so you can track them. He says there’s no statistical increase in bad weather events over the last 100 years, right? And yet, they still pull this garbage out. So I go, OK, you guys.


I went to a debate with one of my colleagues and some climate denier, and my colleague who shall remain nameless, but he’s supposed to be a smart guy, I caught him lying several times, and afterwards I told him where he was wrong. You could see he wasn’t ready for it. He didn’t say, “No, Dave, this is the part you’re missing.” He just hunkered down. It’s just inexcusable. It’s scientific fraud.


Dan Ferris:                 Yeah. That’s not science. That’s my problem is that you’re not supposed to defend. You’re supposed to want to know if you’re wrong, and you’re not supposed to lean heavy on that phony consensus either.


David Collum:            So my call out to the climate scientists who are listeners who are believers is call out the hooligans, right? If you ignore them, if someone wants to say, “I’m out there doing this” I’ll say, “OK. Show me the tweet. Show me the article you wrote talking about Michael Mann’s fraud.


Show me the tweet where you call out Greta Thunberg and say, “This is stupid. We shouldn’t have a 16-year-old as the voice of climate change.” 16-year-olds are euthanizable people, and they’ve got this 16-year-old giving talks to the United Nations. I bet you I could beat her in a debate and I don’t know squat.


Dan Ferris:                 Well, she hasn’t really said anything. She’s just said a lot of blathery kind of –


David Collum:            What a shock, a 16-year-old girl sneering at adults. How rare is that?


Dan Ferris:                 I know. No one with teenagers is paying attention to that, right? Should be. All right, well, I think I’ve pissed off enough listeners now, so we can probably move on to the Epstein thing, which I have to say, when I read your stuff on Epstein, it’s a rate hole. You’ll get lost down there and you’ll never come back.


It’s extraordinarily deep and wide, and what I mean by that just so everybody is clear, is that the connections among all the famous people who are potentially involved in this in any number of ways, by the way, it’s like you could just name celebrities at random and you’ll probably hit on somebody who’s involved in this after a short while. What enticed you to do this?


David Collum:            Well, because what happened was I was kind of watching it with curiosity. Every year in review I do, if there’s something that catches my eye where I think the media is missing the story and I can bring something to it, that’s what I like to write about. I started picking up on the Epstein threads that went way, way back. I never know how much listeners and people already know, but if you look at Epstein, he starts his young adulthood without a bachelor’s degree, right?


I’m a big fan of not emphasizing degrees, but that’s not a big start, and he gets a job teaching at an elite private school teaching math without a degree. That doesn’t happen. The guy who hired him is Bill Barr, the attorney general’s father, and then the story unravels very quickly where you discover that Epstein’s ties to intelligence agencies are enormous. At this point, I believe it’s 99% sure, and the only reason I don’t stay 100 is because I know statistics, but 99% confident that Epstein has been tied to the intelligence agencies for 40 years, and these ties go back decades before him.


There’s a web of connectivity that leads up to Epstein. There’s a web of connectivity that surrounds Epstein, and this web of connectivity all seems to tie back to the Israeli Mossad, their intelligence agency, although I think possibly MI5 and CIA are involved, too, since I think they’re all connected.


But once you start digging into that stuff, and people have been writing about this for decades, Epstein’s connections to intelligence. His right-hand person Ghislaine Maxwell – who I nicknamed “Ghis” for obvious reasons – her father is the most famous Israeli spy of all time. There’s been books written about him as a spy.


So he disappears off a boat. Next thing you know, she’s Epstein’s right-hand person. She’s rounding up these people and they’re taking them on these junkets and then he gets convicted of pedophilia, basically. He gets house arrest. The case gets sealed. Nothing makes sense. This is all back in 2005.


Next thing you know, famous people who should be disowning him, if someone says to me, “Dave, you got convicted of pedophilia, I can’t hang around with you anymore” I’d say, “I get it.” Well, his connections never broke down. Next thing you know, he’s throwing parties with Stephanopoulos and Barbara Walters and all these elite journalists and hanging around with MIT and Harvard mucky-mucks and earning $1 billion on Wall Street, yet no one ever knew him. No one on Wall Street knew the guy who had rounded up $1 billion as a money manager.


And next thing you know, Leslie – I can’t remember his last name now – Seagram’s, of Seagram’s fame, he gave Epstein a $100 million condo in New York City that basically is being used as a brothel. And so, what appears to be the case is that Epstein’s ties to the Mossad was to just tie powerful people and when possible entrap them in dubious behavior. It’s no shock that Clinton was super-close to Epstein because we know he’s a total perv, and everyone shakes that off.


Wait a minute, let me get this right. The former President is accused of having sex with underaged girls many, many times and we just shake that off because, “Oh, that’s Bill.” Then we find out Kevin Spacey – there’s a good one – Kevin Spacey is accused of bad things and Epstein’s ties with Spacey, an undeniable picture of Clinton, Epstein, and Spacey together on one of the junkets, right? Next thing you know, Spacey is being sued by four people – one ducks out and three die. That’s a problem.

Pictures of Epstein with Harvey Weinstein. I think there’s a big pedophile ring of elite, powerful people. Not all elite, powerful people are pedophiles, but I’ll tell you, if you’re a pedophile and you’ve got money, this is the crowd. I think this has been going on, and I think they’re happy to have us talk about whether Epstein killed himself or got murdered. They’re happy to talk about all that stuff. What they do not want to talk about is the enormous web of people connected to him, because if that unravels, they have a big problem.

It’s like, remember the Panama papers? Remember when someone hacked the lot and every major person in the world had an account in the Cayman Islands. They wrapped that up in about two days. That went away. Period. QED. And the reason is because the group of people in charge of challenging such bad behavior are the ones with the Cayman accounts. The people in charge of challenging the Epstein story were riding his junket, and if they weren’t, someone else was that they knew, and they’ve gotten their phone call saying, “Don’t touch this.”

The Epstein story I think is the biggest scandal in American history, but they will put it away. I can’t put the whole thing together. As you said, you go in there and you get so deep and it gets so convoluted, but there’s books being written. They’ve already been written. If someone wants to dig into it, the books will have it there, and thousands of copies will be sold, and no one will care.

We will not see anyone go to court. There will be no discovery. I’m confident there’s hundreds if not thousands of people who should be doing long prison terms, but it’s the most powerful people in the world. Let’s say Putin was a pedophile. Who’s going to charge him? NO one.


Dan Ferris:                 OK, so Dave Collum, I must ask you the question now that we’ve talked about climate change and we’ve been a little bit critical of the financial system, and now we’ve gone down the Epstein rathole. Dave Collum, are you a conspiracy theorist?


David Collum:            Totally.


Dan Ferris:                 Totally? Unabashedly?


David Collum:            Unabashedly. I did a tweet one night that told me something that was rather surprising. You know Twitter, right? I put out a tweet one night. I was just pondering something and I said, "Look, every year I announce that I’m a conspiracy theorist because I believe that men and women of wealth and power conspire. Our job is to figure out when and why and to try to uncover it, right?

"Hillary trades uranium to the Russians, right? That seems to be undeniable, but nothing happens, but it’s still nice to know that the Syrian chlorine attacks were a total farce. That got debunked in real time in 2018 and we’re just hearing articles now saying it might not have been true." Twitter tore that thing apart.

So one night I posted a tweet that said I’m a conspiracy theorist. I believe that men and women of wealth and power conspire. I said if you don’t, you’re what’s called an idiot, and if you do but won’t speak up, you’re what’s called a coward. I got 6,700 likes. You know what that told me? That told me that there’s a lot of people out there that don’t have a soapbox who are saying, “You’re talking to me. I get it.”

There’s so many people with their ten followers who would love to be able to stand up and announce to the world that this is all a load of hooey, right? But they don’t have them out. That number of likes, that virality of that tweet was people saying, “I am getting tired of this garbage.” And so, yes, if you don’t think men and women of wealth and power conspire, you really are a complete idiot, and if you use the term “conspiracy theorist” as a pejorative term, or if you say, “Oh, I’m not a conspiracy theorist, but...” Then  you’re a coward.

You really are a coward. Stop doing that. Just say, “Look, I do believe there are conspiracies. I don’t believe in all of them. Here’s one that bothers me.” That’s fine. If you don’t want to believe in _____ _____ aliens, I’m right there with you. I don’t think those guys came across the galaxies to leave crop circles and go home, right?

But I do believe that bad things happen, and I believe that they don’t tell us stuff. I think every military operation is loaded with lies, right? The lying starts immediately on that. Those aren’t even conspiracies. Those are just military tactics. So yeah, I’m a conspiracy theorist, unabashedly, and if someone wants to tell me I’m an idiot then yeah, I’ll smack them, I don’t care.


Dan Ferris:                 You raise an interesting point about the term, though, that I’m just rolling over in my head here. You got 6,700 likes, and I bet most people will say exactly what you said. They’ll say, “I’m not a conspiracy theorist, but...” I bet there are a lot of, “I’m not a conspiracy theorist but”s out there.


David Collum:            Oh, there’s a ton. The thing I have that people don’t have is the willingness to take that kind of a beating. The other thing I have that’s interesting has to do with my chemistry background. I went into a field that was very complicated. No one thought you could figure it out. It was kind of this swamp. What I discovered over the years, over 40 years of studying this stuff, was that nothing we were told turned out to be correct. These are people trying to get it right.

What that gives me is this belief that experts can be just wrong. How many people can look at the Federal Reserve and say, “I think those guys are actual idiots”? It takes a certain kind of audacity to be able to draw that conclusion because you always defer to authority, but I somehow have this "I don’t believe it." I can look at an entire climate science community of thousands and say, “I think you guys are all in some big-ass echo chamber, and the ones who get it are not speaking up.”

So that’s the difference between me, and I can entertain conspiracy theories. I’m not ashamed. I’m not worried someone will think less of me. It doesn’t faze me, and most people it does.


Dan Ferris:                 Dave, have you faced real repercussions? You’re a Cornell chemist. That’s serious business. Have you faced real repercussions in the workplace with this?


David Collum:            Well, we should’ve had this podcast at 4:00, because I’m meeting with the dean at 1:30. I think it’ll be just a _____ _____ _____, but it could be different. I have not. I actually take my hat off to Cornell. Cornell is been very good. I’ve spilled a lot of blood over the decades for Cornell. By example, I’ve served in all sorts of positions. I was director of undergraduate studies, director of graduate studies, associate chair, chair of the chemistry department, so a lot of heavy lifting there.

Twice a multimillion-dollar unionization effort to unionize all the grad students, which would be a disaster for a university in my opinion, twice they showed up – first time the UAW, second time the American Federation of Teachers. The first time I played a major role, but they just lost on the ideas. The second time was just a couple years ago, and I literally was the only one fighting the American Federation of Teachers, best I can tell. Me and one dean who was sort of designated point person for the university.

But I was on speed dial with the university council. I was on speed dial with anyone who was involved in this, and I’m not overstating the case. I singlehandedly beat the American Federation of Teachers by picking a fight, and much to my utter shock they bought it. They took the bait. Then we had a fight, and they were about to win big, and the last minute I picked a fight, and it blew up. I was able to get the ideas out in the public eye, but it was literally one man doing it, and then we won. By out of 2,300 votes, we won by something like 60 votes.

And then Cornell of course was happy as a clam, right? There was no emails. We’re smart enough for that, but there was plenty of phone calls. I was on speed-dial to the provost, right? I was the designated fighter like in a hockey game. So then what happened is about a month later when I thought all was done, they did a smear campaign against me. A couple of angry activists went through my Twitter feed. Can you imagine what they could pull off my Twitter feed, Dan? You know what’s on that thing. It’s nothing but pandemonium.

And they wrote an article for the school newspaper and they denounced me, and I thought they got me, but then one of my law colleagues wrote a counterattack about two days later, and he obliterated them. He destroyed them, and then it hit national news and ended up on the Lars Larson Show and ended up in The Federalist getting written up and in the Washington Examiner and Mark Levine picked up on it, “Cornell conservative professor attacked for his views on unionization.”

Next thing you know, I think they were lawyering up. So Cornell knows I did all this. I’ve coached two sports here. My resume at Cornell is pretty bulletproof, and I think Cornell is very pro-free-speech. I’ll find out at 1:30. It would be hard to fire a tenured professor, too. They would not want discovery. I personally know billionaires who are alums at Cornell. I really could do damage if I wanted to. I don’t want to.

I love this place. I was an undergrad here. My wife is Candace Cornell. She’s the great-granddaughter of Ezra. I have such profound loyalty to this place. But if they picked a fight, f**k, I’ll go at bat. I’ll take them on. But they won’t because the provost is a phenomenal person.


Dan Ferris:                 Well, you sound like a lucky man. You’re in a good spot. So I think we’ve just about come to the end of our time here, Dave, and I have a standard way that I end these interviews, and I’d like to throw it at you. I think it’s going to be really hard in your case because what I like to do is ask my guests if there’s one thought they could leave our listeners with, what would it be? You have a lot of thoughts. Is there one idea that you’d want to leave our listeners with or no?


David Collum:            For the investors, look at valuations, and don’t be deceived by them. I posted 20 metrics last year, not this year, last year, showing that the markets are two-times overvalued. That never works. That never, ever, ever works. So I see a 50% correction ahead of us, which would not be irrational at all, but it will cause huge damage, which means therefore the next recession in my opinion is going to be a very mean recession. If it’s not, my worldview will have been shattered.

The next recession is going to be mean both because of the precipitous drop in value of assets, but because everyone is so mad, and so everyone who lost their job is going to lose it again and they’re going to be so mad at the banks. They’re going to be so mad at the politicians. I think the next recession is going to have social implications, which is in part why this year’s review was taken over by a lot of social issues. So be careful. My advice is be very careful.


Dan Ferris:                 OK, Dave. Where’s the easiest spot on the internet to find the "Year in Review"?


David Collum:            The easiest spot is to go to my Twitter feed. Well first of all, if you search my name "David B. Collum" and you search “Year in Review” you’ll hit all sorts of links to it. You go to Twitter, I’m @DavidBCollum, and I leave my "Year in Review" as the linked tweet, so it’s the top tweet, the pinned tweet. So they can find it there.

They can find it over at Peak Prosperity, but it’s now embedded. A good Google will find it, Twitter, top pinned tweet will find it. You can send me an email if you want. If you’re a climate changer, go ahead and send me an email. I’ve gotten enough of them.


Dan Ferris:                 All right. Excellent. Thank you so much, Dave. I really appreciate your time. I feel like we could talk to you for a couple hours because it’s unusual to find somebody who’s done a lot of digging on a lot of different topics, so maybe you’ll come back and talk to us again?


David Collum:            Any time you want. I can talk to myself for two hours.


Dan Ferris:                 Very good. Thanks a lot, Dave, and we’ll talk to you soon.


David Collum:            You bet. Bye.


Dan Ferris:                 Bye-bye. OK. Wow, that was really great, and I hope that you guys do definitely read the "Year in Review." It’s a serious read, and he does this every year. This is not just anybody. You heard his credentials, right? He’s a serious scientist. What a serious scientist has to say about things like share buybacks and the Fed and the Fed’s repo program and modern monetary theory is interesting, and I definitely highly recommend it, and he’s a nice guy.


Time for the mailbag. OK, it’s time for the mailbag. This is where you and I get to have an honest conversation about investing. You write in to [email protected] with comments, questions, and politely-worded criticisms, and I do my best to tell you what I think, and then maybe you write back and tell me what you think, and we go round and round and hopefully we help each other become better investors. Once again, that’s [email protected]


Good stuff in the mailbag this week. First one is from Jim M., and Jim M. says, “Dear Mr. Ferris, thank you again for the incredibly informative podcasts. In episode 140, Mr. Raoul Pal talked extensively about what will happen to bonds when the Federal Reserve lowers interest rates. Most of my experience with bonds is purchasing single issues, not funds and ETFs. I believe the Federal Reserve will eventually lower interest rates into negative territory similar to other central banks.


My question is what effect will negative interest rates have on bond ETFs such as the TLT and SHY recommended by Mr. Pal? Thank you, Jim M., lifetime Alliance member. P.S. I am so glad that you stood your ground on the climate change challenge from a reader/listener. You hit the nail exactly on the head by stating very succinctly that nobody can know. The global warming issue will eventually pass because people like us reveal that this is a hoax of monumental proportions.”


Jim, I don’t know that it’s 100% hoax, but I know that the tenor of the public debate is extremely poor. The quality of it is extremely low. One of the most important data sets, the Michael Mann hockey stick, is a total fraud. There have been other emails and things that have come to light that show that the so-called scientists behind some of this are outright frauds, and they’re trying to create a specific effect who knows to what end?


But yeah, I just think that a lot of people pretend to know a lot of things they can’t know. I think extrapolating from these data sets in a straight line manner out of something this complex and this dynamic with this many inputs and this open-ended, it’s really irresponsible. Having said that, your other question is what will affect negative rates on bond ETFs such as TLT and SHY?


Negative rates? Those things will soar, man. They’ll soar, period. That’s the answer. They’ll take off like rocket ships. Good question. I like good questions that have easy, direct, simple answers like that.


Next one is from JH, and JH says, “Hi, Dan. Major fan. As a bottom-up value investor who has his hand on the pulse of market valuations, I would love to hear your take on the effect of indexing. Many think that because there are millions coming in each week index funds via 401ks and other retirement accounts, huge market corrections are a thing of the past.


If the market correct itself and drops 15% or so, there are always new buyers for the dip. This theory gains some steam when we saw how fast the 19.6% drop in the last quarter of 2018 made new highs. What say you? JH.”

Well JH, I successfully avoided this topic until now, but I can’t do so anymore. A couple of things. I think one of the problems with indexing is what I would call overrepresentation. So the poster child for overrepresentation is Exxon Mobil which you’ll find in energy funds, value funds, growth funds. I’m not kidding, by the way. It’s in growth funds and value funds. It’s all over the place. It’s in a couple dozen funds, ETFs and other funds, which is ridiculous, right?

Apparently, Exxon Mobil is all things to all people, but what it really is and the reason it’s everywhere is because it’s large and liquid. That’s why it’s there, because funds can buy a bunch of it. Another potential problem that I haven’t researched yet, a potential problem is these things are weighted on market cap, adjusted for the float. Let’s say a fund winds up buying a whole bunch more of something and it becomes actually overrepresented in that fund, right? They buy more than is actually in the index. That could be a problem.

But I think in general, more money goes into these hugely liquid names, and I don’t even care if they buy them in perfect proportion. Lots of money goes into the highly liquid names. Less money goes into the smaller, less-liquid names. So when it all reverses, maybe if the momentum gets going good enough, those big names really dramatically underperform.

Now, I find it difficult to believe that you could really put a dollar of capital and spread it neatly across the whole S&P 500 in proportion to market cap; maybe you can, endlessly, forever, but maybe you can, I don’t know. But it really is an interesting thing that this algorithm is basically receive a dollar of capital, buy a dollar worth of stocks, and that’s it.

So if I suddenly want cash instead of equities, it goes in the opposite direction, and if enough people do that, you can send it in the opposite direction and who knows what will happen? The point there is not even necessarily, as I think aloud right now, is not even necessarily that the index funds create a problem, but they don’t prevent one from happening. I don’t see how they prevent a bear market.

Just because an index fund exists and people are constantly putting money into 401(k) accounts, you know you can sell a 401(k). You can switch funds. You can switch from stocks to cash and to gold stocks to whatever you want.

I was in a gold fund in my 401(k), now I’m in a value fund, and bond funds and stuff. You can switch, and I don’t see how what has been a torrent of capital in a huge move over the last decade from so-called active to so-called passive – I don’t see how it prevents a bear market, but good question.

Steve P. is next, and Steve P. says, “Hi, Dan. Your transition from analyst editor to radio podcast host has been wonderful to observe. Great work.” Thank you, Steve. He continues, “As for the coronavirus, something smells and it ain’t the Pont-l'Évêque." Not sure what that is. “Here’s why. As of February 8, CDC estimates that so far this season there have been at least 26 million flu illnesses, 250,000 hospitalizations, and 14,000 deaths from flu. These numbers reflect what is currently happening during the current flu season in the United States, 14,000 deaths.

Coronavirus numbers in China pale in comparison. Can you imagine what would happen in the U.S. economy if the media went as hysterical with these numbers as they have with the coronavirus in China? As Grant Williams says, things that make you go hmm. Best regards, paid up Stansberry subscriber Steve P.”

Here’s the thing, Steve, the numbers that you’ve presented, the mortality rate is 0.05%, half of a tenth of a percent. Coronavirus in China is 2.1%. So if regular flu had a 2.1% mortality rate, it would be over a half-million deaths from regular flu, and you darn well better believe that would make the news and send some people into a panic, and it probably should, right? So that’s the thing.

If this thing gets as big as the regular flu, holy heck that’s a lot of people dying from the flu, and that’s the problem. We don’t know. We don’t know what the tail risk is here. We don’t know the size of it. If it gets really out of hand and 2% of tens of millions of people die, that’s really bad. So there’s a reason to be concerned. I don’t know if there’s a reason to panic unless you live in Wuhan, China or something, but there’s a reason to be concerned.

All these countries stimulating their economy, and Apple, one of the biggest companies in the world saying, “Hey, this is going to blow our revenue projection for the current quarter,” that ain’t nothing. But it’s a good question, though, and it should be asked, and I think that’s the answer. Different mortality rate.

OK, what do we have, one more of these from Art S.? Art S. says, “Dan, again, your podcast is one of the best.” Thank you. “My comment is an observation. The U.S. will not have an economic recession again because the Federal Reserve will always use interest rates to avoid one. Of course, minor recessions will occur in specific industries, retail, manufacturing, entertainment. Just a thought from my perspective. Thanks, and keep up the great work on the podcast, Art S.”

Art, I doubt it. I don’t think they have nearly as much control over the economy as they think. I don’t think this will happen at all. Japan’s been experimenting with this type of thing for a long time and can’t seem to move the needle. If Europe couldn’t move the needle with negative interest rates, you've got to wonder what does it take, and is there anything that can move the needle?

So I doubt it. I doubt that this is correct. We will have a recession again. It’s never different this time. Cycles matter. They’re as close to the force of gravity as you can get. They don’t show up when you want them to or when you think they will. You never want them to. But they happen. They have happened and will happen. This type of thing encourages speculation. It encourages mass misallocation of capital, and those chickens always come home to roost. I hope you’re not invested with a view toward thinking there will never be a recession because the Fed has got your back.

That’s the mistake. That’s my thought experiment that I said earlier with the spike in the drivers, in the steering column versus seatbelts and all the other stuff we have. You think the Fed has got your back, but because you think that, you’re more exposed to risk than if you didn’t think it. And the risk is greater because the Fed is trying to do it. So it all works exactly the opposite of the way it’s supposed to, or the way they allege it does, but it’s a good question and it must be asked, and I thank you for asking it.

That brings us to the end of another episode of the Stansberry Investor Hour. Go to where you can listen to every episode we’ve ever done and where you can get a transcript of every episode we’ve ever done. To get a transcript, just click on the episode you want, scroll all the way down, and you’ll find the transcript at the bottom of the page.


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