In This Episode

Recording from Las Vegas for the annual Lifetime Stansberry Conference, Dan shares some of the insights he revealed to the most elite members of Stansberry Research, and a book recommendation that’s prompted his newest recommendation he just unveiled in Vegas.

He then gets to the biggest bubble in history, which is giving rise to things like Austria’s 100-year bond unrolled last summer, and explains why this is, in fact, bigger than the tech or housing bubble or any other mania we’ve seen.

In a week where Bloomberg is proclaiming that inflation is dead, and headlines show almost no one seems worried by the once-unthinkable insanities and perversions of capitalism, you’ll want to keep an eye on what Dan’s calling our “1998 moment.”


Featured Guests

Dan Ferris
Dan Ferris
Editor, Extreme Value
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Episode Extras

NOTES & LINKS    

  • Rewatch the Stansberry Vegas Conferenceclick here  
  • To follow Dan’s most recent work at Extreme Value, click here.

SHOW HIGHLIGHTS

01:26: Dan reveals the biggest bubble in perhaps all of history – “bigger than the housing bubble, bigger than the dot.com bubble.”

03:17: Dan describes what’s really going on with new specimens like the 100-year bond, and the “mad scramble for yield” going on in the world today.

08:31: As bond-issuers seemingly race to see who can make holders pay the most for issuing them money, Dan covers the “genuine moment of sheer insanity.”

09:25: Dan shares a tip that negative rates might bring about the collapse of the financial system – the fact that Mario Draghi, unprompted, is saying that they won’t.

12:06: The old ben Graham/Warren Buffett approach to market analysis makes sense of today’s markets, and as Dan points out, it shows we’re in “rarified territory.”

15:45: The frenzy in index funds is leading to a “1998 moment” in Dan’s view – and the biggest warning sign could be that no one is worried.

22:36: Dan will never try to call the exact top – but here’s why he can and will identify the risk of the moment.

28:36:  WeWork’s implosion told Dan something about the bond market. “You won’t hear me calling any tops… I’m just weighing the risks.”

33:04: Dan gets to his book recommendation, How We learn, by Benedict Carey, and its lessons for turbo-chargering your process of mastering anything.

39:02: Dan K. wants to know about the new format for Stansberry investor Hour, and our host explains what may be next for the podcast.


Transcript

Hello and welcome to the Stansberry Investor Hour. I’m your host Dan Ferris. I’m also the editor of Extreme Value, a value-investing service published by Stansberry Research. This week I’m in Las Vegas at the annual Stansberry Conference having a good time. And today I’ll tell you some of what I told the folks this week during my presentation, and I’m also going to throw a book recommendation your way later on in the program, which I kind of forgot to do on stage, so you’ll be the first to hear that one. And right now, let’s talk about the stuff I’ve been talking about all week here in Las Vegas. So for the past three years, my message has been pretty consistent, and you’ll recognize some pieces of it. I’ve got some new stuff to add to it, but the overall message I think you will recognize in many cases. But I got some really cool stuff.

First of all, the very first thing I want to talk to anybody about these days is of course the biggest bubble in history, bigger than the dotcom bubble, bigger than the housing bubble, and that is the bond market, the global bond market. Of course, we’re right around 15 trillion of negative yielding sovereign debt in the world. The biggest chunk of that is Japanese government bonds, and then the rest are all European bonds. And it’s just to think that people are approaching these sovereign debt instruments, which are supposed to be the safest stuff in the world with the same fervor as they were buying dotcom stocks in 1999 and 2000 is a little insane. Turning the safe instruments into toxic waste it is the most insane moment certainly of my career in financial markets. So what do you buy when you can’t buy the safe sovereign debt? Well, the bond fund managers are buying that stuff because they’re having the greatest year of their life. And they’re also buying, if you can’t get positive yield on a 50-year bond, what do you buy? You buy the 100-yield bond yielding 1%.

Austria came out with a 100-year bond this summer that yields 1%. And 1% for 100 years, who could resist, right? The proposition is irresistibly sexy. And of course, this summer Bloomberg came out with a piece that said, “Century bonds having a moment, as JPMorgan and other asset managers load up with this stuff.” And they pointed out that the century bonds, the 100-year bonds, have returned almost double the emerging market benchmark, right. So what’s happening there is it’s a classic scramble for yield while these guys are having this career-making year and they need to buy something with a positive spread over like the benchmark, the emerging-market benchmarks. And so they’re just going nuts. It’s a classic yield grab, right. Reaching for yield is something you’ll hear – I bet you every Stansberry analyst has used the phrase reaching for yield to identify one of the biggest mistakes you could ever make in your life with real money.

And this century bond article that came out in what was it July, it contained this sentence that was crazy. These people are scrambling for yield. They’re buying the stuff that yields 1% for 100 years, and this sentence blew me away. It said that managers acknowledged they would get slaughtered if the Fed shocks markets by not lowering borrowing costs. So hey, it’s supposed to be the safest thing to yield, but it’s more like a dotcom stock. And if the central banks don’t cooperate, we’ll get slaughtered but I’m going to get the biggest bonus ever if this works out as of December 31. That is the state of things in the bond market. And of course, we’ve also talked about corporate debt with negative yields, right. So you have a whole country that can print its own currency, issuing bonds in its own currency, and those are negative yielding. But then when a corporation, all that’s behind that is the corporation, its earnings and ability to pay its bills and if something bad happens to the business they can’t print their own money the way a country can. So who would buy a negative-yielding corporate debt instruments, I’m not really sure.

And then of course I covered this in the What’s New segment we used to do. Remember the story about the subzero European junk bonds. There were 14 companies this summer with subzero yields in junk bonds. So you buy junk bonds because they yield more than other stuff because they’re riskier, and now they yield nothing. You pay to own them, same as with all this other stuff. But they’re not anywhere like safe. They’re not investment-grade corporates; they’re not sovereigns. They’re junk, that’s why they call them that. Insane. But the one that really caught my eye, for some reason it kind of tickled my funny bone, was this story in August of a bank called Berlin Hyp, spelt H-Y-P; a real estate and mortgage bank in Berlin. And The Financial Times headline says, “Berlin Hyp sells one billion Euro mortgage bond at record-negative yield.” Record-negative yield, the most negative yield. And in the story in The Financial Times I was gobsmacked by the proximity of the words considered particularly safe to the words subzero yield lowest in history.

And they said that the bonds are backed by both the issuer and pools of residential and commercial mortgages. Check, good. Considered particularly safe, got it. But you’re guaranteed to lose money. Now normally when things are safe and backed by the issuer, and it’s a good issuer like this bank, and they’re backed by solid residential and commercial mortgages, what they’re telling you is that you’re highly likely not to lose any money; you’re highly likely to make money owning this thing. But here the guarantee is you are absolutely definitely going to lose money if you buy this bond. It’s bizarre; we’re in bizarre’O world land. It’s true insanity, and yet of course what did the article say? It said, “Berlin Hyp said it received such strong demand for the debt that it was able to make the bond offering a jumbo above one billion Euro total for the first time in six years.”

So you can picture this, right? Two guys running this Berlin mortgage bank, Fritz and Otto, Friday afternoon spit-balling ideas, breaking out the Schnapps maybe, lighting up a cigar. And Fritz is like, “You know, Otto, we have to do something. We have to get a deal into the bond market you know, something big, something crazy big. This negative-yielding scam is the biggest scam in the history of scams, and I want a piece of the action. You know what I’m saying?” “Yeah, Fritz, I know what you’re saying. What do you have in mind?” “Well, I’m thinking like a billion Euro you know, something huge.” “Yeah, yeah, sounds good. What do you think for the pricing?” “I’m thinking for the pricing we stick it to them good and hard, you know what I’m saying? Maybe we go five-, 60 negative basis points. You know what I’m saying?” And it’s like that, isn’t it? It’s like a manhood-measuring contest in the bond market. Who can go most negative? Who can make bond holders pay the most to lend them money? Genuine moment of sheer insanity.

And there’s no technical – sure, there are reasons why people are holding these things and buying them, partly because they keep going up. The yields keep going negative and the bond fund managers are doing great, and they have assets to allocate and want to get a bonus. But there is no secret technical – you’re not missing anything, in other words. It really is that crazy; it’s as crazy as it looks. And one Bloomberg article said, “Paying a company to lend to it for two to five years is preferable to accepting below-zero yields on German government debt for three decades,” right. And that was a German bond fund manager. That’s the mentality; that’s what they’re doing. And I couldn’t help sharing a tweet from maybe a month ago. Mario Draghi says, “Negative rates will not provoke the collapse of the financial system.” Well who brought up the collapse of the financial system? I didn’t say anything about that. Did you? This is a classic signal. It’s like when a country says, “We will not devalue the currency.” Get the hell out, they’re going to devaluate the currency, right?

So what he’s really saying is when negative rates lead to the collapse of the financial system, don’t blame it on us; that’s how you parch that statement. And of course, we also heard over the summer, didn’t we, all the discussion about how the U.S. is next. All the sovereign debt in the U.S. is still positive yielding. You get paid to lend money to the U.S. government still. But the expectation is that this won’t always be the case, that our yields will go negative as well. I don't know; I really don’t. Frankly, I think the likely future course of interest rates resembles a Jackson Pollock painting you know; it’s just scribbles and lines on the wall. Who knows where it’ll wind up, but it’s insane. And of course, it’s no surprise to you that when I got to talking to you about stocks, you know they’re enormously expensive. Earlier this year we saw that wonderful picture that went around the internet of the line of 200 people to get to the top of Mount Everest. I mean what a metaphor for the stock market, right? It’s crowded at the top.

And this guy, Peter Hackett, clinical professor University of Colorado School of Medicine, Department of Pulmonary Sciences, so he knows what he’s talking about. He said, “You’re slowly dying above 18,000 feet. But when you get above 26,000 feet, you start dying much more quickly.” So that’s probably the conversation at the top of Mount Everest: “Excuse me, you appear to be dying a little more slowly than me. I think I’m dying faster than you. Can I get in front of you?” And that’s what it’s like when you’re paying more than two-times sales for the S&P 500. This has only happened one other time at the top of the dotcom bubble; that’s when stocks were this expensive before. Two-times sales, and the price-to-sales ratio in the S&P 500, it’s a better determinant, or it has been historically, that’s the proper way to say it. Historically, when the S&P 500 has gotten above two-times sales, it’s been a disaster, and when it’s gotten anywhere near there, right?

It’s only been above two times once, but when it’s gotten anywhere near there in the past it’s been a disaster too. And of course people love it, right? That’s when they’re most excited about stocks. They’re lighting money on fire and loving it, and then when it’s below one times sales at the bottom of bear markets, people are too busy changing their underwear five times a day to notice the bargain and take advantage of it. And the other way I think to look at the overall stock market that makes sense is the old Ben Graham/Warren Buffett, stock market capitalization as a percentage of gross domestic product, right. Stock market cap to GDP. And in the United States, that’s pushing up towards 160%, all-time high. It’s like 157, I think right now. I’m just kind of eyeballing the chart; it’s getting close to 160. But just above 150 I mean that’s really insane. It was like under 150 at the top of the dotcom bubble, so we’re in rarified territory here in the stock market, no matter what anyone tells you. All this stuff about as long as interest rates stay low, stocks are cheap, that makes no sense whatsoever.

  1. Also for the last couple years at this event, I have been talking about private equity as kind of a sell signal. That’s where you really tend to see the froth because it’s an exercise in chasing risk to get more return among well-healed investors who can put five, 10, 25 million into a private equity fund. So two years ago in 2017 I threw up a slide of a Financial Times article that said private equity fund raising hits post-crisis high. They raised like 240 billion, a lot of money. And of course they levered up five, six, seven times too, right? And then of course the following year I put up a slide that says, “What would the next thing be?” Well, a record two-and-a-half trillion in mergers announced the first half of 2018; that follows from the headline the previous year. And this year private equity races to spend record two-and-a-half trillion cash piled. Deal making at highest level since lead-up to financial crisis; that’s The Financial Times just recently here.

But the most interesting way of looking at this, and I freely admit I got this off of Twitter and I thought it was slightly brilliant. Now I kind of added to it. I flushed it out more but it was just an idea that somebody kind of threw out. And it turns out, it looks right to me. And the basic idea is the Blackstone is the second-biggest private equity firm in the world, second only to Napollo. And when they find new creative ways to sell their equity, they want to sell into a frenzy, because what is private equity? Well, they buy public companies and then they turn a liquid asset into an illiquid asset that’s leveraged up. So when markets start getting frothy, they need to find a way to sell, so they sell their own shares. So part one of this was that first runup in 1998 during the dotcom bubble you got that runup in summertime right before the Russian crisis hit and long-term capital hit. And at that time, Blackstone sold 7% of itself. It was still a private company; they sold 7% of itself to AIG. Right in that frenzy, and of course the market topped out within two years and it was a huge, huge bear market.

So fast-forward to 2007, right near the top of the housing bubble, that’s when they went public. They sold 12% of the stock to the public. OK, fast-forward to now. And in July they turned from they were a publicly-traded partnership, and most index funds and mutual funds do not like to have these publicly-traded partnership shares in their fund; it’s weird for taxes so they don’t do it. So what’s the frenzy right now that Blackstone wants to sell into? Well, it’s index funds, right? People are gaga for index funds. The S&P 500 has turned into like you know that’s really like the alpha; the outperformance of the index has kind of become the alpha almost. So the extra return above the market – the market is now the extra return above the market; it’s weird. So what did they do? They turned into a regular corporation. They ditched the partnership structure, and that was the headline in DealBook in The New York Times. They said, “Blackstone will ditch partnership structure to draw more investors.” And the switch came on July 1, right before the market fell apart in August. I mean these guys are uncanny, and who knows? Is this like the 1998 moment, are we within less than two years of the big top? I don't know but it wouldn’t surprise me at all.

Maybe I’m reading too much into it, but I will tell you one thing, nobody is worried. All year long I’ve been seeing these headlines and I’ve got all these on slides in front of me; I’ll just read them to you. Like Fox Business: “Is Inflation Really Dead?” CNBC: “Eduard Denny says, ‘I think inflation is dead.’” Bloomberg Business Week, cover of Bloomberg Business Week April 22 edition: “Is Inflation Dead?” Bloomberg in April: “Did capitalism kill inflation?” The age-old boogeyman confounds central bankers and economists. And if you look at the inflation expectation’s ETF, the ticker symbols RINF, it’s way the heck down. And like look at a five or six-year chart maybe; go back to like 2012, 2013. And the thing is just down, down, down. It was well above 40 back then; it’s around 25 now. So definitely the inflation expectation’s ETF not expecting inflation. And yet stuff you want to buy costs more. Rents are up. Healthcare is through the roof. The stock market is way up and the bond market is way up. I mean there’s inflation somewhere, right? But nobody is worried.

If you look at the Merrill Lynch – Bank of America Merrill Lynch has these things called the global financial stress indexes, and there are three of them. There’s the basic index. Then there’s the market index and liquidity index, and they’re all low, low, and low. And the Michigan Consumer Sentiment Indexes, there are three of those and they’re high, high, and high. Now if you look, look at the charts a little bit, maybe the financial stress indexes are kind of curling up a little and maybe the sentiment indexes are curling down a little bit. But frankly, if you look at the history of the volatility of it, it could just be noise; I mean it could just be nothing. And nobody seems worried. So you know I put this slide up that says something in Latin; it says [Speaks Latin phrase]. My Latin pronunciation is nothing. I’m just spit-balling here; I don’t really know what I’m doing. But the reason why I put that up is because I can’t say stickorae because it’s a naughty word. It’s the stuff that hits the fan; it’s the bovine excrement that hits the fan and flies. That’s what I want to remind people of when the financial stress index is low and the consumer sentiment index is high and markets are in the stratosphere, the stock and bond markets are in the stratosphere.

And of course, you know another theme. I look like an idiot doing this to some people, I know, but I have to do it. Owning the best stocks won’t save you. And Rudy Hominstean off of Twitter reminded us of the Silicon Valley Business Journal article March 19, 2000, headline: Firms Market Cap Climbing to One Trillion. It was an article about Cisco Systems, the dotcom darling stock, the no-brainer that everyone thought was the greatest business in the world, and there is no way owning that is ever going to work out poorly. It peaked at 80 bucks. It bottomed out almost 90% below that. The no-brainers are terrible investments. And indeed, the largest market-cap companies in the world they’re called top dogs. And Rob Arnott from Research Affiliates has done really terrific research on this. I mean Research Affiliates, if you go to researchaffiliates.com, you can read some stuff. And make up your own mind about what you think, but they’re a top-notch research firm. I don’t care what anybody says, and everybody says that so it’s not like everybody is not saying it. [Laughs]

But Arnott looked at this stuff and said, “Yeah, the top dogs.” If you have like a global sort of market-cap-weighted-type portfolio like in a big fund and then you sort of just take the top market-cap companies, the top 10, they’re remarkably inconsistent. The decade-by-decade analysis shows that typically only two of the top 10 companies remain among the largest companies 10 years later. Constantly-changing places, because they underperform. Top dogs vanish from the top dogs list because they underperform. The global top dog outpaced the global cap-weighted stock market only 5% of the time in the last 30 years. Arnott says, “It delivered annual shortfall 10.5% per year, roughly equivalent to losing two-thirds of its value.” So it’s like Howard Marks says, you know if everybody already thinks it’s the greatest business in the world, then everybody who’s going to buy it has bought it, and that affects the return going forward.

And so I think you have to have – what have I been telling you that Howard Marks also says? You have to have an imagination. You lack imagination if you can’t imagine Facebook, Amazon, Apple, Netflix, Google seriously underperforming starting right about now. And so there’s a report by a group called Aoris Investment Management. It’s free, Aoris, A-O-R-I-S. You can Google it and it’s called FAANGs: The Sun has Set on their Days of Dominance. I won’t read from the report but it’s good to exercise your imagination. And believe me, I know these are the greatest businesses in the world too; that’s not the point. This is investing. It’s about making money. It’s not about collecting the shiniest objects and having your friends be jealous of you, right? It’s about making money. And when the best business is known by everyone on earth for a decade to be the best business, it tends not to be a great bet anymore.

You can say, “Well, Dan, this is like the third year in a row you’re talking like this, and the markets are going up pretty much the whole time.” I hear you. I do; I hear you. But the excesses are still there, and I’m not calling a top at a particular moment. I’m identifying risk, which I think is extraordinarily more important and doable. Identifying risk is doable. Calling tops not so doable, not worth the effort really at all. So I think one of the signals we’re getting here is from the IPO market, right? And as I’ve said, like diversification and growth IPO market is dead, and WeWork killed it. And I’ve talked about WeWork, so I don’t need to go through. I put up a bunch of slides this week in Vegas, and it’s the same situation that I described in Stansberry Digest, The Daily Digest, and on this program in the past. Basically, if you had a vision, it didn’t matter if you were losing money hand over fist a billion dollars a year. As long as you could show rapid revenue growth and some flowery vision of the world, you could get funding in the venture capital market and go public.

Well, I think the failure of WeWork to go public and the ouster really; I mean he stepped down but he was ousted of the WeWork founder and CEO Adam Neumann. I think this is kind of it’s a very toppy-looking moment to me, and you can see it in the WeWork bond prices. They’re making new lows as I speak to you below 85, and it was – the seven and seven-eighths bond which matures May of 2025 from WeWork, it hit 105 in August, August 15, just a few pennies shy of 105 and now it’s below 85, like that quick. And if you look at a chart, it looks like it’s fallen off a click. Like people are saying, “Wait a minute, this might be a zero.” And I contend, and I told the audience this week in Vegas, that WeWork securities are not appropriate for the portfolios of mammals, reptiles, marine animals, or birds. Who can buy this stuff? Cockroaches. A cockroach can survive a week without a head because they breathe through their body apparently. And the only reason they die is because they can’t drink without a head; they can’t survive without water for a week. So something that can survive a week without a head, it can survive 30 minutes submerged under water, that sucker can buy a WeWork bond. That’s a pretty tough dude; he can take it. But you and I and marine animals, birds, reptiles, we can’t buy them; they’re just not appropriate for other species.

And of course, Masayoshi Son has this vision fund, vision fund, right? Vision and growth is dead, and the vision fund is suffering. They’re going to have to do write-downs because they put money in Uber and Slack, and those guys went public and are way down; you know Uber is way down from their IPO price. WeWork never went public, and the valuation peaked when SoftBank put two billion into it in January. It was 47 billion valuation at that time. And I bet you that even if they wanted to go forward with this thing, they would have trouble getting 10 billion. And SoftBank put in 11 billion, really tragic circumstances there. I mean it’s kind of a typical thing, isn’t it? This guy has all these big homeruns and then he raises a billion dollars and puts it into all this garbage and you know they’re not homeruns; they’re the opposite of their strikeouts you know. And he had plans for a second vision fund, and of course they’re scrapped, right? You can’t do it again. These things are such pristine toppy-looking moments. Maybe I’m too much wanting to call the top secretly, right? Even though I refused to actually do that because I know it’s an exercise in futility. So I’m only human. I’m probably drawn, I’m biased toward my own viewpoint, right?

So it sounds like it’s all bad news. I wouldn’t really say that because I think you can position yourself properly; I think you can diversify adequately. And I think I’ve actually hit on a decent diversification strategy that is really simple, because since May of 2017 I’ve been saying the same thing: Hold plenty of cash, hold gold, and buy value when and where you find it. So cash sort of takes care of you, and in a deflationary situation gold takes care of you in an inflationary or financial-distress kind of situation. And your equity exposure, if you pick it right, base it all the rest of the time. You know I don’t advocate like selling it all and heading out to the hinter lands with gold, guns, and groceries, although I did joke to that effect earlier this week. I don’t really think you should do that. I think you should stick with the same plan: Plenty of cash, plenty of gold, buy value where you find it. And the moment that I’ve been sort of predicting, like two years ago I was determined to be patient and do it right.

Two years ago, I started saying I think there’s going to be a new gold and value coming at some point here, because values underperformed for so long. And I said the same thing again next year. I said not here yet, I’ll let you know. But this year I think it happened starting on September 9, and we’ve discussed it in a previous podcast. And during the month of September, the Russell 1000 value it’s an OK benchmark. It’s not ideal but it’s OK for value indexes versus like the Russell 1000 growth. You know there’s significant outperformance, which it’s about 2%  outperformance, which you get several months of that or a few months of that every year for five or six years. Then you're talking substantial outperformance, right? So it’s only one month and we have seen this action before since about 2016; 2016 was a good year for it. I could’ve made the call then but I really didn’t think it was the right moment, but I do think it’s here now. And part of my greater confidence is in you know WeWork kind of ripping the IPO market a new one and the absurdities in the bond market.

It can always get more absurd and you won’t hear me making an outright prediction or calling tops. You know I’m just trying to kind of weight the risks and figure out what’s the best thing to do. And I never want to be the fanatical gold, guns, and groceries guy. OK. So I think you can buy value stocks. You can do more classic value strategies, which it reduces. To me it reduces to like a screen. I haven’t cared about value screens for many, many years, and we’ve been using some more sophisticated techniques to try to gauge the market’s expectations for a company’s growth versus what our expectations were. And when we found a big discrepancy, we say, “Hey, this is a buy you know.” And we had some good results with that. I think so far Starbucks has been the best one; it was up 80% less than a year after we found it. So I think now I’m starting to do more screening with like enterprise value to EBITDA, price-to-free cash flow. Even P/E ratio I kind of look at that and I’m like there’s a lot of noise in net earnings numbers, so kind of scrap that one.

But I think EBITDA is like the new P/E for basic good old-fashioned value screening. And of course, you get most of it’s garbage, right? You have to do a lot of mining; it’s a mining operation. You take a ton of earth and you sift through it for a gram of gold. But I think there are a lot of grams of gold in there these days, and I think we found one that’s going to be in the next issue of Extreme Value. So you know I’m not trying to sell you Extreme Value; I’m just saying we’re starting along this pathway. I’m assuming that value is kind of back and that money will flow out of those FAANG names and growth-year names as it did in September into the value names, you know on balance, not in a straight line, for the next few to several years I’ll say. And that’s really all I told them, right? The bond market is the biggest bubble ever. Stocks are exorbitantly more expensive than most people really think, in my opinion. And private equity is a weird sell signal.

But of course yes, I’ve been saying things for three years but I think they’ve all intensified and become more concentrated now. And I think it’s time to get a little more cautious, make sure you’re holding gold, make sure you’re holding cash, and buying value where you find it. And that’s the message for this week. I’m going to leave you there, and by all means write into [email protected]; let me know what you think. And let me know in particular if you think that saying this stuff for three years running means I’m wrong, I welcome your questions, comments, and politely-worded criticisms. So and you guys have been really great at honoring that request, and I’ve gotten plenty of criticism but all of it politely worded, like 99.9% of it. So you know let’s talk about this. Write in and let’s talk about it, because you know it’s all an ongoing process, right?

  1. I almost forgot, I promised you a book recommendation, did I not, at the beginning of the program? And the book is called How We Learn: The Surprising Truth About When, Where and Why it Happens. The author is Benedict Carey, C-A-R-E-Y. And Carey is a writer for The New York Times, so the book is really well written and you kind of breeze through it, full of stories and ideas. But I actually have some experience with the principles because I was taught some of them a long time ago when I was studying music in college, and my teacher told me, he said, “You know you’re going to be a music major, I want you to practice like four hours a day. Don’t do it all at once. Break up the practice sessions.” And Carey recommends the same thing in the book, and he presents all kinds of research, which is actually available in other books. There’s a book called Make It Stick that deals with the same topics. There’s another book by Barbara Oakley called A Mind for Numbers that deals with studying math and science using many of the same principles. But I definitely recommend the Carey book more, How We Learn. It’s just an easier read and I think you’ll be inspired. I was inspired to pick up the principles and use them to learn things and change my life and change my routines a little bit to exploit them. And I think you will be too. How We Learn by Benedict Carey, highly recommend it.

All right, now it’s time to get back to this conversation that we have every week in the mailbag. Write into us, [email protected] with questions, comments, and politely-worded criticisms. And I will read every single one of them, including the Russian spam, and I won’t be able to respond to every single one but I’ll read them all and respond to as many as I can, until we become so popular that I get a thousand a day and can’t possibly read them all. But we’re not quite there yet [laughs], OK. I’m going to go through a selection of these. We got a lot of feedback about the change in format, right. We’re doing the interview and mailbag one week, and then we’re doing my rants, monologue, weekly perturbation, whatever you want to call it, and mailbag the next week. And our plan is to go back and forth. I have to tell you, some people like the old format better; some people really like the new one. It’s kind of mixed. We’re going to continue until we see a clear reason to change, to change back or into something that we think is even better.

So the first mailbag item we have this week is from Dan S. And Dan S. says, “Hi, Dan, I love your show and look forward to each weekly episode. You mentioned the shift from growth to value that took place in September. Is there a way to determine which stocks in my portfolio are value stock which may do better in the coming months and years and which are growth stocks? Most of my portfolio is comprised of Stansberry recommendations, and it would be good to know which positions to sell or reduce. By the way, I met you in Baltimore in January in the taping of the Bulls versus Bears Summit. Dan S.” Well, it was good to meet you, Dan, and thank you for writing in. So the perspective here is you know the idea of looking and saying well, which of my stocks are growth and which are value, and I want to sell the growth or reduce the growth. I would simply act like you have to buy them all over again, which you should be doing anyway.

Every now and then you want to take a look at things and say how has this business changed. And I wouldn’t use the top-down idea of the shift from growth to value to just knee-jerk jettison individual names. Remember, every stock you own is a piece of the business. Think about the business; think about whether or not you want to own that business. That would be my advice. I wouldn’t necessarily listen to me saying that and say, “Well, I have to get rid of the growthy stuff.” You have to think about what you own frequently anyway. Just do that and I think you’ll be OK.

  1. So Brendon K. writes in and said – Brendon, I’m sorry, I’m not able to read your whole e-mail. So it was kind of long but you had a question here so I want to get to that, OK? It says, “Dan, I have a question for you in regards to ‘winter coming’. It is said that recession hits when no one sees it coming. Given the uncertainty and now risen talk about the possibilities of an economic downturn, is it more likely the recession doesn’t occur so soon, or have we, economists and the public, finally seen the story that is inverted yield curve, historically-low employment, enough times that we have learned through our failures and have finally taken notice? In many investing books that I’ve read, the mantra has been repeated just when you expect X, the opposite of X occurs. Nevertheless, and at the same time, do you think that the increase in talks about a possible recession will cause a recession or economic slowdown itself? Would love to hear your opinion if you get a chance. Best regards, Brendon K.” Thank you, Brendon.

First of all, first things first, no, I do not think talking about a recession will cause a recession. You can talk all you want but if you still have a job and life is still good, you’re going to spend your money, period, that’s it. And that’s how the economy is measured; it’s measured in spending. People will keep doing it as long as things look good to them. And remember the consumer indexes they’re high and the financial stress indexes are all low, so I don’t think we can talk ourselves into a recession. I think it’s bologna, even though you saw that idea in the press; I thought it was bologna the whole time. OK, now your other question here is a good one; I like it. Right when you expect X and when everybody is talking about it, the opposite occurs. And I think you’re right, I think that’s the right perspective. If you go to Google Trends, which I believe is trends.google.com, you can find out what people are searching for. And in that third sort of middle week of August there when the market was looking really ugly, the search trend shot straight up to the moon on the word "recession," and it’s kind of backed down. But you know you still see people talking about it on the news, so I think it’s still out there and people are still too concerned with it for me to really be concerned with it. I agree with you, I think that’s exactly the way it is. I expected a recession will hit us when we’re not looking for it.

OK, next one is from Dan K. And Dan K. says, “Hello. Big fan of the show. I’m still on the fence with the new format. Let’s see how it plays out. I missed hearing all four segments this week but I’m a fan of being openminded and trust your judgment. Real quick, so hopefully you can read the whole e-mail. With the recent lack of liquidity news in the repo markets, it made me wonder about the money market funds that sit in retirement accounts. A fairly large portion of our family retirement is sitting in a retirement account that doesn’t allow you to truly hold cash but instead a money market fund. What are the impacts and/or risks in today’s age of negative rates, liquidity crunches, and impending credit cycle rolling over? Thanks, Dan K.”

I didn’t want to knee-jerk react to this because the repo market it’s an opaque thing. It’s like this financial utility that happens where companies fund themselves with these repurchase agreements collateralized by bonds. And couple of things I noticed. First of all, when the repo markets overnight shot from two to 2.5% up to 10% and then you know the Fed injected tens of billions of liquidity to help out with it. There was an absolute avalanche of people on Twitter and in the press saying, “Oh, it’s not a big deal.” I found that suspicious. And the smartest thing I’ve heard said about this is here’s this behind-the-scenes little financial utility thing that happens and nobody even thinks about and it’s opaque, and you know the interest rate quadruples overnight. That could be a problem. All of a sudden you’re hearing about this thing you’re never supposed to hear about because it’s so plain vanilla, meaningless, boring. That’s all I’m going to say about it right now. I need to think about it some more and think about your question, but with any money market fund, get the ticker symbol. Get the information from the fund company, and find out what’s in it because money market encompasses a wide array of instruments. And repos can be in there, and there’s a lot of other stuff that can be in there. So just do some homework, and I’m going to leave you with that, Dan. I hope that’s a good enough answer. If it’s not, write back in and we’ll talk more about it.

  1. So, Bill H., you wrote me a nice thoughtful, long e-mail, and I’m telling you, Bill, I’m going to read one sentence and I thank you for it. You said, “In my opinion, Greta Thunberg,” – who I criticized, the 16-year-old environmental activist that addressed the United Nations a little while ago and I thought it was just over the top. Bill H. says, “In my opinion, Greta needs to be treated as your favorite singer, song writer, or poet rather than compared to a chemist teaching at a prestigious university.” Bill H., you nailed it; you’re absolutely right. I took myself too seriously about Greta, and I think because of that readers reacted and they took themselves too seriously and criticized me a little sharply. And one reader said, “You called her an idiot, and that’s wrong.” If I called Greta an idiot, I don’t want to do that; I don’t want to be that guy. She’s 16. She doesn’t know what she’s talking about, I’m sorry. One guy wrote in and said, “It’s high school chemistry and she knows what she’s talking about.” You’re wrong, it’s not high school. You’re trying to predict an apocalyptic event by extrapolating data into the future. It’s too complex. It can’t be done that easily, and certainly not by a high school kid. However, Bill H. is right, I shouldn’t have taken it so seriously, and I think that’s where I’m going to leave that.
  2. So one more from Steve C. Steve says, “Following up on a previous listener’s question, how are online brokers making money if the equity transactions are free? In the words of Andrew Lewis, if you’re not paying for it, you’re not the customer; you’re the product being sold. So how are brokerage houses now making money on me?” Really good question. Thanks, Steve C. Really good question, Steve C. They can make money on order flow. They can route your orders to a market maker who can earn a spread; that’s one way to do it. And you know there’s probably other ways that I’m not thinking of, but that was the first thing I thought of as soon as I read about it. And you're right, you’re the product being sold. They want to turn your account so they can get spreads, and I’m sure there are other things they can do too that I’m just not thinking of. So great question, and it’s one you ought to think about. Don’t do more buying and selling because the commissions are zero. That’s silly. You buy and sell when it makes sense to buy and sell, not because commissions are low or nonexistent in this case.

Well that’s it. That’s another episode of the Stansberry Investor Hour. It’s my privilege to come to you once again this week, as it is every week. And I thank you for listening. And look, I want to hear from you. This thing that we do at the end of every show is a conversation; it’s a two-way thing. So write in to [email protected] Let me know what you’re thinking. Comment on the format. Keep me in the loop there, OK? I want to know what you’re thinking about that because we want this thing to work for you. If it works for you, then it works, right? And if you want me to do – you know people have said, “I want you to do a rant every week because I love it.” And if you really want that, then you know I should buck up and do it. So write in: [email protected] And you can go to that same web address, investorhour.com. You can enter your e-mail and get updates on all the future episodes, and you can go to that same address too and you can see every episode we’ve ever done. You can see a transcript for every episode we’ve ever done. Pretty cool. Thank you so much. I’ll talk to you next week.

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