In This Episode

Porter reveals why no major media outlet will cover his best-selling book, American Jubilee, which has sold over 50,000 copies in the last few months. Is the dirty math at General Electric about to get a lot worse? Porter has new information about dubious accounting practices used at GE that could potentially put the conglomerate in the same league as Enron. He offers a solution for corporate America that would immediately stop the crazy debt madness and financial shenanigans found at some major public companies.

Dan Denning of the Bill Bonner Letter joins Buck and Porter to talk about the early days of Porter’s publishing business, why he recently traveled 3,000 miles out west looking for “bolt hole” communities, how he hates to disagree with Steve Sjuggerud, and what newsletters he’s reading these days for ideas and inspiration.

The mailbag is filled with questions about Porter’s natural gas prediction, capital efficiency, and the Stansberry Alliance. One listener writes in to tell everyone how he was almost “Bucked” on a position in GE before he heard Porter’s analysis.


Featured Guests

Dan Denning
Dan Denning
Dan Denning is the coauthor of The Bill Bonner Letter. Every month, he and Bill pen their contrarian thinking to provide insights you won’t find anywhere else.
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Transcript

Announcer: Broadcasting from Baltimore, Maryland, and New York City, you're listening to the Stansberry Investor Hour.

[Music]

Tune in each Thursday on iTunes for the latests episode of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.

Buck Sexton: All right, welcome everybody to this week's Stansberry Investor Hour. I'm nationally syndicated radio host and former CIA guy, Buck Sexton. And with me, as always, our fearless leader, Porter Stansberry. Mr. Porter. Good to have you, sir.

Porter Stansberry: Buck, I think we need to add something new to my bio, best-selling author in America.

Buck Sexton: Oh, maybe a little American Jubilee, which I'm holding in my hand, which no one can see, because we're on a podcast. But you can see it.

Porter Stansberry: Yes. By the way, I'm pretty sure that no one has sold more than 50,000 copies of a single book in the last two months, but we have. And I think it's because people are very interested in the topic. I think most Americans realize that something's gone a little bit screwball when the country can go ahead and say we're going to have trillion-dollar annual deficits forever, and nothing bad will ever happen.

Buck Sexton: I agree.

Porter Stansberry: Maybe some people will be concerned about it. But, you know what? There you go, Buck. That's how you can get that book out there for me. You can tell people about the story. Why is that the mainstream media will not cover a best-selling book? New York Times will never put my book in their best-sellers list, ever, no matter what, no matter how many copies I sell.

Buck Sexton: Well, you've sold 50,000 copies already, and you haven't even been on your favorite radio host's nationally syndicated show that's on 120 stations across the country, and does about 35,000 downloads a day of the podcast of the show.

Porter Stansberry: No, I haven't. That's pretty good, Buck.

Buck Sexton: So.

Porter Stansberry: I don't know why. I guess you don't really care. Maybe you just did it for the money. But listen, I do …

Buck Sexton: I keep trying to get Porter in the action here, guys. Hey, everyone in scheduling. Get him on the radio show, please, please. It'd be great. All right. We have to get to your …

Porter Stansberry: Well hang on now. Sorry. I know we've got a show to do, but… before people click off or fast forward, I want them to hear about this right away. Okay? Because the number one criticism I get from mainstream media folks is that the book is exaggerated, that I'm just trying to scare people to get attention and sell newsletters. I make no bones about it. I wrote the book to sell newsletters, absolutely. But if the book isn't true, and it isn't accurate, then who in the world's going to give me more money for investment advice? In other words, the book has to be dead-on straight, or people aren't going to trust me enough to spend a couple thousand dollars on investment advice. And you'll also notice that anytime the mainstream media criticizes the book or the things I'm talking about, Jubilee, they always criticize me. They never, ever criticize any actual part of the book, or any actual newsletter I've ever written. They criticize my business model, the criticize my media spending, they criticize the tone. But they don't ever refute any of the facts in the book.

Anyways, I just want to point out that the whole idea of American Jubilee, is that we, as a nation, individuals, federal governments, state governments, corporations, we as a nation, are so indebted that we will no longer be able to grow GDP fast enough to escape the debt trap. And so really, we're just like Greece. We're just early stages of what's going to become a debt crisis. The way out of it, of course, will eventually be some kind of jubilee. Debts will have to be forgiven. And everybody who hears this, and looks at all the facts, goes, "Yep. That's what's going to happen." And it happens in America about every 50 years, which is ironic, because that's exactly the same cycle of the Old Testament, which is where the whole idea of jubilee comes from. I think the book is Leviticus, but I'm not an Old Testament scholar.

But here's the point. People say, "Oh, that would never happen in America." It's happened tons of times before. It happened in 1841, it happened in 1933, it happened in 1971. It happens all the time. But it's happening right now, Buck. Right now. This is from my friend, Jim Grant's, newsletter. It's on his front page. It's the second column on page one. "The multi-employer pension reform act of 2014 gives deeply underfunded pension plans the opportunity to seek permission to reduce their payments to beneficiaries, sometimes up to 50 percent. The petitioner, which is a corporation, must persuade that special master of the Treasury … he is Kenneth R. Feinberg … that there is no other reasonable way forward. To date, 15 multi-employer plans have applied for relief, i.e, they've applied to secure their survival at the cost of blighting the finances of their beneficiaries. Feinberg has approved four, and rejected five, five applications have been withdrawn, and one is still under review."

That is exactly what I'm talking about. There is no way to fund these pension programs. So what will happen to them? They will disappear, and the beneficiaries will suffer. Now Buck, don't you think the mainstream media should have reported about the passage of that act, and its application in American corporations? Isn't that important enough to be on the evening news?

Buck Sexton: I think so. It's almost like some of the major media companies are actually owned by other big companies that have their own interest in what's reported and not reported on sometimes.

Porter Stansberry: And some of those major media companies … [Clears throat] GE, I know it's no longer in the media business … but GE, for decades had its own underfunded pension program that they certainly didn't want anyone to know about, or pay much attention to. Anyways, folks, I'm out here in Baltimore, I'm not in New York, I'm not in LA. I don't work for a major corporation. I'm very happy to tell you that my little business has done well, but it's a peon compared to any of the other media companies out there. But what drives me crazy is that even Fox News, nobody out there is doing a good job. They have huge budgets. Why not spend some of that money on actual researchers, and think about how … If you were CNN, let's say, and you decide you're actually going to spend some money on reporting news that people need and can use, you would dominate the media business almost immediately, because everyone out there's reporting on the God damned Kardashians' latest sex change, and they're not reporting on the fact that since 2014 … that's four years ago … American corporations have been gutting their own pension programs by getting permission from the Treasury to do it.

All right. That's my soap box for the day. Thanks for tuning in. We can just sign off now, can we?

Buck Sexton: Oh, we got so much more. Like three critical strategies for your portfolio in 2018. Whoo.

Porter Stansberry: Yeah. All right. So we got Dan Denning coming on, I believe, today. Isn't that the guest? And Dan is one of my oldest friends in this business, and he knows everybody out there in the independent media, the people who, like me, who sell research and newsletters and things like that directly to consumers. And I can't wait to talk to him.

But first, yeah, we've got some bullet points here, Buck. Are any of these for you? I just did my spiel. Can you talk about the continuing…

Buck Sexton: I can't talk about portfolio strategies, that's for sure.

Porter Stansberry: But what's going on at the FBI? This just goes from bad to worse to tawdry.

Buck Sexton: So I've been hearing about this for weeks. And I take the perspective of … and, by the way, this is the kind of thing that will have a market impact, so I think that's another interesting component of this, meaning that if this memo is as advertised, it will do something to the stock market that day, at least according to all my friends at Fox Business, whatever that's worth. It will do something.

Porter Stansberry: Yeah. The stock market is going down, all of a sudden, as this story seems to be getting worse.

Buck Sexton: So it's a question of what is in the memo? Because people haven't seen it yet, and there's a lot of talk about it. Here's what the basic story line is … and I think a lot of folks listening know it, but just so we're all on the same page … a few very senior FBI figures … and they are people who would have had the ability and access, which the moment you're going to talk about something like this, that sounds like a conspiracy, you have to have people that actually have their hands on the specific levers of power that would allow them to do this. Just working at the FBI doesn't mean that you would have known anything about the Hillary e-mail investigation.

You've got key figures, Peter Struck had, or deputy head of counter intelligence at the FBI, Andrew McCabe, deputy director of the FBI, James Comey, who … have you seen him on Twitter, by the way? He thinks he's like a Zen Master now. He tweets out photos of himself looking over lakes with inspirational quotes about the … He's such a dork. I don't know what else … He's like this seven-foot tall, want-to-be Dali Lama. This is our former FBI director, everybody. So he's running around doing that.

Then here's the basic story line is that it looks like they may have approved a counter intelligence warrant, which means it's not going through the normal constitutional processes, to look at the Trump campaign's … some of its top people. We don't know who yet. And if they based that warrant order on opposition research, the Fusion GPS dossier, that would be the biggest political scandal, certainly since the Nixon administration. I think a lot of people would say it's actually worse than what happened with Nixon.

Now, we don't know if that is what happened, yet. But that is the expectation for what's in this memo. And, at this point, I would know … People like me that support Trump and voted for him, I'm looking at guys like Devin Nunes, who's on the House Intelligence Committee, and saying, "If you guys have hyped this one, I'm … I never want to hear it again. This is your last shot to give us something that's real." So, I think it's big, but I'm withholding judgment.

Porter Stansberry: Yeah. My thinking … and I don't know nearly as much about it as you do … goes down these lines. What if this isn't resolved in some way by the next Congressional election? And what if it's the Democrats who win control of Congress? Now, all of a sudden, you could have the President impeached on the exact same set of facts that today is leading to the mass exodus of the leaders of the FBI. My point is, all of a sudden in our country, the facts have become completely a political football. The facts are whatever the person in charge of Congress says they are.

Buck Sexton: Yeah. The tribalism is pretty stark right now. And I would just note that, if the Democrats … I'll make a prediction here, on the Stansberry Investor Hour. If the Democrats take Congress, or if they take the House of Representatives, they will, in fact, impeach the President. It doesn't matter what comes out of the Mueller probe. It doesn't matter … Now that doesn't mean he gets removed. Everyone knows you need two thirds of the Senate to actually remove the President from office. But we're starting to already see, I think, that the inclination of the Democrats is not to run on any specific platform other than getting back at and getting rid of Trump. And impeachment would be a political maneuver for them, but that's what … the whole government would get wrapped up in that very quickly. Yeah.

Porter Stansberry: That makes sense. Which is not the way we should be governing. But it's the way it's been going. It seems like, to me, since Bill Clinton, it's just been this way. There's been no bipartisanship at all.

Buck Sexton: It also isn't helped that the Senate creates these … this, and for some of our listeners here who say things like, "We need term limits," the Senate has created a scenario where you need 60 votes, really, to do anything of any importance or substance, which is a self-imposed limitation. They don't actually … It really should be 51 votes, unless constitutionally prescribed otherwise. And that means that what you have is very little accountability, because you have all these senators. They're like the guy in the bar, Porter, who's like, "Hold me back, hold me back," when he's already being dragged out, and there's five guys around him and everything. They're all really tough when they're taking votes that don't matter, because they can always say, "Well, the Democrats wouldn't come along, or not enough would come along." But the 60-vote threshold is nonsense. And that's why we're having the huge debate over immigration right now. That's why we have these problems with the recurring government shut down. It is shut-down theater.

As you pointed out before, the government's spending more money than it takes in. We're now over 20 trillion in the hole. And we keep going through this process of, "Well, we're finally going to stand up and do the fiscally responsible thing. But oh, no. Sorry. We need 60 votes. So let's just keep it going." That's what ends up happening.

Porter Stansberry: Well, I'll give you the radical view. And I'm certain that you won't say this or agree with it, and that's okay, because you have a real job. But the problem, I believe, is not with our political system, per se. Hear me out. It's with our governance rules. So today, we allow every citizen to have a single vote in what the government will do. But, we make some of the citizens pay way more money in taxes than others. So the votes are equal, but the revenue burdens are not. And that is a really big problem, if you expect the government to ever be run properly, because it's always in the interest of the bottom 60 percent to vote themselves more services and benefits from the government than they would ever be willing to pay for.

And so that leads to this really bipolar nature of government, where you have a very small number of people, the Republicans, who supposedly seek small government but really end up doing favors for big corporations. And then you have the other side of the aisle who's bought and paid for by the Treasury. And those people are just selling votes. And that's exactly what's gone on. And as a result, neither side really can ever balance the budget. And so what I recommend is, I don't think you can have democracy unless you also have responsibility.

I think you've got to make sure that anybody who is currently receiving government benefits doesn't vote. Or, barring that, you have to make sure that people get votes that are equal to the taxes that they pay. So, my tax bill, I'm guessing is larger than most people's. I should have a bigger say in what the government does, because I'm paying more, which is the same way you govern corporations, right? You get as many votes as shares that you own. So, it's democracy, but it's democracy that's based in responsibility. And hang on. Before you call me the guy who only wants to serve the rich or anything like that, I'm talking about providing for better outcomes. And if you look at the history of our democracy, since we went to universal suffrage, they're not good outcomes. There's wars, and there's terrible financial crises. So let's start putting the people who have the most to lose in a position to make most of the decisions. And I bet you it'll work a lot better.

Same thing is this… Imagine if you were driving a bus. But instead of letting the bus driver, who's sitting in the front of the bus and is surely going to die if the bus wrecks, instead of letting him control the gas pedal, the steering wheel and the brakes, you let the 20 hoodlums in the back three rows decide, like a video game, how the bus is going to be driven. Would you be surprised if you had a lot more bus wrecks? No, of course not. It's human nature. There's no consequences to your actions, so you're going to be risky and reckless.

Now here's the flip side of that. And Buck, I think you'll appreciate this, too. You may not ever say it, but I think you'll get it. The flip side of that is, the wealthy people also have more of an obligation to our country than they are currently being tasked with. And I'm not talking about taxes. One percent of the people in America pay for 22 percent of the income taxes, which is more than their share of the income they receive. The progressive taxation has been grossly distorted, and it's led to terrible political outcomes, as a result. It needs to go away. Sure. If you want to have one group of people pay 10 percent and one group of people pay 20 percent, okay, fine. At one point, under the Obama administration, I had a marginal tax rate of 54 percent. So that meant that every dollar that I took a risk to earn I had to pay the government more than I could ever receive. That's just completely nonsense.

So. But if you're going to do that, if you're going to say, "Okay, great. We're going to cap tax rates at some lower level, God always got by on a 10 percent tithe. Surely our politicians could find a way." And we would if we allowed voting to take place like I suggest. As many dollars you pay in taxes, that's how many votes as you get. Imagine how different the governance of our country would be, and imagine how much more uniform it would be. The people who are successful, they would be in charge, and they would set the policies. The good bus drivers would start driving the bus instead of the hoodlums in the back.

But, the trade-off would be, I would strip away the corporate veil for people who are on the board of the directors, and the top executives of the company. If you're going to get … like the guys at GE. If you're going to get stock options, if you're going to get, I think he walked away with a $200 million severance package, the former CEO, Immelt, if you're going to have that kind of thing, then if that company has to go to the government for a bail out, or if that company files for bankruptcy and can't pay its debtors, then those people get wiped out. Every single dime that they own, all of their assets, woof, poof, gone. And if you just did that one thing, if you just made the people who run big corporations responsible for their … personally responsible for their obligations, you wouldn't have any of this crazy debt madness. It would all go away tomorrow. No one would run their businesses the way they do now if they had to be personally liable for the liabilities.

So let's make that switch. Let's make the wealthy people in the country, give them the votes, but let's make them responsible for the outcomes. That's my suggestion.

Buck Sexton: Just a question about the very end there, and this, I'm not sure what the answer is, which is good, because it's a question. Wasn't there a time when most Wall Street firms were actually partnerships, so the partners had skin in the game?

Porter Stansberry: Exactly. Yes. That's right. That's exactly right. And the first one that went public I believe was in the late '70s, early '80s. I can't remember which one it was. I know the last big one to go was Goldman.

Buck Sexton: And also remember, just that as a quick aside, a very senior … I worked for a little while on the Council on Foreign Relations, which is just fun to say, because Alex Jones and all them get all freaked out about how they go –

Porter Stansberry: You're a globalist. You're a globalist.

Buck Sexton: Exactly. Yeah. I worked at CFR. I was making coffee and doing research, but I was there for a little while. And I remember that they had these off-the-record meetings. And it was taken very seriously. Everyone has to be off the record. But there was a guy there who was a very, very senior partner. And this is what makes me think of it, because of the way Wall Street, the issue of … having some ethics and some personal stake in the game beyond just what your bottom line is, the sense of there's a civic responsibility to what you're doing as a financial firm, anyway. This partner stood up and he was at … I can say this … one of the firms that I was like, "Oh, wow. That's a really big firm." And he is one of the oldest partners still living, I think, from the firm. And he said, "There was a time when it was expected, actually, in the legal profession, that you wouldn't take a case, or you wouldn't represent a client that you felt was wrong or immoral, regardless of what the money involved was." And he said, "Unfortunately that's been …"

Porter Stansberry: How quaint.

Buck Sexton: Yeah, "That's been so wiped away now, all lawyers will tell you, 'No, everyone deserves process.'" He's like, "They're all hired guns. They have not only at the top corporate level, eliminated all sense of ethical responsibility," in terms of the clients they choose. They still have rules for how they have to comport themselves. "But then now, that's what they're teaching kids in law school." So the whole process has been corrupted whereby you can defend … if you want to defend a drug cartel launderer, no difference between that and try to be a guy who's helping people get their money back during civil asset forfeiture proceedings. You know about those, by the way, right? One of the worst things the government does. It's very upsetting.

Porter Stansberry: Yeah. It's basically weaponizing civil rights violations.

Buck Sexton: Yeah. It's using police powers to fund police departments.

Porter Stansberry: Giving people an enormous … right. Giving people an enormous profit incentive to ignore your civil rights.

Buck Sexton: And there's some really fun stories about how some police departments decided they're just going to a margarita machine with the seized assets of people who were never convicted or even charged with a crime. But anyway, my point that always with me, because everyone in the room was like, "Aw, this guy," (he was a very, very older gentleman), "This guy, what's he talking about?" I just see this and it's like your point about these CEOs. Your story about GE, by the way … and I'm not just because I work for Stansberry and you … it's an incredible story that I don't know it, and I read the newspapers, plural, every single day. That's what I do. My job is to know as much as I can about most things. Finance is one that I'm just learning about now. But all the other things I read about, and GE should be crossing over into my world, because of all the political connections, and all the … And that that company has been utterly destroyed, and people like Immelt are walking away with $200 million. How is that okay?

Porter Stansberry: Yeah. And Jack Welch had corporate jets for 20 years. Immelt, when he was CEO, he actually had two jets on all of his trips. He would fly out on one plane, and the company would send another plane directly behind him, in case there was any problems with the plane he was on. We can't have him inconvenienced.

Buck Sexton: So what I always think is interesting, from a media perspective as well, there are a lot of Immelts in as we have seen here. You get people like … what's his name? … Matt Lauer, paid $25 million a year to be on a morning show. My business or – well, I do a few different things – but on the TV side, Porter, oversupply of people that want to do this is the standard. You have, for every decent job in television, there are literally a thousand people that I can think of that want that job. There are just people everywhere that want these jobs. There's very few of them. I don't understand how it is that they haven't figure out that you don't need to pay someone $25 million to do a show that, if you replaced that person … in this case Matt Lauer, who's super sketchy … with somebody else, you may pay them a million, 2 million. It's a big revenue-generating business. I understand this. But, how does this not ever get across the media radar in a way that the executives figure out that they don't need to give them the Immelt treatment.

Porter Stansberry: Listen. You're preaching to the choir. But listen. Media people have nothing on how overpaid CEOs are. Nothing. Absolutely nothing. It's mindboggling that any board of directors would attribute so much of a company's profits to one person who basically does nothing.

Buck Sexton: You'll hear from people at think tanks, for example, "Well, that's what the market will bear," about Jeffrey Immelt. What's your response to that? That's the road thing you'll hear.

Porter Stansberry: It's just a lie. It's just stupid. The reason why these guys get paid so much is because, for the most part, they pick their own board of directors. And so, let's say Stansberry was a public company, Buck, and we needed a board seat. And so I picked you. You've got connections in the media. We're ostensibly related to a media company, although we're not really. It's a totally separate business what we do. But it would make sense. It would pass the smell test. "Oh, yeah. Buck's going to be on the board. Great. He can help get us deals with bigger media companies. That's wonderful. Great." Well now, you're going to be getting 100,000 shares of stock every year, and you're going to be getting $100,000 in cash, in exchange for showing up for four telephonic meetings. What are the odds you do anything that I don't want done?

Buck Sexton: Small.

Porter Stansberry: Zero. Zero. Especially if I've got the accounts lying for me, and you think I'm actually doing a good job. I'm patting your back. I'm lining your pockets. You're going to pat my back and line mine. No one's actually looking out for the shareholders. And, by the way, I just put you on the board of the company. You didn't invest in any of this company. You never spent any money building our company. You don't own any of our stock. It's all been given to you. So what do you care? Anyways, that's the real problem. And if you look at companies where there are real owners who are on the board, they're not run that way. Private companies are not run that way. Trust me. I've been a CEO for the Agora companies. Bill's my partner, and has been since 1999. I've been the CEO, I guess, for almost 20 years. I've never been given a single stock option. It's just not the way it works. You want to get rich, great. Make the company perform, and we'll give you a share of those earnings. But otherwise …

Oh, by the way, the whole GE thing is about to get a lot worse. This is the big thing that no one else will tell you, but I can. In addition to the crappy financial assets that they say are worth a lot of money and aren't – they were wrong by $20 billion on one insurance product, keep in mind. So these people are not to be trusted. But the bigger problem is that they booked as earnings the lifetime value of a whole slew of corporate maintenance and service contracts. So that's exactly what Enron did when they started their Enron broadband business. They figured they'd make $20 billion on their broadband stuff over a 20-year period, and they booked all of those profits in one quarter. Yeah. And GE has done the same things with these, the present value of all of these corporate service contracts, which can, of course, be paid or not be paid. This is a long-term contract, and that's nice. The guy's obligated to do it. But if he sells that plane, or he closes that plant, he's not going to pay it anymore. So, it's a very dubious practice. And what you'll find is that they signed a bunch of these contracts any time they had an earnings shortfall. So they didn't have cash coming in the door, but they were still claiming the profits so they wouldn't have an earnings miss.

Buck Sexton: Is this mark to market, by the way.

Porter Stansberry: Mark to market.

Buck Sexton: Yeah. Look at me.

Porter Stansberry: Oh, one more thing they also did. This also some dirty math that I have learned about from sources at GE. I also learned that the General Electric's finance arm, one of their biggest assets – this is really fun – is the future receivables of GE's industrial companies. So that's something called factoring where you go to a company and you say, "Hey. You guys have these payments that are scheduled, but you need the cash now. So we'll discount those payments, and we'll pay you up front. And then we'll collect what you're owed." But what if what you're owed doesn't come through? Again, it's a way of leveraging the company, where you don't have to actually have those debts show up on your balance sheet. Yeah. So.

There's a lot still to come on the GE story. And you heard it first here. But listen, let's talk about some ways you can make money. Let's bring in my old friend, Dan Denning, talk about the newsletter business, talk about what newsletters are good for you to read, and why, and talk about what Dan's been doing for his subscribers lately.

[Music]

Buck Sexton: Dan is the youngest of 12 children. He grew up in a small town in Colorado about 80 miles from Denver. After falling in love with reading, writing, and public speaking as a teenager and college student, he's since traveled the world as an author, publisher, and now co-editor of the Bill Bonner Letter, writing about finance, economics, politics, and the human story that surrounds them all. Dan's belief in free markets, sound money, personal liberty, and small government have underpinned his work for the last 18 years. And we're glad to have him here with us today on the Stansberry Investor Hour. Please welcome to the show, everybody, Mr. Dan Denning.

Dan Denning Hey, Porter, hey Buck. How are you?

Porter Stansberry: Hey, Dan. How are you?

Dan Denning I've got a little bit of a cold right now, because I was out chopping wood in the back 40 last week. But otherwise, I can't complain.

Porter Stansberry: Oh, how sad for you. [Laughter] Hey, Dan, listen. I really appreciate you being on the show. And I want to start out, if you don't mind, with setting the stage a little bit for how we know one another, and telling people a little bit about what goes on behind the scenes in the newsletter business. So real quick, folks, once upon a time, there was a guy who was running some newsletter companies for Bill Bonner, my partner, and he and I had a severe personality conflict, and I got fired. The guy who fired me is no longer in the business. He's long since gone away. But I was at loose ends. And at the time, I was, oh geez, I was 27 years old. I had roughly no money in the bank, and I was living in the ghetto in Baltimore. So not a lot of local opportunity. And Dan was working, still, for Bill Bonner at another brand or franchise or newsletter. I don't know if you were still at Highlander Club, or if you'd gone on to Penny Stock Fortunes, one of the not-so-noble titles of Dan's past. But Dan was kind enough to lend me his laptop computer. And it was on that computer that I wrote this very famous marketing package called The New Railroad Across America, which launched my first newsletter. It was a story about technologies being built out along railroad right of ways back in the Internet boom.

And so Dan really was the key investor in start of my own company, by lending me his laptop. And since then, Dan's bio is really amazing. He's worked in Australia, he's worked in London, he's traveled and worked all over the United States doing financial publishing for people. And he really does know everybody who … just about everybody, personally, who writes a newsletter or offers independent financial advice to subscribers. And that's our primary listener. So Dan, what I want to tell you is, what I wanted to ask you, rather, is one, when we got started, when I got started, did you have any idea how big my newsletter business was going to become? And two, who do you think are the best folks out there, excepting me and you. Whose newsletter do you really make sure you never miss?

Dan Denning Well, that's a good question. I guess I'll take the second one first, because I've found that the longer I've been around, the much more selective I am about what I put in my brain, and what I spend my time with, because, as anybody knows who's busy, time is the one thing we all have in common. There's so much garbage out there that you can waste a lot of time reading it. So I've read a lot less. I used to read Richard Russell all the time. And I found that my thinking was just overly influenced by Russell. And, of course, he passed away. And I used to read Kurt Richebächer all the time. Of course, Kurt, who was an Austrian economist, and a huge critic of really the system that we still have now, he passed away in 2007. So, I try read Bill, because I write Bill's monthly newsletter, and I think his diary is some of the best financial writing going around. So I read that every day. And Porter, I read your newsletter, because it's always something to shoot at. And I listened to your podcast with Sjugg the other day, or whenever it was, and it always makes me nervous to listen to Steve, because I absolutely hate disagreeing with him. And I usually don't, but occasionally I do. And I think I found a point of difference.

But other than that, I read a lot more non-fiction and history. I keep up with the markets, but there's just a select few people that I read once a month. And, to the first question, if I'd know that by lending you my little IBM laptop I would have been a small part of a huge empire, I probably would have asked for equity. But, you've always been a good friend, so. Thanks is more than enough.

Porter Stansberry: Well, I tell you, you know who your friends are when you are unemployed and broke. Very few people came calling, but Dan was certainly the most important of my friends who stuck with me, and I'll never forget it.

By the way, I want to vouch for what Dan said. I read Bill Bonner's daily e-letter every single day without fail, and I always have, for 20 years. And I think he is, along with Jim Grant, the very best writer in our industry. He's just a beautiful writer. It's a great read. It's not always about finance, but it is always about life, and it's always very wise. How can people get that? I know it's free. Where do they sign up for it, Dan?

Dan Denning I think they just have to go to bonnerandpartners.com, and you can sign up.

Porter Stansberry: I'm sure you could also just Google Bill Bonner's Daily Diary, and I'm sure you'd find it, as well.

Dan Denning Yeah. He's easy to find. Bill's been writing that thing – Porter, you were around when that started. And he started writing it, originally, as the Daily Reckoning, without any idea of what it would turn into. But his observation, at the time, was, in an era when there was so much information available, that's really not what people needed. They needed some judgment, some experience and, at least from Bill's perspective, some skepticism about what they were getting from the mainstream media.

By the way, I would add one more guy to that list who I started reading last year who I think is fantastic. A guy named Ben Hunt. He writes a newsletter called Epsilon Theory. And I think he manages money, as well. But if you haven't read Ben Hunt's stuff, I would encourage – and, of course, Jim Grant, too, is world-class.

Porter Stansberry: Yeah. So, I haven't every heard of Ben Hunt. Thanks for the tip. I will check that out this afternoon. Now let's get to what's going on in your career now. I know you're helping Bill Bonner out with his newsletter. And that's, obviously, a lot of work. I actually read that newsletter every month, and I think you've done a really good job of improving the quality of the content. But what's this about surveying bolt holes out west? What are you doing?

Dan Denning Yeah, that's a good question. And I think it gets to what Bill and I are trying to do with the letter, after we talked about it, because as you mentioned in my bio, which was very generous of both of you guys, I've lived overseas for the last 15 years. I lived in Europe for two years, from 2002 to 2004, 2005. And then I moved over to Australia, both for personal and work reasons, because it was 2005, the commodities bull market was just in store. And Australia actually has a compulsory retirement system, in which everyone is required to contribute between 9 and 12 percent of their income toward a retirement fund, most of which is invested in equities. So, from a publishing point of view, we thought, "Well, this is a perfect place for us, because we're an independent publisher, we're not an investment banker. We can recommend whatever we want to recommend."

Anyway, I moved down there, started a company and it did really well. Was down there for about 10 years, and I thought if I stay down here, I'd become a citizen, then I'll be here. I'll be here for the next 10, 15 years of my life. And I wasn't quite ready to do that. I wanted a different challenge. So, Bill came calling and had a project in London that I was involved with, and we finished that project after about two years. And then he said he just didn't really want to write his newsletter anymore, that he was more focused on the diary. But he wanted someone who could take the reins and make the two points that he's been making for his entire career, one, that we have a financial system that's based heavily on debt, and two, that that makes it very fragile. And that at a time like now, not enough investors are hearing those messages. A lot of them hear about debt, but the fragility part, maybe not as much.

And that gets into the investment goal of the newsletter. We don't do what you guys do. And I don't do that. I don't do individual research into stocks like GE, where you've gone into the balance sheet and the income statement, and you've looked at what's going on inside the business. What Bill wants to do with the letter, and where I'm helping him is, we try to back it up and connect the dots in the big picture, and see what's going on in the economy, in the financial system, and in politics. And from that we, last July we published a revised asset allocation strategy, because we're not stupid. We know that asset allocation and diversification are pretty solid tools for most investors. But we wanted to create a strategy that matched Bill's world view, which is fairly apocalyptic. So, it wasn't an easy thing to do. But that's what I've been doing since July.

And then the bolt hole project came up because, as someone who had just moved back to the United States, part of what I wanted to do is decide, if I didn't want to live in a big city anymore, like London or Melbourne, Could I go out and find a nice small town in the Rocky Mountain west, where real estate was really cheap, that I could work remotely. So I went on two separate road trips. And what I found is that there are whole swaths of America, at least the parts that I visited, that are empty now. They're smaller than they were 100 years ago. And part of it is because they're remote, the winters are cold, and the summers are cold, so they may not be great retirement destinations. But for people who are looking to step back and have a place to move to that's a little bit out of the way, and also buy some beautiful real estate, whether it's a ranch or a farm, or somewhere in the mountains, I wanted to see what the prices were like.

So part of it was personal, and part of it was, we felt like it would be a good idea for people to start thinking about if you're liquidating your portfolio, or you're stepping back from the market, and you're at that stage of your life where you want less stress, are there places in America that you can move to? Now we know Bill has his place in Argentina, and we've got partners who have beautiful place in Nicaragua. But I know a lot of Americans who are not interested in in moving overseas in their retirement years. So the project, which I hope to finish this month, is to say what are some of the best small towns in the West that you should look at if you agree with us that it's not a bad idea to have a little backup plan, a little place to escape the madness if it comes to that.

Porter Stansberry: Yeah. Very interesting. Last week I was in one of those places. Mingus, Texas, used to be the heart of the Texas coal mining industry. And you didn't know that Texas had a coal mining industry because about 100 years ago it stopped completely. They became uncompetitive with the coal mines in places like Wyoming and Indiana. And so the coal mining industry left Texas. And this basically is a ghost town. So I was on a 10,000-acre ranch, and the population of Mingus has gone from 10,000 people to, I don't know, 250 or so. And what the ranch does is cater to people like me who like killing animals. So they have a captive heard of white-tailed deer, and they control the genetics, so they make these enormous bucks. And you go there and pay some money and get to shoot one, if you can find one. So it's just fresh in my mind. And the people there were very different than any other Americans I've encountered. They cared nothing about Wall Street. They really cared nothing about money. They cared deeply about family and religion and the quality of their food. They take pride in the cows the raise, and things like that. The place is run by a former Marine colonel, too. He was a really interesting character.

But yeah. Those places are very attractive to me. I wouldn't want to live there, but vacationing there is a lot of fun. I have a vacation home in the mountains in Pennsylvania, surrounded by Amish. And the Amish are good neighbors to have, because they're honest, and they're hardworking, and they have tons of food and gold, and lots of guns. [Laughs] So, I feel very safe up there.

Hey, Dan. Let me ask you a couple of financial questions. If someone said to me, "Porter, give me an example of a primary investment that you have recommended that you think illustrates, in a very close to perfect way, your idealized investment strategy," I would explain the business of Hershey to them. And you know a little bit about what I like in companies, very capital efficient, a business that's very likely to be around for 50 years or more, a relatively unchanging product, and very high market adoption. Everybody loves a Hershey chocolate bar. What is it? I heard you describe what you guys do, to take the top-down view and integrate politics and the fragility of the financial system. But can you give me a specific investment vehicle that crystallizes what you guys are looking for in a place that you would put your money?

Dan Denning Yeah. Well, I should point out, like I said at the beginning per Bill's desire and instructionin the letter itself, we're not picking specific stocks. So, right now we don't have a portfolio of specific companies. Now that's unusual for me, because you had mentioned my famous beginnings back in 1998, when the first newsletter I edited was called Penny Stock Fortune. And then later I took over a newsletter called Strategic Investment, and I had a couple newsletters in Australia that I started. And I should tell you, for myself – not speaking for Bill, but speaking for myself – I would say that there's two things that I look for. And the first is that I'm kind of a momentum investor. I heard Sjugg say this on your podcast the other day, but people subscribe to what we do because they want ideas on how to make money. So, we could tell them there's too much debt, but that doesn't help anybody, right? You're supposed to do something with your money.

So in 1998 when I started, that's what told people to do. And I'd get into the whole story, but it's too long. But I'd seen a TV show in Japan that was causing children to vomit and go into epileptic seizures. There was a little wire service report. And a company in the U.S. had bought the licensing rights for that. And it was 4Kids Entertainment. And it had the licensing rights to Pokémon. And on a split adjusted basis, that stock went up 5,000% after I recommended it. Now I made a mistake because I told my readers to sell it after it had doubled. And that was the first early investment lesson I learned is that you should let your winners ride. But that was bullish back in 1998. In 2000, 2001, 2002, when I started working with Bill on Strategic, we took a much different perspective. So we went into gold, because we saw some changes in the financial markets that we thought would favor commodities as an asset class, and gold as money.

So I guess the point I'm making is that I think you have to adapt your investment strategy for what the market's actually doing. I think, in the long run, it's almost impossible to lose money, if you buy quality companies that are trading at less than book value. But that just hasn't been the case for so long in the market right now. The value strategy won't work until we get a market crash. So right now what we've advised people is just to diversify across the four main asset classes. We added – much to my surprise, Bill agreed with this – we added digital assets as an asset class, and had a 1% allocation to crypto. But rather than picking specific stocks, I think our point of view is, we don't really know what's going to happen. It's strategic ignorance.

So, we're cautious, and we think people have more to lose than gain by being fully invested in equities at this point. If you look back at 2000, the market fell by 50% in two years. And then, in 2007, it fell by 57%. And my view is that most of our readers can't afford that kind of drawdown at this point in their retirement. So we've taken a pretty defensive bias. And so most of the equity stock selection we've left to them, or we bring in our friend Chris Mayer, who you know, to help look at specific companies.

Porter Stansberry: Have you ever spent much time reading about Bridgewater's all-season fund? And have you read the AQR white papers about building out highly resilient portfolios that can make 6 or 8%, no matter what happens in the markets, including 2008, 2009?

Dan Denning I've seen the AQR stuff. I haven't seen the Bridgewater stuff.

Porter Stansberry: I think, Dan, I really recommend you take a look at that because that's exactly what the founder of Bridgewater, whose name escapes me at the moment.

Dan Denning Ray Dalio?

Porter Stansberry: Dalio. Ray Dalio. That's exactly what Ray Dalio does with all of his own money. So all the billions of dollars he made from his tactical hedge fund, which is called, I think, Alpha, or Pure Alpha, or something, he then rolls into this thing called the All Seasons Fund. And it's very similar to, remember Harry Brown's old permanent portfolio, which is actually a mutual fund that you can buy.

Dan Denning Yeah.

Porter Stansberry: It's very similar to that. So what Dalio did was he basically did an asset-allocation study over the period of the modern markets, and figured out how much you should have in bonds, how much you should have in stocks, how much you should have in gold. And then it's very easy for readers just to buy cheap ETFs, or even index funds that are even cheaper, and just allocate and then rebalance every year, and really have very, very little at risk in the markets. And the thing that occurs to me, and the way that I think Bill has been wrong for all the time that I've known him, is that he has just given up too much of the up side. Yes, paper money is fragile, and yes there will be crashes. And yes, ultimately, there will be a big crash, and a complete reset of the financial system. And I think that that's imminent. I think Bitcoin is a sign of that. I think the fact that gold's gone from 400 to 1900 in the last 10 years is a sign of that. I think that the crazy valuations on things like Tesla are signs, not of good times, but of reckless and dangerous times. I agree with all that.

But, our portfolio, last year, was up 25 percent. So, you could be wrong on both … you can be wrong because the market's crashing. You can be wrong when the market's booming, if you're not in. And so, something like an allocation, and I don't know what your allocation is. Maybe you do have exposure to stocks. But something like the All Seasons, or the Permanent Portfolio approach, at least allows you to capture part of that upside. So those funds are going to make 10 to 12 percent during a bull market. And when the market crashes, they're not going to lose anything. And I think that's very attractive, if you follow Bill's mindset.

Dan Denning Yeah. Well, that's exactly what we came up with.You might remember this, back in San Francisco, back in 2002 or 2003, Harry emceed one of Agora's conferences. And, this was before he died a couple years later. And I talked to him about that strategy. And we implemented that in the publication I had down in Australia, which was modestly called The Denning Report. But I think in defense of Bill, I'd say two things. One, he's invested in his own business. So he's always conceded that being invested in the market is not what he's interested in. And that was one of the reasons he wanted someone else to come in and take the letter.

And then, to tie it in with Dalio, he said something last week, which I'm sure you saw. He said it would be stupid to be invested in cash, that the market was probably overvalued, and that market can stay overvalued for much longer than people think. But that there was more outside with the Melt Up theory. The trouble I have, when I look at it from the academic research, is that Harry's Permanent Portfolio, in that equally balanced, annually rebalanced, permanent portfolio, depends on asset classes being negatively correlated. It depends on stocks and bonds performing differently under different circumstances, inflation, recession. And it depends on gold doing that, as well. And that is not what we've had since 2009. And that was something I wrote about a couple weeks ago in the letter, is that between Bernanke's QE, Droggie's QE, and this latest monstrous run with Trump …

Porter Stansberry: Everything is inflated.

Dan Denning It's destroyed the traditional relationships between asset classes.

Porter Stansberry: It has. You're right.

Dan Denning And we just don't know … We don't if these relationships are going to protect investors in the same way. So we've got 25 percent allocated to stocks, and we've got 25 percent allocated to real estate intangibles. A much smaller allocation to fixed income, because I don't know where the quality credits are out there.

Porter Stansberry: There aren't any.

Dan Denning But I think some will actually do better. Well, I think you're right. But I think that, for example, in U.S. bonds, if the riskier credits sell off, which they look like they're starting to do, with interest rates moving up, what we've seen in the past is we've seen money move to short-term treasuries, three months, one year, two year stuff. So you could still make money in them, even though the picture for bonds is deteriorating. That's much more of a tactical decision than we would make, because we're not managing money. But it is hard with the asset allocation decision when the traditional correlations between the asset classes don't seem to be working anymore.

Porter Stansberry: Yeah. I think that … and I want to let you go. You've been such a great guest, and I appreciate you coming on. And I hope you don't mind a little back and forth with me, because it's always fun to talk with you about those things. But I think you make a great and compelling point about we don't have any idea what the correlations are going to be going forward because we've never had a period where sovereign bonds had negative yields. The real measure of the financial excesses is not in the stock market. The real measure of the financial excesses is in the sovereign bond markets. And we've had a bull market in U.S. sovereign debt since 1981, Dan, I think is when they peaked.

Dan Denning Yeah.

Porter Stansberry: And so yes, we've seen corrections in the stock market. Yes, we've seen bear markets in the stock market. Yes, stocks have gone up 50 percent. But we have no idea what the heck is going to happen in the financial system when the 10-year Treasury goes from under two percent to over six percent, because it's never happened before. The devastation in the financial market would be truly awe-inspiring. And it's not hard to imagine that happening, when you see that the federal government is prepared to run trillion-dollar-plus annual deficits in perpetuity. It's not hard to imagine that happening when we're allowing people … we were talking earlier before you came on the show … that there is now a way that the government is allowing pension plans to completely reduce the benefits that they're providing, by up to 50 percent.

So, as things begin to fall apart, you never know. People might lose faith in that Treasury payment, and who knows what would happen?

Dan Denning Yeah. I know you've have to go, but I just want to make two more points on that, because I think that's where people should be looking right now for the signals about what's going on. A year ago, two-year Greek bonds had an interest rate of over 10 percent, a yield of 10 percent. Greece has a debt-to-GDP ratio over 100 percent. It's been in prolonged bail-out discussions with the European Central Bank, and the European Union. Right now, two-year Greek yields are 1.34. 1.34. So the Greeks can see two-year debt at a lower interest rate than the United States can. So two-year Treasury yields are 2.12 percent. That's what I'm talking about with the kind of distortions that are in the market right now. But it's weird for investors, because I saw something, I think it was in the Journal or something like that. There are $4.6 trillion that U.S. investors have in bond ETFs that track either corporate or sovereign bonds.

So there's a massive amount of liquidity, not even in the real bond market, but in the equity market that tracks the bond market that could move out of bonds and into stocks. But if it does that, I think people have to be careful not to mistake that for a sign that equities are strong and healthy and bonds are weak. It just means that people are moving out of something very risky into something that is just risky.

So, there's a lot going on. I think it's finally interesting again for investors. But, from Bill's perspective and my perspective, we're trying to take the big picture view and connect the dots. And I'd say it's primarily defensive. We acknowledge that we've missed out on gains in the equity market. But the Permanent Portfolio and the asset-allocation strategy have been designed to help people stay in the market, so they don't miss those things entirely, but to prepare themselves if we're right about the other issues.

Porter Stansberry: Great. Well listen. I always like reading the letter. It's a great read. And, like you said, Bill's daily is one of the best things that's published anywhere in the world. So Dan, great to talk with you, great to catch up. Enjoy your time out west. And next time you're on the east coast, let's have lunch.

Dan Denning Okay. Thanks, Porter.

Porter Stansberry: Okay. Bye-bye.

Dan Denning Bye.

[Music]

Buck Sexton: Interesting stuff.

Porter Stansberry: Yeah. Very knowledgeable guy. He's been around the industry a very long time, knows everybody. I thought his best stuff was just who he reads. I think that's very important for people to recognize that there's … there are very large differences in quality. There's no license you have to get to write a newsletter and proclaim yourself an expert. And people in the business know who's good and who's not. Chris Mayer is very good. Bill Bonner is very good. Steve Sjuggerud is very good. Jim Grant is very good. And, of course, these people all have different strengths and weakness. Jim Grant's not a very good stock picker. Bill Bonner's not a very good stock picker. But they are fantastic about understanding the big picture and warning you about problems that no one else will.

I'd like to think that I'm pretty good about both long and short, and the fact that I dig in to what's really going on inside a company. I really almost ignore the macro, because my feeling is, if you're in the right company, and have the right business model, it doesn't really matter that much. Great example is NVR, a homebuilder. I was recommending it in, let's see, it was the fall of 2007 saying, "Hey. I know a housing crisis is coming. And this stock is going to fall. And when it falls below $400 a share, you should buy it, because it'll survive the housing crisis, and it will be a great business for another 20 years." And happily, that's what happened. It traded down to about $325. It now trades for about $3700. So that's a 10x return in a homebuilder that you purchased in the midst of a crisis. But you knew it would survive.

Another one I recommended like that at the same time for the same reason is Moody's. Another probably 10x return. But the point is, if you're in the right business, those crises and those problems … they're just opportunities, and you've really got to be able to see past the macro. And a lot of times these end of the world guys, they're timing's just off. The world doesn't end just yet.

Buck Sexton: Well, yeah. I thought that was a real interesting point you got into. And I remember from years of media work in the pretty near aftermath of the financial crisis, you had people saying, "Well, the next crisis is right around the corner. The next crisis is right around the corner." And that's 2011.

Porter Stansberry: Yeah.

Buck Sexton: Now, they may be right, but they might be right in 10 years from 2011, meaning that in the meantime, if you've been just hoarding whatever you can and not actually getting involved in the game, as you pointed out, you're not making any money, which is not good.

Porter Stansberry: Yeah. And I want to be clear about my record. I was very bearish in the second half of 2011, because it wasn't clear to me that the European Central Bank was going to go to printing money. The European Constitution forbade them to do that. Now they went ahead and did it anyways, because they were staring at the end of the world. And as soon as they opened that up, in December of 2011, I went full bullish. So I was very bullish from 2009 to 2011, and then I was very bullish from 2012 to 2015. And since 2015, I've certainly been more cautious, but it's still mostly long stocks. And the model portfolio that I ran last year, I was roughly 60 percent long and 40 percent hedged. And the hedges were things like fixed income and gold and junior mining stocks, and maybe up to 10 percent of the portfolio was actually short. And we did okay, luckily, because we were short Sprint and it fell apart. So, in a bull market, if you can short part of your portfolio and just break even, it's like getting free insurance, because if the bear market had struck last year, we would have lost a lot of money on the 40 percent or 50 percent of stuff that was just regular growth stocks, like we were in Facebook, we are in NVR, we are in things like Tiffany and American Express. Those stocks would have all fallen 20, 30, 40 percent.

But the 10 percent of the portfolio that was short the market would have gone up 50, 60, 70 percent. So you're recouping a lot of your losses by being hedged that way. And that's what I try to do for people, and it's probably a more sophisticated approach than most people want to deal with. But even if you just short one stock each year, you're giving yourself a little tiny bit of negative correlation, so that if you're wrong about the market going up, you can still do okay.

Anyways Buck, that's what I do. It's a little bit different than what Dan and Bill do. It's a little bit different than what Jim Grant does. It's a lot different than what Steve Sjuggerud does. So everyone has their own thing. But what we're talking about is the overall intellectual capacity of these people, their integrity, and the quality of their advice over the long term. And they're all very, very good. They just do things a little bit differently.

One last thing about all that. We actually had Sjuggerud's track record since inception audited. We had it audited by an outside auditor through 2014. And we have two former auditors that work for big six accounting firms on staff. So we're comparing an outside audit from 2014 through 2017, because we like to be able to publish audited track records. Very few publishers can do that. We are one of them.

And so, it is an outside audit through 2014. This is an internal audit through 2017. And the way we do that is we have each auditor compile the track record, independently of one another. And then they go through and they completely make sure that they have double checked everything, and their numbers agree. It doesn't guarantee that there's nothing going to be a tenth of a point wrong. But man, it's a really, really well-done track record. It's really tight. And since Steve's inception of his newsletter, which was the week of 9/11, 2001, by the way. Since inception, his average gain of each recommendation made in his newsletter is 20.6 percent. The average days held for these investments was 466 days. So you can tell Steve's not a short-term trader in his newsletter. He's making investments. The average annualized gain is 16.1 percent. So in other words, if you had bought all of Steve's recommendations since 2001, you would have earned, total gain, so dividends and capital gains, pre-tax, over 16 percent. There is virtually not a single hedge fund or mutual fund anywhere in the world that has done anything like that. That is actually double, double the return of the S&P 500, folks.

So, if you want to talk about pure stock picking, there's just no one better in the world than Steve Sjuggerud. And I say that with a small amount of jealousy and chagrin, because I work right next to him, and I can't keep pace. The similar returns for me are around 14 percent. And that's really good. It's world class. But the guy next door is beating me by two percent a year, which is a little humbling. But anyways, that's what we do here. And if you've listened to our free podcast, I'd encourage you, try a 30-day free trial subscription to Steve's letter, to my letter. See what you think. See what we can do for you, financially. And Buck, come on. Don't buy a stock unless I've recommended it or Steve recommends it. Come on. You've got free access to us.

Buck Sexton: I got my hand blown off once, Porter. Everything else, I completely listen. You should have seen it. Before he even came on last week I'm like, "Sjugg. Tell me more about this one." I was literally taking notes, because that guy's … he's obviously brilliant. I don't know finance, but I know brilliant people. It's why I was really good at the CIA. Everyone's like, "Wow. This guy should run this place." And I left, because you don't make any money. But, he's really smart. So that I know.

Porter Stansberry: He is. He's wicked smart. How do you like them apples? Let's go, let's wrap it up. I've got a board meeting to get to. It's 12:15. So, let's get to the mailbag and let me go be conglomerate-building-business person.

Buck Sexton: We just want to say thanks to everybody, like Mike L, Brandon L, Steven P, Vince S, Brian N, Patricia, Wade B, and James R for hooking us up with some mail for the mailbag this week. Keep those comments coming. Write to us, everybody, at [email protected]. If we use your question on the show, we will send you some Stansberry Research schwag. And let's get into number one from Gary D.

"Hello Porter and Buck. Porter, how strongly do you stand on the 10x operating earnings limitation when valuing a company? If not too rigidly, then when or under what conditions would you violate that valuation principle? If market cap divided by 10x operating earnings equals 1, up to what value would you ever consider before a stock is too expensive?"

Porter Stansberry: By the way, I just have to say … sorry to interrupt, that's just one of the goofiest things I've every seen anybody come up with for a math formula. The market cap divided by 10x the operating earnings equals 1. Why not just divide the market cap by the operating earnings and see if it equals 10? Sorry. That's just me. I don't know … you don't need that extra step in the math. It just makes it more complicated. But to go on with the question … I'm reading it, too, Buck … "Which criteria is more important to you, capital efficiency ratio or the 10x operating earnings multiple?" And unfortunately, Gary … I appreciate the question very much.

Unfortunately, the answer is a matter of judgment and experience. But it basically comes down to three factors. And the first factor, believe it or not, is how much revenues are growing, and what difference does that make for the scope of the business? And understand them for a second. Apple is the largest public company in the world, and I don't know off the top of my head what their revenues are, but they're absolutely enormous. So, it's going to take something really unbelievably rare for them to, say, double their revenues over the next five years. They just can't do it, because they're already so big. And that is why Apple's stock trades at a very low multiple of operating earnings. I think it's trading at maybe six or eight times operating earnings. And Apple is an enormously capital efficient business. It's a great business. But it's fairly valued, because it's going to be very difficult for them to grow much faster than GDP, because they're so huge.

On the other hand, let's take something, a much smaller company, like NVR was 5 or 6 years ago when it was, say, a $2 or $3 billion business, and it's growing its revenues at 30 or 40 percent a year. It's very capital efficient. But the reason why that stock is a buy is because you can see the runway for that company to go from 5 billion to 10 billion to 20 billion in revenues. So, valuation, unfortunately the examples that we have to give, they're static. So I can say, "Take a look at Hershey today. $10 billion business, trading at 10 times operating earnings." That's a great value, given how much growth it has to go, and given how capital efficient it is.
So the the two variables are how much can this company grow, and at what rate. And two, how capital efficient is it? And those are where I get what I'm willing to pay for a business. If you find something, and you do occasionally in your career, like Facebook, which I want to … you should really take a look at it. Facebook is the greatest accumulation of wealth in history in the fastest amount of time. What Facebook has done in terms of capital efficiency and revenue growth and scaling that business has never been done before, even close. Way faster than Intel, way faster than Microsoft, way faster than Apple. So, obviously you're never going to have the opportunity to buy that stock at ten times operating earnings, because it's incredibly capital efficient, unbelievably so, and it's growing at rates no one's ever seen before. And the same thing is true in more or less of a degree when you look at the Chinese Internet stocks and some other very unusual businesses like that.

So these are guidelines, unfortunately. They're not hard rules. And the way that you figure out how to use them is understanding that there's a balance between the price you have to pay in terms of operating earnings, and the growth and capital efficiency of the business.

Buck Sexton: Number two this week from Josh. "Porter and Buck, thanks for the commentary about GE on the most recent Investor Hour podcast. I didn't know all that about GE, and have been waiting for the stock to dip even further before I buy. It's been on my watch list for several months now, and I was getting ready to potentially buy a position, because the turnaround should be soon. It looks like I would have been Bucked, as well." Man. I've been turned into a verb now over this GE thing. That's all right. I earned it. I deserve it. "I wish I would have started taking Porter more seriously when I began receiving the mailed campaigns about a decade ago, but I thought it was just another crazy newsletter. Now that I'm no longer in my 20s, I've taken a more active interest in investing, look at more fundamentals, instead of taking a headline at face value. I first discovered your podcast with the Richard Mayberry episode, and I've been hooked ever since. Looking forward to next Thursday. From Josh."

Porter Stansberry: Hey. Very nice comment. Thanks for reaching out to us, Josh. Remember everybody, love us or hate us … especially hate us … let us know. We love hearing from you.

Buck Sexton: Number three up this week, Jim T. "Porter, I was a little amazed at your prediction that natural gas would go to $10. This is very puzzling to me, since the fracking industry has, as a byproduct of their process, a lot of natural gas, so much that they don't know what to do with it. I would love to hear a further explanation of why you think natural gas would go to $10. From Jim T."

Porter Stansberry: Ah, that's very simple. The Chinese are going to stop burning coal. Next question.

Buck Sexton: That's a good answer. Number four.

Porter Stansberry: Yeah. I'm being a little facetious, Buck. But that's really the answer. The Chinese cannot continue to grow their economy with coal, because they'll pollute themselves to death. They've got to stop burning coal. They're going to switch to liquefied natural gas. They're going to import a lot of it. They're going to produce a lot of it. By the way, you guys, Google this and find out if I'm making this up or not. But the price in Asia of liquefied natural gas has already tripled in the last 12 months. There is going to be an enormous amount of money made supplying China and India, and eventually Africa with liquefied natural gas. And most of it's going to come from the United States. So, it's …

Buck Sexton: It's also a fascinating byproduct of the book, The Prize, which I know you like as well, by Daniel Yergin. And when you read it, you learn about the history of oil and fossil fuels. But also, you realize that for all the global warming alarmists or climate change folks out there, we are naturally decarbonizing. It is happening. Natural gas is much cleaner than oil, which is much cleaner than coal, which is much cleaner than wood, which is much easier to get than whale blubber.

All right. Next up.

Porter Stansberry: Oh, sorry. Just one more thing. The other thing is, $10 call on natural gas is really a layup. It's not even aggressive. I think the long-term price of natural gas is probably going to end up being something like … within the next 10 years, the average price will probably be something closer to 15 to 20, okay? And yes, there's lots of natural gas that's produced when we frack. I get all that. But if demand keeps growing faster than supply, and supply, really I'm talking about LNG. So there's just going to be a big build out in LNG. There's going to be a big demand for natural gas, especially in the export areas, like the Marcellus and in the Eagle Ford in Texas, and it's all going to go to China or India. That's what's going to happen.

And the other thing people forget is, natural gas is like silver. It is so volatile. So oil is like gold, and natural gas is like silver. So you get a cold winter in the United States, or you get any kind of supply disruption … a pipeline froze up, something happens … and there's no question the natural gas spot price will go over $10. So, that prediction really isn't even that bold. But I'm not talking about a price spike. I'm talking about a long-term, future price of natural gas average over the next 10 years of $15 to $20, which is way ahead of anybody else, as far as I know, on Wall Street or anywhere else. But you're going to need that price to cover all of the investments that will be required in infrastructure. Pipelines, boats, LNG refrigeration plants, all that stuff.

If you want to follow a stock that's right in the heat of this, look up Cheniere. It's a company I've written about quite a bit. Ironically, I shorted it originally in 2005. Because back in 2005 their business plan was to import natural gas to America, which is like taking sand to the beach. It doesn't make any sense. We've got more natural gas here than anybody else in the world, and more natural gas infrastructure. So if that was their business model, they were going to fail, and they did. And then they just turned all the pipes around. And they said, "Oh yeah. No, no, no. We didn't mean we were going to import natural gas, we meant we were going to export natural gas." [Laughs] So they did that, and then they've done great. And their stock … the symbol is LNG … it's a great barometer for whether or not I'm right about this call. So if you want to just follow it, that's the way to do it.

Buck Sexton: How long would it take you, Porter, before you think you're right on that call, by the way? What would the horizon be?

Porter Stansberry: I'm just watching LNG prices in Asia. And as long as they keep going up the way that they are, I'm right.

Buck Sexton: Okay. Fair enough. Number four this week in the mailbag, from Blaine. "Dear Porter and Buck, Listen every week. Love the interviews with my favorite reluctant financial geniuses, Doug Casey and Jim Rogers, as well as the interviews with the many contributors to Stansberry Research. Here is the problem. Every time you bring on someone like Steve Sjuggerud or Ferris or Bonner, and they have a service to subscribe to, I want it. Does Stansberry have a service that includes multiple or all of your subscriptions? Appreciate a nudge in the right direction. Thanks again, and always from a former T-Rexer, Blaine."

Porter Stansberry: Yeah, Blaine. Most publishers in our industry have some kind of long-term package deal. We have something at Stansberry Research which is called the SNA Alliance. And if you pay that … I think our initiation fee is $30,000 … you pay $30,000 up front, and then you get everything we do for as long as we're doing it, or as long as you're alive, and everything that we do in the future. So you're in the club, basically. It's a country club model where you pay a big initiation fee, but then you get to use everything we've got, and you can have it as long as you want it. There are tiers of that. So that $30,000 would be the whole kit and kaboodle. You'd get all of us, and you'd get everything we do going forward. That includes our really exclusive stuff on discounted corporate bonds, credit opportunities. It includes Dave Lashmet's work on biotech, which has a ridiculous track record. Unbelievable. And, of course, I was just talking about Steve Sjuggerud and his great track record. So all that stuff is included in the SNA Alliance.

And then down from that we have different … there are just different tiers. So, at different price points you get lifetime access to publications, but you don't get all of them. You get certain ones. So listen. Just call our customer service team and figure out which package is right for you, and we'd love to have your business.

Buck Sexton: 888-863-9356. That's 888-863-9356.

Porter Stansberry: So apparently, Blaine, if you just call our toll-free number, 888-863-9356, and tell them that you're interested in the different Alliance packages, they'll be able to hook you up. Now listen, I want to be clear about one thing, though. I don't … I do not publish Bill Bonner, and I do not publish Doug Casey. Doug Casey's publications come from a business called Casey Research, and Bill Bonner's publications come from a group called Bonner and Partners. And those folks have different offices, different employees, different customer service teams, different prices, different offers. I can't speak to that. But Stansberry Research, which is the company that I run, does have this offer. And you can figure out what's right for you by calling that number. So thank you very much for your interest.

I'm being told by people in the know, that I exaggerated the cost of our Alliance program. Apparently … by the way, I think it's worth a lot more than this. But just think about it for one second. $30,000 sounds like a lot of money. I get that. I understand. But we're talking about a lifetime subscription to investment research. So you might read it for the next 25 years. So, think about it. If you have a million dollars to invest and you pay a hedge fund a 2 percent management fee, you're paying $20,000 a year, whether you make money or not, every year. I'm asking $30,000 for our entire research program, which we always add to every year, for as long as you want it. Now again, I'm being told that that's not the right price. My staff is telling me that it's currently $25,000. I'd rather you think it's 30, so then, when you call, you'll be happily surprised. But it is going to 30 at some point soon. I don't know exactly when. I've got a thumbs up that that's going to happen. But I don't know what that means. Later this year. So, anyways …

By the way, Buck, I want you to know something. This is pretty funny. I started offering this program in 2003, when I had four or five publications that we put together. And I said, "Look. If you join us as a partner, we'll keep working on your behalf, and you will get every product that we add, no matter how big we get." We originally sold that as $2700. It's now $25,000. And I keep telling people, "We are going to get bigger. We are going to add more staff. We are going to become more successful. You should join our partnership program, our Alliance offer." So, that's my pitch. People who joined it early have made enormous returns, just on the price of the package going up. And I'm convinced it still will.

I'm also convinced that there will come a time, and it won't be long, maybe in the next five or seven years, where we'll have enough Alliance partners that we really won't have to market anymore at all. We'll just stop sending out advertisements completely, and just work on behalf of our Alliance members, like a country club does. And we'll survive on the referrals that we get from our existing members, which would be great, because then I could get rid of what, 40 or 60 employees in Marketing and Copyrighting? And I could get rid of the $30,000 to $40,000 a year I spend on marketing, which would really be great for me.

Buck Sexton: Let's hope those guys aren't listening this week.

Porter Stansberry: Oh. Well, sorry, guys.

Buck Sexton: I'll still have a job. You need to hang out with me.

Porter Stansberry: Yeah. I've got Country Club Guy. I've got to have somebody to golf with and go shooting with. I think your job's secure. And the guys in the control room here. We're going to keep doing podcasts, of course, so you're all set. But if you think about it, if I don't have to spend so much money on marketing, then I can hire even more analysts, even better analysts, I can produce more content, I can improve our terminal, which we haven't even spoken about. But Alliance members, of course, have access to the terminal, which is a competitor to Bloomberg. And Bloomberg charges $26,000 a year for their terminal. Alliance members are going to have our basic terminal package for free. So, talk to any Alliance member, if you ever come to one of our conferences, find one, ask them whether they got a lot of value out of it, and you'll get an earful. We treat our Alliance members like family, and they're very happy.

Buck Sexton: That's going to be it for us this week on the Investor Hour everybody. Write to us at [email protected]. We use your question, we send you cool gear. Love us or hate us. Just don't ignore us. Porter's got to go conquer the world. Porter, thank you for hanging.

Porter Stansberry: Buck, I had a great time. Thanks again.

Buck Sexton: Me, too, man. And thank you everybody. We will see you next time. Go to investorhour.com, enter your e-mail, and we will all talk soon.

[Music]

Porter Stansberry: Bye everybody.

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