A handful of billionaires have renewed their warnings of a global recession – with one legendary commodities trader even predicting something worse than the Great Depression. In this week where 20 tons of gold have mysteriously disappeared from Venezuela’s vaults, Tesla has another $920 million in debt payments due, and a value investor just dived into an iconic fast food business, Dan Ferris makes sense of it all.
He’s joined in this week’s episode by Grant Williams. Grant is co-founder of Real Vision Group and has more than 30 years of experience in finance during which time he held senior positions at investment banks in London, Tokyo, New York, Sydney, and Singapore. Real Vision TV, the world’s only video on-demand channel for finance, has been described by some as the “Netflix for Finance Geeks.”
Its content features exclusive interviews and presentations from the world’s best hedge fund managers, independent analysis, geopolitical strategists, and economists. Guests have included Jim Grant, Kyle Bass, Mark Cuban, and Jim Rogers. Grant is also the publisher of Things That Make You Go Hmmm, a newsletter combining history and humor, along with keen financial insights to help investors make sense of a misunderstood and ever-changing financial landscape.
Grant is full of stories to tell from the powerful investing personalities he’s interviewed, from legendary short sellers to reclusive value investors. And because it’s on everyone’s mind – Dan has to ask him what he thinks markets have ins tore for investors after the worst December since the Great Depression, and the wonderful (ephemeral?) recovery since.
co-founder, Real Vision TV
Grant Williams is Author of Things That Make You Go Hmmm... and Co-Founder of Real Vision Group. He has more than 30 years in finance, during which time he held senior positions at a number of investment banks and brokers in London, Tokyo, New York, Sydney, and Singapore.
2:34: Facebook has gotten terrible press from the scandals related to elections, and detriments to users’ psychological quotes. But no one has nailed it more than one member of the U.K. Parliament, who told the CFO last year, “I remain to be convinced your company has integrity.”
16:55: A handful of billionaires have issued a terrifying warning on global debt levels. Dan breaks down what’s really behind the chorus of warnings. “I kind of hesitate to mention it, but…”
21:21: Dan brings on this week’s podcast guest. Grant Williams is co-founder of Real Vision Group and has more than 30 years of experience in finance during which time he held senior positions at investment banks in London, Tokyo, New York, Sydney, and Singapore. Real Vision TV, the world’s only video on-demand channel for finance and has been described by some as the “Netflix for Finance Geeks.” Guests have included Jim Grant, Kyle Bass, Mark Cuban, and Jim Rogers. Grant is also the publisher of Things That Make You Go Hmmm, a newsletter combining history and humor, along with keen financial insights to help investors make sense of a misunderstood and ever-changing financial landscape.
23:25: Dan asks Grant about some of the most powerful investing personalities who have appeared on his show, and Grant tells the story of a legendary short seller who only targeted companies he viewed as fraudulent.
29:14: Another guy Grant has interviewed, who Dan would love to meet “because he is kind of a legend” is Leon Cooperman. Grant explains how he secured an interview with the man known as “the hardest working man in Wall Street” and how he, as a young man, found the audacity to walk from Goldman Sachs to start his own fund.
35:55: Grant tells the story of an investor friend named Tony who disregards P/E ratios, EBITDAs, and other metrics to just focus on “good companies run by good people.” He likes to hold companies forever, but when they deviate from what they once were, he’ll dump them in 30 minutes. No one’s ever heard of Tony… and that’s just the way he likes it.
40:40: Dan asks Grant for his take on the macroeconomic picture. “With the ugliness of 2018 just behind us… I want to know what’s on everyone’s mind right now. Is this the beginning of a bear market?”
47:45: Grant explains why everyone needs to take responsibility for advice they take from every investing personality – including him. “If you ask me what the weather is tomorrow, and I say sunny, and you get drenched without an umbrella… it’s not my fault!”
54:20: Dan reaches into the mailbag with a question Jacob H., who wonders whether Dan’s forecast of the markets as being “the most expensive in history” is really just a relative term. Dan explains how his assessment comes from five key metrics.
NOTES & LINKS
Recorded Voice: Broadcasting from Baltimore, Maryland and all around the world...you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here is your host, Dan Ferris.
Dan Ferris: Hello, everybody and welcome back to another episode of the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm the editor of Extreme Value, a value investing service published by Stansberry Research. Okay, let's get to it. Now this week we are going to start with something a little different, which I hope to do every week. And I call it my weekly rant.
So from now on we'll start each episode with a weekly rant. And I'll try to help investors entertain different perspectives with the rant and, you know, try to cover a wide array of topics from, you know, top-down market viewpoints to analysis of individual businesses and maybe even individual securities – and everything in between. Right? Nothing is out-of-bounds as long as I think I can shed some valuable and – sure – entertaining light on the matter.
Now today's topic – the first weekly rant – might seem like a bit of social commentary, but I think you'll agree that there's clear investment implications here. And I've certainly been talking about them for about a year-and-a-half now. And I think you'll also agree that there's no way we could have ignored this event. And that event is: Facebook is 15 years old this week. Current chairman and CEO Mark Zuckerberg and four of his friends at Harvard founded Facebook in his dorm room at Harvard on February4, 2004.
Now by all accounts Facebook is one of the most successful institutions in human history. They continue to report 2 million monthly active users. That makes it bigger than Islam – yeah, the religion, Islam – with a reported 1.6 billion followers. It's bigger than communism, with 1.5 billion people living under that system. It's bigger than Catholicism with a reported 1.2 billion followers and Hinduism with reported 1.1 billion followers.
So it's bigger than anything humans have ever done. So Facebook has gotten a lot of negative press in recent years from studies showing social media is bad for your physical and mental health, to the scandals involving Facebook's clandestine and, I believe, unethical use of your personal data. But perhaps nobody has gotten to the heart of the matter more succinctly than a member of the U.K. parliament who last year told Facebook's chief technology officer, quote, "I remain to be convinced that your company has integrity." Unquote. I remain to be convinced that your company has integrity.
And Zuckerberg and his top lieutenants of Facebook don't appear to understand the problems people have with the way they do business. In a recent Wall Street Journal op-ed piece, Zuckerberg wrote plainly and rather naively, "When I started Facebook" – sorry. Quote. "When I started Facebook, I wasn't trying to build a global company. I realized you could find almost anything on the Internet. Music, books, information...except the thing that matters most – people. So I built a service people could use to connect and learn about each other." End quote. I mean, it sounds like some kind of just – there's almost like a pastoral naivety and innocence about it. "That's all we were doing. We were just connecting people."
I think it's kind of a euphemistic representation of the truth, besides sounding naive. You know, it's just not true. We all know Facebook was founded on the back of Mark Zuckerberg's pervious idea called, "FaceMash." And FaceMash allowed users to rate the attractiveness, the physical attractiveness – you know, hot or not, pretty, ugly, handsome, not – of fellow students at Harvard. Zuckerberg hacked the data for FaceMash. The pictures and names...stole it, apparently, from the school's records. That's the real birth of Facebook. It was born of a desire to get control of your identity without your knowledge – just removing it from your control, really.
And Zuckerberg wants us to think it's all about how you keep track of your friends and your family. And, yes, you can do that on Facebook. But the much bigger and more important purpose, the one that brings more than 55 billion in annual revenue in the front door of Facebook, is for you to help Facebook keep track of you. And there are tens of millions of people out there, including 87 million whose information was harvested during the 2016 election, from Facebook by British-political consultants Cambridge Analytica who will have no trouble agreeing with me on this point.
And as of right now, Facebook has no intention of letting anyone unlucky enough to have and regularly use a Facebook account ever be allowed to move beyond the company's prying eyes. First of all, there's no way to get a complete report on everything that Facebook knows and stores about you. There just isn't. If there was, I promise you the outcry – what they know about you and how they categorize and exploit you would be long and loud. And if you could get such a report – and here's the really important point. Would there be any way to order Facebook to totally delete that information from existence and never allow them to record and store information about you again? No way.
According to a recent article on Techcrunch.com, you can't get Facebook to delete the information about you that it's gathered – even if you delete your Facebook account, they still keep the info. Facebook seems to believe it owns your identity, simply because you joined its website to keep in touch with your friends.
So besides being bigger than Catholicism and other major religions and communism, it's also one of the two biggest surveillance operations in human history – second only to Google, which we'll talk about another day. So if you have a Facebook account as things stand now, you'll never ever have control of your data, which for practical purposes on the Internet is you. It's your identity. Apple CEO Tim Cook had it right when he said – he was actually talking about Google. But he said, "When the service is free, you're not the customer. You're the product." That's true of any free Internet service. It tracks your information and does something that generates revenue.
And what about this mission to connect people? How is that going? Well, turns out the mission isn't really the way Facebook implies. And I'm not talking about, you know, the teenagers who have committed suicide after being harassed online, or the terrorists who've tried to influence elections through Facebook. I'm just talking about the fact that Facebook is not great for relationships – especially among young people.
A 2017 Forbes article cited studies suggesting quote, "Rather than enhancing well-being, as frequent interactions with supportive offline social networks powerfully do, the current findings demonstrate that interacting with Facebook may predict the opposite result for young adults – it may undermine it." End quote. And we've all heard these things, right? I'm sure podcast listeners like yourself could cite at least one of the alleged harmful effects of too much social media usage.
And yes, once again, I'll thank you for your patience as I tried out my own bearishness on Facebook, starting in September 2017 and continuing right up to the present. I warned stocks like Facebook and other big, popular tech names like Google, Amazon and video et cetera...could drop 20% or more in an instant. Which, of course, Facebook did last July when it dropped nearly 20% after-hours in seconds, obliterating 125 billion in market cap: the largest single one-day market cap loss in history.
I don't think much has changed with Facebook yet, despite all the bad news and, you know, Zuckerberg testifying in front of Congress. I think we're early days in the growing outrage over what that business really does and its true mission to harvest your data, remove it from your control and turn it into ad dollars and other sources of revenue. Company reported 3 to 4% of users were fake, but a recent New York Times article suggests it's probably like 35 or 40%. So I'm not willing to risk owning the stock here. It's probably best, I would say, to let more shoes drop. Which I think will cause the stock cost to continue to drop for the next year or more.
And since it's a great cash-gushing business I expect to be a buyer at some point as long as it looks like the basic business model can hold up. But I'd rather see a new management team among other things...and for the stock to become a true, cheap bargain. So I'll discuss Facebook on future podcasts, but for now let me leave you with the following thoughts. I just want to encourage you to get off social media for a week or two or longer if you can do it. Read more books and long articles. Stop trying to keep abreast of everything, and dig deep into one very important thing.
You know? Your spouse, your kids, your career, art in real museums, music in live venues – you know, all that stuff. Connect with real human beings, like, right in front of them. That's the only way I know to really connect with other human beings. And I'm willing to bet most of those people won't be spying on you while you're talking with them.
And, hey. You can't get your data back. But maybe, just maybe, the less you interact with social media over time the less-accurate a picture they'll have of you in your activities, likes, dislikes, et cetera. I'm willing to bet the antidote to getting on social media too often is just getting a life every day. So that's the weekly rant. And by all means, let me know if you have anything to say about Facebook. If you think I'm on the money, if you think I'm off the mark, write in. Let us know.
Let's look at some news items now. Interesting things going on lately. I didn't catch this one last week. eBay. eBay, right? The online auction platform. eBay is going to pay its first dividend ever to shareholders, and it'll be $0.14 a share due around March 20. And they decided that they would pay – they're going to pay about 5.5 billion to shareholders this year. They added 4 billion to a stock repurchase program. So, you know, most of that is going to be share purchases. But I saw the news and I was like, "Well why now?" I mean, the thing IPO-ed in, like, 1998 I think and it's about a 40 to 45-bagger since then. You know, if you've held it all that time.
But it turns out that the folks at Elliott Management...this is a firm run by Paul Singer. They have about $44 billion under management. They're well-known activist investors. Okay? And they have sent eBay a letter they own...I think they own about 4% of the stock. And they've sent eBay a big, long letter. And you can actually go online, and I recommend you do this. Okay? There's a website that Elliot Management has put up. It's called enhancingebay.com.
This website is really a great resource for investors, because, you know, it's got their big, long letter that they wrote to eBay. And they make these five points of what they want to do at the company and how they want to break it up, and how they think that there's, like, 75 to 100% upside within the next two years if the company does all these things they're suggesting. Actually, the stocks were at 35 and they said they could get it up around $55 to $63 per share by the end of 2020. Which would be great. That'd be incredible. And they've had plenty of success in the past.
But what I recommend you do is, if you ever wanted to learn something about eBay, this is your chance – all in one place. You've got this great investor with lots of experience just kind of laying out what the business is, and what it does, and how they think about it. And you'll learn a lot about eBay. That's the real goal here as far as I'm concerned. And you'll learn a bit about Elliot Management too and how they operate. It's always good to learn how a great investor thinks and operates.
So, you know, that's the first news item. Go learn something about eBay.
What else do we have here? Okay. Turns out that...you would expect this to happen: that the CFO of Tesla has left. His name is Deepak Ahuja. And, you know, he's left the company and apparently he's not the only one. They lost a couple of other folks just in the past year or so, one of whom was the head of human resources. He just went away on a sabbatical and never came back. [Laughs]
And another one, I think, was the chief operating officer. And he had been there, like, a month or so and just is gone. You know, it's the classic, "Rats leaving the sinking ship." And the CFO leaving Tesla at this moment is a little rich too, because they've got a $920 million debt payment coming up on March first.
So it kind of looks to me like the CFO's been there quite a while, sees this $920 million dollar debt payment coming up on March first and the company is proposing, I think, exchanging the note for a mix of cash and stock. [Laughs] So maybe the CFO is looking out beyond that, or maybe he's just looking to that debt payment of something and he doesn't like what he sees. And I have to tell you, I met a kind of a die-hard Tesla fan who had a really weird experience. He bought a Model 3, and he didn't like it and he returned it and bought a new Model S. But on his app he was able to continue tracking the Model 3. And it's sitting somewhere in a parking lot someplace with the trunk open. So who knows what sort of precipitation might be flowing into this thing, or what kind of condition it's in. And they obviously can't resell it.
And I noticed too, during the Superbowl...I think we saw at least one commercial for electric vehicles – I think it was from Audi. And, you know, the competition's going to come out of the woodwork and these guys are going to have real problems. And it appears maybe the CFO just wants to get ahead of [laughs] all that and skipped town.
So one more thing that I wanted to talk about before we get to our guest; our billionaires issuing terrifying warnings. You know, it's funny. I kind of almost hesitate to mention it, but I always want to know what the best investors have to say.
And one of the billionaires I'm talking about is Seth Klarman, who put out a 22-page-letter recently. And this is a guy – he's not trying to get your money. He's giving money back. So he's not trying to scare you into investing in his fund. And he's normally a pretty private guy, but he put this letter out like he's genuinely worried. And he's telling investors...for example, he says, "The seeds of the next financial crisis, or the one after that, may well be founding today's sovereign debt levels." And I know I've been kind of sounding the warning of sovereign debt, because I looked at all the negative-yielding sovereign debts issues about a year-and-a-half ago, in September of 2017. And I thought, you know, "They've done it again. They've taken something again that supposed to be the safest thing in the world and turned it into toxic waste" – just like they did mortgages in the 2008 crisis.
Every now and then sovereign debt does become a problem, but it's kind of a rare thing. So for this guy to go record on this – he must really be worried. And he says, "There's no way to know how much debt is too much. But America will inevitably reach an inflection point whereupon a suddenly more skeptical debt market will refuse to continue to lend to us at rates we can afford." I don't know how that really works if we have the ability to print money to pay the coupons, but certainly, you know, printing lots of money to pay the debt cost isn't a good thing either and can lead to its own set of problems.
Klarman goes on. He says, "It's not hard to imagine worsening social unrest." This is a value investor. This is, like, in the tradition of Warren Buffett and this guy's talking about, "It's not hard to imagine worsening social unrest among the generation that's falling behind economically and feels betrayed by a massive national debt that was incurred without any obvious benefit to them."
Now that is something that you hear a lot, because – investors who focus on such things will often cite the "growth in the federal reserve" balance sheet from, you know...I think $800 billion or something to $4 trillion today. And we know where a lot of that went, you know, just kind of into the market to ease and to make everything easier for...basically what Klarman is saying – most people think are rich folks. Okay? He says, "By the time such a crisis hits, it will likely be too great to get our house in order." Yeah. That's the way crises work.
Ray Dalio was another one – founder of the world's largest hedge fund. Bridgewater Associates. He thinks that we're headed for something worse than the Great Depression. These guys are saying this stuff with a straight face.
And Davos in Switzerland recently, you know... Dalio said – again, like Klarman. He said, "The problem comes down to too much debt." And Dalio was well-known as a guy who tracks debts cycles, and keeps track of long and short-term debt cycles. And he says, "The biggest issue is that there's only so much one can squeeze of a debt cycle; and most countries are approaching those limits.
You know, lowering interest rates is one thing you do in a crisis. You know, and rates are negative still in some of these sovereign issues. I mean, how long can you go, I guess, is a reasonable question. It's the, "how much ammo does the central bank have in a crisis when interest rates are really low," question.
And I don't know the answer. I tend not to think much about macro things. I tend to want to just prepare my portfolio and tell others to prepare others for bad times. And we'll actually talk a little bit about this sort of thing with our guest today.
But that's what the world looks like. That's just a few news items that are going on right now. And I think it's time to get to our guest. The audio quality on our interview is not ideal today, but I think you'll agree that the interview itself is well-worth listening to.
So let's introduce our guest and get him on here, because he's a really smart guy. And he's talked to a lot of really-smart people in his life in addition to having his own really-interesting opinions on things. So let's get to him right now.
Okay. It's time for our guest. His name is Grant Williams, and he is the co-founder of Real Vision Group. And he's been in the markets for more than 30 years. He's been in finance for more than 30 years. And I can't think of anybody I want to talk to more right now than you, Grant. Thanks for coming on the program.
Grant Williams: Well, listen. You need to broaden your circle of friends out. Thanks for having me anyway.
Dan Ferris: All right. Well I assure you folks, Grant is very modest as you're about to find out. So I want to talk about a couple of things today. One of them is this theory – I tell you, Grant. You're what I want to be if I ever grow up. [Laughs] You've got this theory called, "In Conversation With," on Real Vision TV, which I'm a happy subscriber to. And you've interviewed all kinds of people that I would love to talk to. I mean, you talk to 'em for an hour or two. And if I could get five minutes I'd probably pay money to do it. Starting with Marc Cohodes, who is an absolute fascinating guy. I'd like to name a few of these folks who you've had conversations with on Real Vision. And just give me some real impressions on what you learned from them. How does that sound?
Grant Williams: That sounds great. Yeah. I'm happy to talk about these guys. All along they've been just fabulous.
Dan Ferris: Yeah. So what about Cohodes? He strikes me a as a really fascinating guy. I've never met him.
Grant Williams: Marc is one of the most remarkable men I think I've ever met. He's a shorter, and I wanted to talk to a shorter to try and dispel this really negative impression that markets have of short-sellers. You know, we talked about short selling and the pressures and the strains of it all and how difficult it is, and short sell's place in the market. But he brought up a company that he was engaged in a battle with. And to be clear, Marc doesn't short things because they're overvalued. He shorts them because he thinks they're fraudulent.
And he'd just gotten sucked into this battle with a company called MiMedX, MDXG was the ticker. And after that interview I stayed in the story with Marc. He was keeping me informed on what was going on for the next year. And I went out and filmed a second piece with him a couple of weeks ago. You know, subsequently the company has said it said it couldn't provide financials. They fired the CEO and the CFO for cause. It's a complete disaster.
So Marc is relentless, he's a crusader. His heart's absolutely in the right place and he does the work of many men. Sadly, to deaf ears from the SEC, the DOJ, the VA, the – I can't think of all the other list of acronyms – FDA, who he sent incredible amounts of proof to and they just ignored him. So Marc is a remarkable human being. And that first interview is actually up on the web. If you just search for my name and Marc Cohodes you'll find – it's up there, and it's worth watching.
Dan Ferris: So during the Cohodes interview, there's a moment when this guy, who's been around for a long time and shorted all kinds of stuff, looks at you with a straight face and says, "I've never seen anything like this."
Grant Williams: Yeah.
Dan Ferris: That blew me away. That blew me away.
Grant Williams: You know, Dan, that to me is symptomatic of the world that we've built around ourselves around the last decade. To me, I feel the same about Tesla. I've never seen anything like it. You know, never seen anything like it. And that has yet to play out. Marc was talking about this as, like, the biggest fraud he'd ever seen. And he'd shown me the proof he's got. I mean, it stands 3 feet high – the proof. And if you haven't seen the story or read the story, it's worth looking at because you'll find the trail of events that beg of belief. And the fact that it could go on for so long, given all the proof that's out there, is remarkable. But as I say, I think it's symptomatic of the world we live in.
Dan Ferris: I couldn't hardly have said it better myself. Another guy that you spoke with, who I would love to talk with, is Hugh Hendry. For our listeners, Hugh Hendry formerly of Eclectica Asset Management – he closed Eclectica up a while ago. And I didn't get a chance to look at one minute of this particular interview. What do you talk about with the guy who's – I mean, is he retired?
Grant Williams: Well Hugh's someone I've always been fascinated with. He's a lovely guy, he's incredibly smart. He just thinks differently to other people. He just has this amazing brain that thinks in a way that, you know, I wish I was capable of. And I wanted to go talk to Hugh because he had just closed Eclectica. And I wanted to talk to him about his story as a hedge-fund manager – the rise and fall of the hedge-fund managing and the rise and fall of a fund – as a kind of proxy for the hedge-fund industry as a whole. You know, we saw hedge funds become stars of the financing industry through late-mid 2000s, and then kind of the last seven or eight years been in decline – as Hugh's own career by his own admission.
And to have him tell that story, and really be candid with me and talk about the pain and the pressure of doing it – he's, again, a remarkable guy. Fantastic company, brilliantly smart, searingly honest. And just to hear someone who's been at the very top of that business and then ended up closing his fund talk about that journey, and the highs and the lows and the kind of demons that you have to wrestle with – it was eye-opening for me, and he couldn't have been more candid. He couldn't have been more generous with his time. And I think about it often still. And Hugh and I are in touch, and I think about him often. And I hope that, you know, he's now at peace and looking for perhaps the next thing to do. Whether it's back in the finance industry or not, I don't know. But I do know, whatever he decides to do, he will be good at it because he's a remarkable guy.
Dan Ferris: He is. And, you know, one of the things – I did see of an earlier interview that you did with him. He said a lot, or he gave a general impression, of what happened to his particular bailiwick – which is global macro. And it sounded – you know, if I had just sort of bleeped out the words global-macro, I feel like as a value investor I could have inserted the words value investing.
Grant Williams: Yeah.
Dan Ferris: And it's all the same complaint. And, you know, it just struck me that the chain goes all the way out. It goes global macro, value, similar problems. You know, they've underperformed since they performed like gangbusters. They've underperformed for the past decade, after having done really well. And really it's kind of like the whole active space, I think, is what we wind up talking about...but those two areas in particular, global macro and value. And, you know, I think of you as a global macro guy and I'm a value guy. You know, sort of sitting here lamenting to one another. [Laughs] Another guy you talked to who I'd love to meet, just because he is kind of a legend, is Leon Cooperman.
Grant Williams: Yeah. [Laughs]
Dan Ferris: Yeah. You had a great conversation with him. What was that – what is he like?
Grant Williams: Well, look. He was introduced to me by a mutual friend of ours. And he said, "Look. Leo's got a heart of gold." He said, "He can be a bit gruff, but he's got a heart of gold. So, you know, call him up and tell him what you want to do and it'll be fine." So I called him up. And he had this gruff voice, answered the phone. And sure enough, you know, very short. "Yep. Who are you? What's this about? Yeah. OK. Fine. Yeah. Fine. Fine. Speak to my assistant." So we hooked this thing up. And I was a little bit nervous, to be honest, going down there. 'Cause as you say, he is a legend. And he's widely known as the hardest working man on Wall Street, so I know he hasn't got a lot of time.
But when we got down to his home in Florida, he could not have been nicer. He was an absolute sweetheart. He gave his time, and he was open, he was honest and he shared his story. And you know that this series was all about just sitting down with people and getting them to tell their stories. Because, you know, I'm a great believer, and I follow this and things that make you go, "Hmm. The lesser are right." I'm a great believer that we as human beings, we connect through stories. You know, stories are how we pass on ideas, they're how we predict the future – they're so important. And the art of storytelling has kind of been lost to a large extent because people don't have time to listen to stories anymore. They just want soundbites, and they just want stock tips.
So I wanted to sit down with these guys, get them to tell these stories and try and learn lessons from their successes and their failures. And people don't talk about failure enough. You've got a lot of successful people who – whatever failures they’ve had, they got past them. They fixed 'em, they moved on. And for the most part they're happy to talk about that, because they are a success. They know that you know that their failure didn't break them. It was a temporary thing. And so, I just believe that we can learn so much from other people's mistakes and, more importantly, how they cope with them.
And so, that's what I try and do in these conversations, is to just talk to people about their lives and their careers, and some of the things they got right and some of the things got wrong. And hopefully the people watching take something away from that and can either avoid making mistakes of their own as soon as those they've heard about or incorporate a very successful investor's process into their own framework.
Dan Ferris: Yeah. Boy. More people need to talk about their mistakes. This is one of my gigantic complaints with, you know, run-of-the-mill finance TV, is they're bullish and bearish on Tuesday, and on Wednesday they forgot, you know, the last two days. And they never go back and talk about anything they got wrong. It's kind of one of the things I'm trying to change by doing the podcast here. So anyway, do you have a favorite, you know – and you could start with Cooper. Do you have a favorite Lee Cooperman story?
Grant Williams: Do you know what? It was listening to him talk about his days in the business and, you know – the early days in the business when he just got into Goldman Sachs, and he was selling up Goldman Sachs at management. And, you know, how he wanted to start a hedge fund. And the company said, "No. You know, that's not the business we're in. We don't want to do that." So just to hear, what was a young guy then, had the guts to said, "You know what? That's all right. I'll walk away and do it myself." It's those kinds of decisions that, when you're confident in your ability and you're confident in your business and you're confident in what you think you can achieve – having the guts to take a leap and do it is a hard thing. It's a hard thing to do. You know, he'd already had some success, but nothing like the success like he had with the subsequent business he founded. Which was, of course, Omega Advisors.
Dan Ferris: Right. So did he talk about, you know, the last few years, underperformance of value, et cetera?
Grant Williams: Yeah. We spoke about that, and he's at the point where, you know, he's going to close his fund and run the family money for all of these above reasons. I mean, if you're a value guy, you know that value just hasn't worked. And if you think about that statement for a while – how could value not work? Value is value. That's what it is. And so, for a value investing strategy to not work, something isn't right.
And, you know, he's kind of fed up with that and wants to be able to manage his own money in a way he's more comfortable with. Which is with a longer-term view without being chased up and down without, I guess, having clients, you know, calling up at the end of the month with, "Hey. We missed the S&P Benchmark by 15 basis points. You know, what went wrong?" Nothing went wrong. We missed it by 15 basis points. It happens. But everyone's so short-term nowadays and chasing returns that a lot of money managers – not just Lee – but a lot of money managers I've spoken to...seasoned guys who've been around a long time have just had enough. They've had enough of short-term. They've had enough of being judged day-to-day. And a lot of them are either raising lock-up capital for three, five, some of them 10 years in a private equity-type structure. Or they don't take any more investment. And I totally understand why.
Dan Ferris: Yeah. You know, you did talk with Rick Rule at some point I saw some video you did with him. And he's been locking up people for 10 years for a long time.
Grant Williams: Yeah. Yeah. Sure.
Dan Ferris: He's way ahead of that curve.
Grant Williams: I was thinking in his chosen part of the world – the commodity space – you have to think about the 10 years it takes to get a project online, it makes a lot more sense. And I think people will understand, if you're going to be in the money space, why you would need that lock-up capital. But I spoke to another investor, a friend called Tony Deden, who lives out in Switzerland. And nobody's ever heard of Tony and that's just the way he likes it. He'd hate me for talking about him now. But he's a remarkable guy, and a remarkable investor. And he buys stakes in companies that have been in business for 100, 150, 200 years.
And his time preference is infinite. He's not interested in daily movements of markets. He wants to buy good companies that have a proven track record and do good things very, very well. He doesn't pay an undue amount of tension to, you know P/E's and EBITDAs. He wants a good business run by good people. But he's very particular about the people that run the companies. And he told me a great story. He had a position in a company called Sadia, which was Brazil's biggest chicken farm. It was a big, global supplier of chickens. And he said, "It was extraordinary good business. A really good business. I just farmed chickens and sent the meat all around the world." And he went to see the company and the CEO was away. He spoke to the CFO who said, "You know, if only we could find a bank to work with. You know, we think we can foresee the foreign exchange markets, and we'd be able to increase our profits 'cause we'd be able to hedge our currency exposure from all the chickens we sell overseas. And Tony thought this was a strange thing. And he made a note of it.
And two years later, he saw a headline come across the tape that this company, Sadia, had bought 60%stake in a Brazilian bank. This was two years after they had that meeting. And this guy said that one sentence to him, and Tony said, "Within 30 minutes he'd sold his entire stake in the company." And within two years, the company was bankrupt – out of business. And, you know, it's remarkable that he would do that, because Tony buys companies to own forever, essentially.
If they're good companies doing good things, he'll own them forever. But if they change, if they start to do things that weren't the reason he bought the company or they're doing things that you shouldn't be doing if you're a chicken farmer, then – the whole thing gone in 30 minutes. And so, to hear those stories about how great investors think about how they invest their money, about how they, you know, manage those positions after they've got into them is just a real privilege for me to have the time to spend with these guys.
Dan Ferris: Nice. Nice story.
Grant Williams: Look. Their interview is also up – we put that up in Folice. You know, this is a two-and-a-half hour interview. When you think about that, in this day and age...who wants to sit down and watch two-and-a-half hour interviews? I think people stop me in the street all over the world to talk about that interview. And people who've watched it multiple times, because of all the wisdom in there.
So if you just Google my name and Tony Deden, DEDEN, you can find that interview up there. And, you know, if people are really interested in value investing and just wisdom, this is a remarkable conversation with a remarkable man.
Dan Ferris: Yeah. Long-form anything is frequently a tough sell. And frankly, it's more valuable by comparison today. You know, just the ability to turn off the Internet and read a book instead of reading a bunch of little snippets and just sit through an interview like that. It's like listening to Beethoven's Ninth or something, which hardly anybody does anymore.
Grant Williams: That's a great analogy, because it's – you talk about sitting through it. I mean, no one I've spoken to felt like they were sitting through it. They were sitting there at the end of it and they were kind of upset it isn't finished. It's that kind of conversation. And it's nothing revolutionary. He's not re-inventing the wheel. But to hear someone talk about principles, and scarcity, and permanence and all these core values of humanity which has sadly been lost in the modern day and age...we've chased instant-gratification. It's a real wake-up call for a lot of people.
And I was talking about it to a guy yesterday. We had a small conference here in New York. And without any exaggeration, this guy actually started to cry as he talked about this interview and the effect that it had had on him, and his wife and their business, and how they wanted to leave their business to their children, and some of the things Tony had said to me – it's amazing how powerful real intelligence and real wisdom can be in a world where we are so filled with information and so lacking in knowledge.
Dan Ferris: Well-put, Grant, as usual. So look. There's a lot of folks – I could sit here and go through a list of, you know, probably 10 more names. But, you know, I'm not going to have Grant Williams on the program without asking him what he thinks about what's going on the in the world. And I saw...I was looking on Real vision, and I saw a piece that you did – I think it was two or three years ago. And you put up a bunch of charts and kind of described the macro environment. But of course with the unpleasantness of late-2018 just behind us, I want to know what everybody's – I want to know what's on everybody's mind right now. So, you know, do you think – what do you think? Do you think, for example, in U.S. stocks...was that the beginning of the end? Was that the beginning of the bare market?
Grant Williams: Well look. It certainly felt like it at the time. And I think people who really aren't really up to their waist in the markets probably don't have a true appreciation of the kind of level of disruption and panic we saw in December. It was pretty brutal, actually. It only lasted a short period of time, and things have stabilized. And clearly the Fed saw something, for Pal to flip-flop like he did. So I think that was the beginning of the end, but that's not the say that the end plays out in linear fashion. That could be the beginning of the end, and now we have a battle between the Fed trying to assure everybody that liquidity's going to be maintained, and rate hikes are off the table, and QT may be put on pause – and everything they need to do to try and not scare the horses.
But the simple truth is, after a 10-plus year expansion, the U.S. is heading into a recession. Now I don't know when that's going to happen. I'm surprised it hasn't happened already. And I suspect if we get through 2019 without it happening we'll find out in 2020 it happened – because obviously these things are always backward-looking. And that's the point where it doesn't really matter what the Fed do. It doesn't really matter what these guys say. That's the point in the business cycle where reality is returned to the forefront. And to me, everywhere you look around you, that reality is difficult to see when you look at some of the levels that you're trading at. You look at the buildup in credit and debt just around the world – it's just remarkable.
And, you know, I think people sitting at home who are listening to this perhaps...and this is another thing I talked to, I guess, on the In Conversations With. You know, stress-test your portfolio. You don't have to believe there's a recession coming. You don't have to believe there's a stock market crash coming. But at least now you've seen what happened in December. Now you can see how quickly things can get really ugly. Stress-test your portfolio. And if you couldn't stand another recession or environment, think about lighting up on your portfolio. If you're positioned well, great. But don't just sit there and kind of hope everything is going to be okay and hope that someone else fixes it for you...whether it's the Fed or someone else comes in and rescues the markets. Have an understanding of what economic downturn would mean for your portfolio.
And also, do it in dollar terms. My friend David Hay talked about this in our conversation. Do it in dollar terms. It's fine to say, "You know, I could weather a 30% downfall." But if that 30% is, I don't know, $700,000 of real money – as David said, "Well you do that, you see the blood drain out of people's faces." So be realistic about this. Be realistic. Be prepared, and just at least understand what your potential risk is and then decide for yourself. If you think the people who are calling for recession or calling for the market are going down are talking nonsense, okay. Fine. We're all guessing about the future. None of us know anything. Right? We're all trying to take our best guess. But if it would hurt you beyond pain that you could just kind of just shrug off, then you need to do something about it. To me, it's that simple.
Dan Ferris: So when you say stress-test, are you saying take a look at how ugly it got in December and ask yourself if you can go through that again? Or are you just looking at individual positions?
Grant Williams: Well take a look at December. We've had this position between October and December of last year – or September and December last year. You've got a period there where you had some real volatility for the first time in a decade, essentially. And you can see what your portfolio did. Now at that time in December everybody was panicking. Now everything is stabilized. Just don't sit there and think, "Well hopefully we get back to those highs again." Take a look at the damage that was done.
You've re-clawed some of it back between then and now, which is great. But take a look at the damage that was done, and realize not only has that happened but it can happen again. Now if it happens again, can you rely on the markets bouncing? You know, I don't know. I suspect not. But that's an individual decision for people to make. But to not look at it and then make the calculation, rather than just breathe the sigh of relief that everything seems to be back to normal again...I just think it's just a very short-sighted approach to managing your money.
Dan Ferris: Yeah. [Laughs] Did you hear that, everybody? I couldn't have said it better. Ever since 2008 or 2009, you know...back then, we found out that all kinds of stuff correlates when things get bad enough. Right? Everybody said this or that asset didn't correlate. But people sell what they can sell when the excrement is really hitting the fan. So besides cash, maybe some gold...I mean, personally I've been telling people to hold plenty of cash for about a year-and-a-half now and, you know, some gold too every now and then I mention. But, you know, what else is there?
Grant Williams: Well look, it depends. I mean, people would tell you that you should be looking at high-quality bonds...everybody is different. And this is one of the big problems, is that, everybody wants a cookie-cutter response, a cookie-cutter idea of what they should do. People get fixated in profits in numbers. The simple truth is – a lot of us – we're asking people we've never met to give us their best guess about the future.
And to blindly follow that is...if you do that, it's on you. Because if you ask me what the weather is going to be like tomorrow, and I tell you it's going to be sunny and you go outside without an umbrella and get rained on, it's not my fault. Right? I mean, you asked me what I thought. I told you. And I may have looked at all kinds of proprietary little models I had to predict the weather. It wasn't anything on my part that was designed to be a bad outcome for you. You asked me for my opinion and I gave it to you. And that's one of the problems we have today, is there are so many people who want advice. There are so many people willing to give them advice.
But ownership of this ultimately has to come down to the people making the decisions. And so, take the time. Weigh up the opinions, but don't just take those red. If you like it – if your opinion on what may be about to happen appeals to you, that's the first step. That's not the end of it. At that point, "Okay." Start checking. Are there other people saying the same thing? Are they as credible? Find someone who disagrees with it, and then hear the counter-case and then weigh up your options. But to kind of say, "Well I'm going to be 85% in stocks and 15% in bonds 'cause I saw a guy on CNBC say, "That was the way to be," – it's just dereliction of duty I think.
Dan Ferris: I want to transcribe that and print it in every newsletter I publish for the rest of my life.
Grant Williams: Well you can claim it as your own.
Dan Ferris: [Laughs] Yeah. Every now and then you try and tell people that. But, you know, if you're the guy who thought X, Y, Z stock was a good bet they'll just never let you live it down. But I am. I'm going to write something like that in my next issue.
Grant Williams: I think it's important. I really do think it's important, that people understand this. And I just think as a _____, with all this information, that it's hard to find the knowledge. And the knowledge, as I said, has the be the start of the journey. Not the end of it. It's somewhere you begin and then something you just build up over time.
Dan Ferris: Well people are impatient to begin with. And then when you hit the, you know, human brain with the 24/7 news cycle that we have today...and, you know, mobile devices and the rest of it it's just like a recipe for making the worst possible decision about the most important things in your life. You know, your health and your money, et cetera.
Grant Williams: That's exactly right, Dan. That's exactly right. It's a shame, and it's a real problem. And I think the same way you do, at Real Vision that's what we've set out to try and do; is to try and give people the tools and the ability to listen to people who aren't necessarily giving them investment advice. But they're just talking about their own investment careers. And you know that tale, teach a man to fish, right? "You give a man a fish, you feed him for a day. You teach a man to fish, you'll feed him for the rest of his life." And that's the simple truth, a stock tip in isolation. It could be a winner, could be a loser. You may not, you may make some money out for it. But real investment wisdom, real experience, real knowledge and understanding success with failure – that's something you can apply to every stock you can buy for the rest of your life.
Dan Ferris: Right. I heard something, Grant, that makes me think of you guys now and then. It really is – so, I forget who it was who said this. He said, "Most people" – I think it was something I saw on Twitter, actually. He said, "Most people want to know about track record first, and then they want to know a little bit about process. And then they'll be patient about listening to your philosophy. And then they want to know about the people." And what you should really do is, prioritize it exactly the opposite. You should learn about the people, the philosophy, their process and then look at what they've actually done with all of it.
Grant Williams: You know, Dan, that is so, so true. And when I talk to allocators... I was down in Florida last week, and I talked to some big-time investors. And they all said the same thing. You know, you bet the jockey. You bet the jockey and find out about the people. Because look. As I said, we're all guessing. We're all guessing. The finest money majors on planet Earth is on guessing about the future. It's their experience and their successes and failures that enable them to make a better, more educated guess than the rest of us. But without understanding those people, without knowing their stories and knowing how they've accumulated that experience you're not really going to know. So to try and understand the people you're giving your money to, or the principles – have they bounced back from failures? Anyone in this business can theoretically have a gangbusters year. You know, your returns could be amazing this year. But if you look under it, they may have got one hot Internet stock that went up 10X and distorted their returns. Can they do it over the cycle? Well you have to wait and see.
But it's a painful lesson to learn. It's like art.
Dan Ferris: Yeah. You need to know – that's right. To pick a manager, or a fund, or even a company you have to get an idea of how the people involved are going to behave full-cycle. Right?
Grant Williams: Yeah.
Dan Ferris: Yeah. Yeah. I have a couple of stocks in the Portfolio – my newsletter – where I'm just in for the long-haul. There are no protect...we're not going to sell if the thing is down 40% or anything like that, because I know the people and I'm confident of how they're going to behave over time. Listen, Grant. We've actually run out of time already if you can believe that.
Grant Williams: No, I can't. Time flies when you're having fun, Dan.
Dan Ferris: [Laughs] Yeah. So I can't remember. I think I spoke to you once briefly two years ago when I was having a drink with Tim Price in Las Vegas. I hope it's not another two years. So we'll have to make a point of not waiting two years, I guess.
Grant Williams: That would be great. I'd love that.
Dan Ferris: All right, Grant. Thanks so much, and hopefully we'll talk to you really soon.
Grant Williams: Dan, you're welcome. Thanks for having me.
Dan Ferris: All right, now it's time for the mail bag. And remember, your feedback is important to the success of our show. You can simply e-mail us with a question or a comment at [email protected] We read them all, and we try to respond to every single one. Okay. We have two of 'em today, and here's the first one.
[Laughs] It's really short, but it's really sweet. It says, "Great work, Dan. Loved the info on gold. Been looking for this." So just so you know, what he's talking about here – and it's anonymous. It's just...there's no signature. That's all we got, was this one-line e-mail. And the info in gold that he was talking about is our interview with Fraser Buchan last week. Fraser Buchan of Tradewind Markets. And I won't give it away, actually. Just listen to that episode, if you haven't already, and tell me that that's not the best way you've ever heard of to buy and sell physical gold and own physical gold. And I'll leave it at that. But thank you, anonymous, for your e-mail.
We have one more. It says, "Hey, Dan. I like the Investor Hour with you hosting. Over the past few weeks I heard you say many times that the market a few weeks ago was the most expensive in history. Now I think expensive is relative. Just because the market was at its highest levels doesn't mean it's most expensive. Based on which metric was it the most expensive in history? If Walmart sold apples for 99 cents a pound for the past 50 years and sells it now for – a five-pound bag for $3, it's not the most expensive apples ever sold." I'm not quite sure about that example. And then he just finishes up by saying, "It might cost the most, but it actually is less expensive. I'm sure you get where I’m going. Thanks so much in-advance. Jacob H."
Okay, Jacob. You're right. I'm not talking about the market hitting new highs. I'm talking about five metrics that are tracked and followed by a guy named John Hussman at Hussmanfunds.com. And the things like price to sales and cyclically-adjusted P/E ratio, adjusted also for margins, a couple other things. And you put these five things together, and Hussman reported that they hit their all-time highest level the last week of August. And then, he put that report out in early-September. But then, of course in September later that month we went on to hit a new all-time high. And I know the data didn't change that much.
So I'm saying that that all-time high in September – around 29, 30 on the S&P500 – was the most expensive moment in history. In terms of valuation, not just the highest price. In terms of the valuation. And you can see this...the easiest one of these things to look at is price-to-sales of the S&P500. So the all-time high just in that one metric price-to-sales...that was actually back in January. Okay? But any time it's above two, two-times sales, it's really expensive. And it's never been above two-times sales without, like, crashing [laughs] shortly thereafter. Okay? And it hit 2.24 at the top of the Dot-Com Boom. And it hit 2.36 – actually, just about a year ago. Yeah, just about a year ago. So then, of course 2018 turned to the worst year of stocks since 2008.
So that's what I'm talking about. I'm talking about valuation, not price. And you're exactly right. Highest price doesn't mean most expensive valuation. Good question, glad you asked it and that is it for the mail bag this week. And that concludes another episode of Stansberry Investor Hour. So be sure to check out the revamped website, and you can listen to all the episodes there and get transcripts of the shows. And you can enter your e-mail to make sure you get all the latest updates. Just go to that same address, www.investorhour.com. That's it for this week, folks. We'll see you next week.
Recorded Voice: Thank you for listening to the Stansberry Investor Hour. To access today's notes and receive notice of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Dan? Send him an e-mail at [email protected] This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry Investment Hour is produced by Stansberry Research and is copyrighted by the Stansberry Radio Network.