On this week's Stansberry Investor Hour, Dan and Corey are joined by two of their Stansberry Research colleagues, Matt McCall and Brett Eversole. You may already be familiar with these names. Matt and Brett are the lead analysts for The McCall Report and True Wealth, respectively.
Dan and Corey kick off the podcast by analyzing AMC Entertainment's recent issuance of millions more shares and whether this will spell the death of this "meme stock." After that, they discuss three famous investors who all made headlines recently for giving negative future market outlooks. Specifically, these investors believe the bubble isn't finished yet and more companies will default on their debt, which could result in a recession by next year. Dan notes...
Nvidia is the fourth-biggest stock in the market. Every time people contribute to their 401(k)s, they're buying Nvidia. They're putting whatever it is, say 5% of their money, into Nvidia, and 7% into Apple. So if any one of those stocks cracks – and Nvidia is certainly the most egregiously overvalued – it could be a problem.
Next, Brett and Matt join the conversation by talking about why they're bullish right now. Matt notes that the reason 2022 was so brutal for investors was because of the Federal Reserve rapidly raising interest rates. While one more small rate hike before the year's end is possible, Matt still thinks the rate cycle is nearly over. This would, in turn, be good for equities and move the markets higher.
The duo goes on to cover specific sectors, industries, and individual companies that they're bullish on. Matt explains that his investment style is discovering big mega-trends and then finding smaller plays within those spaces where opportunity lies. This leads to him mentioning how companies embracing artificial intelligence ("AI") could be big winners in the years to come...
I think we're going to see a new wave of software companies – not all of them, but the ones that are incorporating AI and already have market share – really do well.
Then, Brett shares some of his AI-industry favorites... and notes that the market as a whole has the potential to massively increase productivity, leading to increased margins. Specifically, Brett believes there's a structural change happening in the companies that make up the stock market. He comments...
It really started in 1990. Back then, the margin on the overall market was around 6%. But that's really when these software companies and tech stocks, as we know them, that can have 20%, 30%, 35%, 40% net margins came into existence. And [they] have really taken over the market as a whole.
Finally, Brett and Matt talk briefly about housing supply and homebuilders before launching into the energy sector. Brett emphasizes that while there's a push for green energy, we're going to need fossil fuels for a very long time. Oil and gas companies will continue to be incredibly profitable for many years, he says. Plus, Matt highlights the problem of many renewable-energy projects being completely built but unable to get onto the energy grid because the grid is so old.
Lead Editor of True Wealth
Brett Eversole joined Stansberry Research in 2010. He is the lead editor and analyst for True Wealth, True Wealth Systems, True Wealth Real Estate, and DailyWealth.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan interviews our colleagues, Brett Eversole and Matt McCall, to get their latest take on the markets.
Dan Ferris: And today we'll talk about AMC Entertainment and three famous investors who have come out with some kind of bad news for us.
Corey McLaughlin: And remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].
Dan Ferris: That and more right now on the Stansberry Investor Hour.
I just feel like I always have to talk about AMC. Every time they come out with a new filing, I say, really? They really did that? Like, they just filed a prospectus to issue 40 million more shares. It would basically take their share count up another 25%, and it's already increased like 29-fold in the past three and a half years or so.
Corey McLaughlin: It's unbelievable.
Dan Ferris: Yeah. The stock's down 98% from the meme-stock high of June 2021.
Corey McLaughlin: Right. 98% and we're still trying to –
Dan Ferris: Issuing.
Corey McLaughlin: Do something. I don't know what they're doing. But.
Dan Ferris: Yeah, we're still issuing. And I don't know, if anything it shows you just how unbelievably potent the meme-stock phenomenon was. Because these guys should have just been headed for bankruptcy three or four years ago. And yet the meme stockers got in it. They caused a huge short squeeze, and then they thought they were going to cause an even huger one, and they never quite did. And I bet some of them have hung on the whole way down. I know some of them have probably averaged down. And you know, now they're down 98%. When the 40 million share filing came out, the stock fell 36%.
Corey McLaughlin: Yeah, I'm looking at a chart right now of the last several years. And it was, in late 2020, shares of AMC were about $11. Got up to $400 in like the middle, early 2021. And now we're back down at below $8 as I'm speaking right now. So it's like, there you go. And it was a slow burn down, too. So I think you're right. I think there was, it's just this hope and willingness to try to hang on to this story and make something of it. Like, oh my God, it was at $400 in 2021 for Christ's Sakes. It can't possibly go to zero. Well, it looks like it's on its way.
Dan Ferris: Except that, yeah, it is. It's just, that you could almost hack off the chart, you could hack from just call it December 2020 until a month or so ago, right off the chart. And it's just a steady deterioration, right? It's a company going bust. I've thought about it, I don't know, I do expect it to declare bankruptcy at some point. But I don't know if it goes away or if it hangs around.
Bankruptcy isn't always the end. There's not always a liquidation. So I don't know. People have come back to the movies somewhat. I refuse to believe that nobody anywhere can operate a movie theater without making some kind of money. But this company, they've got $9.5 billion in debt. They've issued all these shares, and still just couldn't make it happen. They bought a piece of a gold mine. I mean, it's just like –
Corey McLaughlin: What could go wrong, yeah.
Dan Ferris: Yeah, I know. A gold mine that was not operating, you know. That definitely needs $2,500 gold just to open the doors.
Corey McLaughlin: But to me, this does raise the question. Obviously, AMC was a big bubble, a big obvious symbol of the bubble of 2022 and 2021. So now that it's below $8 a share now. Is the bubble of that era over?
Dan Ferris: Yeah. The meme stocks are done, right?
Corey McLaughlin: Meme stocks are done.
Dan Ferris: This is the last one. The biggest and last one. It's the last hurrah. They're issuing 40 million shares. The stock is down actually almost 40%, like 40%-ish at this point, since the announcement. So, it's over, folks. You tried. You went on Twitter, you went on Reddit. You told everybody to buy it. You said you weren't leaving. Nice try. You had a couple good runs in there. Hopefully, some of you exited on those good runs. But it's over.
Corey McLaughlin: But it's not, for the, you know, for the market though. I mean, for, for some of those expert investors that you were talking about in our opening, right? I don't think they think it's the end, right? Of whatever inflation of the market we saw the last couple years, right? This, obviously, the meme stocks... maybe they're the first to really just crash and burn completely. And this is the last of the meme, the biggest of the meme stocks and the last of the meme-stock stories. But it seems like there's still a lot of, ways to go to blow off all the excess greediness of the last couple of years.
Dan Ferris: Right. So, we start with Rob Arnott, who's been a guest on this show a couple of times. And he is saying recently in the press, Nvidia is sort of a one-stock bubble. But he says you know, he was asked, would Nvidia, or he asked the question to himself. Would Nvidia's popping bring down the whole market? It's very possible, he says... which actually makes some sense to me, because it's the fourth biggest stock in the market now.
Like, if you buy an S&P 500 fund, you've got 20% of your money in four stocks, which are what? Apple, Amazon, I guess Microsoft and Nvidia. So, yeah. If a good chunk of the market, that's a good chunk of the market. Every time people contribute to their 401(k)s, they're buying Nvidia. You know, they're putting whatever it is, 5% of their money, 4% or 5%, into Nvidia. And 7% into Apple, etc., etc. So if any one of those stocks cracks, and Nvidia's certainly the most egregiously overvalued, it could be a problem. I think I see what he's getting at there.
Corey McLaughlin: Yeah, I do too. Because the first half of the year, well, you can say that you know, it's been uptrends for stocks generally speaking. I mean, there's no questioning that the big tech companies, popular tech companies led the scale of it higher, you know? Like Nvidia... Apple. And now Apple, let's talk about Apple for a sec. It's down almost I think 8%, 10%, somewhere around there the last couple of days, last week.
So, and the market's been volatile to down. But at the same time, there's a lot of stocks underneath the surface that are, or underneath the popular stocks, that are still just kind of either treading water or slightly higher. Without the big popular tech stocks, I think it would be more of just kind of like the sideways market. But they, you know, the market is what it is. So those are the big ones pushing things higher. So you'd think they could drag things lower too, if sentiment and everything else goes the opposite way.
Dan Ferris: Yes. So more broadly, Jeremy Grantham did an interview with David Rubenstein of Bloomberg recently. And he's talking about stocks, recession, inflation, interest rates. And he's studied bubbles. His firm, GMO, they have studied 30 some bubbles. And he, I have a category that I call mega-bubbles. He calls them "superbubbles."
And you know, like 1929, 200, dot-com... He puts the 1973 top in that category. I had not previously done so. And of course, the current episode is one of them. And you know, he's saying that one of the quotes from his interview, he says, "In the end life is simple. Low rates push up asset prices. Higher rates push asset prices down.
We're now in an era that will average higher rates than we had for the last 10 years. And then he says, I suspect inflation will never be as low as the average for the last 10 years. So that all kind of rerates the whole stock market, stock and bond markets, right? Higher rates. Lower equity valuations. And I would suggest probably you know, more volatility and sideways market action and stuff.
Corey McLaughlin: Yeah, that was a good interview that he did. Just, he also said in it, he expects a recession into 2024, possibly starting later this year. And this is like a recent interview, so it's not delayed in his take here.
Dan Ferris: Yeah, for anybody who knows, he's been saying this stuff for a while. That's right. This is very recent.
Corey McLaughlin: Right. And I love reading Grantham's stuff, too. You've written about him in the Digest. And it's hard to, and through that interview, I got the sense that he's not making these warnings or alerts, whatever you want to call them, just for fun or for marketing purposes or anything like that. This is what he actually believes, and he's been right so many times. And other people have totally ignored bubbles that were brewing because it's not popular to do I guess. Obviously, we have no problem talking about it. But a lot of other people do. So Grantham, yeah. He's a guy I would listen to on these subjects.
Dan Ferris: As a practical matter, his firm averages $60 billion, OK? So he doesn't want to scare clients away, but he shouldn't scare them away, because among other events, you know, he's nailed a couple of these huge bubbles, dot com and the financial crisis, and they brought their clients through it pretty well. It makes sense that he's talking about this. He's in a fortunate position of being able to do that. I bet there are a lot of people in Wall Street who just aren't allowed to do it.
But somebody else is allowed to do it, who also helped his clients through bubbles, is Howard Marks from Oaktree. And he did one of these David Rubenstein interviews recently too, but I don't think it's out yet. So Bloomberg just published some of the comments, and I'd rather focus on what he actually said. They just have a couple of quotes. One of them is, Mark said, "When you go through a period when it's super easy to raise money for any purpose or no purpose, and you go into a period when it's difficult to raise money even for a good purpose, clearly many more companies are going to founder." I love that quote.
Corey McLaughlin: Yeah.
Dan Ferris: I do. I put it in Friday's Digest, because I just couldn't resist it. Because there were vehicles. I mean, special purpose acquisition companies, SPACs, that were designed to raise money basically for no purpose whatsoever. And SPACs like, there were 800 of them that came public in 2021. 2020 and 2021.
Corey McLaughlin: Right, for unknown purposes.
Dan Ferris: Yeah!
Corey McLaughlin: You know, for purposes to be determined later.
Dan Ferris: Yes. And you know, if you go to SPAC Insider, they track the returns. And it's been a disaster. SPACs have been a disaster for 14 years. The best return for companies that merged with SPACs were industrial companies since 2009, the median return is minus 4%. Mostly they sliced and diced the market into industries and market caps, equity value, whatever. And all the returns are like, super negative. You know, minus 50%, 60%, 70%, 80%, 90%, for every size and every industry. I mean, it's just been a disaster. That's just one way. But Marks is really talking about debt, just so we're clear. He's not talking about SPACs.
Corey McLaughlin: Yeah, and I love that quote too. Because it shows you just the appetite switch from 2020, 2021, to now, where now you have you know, companies that are still, maybe they're not great. But at least they're well-intentioned and have actual tangible, or actually companies already. And you know, they're going to run into trouble if they're not already. The ones that have huge debt problems, and get into the refinancing cycle if interest rates are still where they are and maybe go higher.
Yeah, it's a good way of putting it. And Rubenstein's reminded me, I mean, Grantham's reminded me of Warren Buffett's you know, interest rates are to the market what gravity is to the apple. It's like when interest rates go higher, asset prices generally go down, and the opposite. And taken collectively, when you take all these people collectively who are very smart, and a lot smarter than me in the markets and everything, you just take this information and if you ignore it, fine.
But I'm not ignoring it, you know. You take all these people together, and this is a lot of good information and a lot of good valuable opinions to listen to when thinking about your own portfolio, I would say, so.
Dan Ferris: Yeah, I would say so. And all three of them are sort of value oriented, long term. I think I can throw them, all three. I know I can throw Mark and Rob Arnott in that category. I think Grantham applies too. Value oriented, definitely long-term focused. And so, you know they've all been around for decades and decades and have done great work for decades and decades. I don't take anybody's word for it without thinking more about it. But you know, Arnott's comment about Nvidia, that's just pure confirmation bias because I was already there with that. And maybe even the other two, frankly.
Corey McLaughlin: There's that to think about as well, yes.
Dan Ferris: So, you know, you're getting, this is like a massive exercise in confirmation bias.
Corey McLaughlin: True. Live, confirmation bias.
Dan Ferris: Live confirmation bias. So I think it's kind of appropriate that we're, for today's interview, we have two folks who will not stroke Dan's confirmation bias at all.
Corey McLaughlin: That's true, right?
Dan Ferris: Not at all. And I think, you've quoted, I think you've quoted both of these guys in the Digest, haven't you?
Corey McLaughlin: Oh, sure.
Dan Ferris: Their bullishness.
Corey McLaughlin: Yeah. Brett and Matt. Yeah. Well, bullishness for sure. And you know, looking at the market and seeing what it is, it's, you know. I've been slightly bullish myself, even though it might not sound like it. So yeah, for sure. Brett always comes to the table with a lot of great historical statistics about trends and those sorts of things. So, yeah for sure. You've probably seen their names in the Digest before.
Dan Ferris: With that, maybe we'll just talk to them and find out what it is they're so darned bullish on, and why. So let's talk with Matt McCall and Brett Eversole. Let's do it right now.
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Dan Ferris: Brett, Matt, welcome to the show.
Brett Eversole: Thanks for having us, Dan.
Matt McCall: Thanks for having us, Dan.
Dan Ferris: Well done there. Are you going to answer all your questions like that, you know, both at the same time? Who knew that you guys were so much on the same page? So just for our listeners' benefit, we mostly go out and we look for guests. But sometimes guests kind of come to us from outside and inside the company and say hey, we've got something we want to talk about. I mean, if you told me the two folks that I work with at Stansberry were going to get together and come on the show, I would not say, "Oh yeah, Matt McCall and Brett Eversole." I'm sure it will be those two. So I'm dying to find out. Which one of you guys wants to tell me, why am I talking to the two of you together today?
Brett Eversole: Well, it's not, maybe not as odd as it seems Dan, you know. The guy by the name of Steve Sjuggerud, he's retired recently. But he and Matt did a lot of work together in the last few years, and you know, I've worked with Steve for over a decade. And as he retired, I kind of moved into the shoes with him. And the funny thing is, Matt comes at investing a very different way than I do.
But we end up landing in the same spot very, very often. So I definitely take a very top-down approach. Try to figure out what's happening in the world, and then home in on investments from there. And Matt I think more focuses on the big trends, and then try to hone in on things from that angle. But we both come to a very bullish outlook right now. And that's what's kind of brought us together, and that's why we're here.
Dan Ferris: I see. So you're both crazy is what you're telling me.
Brett Eversole: You could say that.
Dan Ferris: I'm just messing with you. So Matt, maybe you can start and tell me why you're so bullish right now?
Matt McCall: You know, 2022 was obviously a really rough year for investors. Stocks, bonds, the whole 60/40. You know, one of the worst years we've had in decades. Potentially the worst year for bonds in over a century. I think we're coming out of that now. And one of the reasons obviously the market took a hit last year was the rapid pace of interest-rate hikes at the Fed. And we have a meeting coming up, and I don't think they're going to raise it this meeting.
But the odds are maybe 25 basis points more to the upside by the end of the year. I don't think they should. But there might be. And historically, when you start seeing that rate cycle come to an end, it is typically good for equities. And the big argument I get when I say that, Dan, is, and you may not agree with that. But the other argument I typically get is valuations. And if you remove the top 10 stocks out of the S&P 500, the "4 Ps" ratio drops down to like 16-and-change. Which historically, this is say last 20, 25 years, it's about average.
So you're not looking at this big bubble people are talking about. I believe inflation's going to continue to come down. I don't think we hit 2% any time soon, I'll be honest with you. I think it continues to stay probably around three... three-handle range. Which I think is still good enough for the market. I think valuations are fine. I think interest rates will come down.
So I think we're setting up for a rally. And I think that rally won't be in the magnificent seven. You know, the "big seven" stocks that really led this rally. I think we're going to see some of the small, mid-cap gains, even some of the larger-cap gains that have been out of favor. We want to see some money come into that. And that's going to be more of a broad-based rally between now and the next couple of years.
Dan Ferris: Well, I would welcome that, because small caps have certainly sucked wind here for so many months straight. Basically gone sideways. So you know, bring it on. I'm all for it. And Brett, can you just give me, like Matt gave me his big picture overall for how he got here. I assume you got here by a somewhat different path.
Brett Eversole: Well, for me, the first thing I always like to think about, and it is a very simple idea. But I think it's one of the most important things when it comes to win and where you can put your money to work safely. And that is, momentum and the trend. And you know, I've done tons and tons of this kind of big-picture research. And I know you're a value investor, Dan. And I know that can work very, very well.
But if you're able to home in on momentum, and importantly, be very disciplined when you do momentum-based investing, you can do incredibly well. And I know that it's very easy to poke holes in where we are right now. The market's up a ton this year, Nasdaq especially. But at the end of the day, when stocks have been going up, they have a history of keeping that momentum going. So that's kind of the simplest thing. If stocks are going up, then it's my assumption that they're going to keep going up.
And I know, that always has to peak at some point. But until you get a good reason to assume that momentum's going to end, then the simplest thing is just to assume that momentum will continue. That's generally how it works over history. So it's like Matt said, you know, I think about momentum first and that's what gets me interested. And then like he said, looking at valuations. I think the market is just not that expensive right now overall. He talked about inflation a little bit.
You know, I actually think we might see that 2% target pretty soon. I wrote a piece recently looking at, you know, the Fed looks at core PCE, which is around 4.5% right now. However, shelter inflation is going to collapse over the next 12 months. The San Francisco Federal Reserve put out a research piece in early August, and they kind of broke down where shelter inflation is headed. And based on their model, they expect disinflation this time next year. And if that happens, I think it's very possible we hit that 2% inflation mark.
And what that tells me is, if that happens, even if we don't get quite there. But if that trend continues, we're going to see the Fed probably cutting rates at some point soon. I've heard a lot of people in the last six months or so tell me that very, very high interest rates are here to stay. In my mind, the Fed would rather have rates at zero than at five. They just can't do it. So I think that they will be very happy to cut rates down once inflation is really under control, and I think we're probably closer to that than most people realize.
And once that happens, you know, if inflation had been low in March when the bank problems were happening, we would have seen drastic and immediate cuts. So I don't think it will take much for that to happen once inflation is under control. I think we're very close to that. So that's kind of the big picture. And then corporate earnings have been holding up pretty well.
So I think overall, you see momentum in the market, you see valuations in good shape. You see the big headwind from last year starting to disappear. And then the companies that make up the market are just doing well. The consumer is doing well. People are out there buying stuff, and earnings are robust. To me, those are all the telltale signs of a bull market. And that's what we've seen so far this year, and I kind of expect it to continue.
Dan Ferris: All right, sounds great. Hey, thanks for being here, guys. [Laughter]
Brett Eversole: Tell me, why am I wrong, Dan.
Dan Ferris: Oh, I don't know if you're right or wrong. You won't catch me making any predictions. You know, I could quibble with anything, but I'm not going to bother because my listeners have a much better idea of what I think than what you two guys think, I promise you. You know, we need to make sure we give your view enough airtime, OK? Not mine. So within that overall bullishness, obviously I could point to some places where I'm really concerned. And I could point to other places where I'm really bullish myself. I assume each of you have favorite industries, sectors, individual companies that you may or may not wish to discuss. Matt, why don't you go first?
Matt McCall: Yeah. You know, as you know Dan, I'm more of an innovations long-term investor. So I typically look to buy small, mid-cap, even some large cap. But holding period of five to 10 years... I need to let the big megatrend play out. And AI's been hot this year, so I'm not saying run out and buy Nvidia now or anything like that. But there's a lot of other smaller plays that I think are going to take advantage of this.
We have a couple stocks in the portfolio. I'll name one. Salesforce, which is a bigger name. CRM's the symbol. Software company, customer-relationship management, software. And incorporation of AI, which they've done for years already. It's just, it's coming more to light now. And you see it in the conference calls. But they've been using it for a long time. It really makes people who use that software much more productive. And so you see a lot of companies incorporating that.
And I think we're going to see a new wave of software companies. Not all of them, but the ones that are incorporating AI and already have market share, in my opinion, really do well. You look back on the 2000s, software's been one of the best investments over the last 20-plus years. And I think we've seen a lull over the last couple of years. A lot of software stocks got cut in half, if not more. Good names in my opinion, that we will see another resurgence due to AI in that. And the other link to AI is health care. I think it's really going to upend the health care industry, from drug discovery to the way that patients are treated.
The way that's going to incorporate with genomics. So I see a lot of amazing things on the horizon. Again, these are five- to 10-year investments. I don't know whether it would be five months from now. I have no idea. You have all kinds of headwinds when it comes to the market. But I believe in the big-picture trend that they're not going to be slowing down. And one other one, and I'll give it to Brett. The one that we both agree on is housing. And we're in D.C., Brett and I right now with a couple of our colleagues. And Brett and I, I think we're the only ones who believe we're going to have a housing boom, not a housing bubble, coming up, just due to inventory levels.
Nobody can get out of their house because they're locked in. Two-thirds of mortgages are locked in below 5%, so if you're buying a new house right now, you're paying 7.5%. And you're paying home prices that are higher. So nobody can move. So there are a lot of great plays. Brett brought this up today. Some of the home-improvement stores, all the suppliers and builders. I think we're going to see a big book in that. And you look at ITB, which is the homebuilders ETF, trading 5% off an all-time high. If we're going into a housing bubble, that wouldn't be the case. So those are two of the many themes that I'm looking at right now.
Brett Eversole: Yeah, I'll jump in as well. So I mean, definitely AI like Matt said. One of the stocks I really like right now is Oracle, which has a long history. And it hasn't had a great history for most of the last 20 years. It was maybe the biggest dot com darling in the late '90s, and it ended up kind of as this boring, no growth, kind of it fell like, it turned into what Cisco still is, which is a highly overvalued stock in 2000 that crashed.
And its business, while it grew, it never really was able to get back that magic that it had in the '90s. But what they've done in the last, really in the last year, is build a cloud infrastructure business that is completely geared toward AI development. So they've got these clusters of GPUs that folks are renting out that they've built, that is, you know, this is how these large language models are training. It's in these massive cloud GPU clusters. And Oracle basically has built the best generation cloud.
And so this has gone from a company that their next core early release comes out next month. But in the first quarter, they had 20% year-over-year growth. They haven't had a year-over-year growth number above 5% or 6% for the last 15 years. So it's really kind of kicked that company into growth mode once again. So that's like an individual company, but thinking bigger picture with the AI theme. What I think it's going to do for the market as a whole is, it has the potential to just massively increase productivity. And what that does is lead to increased margins.
One quibble you might have with the market right now, Dan. I know a lot of folks do, is that margins are at all-time highs or at least they're darned close to it. And there's this long-term belief that margins are mean reverting. And that hasn't been the case for the last 30 years. I think that that's, there's actually a structural change that's happened in the companies that make up the stock market as we know it. And it really started in 1990. Back then, the margin on the overall market was around 6%.
But that's really when these software companies and tech stocks as we know them, that can have 20%, 30%, 35%, 40% net margins, came into existence. And as those have really taken over the market as a whole, we've seen that margin go from 6% to 12% or 13% today. And I think AI has the potential to keep it, if not at least maintain those margins, potentially grow them as time goes on, as productivity increases.
So that's like Matt said. This is the kind of thing that's going to be, you know, it's very much an investment fad right now. That doesn't mean it's necessarily a bubble. But it is going to affect companies' bottom lines for years and years to come... which I think of it as a very bullish thing right now.
Dan Ferris: And Oracle doesn't bother you, it's like doubled in the past year? You still think it's got room to run?
Brett Eversole: Yeah, I think, like you see what's happened with Nvidia as far as their sales of these GPUs, right? That business has gone up, I don't know, like 300%. That segment of their business. Oracle is the company that's buying a lot of these and building that cloud infrastructure. So unless this AI thing just goes away and people just stop treating these models entirely, they have the best cloud buildout right now. Their cloud is better than Amazon's, it's better than Google's, for kind of these GPU clusters.
So they have the state of the art cloud infrastructure, at least today. And the assumption is they're going to keep building that out, and demand is going to be there. There's no guarantee that that happens. But I think that if AI turns into what we think it will in the next 2-3 years, then they're going to see massive growth in that segment. And this is a relatively small part of their business right now... maybe like 15% or 20% of revenue.
But when I've written about it, what's interesting to me is that it kind of looks a lot like Microsoft did circa maybe 2014, 2015, where it was in a very similar space where it had this old legacy business that wasn't growing that much. And it was a good business. But the SOC kind of did nothing for a long, long time. And then they built this incredible cloud business basically out of nowhere. And it went from 10% of revenue to 50% or 60% today.
I'm not saying with certainty that Oracle's going to have an AI cloud business that will be 50% or 60% of their revenue in a few years. But I think it's possible given where we are right now, and the outlook for that general sector.
Dan Ferris: I'm less concerned, Matt, about the valuation of Salesforce if you're talking about holding it for nine years because it's like the SAS company. And you know, long term I think Bryan Beach was telling me 15 times sales for SAS is kind of normal... or has been. And you know, there's probably a bubble effect pulling that up, so. Call it 10 or 12 or something. But still, Salesforce at six, less than seven times sales looks fairly compelling as a long-term investment. I mean, I know, companies I know that use Salesforce, they're not thinking about doing anything else.
Matt McCall: Yeah, it's such a great business. And sticky, right? You're not going to jump away from Salesforce unless something happens. They're the leaders of the innovators. So what would force you to leave? That's the thing. If businesses grow and productivity's good, and obviously you're using that to sell and keep clients and everything else. It just doesn't make sense to leave. But I've got to tell you, Dan.
As we're doing this, of course my ADHD is kicking in hard, because I've been sitting in meetings literally for the last nine hours. So I'm reading a research report that I just got out. I saw this, and I'm reading it. But this is a, from a company called Dellora Group. And it's quoted in this. And it says that they foresee global data-center capex growing 11% annually between now and 2027, up for $400 billion. And it goes back to what Brett was saying.
This research for it, I just read the title and some of the headlines. It's all about the upgrade cycle when it comes to computing right now. And we're seeing this huge upgrade cycle that I believe is just beginning. Granted maybe Nvidia front ran some of this stuff. It went up too much. Again, I'm not saying we're not buying Nvidia today. But there's a lot of other companies that are there, whether it be Oracle or others, that you're going from single-digit growth to double-digit growth for the foreseeable future. And that's going to push prices higher, stock prices higher in my opinion.
Dan Ferris: OK, so AI, Oracle, Salesforce. Matt mentioned housing. How do you feel about housing, Brett?
Brett Eversole: Yeah, I'm very bullish on housing. It's been funny over the last year or 18 months. Maybe I spoke to you about housing on a podcast in the past, Dan. I think I did.
Dan Ferris: I think so.
Brett Eversole: To me, I feel like everyone, not everyone. But most people were surprised that housing didn't go down, at least not very much, in the last 12 months. To me, this is the most obvious thing in the world. We've written about this for a decade now. There's a massive supply and demand in balance in the housing market. We just did not build nearly enough homes coming out of the great financial crisis. And it's not like we didn't build homes for a year or two. We were underbuilt for the better part of a decade, maybe a little bit more.
And it's really come home to roost in a post-COVID world. And it doesn't matter if mortgage rates go up from three to six. I mean, heck, they could go maybe from six to nine, and it still wouldn't matter. The reality is, housing is not something you can just choose not to have. Like, you need a place to live. This is kind of a requirement for life. And so there's always going to be a built-in demand, and there's no supply. So because of that equation existing, it just seems very unlikely to me that home prices have any kind of substantial decline. Certainly not like we saw in 2006, '7, '8, '9, '10. And I think [Inaudible, crosstalk] a little bit bigger.
Dan Ferris: No, but to be fair. From late '21, to like June '22, down 40% was not fun.
Brett Eversole: You mean in homebuilders.
Dan Ferris: Yeah.
Brett Eversole: Yeah, yeah. Well, certainly. Homebuilders are a very cyclical sector, so they're going to take beatings. They're definitely going to take beatings. But I mean, the housing market as a whole. I don't think we're going to see a major decline there. Homebuilders are, it's a capital-intensive, debt-laden business. So they're going to have a lot of ups and downs along the way.
Matt McCall: We also had lumber prices then too skyrocket to all-time highs, which obviously cut margins of a lot of these homebuilders.
Brett Eversole: Yeah, and we do a lot of private real estate deals in our real estate letter as well. And we've seen, I mean, we haven't had a lot of deals go bad. But we've had a lot of capital calls. There have been a massive amount of, a very large percentage of deals that, I mean, the actual cost to get things done is way higher than what people assumed it was going to be in 2020 and 2021.
And you know, you build that kind of stuff into the model, and a lot of times you can figure it out. You can kind of paper over it if you will. And we've seen rent prices go up so much. We've done a lot of multifamily deals. And you know, when you have a 25% cost overrun, that's rough. But when rent prices are up 20 or 25 or 30% over the two years before you penciled the deal, and when it actually goes to market, that kind of actually makes up for it.
Dan Ferris: You know, you mentioned lumber. And I think since about I don't know, before last summer. Like, lumber used to tell you what was happening in housing. It used to, you could follow it up and down. And you could look at homebuilders and say well, you know, I guess the homebuilders are done because lumber's done. But starting about last summer, July, June, or whatever, not the case at all.
And I think that kind of proves the thesis that you're talking about, which I've talked about and written about and stuff. Basically, it's just so structurally out of whack between supply and demand versus you know, household formations. Which, they were substantially up in '21, and probably, and not as much in '22. And they'll revert somewhat too. But the next generation is larger than, Millennials are a larger generation. So lots of households are going to continue to form. And when you don't build for well over a decade, I mean, the housing bubble peaked in 2006.
You know, it's 2022. It's just like, it couldn't be a better setup for homebuilders, because nobody's selling. The existing homes aren't selling, because people have 3% mortgages or whatever. Sub-5, as Matt said. So yeah, I think we're all on the same page there. And cheaper lumber, as it's gotten cheaper since last summer, is just probably, that's just margin, right? That's just, so yep. I have to stay bullish. And I'm not surprised to see Warren Buffett's folks. I don't know if it was him or his two guys buying the big homebuilder stocks. The same three that I recommended in The Ferris Report.
Matt McCall: Smart guys.
Dan Ferris: Yeah, they made me feel pretty smart when I bought them. So we've got AI, Oracle, Salesforce, homebuilders. Anything else? Anything else in technology besides AI?
Brett Eversole: For me, this is still technology. But I guess people wouldn't think as much. I still think there needs to be some type of breakthrough in the future when it comes to energy storage, battery technology. Something has to happen there, because you just look at the state of things right now, and I love the people. You're out in Oregon, so you probably know a lot of people like this who just want to go 100%-renewable energy today.
It's like, we can't do that. We don't have the energy stored. We don't have the grid capacity. There's so many things. And I pulled a number out of my head. I wrote about this a few months ago. But it blew my mind. It was the amount of solar projects that are done, that are complete in the country, that are waiting. The wait time... two years on average to get onto the grid. So they can build it, but they can't get these projects onto the grid because the grid is so old. I mean, it's what, every two years, the American Association of Civil Engineers comes out and says, you've got a grade D for infrastructure. It's just terrible. The grid is so bad.
So there has to be a lot of stuff going on there. We have two stocks that are major players in the transmission lines that need to be upgraded really to be able to handle all this. And one of them was MasTec, MTZ. Had a hell of a run. Had missed earnings a couple of months ago, so it fell on that. But really, just a solid company, and one of the leaders when it comes to these high transmission lines. And something like that to me is not as much tech. But it does kind of tie into renewable energy, upgrading grids, battery storage, all that type of stuff. So it's a nice, more conservative way to play kind of a tech angle.
Dan Ferris: Oh, I love MasTec. We've had it in Extreme Values since like early '21 sometime, I forget when.
Brett Eversole: See Dan, I told everybody here today, and they still think that you and I are polar opposites. I said every time we sit down, we end up agreeing 80% of the time. It's unbelievable. You make me feel smart. I don't need Warren Buffett. I say Dan Ferris told me he likes it.
Dan Ferris: That's very nice of you to say. There's a lot of things we differ on, but I tend to emphasize those things when I speak in public and when I do the podcast and when I write in the Digest. And that's when the wider world kind of gets to hear me. But yeah, I mean, I spend like, I'm not paid really to do those things. I'm paid to write two newsletters, and they're loaded with long picks. Like, in The Ferris Report, I do two, three long picks a month. It's just, so yeah. You're right.
But it's, you know, like we said. You and I have talked about this. And we, actually the three of us could get together and do a presentation where we all start out saying completely different, almost opposite things. And then by the end of it, we'd all be on the same page, like 80% of the time.
Matt McCall: Yeah, I think so.
Dan Ferris: I think the only place we differ right now is probably a view of the overall market. And like I said, my readers are intimately familiar with my own view and you buys are obviously bullish. You see just valuations and trends, and I would imagine just being on the other side of 2022, probably feels pretty good to you. Which makes sense to me. I mean, obviously it's, if you got real bullish eight or nine months ago, you'd be looking pretty good.
So you know, the thing is, anybody and everybody can have a view on the overall market. And everybody can come at it from different ways. But the three of us are paid to make money for readers, and that narrows things way down. Right? You have to tell people to invest in businesses that earn money and do things and innovate and build homes, right? So there's a very good reason why we have different views on other things but all wind up on the same page. OK, so MasTec, great company. Love it. Brett, do you have another one besides Oracle?
Brett Eversole: Yeah, I'm just kind of piggybacking on Matt's thought. I think when it comes to the exciting investments in the energy space, clean energy definitely sucks the air out of the room. But I think that old-school fossil fuels are going to be a great investment for the next few years. This was the booming trade for the first half and most of 2022, and it kind of took a breather in 2023. But in the last two or three months, we've seen the energy sector broadly rallying in a pretty big way.
And it's maybe not quite as obvious, but it's a lot like the housing market idea to me at a high level, in that we have had these energy companies, and they've just been, through political pressure, been told basically not to do their jobs. And their job is to renew, go find more resources. Like, these businesses find stuff in the ground and then they take it out of the ground. And then they need to go find more stuff in the ground, so that they have stuff in the ground to take out of the ground in the future. This is how these businesses work. This is how mining and resource extraction works.
But for the last three or four years, they haven't been going to find more stuff in the ground. And so that's a bad thing for energy prices because it means that we're going to have some shortages. We're not going to have enough of these commodities that we need. But it actually turns out great for these companies, because if you're Exxon Mobil, instead of spending $10 million on capex, you just drop that all to the very bottom line. And we saw these companies' earnings just absolutely explode last year. I mean, a lot of these big stocks were, they had 50, 60, 70, 80% bottom line EPS growth. And the stocks soared on that news.
And people kind of, you know, they took their profits and moved on. But this is not a story that's going away. So I don't have an individual stock to talk about. But I think at a very broad level, the kind of old school fossil fuels, the companies that are in that industry, they're going to do very, very well for four or five, six years. I mean, even the most exciting, or the most enthusiastic estimates, would put, where green energy's really taking over.
This is at best a decade away from really being the thing that people want it to be today. And we're going to need fossil fuels for a very, very long time. And we're at the point now where these companies are going to be incredibly profitable for the next few years. And I think that's a case where you can literally make hundreds-of-percent gains in a short period of time with kind of big, boring stocks. That's the position we're in with energy as a whole. So that's definitely a sector I'm watching closely.
Matt McCall: And Dan, you know obviously, you know oil hit a nine-month high just in the last week. So it's quietly coming back, which can scare people when it comes to inflation too. But let me ask, I want to ask you something too. What is your view on nuclear? Because we're actually, my team, we're putting together a little five-stock portfolio to go after nuclear energy in very different ways. Some infrastructure, some miners.
I don't want to give too much away, but it's coming out next month in The McCall Report. I want to tell you, I interviewed Rick Perry a couple of weeks ago, the former Secretary of Energy, former governor of Texas, etc. And before I even said anything to him about this, he came up to me. We were talking. And I sat down to interview him, and he brought up nuclear energy almost in the first 30 seconds. And this was an oil-and-gas conference, so I was kind of blown away.
It was kind of nice picking his brain about the two years he was Secretary of Energy about how he truly believes that not only the U.S., and a lot of these other governments, and you can see it in the numbers, you know. Bringing stuff back online. The amount of reactors they're building in China right now. In India it's mind-blowing. Many of the small modular reactors, the SMRs, which I think is going to be breakthrough technology. Do you have a view on that?
Dan Ferris: Oh, I love uranium. I love it.
Matt McCall: Oh, good.
Dan Ferris: It's just a simple... you just have to have a simple appreciation for the current environment. There's no carbon involved. When it comes to the storing of the spent material, the reality is like, you could, you know, double, triple the number of reactors and it's, you're talking about the teeny, tiniest smallest amount of land area. It's just very, very tiny. And I don't know how else to put it. Pound for pound, it's the best way to generate electricity. It's the most efficient way to generate electricity that we've ever discovered.
And frankly, what I think is going to happen is that we're going to realize that windmills and solar panels are the most garbage technology to generate electricity that has ever been created. It's absolute garbage. And we're going to get tired of, like at some point Greenpeace is going to start doing their job, and they're going to get tired of us killing birds and whales and everything with this stuff. And we're going to get tired of carpeting the landscape with toxic waste. But I think it's going to take years. So what's going to happen in those years?
We're going to keep discouraging the development of new fossil fuels, and we're going to keep discouraging capital investment in the development of new resources. Because these aren't five-year investments, they're 20- , 30-year investments. And you're telling me you're going to put us out of business in a decade. So as long as you keep doing that, all this cash flow, and there's going to be a lot of it, is going to go into dividends and share repurchases. And like right now, last 12 months, if you just take the generic first-month crude oil future, it averages 78 bucks.
The most underappreciated fact in the world right now is that at 78 bucks and 86 as we speak, these companies are just like minting money. The cash is piling up. It's like they're just, it's raining cash, and they can't get out of the way fast enough of all this cash. And that's going to come back to shareholders. And less of it's going to go in the ground.
And I took a look, I think I did it in The Ferris Report, where I just kind of took I think it was the 20 biggest, a bunch of the biggest oil-and-gas companies' capex, and it just, I mean it just goes up and to the right because it's negative. So if you just flip it up and make it positive, it's down and to the right. They're just investing less and less and less. You get a similar thing in the mining industry. So, and that's a whole other thing. Who's bullish? Raise your hand if you're bullish on mining. Brett? Are you bullish on mining?
Brett Eversole: You can't see us but our hands are raised.
Matt McCall: Yep. Hands are up.
Dan Ferris: Yeah. So yeah, as long as they keep this up. As long as the narrative remains in play and the climate industrial complex is a real thing. It's a trillion dollars a year now according to Time Magazine. And so, I love both of these. I love oil and gas, longer term, and I love especially things like copper are longer term for that reason.
Brett Eversole: So it's interesting, Dan. We've circled back, and we're sitting here talking. And you know, I'm an optimist. But don't get me wrong. I travel a lot. I see how miserable people are. I'm not happy with the political situation of this country at all, and things that are, the direction it's going irritates the hell out of me. So yeah, I'm not, you know, I'm a normal person. I feel that stuff too, right? I feel the inflation. That stuff pisses me off, don't get me wrong.
But it's funny, we all come at life and the market in different ways. But we all end up, we've agreed on several trends already, and it's just amazing how we get here. This wasn't planned. We just kind of jumped in and did this. It fascinates me, it makes me smile inside. It makes me understand that we're three very intelligent people doing our homework, but we're coming up with very similar investment themes, trying again to make money for our subscribers. It makes me happy, I don't know. The little things, Dan. The little things.
Dan Ferris: Well, I don't know how very intelligent I am, but I'm here.
Matt McCall: You're doing OK.
Dan Ferris: Yeah. So I don't know, I feel like we got a lot of good ideas here. And since I've got two of you, maybe I should do my final question already because I've got two people and it's going to take longer. So who wants to go first?
Matt McCall: Brett can go first
Dan Ferris: Brett, we'll do it, yeah. We'll do Brett, we'll go alphabetically. So Brett, the final question, which you actually answered fairly recently so you probably remember what it is. I like it when people don't remember, though.
Brett Eversole: I'm in good shape here.
Dan Ferris: Excellent. And Matt, if you remember, forget you ever heard it. So the final question is the same for every guest, no matter what the topic. Even sometimes we have non-financial guests. Exact same final question for them as for you. And that is, Brett, if you could leave our listener with a single thought today, what would it be?
Brett Eversole: A single thought. Let's see. So, like it's kind of piggybacking on what Matt just said. You know, we came to this common ground. This is an investment thought. But I think it's very easy and very enticing to make investing complex. To make it seem difficult, and to make it seem like you're, you know, unearthing new stones that anybody has ever thought of before. And I think in reality, the best kind of investing is keeping things very, very simple.
So with housing, very simple. Supply, demand. It's broken, prices can't go down that much. Very simple. With energy, we're not finding new stuff. Therefore prices are going to go up. And these companies are great opportunities. It's very, very, very simple. So, I think if you're thinking about investments, don't try to make things complicated.
There's a million things you could possibly put your money into out there in the world. Find the things that are very obvious, and then go with those. Because you don't need to worry about the complicated things. You don't need to make things overly complex. Keep it simple, do what you understand, and you're going to do fine.
Dan Ferris: Excellent. I feel like you've been spying on me. Dan, quit trying to do all these complicated trades. You're an idiot. And you're right. Brett is right. Matt, same question. If you could leave my listener with a single thought today, what would it be?
Matt McCall: First of all, I'm going to agree with what Brett just said. I think you should take that advice for life as well. We complicate life way too damn much. And I always give the analogy, when I give speeches on stage about investing, it's not easy but it's simple. And it's very same to getting in shape and losing weight. It's not easy, but it's simple. You work out and eat less. It's pretty easy to lose weight, but who the hell wants to do that? You know me, Dan. I don't eat that bad. I just had a damn cookie. So it's hard for me too.
But my advice, I'm not going to give investment advice, because I think the last few times I've been on the show I've done that. I'm going to speak a little more "big picture" to leave people with something. You know, it's very easy these days, between the media and what's going on in D.C., which we are right now, to be discouraged on this country, discouraged in life, and just be irritated, pissed off. And you're not alone. Don't feel that that's a bad thing.
But I will say, I think we have to sometimes push aside the media. Push aside all the negative thoughts that are being put out in front of us, whether it's through TV, websites, newspaper, friends, family. And realize that we're pretty damn lucky. Most of us listening to this show or being on this show, we should be grateful for that, and believe in American innovation. As Warren Buffett said many times, you know, he believes in America.
And I tell you what, I believe in American innovation. And even global innovation. And I believe that the stock market will be higher in years to come. And I think there's a lot of great companies out there that you want to own. You worked so damn hard your whole life for that money. Let that freaking money work for you now. And you do that by putting it in the stock market.
Dan Ferris: All right. Two good answers. And you know, thanks a lot for being here, guys. I almost forgot, you two guys are going to do an event together coming up. And listeners can go to 2023MarketEvent.com and find out a lot more about it. What's the date again? The date and time? I forget.
Matt McCall: September 12. It will be on September 12, and we're going to be releasing 10 stocks that we came up together. Five and five, but that we, everything we talked about today, and that Brett and I agree on it. So it's pretty nice bringing together two heads to come up with some ideas. So I'm releasing 10 ideas on that day, Dan.
Dan Ferris: Well, you better believe I'll be looking at that list, man. I want to know those 10 names. So yeah, 2023MarketEvent.com, if you're curious about those 10 names and all the reasons that Brett and Matt are bullish on them. All right guys, thanks a lot. And we've spoken with you both a lot recently. So maybe we'll wait six months or so before the next time we have you on. But we'll be talking to both of you for sure.
Matt McCall: Thanks a lot, Dan. That was a pleasure.
Brett Eversole: Yeah, appreciate it Dan. Thank you.
Dan Ferris: The Fed wants you to believe they've got inflation under control. But I believe we've only seen the beginning of a devastating new crisis. And if you don't prepare now, you could see your savings evaporate as inflation and interest rates soar even higher over the next two years. It all traces back to a golden thread that ties together the biggest financial calamities in America's history. But it seems the entire financial world is falling into the very same denial trap that led to massive devastation the last time this crisis played out.
If you know your history, you know there will be winners and losers. And now is when you decide which one you'll be. I've spelled it all out in an urgent new report. Go to www.bankrun2023.com to get your free copy. I'll also show you how to get my complete playbook for navigating this crisis, including the three critical steps to take immediately. Again, that's www.bankrun2023.com for your free copy of my new report.
So I started out the interview asking these two guys why I was talking to them. And then I looked at my notes at the end there, and they are doing a presentation together on September the 12th. You can go to 2023MarketEvent.com, and find out more about it. And I would encourage you to do it, because like I said, like all three of us said. We come at the market from completely different perspectives. Matt's into technology and trends. Brett is into these macro movements and he does a lot of technical work.
And I'm pretty much a fundamental, bottom-up, value-oriented investor. But we do wind up being bullish on all these things, like homebuilders and you know, certain mining stocks. I mentioned copper. Matt mentioned uranium. I'm really bullish on uranium. So, it's kind of interesting. And that speaks to something that Corey and I mentioned a few episodes ago, two or three episodes ago I think it was.
We were talking about how on the show, I feel like maybe we emphasize the destruction that the Fed is doing by raising interest rates faster than it's ever done since at least 1980. And the destruction really that was already there to be done in this huge mega-bubble with rates at zero forever. And so it sounds like we're telling everyone to stay away from the stock market all the time, but we're really not. We're identifying sources of risk and reasons to be concerned.
And you do what the great value investor Seth Klarman does. Worry top down, and invest bottom up. Right? You worry about the economy and politics and all this other, and the Fed and all this other stuff. But you invest in companies and industries. And keep the two separate. And you'll do well over the long term. And I feel like just getting the three of us together just underscores the point really nicely. And you've got lots of good picks, too. Oracle and Salesforce and MasTec and all kinds of stuff. And oil and homebuilders and all of it.
So if you want stock picks, this was a great episode. I really enjoyed it, I hope you did to. so that's another interview, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did. We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or on InvestorHour.com, please.
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