Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we interview Whitney Tilson, lead editor of Stansberry's Investment Advisory.

Dan Ferris:  And today, Corey and I will talk about unemployment numbers and implications for inflation and we might even talk about reasons to be optimistic.

Corey McLaughlin: And remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris:  That and more right now on the Stansberry Investor Hour All right. Well, the official news is unemployment came in at 3.7%, which is the big low that happened recently, which is a low going back to 1968 or something. The big low was 3.5% earlier this year and then more recently we ticked up to 3.9%. Now we're back to 3.7% and there were – the total nonfarm payroll employment increased by 199,000 jobs in November. Last November, it was 260,000 or I think 262,000. So the chatter, the news, the story is that this could actually be an indication that we are headed for a so-called soft landing. 

Corey McLaughlin: Haven't heard that one before, "soft landing."

Dan Ferris:  Yeah. Well, right. Soft landing. Yeah. Well, it's –

Corey McLaughlin: And by that, I mean we have heard it plenty of times over the – that expectation in the market for the soft landing.

Dan Ferris:  Right. So I don't know. One guy who I follow on Twitter who is admittedly more on the bearish side said, "Well, this means inflation is coming back." They haven't – the Fed hasn't gone far enough. People say they've gone too far. Nope. Haven't gone far enough. I don't know if that's true.

Corey McLaughlin: I wouldn't – that was not the first thing that came to my mind, inflation rebounding because of this – this is one job's report. So it's within the trend, I would say, of still a generally weakening jobs market. If you go back to the jobs creation numbers for the last – relatively speaking – the last year or two, longer term, you would say the jobs market is – I would say is weakening. But yes. Compared to October it had an unemployment rate of 3.9%, and it looked like it was trending higher the last couple of months.

So for this to come back down again, I think I could tell you what I've seen and the knee-jerk reaction in the market and the Fed futures, I think the takeaway has been to kick the can down the road on the idea of rate cuts for another Fed meeting. So from the prevailing odds were on March before this jobs report came out on Friday. Now, as we're speaking, that's going to May for the idea of a first rate cut in 2024. Now that's assuming the rate cuts even happen, but I'm just telling you what the reaction was off that number from people on Wall Street at least.

Dan Ferris:  Right. And that roughly conforms to the so-called market odds baked into the CME FedWatch. I feel like you and I have agreed. Correct me if I'm wrong here, but I think we've agreed that the FedWatch, they haven't gotten it. It's been too volatile. They've not discounted or predicted, or whatever you want to say, very well at all.

Corey McLaughlin: No. That FedWatch tool I would not say is predictive at all other than it tells you what the consensus thinking is at that time, the expectation for, which is helpful in a way. You can put that in the context of other market moves, I think, but yes. I'm not making decisions based off that tool other than to know what the leading expectation might be at any given moment and then you can make decisions off of that.

Dan Ferris:  Right. So the current odds are 98% that they won't do anything.

Corey McLaughlin: I'm still expecting the jobs market to weaken into the next year, I would say. For now, based off this report, I'd just say if that happens it's just pushing that timeline down the road. It could not happen, but the wages did tick up a little bit in this report, too. I think it was 0.4% for the month of November, which does lend some evidence to the inflation – the thought about inflation not decelerating as much. What's that word I can use sometimes? Mixed. Mixed report. I would say it's a mixed report for me.

Dan Ferris:  Yeah. To be fair on the issue of an uptrend or a downtrend that you mentioned in unemployment, I'm sitting here looking at a chart going back to 1963 of those figures. Even when there's a clear – it's funny – in a clear downtrend, there's a lot of bumps. There are bumps in the uptrend, but it seems like there have been fewer of them. Most of the uptrends have been apparently rather sudden because they're a lot smoother. This one is sort of since, I don't know, earlier this year, really bumpy up and down. Up overall, but really bumpy, if that means anything to anybody.

Corey McLaughlin: Yeah. I was looking at the data recently. It's – there was a low in unemployment in, I think, January and then another one in April. So it hasn't been a straight shot upward. It's been – the answer to all this, I think, is you can't really get the timing of these things exactly right. So it's probably not worth fretting over all this too much as long as you got a handle on the bigger trends at play and same things we always say, what your goals are, own shares of good, high-quality companies that are going to reward you no matter what happens, and rate cuts, keep rates the same. The other thing I would say is this report to me would lend the idea of the Fed pause at the very least staying on for another month, which typically over history has been good for stock prices. It's when the rate cuts come or when the need to cut rates is when things turn south.

Dan Ferris:  Right. Good reminder. Also, on unemployment there's this thing called the Sahm Rule by Claudia Sahm formally of, I think, the Dallas Fed or someplace. She formulated this rule that says you know you're in a recession when the three-month moving average of this three unemployment figure that we're all talking about, when that three-month moving average moves 0.5 percentage points off of a recent 12-month low, that would be 3.5%, for a three-month average, 3.5% as recently as May and I have it at 3.8% right now. It would have taken, I think, a 4%.1 reading to get us into Sahm Rule or Sam. I don't know how to say her name. It's S-A-H-M.

Corey McLaughlin: Sahm, I believe. Claudia Sahm. Who, by the way, is part of this NBER that is the official quote, determiner of what makes a recession or not. So this metric is actually worth watching because I'm fairly confident that it's going to play into any official recession call that may ever come, but by that point it's useless for most investors who – whatever is going to happen is likely to already happen at that point, but yeah. The Sahm Rule, to gauge employment data, I think it's useful.

Dan Ferris:  It is useful. It's got very few false positives in the past. We would have needed a lot more than 3.7% to get there and more than 3.9%. So we're at 3.8%, we're good. This – maybe all of my worrying will be for not and we can just buy the fricking dip and move on. I happen to believe that valuation is the force of gravity over the long term. Valuations are elevated certainly for the big indexes, which I understand are way, way influenced by the largest components, which have soared and are expensive, etc., etc. I get it. I understand. So, who knows? Maybe the thing to do now is to look at the other 493 S&P 500 components which is gone nowhere. The equal way to S&P I think is up about 5% versus the regular S&P of about 20% this year. So, a big disconnect. Maybe a decent opportunity.

Corey McLaughlin: Yeah. I would think so. I was thinking of the possible outcomes of all this today. It's either rates stay the same. I don't think they're going to go much higher. If they do, they do. It's not the leading candidate right now. If they have to cut rates, I was looking at the history of rate cuts in the markets the other day. There's some big drawdowns when it – leading into and after the first rate cut. So the first rate cut doesn't – it's not a magical fix. The largest drawdown is 20% in the market, in the S&P 500 are when valuations are above – and the price-to-earnings is above 20%, which it is now.

You just mentioned those magnificent seven. If there is going to be a huge drawdown, those ones are going to probably take a hit too. Like we've also been saying, the other 493, not so much. So maybe this whole talk is all for not. It's – even if the jobs market does get weaker and not 10% unemployment or anything. That would be a different story. If it keeps on its track and that's why – maybe it's not a huge move or inflection point as a lot of people might think.

Dan Ferris:  Right. So according to my calculations, we have until May. We have to hit a 4.0%, three-month moving average in unemployment, 4% by May. And then after that it goes –

Corey McLaughlin: Right. Yeah. It'd have to be above 4%.

Dan Ferris:  So actually, as I read the Sahm Rule it would have to be 4% exactly or more. Like a 50 – the 50-basis-point, the 0.5-percentage-point moving average move. So we get that moving average up to 4% by May of '24, maybe we're in a recession. After that, it moves up. So it would have to be 4.1% and then by September '24 it would have to be 4.2%, etc., etc. So the comparisons get a little harder. Without all that, I still like energy.

I still like housing. My housing stocks are hitting 52-week highs. They're back. They're back above their highs. There was a little scare there for a couple of months, but now they're doing great again. I'm glad I didn't let them go. The energy stocks are the ones that I wonder about though because I think there's an opportunity – if we avoid a recession, I think there's a nice opportunity there.

Corey McLaughlin: Interesting. The homebuilders, I guess people are reminded that America has no new homes, not enough. So trying to – that's not going away any time soon from the last financial crisis. Still trying to make up for that. Plenty of runway for that one.

Dan Ferris:  Yeah. That's why I keep talking about things like the zero-interest-rate policy being – just waiting for the other shoe to drop. What massive thing is going to happen over the next decade? We're still seeing the effects of the housing bubble, which peaked really in 2006. It's 2023. These things just – bubbles really warp the daylights out of an economy, they really do. The response to them of course has its own consequences. Of course that's what I'm talking – I'm talking about the response to zero interest policy and then of course the bubble that followed, the everything bubble that peaked late '21, early '22.

You know what? Dan can be wrong. Actually, I would love to be wrong so I could buy copper and energy because we don't have enough of either one of those just to have normal global economic growth, like 3% GDP or whatever global. I don't want to be right. I sound bearish all the time, but I don't want to be right. In my recommendations to The Ferris Report and Extreme Value, we're forging ahead, man. We're finding longs. We found another one this month in Extreme Value. So fingers crossed.

Corey McLaughlin: Well, very good. Yeah. I wonder what the long-term, 10-, 15-year effect of whatever happens next is too. To me, my mind keeps going to the government debt levels and the higher rates and what effect that is having already and just what should be normal, everyday politics causing all kinds of consternation and trouble already. It's just a start. That's where my mind is at. I don't want to think about that, but it's not exactly fun to think about government debt. It is there in a big way.

Dan Ferris:  Yeah. Having to issue trillions and trillions of government debt. Historically, that's not been a great thing. So whole civilizations fall apart based on this kind of stuff. So yeah. It worries me too. At some point you wonder if – it's like is the world broken? Do things just not work anymore because – or am I just wrong about everything and paper money is just fine and lots of government regulation is just fine and lots of 0% interest rates for the better part of 14 years are just fine? Maybe I am. Maybe I shouldn't be too smug about knowing how the world works. I'm not going anywhere with this. I'm just saying maybe I'm wrong.

Corey McLaughlin: Eh, I don't think you're wrong. I think that's – I think most people, and I'm speaking widely for most people, would say the financial system just doesn't make any sense to them. I was explaining the devaluation of the U.S. dollar to my wife last night actually after we were watching something political on TV. I was explaining when you guys –

Dan Ferris:  Fun talk.

Corey McLaughlin: Oh, yeah. Real hot talk there. Explaining going off the gold standard and how much the dollar has lost its worth since then. So she's like, "So it's just all fake now, right? It's just all fake money." I was like, "Pretty much." So a lot of debt, a lot of not long-term thinking, and short-term solutions and answers that are always temporary, but turn into permanent solutions. Then there you go. So then we're surprised when we have inflation. It makes it hard for a lot of people.

Dan Ferris:  It does. And I'm more surprised, I guess, that we haven't had more of it. Folks I know who – folks like, I want to say, I don't know, maybe Hugh Henry or somebody like that comes to mind and other really savvy, savvy macro people, they say, "Look, inflation is always and everywhere a monetary phenomenon." And they look across all the data and they know that most of the money in our system gets printed up by banks, by lending activity. So as long as they don't see lots of lending activity and furious economic activity, they'll never say that inflation is anything but a transitory or blip, which at this moment all the headline, all the key data appears to confirm that.

CPI certainly looks like a blip. It's a round trip if you look at that chart. Even PCE is – there's a blip there and it's not as weak. It's not as much of a round trip. I can't deny all the numbers that all these savvy folks who have made a lot more money as macro people than I certainly have, I can't ignore what they're saying. So maybe these unemployment numbers are saying it really is – the economy really is stronger. Yes, they issued lots of new debt and printed up money and whatever to get through COVID lockdowns.

The economy is stronger than you think. That's one of my criticisms of doomsday people is we never seem to completely fall apart. Even when we get a 2008, things seem to come back to normal. It took a long time for that. I think it was a 10% unemployment rate in 2008, something like – or yeah. Ten percent. It took a long time for it to come back down even just below five or so, but it did. The market went up. People got rich or whatever. I don't know. Businesses grew earnings. They really truly did.

Corey McLaughlin: I like optimistic Dan.

Dan Ferris:  Yeah. You know something? It's one of those things like being an investor you get all – if you're of a certain mind like me, you get this fear of a collapse in your head because you feel like the economy doesn't make sense, like we talked about. Government debt at wartime levels right now and other things, the financial system seems really crazy to us and fiat currency seems really crazy to us. Then the fact that there are markets operating all over the world in developed countries counts for a lot. It counts for a lot and it counts for a lot more probably. I complain more about what's wrong rather than spending time talking about what's right and how powerful it is. It is really powerful because markets keep going up when I'm complaining about all the stuff that's wrong.

Corey McLaughlin: Yep. There's a lesson there for all of us, I think.

Dan Ferris:  But I'm still bearish over the next few years.

Corey McLaughlin: OK. All right. We didn't lose you too much.

Dan Ferris:  No. I still – put it this way. You don't need – I don't think you need some great economic calamity to be concerned that equity valuations are still roughly up in mega bubble territory with the CAPE ratio up in the 20s, high 20s, near 30. So there's that. There's that.

Corey McLaughlin: Yeah. I think – this is something you said before that you wish you or I have said more is I don't think you're ever saying you're all out of stocks. You're recommending stocks every month usually in Extreme Value and elsewhere. So yeah. You can be skeptical about all of this stuff and I am too, the long-term health of our country and financial system, but in the short term we're here. What are you going to do? Life goes on.

Dan Ferris:  Right. In the long term – that's right. Life goes on. You're exactly right. In the short term, we're here. Life goes on. We're all getting up in the morning and putting one foot in front of the other. A lot of us live really well. I don't know. I feel like I'm going around in circles now, but you get the point. It's a bad idea as an investor to let your top-down fears dominate your asset-allocation decisions. Every now and then you can time it right, but otherwise, it's foolish to let too much of that stuff influence you.

All right. Well, it's a good thing we're talking to Whitney Tilson today because he's a guy who has learned very well not to let any kind of top-down fears affect his bottom-up fundamentals based. When I say value-oriented investment philosophy – and he'll tell you more about that when we talk with him. So yeah. He's the perfect guy to talk to after this conversation. So let's do that. Let's talk with Whitney Tilson. Let's do it right now.

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Whitney, welcome back to the show. It's always good to see you.

Whitney Tilson: Likewise. Thanks for having me.

Dan Ferris:  So before we get into all this financial stuff, you are one of the world adventurers that I am able to talk to occasionally. Before we hit the record button you mentioned you were getting set to climb Mount Kilimanjaro. How long does a thing like that take? What does that involve exactly? Is it in the afternoon?

Whitney Tilson: Yeah. Well, Kilimanjaro is the – it's the tallest mountain in Africa. So it's a popular climb. It's very doable because it's not really a climb. It's a high-altitude hike and it's also part of the Seven Summits. So lots of amateur climbers. I'm not part of that group, but want to bag the highest peak in every continent. So Kilimanjaro is one of the seven. It's a minimum of five days, three days up, two days down if you really go fast and you're not worried about needing a climatization to the altitude. Most people do it in seven, eight, nine days and there's time to climatize and all.

I climbed it back in 1992 without too much difficulty and I'm probably in better shape today than I was back then. I've done a lot more climbing and mountaineering. So 19,000 feet is high, but I've been at higher and so I'm not too worried about it both fitness-wise and altitude-effect-wise. I'm going back to do it with my high school buddy who has always wanted to go on a safari in Africa. He's climbed Denali and he and his sons are real mountaineers, more so than I am. So I'm going to accompany them at the end of May when my godson, his youngest son, graduates from college and there's a two-week break before he starts his job. So we're going to zip over to Kenya, visit my parents, go on a safari, and climb Kilimanjaro.

Dan Ferris:  Wow. Sounds like a fun time.

Whitney Tilson: I think it will be. It'll be my fourth trip to Africa in 12 months in addition to 8 trips to Europe this year.

Dan Ferris:  All right. So you're moving around. I'm glad we got you in one place long enough to talk with you. So are the seven peaks a goal of yours or no?

Whitney Tilson: No. I do mountaineering just because I love it, the beauty, the challenge. And the seven peaks are not actually the best climbs, the most scenic, challenging, awesome climbs. So it's an ego thing I think for a lot of people to say, "Oh, I did the Seven Summits," and I just don't care about that. So for example, Aconcagua in South America in Argentina is one of the seven peaks for South America. I talked to my guide, who's guided a number of times, he's based out in Yosemite and we've mostly climbed in the U.S. and we climbed Cotopaxi in Ecuador a year and a half ago. He said Aconcagua is just a crappy, miserable climb, not very scenic, not very challenging. So unless you have to get it for the Seven Summits in South America there's so much better stuff to climb.

Dan Ferris:  I see. Good to know. I've never – I don't know anything about mountaineering, but I've never heard that said about the Seven Summits. I always hear it mentioned in some kind of documentary on TV and they'll say, "This person has climbed" – it's always said in hallowed tones. They've climbed the Seven Summits.

Whitney Tilson: Yeah. Well, the biggest challenge is Everest of course and that's the highest peak in the world. It's turned into a – you may have seen the famous picture from a couple years ago. It's just a conga line of a couple hundred climbers just all lined up on the rope. Again, my guide said if you want to go climb in the Himalayas, there's much more beautiful, epic, challenging things and you avoid the conga long on Everest.

Dan Ferris:  Right. That was – lots of us, myself included, like to talk about markets and that conga line in the same breath. We have people climb at the peak.

Whitney Tilson: Yeah. It's interesting. I'm writing about that in my daily today about the magnificent seven text docs, which have been almost entirely driving the entire stock market this year, which I pounded the table 13 months ago right at the bottom of all of them on how they're great buys. Meta has gone up three and a half times and the others have all soared as well. I think it's time – they're getting long in the tooth. I think what will be driving the markets next is smaller cap, more value-oriented stuff, which I'm sure is music to your ears, Dan.

Dan Ferris:  Well, yeah. It is. It sure is. It's – having more to do is always a good thing. When the magnificent seven are the only thing anybody wants to hear about, I appear to be irrelevant. Maybe I'll still be doing the same thing. I'm always doing the same thing.

Whitney Tilson: Right. Let me know when you throw in the towel, Dan, and that will be the bottom that day.

Dan Ferris:  I will. I will say, "I am no longer a value investor," and then the next breath Whitney will say, "The bottom is in. Buy value."

Whitney Tilson: Yes. When you buy Nvidia and Tesla, let me know so I can short the hell out of them and go long value.

Dan Ferris:  It's funny we mention these because those of us who have been skeptical just about Elon and Tesla for years now, have had to admit that it's a better business than we thought at the very least, right? It's a real business.

Whitney Tilson: Yes. I have a long history with Tesla and I've read every book about Elon Musk. I think he's just one of the most fascinating people ever, including Walter Isaacson's latest book. And what he has built at Tesla and even more so, I'd say at Space X, boggles my mind. He's certainly one of the great entrepreneurs, engineers, visionaries of all time. I have two general problems where I've been critical. One is his just general behavior, sort of this bro culture that seems to infect billionaires out in Silicon Valley, especially in his sense of humor and all.

When you become the richest and certainly one of the most powerful people in the world, I think there's an obligation to behave better and be more of an exemplar. I'd point to Warren Buffett and Charlie Munger as examples of that. The CEOs of Google and Microsoft, for example, whose names escape me because – I'm sure almost none of the listeners could name those two Indian gentlemen because they do their jobs and they do them extremely well and they don't always have this rampant, narcissism that they need to be the center of attention and so forth and they certainly don't behave badly. So that's No. 1. The other general area of criticism is, I'm just not convinced that Tesla, the company, is going to be able to generate the free cash flows to warrant its $780 billion market cap today.

Corey McLaughlin: What's your take on Elon's latest headline-making when he told the advertisers to go F off? Me and Dan talked about this last week. So I'm curious about your take. What was his intention there?

Whitney Tilson: Yeah. I was – this was in the context of him retweeting and endorsing an anti-Semitic trope that – having my wife and children are Jewish and I belong to Central Synagogue in New York, even though I'm not Jewish myself, that I was particularly sensitive to. And this was exhibit A, his retweeting. I don't think Elon Musk is anti-Semitic. Some of his closest friends are Jewish, but I think he is completely tone deaf to the anti-Semitism that provides his site X/Twitter and in particular the bro culture on that site and elsewhere that traffics in a lot of white supremacism and anti-Semitism. I think he's blind to it.

So I thought at that deal summit where he told his advertisers to go F themselves and blamed them for suspending their advertising as a result of him trafficking in anti-Semitic tropes and then he apologized and said, "Well, I probably shouldn't have done that." It was just handled so badly from start to finish. He goes out there and tweets a hundred things and one or two of those – it's a small percentage where he really steps in it. If he were to just quickly delete the tweet, quickly apologize and say, "I'm sorry. I didn't mean that," and then just move on. Instead, he just doubles down and doubles down and goes into what Walter Isaacson calls his demon mode. Boy, that demon mode is a really demonic thing in terms of how he treats other people, but also when he's providing oxygen to white supremacists and anti-supremacists. It's really bad.

Dan Ferris:  I found there was one particular moment in the now-viral clip of him telling advertisers to go F themselves. When I still – I think about it, I've thought about it every single day and I just want to bounce it off of you is that he said, "They're going to kill the company," and Andrew Ross Sorkin, the interviewer said something and he said, "No, no, no. This will bankrupt the company." He said it with a kind of enthusiasm that I still find a bit puzzling. Maybe I'm reading too much into it. I just – I don't know. I found it so odd that he would just – it seemed it was blithe. He just tossed it off and put a – he was almost happy about it. I don't know what else to say about it. I'm just so perplexed by that. Maybe I should just forget about it and stop wasting my time. I don't know.

Whitney Tilson: Right. Well, the other part of it was he said, "It'll bankrupt the company and then everybody will be mad at them. It will be on them." This absolute inability to take responsibility for his own actions and the consequences of those actions. What advertiser in their right mind, given that I can advertise on Google, Meta, Instagram, Snapchat, anywhere – there's no shortage. I can advertise anywhere and by the way, it's not like Twitter was some brilliant advertising platform that delivered some huge results and click-throughs and so forth anyway, even prior to Elon Musk firing 80% of the people and getting rid of all the content moderators, etc.

So I was actually quoted in the New York Times a week ago because I've been quite critical of how Harvard University has handled the rise of anti-Semitism there, my alma mater. I said the damage that Harvard has done to its brand in the past couple of months is rivaled only by what Elon Musk has done to Twitter and New Coke.

Corey McLaughlin: Yeah. That performance in front of Congress last week by the college presidents, including Harvard is bizarre to me. It reminded me in a totally different way of during the steroid crisis in baseball when those guys went in front of Congress, Mark McGwire, Rafael Palmeiro, and said we're not here to talk about the past and blah, blah, blah and let's move on. It was disgraceful, I thought.

Dan Ferris:  I was just gob smacked by that. I'm running out of expletives here because these things are just coming at me too hard and fast. I couldn't believe it. I couldn't believe that they couldn't just say, "This is really wrong and we won't tolerate it on our campus." Why do you think that was so hard?

Whitney Tilson: Yes. I actually – it's interesting that you mention it, because I have created a new e-mail list with a few hundred of my friends on it specifically about what's going on in Israel and anti-Semitism in general. And so I've looked very closely at what they said and they were asked, "Does calling for genocide against the Jews violate your code of conduct?" And it would seem, "Well, duh. Obviously." And they didn't just answer yes. They said, "Well, it depends on the context and whether speech turns into prohibited conduct."

I think these university presidents have generally not done a great job in combatting anti-Semitism on their campus, but in fairness to them I think they gave the right answer, and here's why. The protesters are chanting two chants in particular that I've noticed. One is, "From the river to the sea, Palestine will be free." And the other is, "Globalize the intifada." Jews, if you understand the history of those slogans, Jews feel that those two slogans are calling for violence against Jews, if not genocide against Jews, the extermination of the Jewish state, etc.

I do think though there is a difference between those slogans and holding up a sign that says, "Death to all Jews." There is a difference between those slogans and a flat-out, "Death to all Jews." So I think the university presidents are saying the student protesters holding up those two slogans, chanting those two slogans are not necessarily calling for a genocide against Jews. In their mind, they're just calling Israel to stop oppressing the Palestinian people in their mind. That is protected free speech, whereas if they were holding up signs saying, "Death to all Jews," that is clearly hate speech and would violate the university's code of conduct.

So I think the university presidents could have been better prepared and could have given a tighter answer about how it's very difficult and there's a lot of nuance between balancing protected free speech versus banning hate speech and conduct that results from this free speech, which is also banned. Directly targeting, harassing an individual, a Jewish student walking by and surrounding that student and screaming these slogans in their face is different from just having a rally and holding up signs and chanting these slogans, right? So it's a very tricky issue. I think many of these university presidents have just been less anti-Semitic and more just tone deaf. They just can't relate the ideology, the left-wing ideology of oppressor versus oppressed, and so forth.

They cannot see Jews as oppressed people as feeling fear. They just don't understand or see anti-Semitism in the way that they instantly see any kind of hate speech toward gay or transgender members of their community or people of color in their community where they're acutely sensitive and words are violence and so forth. But when it happens against Jews, it doesn't process because they think of Jews as these wealthy hedge-fund guys and Israel is militarily powerful and so forth and therefore can't be subject to anti-Semitism when in fact, it's rampant right under their noses.

Dan Ferris:  For me, it's not a free speech issue like at all. Doesn't – it's just what you'll tolerate under your roof in your house. I don't know. I just – I didn't see it – again, I was perplexed and didn't understand, but maybe you've explained it a bit.

Whitney Tilson: Yeah. Well, for example, it's a simple example of conduct versus free speech up at Dartmouth, who happens to have a Jewish woman who is president. A couple students entered a classroom with bull horns chanting, "From the river to the sea," etc., etc. They were immediately suspended because it wasn't the slogan. It was going into a classroom, creating unsafe and hostile environment for every student, but especially the Jewish students in the classroom.

That's clearly conduct that is prohibited, yet I've seen clips of this happening multiple times at Harvard and to my knowledge, the students at Harvard who have engaged in that conduct, not speech, but conduct that clearly violates Harvard code of conduct, have not been expelled and Harvard is saying, "It's all private. We have to protect their privacy." It's like, no. Actually, you have to very publicly suspend or expel those students as a deterrent to everybody else, otherwise it just runs rampant, which is what's happening.

Corey McLaughlin: We could talk about this all day actually.

Dan Ferris:  My exact thought.

Corey McLaughlin: And I welcome the conversation because there's so much polarization and nonsense out there. To actually have an actual conversation about this is warranted. I wonder how, all of this that you're talking about, influences or gets into corporations or businesses in the markets in general. All these cultural issues that we have in the United States and differences of opinions and way more than differences of opinions. Some people just not talking to each other, cancel culture, certain people for this, not this, and if you're on this side you're fine, if you're not, you're not. Does this affect corporations at all and businesses?

Whitney Tilson: It does and corporations I think are running pretty darn scared these days. Exhibit A would be what happened to Bud Light, the No. 1-selling beer in America, a trans influencer endorsed it and the marketing people at Bud Light gave a little shoutout or something saying, "Hey, thanks for endorsing us." The next thing you know, there was a campaign in more red America, I guess you'd call it, that Bud Light is associated with transgender activism, call it, and it was referred to as tranny beer. And guys in red states, if they wanted to troll their friends, would show up with a six pack of Bud Light and saying, "Hey, here's some tranny beer for you," which is all hateful and unfortunate.

But here's the thing, sales dropped by 30% almost immediately and still haven't really recovered. This is the No. 1-selling beer in America. So then you look at Disney and the headaches they've been having in Florida. It's – corporations are definitely running scared. During the whole Black Lives Matter thing and so forth, a lot of corporations were embracing politically correct things and now there's a blowback by the other side. Now you're seeing it again with the whole Israel, Palestinian war and so forth.

I think most corporations would be, and most CEOs would be well-served to look at what's happened with Twitter and Elon Musk, to just keep their mouth shut. There really isn't a lot of reason for corporations to weigh in on picking a side and supporting one side or crafting a statement related to the war in Israel and Palestine. It's different though if you're a university president, I suppose. But again, most university presidents have not gotten drawn into this and gotten incinerated. Most of them have just kept their mouth shut.

Dan Ferris:  So the question for me then as an investor, are Disney and Budweiser, Anheuser-Busch, are they situations where, in Buffett's words or paraphrasing, I don't remember the exact quote, is this a one-time huge, but solvable problem, as I recall he would sometimes ask, which happens to a really great brand like Disney? It's been a really great brand. Underneath that roof there is a highly unique set of – it's like Intel has all this engineering talent that design and build under one roof and it's like that at Disney, only the product is really something that nobody else quite can produce in the same way. So there's all this learning and talent and ability and culture under there. The question I think is, is it broken or is Disney possibly a pretty decent bargain nowadays?

Whitney Tilson: Yeah. I have the same value instincts you do, Dan, when I look at great companies that have been around for a hundred years and just have such mind share and intellectual content and brands and the stocks trading it at 10-year low roughly. I'm drawn to that in the same way you are. I'm poking around. Haven't reached a strong conclusion. Clearly, Disney is interesting on the long side. There's no question about that. The question is, is it interesting enough to reach my top 10 ideas where I pull the trigger and recommend it to our subscribers? I'm not sure.

I can tell you that the No. 1 thing when my three daughters were growing up, they're now in their 20s, that I could do for them was take them to Disney World. We rode "It's a Small World" eight times in a row and we must have gone a half dozen times. Interestingly, Bill Ackman and I went down a couple times because he had three daughters. He now has a fourth with a second wife, but our older daughters are roughly the same age. So Disney just has this incredible brand and content and so forth.

The fact that it was back in, I don't know, the 1960s was something Buffett backed up the truck on when Disney was trading for – I still remember. He said it was trading for rides. In other words, it had a market gap of $17 million and they had spent $17 million building the rides at Disneyland. Disney World didn't even exist at that time. That was one of the century's great buys. There was another time to buy, by the way. One of my friends, Chris, got into it when it used to be back when I was a kid, so this must have been back in the 1970s. To go on a ride, you used to have these little coupons. They were A, B, C, D, and E coupons.

For the most expensive ride, Space Mountain, might be – that would be the A coupon and that cost $2.00. Disney – I'm trying to remember. I don't think it was Bob Iger, who was the iconic CEO of Disney probably 20 years ago who came in and realized that Disney had incredible pricing power. It's now, I don't know, $150.00, $200.00 to go to Disney for a day. There was a time when Disney stock just skyrocketed because it turns out they had been hugely underpricing just tickets to the parks. And that really drove a huge surge of earnings. So I'm not sure today.

If you're betting on – it's not really a turnaround, but it's a stock that's pretty well beaten down here, what's the catalyst that's going to cause earnings to really grow. At this point, you've got Nelson Peltz, the activist who's coming in there advocating for board seats, Bob Iger, sort of telling him to go jump in a lake at this point. There's definitely a big cost-cutting push that's happening. I prefer seeing earnings growth coming from revenue growth and growing the business as opposed to just growing earnings by slashing costs, though that can work as well.

Disney is interesting and I don't think this whole politically correct thing and the pissing match with Ron DeSantis matters not at all for the stock. Anheuser-Busch, Bud Light, that's a much more serious thing where sales of their No. 1 product remain severely depressed and when you're out there selling beers to Middle America and your product becomes associated with a radical left agenda item in the minds of those people, that's harder to dismiss from an investment perspective that's somehow just going to go away.

Corey McLaughlin: To that point, I believe Modelo has overtaken Bud Light as the top brand, top selling brand, which is huge.

Dan Ferris:  Well, I'm not unhappy about that because I – Constellation Brands has been a staple of my newsletter for some time. I would tend to agree. It's hard to replace Bud Light. It's all about replacing Bud Light and if you can't do that, wow. How much damage – how much long-term damage have you done to the brand there? Whereas Disney, I think we're in agreement that it's fixable. There's no long-term or little damage in that way. You're not a buyer yet. You're still in looking mode and waiting for the catalyst for growth, for real growth it sounds like, real revenue growth.

Whitney Tilson: Yeah. It's sort of – my concern is it smells a little like a value trap and the things that cause that concern is one, there's a fair amount of debt. Two is, they're ESPN, their television business is stagnant/declining, "melting ice cube" perhaps. They're streaming – streaming has just become so competitive. They're sort of a strong No. 2, I'd say, to Netflix, but a very distant No. 2. Everybody else is just hemorrhaging money other than Netflix in that whole sector. Disney has its great library. I think they'll stay No. 2, but will that be something that can really turn profitable or be a breakeven, even a cash burn indefinitely. Those are the concerns, main concerns I'd have.

Dan Ferris:  Is there any place else that – what is on your top 10 that you can talk about? I know you have subscribers and you don't want to talk about things that – necessarily that you're telling your subscribers. If you can, great. Is there anything in your top 10 that you would think, "Let me talk about this because this is a really great idea"?

Whitney Tilson: Yeah. Well, look, we – I think it's been out for a week or two now. I've long talked about Berkshire Hathaway. It's always, I think, a great foundation for any portfolio is just by the S&P 500 index and I view Berkshire as a substitute for that. They very, very closely tracked each other now for 15, 20 years. There are certain times when you're better off buying Berkshire generally when it's trading at least a 10% or more discount to its intrinsic value it tends to outperform the market by a little bit. Every once in a while it trades well off.

So for example, the last great time to own Berkshire was coming out of the COVID crash. Tech stocks were going crazy, you may recall, in late 2020 into 2021. Berkshire and financial stocks, in general, had rallied a little bit off their pandemic lows in March of 2020 but still had barely moved. The market was up 100% and Berkshire and financial stocks were, I don't know, up 25% or something like that. I really pounded the table in my investing daily because this is a stock we talk about publicly. Usually when we're talking about specific stock ideas it only goes to our subscribers. Berkshire is a signature stock I've been following for decades. So I do talk about that one publicly to my free subscribers.

Really pounded the table and sure enough, tech stocks completely blew up. Cathie Wood and her ARKK investment fund went down 80% and the S&P was flat and Berkshire was up 50% from there. So today I don't think Berkshire is sold off quite like that. I peg it today at about a 14% discount to intrinsic value. So I think it's a little bit of a jump ball between that and just the S&P 500, which I think over the next five or 10 years might compound at 5% to 7% a year from today's level, which isn't bad. But look, you can get 5%-plus just buying Treasurys right now and take no risk.

So it's actually a pretty decent environment for investors because you're no longer in the TINA world of there is no alternative. TINA is the acronym for it where investors felt like they could only own stocks because you're getting zero on your cash. Now I think stocks will do OK, but I also think you can get paid 5% and take zero risk owning the world's safest investment as well. So it's a good time to be an investor, I think.

Dan Ferris:  I agree. Having that benchmark paying you 5% is really valuable.

Whitney Tilson: Right. And then I think you could own Berkshire in addition to the S&P 500 and those could be a good foundation for a portfolio. Then you'd take smaller positions with a PCR portfolio and try to outperform the market.

Dan Ferris:  Right. Do you care at all – I've known you for many years as a very thoughtful, bottom-up, fundamental driven investor who cares about individual businesses and understanding individual businesses well. All anybody wants to talk about nowadays is whether or not the Federal Reserve is going to cut rates next year. Do you care at all?

Whitney Tilson: What I've written is, is that one of two things is going to happen. Either the Fed – in my mind inflation has been conquered is not going to come back. It's not an issue at all. That means – the economy and particularly the housing market have clearly slowed. So the Fed is done raising for sure and that's what I think has provided some tailwind to the market. I don't spend a lot of time thinking about when the Fed is going to start cutting because it's a win/win scenario for investors. Either the economy has a nice, soft landing, remains quite strong, which is where it is today.

Heck, they just upgraded the GDP growth last quarter from 4.9% to 5.2%. That's an extraordinary number and the fact that inflation has come so far down without a rise in unemployment, which remains near 50-year lows. It's an extraordinarily lucky outcome that we've had that basically almost nobody predicted. I was pretty constructive and it's been even better than I would have hoped for. So one of two things is going to happen. Either the economy remains pretty strong, in which case the Fed is like, "We'll just keep the interest rates right here." The Fed only cuts when it worries that we're going into a recession, tries to offset that.

So either the economy remains quite strong, in which case I think corporate profits remain quite strong and the economy adjusts to higher interest rates, which by the way, feels super high to us. Mortgage rates at 7% feel incredibly high. Well, because interest rates were at zero and mortgage rates were at 3%, but historically, we're actually at average levels. There's no reason rates have to go down if the economy remains in good shape. So that's my base case scenario, in which case I don't think the Fed is in any hurry to cut at all.

If the economy does start to weaken, that's probably bad for corporate profits and so forth, but then the Fed's got loads of room to cut. Everybody says, "Don't fight the Fed." There's a lot of truth to that. If the Fed starts cranking out quarter-point cuts, they could do another 20 of those given where they're at today. So either way both – in both of those scenarios I think the stock market does fine. I'm not predicting a "melt up" or anything, but I think the market will do fine.

Dan Ferris:  Plenty of opportunity in individual names it sounds like you see.

Corey McLaughlin: At this point, if the Fed has to cut rates, obviously that means there's trouble in the economy. Would you be more concerned about those magnificent seven at this point compared to other stocks?

Whitney Tilson: Yeah. I don't think they're extremely overvalued. My guess is if you bought equal percentages of the magnificent seven, my guess is from here you're going to track the S&P. If the S&P drops 10% or something, so will those stocks on average. I don't think they're hugely overvalued. You could see – if anything slows for Invidia, I was just looking in the paper recently about export controls to China. There's an awful lot of growth expectations now built into Nvidia stock, as insanely great as that company is and they're just riding the AI wave and so forth.

Then Tesla really doesn't have much in the way – you can't really value it on earnings or it's trading out 70 times earnings or something like that. So those are the two of the magnificent seven where in a market downturn if you told me the S&P is down 10% and the Nasdaq is down 15, five of the magnificent seven are probably down 10% to 15%, Apple, Microsoft. I could see Invidia and Tesla in particular dropping 30%, double what the Nasdaq does just because of the expectations built into them I think are a lot higher.

Conversely, if you told me that Nasdaq is going to rip another 20%, 30% upward from here, those are the stocks that are probably going to go up more than that. So they'll move to the excess in both directions. My sense is though, all these stocks have just had such big runs this year. It's just hard for me to see that continuing.

Dan Ferris:  Right. Well, let's see. I think we're at about time for the final question, which you've answered before. I hope you don't remember it. It works better that way. It's the same final question for every guess, no matter what the topic, even if it's a nonfinancial topic. Same final question, which is very simply, if you could leave our listeners with a single thought today, what would it be?

Whitney Tilson: It would be to turn off a lot of the information flows in general, but specifically related to investing. It's ironic that, for example, I was a CNBC contributor. I was on every week. I've been on CNBC hundreds of times back when I was running a hedge fund, but I never watched CNBC. So I see people going down rabbit holes, mental rabbit holes with watching their media of choice, etc., that's leading to extreme polarization in general. I see it manifesting itself in the investing world where basically when Trump was president Democrats thought the economy was much worse than it actually was and made them super bearish on stocks. And now that Biden is president, the surveys and the data show that Republicans think that the economy is in much worse shape than it actually is and that makes them super bearish.

So I suppose a tangential recommendation to this would be is, is don't let your politics affect your investing. Think long term, recognize that the U.S. is an incredibly large and prosperous country, that it's gone through loads of Democratic and Republican presidents over a long period of time. And that there are countervailing forces from Congress and the courts, etc., that prevent either side from going off on too extreme a tangent and that this is just still an insanely great company and if you can identify a handful of great businesses and just hold for the long term and not let the constant stimulation into your brain from drinking from these information firehoses which tend to be very partisan and polarized and there are these computer algorithms designed to create fear and anger because that's what drives engagement, which drivers their bottom lines through advertising.

Understand that we're in a world where all of us now are being manipulated in incredibly sophisticated and dangerous ways and that feeds into the investing world and our investment decisions in ways that are super destructive. So it's not just our political life and the health of our democracy, but it can very specifically cause people to make very bad investment decisions.

Dan Ferris:  That was such a good answer that I'm taking notes and I think you've inspired and helped me out on my next Stansberry Digest and I thank you for that. Thanks, Whitney. It's always good to see you and talk with you. Always a good time. I hope that we won't wait too long till we do it again.

Whitney Tilson: I look forward to it. Thank you.

Dan Ferris:  Enjoy Kilimanjaro.

Whitney Tilson: Thanks.

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Corey McLaughlin: We did. It's hard not to these days. I know we don't get into it a lot, but obviously these last couple weeks there has been a lot of things in the news. So yeah. I'm glad we got refocused or steered it toward what this means for companies, corporations, and yourself as an investor, whatever biases we might have, which we all do. It was a fun conversation, I think.

Dan Ferris:  Yeah. I thought wow, we're getting too political here, and then you said, "Well, yeah. This impacts huge businesses," and we talked about Anheuser-Busch and we talked about Disney. It's impossible to discuss either without talking about these social and political themes. So yeah. It's all – politics hijacks everything in the end, doesn't it? It's hard to get away from it.

Corey McLaughlin: You know what? And I think 2024, obviously presidential election year, this is going to be, as much as we don't want it to be, maybe most people don't want it to be, this is going to be a year ahead of, I think, just incredible political changes and movement and I think there will be things that happen that we can't envision, unfortunately, at this point. And I don't think all of them are going to be great based on what we've been seeing the last couple years. I don't think this will be the last of politics we talk for the next year, I don't think.

Dan Ferris:  No. I think it just gets worse from here. Do you have – it's always great to hear from Whitney. He's been around a long time. He's a very smart guy. He works extremely hard and he does a lot of work on all the businesses that he covers in his newsletter. I've seen him give really good, detailed presentations on a lot of companies over the years. Did you come away from that with a particular takeaway like, "I'm glad I heard from Whitney today because," whatever.

Corey McLaughlin: Well, I now know which one of the seven peaks I shouldn't climb. No. In all seriousness, I have – when we were getting ready to talk to him I remembered that I worked with Whitney when he first launched his daily letter with Empire Financial Research, I worked editing that for a little bit. You always would get – we talked about mountaineering here to start off with. You get his travels and his worldly experience and some people can take or leave that. I think I take it because it shows he's a real person and that he has experiences and what goes into his decision making.

Then also you can sense that he's just so knowledgeable and well-read. It's interesting that his takeaway was to turn off the information firehose. If you read his daily newsletter, he's got so many things in there. I wonder how he keeps up with everything. Maybe we can ask him again if we talk to him again how he actually keeps up with all of the headlines and everything he shares each day and what his filters are because I'm sure he has them. So I think that's an important point is what maybe he was trying to get at as well.

Dan Ferris:  Yeah. We missed an opportunity. We were talking about politics. We should have been asking him how he – his idea at the end was great. Just turn off the information firehose, but he seems to navigate. He doesn't turn it off. He navigates it rather well.

Corey McLaughlin: Right. Maybe not turn off. I was going to say, not turn off, but know what you want to be following, I guess, and know where the value is for you, I think is an important point.

Dan Ferris:  Yeah. Very good point at the end. I'm glad he said it. It reminded me of a book by a guy named Rolf Dobelli, a Swiss guy who wrote a book called, Stop Reading the News. He's got another one called the Art of Thinking Clearly. I've read Stopped Reading the News and I've looked through Art of Thinking Clearly a bunch of times here and there in my usual way. It's that kind of a prescription. It's avoiding the noisy sources. He says, "By all means, find things out, but go to the original real source. Avoid all the noise and the news about it and just find out what happened," which is something – I probably talked about that more times than I can really name with folks like Rahul Saraogi. We haven't had him on in a while. He has a really good way of reading in between the lines and getting the facts out of the news and others. So it was a great idea. It was time to hear it again because we haven't heard it for a while. Anything else? Anything else you got from that?

Corey McLaughlin: No. Do we want to mention that I know Whitney has recently joined the Investment Advisory team at Stansberry? Are we –

Dan Ferris:  I think we do. Yeah. I think we do. I think his business empire has been brought deep into the fold and he's now just – he's a part of Stansberry, which I think is appropriate. I remember, I don't even know how many few years or so it's been since he started empiring. Before that he and I had a – I don't know if it was lengthy, but we spoke for quite a while. He was driving somewhere and I was at my parent's place. So they were still alive. So it's been at least 2018, 2019. He said, "Tell me all about this newsletter publishing world." I described it as best I could.

I was actually a little surprised because there's a whole – I had associated him with a whole [inaudible] of people that I met in New York and at investment conferences over the years who really don't care for our way of communicating. They don't care for our way of promoting ourselves because we do real research. We've had brilliant analysts on this show from Stansberry. Bryan Beach and Mike DiBiase and Brett Eversole. You could just name them all. Eric Wade, all of them. They're the real deal and yet we recognize that in order to get – in order to be heard in this information firehose that is being poured down everyone's throat every day, you got to crow. You got to yell good and loud and we do it and we do it well.

That turned out not to be the case. It turned out that Whitney is every bit as savvy a businessman as he is an investor. He knew a good thing when he saw it and here we are. We're publishing his stuff for a few years now. So yeah. I'm glad he's around. I'm glad we got Whitney. It's like we're drafting all the good players.

Corey McLaughlin: Yes. I'm glad he was able to sit with us as well and not traveling the world today.

Dan Ferris:  Right. Yeah. We caught him. We got him sitting still. We caught him sitting still. All right. Well, that's another interview, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week I'm Dan Ferris. Thanks for listening.

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