Walmart’s woes are becoming such common knowledge that even journalist politicos are now asking Buck how the once-great retailer can turn things around. Porter reveals two reasons Amazon’s in more trouble than anyone realizes – and the only rational thing he thinks anyone CEO of Walmart can do now. Porter elaborates on the storm clouds he sees ahead for Netflix and Tesla, and entertains an argument from one listener that he’s got it wrong about Tesla. The team also wades into current events controversy – including the shooting of a man after a tussle involving a stolen handicapped parking spot and a sucker punch. Then the talk turns to international saber-rattling, with Porter reading aloud one of Trump’s greatest Twitter taunts of a foreign leader before Buck shares the surprisingly positive consequences of America being the actor with a reckless (crazy?) President for a change. Porter reveals the big cryptocurrency news at Stansberry Research, and why one guru is coming around to Bitcoin at long last.
NOTES & LINKS
Announcer: 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: Hey everyone, welcome back to the Stansberry Investor Hour. We are very excited because we are here, all together, at Stansberry HQ, which, by the way – I feel like you guys need to get some surface-to-air missiles or something for this place. I think of it like, this is the bunker, strategic command. You need something like that. I'm Buck Sexton of course, cohost of Rising with Krystal and Buck on Hill.TV and a nationally syndicated radio show on Premiere Networks, and I make mean scrambled eggs.
With me, of course, the founder of Stansberry Research: Mr. Porter Stansberry. He is a recent entrant in the world's largest and richest billfish tournament, the White Marlin Open. Mr. Stansberry, what is that all about?
Porter Stansberry: Well, we'll talk about fishing later, but I'm also the proud sponsor of Kevin Kisner, who came in second in another open, the British Open, last weekend. Congratulations to Kevin. Buck, I hope you saw the final round. It was a very exciting tournament. We have Country Club Guy here with us today, Jamison Miller. Jammer, how are you?
Country Club Guy: I'm doing great. I got to watch a lot of the golf this weekend with you.
Porter Stansberry: So listen, let's jump into it. We heard some interesting scuttlebutt about Amazon and Walmart down at the newsroom at the Hill.
Buck Sexton: Yeah. So today, because we were looking at news stories to do for one of our below the fold, and I don't know if you guys ever had this, but when you're a kid we used to ask my dad, like, "Who would win, a bear or a tiger?" And then it would get kind of crazy and it would turn into, "a pterodactyl or a blue whale?"
Porter Stansberry: The megalodon wins everything.
Buck Sexton: Yeah, or the Hulk versus The Thing, you do it with comic book characters. What happened in the newsroom is people said, "Is Walmart going to get killed by Amazon?" basically, or "can Walmart actually fight back and win?" I thought that was an interesting question for folks who actually would know something, and not journalists who cover politics.
Porter Stansberry: I think the answer is, Walmart is in big trouble, and I've got two reasons to tell you why. One, I have some inside information about Walmart. It's not, like, privileged information. It's not like someone on the board told me something – but I know some friends who are big-time into diesel engines. Now, these aren't truckers, but these are the guys who maintain Walmart's fleet of trucks, and they were telling me – I was up at my hunting lodge last weekend, and I call these guys, by the way, they're members of the Blue Collar Mafia.
You can have all the money in the world, but you can't get shit done unless the Blue Collar Mafia is on your team. So, you want something fixed or you want to make sure you buy the right kind of car or truck, you've got to have Blue Collar Mafia on your team. So this is a Blue Collar Mafia member who helps maintain my hunting lodge and takes care of our fields and makes sure that the bucks grow up big and strong.
Buck Sexton: As they do.
Porter Stansberry: As they do. He was talking about how Walmart had cut some of the bonus pay for its in-house truckers last fall, and as a result, they had a huge turnover. So now Walmart has to go out and pay these independent trucking companies huge big pricing increases for their shipping stuff, and they're really over the barrel because their own truckers all quit. And this is just in his area, so I don't know if this is a national thing, but he's seeing that Walmart has got to spend a whole lot more on delivery than it used to. And I'm just watching the trucking companies as their earnings come in, earnings are going wild.
These guys are passing on huge price increases for all of the shipping that's going on. So as Walmart has to spend more money on shipping to distribute products from its website – because they don't charge for the free shipping like Amazon does – so that's going to have the impact of lowering its margins even further. And then you add on to that, it's now promising to deliver content, to deliver movies and TV shows and stuff like that, in a knockoff of Amazon Prime, again without having anyone pay for it.
I think that Walmart has a big problem because it's trying to compete with Amazon on price, and that is just impossible to do, because Amazon doesn't have to make any money on its retail operations. It can make back all of that and more with its Prime members and within its AWS, which is this Amazon Web Services thing that big businesses use as a cloud. So I think if you – I haven't done this work myself, but I think that if you study Amazon's retail business, you find that it operates with a .14% margin, which is basically nothing. So it's running its entire retail operation as a way of advertising its Prime services and its AWS. How does Walmart compete with that on price? It can't.
Buck Sexton: Is there any way Walmart could turn that around? One of my favorite questions here: What could they do? If you were the CEO of Walmart, if I put you in the command room, what would you do?
Porter Stansberry: I would be investing in other businesses. I would do what Sears did. I would strip the capital of all of the capital and I would put it somewhere else. In other words, I would run that business at a loss for 20 years, meaning at a capital loss. I'm not going to invest anything in the stores anymore. They're all going to go to Hell.
I'm going to start selling the weakest stores, as they can't make a profit anymore. I'm going to lower the footprint. The stores are going to get old and dirty and dingy, and I'm just going to let that business run off into cash because I can't earn a return on capital that I put into that business with Amazon competing the way it is. That's the only logical thing to do.
Buck Sexton: Did you see that piece on Best Buy? I thought that was really interesting. New York Times wrote a piece about how Best Buy, also, you'd think, would get annihilated by Amazon for obvious reasons. When you know what the make and model is – and I'm looking at that very nice Samsung you guys have on the wall in here – when you know the make and model of a TV, you know that's what you're buying, right? You're buying that product. Whether you're getting it from Best Buy or from Amazon wouldn't seem to matter – they can't compete on price, but the experience or the experiential differential –
Porter Stansberry: No, that's not how Best Buy is competing. Best Buy is competing on service.
Buck Sexton: That's what I mean.
Porter Stansberry: It's completely different. They're not competing on price. They're not trying to have the lowest price. They're competing on service.
Buck Sexton: The Geek Squad.
Porter Stansberry: The Geek Squad, and even more importantly, the sales consultants, which is what that article was about. So when you want to have something, most people who buy technology don't know how to install it, don't know how to set it up. So they need someone to come into their house and set it up. So those people are now becoming sales consultants. So they come in, they set it up, and they go, "You know, what you also need here is you need a sound bar" and then they do little add-on sales, and that's something that Amazon will never be able to do for you. So I think that, there, is a way to compete with Amazon in areas that require service.
So, for example, I don't think Amazon is going to get into selling cars, because everyone is going to need service along with their car, and technology – you definitely need service. I know you've had this experience. If you're under the age of 50 and your parents are still alive, every time you go home for a vacation or for a holiday, your parents are begging you to please solve their buggy electronics, whether it's their computer or their laptop or their iPhone.
I mean, when we were kids, it was always, "Hey Porter, can you make the VCR's time thing stop flashing?" And now it's, "I can't get my Gmail to open" or "I lost my password" or "all of a sudden my computer doesn't work." So there's a huge need for tech consulting and tech services, and that's how Best Buy is growing and beating Amazon.
Buck Sexton: Well there we have it, Country Club Guy.
Porter Stansberry: But you don't get any service at Walmart, right?
Buck Sexton: No.
Porter Stansberry: You go to Walmart for the people-watching.
Buck Sexton: The greeters are actually very friendly. I was in Walmart recently. I have been living with a Walmart table in my completely empty D.C. apartment now for a while. Cost me $20. Pretty amazing what they can turn out in China.
Porter Stansberry: Did you ever see the website "Things That Were Seen at Walmart?"
Buck Sexton: No.
Porter Stansberry: There were these unfortunate pictures of these unfortunate people.
Buck Sexton: Well, it is incredible what you can get there, I'll have you know. The gluten-free section exceeds expectations, for what it's worth. That Walmart, or maybe it's just the D.C. – you know, there's a Walmart in Washington, D.C., actually, so there you have it. Learning new things.
Country Club Guy: I avoid it at all costs.
Porter Stansberry: Does Walmart have a delivery service in local?
Country Club Guy: I think so.
Porter Stansberry: If you order from Walmart at your apartment, will they bring it to you in less than an hour or two?
Buck Sexton: I don't think –
Country Club Guy: I saw a commercial on groceries.
Porter Stansberry: I think this is one of the things that's really hurting their grocery business. I think Walmart is getting just destroyed at both ends, so in terms of the lowest price, Amazon is going to beat them, and then in terms of service they've got other competitors. So the higher-end grocery stores are all doing delivery now, and it is the best thing in the world to get up on Saturday morning, just write down on your computer whatever you need for that week, and have it all show up on your doorstep in two hours.
Buck Sexton: Yeah.
Country Club Guy: Instacart. It's a lifesaver.
Porter Stansberry: It's amazing. So I don't know how Walmart competes. I would rather short the stock than own it, and if I was the CEO of Walmart, I would get out of that business.
Buck Sexton: You'd become the CEO of something else.
Porter Stansberry: Well, you have to take the cash flows that you're getting from those stores and you'd have to get into another kind of business. What would that business be? I've got no idea.
Country Club Guy: We'll save that for another podcast.
Porter Stansberry: I'd recommend property and casualty insurance, but it's very hard to compete in that space, too.
Buck Sexton: By the way, I feel like I saw some whiplash on Netflix. Again, this is just from, like, newsroom headlines. People a couple weeks ago were saying, "Netflix, it's great, can't miss" and then it missed, right? Didn't it miss earnings or something? Wasn't there some problem?
Porter Stansberry: Yeah. I think that Netflix shareholders are going to do poorly going forward. It's been a fantastic business to own and it's a great idea and I'm not saying it's going to go out of business, but they're going to have a lot more competition going forward, and most importantly Disney is going to pull their content. I think it'll take a long time for people to stop paying for Netflix, because it's an inertia. You're just paying for it.
Buck Sexton: People still pay for AOL. It's an amazing business they had – a lot of people.
Porter Stansberry: Yeah, and so like I said, I don't think that Netflix is going to disappear and I'm not saying it's going to – I wouldn't short the stock. I'm just saying it's going to have a much tougher time going forward with growth because people are going to be signing up for multiple content platforms. So they're going to sign up for Hulu and they're going to sign up for Netflix and they're going to sign up for Amazon Prime. So instead of watching three networks you're probably going to have three platforms that you watch on your iPad or on your TVs.
And the question is, can Netflix remain competitive with Disney and with the other major platforms, and also at some point turn a profit? Because the way they have built their platform is by spending billions and billions and billions on content, but they're losing – right now they're losing $2 billion a year. I think they're on schedule to lose $4 billion a year this year, something crazy like that. And so they're planning on making it up on volume, but if that volume doesn't show up then they're in big trouble.
Country Club Guy: Looks like they're trying to add five million subscribers in the third quarter. I don't know if that's a big number, but worldwide they have... looks like 130 million.
Porter Stansberry: Yeah. Well, you know, as you scale it gets harder and harder to grow because you've almost got everybody. You've got 130 million people now. Obviously there's way more people than that in the world. Who knows? Maybe they'll be able to pull it off. I'm just saying that it was much easier to figure out to buy that stock three or four years ago, and I didn't do it so I'm not trying to take credit, but I think it's going to be so much harder for them to sell access to Netflix and make a profit if they lose most of their other network content like Disney and they have to build all their content themselves. That's a giant mountain that I have a hard time imagining they're going to succeed at.
Country Club Guy: Well, it's expensive to create content. So if they have to do it on their own, what do you think that's going to cost them?
Buck Sexton: They're spending a lot of money already on the shows, I mean comparatively to other places. They're outbidding.
Country Club Guy: Not only spend, but they have to make it good content. They need to come back.
Buck Sexton: They're spending more than studios do on stuff.
Porter Stansberry: So let's get to one of my other whipping dogs. For me, Netflix is just one of those things where I'm just going to throw it out. It's too hard to figure out. They're gambling so massively on their own content, I don't want to make that bet. I'd much rather own Disney, and I know that, as Disney brings out its platform, it's going to make a killing.
When people start buying Disney content directly, Disney is going to make way more money than they've been making with advertising. But here's another whipping boy that I think is destined for failure, and that's Tesla, and we talked about this last week. Every time we talk about Tesla we get the Tesla diehards that write in and bitch and moan and complain.
Country Club Guy: Well if you follow Twitter or you have Twitter, every finance guy every three out of five stories is Tesla and it's a Tesla bear.
Porter Stansberry: Oh, Tesla bear?
Country Club Guy: Yeah.
Porter Stansberry: Okay. Well, this guy was writing in and he was saying that I had it all wrong because he had heard my rant from last week about Tesla. He said I had it all wrong. "Tesla is not a car company," he says. "Tesla is an energy production storage company. Don't you know? And besides, they are the only car manufacturer in the world that has higher than 20% gross margins. They're making a lot of money selling cars," according to our listener.
And then there was my favorite part, was that, "Besides, they have a 10-year lead in battery technology." So these are the major claims that this Tesla fan made, and I wanted to kind of just go through them by the numbers because it's kind of fun.
So what was the first one? That Tesla is an energy production and storage company, not a car manufacturer. Okay, so last year Tesla had $11.7 billion in revenue. What percentage of that revenue do you think came from selling cars? Buck? Country Club Guy? Anyone? Bueller? Over 90 percent. They sold $1 billion dollars of solar panels and batteries. They sold almost $12 billion of cars. I think that, as a simple point of fact, Tesla is clearly an auto manufacturer. Everyone agree with that?
Here's another one. Tesla is the only carmaker that makes money selling cars and has over a 20% gross margin. Well, it is true Tesla has about a 22% gross margin, which is pretty significant. Not many carmakers have gross margins that are that fat, but there's sort of two ways of looking at gross margins, right? Either, wow, you have a really great product that people really want and they're happy to pay for, or maybe you're dramatically overpricing your product and as a result you're never going to have enough scale to actually make an actual profit.
See what I'm saying? You can have a great growth profit, but if there's no scale, if you're not selling enough automobiles, then you're not going to be able to cover your SG&A expenses or your R&D or anything else you have. So let me point out that, yes, over the last six years Tesla has made a gross profit of $6.1 billion. So they have made a lot of money selling cars, meaning that the cars don't cost as much as they sold them for. But then you've got to remember that a lot of that gross margin came from tax rebates.
So maybe they're overpricing their car, and if they're overpricing their car, how would you know? Well, you might know by realizing that they only sold 100,000 cars a year, and that they lost $3.6 billion in the last six years selling those cars. So I would just say that this guy's idea that Tesla is a proven concept because it has a big gross margin is very faulty.
Tesla is a niche maker of automobiles. It doesn't have a full line. It only makes 100,000 cars a year, and so it's not really apples to apples comparison when you talk about comparing it to a Ford or a GM, because it doesn't have any of the introductory models yet. Now, it's building one, and its margins are going to decrease dramatically, and so that'll be an interesting comparison at the end of the year.
One last thing: What about the idea that Tesla is the only automobile manufacturer that has 20% gross margins? Is that true? No. BMW has consistently had above 20% gross margins for decades, and still does. BMW also has a full line and sold two million cars last year. So that's a real comparison that I don't think Tesla – it's not going to be favorable for Tesla going forward, as Tesla builds out a full line of cars and gross margins.
Country Club Guy: They also have two models of EV cars.
Porter Stansberry: There's three: the model X, the model 3, and the model S.
Country Club: I'm sorry, I'm talking about BMW has two models, the I8 and the I3.
Porter Stansberry: Oh, BMW has electric cars, but I'm talking about all BMW cars. The gross margins are 20.1% last year and they sold 2 million cars. That's a real gross margin. Tesla's gross margin is phony. They're overcharging for their cars, and that's why they're not selling any of them in terms of selling at scale.
Buck Sexton: How does the BMW electric car compare to a Tesla?
Country Club Guy: It's not as stylish – at least the smaller version, I think – but it's $44,000 and I think people that have it love it. I don't even know, I have no idea what the price of the model –
Buck Sexton: I've actually never been in an electric car. I've been in lots of armored cars. Never been in an electric car.
Country Club Guy: I drove one out in L.A. a few years back. What did you call it?
Porter Stansberry: It's a very expensive golf cart with air conditioning.
Buck Sexton: Huh.
Porter Stansberry: I'll tell you this, this is my big argument about Tesla. People always write in and they tell me, "Blah, blah, blah, it's not a car company, Elon is a genius, you don't understand."
Buck Sexton: Hyperloop, all that good stuff.
Porter Stansberry: All this nonsense, right? Look, Tesla is a car business and it doesn't make any money at all right now, and as it scales up, its gross margins are going to decline. That's going to make it very hard to ever earn a profit for this company, okay? Meanwhile they've got $15 billion in net debt and their bonds are now trading below 900, which means the bond market believes there's a reasonable chance this company defaults.
They're certainly going to have to raise additional equity. It's going to be years before this company can even earn an EBITDA profit, and the question is: What will the stock be worth when that happens? My assumptions are, Tesla will have to raise at least another $3 billion. That'll take them to total capital of $20 billion.
They don't earn profit right now, so I can't know what the EBITDA margins are going to be, but I can look at a competitor like General Motors. General Motors earns about 1% on its total capital in EBITDA profit every year. Let's say that Tesla is three times better than GM, so it earns 3% on total assets. Great. Now we've got $20 billion in assets, we're earning 3% of it, and this is three to five years from now.
This is down the road, if everything goes right. If everything goes right, Tesla is going to make something around $600 million a year selling cars. It's a car company. Margins are very small. So if you put the industry multiple of six or eight times EBITDA on it, you end up with a market cap that's $3.5 to $5 billion in market cap. That's what Tesla is worth, if everything goes right and if their business ends up being much higher margin than General Motors.
Today, the stock market says that Tesla is worth $52 billion. So in five years, it might be worth $5 billion, but today the market says it's worth $50 billion. What do you think is going to happen next, Buck? The more cars that Tesla sells, the more evidence it is that it's a carmaker, the lower its gross margins become, and the harder it gets to imagine a day where it turns an EBITDA profit. And when that reality eventually hits shareholders, they're going to sell.
Buck Sexton: Is there any magic trick that Elon can pull where all of a sudden they have some battery that becomes a multi-billion-dollar –
Porter Stansberry: Oh, that was my favorite part. Remember the claim by the Tesla guy, they're way ahead in battery technology?
Buck Sexton: That's right.
Porter Stansberry: Anybody know who has been issued more car battery technology patents than any other company in the world?
Buck Sexton: I'm going to guess GM.
Porter Stansberry: Is it Tesla? Are they really the battery leader? Anyone? Bueller? No, it's Toyota.
Buck Sexton: Ah, the other guys.
Porter Stansberry: So since 2010, Toyota has been issued 762 car battery patents. GM is in second place, with 661 patents. Guess what, folks? Until very recently, Tesla didn't build batteries, you numbskulls. They bought them all from Panasonic, and they still buy all of Panasonic's production. Most of Tesla's batteries are made by Panasonic. They're not a technology leader in batteries, not even close.
Buck Sexton: Are they trying to replace those with magic Tesla batteries at some point, though?
Porter Stansberry: So, let's assume that you are a leading car manufacturer and that you know you need to come out with EV cars because everybody else is. Let's say your company, let's say it's Honda. Honda is a consumer leader in the United States. They're going to come out with electric cars. They're going to bring out a dozen new electric car models in the next 10 years.
They need a battery technology partner. Who do they go with? Do they go with their fellow Japanese business, Toyota? Do they go with Tesla, because it's clearly got a 10-year lead? Or do they go with General Motors? Anyone want to guess, who did Honda partner with for batteries?
Country Club Guy: Toyota.
Porter Stansberry: GM. You want to know why? Because there's this thing called SoftBank. Anyone ever heard of SoftBank? So they've got the vision fund, which is $100 billion in private equity to slather on tech companies all around the world, and the vision fund just invested $3.3 billion in GM's battery and automation business for cars. Does that sound like a technology leader to you? It does to me.
Why didn't the vision fund invest in Tesla? Well, maybe because GM has way better battery technology. GM bought a startup, I don't know, three years ago, and that's where all the technology is coming from, automation and battery stuff.
So here's the final thing that's going to really hurt Tesla. By 2023, GM is going to come out with 20 new electric cars. All of those are backed by that $3.3 billion investment in soft bank. They're going to be battery-powered, and they're going to be automated driving, and guess what? They're not going to cost $78,000. It's going to be a Chevy that's going to cost $35,000. How many Teslas are you going to sell that year, and how are you ever going to have a gross margin of 20% on a car that you can get from Chevy? You're not. Sorry, Tesla dreamers.
Country Club Guy: Did you just turn from a GM bear a few years ago to now you're a bull?
Porter Stansberry: No. I'm a GM bear because the car business is a terrible business. It's a terrible business to be in, and that the cars are getting so much better and they have to invest so much in technology means the margins are going to get worse, not better.
Buck Sexton: What about flying cars, though?
Porter Stansberry: Oh, flying cars. Please, Buck.
Buck Sexton: I'm just trying to take him into new territory here. He's just swatting away flying cars. There's those dudes with jet packs, but Jammer is giving me nothing over here.
Porter Stansberry: So, folks, we've given you warnings about Netflix, Walmart, and Tesla, and Tesla warnings are pretty much a weekly occurrence around here. Can we talk about something fun? Does everybody like it when our president says, "Hey, Iran, you want a hot fresh can of whoop-ass? Come on and get some."
Buck Sexton: I like it.
Porter Stansberry: It's the best.
Country Club Guy: That's the second-best usage of "whoop-ass" that I've heard in the last three days.
Porter Stansberry: The best was my 7-year-old. What did he say?
Country Club Guy: We were talking about playing a videogame when we got back to the house, and he said, "When I get back I'm going to open up a can of whoop-ass on you, Jammer."
Buck Sexton: Amazing.
Porter Stansberry: He said, "How'd you like a fresh hot can of whoop-ass?"
Country Club Guy: That's it. He did say the other thing, but it was later in the day. Seven years old, I got played.
Porter Stansberry: No, I love it. I love it when our president, what's his name?
Buck Sexton: Trump.
Porter Stansberry: Trump. I love when Trump says something crazy about kicking people's asses. He said, "If you ever threaten us again, I'm going to come over there and smash your face in." And I love it because he's just crazy enough to do it.
Buck Sexton: Curb-stomping the mullahs. It'll get a reaction, that's for sure. By the way, people are all over him on the North Korea thing.
Porter Stansberry: It worked.
Buck Sexton: Well, last week people were saying, "Oh, it's failing. They don't have a written document." Well, first of all, they haven't fired off a missile since Trump was like, "You knock that crap off or you're going to have big problems," and they were firing missiles over Japan, freaking people out.
Porter Stansberry: He called them "rocket men" didn't he?
Buck Sexton: "Little rocket men." There was a whole alarm system in Hawaii that got tripped by some imbecile, but people were actually worried because North Korea is firing missiles. Anyway, not only is that stuff all happening, but the story that just broke this week is that North Korea is in the process – according to one of these sort of NGOs that monitors these things with satellites that are commercially licensed – in the process of dismantling a critical ICBM-related facility, pulling it apart, destroying it.
Porter Stansberry: Yeah, so here's what Donald Trump said.
Country Club Guy: Well, look at that? Not getting any press, is it?
Buck Sexton: Not very much press at all. Much more press on other nonsense.
Porter Stansberry: I know. I think it's great. I think it worked. No one else was able to get North Korea to do anything, so –
Country Club Guy: Rodman.
Porter Stansberry: Apparently crazy sometimes works. Don't you love this? This is what he said back in the day to North Korea: "North Korean leader Kim Jung Un just stated that the nuclear button is on his desk at all times. Will someone from his depleted and food-starved regime please inform him that I, too, have a nuclear button, but it is much bigger and more powerful than his, and my button works?"
Country Club Guy: Does he do this all on his own, or does he have somebody helping him?
Porter Stansberry: It's got to be him.
Buck Sexton: It's him.
Porter Stansberry: It's so awesome. "Never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before." I love it. You know, I think it's fantastic. That is how we should've conducted our foreign policy for decades. "Hey, dumbasses, we can turn your entire country into black obsidian glass. Knock it off."
Buck Sexton: Foreign policy by Porter.
Porter Stansberry: Yeah. Just stop it.
Buck Sexton: With Iran and North Korea, there's some pretty clear case to be made that you probably don't want to act like they're your buds and you can chat with them about things like normal people do. Look, Trump is getting results. I had Mr. Wonderful, whom I know you guys know, on TV. The show aired today.
Porter Stansberry: The Shark Tank guy.
Buck Sexton: Shark Tank guy, Kevin O'Leary. And I asked him, and he's not a Trump guy, but I'm like –
Country Club Guy: He's Canadian.
Buck Sexton: Well, there's that, too, but you can be a Canadian and a Trumper.
Porter Stansberry: He's also part Swiss.
Buck Sexton: Is that right?
Porter Stansberry: Yeah.
Buck Sexton: He thought about running for prime minister, which, now that Trudeau is the prime minister, I feel like how high is the bar?
Country Club Guy: He's a terrific dancer, by the way.
Buck Sexton: How hard could that really be?
Porter Stansberry: Mr. Wonderful or Trudeau?
Country Club Guy: Trudeau. Have you ever seen him?
Buck Sexton: Probably both, but I asked him about how things are right now, and he said from an investor's perspective, Trump is amazing. And I didn't bring him in knowing what he was going to say on any of this stuff. He said, from an investor's perspective with the tax cuts, and the biggest thing he said is the regulatory reform, the president, because you don't see stories in the economy, you don't see stories on unemployment, you have –
Porter Stansberry: Unemployment has never been lower.
Buck Sexton: Yeah. You have record lows.
Porter Stansberry: By the way, try going to any fast food place and ordering a meal and you'll see that unemployment is probably way too low. There is so much incompetence out there. Those people should not be employed.
Country Club Guy: Well, back in the day, the jobs at these fast food places weren't careers, and now they're careers, which –
Buck Sexton: And you're supposed to get $15 an hour, by the way, and they're going to make it $20 soon, too.
Porter Stansberry: They're going to replace them all with a computer interface. Just order it on your app and then they're going to have people who actually know how to make food back there someday. I think fast food is much better when unemployment is above 6 or 7%.
Buck Sexton: Well, this is the only way that the Democrats are going to be able to –
Country Club Guy: That sounds like the headline of the next podcast: "Fast Food Is Going to be Much Better With Unemployment at 6 or 7%."
Porter Stansberry: All right, so we've already talked about some things that are going to get me in a little bit of trouble, but this is going to get me in a lot of trouble.
Buck Sexton: Oh God, what's this?
Porter Stansberry: So, Buck, I want you to go ahead and separate yourself in advance of these comments and then say that they are shameful and they should've never been repeated, and you need to protest at the time to distance yourself from me.
Buck Sexton: I have no idea what Porter is about to say, and I am on the record, for I'm an observer in the room. I literally have no idea what he's going to say.
Country Club Guy: Sign this waiver.
Buck Sexton: So I am sitting here silently. In fact, I'm going to mute my own mic.
Porter Stansberry: So yesterday, I believe it was in Pinellas County, Florida. I might have the place wrong. Jammer, you can – Country Club Guy, get on the computer and look up the details. A white man – and this is a racially charged incident – a white man was complaining about a car that contained a black woman and three children, and it was parked in a handicapped spot without a handicapped hanger. Apparently, this gentleman's wife is handicapped, and he is sensitive to the fact that oftentimes certain people will park in handicapped spots illegally. And he was telling the woman, "Hey, move your car. You're in a handicapped spot."
Well, at that moment, her husband came out of the convenience store and saw this man, agitated, asking for the woman to move her car because it was in a handicapped spot. His reaction was to sprint full speed – for about 10 to 15 yards, I'd guess the run-up was – and essentially sucker punch the guy. Now, he didn't punch him, but he ran at him sideways. The guy clearly didn't see him coming. There's video of all this. And he slammed the guy to the ground. Slammed him.
It wasn't a gentle push. It wasn't a shove. It wasn't a, "Get out of my face." It was like a linebacker on a crack back block, taking out a wide receiver. I have that backwards. A wide receiver running on a crack back block and taking out a linebacker. Guy got decked. So the white guy hits the ground, rolls over, picks his pistol out of his pocket, and shoots the guy immediately in the chest.
Country Club Guy: Stand Your Ground law, right?
Porter Stansberry: Boom. Now again, this is what I find so interesting about this whole thing that goes on next. Instead of looking at what the facts are, everyone wants to jump immediately to "I'm a gun rights guy and he was standing his ground" or "I'm a civil rights guy and this is a violation. This is racism."
No, this is real simple, OK? If you ever got hit that hard and you're on the ground, you have no idea what's going on. You don't even know who hit you, right? You're acting in self-defense, that simple. And the thing that I'd like to point out is, if you don't want to get shot, let's start by not parking in a handicapped spot. Can I say that?
Country Club Guy: That's fine.
Porter Stansberry: That's fine. If you don't want to get shot, don't sucker punch a guy.
Country Club Guy: How about just walking up and seeing what the issue is and maybe talk about it?
Porter Stansberry: How about saying, "I'm really sorry, I shouldn't have parked in a handicapped spot. I just ran in for a second. I won't do it again."
Country Club Guy: Well, he didn't have to explain himself and say, "I won't do it again," but definitely find out what the issue is first before you tackle somebody.
Porter Stansberry: Anyways, somehow I have made it all of 45 years of living without ever having to sucker punch anybody and without ever having anyone pull a gun on me, much less shoot me.
Country Club Guy: Well, there was an incident in your life that you had to run on somebody, but different circumstances.
Porter Stansberry: Right. There was a guy on my property who wouldn't leave, but he wasn't sucker punched, he was obliterated in a frontal assault.
Country Club Guy: He deserved it, by the way.
Porter Stansberry: Of course he did.
Country Club Guy: Oh, I just watched the video.
Porter Stansberry: There was a guy ringing my doorbell at midnight who wouldn't stop. Unwise.
Buck Sexton: Yeah. Because your house, you have to walk – was this the house that I've seen?
Porter Stansberry: It was at the gate.
Buck Sexton: Was he, like, trying to give you a timeshare or something? What was this all about?
Country Club Guy: Porter didn't want to find out what he was trying to do.
Porter Stansberry: We didn't have a conversation about it, Buck.
Buck Sexton: I will say I have seen – I used to park an old, beat-up Station Wagon on the streets of New York City. People lose their minds over parking. I've seen fistfights, several of them, over parking spots, especially in New York in the morning.
Porter Stansberry: Especially in the snow, and that you dig out a spot and you think that belongs to you.
Buck Sexton: They go crazy.
Porter Stansberry: It doesn't belong to you.
Buck Sexton: Yeah, well, there's that.
Country Club Guy: Buck, would you like to see the video?
Buck Sexton: Oh, I've seen the video. I'm very familiar with the incident.
Porter Stansberry: So, are you willing to comment on this, or is this one of these topics that you just can't win? Because no matter what you say, it's such an emotional and racially charged incident that you're going to lose.
Buck Sexton: I actually addressed this issue earlier today on my TV show, so I will say that folks can go to Hill.TV/rising and see a fulsome discussion that includes Democrats, two of them, to just me on this issue.
Country Club Guy: Let me take this one. Did you just plug your show on our show?
Porter Stansberry: Yeah, he did.
Country Club Guy: What the Hell is going on?
Buck Sexton: That's right, baby, multiplatform. One end washes the other. That's how we do it here.
Porter Stansberry: I truly wish, so much, that there was a political leader on either Democrat or Republican who would come out and just speak the common sense to all this stuff. Hey folks –
Buck Sexton: I think that's what Trump is supposed to be, by the way. I think that's why his supporters are as –
Porter Stansberry: But he comes out and says the dumbest stuff. Like in Charlottesville, when you have neo-Nazis rallying and talking about hating black people, you can't get up and say, "Both sides were at fault."
I'm sorry. Yes, they have the right to free speech, but as the president, you don't get up and act like you're on their side. You get up and you say, "When Hillary Clinton was talking about deplorables, I think she was speaking about those people, and I don't stand with them. I don't think that you should judge people by the color of their skin, period, full-stop. And in America, we're not going to tolerate these kinds of groups and we're not going to give them permission to cause problems like they did in Charlottesville."
By the way, I wasn't in Charlottesville, so please don't write in telling me I got it all wrong. I'm just saying that is such an easy problem for Trump to avoid. How did he not avoid stepping in it?
Buck Sexton: I can't answer that. I don't think it's that hard.
Porter Stansberry: No.
Buck Sexton: The problem I have is, whenever someone starts to say, "Well why did Trump mess up this or why did he mess up that?" – which, he messes up some pretty obvious stuff sometimes – I sit back and I'm like, he also has managed to defeat a _____. People on CNN have actually lost their minds. I mean, they're crazy now. But he's managed to defeat this –
Porter Stansberry: But he also really screwed up the whole Russia thing. That was legendary.
Buck Sexton: That's another one of them.
Porter Stansberry: That's stupid.
Buck Sexton: You know what it did with his poll numbers?
Porter Stansberry: He just doesn't have to say anything.
Buck Sexton: You know what it did with his poll numbers? Nothing. Because the only people who cared about the Helsinki thing already think that Trump is Hitler, is Stalin, is Mao, is Judas. Go down history, everybody who's bad.
Porter Stansberry: Anyway, remember the guy in St. Louis where they had all the riots? This is three years ago, probably.
Buck Sexton: Mike Brown.
Porter Stansberry: Mike Brown. Remember?
Buck Sexton: That's where the Black Lives Matter movement started.
Porter Stansberry: How could that be your hero? How about Freddie Gray, here in Baltimore, right? This is a 26-year-old, didn't have a social security number because he never had a job. Three of the officers that were responsible for his death were black. The cops had arrested him 26 times for selling heroin in that neighborhood. That can't be your hero. Mike Brown had just –
Buck Sexton: Well, he assaulted a police officer.
Porter Stansberry: He had just robbed a convenience store, and then he assaulted a police officer. That can't be your hero.
Buck Sexton: Yeah, and when you see how big he was in comparison to the officer, when you have a guy who's going for your gun after he's already struck you in the face, and you're a cop, that's a lethal force scenario. They had, and this got completely brushed aside, the DOJ for that case did a deep dive and everything, and in the report, they said there were black witnesses – who they had to keep out of the report by name because they feared for their lives – who said that Mike Brown charged at the office after he had drawn his gun.
And by the way, if someone is charging at you when you have a gun drawn, you have every right – I don't care even what the law is – you have every right under common law, natural law, self-defense to shoot somebody. So it is what it is.
Porter Stansberry: I just don't know why people just don't get up and say, "Look, this doesn't make any sense. Obviously we're not in favor of police brutality, but this is a bad guy. This guy got what he deserved." If you sucker punch some guy and you're parked in a handicapped spot, I've got no sympathy for you.
Country Club Guy: Well, the video, I just watched it again. I'm not fascinated with it, but the guy pulled out his gun, and there was a guy behind the victim that saw him coming out and he started running and the victim did not run. He sat there with his arms up like, "What are you going to do?" Well, guess what? He got his answer.
Porter Stansberry: Yeah. Boom. All right. "Hey, I bet you won't shoot me."
Country Club Guy: Please, no hate mail to Country Club Guy. Just send it all to Porter.
Porter Stansberry: All right, let's go on. We talked about Helsinki. We talked about the dummy in the handicapped spot. We talked about Tesla needing cash back from its suppliers. Whoops, it is a car company, and apparently it's not making any money. How about our friend Assange?
Buck Sexton: I was going to ask you about this one.
Porter Stansberry: This is another topic you can't talk about.
Buck Sexton: What do you mean? I can talk about this.
Porter Stansberry: He's like the third rail for you conservative Republican types.
Buck Sexton: It's fine. Remember, they liked Assange on some things. It depends on the day and the topic. So, Assange is bad when it comes to the Iraq War cables and all that stuff, but then they liked Assange because WikiLeaks put out the Podesta e-mail hack and also the DNC stuff. So then, all of a sudden, Assange was a truth teller. "They" being conservative media.
Porter Stansberry: I absolutely love Assange. I think he is a fantastic renegade iconoclast, and I think he is the scourge of governments all around the world because governments have so much power because of secrecy. You take the secrecy away, all of a sudden there's a lot less government power. So I'm in favor of him, and I think people in America that think that he's anti-American, they just don't know enough about WikiLeaks. WikiLeaks plays a role in every political discussion around the world.
They're constantly releasing documents and secrets from governments all around the world. Some of them are more impressive than our government, but the fact of the matter is, without WikiLeaks, we wouldn't have known half of the things that we know, all the stuff that was going wrong in the Democratic Party. Buck, you remember all the details of this stuff. You'll have to fill me in. I always try to forget it. What was the big thing in the Podesta emails that Assange uncovered that was so embarrassing?
Buck Sexton: So, it was that the DNC, which everybody was concerned that this was happening all along, essentially the Democrat political apparatus was in the tank for Hillary Clinton, and people felt that –
Porter Stansberry: Oh, that's right, they were feeding her the debate questions in advance. Wasn't it also that Podesta's brother was getting paid by the Soviets?
Buck Sexton: Well, the Russians, but yeah, Podesta's brother has all kinds of –
Porter Stansberry: Sorry, they're not Soviet anymore.
Buck Sexton: I'm just saying, Tucker last week on his show on Fox broke that, for essentially the same crimes, Tony Podesta, brother of John Podesta – and this is still now being disputed, but they stand by their reporting – Podesta's brother, super close to Clinton, is going to get immunity to testify against Manafort for effectively doing the same thing, which is failure to register as a foreign agent and move some cash around you don't pay taxes on.
Porter Stansberry: Such bullshit.
Buck Sexton: It is indeed.
Porter Stansberry: Hold on, I got a great quote here. This is Mike Pompeo, who is now the Secretary of State, and this is what he said about WikiLeaks back in the day, a couple years ago, during the campaign. Pompeo said that WikiLeaks is "a non-state hostile intelligence service often abetted by state actors like Russia." This is my favorite part. "We have to recognize that we can no longer allow Assange and his colleagues the latitude to use free speech values against us." Huh? Wait a minute, you're saying that the bad guy is the guy who's using free speech?
Country Club Guy: Isn't he just providing a platform to allow these things to get out?
Porter Stansberry: Of course. Assange doesn't steal anybody's secrets. They're turned over to him. The other funny thing I always thought about this was, Buck, you remember when – who was the guy in Hawaii that worked for the spook and fled to Hong Kong? Edward Snowden.
Buck Sexton: He fled to Russia with a stopover in Hong Kong.
Porter Stansberry: That doesn't make any sense to me. I'm not quite sure why he fled to Hong Kong, but anyways.
Country Club Guy: He had a connecting flight.
Porter Stansberry: Anyways, the interesting thing to me was, remember Sokorov? Remember back in, like, the late '70s, early '80s, the Russian dissidents who got a lot of play in the American press that they were being repressed? Remember that guy, Sokorov?
Buck Sexton: Yeah. He was considered the enemy of the people by the Soviets.
Porter Stansberry: Right, because why?
Buck Sexton: Or, "Public Enemy No. 1," I think, is what they called him.
Porter Stansberry: Why? Because he spoke out about the abuse of the Soviet government's power, OK? Hold on, what was Snowden doing again? Snowden was speaking out against the abuse of constitutional powers by the federal government, all this warrantless searches, taking every phone call, all that stuff, right?
And so he blew the whistle, and then he fled. But what's interesting is, people who used to speak out in favor of civil rights, in terms of free speech, they used to have to flee Russia. Now they flee to Russia. Isn't that backwards?
Buck Sexton: Well, Porter, it's a little more complicated than that.
Porter Stansberry: How could it be more complicated?
Buck Sexton: He took a million estimated pages of documents. He has no idea what's in them. He's a defector to the Russians.
Porter Stansberry: I will give you that Snowden had a fiduciary obligation to his employer to not steal their documents, but if he hadn't done that, if he had just come out and said it publicly, then I would be in favor of him.
Buck Sexton: But he could make the same case with 10 of those documents, so why take a million? It looks like an insurance policy to give yourself the leverage with the Russians to buy –
Porter Stansberry: All right, fine. I'm not saying he's lily-white.
Buck Sexton: I'm just trying to keep it real. I get all excited about the Porter rants too.
Porter Stansberry: But how could you not be in favor of Assange? Assange has never stolen any documents. He's just a publisher.
Country Club Guy: I hear he's a carve-out for Russian intelligence, but maybe he's a publisher.
Porter Stansberry: Oh, please. Isn't that what they say about everybody? Hold on. Isn't the president a carve-out for Russian intelligence, Buck?
Buck Sexton: Nah, I think it's actually true with Assange, to be honest with you. I think that Assange got those documents from the Russians who hacked them, I'm just going to put that out there.
Porter Stansberry: Well, I met with Assange.
Buck Sexton: We interviewed him together.
Porter Stansberry: And he told me –
Buck Sexton: My IP address has probably been hot by God-knows-whoever since.
Porter Stansberry: Assange told me in London that he did not get the documents in question, the Podesta documents, he did not get them from Russia.
Buck Sexton: Well, of course he would say that.
Porter Stansberry: I'm just telling you, that's what he said.
Buck Sexton: He'll lie to you to protect his source and think that he's not lying.
Country Club Guy: So, Buck, let me ask you this: What's going to happen to him if Ecuador is going to take him out of the embassy?
Buck Sexton: He's going to go away. What's really interesting is, you have a situation where somebody who is not a U.S. citizen would be held liable for publishing classified – he never signed anything about classified or anything else, but they're going to get him on some kind of conspiracy against the United States or something. I don't know. It's not clear to me what the charge would be that they would bring against him. By the way, that trial will be bonkers. It'll be interesting stuff, because Porter is going to be in the front row with a "Free Julian" T-shirt and –
Country Club Guy: That's a great idea.
Buck Sexton: That would be amazing, by the way. That'd be great.
Porter Stansberry: All right, let's get to crypto.
Buck Sexton: Uh-oh.
Porter Stansberry: Big news at Stansberry Research: Steve Sjuggerud becomes the first analyst at Stansberry Research to recommend bitcoin.
Country Club Guy: I was going to have him on today, but I didn't know if we wanted to give that away.
Porter Stansberry: I tell you, I don't know about that.
Country Club Guy: Just a business decision for me.
Porter Stansberry: I'm a little leery, but here's why he did it. Sources have told us and others that there is nearly certain approval of a bitcoin ETF by September of this year, and Steve believes that the bitcoin ETF will lead people to invest in bitcoin that haven't yet, and that will of course potentially push the price way up. I think that's fascinating. If it happens, you can see a big, big surge of money going to bitcoin. Of course, I always wonder who's going to be selling it.
Country Club Guy: The people that started it.
Porter Stansberry: I wonder about questions like that, but there's another thing that the SEC said, which was that the regulation allowing for a bitcoin ETF would also feature a lot of other regulations in regard to ICOs, which are the initial coin offerings, and the government apparently is very leery of these ICOs. And this document that I'm reading from here, it's an SEC employee who has remained unnamed but says that the focus, the regulation is on ICOs, and the issue is about retail investors who are sending money to "all sorts of exotic locations to invest in unregulated securities with absolutely zero recourse for losing every cent they've put at risk."
And here's what I want to ask about that. Doesn't the government have anything better to do? If you're sending $10,000 to invest in an ICO in St. Lucia, aren't you already aware you're going to lose all your money? Isn't that what you signed up for?
Buck Sexton: No. Government now is supposed to protect people from their bad decisions, Porter, you know that.
Porter Stansberry: Oh, come on. That's ridiculous. You didn't think you were buying Berkshire Hathaway stock. You had to know better. What are you doing with your money? "Oh, I'm putting it all on a bank in Barbados." Really? How is that going to go for you? "Well, it's not a bank, actually, it's a virtual bank." Oh.
Country Club Guy: It's not a currency, it's a virtual currency.
Buck Sexton: By the way, every time I see one of these articles about how one of these virtual banks gets hacked I think, "Yeah, that seems to me to be the problem with this." What's your recourse? "Yeah, my virtual bank just got hacked. My bitcoins got stolen." Good luck. We're going to send in the 101st Airborne to go find out who in Belarus broke into your –
Country Club Guy: Got to get the Best Buy support team to help you out.
Buck Sexton: There you go.
Country Club Guy: Find your coins.
Buck Sexton: The Geek Squad will track them down for you. I think that's very unlikely to go well for them in the long run. So you and Big Sjug are having a disagreement on this one.
Porter Stansberry: No, no. People accuse me of talking out of both sides of my mouth, but I have said the same thing consistently about bitcoin. The technology, the distributed ledger nature of it –
Buck Sexton: Blockchain.
Porter Stansberry: – of blockchain is incredibly powerful technology and is going to have all kinds of applications, and is going to radically transform the way we think about legal contracts, legal documents, and even the idea of what ownership means. So the idea of who owns a company is going to completely change, all because of this technology. But the idea that one particular ledger is worth something just because people believe it is nonsense to me. Likewise, there is no regulation. I don't mean about regulation in the conventional sense, I mean no one knows who owns any of this stuff yet or what it means.
So, for example, there was a company called EOS that was selling a platform that they say is superior to bitcoin's platform because it can process more simultaneous transactions faster. So it's a blockchain that works faster than bitcoin's blockchain. Okay, cool. So I think they raised $3 billion in licenses to use this particular blockchain, but that doesn't mean you own it. It just means you have the right to use it, and there is no application yet. The idea is that people who buy the licenses are going to develop the applications, and then maybe someday it can be the competitor to Facebook. That was the story. Are you serious?
Country Club Guy: That's confusing.
Porter Stansberry: It's –
Country Club Guy: At best.
Porter Stansberry: For me it's like going to – I think of this stuff as like going to The Melting Pot, which is a fondue restaurant.
Country Club Guy: Don't get me started on that.
Porter Stansberry: Why do I not go to The Melting Pot? Because if I'm going to spend $100 for dinner, I'd at least like somebody else to cook it.
Country Club Guy: Totally agree. That was my problem with it too.
Porter Stansberry: So, hold on, I got to invest $3 billion to use your software platform that you still own, I got to pay to use it, but it has no application. I have to bring that to the party, too? It makes no sense. And so, what I'm saying is, I don't believe that these things are investible yet. There is not a framework of legal ownership. There is no framework of regulatory understanding of any of this. It doesn't make any sense to me, and if you're there first, yeah, you might be right, and you might make a lot of money, but to me this is completely insane.
Country Club Guy: Well, the technology is one thing, but the other thing is, there's, like, 1,000 coins out there. How do you decide which one's it, and how do you convert it? You have to have a wallet, you've got to do math, and you convert it to another coin. It sounds like a lot of work to me.
Buck Sexton: I still want to ask Mr. Sjug – where is he? I feel like we could patch him in. You know how they do it on shows, like, "Let's get him on the phone," because I want to ask him what's going on with China, because Buck's takeout food fund is getting hammered right now with some of these China things that are going on. Should I be sad about this?
Country Club Guy: Long-term.
Buck Sexton: I take a long-term view on this one?
Country Club Guy: We can have him on next week.
Porter Stansberry: What are you talking about? Are you complaining about Steve's China picks? Sorry, I was reading about a Chicago –
Buck Sexton: I don't know if that was a rhetorical question or I'm supposed to say, "no, I'm not."
Porter Stansberry: I was reading about a Chicago mayoral candidate who was handing out $200,000 in cash to voters.
Buck Sexton: Perfectly normal. In Chicago, that's not even a big deal.
Porter Stansberry: Nothing to see here. Yeah, but you know what's interesting about that? I got a guy complaining about Sjuggerud's China picks recently, too, and I got an audit back from Richard Smith recently of all of our newsletters and what the compound annual growth rate of the picks have been, and Sjug's China picks had a compound annual growth rate of like 24%, which is extraordinary.
So, have people lost money on those picks if they bought them three months ago? Sure. But did most of our subscribers do well if they followed our advice? Yeah they've done great. So, I don't know. I don't have much sympathy.
Buck Sexton: He's basically saying, "Man up and hold on to those China investments until you've" –
Porter Stansberry: Steve recommended these stocks beginning in July of 2016. Even if you got stopped out of them, you followed a trailing stop loss, so you're down 25% from your high, you still made a lot of money.
Country Club Guy: We'll have him on next week, at least for maybe 15 minutes, just to soothe their needs.
Porter Stansberry: People love to complain.
Buck Sexton: I just feel like, "Hey, we should ask him some questions," because we're talking about him right now with bitcoin. By the way, Jimmy and I are sitting here –
Porter Stansberry: Jimmy in the booth?
Buck Sexton: I'm trying to scale up to a one-bedroom here, and my bitcoin money is not helping right now.
Country Club Guy: Did you see what just happened here, guys? Porter is trying to talk about politics and you're trying to bring up finance. I think you got it backwards.
Buck Sexton: Yeah, I'm trying to pick up some knowledge here. Papa Buck has got to eat.
Porter Stansberry: Why don't we get to the mailbag, and we can put this one in the books?
Country Club Guy: You never talked about the $400 oil. Maybe we can save that for next Wednesday.
Porter Stansberry: Yeah. My friend, what's his name, PK?
Country Club Guy: Dr. Philip Verleger?
Porter Stansberry: Yeah, Verleger. He's saying oil is going to $400 because there's a specific type of oil that we need to formulate low-sulfur diesel, and there's a huge shortage of that particular type of crude.
Buck Sexton: So it's not that oil in general, it's just this one type of oil would go to –
Porter Stansberry: It's this one particular distillate. But I've been saying that I believe in the next crude bull market you'll see crude at $500, and it'll happen within 20 years.
Buck Sexton: What do you think is going to happen between now and the end of the year, by the way?
Porter Stansberry: With crude?
Buck Sexton: No, just in general.
Porter Stansberry: With the markets?
Buck Sexton: Yeah.
Porter Stansberry: Oh, God.
Country Club Guy: We're already at 53 minutes, so maybe –
Buck Sexton: Okay, fine.
Country Club Guy: Give them the 30-second version.
Porter Stansberry: Well you know, Sjuggerud is calling the melt-up. He's saying this is it. This is going to be the big run-up. You've seen some big moves in Google today, and I think it's likely. I think you could see tech stocks just go bonkers this fall, before having a big bear market begin sometimes in early 2019.
Country Club Guy: So maybe 7th or 8th inning of a ballgame?
Porter Stansberry: He says it's the 9th inning.
Country Club Guy: Oh, wow, later than I thought.
Porter Stansberry: He says this is it. This is the melt-up. This is the final blow-off that we're going to see.
Buck Sexton: All right, well, you guys let me know when the ballgame is over and they've got to clear everybody out of the bleachers and they get the gum off the seats and stuff, all right?
Porter Stansberry: That's when you want to buy.
Buck Sexton: That's when you want to buy. You want to send us feedback, [email protected], which we will read, especially if it has something pithy in it. Let's get to it. First up, oh, one for me. Thank you, Country Club Guy.
Country Club Guy: He said I don't do anything for you anymore.
Buck Sexton: Give me a little love. He writes in, this is from Russ in Fort Worth: "Buck, during my monthly 30-second drive-by of the Gutfeld Show, there you are. Really, Buck? How does Gutfeld have a show on Fox and you don't? Porter, I love you, but Buck, seriously you should have your own TV show. You have potential, seriously."
Country Club Guy: Can I answer that one? You do have your own TV show.
Buck Sexton: It's digital media, a little different, but the cable world is still highly, highly – I think that cable content is in its melt-up, because people are still paid these obscene salaries for cable, and they're all replaceable. You can replace Jake Tapper or Anderson Cooper with 15 other people on CNN tomorrow, for example. Nothing would change. Nobody would even know.
Porter Stansberry: Who's Jake Tapper?
Buck Sexton: Exactly. How are you worth $10 million as an anchor on a news program when you could be replaced by somebody else on the news program who would do it for $1 million and the ratings wouldn't change?
Porter Stansberry: I don't think you are.
Buck Sexton: That's what they're paid. It doesn't make any sense. Yeah, that's just me being bitter, though, because us digital media folks, we've got to just hack it out.
Country Club Guy: He'll be there someday, just not right now.
Buck Sexton: Thank you. That's right, Russ, one day. One day I'm going to bring – we're going to do a whole special podcast where I fly Country Club Guy and Porter down to Bucktopia on Buck Force One, which will be my private island on my plane.
Porter Stansberry: Buck Force One. I like that idea.
Country Club Guy: Is that island next to Porter Rico? Because he's going to have his own island at some point.
Buck Sexton: I like it. You guys have probably thought about getting an island at some point for Stansberry use, come on.
Porter Stansberry: Yeah, we've come very close.
Country Club Guy: We can't tell you where it is. All fair.
Porter Stansberry: Here's the thing about that. I've wanted to have an island for a while, because I love fishing and diving, and I've seen Bill Bonner create this nirvana in Nicaragua. I saw Doug Casey build his own community in Cavite in Argentina. Clearly we have a lot of people who are our fans and who get investment advice from us and have a lot of money, and so a lot of them would like to hang out and go fishing and go diving and spend time together.
So I think we could do it, but the problem is – this has been my experience in what I've seen – is that 90% of our subscribers are really awesome, cool, fun people, and those are the folks who have joined the Atlas 400, by the way. I've spent a lot of time with them. But there is a fringe element out there, and the fringe element is a little kooky, and you don't really want to go to an island when there's only a couple dozen people if two or three of them are really kooky.
Buck Sexton: Yep, I'm aware of kooky.
Porter Stansberry: So the hard part about planning the island is: How do you gently tell people that they have to apply to buy on the island?
Country Club Guy: The same people you're trying to sell the EOS platform, "Hey, you can give us money, and you may use it, but bring your own."
Buck Sexton: You're asking me and Country Club Guy. I'm sure there are stringent requirements for your country club… ?
Country Club Guy: Oh, I thought you were asking me if I'd need to apply. I needn't apply to the island.
Buck Sexton: You're good for the island, but I mean for your country club, I'm assuming that you've got to apply.
Porter Stansberry: He gets in everywhere.
Country Club Guy: It's the dimples.
Buck Sexton: Molly is a fan of the dimples, by the way. She's like, "Oh, I like his dimples." I'm like, "Whoa, settle down, honey. There's no ring yet."
Country Club Guy: Oh jeez, didn't know that.
Buck Sexton: Yeah, that's right.
Country Club Guy: Trouble in paradise.
Buck Sexton: Next one up here in the e-mail, we have Alex W., an Alliance member, and One Blade number 385. Look at that, you guys have all kinds of secret handshakes here. I've got my One Blade. I use it. This is for Porter, obviously, because it involves knowledge of finance. "How much do Tesla shares get from the market cap weighted passive investment like SPY?
In other words, is the perpetual updraft keeping the share price up here in the stratosphere from passive investors? Vanguard, T. Rowe Price, index funds, etc., that are filling in the 401(k)s of unwitting investors? As I sit with a short position based on fundamentals, I wonder: How many buyers are keeping Tesla's party going without even knowing it?"
Porter Stansberry: You'd have to look at the volume. The cult around that stock, though, is really very, very strong. I think it's going to take a lot to scare people away from that stock, because it's like a cult.
Country Club Guy: It is coming to an end.
Porter Stansberry: It's like a religion.
Country Club Guy: It is coming to an end. It's like the Wizard of Oz. The curtain is being pulled back.
Buck Sexton: You know, what's one thing that's amazing that he's done – and you see this with media brands actually – is that support of Tesla for a lot of people, I'm sure, in terms of investing but also just when they talk about it, correlates with being cool, in-the-know, in the elite, in the cognoscenti, all that kind of stuff.
Porter Stansberry: But to answer his question, I don't think that Tesla has a very big position in any of the passive ETFs. I don't even know if – I guess Tesla is in the S&P 500 somewhere, but it's not a major cap weighted. It's $50 billion. Tesla's share price is not being driven by passive ETFs. Tesla's shares are being driven by the cultlike following of its shareholders, who are the same folks who buy the cars and who pay for the deposits years in advance.
Country Club Guy: And the holdings page doesn't reflect what this guy is saying. It isn't a big weight in these funds.
Porter Stansberry: No. So it's not the passive funds that are the problem, it's the cultlike nature of the people that are kind of like people buying bitcoin, in my opinion. They're just buying it based on faith. There's no intrinsic reason to buy it.
Buck Sexton: Can I ask you a rudimentary question? So if I wanted to short Tesla today, I could do that and just hold that short? You can get the call on it. How does that work?
Porter Stansberry: You can short Tesla today, I believe. It depends on if there's shares available to short. So you have to have someone who has an inventory of Tesla stock who's willing to lend it to you. Most big brokers can do that for you. If you say, "Oh no, I couldn't short yesterday," maybe you couldn't short yesterday, but generally it's available to short, and I think something like 20 to 40% of the stock is already out short.
Country Club Guy: 31% is short percentage of the float.
Porter Stansberry: Yeah. I mean, it's the most popular short in the world today because nothing is more radically overvalued than the stock, and what's so funny is what we're saying is very conservative. The stock is going to get killed. It's going to fall by 90%, but the people out there, they don't understand any of these things. They have no idea what the valuation should be. They don't understand the difference between gross margins and net margins. They have no idea why. They don't even know that 30% of the stock is out short, and if you told them that they'd be like, "Well, 30% of the people are wrong."
No they're not, man. You tell them the bond is not even trading at par. How can the stock be worth $300? They don't know what you're talking about. They don't know anything about finance. They don't know anything about stocks, much like most people who are buying bitcoin today. They just don't know what they're doing, but they buy it because they think that it's cool and they think that the product is great, and so therefore they think it'll be a good investment.
Country Club Guy: The only thing I've seen Elon do well is sell hats and flamethrowers.
Porter Stansberry: He did sell some flamethrowers.
Country Club Guy: I almost bought one.
Porter Stansberry: I think flamethrowers are pretty cool. All right, is that it?
Buck Sexton: We've got one more. Douglas M. writes, "I'm an Alliance member, have listened to every podcast of The Investor Hour." So he's also a man of fantastic taste. "In the last podcast, you had Roddy Boyd on, who had written an investigative piece on Synchronoss, which is also an investment recommendation for Credit Opportunities. Did you have a chance to discuss Roddy Boyd's piece on Synchronoss outside of the recoding? From, Douglas M."
Porter Stansberry: So, answering the question, obviously Credit Opportunities recommends bonds, not stocks, and I'm sure that Roddy Boyd's piece was about the stock, not necessarily the bond. There's a big difference between the outlook for a stock and the outlook for the bond. So with that as just a preliminary, why don't we bring Mike DiBiase, our bond analyst, in and he can talk about what he sees in the Synchronoss bond as opposed to what Roddy sees in the problems in the stock.
Mike DiBiase: Thanks, Porter. Actually, we do recommend small positions in stocks along with investments in bonds from time to time in Stansberry's Credit Opportunities. We call these "synthetic convertible bond positions," as you know, Porter. It turns a conventional bond into a convertible bond so we can participate in the equity upside of the company who had issued the bonds, and that's what we did with this Synchronoss position. We had a small bit of equity as well.
But to answer your question, Douglas, no we didn't get a chance to discuss his article on Synchronoss with him, unfortunately, but I'll give you my thoughts on his article. I did read it before making my recommendation and he did raise some very good points. But first, for those of you listening that don't know anything about Synchronoss, I'll give you a little bit of background.
It's a software company that makes data storage and analytics software for wireless telecom companies. They also make money by activating new customer accounts on their networks. So Synchronoss really has two businesses, their activation business and their cloud business, and the activation business is a much lower margin business and it was also growing much more slowly than their cloud business. When I recommended Synchronoss, I was interested in their cloud business. It's, like I said, much higher-margin and is growing faster.
That's just another name for their data storage software that lets the telecoms transfer customers' data from one mobile device to another. Telecoms like it because their customers are less likely to switch to other carriers when they buy a new phone, for example. But the big problem with Synchronoss' business, as I saw it, was that Verizon and AT&T have historically combined between 60 and 70% of their business. I never like to see that.
That's just way too much risk. Losing just one customer could kill their business. So when Roddy wrote his article in Synchronoss back in March of 2017, Synchronoss' stock was around $25 a share. It had been cut in half from about $50 a share just four months earlier, and in the article Roddy explained why the stock had been clobbered, and he called into question their integrity. In fact, the article was called "Synchronoss Technologies: You Probably Wouldn't Buy a Car From These Guys."
And in the article, Roddy talked about their poor, convoluted financial reporting; often-misleading disclosures; how they made a bunch of tiny acquisitions in pursuit of fast growth; how they liked to pitch the rapidly growing cloud business to investors; and how the cloud business really wasn't growing as fast as they said it was when you looked under the covers. And last, he also mentioned how senior management was recently dumping their stock. So those are all great points and definitely reasons to be wary of the stock.
About a month and a half after Roddy wrote that article for the May issue of our letter, Stansberry's Credit Opportunities, I recommended a small position in their stock along with its only outstanding bond, and we recommended about 85% of the investment in the bond and 15% in the stock. So it was only a small portion allocated to this stock. I was mainly interested in the bond, which was trading for about $845 per bond back then, which is more than a 15% discount from par value. So it was maturing in a little over two years. So along with interest, we stood to make about a 20% capital gain total return on the bond.
Now, when I made the recommendation in May, Synchronoss' stock was just $15 a share, so it was 40% lower than when Roddy published his article. So it had almost been cut in half again since that article came out, and to me that took a lot of the risk out of it. So when I recommended a small position in the stock, to give you some chance of getting some equity upside of the stock bounce-back. For example, if the stock had just gotten back to the level it was when Roddy wrote that article a month and a half earlier, we would've made a capital gain of about 67% on the stock.
So, here's the important thing to remember: As a bond investor, I look at things much differently than an equity investor. I'm only concerned if the company, no matter how poorly it's managed, can pay us back all of our interest and principle, and I think it will in this case. I didn't love management and I don't love management today. I was just looking for the stock as a way to boost our returns, to juice our returns, because the stock had been beaten down so badly. The whole investment in Synchronoss was based on their recent $800 million acquisition of another cloud software company called Intralinks.
Let me say that again. My whole investment thesis around Synchronoss was the recent $800 million acquisition of another cloud software company called Intralinks. I loved Intralinks because of a couple of reasons. Unlike Synchronoss, Intralinks sells to many types of businesses, not just telecoms. So I like that diversification. More importantly, Intralinks immediately cut Synchronoss' dependence on its two biggest customers, Verizon and AT&T. So it would take them from about 70% of their revenue down to about 35% of their revenue after the acquisition.
Plus, it gave Synchronoss an international presence, something they didn't have before. The acquisition made me like the bond a whole lot more, and the stock, too. Now, it's true that they took on a pile of debt when they acquired Intralinks, but all of that debt came after our bond matured. So we looked at it as a very safe investment. Now, unfortunately, things didn't pan out like I'd hoped. It turns out that Roddy's views on management were pretty accurate.
So not long after our recommendation, management announced they were going to have to restate their financial statements for the past three years. Then, just a few months after our recommendation, Synchronoss inexplicably decided to sell Intralinks to one of its stockholders. That made no sense to me at all and didn't make sense to a lot of other analysts as well that covered the company. It was truly a head-scratching move.
While I hated to move for the company, it actually made the bond much safer. That's because they sold Intralinks for about $1 billion, which is more than they paid for it a few months earlier, and that allowed them to wipe out all of their debt, except our bond. So today, our bond is the only debt outstanding, and they have more cash on their balance sheet today than the principle of our bond. So they could pay off our bond tomorrow if they wanted to. That makes it completely safe in my opinion, and it's why we still hold the bond today in our newsletter. We expect it will be paid in full next year.
Today, I think we're seeing a gain of about 14% on the bond, and while the stock is down 60% or so, we're still up a small 3% on the position. So we'll likely hold this bond until it matures, unless it trades above par before then, and we're still holding onto the stock. The stock is actually at an all-time low today, even lower, about $5.50 a share, and I just don't see any reason to sell it at today's price. If management can string together a couple of good quarters, investors may be able to regain confidence and the stock will be able to bounce.
But even if the stock does nothing, we'll still book an 8.5% gain on the position when it matures, and that's not great I admit, but it's much, much better than we would've done as a stockholder. And if the stock bounces back some, which it has a chance to before maturity, our gains will be even better. But here's the important thing to remember: Even when management can't be trusted and completely screws things up, you can still make a profit by investing in the debt rather than the equity, and that's just because bonds are a legal contract. The company has to pay you.
The downside in stocks is much, much greater than in bonds. So the small investment in stock didn't pan out – at least yet – and I don't expect it to like we expected, but we're still going to be in the black on this investment. But I guess, having said all of that, the real lesson, Douglas, in all of this, is that there are signs of squirrely management and they were here with Synchronoss. It's often best to stay away from the stock.
We probably should've maybe just invested clearly in the bond here. If we just invested in the bond, we would earn a safe return of 20%. So I think that's my big takeaway from this, but Roddy does great work. It was a great article and he did raise some very good points, but we're still hanging on to the bond and the stock, and we think by the time this thing matures we're still going to have a decent return on the end of it. Thanks for the question, Douglas, and thanks for having me on, guys.
Porter Stansberry: Hey, Mike, thanks a lot for that input, and I think that is a wrap, boys.
Buck Sexton: Fantastic podcast, gentlemen. Please do send us your thoughts, everybody. Investor Hour is where you go to check it out. [email protected] See you next week.
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