Porter recalls his thesis on Fannie Mae and Freddie Mac and explains why you should understand the financial fiction of these two entities, and how their “rescue” in 2008-2009 may have led to a massive government theft in the end. A Phelps vs. Shark comparison reminds us that nothing is free…and why this assumption is one of the biggest mistakes you can make in investing and life. Buck and Porter discuss truth and integrity in the legal system featuring the real-life fiction of “Mattress Girl” and how she represents a disturbing administrative trend on college campuses. Special guest Meb Faber, Chief Investment Strategist at Cambria Investment Management and host of the popular Meb Faber Show joins Porter and Buck to reveal his thoughts on “smart beta” – a term he’s renounced that nonetheless helped him rise in the investing world to eventually manage $1 billion in assets.
co-founder, CEO and CIO Cambria Investment Management
Meb Faber is a co-founder and the Chief Investment Officer of Cambria Investment Management and is the manager of Cambria's ETFs, separate accounts and private investment funds.
Recording: Broadcasting from Baltimore, Maryland and New York City you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at Investorhour.com. Here are the hosts of your show – Buck Sexton and Porter Stansberry.
Buck Sexton: Welcome everybody to the Stansberry Investor Hour, I am Buck Sexton and of course the one and only Porter Stansberry joins me now. CEO of Stansberry Research. Porter, great to have you.
Porter Stansberry: I don't know why I am the only one and only because there is also only one Buck Sexton, although if you think about it, Buck, let's say you're a one in a million kind of person –and I think you are. Smart, talented, still very young, bright future. So if you're one in a million that just means there's a million other people just like you in China.
Buck Sexton: I know it's kind of sad. Also there are other Buck Sextons running around. I know this because when I try to use it as like a username –it's always taken. It's always gone. There are other Buck Sextons all over the place.
Porter Stansberry: I don't have that problem. I don't think there's another Porter Stansberry in the entire world.
Buck Sexton: It's a name people remember, that's for sure.
Porter Stansberry: Sexton isn't that uncommon. I think Buck is very common –
Buck Sexton: Do you know what a Sexton is? It's a noun. This is always a fun trivia question.
Porter Stansberry: Yes, of course. It's some kind of a middle aged occupation – a sexton, right?
Buck Sexton: That's right. It's a guy who is a church caretaker.
Porter Stansberry: The church caretaker – the Sexton. I couldn't remember if it was the undertaker – that's what I wanted to guess.
Buck Sexton: That's right, yeah, it's pretty much the guy who digs the graves. We Sextons like to go past that part and talk about the collection plate. The less visceral aspects of the profession. But yeah – and of course, people always say I know what that is. It's a nautical device for finding – I'm like, no that's a sextant.
Porter Stansberry: Sextant – it's not a nautical instrument. I got that.
Buck Sexton: We got a lot to get to today –
Porter Stansberry: We do, we have some really fun stuff.
Buck Sexton: The news cycle as well as the markets and the economy. By the way, we're gonna be joined by Meb Faber on our podcast this week. He is Chief Investment Officer at Cambria investment management and hosts the popular Meb Faber show podcast. Many of you may know Meb from Steve Sugarrood's Daily Wealth or from his speaking appearances at the wonderful Stansberry conferences and events.
Porter Stansberry: The real way you should know Meb is that ten years ago he pioneered the whole idea of smart beta investing. So it's passive investing but it's designing a model to be passive that's way smarter than just an index, we'll of course get into those details.
But I gotta tell ya – I think that this podcast is gonna end up being what puts us on the map Buck. Because there is so much richness in the web of social and political and financial worlds right now. I just can't wait to get into some of these conversations.
So stay tuned, dear podcast listener.
Buck Sexton: Yeah, oh we got some stuff today everybody. And with that, please do subscribe to this podcast on iTunes or Google Play or wherever you actually like to listen to your podcasts and leave us a review or a comment because that helps with our ratings, gets the word out and also we want to know what you think. This helps us grow the show and discover how well can best serve you. Those of you who are more into the email [email protected] is how you can reach us. And we of course pull mail for the show and talk about it the following week.
Porter Stansberry: Love us or hate us just don't ignore us.
Buck Sexton: Exactly. All right, Porter. Let's start the noise. What's on your mind?
Porter Stansberry: I gotta start with Fanny and Freddy. So most Americans know that Fanny Mae and Freddy Mac were these political creatures. They were created with the backing of the US Treasury. And the idea was, hey, we can make it easier for people to buy homes if we provide a 30 year mortgage. Now, this doesn't exist anywhere else in the world and it's only because of the US Treasury that this was able to be offered. If you think about it, a 30 year treasury is a very long-term bet on interest rates and no one really knows what interest rates are gonna do.
This isn't about whether or not your home is worth it or that – that wasn't the issue. It was really about, what is the dollar gonna be worth in 30 years. And if I lend a guy my dollar today, is the dollar I'm gonna get back in 30 years gonna be worth anything? And those are very big risks that private investors simply couldn't underwrite, there's no way to hedge that. It's too volatile. You can't know.
One of my favorite jokes about interest rates, Buck, is do you know what happened when the bond trade died and actually went to heaven, which is a whole nother story in itself – most bond traders don't go to heaven. But this one did. Do you know what happened when he got there?
Buck Sexton: Nope.
Porter Stansberry: God asked him what interest rates were gonna do next year.
Buck Sexton: Okay.
Porter Stansberry: The point is that the idea that you can borrow money at a fixed rate for 30 years where you have no penalty for paying it off early and refinancing at a lower rate, this is a financial anomaly. It shouldn't exist. It's a one way bet. And that's why America developed this huge housing culture. Because this is a real financial opportunity for people because of the structure of these mortgages. And the only way they are able to be offered is with government backing.
So Buck – it's a real simple concept. But in finance, if something is too good to be true, the only thing you could know for sure is it's not going to last. And there are all kinds of things associated with Fanny and Freddy that were too good to be true. I'd point you to the financials of a company called Annaly. So Annaly is a company that about 20 years ago said, well you know what? This doesn't make any sense. Why could we – this is crazy. So they went out and borrowed a whole bunch of money and bought nothing but mortgages and other securities that were backed by Fanny and Freddy.
And you had a company with less than 100 people in it that was making a net income of like $80 billion – just crazy amounts of profit over the life of the business. Just insane. Again, because it's not real. It's all funny money and if it's too good to be true it's not going to last forever.
So the bottom line is as you guys remember from '07 and '08, eventually everything went too far and this happens, of course, in any kind of political intersection with finance. When people get to vote, they tend to vote themselves, their neighbor's wallets. And so the constituency behind Fannie and Freddy where it was the largest and most powerful in politics. Fanny and Freddy set up local offices –
- in various congressional districts where they had either a lot of support or not any support. And so they lobbied directly to the voters to support the 30 year mortgage product which they of course made money on. It was a crazy thing. So you had private investors making money off of a US treasury guarantee and you had a whole bunch of interested parties that wanted more and more credit to be made available. So you had all the realtors, all the home builders and every mom and pop who enjoyed being able to buy a house that they really couldn't afford. All this was what all fueled the credit bubble that we saw in '08.
That's why everyone used their house as an ATM machine for the last 30 years. All of this rested on Fannie and Freddie's balance sheets. And of course, you know, they blew up. I was one of the very few people anywhere that predicted accurately and timely that that was about to happen. So I wrote in June of 2008 that Fannie and Freddie were worth less than zero and I predicted that their combined losses would eventually grow to more than $500 billion.
And that certainly would have happened. They topped out at about $255 billion because of all the bail outs that happened subsequently.
Of course – but you know, we still rode those stocks from probably a combined market cap of $50 billion all the way down to zero. So we did well for the people who followed our advice to short those stocks. And they – it collapsed in less than 90 days. I mean it was a really cool market call to make.
And you also have to remember at the same time, the treasury secretary is testifying to congress that Fannie and Freddie are quote unquote well capitalized. I don't know in what dimension they're well capitalized, but not in this one. So anyways, that's the history I have with Fannie and Freddie and I followed the story as it's gone along for all kinds of different reasons. Fannie and Freddie was the most important institution in global finance. It was sort of the foundation on which the entire asset and credit markets were priced. It was very important – the securities and the company that was behind it.
So the government didn't exactly let it fail. Instead it put it into what's called a receivership. And basically the receivership says, okay, you can't pay your bills right now but we're gonna make sure that you continue to function and then we're gonna make sure that the creditors are all treated fairly.
So that one creditor doesn't get a whole bunch of money back and the other creditors get none. And so that's what happened. And they're still in a conservatorship. Now, there's a famous actress who was in a conservatorship one time. Do you know who I'm talking about?
Buck Sexton: No.
Porter Stansberry: If you rub her genie then something can happen?
Buck Sexton: Christina Aguilera?
Porter Stansberry: No – Britney Spears. Didn't she write the genie song? No, no, I've got it all wrong.
Buck Sexton: Genie in a Bottle? It's Christina Aguilera.
Porter Stansberry: You're exactly right. I'm talking –
Buck Sexton: You're stepping into my world now, Porter.
Porter Stansberry: I'm trying to make popular culture reference to someone who is 15 years younger than me I'm just embarrassing myself. So do you remember when Britney Spears started speaking in a british accent and started cutting off all her hair and started going crazy?
Buck Sexton: Oh yeah, of course.
Porter Stansberry: So her dad became her conservator. And that's not uncommon for someone who is having serious psychological or mental problems. Right? So her dad wasn't there to take her money, her dad was there to make sure that no one else took advantage of her. And I don't know how that all got resolved, but luckily, Brittney seems much better now and that's very good for her.
Buck Sexton: Britney is back.
Porter Stansberry: Brittney is back. So the same thing happened to Fanny and Freddie, the government stepped in and they're supposed to protect Fannie's assets. Well, what do you think happened next? Because as housing prices rebounded and as mortgage losses fell off, the business – the underlying business that Fanny and Freddie have is very good. So they're still the only people in the world that can guarantee a 30 year mortgage. They're the only people who can take on that much risk. And they can do so of course, because they have the backing of the US treasury.
So they still write what's called mortgage insurance for people. And they still provide funding to mortgage lenders. And this is a very good business as long as housing prices continue to go up. And so as we bottomed out of the last default cycle and began the new credit cycle – which is the currently what we're in – it's the biggest one we've ever had. All of a sudden, they're minting money. And about 2011 their balances turned positive and then in 2012, they turned substantially positive and now they're minting money, because like I said – it's just too good to be true. They're ignoring all of the actual costs of what they're doing because everybody pretends that their paper is riskless but it's not. I don't want to get into those details again, we already went through it.
The point is that they're minting money. And so instead of the government saying to Fannie and Freddy like it did AIG, hey great – pay us all the money you owe us and then you guys can be done with this conservatorship and you're on your own again. Instead, what the Obama administration did was they were like, holy heck – this thing is gonna turn into a cash cow. Let's steal it. and so unilaterally they changed the terms of the bail outagreement.
And they instead of taking a 10% cost of capital to lend Fanny and Freddie money – which is what they were doing which is a very expensive way of funding Fanny and Freddy, they said, "Okay, forget that, we're just going to take everything you make and we're not going to allow you to earn a penny from your operations. And this was called the sweep agreement. Except that it wasn't an agreement, it was just a mandate.
Buck Sexton: Offer they can't refuse.
Porter Stansberry: And Fanny and Freddy's shareholders have been fighting in court about this ever since and the government did the most outrageous thing I can imagine, which is they said all of the documents pertaining to this matter were classified, were executive privilege, were matters of national security. They just refused to obey any subpoena or any kind of discovery in these lawsuits. None. And there's tens of thousands of documents at stake. There's 45000 different documents I think. And there's like a couple of hundred that are like executive privilege that are the real juice. And so you had the people from the Obama Administration testifying that the sweep agreement was not an effort to steal someone else's property.
It was necessary for the financial stability of the markets and a whole bunch of gobbledygook and they had no idea – Buck – they had no idea that Fanny and Freddy would be profitable going forward. It was as surprising to them as it was to everyone else. So finally a federal judge said that's ridiculous. You can't withhold these documents. We deserve a right to know what was happening what was happening in the minds of this bureaucracy at this time. And lo and behold, pretty much everybody in the Obama administration associated with this have perjured themselves because in the document it says clear as day, "We have a huge gigantic windfall here for us that we get to control. Let's grab it."
And their testimony to the court was the exact opposite. It was like, no us? We were just serving the public. But that story has just broken wide open and those documents were recently released and there was a big story in the New York Times about it. and so this adds a third element of what's gonna happen with Fanny and Freddy going forward.
Should the tax payers be providing a get out of jail free card for a financial firm the size of Fanny Mae and Freddy Mac. The answer to that question in my mind is absolutely not, but if you don't do that then the 30 year mortgage goes away.
Because there is no way you can offer somebody a fixed rate 30 year loan where there is no penalty for prepayment. It's a financial fiction. And so I don't' know what's gonna happen. I'd say that our department of justice is a little bit preoccupied with something going on with Russia. I don't know if you've seen anything about it.
Buck Sexton: I've heard stories, yeah.
Porter Stansberry: But I gotta tell you, if this story ever really captures the public eye and I don't know that it will because there is so much else going on, but the short hand here is that the Obama administration successfully stole about $50 billion – stole. Paid nothing for it, had no right to it, took it and then covered it up. And I don't know if that will ever – besides our podcast, I don't know if anyone is going to talk about this anywhere else.
But that is the largest government theft I have ever seen – it is a huge crime. And nobody, again – it's an echo chamber. I think because nobody understands it. people think of it as just too confusing or too financial. It's real simple – Fannie Mae and Freddy Mac are the biggest banks in the country by far and the Obama Administration walked up to the teller desk and said, "Give me all of your cash," and they walked out the front door with it. that's exactly what happened. It's a crime and there are a whole bunch of people that should be going to jail and we'll see if they will. I'm not holding my breath.
Buck Sexton: Yeah, I wouldn't hold your breath on that one. It certainly set a bad precedent that I think didn't get nearly enough attention. Remember with the whole GM bail out – General Motors is alive and Osama Bin Laden is dead. That became the phrase that everyone remembered.
Porter Stansberry: Do you remember Steven Ratner?
Buck Sexton: OH yeah.
Porter Stansberry: Your local New York criminal.
Buck Sexton: I remember when everyone was talking about what an evil robber baron – robber capitalist Mitt Romney was. He was a vulture capitalist –that was the phrase. Well, they had Ratner doing the restructuring on General Motors and no one seemed to pay much attention to the fact that –
Porter Stansberry: He was bribing.
Buck Sexton: You mentioned unilateral action from the government, just seizing assets. The Obama Administration decided –because Democrat party – politics trumps economics – that's the way they view things – that they would give a payoff to United Auto Workers union at the expense of the Bond holders.
Porter Stansberry: Yeah, the bond holders got $0.10 on the dollar and the unions got $0.90 on the dollar.
Buck Sexton: And that's not the way the contract was supposed to work.
Porter Stansberry: That's not the way bankruptcy works.
Buck Sexton: That's what I mean.
Porter Stansberry: You guys are all creditors and you all have equal standing. And here's the part that people don't understand that really grates. The biggest bonds that defaulted was the 2005 bond issue, which I gotta go back in my head to get the numbers. But it was something like a $10 billion issue and every bit of that money went in to fund GM's pensions. So just think about this for a second.
Buck Sexton: Sounds about right.
Porter Stansberry: GM is borrowing money because they can't afford to fund their pensions. So they're borrowing money to fund the pensions. So they then go broke. And can't pay back those loans and instead of getting their money back, the bond holders lose it to the unions. So those bonds end up becoming stolen property. It's just despicable behavior. I'm not saying it's any better or any worse. I'm just saying it's more brazen. It was certainly a shock to see the Obama administration trample bankruptcy code. But for some reason the Fanny and Freddie thing is more shocking to me – I don't know why. It's stealing from an ongoing healthy business.
It just makes no sense.
Buck Sexton: But what is a government sponsored enterprise really anyway, that's a fair question to ask I think.
Porter Stansberry: Oh sure it's simple. It's a way of leveraging the US treasury to enrich private investors and it worked great for decades. But you know what? If it's too good to be true, I promise you it's not gonna last forever. So look, Buck, I'm sure some people are nodding off here because they're like, oh yeah – really? You guys are surprised that our senior political leaders in our country are crooks. How shocking is that? So let's move onto something that I found really shocking. Is there anybody here besides me that was flabbergasted that there was anyone in America who was upset that Michael Phelps wasn't actually swimming with a shark.
Buck Sexton: Hold on a second. Because I'm a shark week fan and I've paid attention to what's going on here. I think that anybody with you know, a reasonably functional mind figured that they weren't actually going to have Michael Phelps jump into a salt water pool and see if he could like get away from a shark, although it would have made amazing TV.
They weren't gonna do that. Because first of all, the shark swims about 25 miles an hour. Phelps on his best day swims about four. So this isn't even close –there's no chance. Right?
Porter Stansberry: But he has the big merman tail. He's got a chance.
Buck Sexton: So maybe now he gets up to like 5.5 miles an hour. Meanwhile a great white shark hits about 20 when it decides that it actually wants to – I mean, once you've seen these things go after a seal and breach fully out of the water – a ten foot long great white shark breach the water because it's hitting a seal. You're like – you know what? I don't think you're gonna get away from this. I figured they would have a time trial like two cameras and a time trial in one pool for a shark or one area – probably not a pool.
Because Great Whites, by the way, don't last in captivity. Little fun fact or interesting fact. They're open water – I think they call them polagious sharks –
Porter Stansberry: Pelagic.
Buck Sexton: Pelagic – there you go. They run into the tank and eventually they just die because they are just used to not having any constraints. They can't keep them very long. Anyway, look at you with pelagic shark by the way – Mr. Stansberry, I'm impressed. But you just came out of professional fishing tournament, right? So this is –
Porter Stansberry: This is actually my thing.
Buck Sexton: This is your wheel house.
Porter Stansberry: That's also why you don't see Marlin in captivity. Same exact reason. Or blue fin tuna or any other kind of pelagic fish.
Buck Sexton: You can't get a big enough tank and also even if you had a big enough tank they're gonna run into the sides of it anyway.
Porter Stansberry: They're not made for captivity. This is so wonderful in so many ways. This brings back the whole Barnum aspect of the American people. It's just great, you know, Barnum brought a unicorn to America, right? He glued a horn onto a goat.
Buck Sexton: There you go.
Porter Stansberry: What I love about this is that anyone can be self-righteous about this. People on the media were saying this is fraud. And I also loved the reasons they gave – well, of course we're not actually gonna have Michael Phelps swim next to a shark because a shark won't swim in a straight line. No, you're not putting Michael Phelps near a shark because that's a 2000 pound animal that eats human beings.
Buck Sexton: Yeah, that would be a better reason. But Porter –they didn't just not have a straight up race, they didn't even have a real shark involved at any point. They went with a CGI shark – which by the way, CGI is ruining modern American cinema. It is completely overused all the time and that they went with a computer generated shark. Even with low expectations I thought it was a cop out. It was – what's the opposite of jumping the shark. This was stumbling into the shark.
Porter Stansberry: This was great. This is Americana at its finest. This is what the American people want and this is what they get and this is what they deserve. It's why we elect people like Donald Trump to be our president. It's why reality TV was such a huge hit. It's why I could keep going. But Mark Twain, right, said you'll never go broke underestimating the stupidity of the American people.
Buck Sexton: You had MSNBC had for the first time in its history, Porter – this last week, I think, one, the demo for all viewers. Keep in mind this is the same channel that had its biggest show – the Rachel Maddow show – do a whole day long tease of having one page of Trump's tax returns. But they just said, "We've got trump's tax returns." And people were saying, well, this is such a bad idea because of all the burned credibility. But the reality is that they had huge ratings for that night and her audience didn't care. So as a ploy it totally worked. By the way – I bet the Phelps thing – even though it's up against Game of Thrones, a lot of people probably watched it. From a free market perspective, it works.
Porter Stansberry: And I'm sure a lot of people were very entertained by it. I just love the self-righteousness of the pundits out there who they can't possibly be disappointed. There's a sign in Key West, Buck, that says Free Shrimp Tomorrow – at a bar. You come back tomorrow, still says Free Shrimp Tomorrow. Like at some point you as a sentient being have to realize that the restaurant doesn't stay in business by giving away shrimp dummy. Michael Phelps is not really gonna swim with a shark, dummy. Another good one this weekend, a friend of mine went for a hike in Pennsylvania and they were driving up in the mountains. And they saw this huge sign that said, "Free – 100 mile view. Pictures welcome, buses welcome."
Oh, 100 mile view. That sounds kind of exciting. So they drive for like 20 miles up the side of this mountain and they just go on and on and on. It goes from paved road to gravel road to dirt road to donkey trail, they finally end up in the middle of nowhere –they'd never planned on going.
And they realize they've just been delivered to a 15 home site residential development. And you're welcome to look at the view. But that's the thing, folks. Like when I was probably about five years old my dad told me something very valuable. My dad was full of great wisdom. And I never forgot, he said, "Porter, nothing is free. And if you think it is you're fooling yourself. It's not the person fooling you, it's you fooling you." I think there's a whole bunch of Americans that don't understand that and maybe that's why the welfare state continues to be successful.
You can't get something for nothing and if you do it's gonna ruin you anyways.
Buck Sexton: By the way – that's the defining problem with the healthcare debate right now. We'll talk about that another time.
Porter Stansberry: Exactly yeah –
Buck Sexton: Everyone wants their free stuff. Everyone wants free healthcare. They want either Medicaid or they want subsidized healthcare.
Porter Stansberry: You can't have as you know, economically you cannot have insurance if you have pre-existing conditions. You just can't have both. That's not insurance, that's just a payment structure. That's welfare –
Buck Sexton: It's subsidies.
Porter Stansberry: If you take a whole bunch of health people when they're 25 and you say, hey, okay, you guys are all gonna pay $400.00 a month your whole lives or the equivalent – it's gonna go up with inflation and then when you get sick the money will be there for you, that'll work. But no one is going to do that, of course. They don't want to actually have to contribute. They just want someone else to pay for their healthcare.
Buck Sexton: That's what everyone's perception is. By the way, are you ready to get yourselves into trouble here – we're gonna have to flag this for Jezebel and the Huffington Post and all those sites are going to say Porter Stansberry would like to share his thoughts on Mattress Girl everybody.
Porter Stansberry: I've got to talk to my audience about Mattress Girl –because I had not seen any of this until this weekend. Long story – a coed at Columbia – are you even allowed to say coed anymore or is that considered sexist as well?
Buck Sexton: I mean, you're saying it so it's definitely mansplaining, it's probably even Portersplaining.
Porter Stansberry: [Laughs] So a woman student at Columbia – which is a very prestigious college – in New York City –
Buck Sexton: Ivy League.
Porter Stansberry: Ivy League, right. She had a boyfriend or a friend –and this happens a lot in college. She was friendly with a boy. And she met him when they were freshmen and they were friends for three years. They spent a lot of time alone together. And you'll never guess what happens when 19 – 20 year olds spend a lot of time together alone – male and female. You'll never guess what happened next. So they had intimate relations and they had several different sessions, if you will of intimate relations. And they seemed to be getting along splendidly.
And one time they had intimate relations and there's a dispute about what occurred during this particular alone period that they had together. And of course, I wasn't there, you weren't there, I have no idea what happened. But you have two very intelligent and sober, I believe as well – I don't think drinking was involved in this case.
And then well – you know, the guy has other girls that he's interested in. and the girl has other guys that she's interested in and they sort of split paths in that way. They don't share those private times together in the same way. Wouldn't you know it, their friendship suffers a little bit as a result. They're not quite as friendly with each other as they once were. They don't spend as much time together as they once did. Buck maybe something like this has happened to you some time in your life. You get close to someone, you get to know them a little bit. One thing leads to another and then you discover – hm, the chemistry is not quite there for me or I've got other things I'm interested in.
So you know – you what's the word? You ghost? You just sort of disappear.
Buck Sexton: Ghosting is when you – yeah, is when you totally disappear on somebody without any explanation.
Porter Stansberry: I'm not sure that he ghosted her –
Buck Sexton: No, he didn't ghost her – actually, Porter. I know the case – the details of it – in depth and there were sessions after – there were intimate sessions after the session in question and there were text messages –
Porter Stansberry: Hold on there was no more sexual contact after this particular one that is in dispute. There was text messages – are you sure? Because that wasn't part of the stories that I read.
Buck Sexton: There absolutly were text messages – but the text messages were of an intimate nature.
Porter Stansberry: The girl was very explicit about what things she would like to do again with this said young man. But they didn't actually get together again. The narrative that I'm crafting here is this is a woman scorned. And we know that when men are scorned they stalk people relentlessly and commit violence. What I'm learning is that when women are scorned in this day in age, they eventually turn it into a legal matter, especially if they're extremely intelligent, perhaps wealthy I don't know Columbia students. But in any case a long period of time goes by – right, Buck?
This is like six or seven months go by. And they both appear to have moved on with their lives and suddenly the boy is walking through the halls one day and a dean comes up to him. This is in like May of his junior year. And the event in question happened in like September or October.
So a long amount of time has gone by. Dean walks up to the kid and says, "Hey, our sexual affairs office needs to talk to you. And he is completely dumbfounded. he has like no idea what the – he thought maybe he witnessed something. He didn't know what the heck was going on. And of course, there's no due process, so he's not given an explanation of the charges against him. He's not given a chance to consult with an attorney. He's just brought into this office and interrogated.
And again, he has no idea what he's being asked all of these questions about. He thinks he and this girl used to date and now they're just friends – sees no problem. This is six months later. Anyway, here's the key detail. The woman moved on with her life. By her text messaging and by her later actions she seems to have been regretful that she had had intimate relations with this guy and the relationship didn't work out or whatever. And then she runs into another girl or two who both say, "Yeah, that guy dumped me too."
And she urges them to come forward with a complaint. One of the girls subsequently completely reversed her testimony and said, "I was just trying to support my friend. This guy never did anything to me." And one of the alleged other assaults – which is what the media has called this guy. They have called him a repeated offender, you know, like a serial sexual predator. One of the assaults was flirting with another girl at a party.
And so this woman – her name is – the woman who brought charges against this poor fella –
Buck Sexton: Emma Sulkowicz – all of this was thrown out, by the way, by the university. As well as the NYPD.
Porter Stansberry: She then to harass this guy she then carried a mattress around for an entire year on school grounds including at graduation and she claimed that this was the mattress where he had raped her. That's how she categorized the issue. So when all the actual testimony comes forward, it turns out that the entire encounter was consensual – completely – according to both sides. Until six months later and then there was only one thing he did during the encounter that she didn't like and apparently when she said, "I don't like that," he stopped doing it. and the other two people basically later recant their tales of woe. So for two years this guy's life gets turned upside down.
And then finally just this past week –
Buck Sexton: And by the way – I'm just checking here – there was another – here's from the Daily Beast. "The next morning we had a talk about it and we both felt that it was not a good idea," said this Nungesser – the guy who was accused, explained they didn't want to risk their friendship. Four or five weeks later he says, there was another sleepover that led to another sexual encounter, another talk and another decision to move on soon after which the two parted ways for the summer.
Porter Stansberry: I got you but the alleged sexual assault happened in the last of those sleepovers. These were two friends and they kept having se with each other. And afterwards, he kept saying, "I don't want a girlfriend, this is not where I want to go." And she was saying okay.
They get together a month later and it happens again and then finally it happens a last time and then it doesn't happen anymore and then six months later she says that she was assaulted. Anyways, the idea – I find this scary for a lot of reasons but let me tell you the obvious one. The idea that a consensual sexual relationship could become a rape six months later and lead to you being thrown out of school is shocking.
The idea that a consensual sexual relationship could be classified as a rape six months later and lead to you being harassed by everyone you know in your social circle, being labelled a serial rapist and that your false accuser would get invited to the state of the union address and be made into a political figure – this is all desperate times for anyone who is interested in truth or integrity in the legal system. I mean, shocking craziness. And then here is the best part I think. The woman who accused this man of mistreating her – which was later decided, adjudicated by Columbia as being completely false, total false accusation. She was turned into a political hero.
And then later – this is my favorite part – she decided to go into the porn business.
She is some kind of a performance artist. And one of her latest performance art is her being filmed having sex in a dorm room. I – I – I – I – look, I would not want this for my daughter. I have two boys. I don't have girls. But if I had a daughter, I would not want this for her. I would not want her to feel like accusing a guy of mistreating her is going to lead her to something good in her life.
Obviously, I want her to be careful. I don't want her to be assaulted. And if she is assaulted I want her to go to the cops and I want the guy to be punished. But that's not what happens anymore in our society. Instead, people are falsely accused and they turn this into a media campaign that enables them to achieve notoriety or fame and that's just perverse.
Buck Sexton: This was a big issue with the Obama administration. They actually changed the standard of proof used by these campus tribunals – I forget, it went basically to a preponderance of evidence standard, it's not beyond a reasonable doubt, there's another phrase that they use. But it means almost totally certain is basically what it was and the Obama administration used Title IX and federal funding pressure to force schools across the country to set up these tribunals where you don't have due process rights. And look, democrats on due process – if you're a gun owner, if you're a man accused of sexual assault, there are a few categories where there is no such thing as due process.
And unfortunately this is one of them. They really believe in this. In fact, there was a guy who was a big writer for Vox – Ezra Klein – who wrote that even if some innocent guys got convicted by these campus tribunals it's worth the cost because it'll send an important message to other men on campus to watch themselves. That's the mentality.
Porter Stansberry: It's terrifying. The thing about the Salem Witch Trials or other instances in history, where frankly – the hysterical accusations of young women have led to terrible miscarriages of justice. And this guy was just behaving in a way that I know I behaved in college. I imagine Buck behaved the same way. I think our staff in the recording booth probably behaved the same way. You're living in close proximity to attractive young women. And you're respectful of them and you spend time alone with them and you guys share intimate things. That's completely normal. That's what college is all about. Figuring who you are, what you like, who you like.
And obviously sometimes there are hurt feelings in that process. I'm sure. I got my heart broken in college. It's not unusual. But you can't then go back six months later and accuse the guy of wrongdoing. It's asinine. And by the way, I can hold this opinion and I can think that Emma Sulkowicz is a conniving, lying, self-promoting, whore – because that's what she is.
And I can at the same time be just as against anyone who is a sexual predator. Those two opinions are not –
Buck Sexton: They're not mutually exclusive.
Porter Stansberry: They're not mutually exclusive and they both are legitimate opinions that you can back with a lot of integrity. If someone is molesting a woman who is drunk and passed out, if someone is physically raping a woman, man, I would be the first guy to jump on top of the guy and knock his brains out. I know – but I've just seen again, and again and again that people will believe the most outrageous things that are levelled against high school or college, rather, kids. Especially men.
I remember when I was in college, I was a member of a fraternity at a southern school – University of Florida, SEC, big school, big fraternity parties. Big stuff like this. And there were these outrageous allegations – about once every two or three years, there'd be an allegation that somebody was gang raped at a fraternity party. It was just constant this allegation would crop up. And I went to a lot of fraternity parties, and I can tell you – the 120 people that I was in that fraternity with – there were plenty of scumbags in that group.
I'm sure there's at least a dozen of them that have had unpleasant interventions with the legal system since. They were lots of drunks. But they were not rapists. And not only that but there was 100 kids also there that were solid, good people. And if we saw anyone being mistreated in our midst we would have taken action, male or female.
Buck Sexton: Do you remember the Rolling Stone piece that they did on UVA and that fraternity –
Porter Stansberry: Completely made up.
Buck Sexton: It was completely made up. But you read the way that story was written, it's not even believable fiction when you go back. Claiming that this girl runs out of a fraternity party covered in broken glass and bleeding and no one at the university of Virginia is like, "Hey, are you okay?" They're just – we don't want our social lives to be impacted by this. The dialogue is so poorly scripted.
Porter Stansberry: The Duke Lacrosse team – another example of this nonsense. Can you – Buck, can you imagine at any time in your life there are 40 or 50 guys in a room watching women be mistreated and nobody takes action. I can't imagine that. And I wonder what's going on in the minds of these women on the left that think of men as that kind of crazy beast like predator – I don't know any guys like that. I'm not saying there isn't a creepy rapist anywhere in Baltimore. I'm sure there's lots of them.
But what I'm saying is those people are not part of friendly social networks. They're not the kind of guys you want to hang around. We're not – men are not naturally predators like that and we don't put up with people like that in our midst.
Buck Sexton: Yeah, rape is a felony – it's not a campus behavioral issue and this is what the left fails to understand. It's a criminal matter for police intervention. It's not something that your English or history professor should be sitting in judgement of without full investigative procedures and everything else that goes into an actual criminal proceeding.
Porter Stansberry: There's one more thing I want to talk to you about this. Do you think that men can be raped?
Buck Sexton: Yeah, of course.
Porter Stansberry: Of course – by men I'm talking about.
Buck Sexton: Yeah.
Porter Stansberry: So heaven forbid, Buck, some day you're walking down the wrong alley at the wrong time of day and something terrible happens to you and you get raped. What are the chances that you don't go to the cops?
Buck Sexton: How close is the nearest – in our scenario how close is the nearest fire arm, I might wait a little bit. But yes, eventually I would obviously go to the police.
Porter Stansberry: What about if this happened in the alley across from where you live and you had to –
Buck Sexton: I hear what you're saying, it's a clearly criminal matter and would be reported as such.
Porter Stansberry: What I'm saying is I would want those guys to suffer and die. And if I was incapable of killing them I would bring them to the police. What I wouldn't do is send friendly text messages to them for six months and go about my life completely as normal.
Buck Sexton: Yeah, that's where this is.
Porter Stansberry: Who can possibly decide to make this their social or civil rights issue. Just like by the way – I felt, this is also gonna get me in a ton of trouble, it boggles my mind that the inner city residents of Baltimore have selected Freddie Gray to be their champion – their martyr. This is the poor kid who got killed in the back of a police van. It's a terrible story. What happened to him was absolutely wrong. The people responsible – they should be punished. They won't be, because of the way our legal system works. But they should be. I agree with all that.
But you know, they paint murals of him – and they're the champion. This is a 26 year old who didn't have a social security number because he'd never had a job. I mean, these are – this is not the guy you want to be your hero. Emma Sulkowicz who carries a mattress around for a year and who later goes on to make a porn film, that's not the person that you want as the head of your women's liberation movement – these are not –
Buck Sexton: And was invited to the state of the union address as you said by a sitting senator from the state of New York.
Porter Stansberry: These are not your heroes. These are not. You know, remember Charles Barkley – I'm not a role model. These are not role models. You don't want your kids to be anything like these people. Stop putting them forward as the head of your movement. If you disagree with any of those points of view, man you gotta get your head screwed on. How can these people be heroes to people – how can they be invited to the state of the union, how can they be cheered, when she crossed - to get her diploma, when she crossed the stage at Columbia carrying her mattress with her friends helping her, you know, and the students are all cheering, how can that be? Modern America.
Buck Sexton: All right, everybody. It's guest time – we are joined by Meb Faber. He is the chief investment officer of Cambria Investment Management and host of the popular Meb Faber show podcast – go to MebFaber.com or Cambriafunds.com for more. Meb – thanks so much for joining.
Meb Faber: Hey guys – great to be here.
Porter Stansberry: Meb – thanks for coming on the podcast and if you don't mind I'd like to just start with sort of a big picture overview of what you've done with your career in finance and what's to me is so unique and valuable about your work and your company. If you could, please, just start by explaining why you wanted to get into asset management and what your definition of smart beta is.
Meb Faber: Oh God, okay – well –
Porter Stansberry: That's not the reaction I was really hoping for, Meb.
Meb Faber: I had a joke on my podcast – excuse me – for the last time. I said if anyone says Smart Beta they have to buy happy hour. So you didn't know the rules, it's a phrase I've heard so much. But we'll get to it. I started out as an engineer, a biotech guy, in your neck of the woods. Went to school in Virginia. This is during the pretty bubbly fun times of the late 90s, I graduated in 2000.
But not just in markets but also in Biotech. You guys remember that was when they were kind of sequencing the genome up the road in Rockville, Maryland with NIH but also Craig Ventor's Solara.
Anyway, my grand plan as a 22 year old was to go back and get a PhD in biotech, but I was also a broke 22 year old so I said, I'm gonna take a year off. My brother had done his and it took him like a decade. So he said, "Meb, take a year off, make some money, then you can go back to grad school for the rest of your life." And I said, "Okay." Took a year off and worked as a biotech equity analyst.
And long story short, that one year became two. And then I started gravitating more and more away from biotech and more and more towards the quant side of the world, because I found out I have all of the behavioral biases most traders and investors find out usually the hard way that they have – I'm overconfident, I take too much risk. So I wanted to make it all rules based. And so started working in portfolio research and quantitative systems.
Eventually founded my company Cambria in 2007, right before the financial crisis and I've been doing this ever since. And now we manage almost a billion dollars across – mostly ten public funds. But also do some individual accounts and private funds as well. How's that for the one minute overview?
Porter Stansberry: I liked that a lot – but what's so different about Cambria compared to the other kinds of asset management that were available when you started it.
Meb Faber: You know, there's a lot of great shops and there's a lot of terrible shops. And you know, the gold standard of course in my view as being Vanguard. There's a million ways to invest correct and simply and there's also a lot of ways to do it really, really awfully. Not just the predators on Wall Street, but also all the emotional challenges of doing it yourself. So – all the strategies and funds Cambria manages exist in kind of – there's about three criteria for us in launching these strategies and ideas. One is that we want it to be something that doesn't exist or that we think that we can do much better cheaper.
In some cases, we are the cheapest and cheaper than Vanguard in some cases.
It's just an area that doesn't exist. Another – it has to be something that I would put my own money into so I invest 100% of my net worth in our funds and strategies. A lot of people don't know this but most mutual fund managers – the statistic is around 70% of certain share classes asset allocation funds, balance, have zero dollars invested in their own fund. And it's something like 80% have less than $100000.00 invested in their own fund. So it's kind of misalignment of interest. And there's just a handful of strategies that we think there's a better way to do it.
Porter Stansberry: Give me an example, Meb.
Meb Faber: Oh boy, man we could talk for hours. One general example is dividend investing. You know, and this is gonna tick off about 95% of your listeners right now, and the reason being is that say, for example, investing based purely on dividends historically one of the most time honored strategies – you can take this all the way back to 1900 investing in companies that pay dividends, investing in companies that don't, investing in companies that pay high dividend yield, feed the broad market cap portfolio.
Well there's a couple of challenges, one is that dividends don't outperform in a taxable account. A lot of people don't know that.
Second, is that if you take a step back and say, "What are dividends?" Dividends are really just a value tilt or a factor. You could call it smart beta if you were going to market it. You could have a dividend fund and call it smart beta. Really, smart beta is anything that deviates from what we call the market cap index, so just buying the biggest companies. But so – let's say you buy a dividend fund.
All you're getting is a tilt towards value. And it's not a particularly good tilt.
So you look a little bit like value, but you often end up in junkier companies that have higher leverage. So you can do certain things, like say – forget just the word dividend. Let's just focus on value in general. And you can use any value metric, whether it's price to book, price to sales – cash flow I think you like.
Enterprise value to EBITDA. Use an average of all of them and all of those outperform dividend stocks. Now, you compare dividend yield with value in which case it's okay and on top of that – last comment on this – is that you could have a value strategy that avoids high dividend stocks and is vastly more tax efficient than a fund that would invest in dividend stocks. That's just a good example because if you look at the literature and don't even get me started on dividend growth. Because dividend growth actually doesn't outperform high dividend yield either.
You know, but there's massive amount of literature in almost every single fund company has high dividend yield, dividend growers, dividend aristocrats, all these funds, and it's really just good marketing. That's one example. You could keep me out here for hours, but that's one quick example on something that we believe that almost the rest of the universe doesn't agree with me on.
Porter Stansberry: Meb – I would encapsulate what you'd done so well in finance by saying that when you got into the business it occurred to you that most of the wealth management industry didn't exist to make their clients' money, they existed to extract wealth from said wealth management systems, and that has long irked me and my partner Steve Sjuggerud and I know it irked you which is why we became friends and have had a good time together researching these things for the last decade, I would guess – you and I have known each other for at least that long.
What I'm so impressed by is that you take on all of these conventional wisdoms and you do all this research to prove, if it's popular it probably doesn't work, here's what works a lot better. And you build those systems into your funds and into your accounts and can you give us an example of how that's actually worked out in principle for you. Do you have funds that are outperforming the S&P 500?
Meb Faber: Yeah. Take a step back – and here's the interesting landscape is that a lot of people focus on – I talk to investors every day. They focus on kind of the wrong questions. They'll say how is your fund doing the last quarter. I see you just launched a fund that's out three months. Why is it underperforming. I say, okay, hold on – take a step back. Almost any strategy, asset class can go through periods of under-out-performance for a year, a month, many years for example. If you look at this cycle since 2009 value has been a very difficult strategy.
Foreign investing – the S&P 500 since the bottom in '09 has been the number one performing country in the world, until about a year or two ago. So things have changed recently and that's a very rare event. Usually it's a coin flip. If you go back as long as there have been equity markets – back to 1900 – US versus foreign is essentially a coin flip – 50/50 over time. And that makes sense, there's no real reason necessarily that one country should outperform another over long periods.
But there's been a massive gap over the past say eight years since the crisis. Well what's that done is that's created a huge valuation gap as well so the US is we calculate one of the most expensive stock markets in the world. But the good news is most of the world is reasonably priced to cheap to some parts of the world, very, very cheap. We've been saying this for the past few years. You've seen this at some of the talks I've given at Stansberry events, where we say, look, pounding the table saying, "You've got to have foreign exposure."
Most Americans have roughly 70% of their stocks in US stocks and just the global market cap index should only be half in the US. So here is an example of something I've been pounding the table on and was wrong in 2014. A lot of the foreign markets continued to go down, continued to get cheaper, but then you really started to have a bottom over the last few years and what you've seen since is a massive run now. Last year it was Brazil and Russia – the two cheapest countries in the world. And now it's shifted a lot more to Europe, eastern and emerging Europe and a number of these countries that have really been bombed out that are down you know, 50, 60, 80 – in Greece's case 90%.
So you're starting to see, that's just an example of something that has outperformed a lot in the last two years but didn't prior to that. There was a handful of years where the US was the only game in town. We still think there's a lot of opportunity there. The valuations in many of these countries are very attractive.
Porter Stansberry: I've got one more question for you, Matt. I notice some of your funds, you'll use leveraged ETFs. Can you talk about why you do that and how you manage the risks of those things?
Meb Faber: Let me correct you slightly. We don't use leveraged ETFs but we will use derivatives. So we will use futures. We will use options. The most recent fund that we launched was a tail risk fund, which is an example of another thing that you know, doesn't really exist if you wanted to go by a tail risk sort of strategy we think it makes sense because it's eight years in, bull market, stocks are expensive in the US, and volatility is a some of the lowest it's ever been.
But this is an example of where we'll buy options and it's a ladder of puts on the US stock market paired with 90% of the portfolio is in government bonds. So leveraged ETFs I think is – you gotta be really careful. A lot of individual investors. You gotta look into how they rebalance, when they rebalance, if it's daily, you know, those funds can have a lot of volatility losses based on how they rebound. Versus some of the longer ones. We're happier using – it's a lower cost to us because we're not having to pay the management fee. To use futures and options.
And I think we have three funds now that use those.
Porter Stansberry: I'm very interested to see how that tail risk fund pans out. As you know, I have a similar newsletter – we call it the big trade – where we're taking advantage of the remarkable and record low volatility in the market to buy long dated put options on companies whose balance sheets we believe are highly suspect.
Meb Faber: What do you mean? We don't have bear markets anymore, Porter.
Porter Stansberry: No more bear markets, Meb. It's all behind us now.
Meb Faber: That's a thing of the past.
Porter Stansberry: We'll never again see the market decline by 30%. I suspect we will. Did you see – I guess it was in the news this morning but a trade was put on I think on Friday where somebody is betting huge about an increase in volatility by the end of October –
Meb Faber: It was me. Why didn't you just call me.
Porter Stansberry: There's a $250 million notional bet.
Meb Faber: No, not us.
Porter Stansberry: Anyways – very interesting. Meb, if folks want to learn more about your funds or how you guys design your investment strategies. What's the best way to get an overview of you, your firm, and your ideas?
Meb Faber: Just about everywhere – Cambriainvestments.com, Cambriafunds.com, you can find my blog – Mebfaber.com and I actually have a book coming out this month, my sixth, called the Best Investment Writing. Lots of places and of course you can watch me pick fights on Twitter too @MebFaber.
Porter Stansberry: And what about idea farm? Is there a way that people can sign up for that?
Meb Faber: Yup. Ideafarm.com – that's aimed at professionals but individuals as well that are very interested in markets can check it out, there's a free trial on there I think that you can get for two weeks or a month – ideafarm.com.
Porter Stansberry: Great, I have to tell you – I love the idea farm. I don't know exactly how I got on it, but I get that email I guess weekly and it has fantastic research white papers about different studies and I find that very, very useful. Meb – thanks for your time, thanks for coming on the podcast and I hope the investors that are out there are listening, we'll check you out.
Meb Faber: Okay, thanks for having me.
Porter Stansberry: You guys I hope you got something out of Meb. I tell you, he's a much better investor than he is a self-promoter. You've got to check out his work at MebFaber.com at least – he's got some really brilliant ideas and it's a great place for you to go and learn what actually works in investing as opposed to what the mutual funds have sold you over the years. You were saying – investing for millennials a minute ago when we were off air. Buck, the first thing I would tell you to do is go to Stansberryresearch.com and look at our investor education stuff – it's all free. All the basics are there and find a guy like Meb Faber.
Go to Mebfaber.com, get on his blogs, start reading and learning about what works in investing. If you do those two things and you combine that with basic financial discipline. The key to financial discipline is paying yourself first. So when you get that paycheck, take 10% of it and put it aside. You know? And put it into a separate account and don't use that account except for investing. If you're not able to do that then educating yourself about investing is pointless.
You've got to fund your account balances and the money that you put away today will be worth 10 times to 50 times more than the money you put away after you turn 40. The time value money – that formula can't be beat by any investor anywhere. So the money you save in your 20s is the most valuable money you'll ever save.
Buck Sexton: So don't liquidate my small 401K in my 20s so that I can afford that vacation to – you know, I don't know – Indonesia.
Porter Stansberry: No, but I can tell you I'm much better at giving advice than I am at following it. I actually liquidated an investment account that I had – I had invested in some Coke stock and I rolled it into – you guys probably don't remember but the 90s Coca Cola shares just soared. My dad worked at Coke, so I had some coke stock. And I rolled about $10000.00 of Coke stock into Amazon at $3.00 a share and I rode Amazon until some point in the 2000 run up – I made a ton of money and I sold most of it and took me and my girlfriend to Key West for a couple weeks. If I had just left it at Amazon, we – well, you know. I wouldn't be shopping for planes, I'd already have one.
Buck Sexton: Want to get into the mail bag, Mr. Stansberry?
Porter Stansberry: Let's do it. Let's roll.
Buck Sexton: All right – Dear Porter – this is from our mail bag, everybody. And those of you listening, if you want to have your email featured here, write us at [email protected]. Here is one from James – which is actually my first name – my middle name is Buckman, that's how we get to Buck. Your middle name is Porter, by the way. We got two middle name guys here.
Porter Stansberry: F. Porter – F. Porter – that's right. Frank Porter Stansberry.
Buck Sexton: And I'm Jay Buckman. That's right – all the best people go with middle names. All right, dear Porter. I just listened to your episode entitled Porter's big lesson on valuing a business and I just wanted to say great job – well done Porter. It is extremely helpful to have someone lay out step by step the valuation process for both a good and a poor company, keep up the good work. I just want to say thanks to James here. James – we've received a ton of feedback on Porter's stock valuation lesson and we're really happy that you're finding it useful. For those that are new listeners, if you'd like a link to that stock valuation video, just go to investorhour.com and enter your email.
Investerhour.com – you'll receive a link to the show achieve and transcripts on the Stansberry website.
Porter Stansberry: I got one word of warning about the evaluation video. And that is it's a great way for you to get started. But valuing a business is an art not a science. And the only way to get good at it is to do it for a long time, because the assumptions you have to make regarding growth are very hard to judge. It's a lot easier to find a business that's cheap. You can definitely find businesses that are cheap, what you can't find out is if they are ever going to be worth more. A grain of salt with the valuation video – but you'll discover that on your own as you invest. Nine times out of ten there's a reason why the stock is that cheap.
Buck Sexton: All right – dear Porter and Buck, hey guys – I'm loving the new show. Glad to have Porter back on the air. Just want to say I think you're doing a great job with the format and the news stand's marketing approach in general this year. I was one of your long armors for the old show and remember Porter talking about bitcoin back in 2013 when it was first touching $1000.00. I'd love to hear if Porter's view on this has shifted with all the innovation happening in the cryptocurrency space. Keep up the good work, Steven. And he asked to bring back the Black Label show – Porter. But Bitcoin first.
Porter Stansberry: Bitcoin is really a remarkable thing. My opinion about it has changed a great deal. I was always very interested in it. but I didn't favor it as a replacement for gold and I'm not sure that I ever will. The reason why you own gold, Buck, is because it's a financial asset that is universally accepted and that isn't anyone else's corresponding liability.
Virtually every financial asset you own – except for gold has a corresponding liability somewhere on another balance sheet. So you think that you own ten shares of stock, but that stock is an obligation of that company. It's an ownership stake in that company. So if that company goes out of business then you don't actually own anything and so the nice thing about gold is it's portable, secure wealth. And that's the reason why gold plays a role in your portfolio.
I don't see how bitcoin can ever really replace that. And I – I'm sure that I'm in a minority in that regard, because the way they've built bitcoin is that that's exactly the purpose of bitcoin. It's a digital equivalent of gold and I'm not gonna get into the programming of it but I still feel like you have to have a lot of modern things for bitcoin to work. You have to have computer networks. People have to accept it. I remember being in the Darien Jungle in Panama and this is one of the only places in the western hemisphere that they couldn't build a road. The Pan-American highway does not go through the isthmus of panama because of the Darien Jungle. It's extremely remote.
And we were there with some friends fishing. And we wanted to go see the Indians so some guys went up to go see the Indians and one of them was a gold coin dealer and he was like, "Oh, I bet these Indians don't have any idea what their gold is worth." So he made an offer to buy some of the nuggets that were sitting there. And the guy picks up a satellite phone, gets the London PM closing price and quotes him the global price. I mean, gold is universally accepted. Really, truly universally accepted. So I think that is something that bitcoin has a long way to go in terms of matching gold.
But I want to say something about bitcoin. If you don't know what it is or you don't know how it works, go onto YouTube and watch a couple of basic videos that explain it. Because it is the most elegant computer software I have ever seen. It is really, really a beautiful work of industrial art. It is robust, it is secure and I'm confident that bitcoin will be the reserve digital currency for a very long time.
As far as whether or not you should own it, man I have no idea. I don't think anyone really knows what it's worth or what it's gonna be worth. There's a guy in Baltimore – Bill Miller – he's famous because he used to run the Leg Mason Value Trust and for a long time that fund outperformed the S&P 500. He did an interesting thought experiment about bitcoin and he figured, I have no idea what it's worth but it could be worth a lot.
So he put like 1% of his net worth in it when it was at $100.00 or something. That kind of speculation I think makes sense. But look – you have to do a lot of homework just to figure out how to buy it. it's not easy yet. So I think that it's very likely that the value of bitcoin is going to continue to increase and I think it's something you should definitely understand.
So educate yourself about it at the very least.
Buck Sexton: All right, everybody. If you have a question or want to let us know that we've delighted or inspired you here on the Stansberry investor hour, let us know. You can write to us with [email protected] – that's just – email us, [email protected]. [email protected].
Remember if we use your question on the show we will hook you up with some Stansberry research gear. Love us or hate us, just don't ignore us. Next week we've got Richard Mayberry – author of the Uncle Eric book series and editor of the early warning report. He's gonna be joining the show. Very exciting stuff, Porter.
Porter Stansberry: Richard Mayberry is a shockingly brilliant guy and I hope that you will tune in to hear him. I promise you that you will not hear anyone like him anywhere else.
Buck Sexton: For those of you who are listening, by the way, one quick favor I would ask you is if you like what we're doing here do share the show with a friend. It's very easy to do. Just go on iTunes or Google play. You can download – you can have a download link there or just tell somebody. Just say, hey, you gotta check out this show that Stansberry Research has pulled together. The Stansberry investor hour. And those of you who want to know what I do by the way, I do a three hour radio show by the week every day Monday through Friday as part of premier radio network's line up. I'm on after Sean Hannity. You can download that – Buck Sexton with America now. If you want to just do politics and national security – that's a place for you to go. Porter, anything else?
Porter Stansberry: No, thanks for doing the show – Buck. It's always a pleasure to be with you for this hour this week, hope the listeners enjoyed it and I can't wait until next week when we have some more mansplaining.
Buck Sexton: That's right. We're gonna double mansplain.
Recording: 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 email. Have a question for Porter and Buck? Send them an email at [email protected]. If we use your question on air, we'll send you one of our studio mocks. This broadcast is provided for entertainment purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments involves risk. You should not make any investment decision based solely on what you hear. Stansberry investor hour is produced by Stansberry research and is copyrighted by the Stansberry radio network.
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