In This Episode
Add $120,000 bananas to the list of market top indicators, as Dan explains what’s behind the artwork mania that’s taking place alongside frothy stock market valuations – and a $12 trillion bond bubble that’s only a little less insane than its August 2019 peak.
Dan then gets to other metrics that warn valuations are looking increasingly toppish, before explaining why, counterintuitively, reality may not catch up to investors and markets for a long while.
Of course, when the reckoning comes, it won’t hit all companies equally. What most people don’t realize is, the final stretch of the bull market won’t lift up all companies equally, either. Listen in for Dan’s take on why the biggest beneficiaries of the rally could also flatline even as the good times roll on.
NOTES & LINKS
- To follow Dan’s most recent work at Extreme Value, click here.
1:34: Dan gets to the $120,000 banana art pieces you may have heard about. “If you’re on the right side of this trade, it was really a $360,000 banana.”
9:37: The website Artspur.com has listed the seven most expensive works of art of all time – here’s the $80 million artist you haven’t heard of, above Pablo Picasso.
19:10: As Dan notes, it’s a very peaky moment in stocks right now – and economist John Hussman has identified five metrics that correlate better than anything else to the ensuing 10-12 years of returns in the markets – here’s what they hint about the next decade.
21:22: The bond market’s most deadly moment may have passed since August – Dan explains why, after “some froth coming off the top” bond markets have only a $12 trillion problem now.
26:25: Dan goes over history’s lesson of what’s next for the FAANG stocks (and the biggest company in the world you might not have heard of). “One you become the top dog in the world, the returns for the next few years have been dismal, historically speaking.”
31:34: “Prices suck right now,” as Dan warns about valuations – and yet, anyone calling for a big short term reckoning is likely to be wrong.
46:11: Dan reveals why he almost called the December issue of Extreme Value “The Crash of 2020” – and what the only problem with that title was
Voiceover: Broadcasting from Baltimore, Maryland and all around the world, you’re listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour.
Sign up for the free show archive at InvestorHour.com. Here is your host, Dan Ferris.
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I’m your host, Dan Ferris. I’m also the editor of Extreme Value, published by Stansberry Research.
Okay, it’s the second week of December. I’m in the holiday spirit as I warned on a previous podcast. We record this thing at 8:00 a.m. my time and I have Bailey’s Irish Cream in my coffee. That’s how I roll during the holidays.
If that doesn’t sound so wild, give me a break, I just turned 58 and I don’t get a lot wilder than this. Sometimes I go into the music room and crank up my electric guitar super loud but even then, I think Bailey’s at 8:00 a.m. is about it.
So you know, happy holidays to you. I hope you’re enjoying it as well. I’m headed back East this week to see the family. This week, I have a couple of things to do. Some of what I’ll tell you later in this episode will actually come from the December issue of Extreme Value that comes out Friday, December 13th.
So I’ll give you just a little taste of that today and it will sound familiar but it’s got a couple new details in it. In keeping with the light-heartedness of the holidays, okay, the first thing I want to do is talk about this $120,000 banana that you may have heard about.
Now if you’re on the right side of this trade, it was really a $360,000 banana. So last week at an art gallery in Miami, three separate art lovers paid $120,000 for a piece of art consisting solely of a banana, a real banana duct-taped to the wall of the gallery.
Yes, I just said that. $120,000, banana, duct-taped to the wall. The artist is an Italian fellow named – I’ll probably butcher this: Maurizio Cattelan, something like that. He’s the guy that did the 18-karat gold toilet that was stolen from Winston Churchill’s home, Blenheim Palace in England.
Okay, so the title of the banana duct-taped to the wall is “Comedian”. You get it? Banana, comedian, you know, the old slipping on the banana peel schtick is the connection I supposed to comedian and you know this is – it’s not a completely original idea.
I mean Andy Warhol did a painting of a banana once, and he did paintings of lots of other fruits too, and they were very kind of whimsical in nature. I guess everything Andy Warhol did was pretty whimsical in nature.
So this is in that tradition, if tradition is the right word; the tradition of weird fruit art. The banana was on display at the Gallery Perrotin Booth at the Art Basel Miami Art Fair, at a convention center in Miami.
Now some art buff paid $120,000 for this banana duct-taped to the wall. Three of them. Three of them did and it immediately made me wonder a couple of things.
First, how do you get it home? Do you take the whole wall with you? Does the artist supply you with replacement bananas? Because what’s that banana going to look like in a few days? [Laughter.] You know, you have to replace it, right?
Well the schtick here is that the banana duct-taped to the wall comes with a certificate of authenticity, which is supposed to allow the owners to constantly replace the banana.
So you leave the gallery just with this certificate for your $120,000 and you know, the certificate says you’re one of the three idiots that paid money to duct-tape a banana to his wall and call it art.
So you know I thought this could not be outdone. I was like, ‘this is such a scam.’ Good for him. He made $360,000, but he was outdone. This artist was outdone by a performance artist named David Datuna.
David Datuna walked into the art fair on Saturday, last Saturday. He walked right up to the banana and there – you know this thing got a lot of attention. So there’s a lot of cameras on it and it’s lit.
It’s got lighting on it like it’s a piece of art and he walks right up to the banana. He pulls it off the wall. He looks at the crowd and he says “hungry artist” and eats the banana in front of everybody.
He was immediately asked to leave. The gallery director said Datuna did not destroy the artwork. The banana is the idea. With a straight face, that’s what the gallery director said. The banana is the idea, the banana is the idea. If that’s not the single-greatest quote of 2019, I do not know what is.
I work hard and Mike Barrett works really hard to produce ideas for the Extreme Value newsletter but – and we work hard to produce ideas for this podcast as well.
If I had known that I could make 360 grand by pulling bananas out of the fruit bowl on the kitchen table and duct-taping it to the wall, well, I’d have done that instead [laughter.]
The police were called in to guard the replacement banana. They replaced the banana and called the police in but it actually – and the guy, Datuna, the guy who ripped the banana off the wall, he posted on Instagram and he said art performance by me.
You know he kind of – it was a – I think it was a shot of him eating the banana and he said art performance by me. I love Maurizio Cattelan’s artwork and I really love this installation, it’s very delicious [laughter.] That’s what he said on Instagram.
Okay, it ain’t over though. That’s not all. On Sunday, this past Sunday, December 8th, the folks at the art show announced that the work was no longer on view because the article said, quote, “Crowds surrounding the installation posed a serious health and safety risk as well as an access issue,” end quote.
So the access issue means the thing was so mobbed, people couldn’t get to it, and it was so mobbed that you know there’s a danger of I don’t know what. I mean could you imagine if they hadn’t removed the banana and hadn’t removed the installation?
The headlines, you know, two dead, many injured as Miami art lovers stampede toward banana. I think you’ll agree with me that this entire affair is oh, how would one say, off the wall [laughter.]
The banana story, look, crazy stuff. You know this is a very end of cycle, sign of top crazy story and even I know a friend of mine on Twitter, a Twitter friend, haven’t met him in real life but you know, Twitter friend, we go back and forth quite a bit.
He says that he published a chart of the S&P 500. He says the most ominous chart he’s ever seen in his life and he titled it The $120,000 Banana Top, so just a crazy story.
You know, modern art is crazy but it’s obviously alive and well and you know, duct-taped to a wall in Miami where wherever the three you know took their certificates of authenticity to duct-tape their own bananas, and the banana story, you know it made me want to revisit like the most expensive artworks in history to date.
I find that a fascinating topic. I found a short list of seven of the most – the seven most expensive artworks according to a website called Artsper.com and Artsper, before they listed the seven they mentioned that in 2018 a guy named David Hockney, an artist named David Hockney made history by auctioning his painting called Portrait of an Artist for $80 million, making him the most expensive living artist.
So $80 million, most expensive piece of art, you know with the artist still alive. Good for him, you know, good for him. He painted this painting, Portrait of an Artist in 1972.
There’s one guy with sort of a ‘70s looking haircut and jacket standing next to a built-in swimming pool, and then there’s another guy swimming in the pool and he’s looking down at him and it’s sort of– it’s not the greatest job of painting, I’m sorry, it’s just not, and they’re up on a hill apparently.
It looks like they might be out west somewhere because it looks like there are cactus but it’s very green though. So, I’m not quite sure where they are supposed to be.
Anyway, so that’s that all right, and we’ll just run down the list of seven. There’s some interesting stuff in here. Number seven is called “Reclining Nude” by Amedeo Modigliani, $170 million. He painted it in 1917. It’s a very nice-looking painting.
It sold for $170 million in 2015, okay, and apparently there’s a series of these paintings and another one of them was sold in 2018 for $150 million, just kind of missed getting on the list here.
Number six is Pablo Picasso, not surprised to see him on the list, a painting called “The Women of Algiers” is $179 million. He painted it in 1955 and it went for $179 million in 2015, at the time, the most expensive painting sold in an auction.
Number five, and I have to say the first two, numbers six and seven, they look like real works of art. I mean they’re kind of kooky style, but whatever.
Number five is called ”No. 6”. It’s called “No. 6 (Violet, Green and Red)” by an artist named Marth Rothko. It was painted in 1951 and it was purchased by the Russian businessman, Dmitri Rybolovlev -- Rybolovlev in 2014 and apparently there was some sort of a hubbub with him and his art dealer, a guy name Yves Bouvier, and he accused Bouvier of over-valuing the paintings he sold him.
Now if you saw this thing “No. 6 (Violet, Green and Red),” you’d say, yeah, that’s violet, green, and red, because that’s all it is. It’s just some like thick stripes of violet green and red on a canvas, and you know it looks like anything just about anybody could have done.
And you know I’m sure there are lots of artists out there who say well, not just anyone did it or whatever, $186 million. Yeah, I’d say he probably over-valued it by about $186 million. It’s just ridiculous and the hits keep coming.
Number four is a Jackson Pollock, right, so Jackson Pollock stood over these canvases that he put on the floor and he just dripped paint all over them and they actually look kind of neat, I have to say.
Now this Jackson Pollock was sold for $202 million in 2016. They’re not that neat. Okay, they’re kind of cool but they’re not that cool and guess who paid – the thing was painted in 1948.
Guess who paid $202 million for this Jackson Pollock? The billionaire hedge fund guy, Ken Griffin, who apparently has been collecting art for decades and he bought this one and another one on the list higher – well, lower down on the list for even more. I don’t know. I have some thoughts about this that I’ll share with you when we get through the list.
Number three is “The Card Players” by Paul Cézanne. Okay, I think we’re getting into artier territory, for $274 million, painted in 1895 and it doesn’t say when it was sold, but it was bought by the royal family of Qatar, which some people pronounce that country, Katar, but I’m pretty sure it’s Qatar. My brother spent a lot of time there when he was in the Marine Corps and that’s how he always said it; $274 million.
I mean look, it’s a lot but I don’t know. Number two is a tie between two paintings called – one is called “When Are You Getting Married” by Paul Gauguin, and the other one is called “Interchange” by Willem de Kooning.
Now the Kooning painting, and they both went for – it’s believed they both went for $300 million. I think the Kooning was also bought by Ken Griffin. I think he bought it at the same time he bought the Jackson Pollock and he paid $500 million for the two of them.
He paid $500 million for two paintings. Okay, the number one most expensive piece of art in history is the Leonardo Da Vinci, “Salvator Mundi.”
Now Leonardo Da Vinci is legit; one of the top – what, two, three, five painters of all time, just amazing, right and you know one of the most brilliant folks in history really, and that thing sold for $450 million 2017 at auction in New York, at Christie’s, and it was bought by Prince of Saudi Arabia, Mohammed bin Salman and you know that makes a lot of sense, right.
Saudi Arabian Prince, more money than he knows what to do with, and they wanted to put it in the Abu Dhabi Louvre and I don’t think it’s in there yet. I don’t think the Louvre – I’m not sure if the Louvre is finished over there or not but – so that’s a quick run-down of the most expensive artworks and they’re insane numbers.
But one insight that I do take from this is the true value of FIAT currency relative to the totally irreplaceable iconic artworks, you know iconic, a friend of mine once said, I think he was quoting someone else actually. I forget who said this ultimately, the flag of culture; art is the flag of culture.
So there’s these iconic symbols of culture that will never change. You know, there’s one “Salvator Mundi.” Right, there was one Leonardo Da Vinci, one “Salvator Mundi” but there’s lots of dollars washing around the world, so, uh, $450 million and that’s one thing I think you’re seeing here.
I also believe, especially in the case of a guy like Ken Griffin, let’s just say, who’s on the list twice, he’s diversifying substantial amounts of wealth, outside of financial assets.
I have no doubt the guy loves art. He’s been a collector for a long time and he loves art, and he’s got a lot of ideas about it. I saw an article this week that said he’d been collecting for 20 years and there was an interview where he said art is an area of common ground that all human beings share.
So you know he’s got some lofty ideas about it, but I think that he’s – you know he’s collecting all this artwork and he’s buying real estate too, you know, he paid $230 million for a New York City penthouse, most expensive home in America and the art especially.
You know, suppose some crazy politician succeeds in passing something where there is a huge wealth tax and they start stealing more from people like Griffin and he can pack his art up and move it out of the country and sell it to some Saudi prince somewhere and he’ll have – you know, who knows, several hundred billion – or you know a hundred million or a billion in the bank and never have to set foot in the country again, if he doesn’t want to.
So interesting topic, we’ll revisit occasionally and you know we’ll keep an eye on the banana market too and the duct tape market. I figure you know, banana, what’s a banana, you know, 50 cents or something?
I don’t know. I’ve – you know, a roll of duct tape, like what, $20? You know, $20-$25 and you’re in business, $360,000 in revenue. All right. So let’s move on and talk about more serious financial matters.
Simply put, I’m going to show my readers of Extreme Value this Friday that this is a very risk moment in stocks, bonds, private equity and venture capital.
It’s a very peaking moment right now and stocks, John Hussman has published his most recent update. I follow his work on valuing the overall stock market, which I think is the best such work before the public today.
I don’t necessarily you know follow absolutely everything else he does, but he’s found these five metrics that are – that correlate better than anything else that he’s found in 30 years of looking with the subsequent 10 and 12 year returns of the stock market.
Right, so they correlate negatively very well. When they’re way high, returns in the next 10, 12 years are way low and when they’re way low, the returns next 10, 12 years have been way high, historically speaking, and the correlations are like negative 90% or so, which is really amazing.
So here we go. We’re here again at what Hussman says is the most expensive moment in history. It’s more expensive than the 1929 peak, dotcom peak and of course you know, I know valuation is not a timing mechanism. Right, I never have said that it is. Oh, valuations are high, sell short.
No, that’s not how it works. I care about value. I care about long-term rational, you know, value-oriented investing. I want to know what kind of return I can expect out of things.
I can expect a lousy return out of the S&P 500, simply put. It’s too expensive. It’s more expensive than it’s ever been and don’t write in and tell me that I’m stupid because you know, the S&P 500 is hitting new highs and therefore it’s the most expensive. That is not anything like what I said.
That’s a new high in price. It’s not a new high in valuation. It just so happens to correlate with a new high in valuation. Valuation is the price relative to the value you get, the earnings power that you’re buying.
Okay, that’s what I mean. The price relative to the earnings power that you’re buying in the S&P 500 has never been this high, according to these metrics which make a lot of sense to me, the Hussman Tracks.
In the bond world, pretty much the same thing. I think the real scary peak was back in August when there was $17 trillion of negative yielding debt in the world. A little bit of froth has come off of that.
Hey, there’s only about $12 trillion now. So yeah, $12 trillion of negative yielding debt. So you buy this stuff, you’re guaranteed to lose money and plus, the super-flat yield curve is crazy. Right, I was looking up some numbers for the issue that I’m writing for Extreme Value and the 30-year bond was like 2.2%yield.
It yields like 2.2%. The three-year was at 1.5%. Right, so less than 100 basis points from each other, you know like 70 basis points from each other. It just – that’s crazy. That’s insane.
That means you’re taking 27 more years’ worth of risk and more convexity, more volatility in the bond and you get paid another, not even quite 70 basis points. Insane, truly insane.
The long end of the yield curve has got – you know the yield has to come up. The prices have to come down. I think you can buy the short end, but you can’t buy the long end, and in fact, this month in Extreme Value, I do offer a way to buy the short end of the curve.
So in private equity, there’s $800 billion cash, sitting in U.S. private equity firms, worldwide, well over a trillion, and once they lever up in the U.S., that $800 billion will translate to at least two trillion, you know, maybe more.
So you know maybe you say well Dan, that means that they’re going to be buying stuff and pushing asset prices up. Well, they already have and I cover that in the newsletter, so I won’t give you the details, but the valuations are already pushed to public equity market valuation levels.
So you know very peaky there too and you know, that’s where well-heeled folks go, right when they’re kind of burnt out on Facebook and Google and stuff, and bonds that yield next to nothing.
They put five or 10, or 25 million into private equity and – but the returns there are sucky from here and have been sucky actually for a little bit. So, venture capital is another interesting place.
There’s a trillion dollars in venture capital, assets under management; a trillion. That’s more than twice what it was five years ago. It’s over a trillion.
It was one number I saw, it was $1.3 trillion. I think some of the – a little bit of froth is coming off of that too. A guy named Chris Douvos from a firm called Ahoy Capital says it’s been a rocking, rolling party for five years and someone just turned the lights on. Right, they’re pulling the punch bowl away in venture capital.
Vitaliy Katsenelson, a friend of mine, money manager, kind of a conservative, value-oriented guy. He’s been on the program several episodes ago. He calls venture capital, “dot com 2.0” and you know if you look at the lousy returns from Uber and Lyft and other VC-backed IPO’s and the WeWork IPO never happened.
You know it’s starting to look like the party’s definitely over. Wall Street Journal published an article, said $100 billion has come off the valuation of these companies and we know of course where $39 billion of that came from; came off of WeWork.
Yeah, from $47 billion to $8 billion, so that’s looking like – you know that’s the dot com spot in the market really today and it’s over. It’s done, and I think in general I would just say that investors lack imagination.
I’ve covered this before. I’ve said it before over the past year but they can’t imagine Facebook, Amazon, Google, Apple, Microsoft, they can’t imagine these companies underperforming and yet, we mentioned previously, the research by Rob Arnott at Research Affiliates, and Arnott did something called Top Dog Research where he found that the biggest market cap companies in the world and in various sectors perform lousy, you know over the next 10 years.
It’s a long-term effect, like once you become the top dog in the world, the biggest market cap company in the world, your returns for the next 10 years have been dismal, historically speaking and you under-perform the rest of the world by like more 3% per year, over 10 years.
That’s a lot of compounding you don’t get by buying the biggest stock and of course Saudi Aramco is the biggest stock in the world now at $1.7 trillion, went public in Riyadh and recently – and you know what’s that company going to do for the next 10 years with all these electric vehicles and various other things?
I mean the internal combustion engine is not going away any time soon but there’s serious competition for it and you know that’s not good for them, and plus there’s more oil in the world than most people realize. Right, U.S. is the biggest producer now, not Saudi.
So yeah, cycles matter. One day, it’ll all revert to the mean as it always does and you know if there’s no mean reversion, capitalism is broken and it really is different this time, and maybe capitalism is broken.
Maybe you can write in to [email protected] and say you know, ‘Dan, you’re wrong, capitalism is broke and the market is going to go up forever and you know, it’ll never revert to the mean and it’s all different now,’ and I’ll read it.,
I’ll read it. I may not agree, but I’ll read it. I consider it crazy to bet that way though. It’s just not right to bet that it’s different this time and the most exorbitant valuations in history are just about right.
So I continue to give the same advice I’ve given for two years. I’m not letting up on this until I see a real reason to do so. Cash, gold, hold cash, hold plenty of cash, hold plenty of precious metals, gold, silver. I’m – favor silver, just a personal choice and buy value in and where you find it.
Right. You can’t call the top. You can only be careful about how you allocate your assets, but you should still buy good stocks at reasonable prices when and where you find them, and that’s your acknowledgement that you can’t call the top.
Right, that’s what you’re doing when you do that and you’re also acknowledging that a stock is a share of a piece of a – it’s a piece of a business. Right, it’s a share in the earnings power of a business and the assets of a business.
So – you know I’m where I’ve been for two years and you know I could go on this way probably for another two. I mean people started getting – things started getting really crazy and frothy in tech, and the market in general in 1996 and it went on for four solid years and then when it all fell apart, the indexes bottomed out at the same level they were at four years earlier.
So you can be quite early in your caution and your bearishness and still be pretty much right on, and I’m not even saying that I’m capable of buying that bottom when it arrives but you can start buying, and you can buy across that period.
You can know when things are super stinking dirt cheap. Okay, so that’s what I got. That’s where I am. You know, there’s a $120,000 bananas are being sold and it’s the most expensive moment in history.
The combination of those two things is more than I can bear this holiday season and you know, I’ve got quant friends of mine saying that it’s the most ominous chart they’ve ever seen in their lives but you know our three traders last week, they’re long-term bullish for another year and actually, you know, Greg Diamond, he was sounding kind of bearish in the short term too.
They were all three kind of expecting a correction in the short term,but Greg Diamond turned more bullish. Last Friday, I think it was, he put out something. So – you know, short-term bullish.
So look, this is – you know my viewpoint is that it’s a divergent viewpoint. Few people obviously think this way with stocks screaming to all-time highs.
I don’t want to try to call tops, but I am bearish and cautious. So – and you could see that as an attempt to call the top. If you take it that way, I’m not going to quibble too much with you and let’s face it, if you do take it that way, I’m likely to be wrong.
At any given moment, if you’re calling a big change like that, you know, a bottom or a top, you’re likely to be wrong because they’re rare so – and I have to acknowledge that but I can’t do anything else right now because I know that if I’m a long-term holder of equities, the prices suck right now.
That’s just – I’m calling it a fact. It’s just a fact. So that’s where I must leave you and I’ll change my tune. If you know if earnings catch up to the current valuation, I’ll change my tune. If anything happens to change the situation there, I will change my tune.
And like I said, what I really hope happens is the market goes sideway and you know, the golden age of value which I think has begun continues and so then value strategies will thrive and the market’ll go sideways, instead of down 50% which would be a run of the mill performance based on the stuff Hussman found.
That wouldn’t even be a really especially bad – that’s not a worst case scenario. That’s run of the mill. Worst case from here would be like 65%-70%down. So I’m going to leave you there. I’m going to leave you 65%-70% down and move on to the mailbag because there’s some good stuff in there.
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Dan Ferris: Okay, the first item in the mailbag which of course this is our weekly conversation. Right, this is where you and I get to talk. You write in to [email protected] and I read every word you send me.
I even – people send some long emails and I read every word of them because I want to talk with you about this stuff and I want to know what’s on your mind generally too. So, I read all kinds of stuff.
You know people express views on all kinds of things that don’t necessarily make it into the mailbag segment and I read them all every week. [email protected], send in comments, questions, politely-worded criticisms, book recommendations, you know, whatever, holiday drink ideas, anything you want.
But the first one here is by Lauren S. and Lauren S. begins her email, Dear Buck and Porter, now that TD Ameritrade has eliminated trade commissions from most equities, does it still make sense to be enrolled in a DRIP, a Dividend ReInvestment Plan, DRIP.
The main attraction was the additional shares with no commission but now maybe it’s better to take the cash and invest it wherever I want. What do you think? Thanks, Lauren S.
Well, Lauren, I didn’t get a hold of Buck and Porter. My name’s Dan – Hi Lauren, my name is Dan. I’m the Host of Stansberry Investor Hour and have been for a little over a year, and Buck hasn’t been here for I think last December, about a year and Porter hasn’t been here in over a year.
Just an update, Lauren. You’re busy, I get it but yeah, the point of a DRIP I don’t think is what you said. I don’t think the point of a DRIP, the main attraction is the additional shares with no commission.
The point of a DRIP is to put your money into a really good dividend-paying stock and reinvest those dividends to compound at the highest possible rate over time. That’s the point of a DRIP.
It’s – you know the additional shares with no commission is kind of a nice little added bonus and as you point out, now they’re all no commission. So that’s really great, right.
At least that’s what I think the point of a DRIP is. If this is the point of a DRIP for you then that’s the way you roll and I respect it but I believe that the point of a DRIP is to compound at high rates and conservative stocks that pay and even raise their dividends regularly.
So moving on, Gerard O. has kind of a long email here and I’m going to read some of it, and then I’m going to try to sum it up, rather than to read the whole thing.
Gerard O says Dan, has an analysis been done of the relationship between corporate stock buy-backs, debt issuance and the relative proportion between them considered appropriate on the balance sheet and corporate decisions to restructure as – or invest in an asset like business model.
I think the wording is a little off there, Gerard, but I think I understand what you’re asking, and then he says, is there any relationship between the asset-like business model and the predictive model of fundamental finance metrics that analysts use to assess the future returns on equity investments?
Maybe, I don’t know but then your other point here is you say I’m – yeah. I’ll just read later on in your email where you say I’m concerned that our nation, many within its population are adversely affected financially and ill-suited to the job opportunities in an asset-like model if carried to an extreme based on corporate financial metrics such as an ROA or ROI.
And he also talks about a fellow named Victor David Hanson who wrote some history books, and Victor David Hanson said the old adage, quantity is its own quality, and it sums up the massive economic population and resource advantages of the allied nations, and one reason allies triumphed over the axis in World War II.
And he says are the free nation states losing this global economic advantage to authoritarian and totalitarian states, and the point that I believe Gerard is making here is he’s saying well, if they’re the ones building all the infrastructure in their countries and you know, China’s got a lot more people than we do, so they need a lot more infrastructure, then they’re going to have this quantity is its own quality advantage over us.
I don’t know, Gerard. I hear you. I think that’s – I think what you’re identifying here is just an expression of another thing, another big advantage that China is going to have over us and I think they will. I think the future belongs to them and I don’t like the fact that they’re still a totalitarian nation and you know, that you can’t own anything in that country.
It’s – and to me it’s like if you ever saw the Borg in Star Trek, you know, China’s too much like the Borg. The whole society tolerates being shoved around and told what to do, and surveilled and censored and just controlled, and frankly if they didn’t tolerate it, I don’t know if they would have any idea what to do.
So I don’t think they’re going to change much and I think the Borg is going to attach itself to all of humanity and you know, become the dominant force over the world over the next several decades.
I mean I’m heartened by the history of the Soviet Union, which was a top-down controlled economy that fell apart because it was that way, and because it was a giant prison.
I think China seems like – it seems like somewhat less of a giant prison and I don’t really – you know I should probably stop talking about it because I haven’t spent enough time there, and folks who have spent enough time there say hey, it’s great, they’re more capitalistic than we are, which I think is baloney.
So I don’t know. I don’t know, Gerard. This is a complicated point. I’m curious if anybody has any expertise to share and maybe they should write into [email protected] and share it with us. It’s – you’ve opened up a gigantic can of worms that your host is unfortunately ill-trained and ill-informed to really comment much further on.
All right. Next one is from Robert V. Robert V. says sir, love your podcast, you’re a great host, enjoy you more than Porter. From your investment newsletter, Extreme Value, I bought your newest gold investment you raved about. So far, I lost money on that investment. Are you still convinced it’s a great investment?
Well, you didn’t lose anything if you didn’t sell it but I can’t comment on what the specific stock is because that’s for Extreme Value readers only but I will tell you that if you go to the newsletter on the website there, you can see all their latest updates and we haven’t changed anything, and I think in fact that 2020 is probably going to be a good year for precious metals, just a suspicion because stocks are so highly-valued and bonds are paying diddly-squat.
So when you get – and you know there’s still $12 trillion of negative yield out there. So when you get into those kind of circumstances, you know when the stuff that’s supposed to yield and pay you some income doesn’t really pay you much, if anything, gold tends to shine.
All right. Next, we have another long one. I will not read the whole thing, from Devan C. and Devan C. says hello Dan, hope the holiday season finds you well and your mother continues her improvement. She actually is and thank you everyone, for all the well wishes. Big fan of the podcast. I never miss an episode.
Recently, I have noticed an interesting trend that you seem to be a part of. I will preface this with the fact that I tend to mirror your overall investment and market thesis as I find the common sense approach to things to be logical, even though the world and markets tend to not act logically, LOL, he says.
So into my observation. I tend to follow podcasts and investors that for the past year or two have been touting the fact that the market is overly due for a substantial correction. I tend to agree.
However, over the past month, I have noticed a lot of smart people including yourself shift slightly in not necessarily their outlook but in where they believe the market is going.
It’s almost like the bears and bold bugs, and people that have been calling for a correction have become exhausted at the market continuing to make new highs and have conceded that perhaps this trend isn’t as close to an end as we thought, not because it isn’t due for one but because the powers that be will do anything to keep this thing steamrolling up; and I skipped a bunch of stuff where he talks about kind of a tangential view on this topic.
Then he says I have seen lately that those who are most bearish slightly change the tune as response to the market rejecting logic and continuing to move up. Now the bears who I would call the late adopters, not saying they are buyers now, just saying they have submitted to the fact that this market is like nothing else we have seen and now we’re stepping down in their impending doom and gloom.
I feel like this could be a sign that this market cycle is coming to an end. The last of us are exhausted and perhaps as conceding that the market might keep going up is in fact a sign the opposite will occur; just a theory I have been playing around with lately due to some of my observations.
I wonder your thoughts on this crazy nonsense or perhaps a sign of what to expect in 2020. Have a fantastic holiday season with lots of hot toddies and keep those great podcasts coming. Devan C.
Devan, your thinking is perfect on this. I don’t think – I mean have I capitulated? I don’t know that I have. I’ve admitted that it’s been wrong so far to think that way. I’ve definitely done that and it’s – you know that’s indisputable.
With S&P 500 making new highs, you know that’s indisputable. Dan’s been wrong to be bearish since 2017, okay, but I’m not exhausted here and I don’t think it’s a good time to get exhausted.
I might get exhausted if we corrected 20 percent again and then started on another – another correction. Maybe, it depends. You know, other stuff besides market – market action isn’t my thing. If that – a correction took us down into really dirt cheap territory and it was you know far down enough, and I started seeing a bunch of bargains and I thought, wow, this is really great, then I’d say wow, this is really great.
But otherwise, you know I hope that I haven’t misconstrued my own view. I’m not exhausted but your idea that anecdotally when the last bear is gored, that’s the top, is a very good idea. Maggie Mahar’s book, “Bull” is a – has a wonderful story about a woman named Gayle Dudek who was one of Louis Rukeyser’s, I forget what he called them, his elves or something and all the elves continued to be bullish into like 1999 and early 2000 and he kind of fired her on national TV.
Like somebody called her up and said hey, Louis Rukeyser just fired you on TV from being an elf because she was bearish, and of course she was bearish and persistent in her bearishness. 1999, 2000, she was spot on and the other elves, like he was disappointed in the elves eventually.
I think he just like stopped referring to them. He stopped talking about them because they – I think they either all turned against him or the market was plummeting and they were staying bullish or something.
I forget exactly what played out there but the whole elf thing just destroyed him and made him look kind of stupid and we figured out that Rukeyser didn’t really know anything. He was just kind of a bull market cheerleader, but you’re right and I agree and look, I’ll confide in you.
Okay, I’ll confide in everyone. I almost called the December issue of Extreme Value the crash of 2020. The only problem with that is it’s a prediction and yours truly just isn’t in the prediction business, and it wouldn’t surprise me if we got a big downturn starting in 2020 and maybe leaking into 2021 or 2022, but I can’t do predictions.
It’s too foolish. I cannot behave that way. It is too foolish. So I’m not calling it that and I never will. Maybe with a big question mark next to it. Maybe I could get away with that.
So you’re right, Devan, I kind of agree but I haven’t changed. So that’s it, folks. That’s it for another episode of the Stansberry Investor Hour. I’m your host, Dan Ferris. You can listen to every episode we’ve ever done and see a transcript for every episode we’ve ever done by going to our website, [email protected]
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That’ll push us up in the rankings and attract more listeners, so we can have an even better conversation about investing each and every week. Good for you, good for me, good for the entire galaxy. Darth Vader, we’re coming for you. Okay. iTunes, subscribe, like. It’s my privilege to come to you this week and every week. Have a happy holidays. We will talk to you next week. Same bat time, same bat channel. Until then, bye, bye.
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