This is How the Bull Market Ends


Announcer: Broadcasting from Baltimore, Maryland
and New York City, you’re listening to The Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest
episode of The Stansberry Investor Hour. Sign up for the free show archive at InvestorHour.com. Here are the hosts of your show, Buck Sexton
and Porter Stansberry. Buck Sexton: Hey, everybody, welcome back
to another episode of The Stansberry Investor Hour. I’m nationally syndicated radio host Buck
Sexton. With me today, the founder of Stansberry Research
and sometime sport angler, Mr. Porter Stansberry. How was your most recent expedition, sir? Porter Stansberry: Yeah, we had a great time
with our two sons down at Chub in the Bahamas. Chub is a beautiful resort. The guy who sold the Eagle Ford oil field
to Devon, I think he sold it for $6 billion — He bought the island about three years
ago, and he’s put maybe $100 million into it, and he’s made it really nice. Chub has been a famous destination for marlin
fishermen for, I don’t know, 50 years, and now it’s nice because the power works and
the plumbing works, [Laughter] and there’s about 30 new houses you can rent. And so, I took my family there for spring
break and the kids had a great time. My son traveled sort of for the first time. He’s an 11-year-old, he was able to fish
on his own — bait the hook, set the hook, reel the fish in, get the fish off the line. He loved it. He didn’t ever want to come off the reef. And my younger son, as I was just showing
you, he made friends with a manatee. [Laughter] And he spent one day on the beach
riding the manatee. It was a great vacation. Everything was wonderful. Just as I left my house this morning, my captain
just sent me 60 pounds of fish that we caught and had been prepared for us, so if anybody
needs some fish, let me know. Buck Sexton: What kind of fish? Porter Stansberry: We’ve got mahi, we’ve got
snapper, we’ve got grouper, we’ve got some mackerel for fish dip. Buck Sexton: Hey, Dan, how about, instead
of a T-shirt next week, people who write in and their e-mails read over the air — Porter Stansberry: We’ll send you some fish. Buck Sexton: … we’ll send you some fish. Porter Stansberry: Sure. You can have some of Porter’s fish. That could be a brand. Buck Sexton: Or you could do a fish day instead
of a meat day. Porter Stansberry: Well, there’s always
fish on the meat day menu — absolutely. Always. I’ve got two Berkshire hogs we just harvested,
I’ve got the kudu that I shot in Texas. [Laughter] I’ve got about 20 white tail from
last fall, and now I’ve got, I don’t know, with the fish I had in the freezer already,
probably 100 pounds of fish. So, time to clean out the freezers — big
barbecue at my house. What about you, Buck? What’s new in your life? Living in the city, living the dream. Always on Fox these days. Buck Sexton: Yeah, a lot of that going on. Well, there’s some stuff happening. As you know, there’s a serial bomber running
around Texas right now, so I have the unfortunate — believe it or not, I actually had some
explosives training back in the day, and we did some explosives investigatory work, really
having to do with IEDs, more so. But the problem with serial bombers — very,
very hard to find them until they make a mistake. You’re basically waiting until they mess up
or someone comes forward, like, “Yeah, that’s my neighbor so-and-so.” Not a whole lot you can do up until then. So, that’s kept me very busy the last few
days. And then also just Trump, Russia. Putin won, I’m sure you saw that. Big shock. Porter Stansberry: Seventy-three percent of
the vote? Buck Sexton: But the funny thing is, whenever
I have to explain to my journalist friends — which I do with some regularity, and I
guess technically they consider me almost one of their own, although I’m really just
a reformed spook. They don’t seem to understand that Putin
is somewhat popular in Russia. In fact, he — Porter Stansberry: Of course he is! Buck Sexton: Yeah! He’s presided over the creation of a middle
class and the Russian people, after the complete catastrophe, economically, of the downfall
of the Soviet Union, feel like, “This guy’s brought us out of the darkness.” They like him! [Laughter] Porter Stansberry: Oh, flash news alert, just
sitting here, doing the show — Maryland high school shooting, three injured. Is it where you went to school in the control
panel? A rival high school of yours, yeah. So, Maryland has some of the toughest gun
laws in the nation, and they apparently work. [Laughter] Buck Sexton: Do you know there’s another
part of that story, Porter, that you’re not going to hear much about? This is a school shooting, even though two
were critically injured — I think three, actually, critically injured including the
shooter — you won’t hear much about this one. You want to know why? Porter Stansberry: Because people defended
themselves with weapons. Buck Sexton: Correct. Porter Stansberry: Aha! Buck Sexton: People actually — yeah, in
this case, a school resource officer was armed, got into a shootout with the shooter, took
him down, stopped the school shooting. Porter Stansberry: Bingo! That’s what you have to do, folks! I’m sorry, but if you want to have any kind
of weapons in our society, you’re going to have to have weapons in the hands of people
who can defend you. It’s that simple. And I don’t see anybody volunteering to
put a sign in front of their house that says, “There are absolutely no weapons here.” Who wants to put that sign in front of their
house? Hell no! I put up signs all over the place around my
house that are clues — there are lots of weapons here. Like, big gates and farmers running around
with weapons hanging out of the back of their buggies and shell casings all over my lawn
whenever we shoot skeet. [Laughter] Don’t come here if you’re armed
and trying to hurt us, because we’re going to shoot back! Buck Sexton: So, just for a second, to give
everyone a preview of what else we’re going to be talking about, we have Erez Kalir, CEO
and co-founder of Stansberry Asset Management on the show this week. In the summer of 2008, Erez found the first
page of Porter’s now-famous Fannie Mae issue of the Stansberry Investment Advisory on an
abandoned copy machine at a Kinko’s in New York City — this is quite a story. Erez was so curious about what he read that
he tracked down Stansberry Research, became a lifetime subscriber, and is now co-founder
of Stansberry Asset Management. Erez is here today to share his story and
his current outlook on the markets. And before we get started, we have a quick
note of thanks to all of you that helped us make our TradeStops offer with Richard Smith
such a huge success. If you missed Richard’s interview, go back
to Episode 40 and you’ll hear how the TradeStops software he developed tells you when to cut
your losing positions and how to let your winners run. In Episode 40, Richard also tells you the
one thing you can do to your portfolio right now that will give you better returns without
changing any of the stocks you own. Visit www.tradestopsoffer.com, that’s tradestopsoffer.com,
for the special Richard and his team put together just for Stansberry Investor Hour listeners. And with that — Mr. Porter, what’s on
your mind? Porter Stansberry: Buck, I’ve got something
to tell you about. I’m sure you weren’t following closely,
but a couple weeks ago, I wrote an essay on the Friday Digest about what was going on
at Berkshire Hathaway. And I pointed out something that I found very
interesting, that no one else in the media had apparently noticed. Which was, Berkshire had accumulated about
$100 billion — a little bit more, but $100 billion of investments in very marginal industrial
businesses. And when I say marginal, I’m talking about
returns on assets, return on equity. These businesses are not at all like the kind
of businesses that he had historically been known for buying. He had historically been known for buying
businesses with outrageously large returns on net tangible assets. Companies like Coca-Cola, American Express,
See’s Candy — these are genius businesses, they’re miracles of capitalism, and he was
a collector of them. And so, he only bought the finest companies,
and as a result, he made outstanding long-term returns. His long-term average returns as late as the
late 1990s was about 24% annually, which is just unbelievable. That’s the greatest accumulation of capital
in the history of capitalism. It’s the best ever. But around 2000, he really changed the way
he was investing. His insurance float continued to grow and
became very, very large, and that insurance business is the best in the world. I’m not criticizing that. But what he did with that float money really
changed. Instead of buying these really great businesses,
he started buying a bunch of really lousy businesses that require lots of additional
capital. So, for example, he brags in his letter that
he’s never taken any money out of his regulated utility company. Well, hang on a second! [Laughter] If you don’t take any money out
of it, if you don’t take any dividends, what’s the point? This doesn’t make any sense. This is not at all how his business is supposed
to work. The business is supposed to work where he
buys a company and the company pays him ever-increasing dividends that he can recycle back into Berkshire
and make that compounding return that produces those great long-term results. And so, he was changing. And it wasn’t just the regulated utilities,
he spent, by my calculation, around $50 billion on a railroad, and returns from it have been
abysmal. So, I wrote about that, and there, lo and
behold, about, what, 10 days later, jammer? The Economist magazine, in their weekly issue,
comes out with the exact same argument, with almost the exact same calculations, citing
the exact same issues. And I don’t have any proof that the guy
knocked me off, but I’m really proud of the fact that I definitely was the first person
in the media to point out that Berkshire is very unlikely to beat the S&P 500 going forward,
because it has fundamentally changed its investment model. And subscribers out there have seen me commenting
on this over many years, so probably over the last 10 years at least, talking about
how Buffett’s made a mistake by changing this model, and — anyway, if you’ve avoided
Berkshire Hathaway because of us, let me know, because I’d love to hear from you. Because this is probably the most contrarian
thing I’ve ever written. I mean, people regard Warren Buffett as a
holy saint, and to say that he’s not a great investor any more is, you know, blasphemy. Buck Sexton: You’re being mean to America’s
grandpa. Porter Stansberry: I’m being mean. I’m being mean. A subscriber wrote in and said, “I hope
you like beating up on 87-year-old men.” [Laughter] Buck Sexton: [Laughter] Porter Stansberry: Well, listen—when 87-year-old
control about $500 billion in capital, it’s important for the media to keep an eye on
what they’re doing. Buck Sexton: One would think. Porter Stansberry: So that’s what we did. What’s up with you, Buck, besides — jeez,
a crazy president — can you explain what’s going on with the FBI stuff? Is the FBI really just a tool for the Democratic
Party or are there actual Republican agents as well that we just don’t know about? Buck Sexton: The rank and file are a lot of
Republican folks. It also breaks down quite a bit based on whether
we’re talking about analysts or field agents. You know, the FBI, for example, has an analyst
cadre. It also has field agents. And this is going to be more detail than folks
listening care to know, so I’ll keep it brief, but all these places have their own cultures,
Porter, and their own ideological proclivities, meaning CIA, FBI, DIA, you name a place — State
Department. Oh, gosh, the State Department is just to
the right of Karl Marx on a lot of things. So, you look at the different agencies and
you see the leadership cadre. And people need to remember that the FBI,
the guys running it for the most part are lawyers who are friends with the president. I mean, that’s who runs DoJ, which runs
FBI, that’s who runs the Federal Bureau of Investigation. And there were clearly some folks — McCabe,
Comey, Brennan — I don’t know if you saw Brennan, who was not actually my boss, because
I left before he was in. But he was the CIA director, he wrote something
about how Trump is not going to destroy America, America will triumph. I mean, this is like the ravings of a madman. This guy was running the CIA! Porter Stansberry: Yeah, I think it’s pretty
scary that people Obama appointed in these positions are just as crazy as Trump, but
in the opposite way. Buck Sexton: Yeah, well, it’s finally coming
all together. Porter Stansberry: And by the way, isn’t
it unseemly for the director of the CIA under the former administration to say anything
about the current administration? Buck Sexton: You would think so. Porter Stansberry: Isn’t there an etiquette
to that? Like, historically, the former president doesn’t
say anything about the current president. That’s protocol. That’s tradition. Buck Sexton: Yeah. I mean, that should be the protocol. And look, it used to be the case, Porter,
that if you ran FBI, NSA, CIA, any of these places, maybe you wrote a memoir that was
very heavily edited and combed over, but people generally didn’t get involved in the political
fight right away. That’s completely changed, and that’s
really changed with Trump now. That’s a difference from what you’ve seen
before. All these guys—I mean, look at the list. Preet Bharara, what’s the first thing that
guy does, the U.S. Attorney for the Southern District of New York. The one guy who basically goes after insider
trading, by the way — he runs to CNN right away and starts a podcast. What’s the first thing that Comey does? He’s now a bestselling author on Amazon. He’s like number one for all presales, right? These guys all get into the political fight
right away. • Porter Stansberry: That guy Preet is one
of the grandest assholes of all time. Buck Sexton: Comey’s protégé, by the way. Porter Stansberry: Somebody needs to write
a book about what a gigantic asshole that guy is and all of the people who were subject
to his prosecutorial abuse. I mean, I was just watching last night Netflix’s
Dirty Money episode about the payday lender guy, Scott — what was his name? Anyways, this is a guy who partnered with
the Indian tribes to offer payday loans over the Internet, even in states where payday
loans were outlawed. And the reason why he did it was very simple. The Indian tribes are sovereign nations. They don’t have to follow state laws. So, this guy found a very clever loophole
as a way of offering people payday loans. And by the way, this is going to make me the
second most unpopular man in America to say this, but I don’t believe that there is
such a thing as a predatory loan. I don’t believe it for a minute. If you borrow money and you agree to the terms,
you have to pay them back. It’s that simple. If you don’t want to agree to the terms,
then don’t take the money. It’s a contract. Nothing could be simpler. And there’s a clause in our Constitution
that says the federal government does not have the right to abridge contracts. Everyone ignores that law, but it’s there,
it’s part of the Constitution. So, this guy had a contract with people all
over the country where they borrowed money — it was a small amount, $300 , $500 —until
their next payday, which was two weeks away, maximum lending time. So, all you had to do was pay him back. If you borrow $500, you pay him back $650
— that’s a lot of interest. And as a result, a lot of people couldn’t
pay him, so they would roll the loans forward, and there was a $50 fee every two weeks to
roll the loan. It’s a great business if you’re lending
money at those rates. And so, the Netflix show made a big deal about
how some people borrowed $500 and had to pay back $3,000. Well, yeah. That was the terms of the loan! Anyways, Preet prosecuted this guy. They fined him $1.2 billion and they threw
him in jail for 16 years. In jail! And all he did was make people payday loans
that they agreed to pay him back. Why does the federal government have anything
to do with that? You don’t want to pay $1,000 to borrow $500,
then don’t borrow the money! And the real reason why they went after him
— if you watch this Netflix episode, you’ll see this — the real reason why they went
after him was because he was successful and flamboyant. He started a Ferrari racing circuit. He came in third at Le Mans. He got written up in the Wall Street Journal
as a guy who, in his mid-40s, started racing cars and how unusual that was. He tried to turn himself into a celebrity. Buck Sexton: Oh, Bharara was a scalp hunter
— big time. Porter Stansberry: And he was deliberately
flouting the law of the land. He had partnered with the Indians and they
wanted to punish him. But the thing is, Preet didn’t care about
what the law was. This guy had the law on his side completely. He had a phalanx of lawyers who said, “Yep,
this is legal. You can partner with the Indians and then
you can do this.” And of course, so all the prosecution is rear-
looking. They changed the law and then they convicted
him. It’s just incredible, incredible abuse. And for anyone who’s a business person who’s
been subject to that kind of regulatory authority, you know how ridiculous it is. Look, it wasn’t against the law when I did
it. You can’t go change the law and then convict
me! And by the way, if you don’t want Indian
tribes to make payday loans, then change the law! But don’t send me to jail just because I
was clever enough to find a loophole. And of course, the whole Netflix thing was,
“This guy made money on the backs of the American working poor.” Buddy, what do you think every cable company
in America does? What do you think every cellphone company
does? What do you think every grocery store does? Don’t get fucking high and mighty because
a payday loan guy is charging $150 for a $500 loan. The terms are clear as day. The person agreed to it. If you’re going to go after somebody, go after
Montel Williams, right? That guy made all the money doing the ads
for this guy. Remember Money Mutual? “Do you need $500 today?” Buck Sexton: Oh, he was the guy? Porter Stansberry: Yeah! That’s the whole — Buck Sexton: I remember those ads! Yeah! Porter Stansberry: Yeah! And by the way, I don’t think you should go
after Montel Williams; he didn’t do anything wrong, either. There’s nothing wrong with lending money
to people who don’t have any collateral. That’s what a payday loan is, and if you
don’t have any collateral, you have to pay a whole bunch of money in interest, because
otherwise, no one’s going to lend you the money. No one! Anyways, it just very upsetting to me, and
I thought about all these people. Rudy Giuliani was another guy from the New
York Southern District who made a name for himself and almost became our president by
targeting people who hadn’t broke the law, but had been successful; most famously, the
junk bond king. Buck Sexton: Milken? Porter Stansberry: Milken, yeah. Milken was a force for good in our economy. He created the cable networks. Those companies would’ve never gotten capital
without his junk bonds, and he did all kinds of other things to reform Wall Street by enabling
activist investors to take over companies and get rid of gross excesses in management. And those takeover efforts were funded by
Milken’s junk bonds. So, Milken created a whole new asset class. I mean, Milken’s junk bonds were the bitcoin
of the day. He didn’t do anything wrong, he didn’t cheat
anybody, but he was too successful, he upended the status in New York City, and as a result,
Rudy went scalp hunting and convicted him on the biggest bunch of bullshit, ever. All of which was later thrown out, but it
didn’t matter, it made a name for Rudy. And Preet was doing the same thing, going
after the biggest hedge fund managers by targeting the guy at the copy machine and telling him,
“If you don’t invent a crime that your bosses did, we’re going to put you in jail
forever.” That’s how they went after SEC Capital. They started at the bottom of the barrel and
they used their entire prosecutorial authority to scare these people into rolling over and
inventing crimes that their bosses may or may not have done. Again, all those convictions get thrown out
later, but in the meantime, these people — dozens of them — end up out of work, reputation
smeared, ruined, and it’s all bullshit. And who is Preet protecting by going after
a hedge fund manager? Who is it that loses because of their ability
to get information? Buck Sexton: There’s a good book that I’m
reading called Black Edge, and the chapter I’m on right now is when Preet came into office
and how he came in and the first thing he did was hold press conferences in the lobby,
telling them who he’s going after. And the stories you’re talking about, he’s
doing at this point of the book right now. It’s disgusting! Porter Stansberry: It’s disgusting. Buck Sexton: Yeah. Porter Stansberry: And they target these people
because they’re successful, and what nobody understands is, there’s always somebody
on the other side of these prosecutions. There’s always somebody who wins because
the prosecutor is going after that guy. And so, it’s the more established hedge
funds who are losing money in business to Stevie Cohen, and in the case of the payday
lenders, right, it’s the guys at the credit card companies. It’s the Capital Ones of the world who lose
out when the payday lenders do well. And so, who’s better connected, Wells Fargo
or Scott nobody from Kansas City? Buck Sexton: Scott Tucker. Porter Stansberry: Scott Tucker from Kansas
City. And that’s not the way that the country
should work. It’s not the role the government should
play. The government should be an impartial referee,
not a crooked NBA ref, which is what we’ve got. Buck Sexton: You were the one who told me,
Porter, because I did the work to figure out that Bharara and Comey were very close. And that it made no sense to me that Comey
was making seven figures to be a consultant to, I think it was Renaissance, the big hedge
fund. Renaissance never had anybody from the Southern
District go after them. Hmm! Porter Stansberry: Nope. It’s a protection racket. Buck Sexton: That seems curious. Porter Stansberry: It’s no different than
the fucking mob. They just wear suits and they act — not
parsimonious, they act sanctimonious, which is the thing that pisses me off the most. Buck Sexton: If people only knew, by the way,
I mean, I think it’s banana republic stuff — Porter Stansberry: It is! Buck Sexton: That Paul Manafort, who now all
of a sudden is like, is public enemy number one according to the media Democrats. You know he’s facing — I’m being serious
— 370 years in jail, Porter. Is this guy a mass murderer? Now, they’ve got him on, like, mail fraud
and wire fraud, they say. And some tax evasion that they can’t even
prove — they’re just going after him on the mail fraud and the wire fraud — and
failure to register as a foreign agent, which they never prosecute other people for. They say, “Just register. Thanks.” Three hundred and seventy years! They weren’t even going to send Ted Kaczynski
away for 370 years. Porter Stansberry: They put this guy in jail
for 17 years — 17 years for making people loans. By the way, did this guy ever sue any of the
people who didn’t pay him back? No. Buck Sexton: I’m guessing no. Porter Stansberry: He was the only guy in
that business that never sued anybody to collect. [Laughter] He was the furthest thing from
a problem in this industry, he was just the most successful. It’s just shocking — shocking abuse. Buck Sexton: Isn’t that also, didn’t they
also go after Mozilo in the mortgage crisis? But he was the only one that they really went
after, right? Porter Stansberry: No, they never went after
Mozilo. He was too rich and powerful. He had Sen. Dodd in his pocket. Buck Sexton: Oh! Porter Stansberry: No, that’s the thing,
right? This guy made something like $1 billion worth
of payday loans over 20 years, okay? Fine. I don’t think there’s anything wrong with
that. If you do — great. Don’t borrow money from him. It’s that simple. You don’t need any government to protect
you from a — what is it called — a predatory loan. I can tell you, when I was starting my business,
I would’ve been grateful for any predatory loan. [Laughter] Right? I mean, this is so ridiculous. It’s just socialism, it’s communism, it’s
class warfare. It’s ridiculous! These people are not criminals! Scott whatever his name is, is not hurting
anybody. He’s offering the opportunity for you to
get money if you don’t have it. That’s that simple. And, I mean, think about what the state regulates
and endorses — gambling. The lottery. You’re telling me that the lottery isn’t
a tax on poor people? You’re telling me that’s not the biggest
racket in the world? And then they’re all sanctimonious — “This
person was putting hardworking Americans in a position where they couldn’t pay their
car payments or their power bills.” He didn’t do any of that! He was the guy who was giving them money so
they could make those payments, and then they wouldn’t pay him back. Let’s move on. I’ll be here all day. Buck Sexton: Do we need to get to Erez, or
do we have time for the Facebook discussion? Porter Stansberry: Oh. Let’s get to Facebook after Erez. Let’s hold people in suspense. But I just want to say something to everybody:
What do you think happens to countries where the government starts printing money? Where contracts are not revered or respected? Where laws change on the whims of politics? And where the population — the vast majority
of the population — now believes that somebody else should be responsible for them? For their health care, for their retirement,
and soon, for their basic income? What do you think happens to those societies? Do those societies become wealthier and happier,
or do they end up in chaos and poverty? Buck Sexton: Venezuela is a perfect experiment
of this. Porter Stansberry: It’s amazing to me that
more people aren’t fleeing the United States, that more people aren’t buying gold, that
more people aren’t going just nuts about all this stuff. It’s just crazy how much our society has
changed in just two generations. It’s just bananas. I don’t even recognize it. Buck Sexton: We only have $21 trillion in
debt, Porter. It’s only $21 trillion. Porter Stansberry: It’s only $21 trillion,
and we owe it to ourselves, Buck. Buck Sexton: That’s right. [Laughter] It’s money we owe ourselves. [Music plays] Buck Sexton: Erez Kalir is with us this week. Prior to launching Stansberry Asset Management,
Erez co-founded and led Sabretooth Capital, an event-driven fund that invested in distressed
credit and equities. Sabretooth managed $1 billion in assets for
investors including Julian Robertson, the Rockefeller family, and several major endowments. Erez holds a JD from Yale Law School and has
completed advanced studies at Oxford and Stanford, but most importantly, Erez is a long-standing
Stansberry Alliance member. Please welcome to the show, CEO and co-founder
of Stansberry Asset Management, Erez Kalir. Porter Stansberry: Erez, thank you very much
for joining us today. I know you’re busy running your asset-management
business, and I want to catch up with you on that in a second. But let’s start with the question I think
everyone has, for folks who are in the markets with the level of detail and experience that
you are, and that is, you know, how much longer can this bull market run and is this rise
in volatility a canary in the coal mine? Is this the final end of this grand bull market? Erez Kalir: I think that’s a great question,
Porter. You know, I would preface it by saying we
believe, as I think you believe as well, that it always pays to remember that it’s both
a stock market and a market of stocks. And we at least try our best to avoid getting
overly obsessed or preoccupied whether the market as a whole is rising or falling and
instead to kind of sniper shoot what the best and sort of most favorable risk-reward opportunities
we can find within whatever the market is offering us. It’s usually the case that, within a stock
market that’s either rising or falling overall, you have individual securities, individual
stocks, or even niches within the markets that are experiencing their own private bull
market or their own private bear market. And we spend a fair amount of time, as I know
you and your team do at Stansberry Research, trying to find those private bull markets
and private bear markets within the broader sea of stocks. That said, I think any realistic participant
and observer in markets understands that, of course, it does matter whether the market
overall has a tailwind or a headwind within it. And so, my own two cents is that, I’m probably
with Steve Sjuggerud that we’re in the late stages of a bull market, but this bull market
still has some room to run. We’re not kind of prepared to say it’s over
yet. That said, as I know you know well and as
your editors have written about, the complexion and character of a bull market in its late
stages changes dramatically from what it’s like in its earlier stages or even in its
mid stages. And one of the characteristics of it is precisely
the kind of increase in volatility that we’ve observed over the first couple of months of
this year. So, you know, in a way, if one hopes to participate
in and capture the rewards of the late stages of a bull market, one has to have a strategy,
both a defensive and an offensive strategy to endure that volatility and capitalize on
it. Porter Stansberry: Well, as you know, I’m
probably going to take the other side of that, Erez. I think we’ve seen a couple of interesting
things that are, I think will become more and more significant over time, and looking
back, people will say, “Why didn’t everybody know?” Three things for me that are interesting mile
markers, if you will, on the decline of the bull market – so, I’m going to go four,
and I’d love your feedback on all of these ideas, Erez. Number one, the decline of crypto. That is, to me, very analogous to the 2000
collapse in tech that led into the bear markets of ’01 and ’02. This was the speculative bubble of this particular
credit inflation. Just clear as day, that was a mania and that
burst, and in my opinion, that is not coming back. Yes, I know blockchain technology will be
very, very important. But I’m talking about the idea that a cryptocurrency
that’s backed by nothing is worth $20,000.00 a coin – that is going away. The second thing that I think is very significant
was the liquidation of Toys “R” Us. That is a shot across the bow in the corporate
bond markets, and that’s something I’ve been waiting to see since 2015. It’s taken so long for this credit cycle
to roll over, but I have no doubt that it has, and there will be an enormous repricing
of credit risk because of the events of Toys “R” Us – of course, especially in the retail
space. The third thing is, the repression of volatility
has been broken, and as volatility rises, Erez, as you well know, that will impact a
lot of the leverage strategies that were being employed and cause a lot of the margin to
decline. And the fourth thing – what was it? Oh, boy. I think I forgot. It’ll come to me in a minute. I’m like the presidential candidate who can’t
remember the institution of government he was going to get rid of. Erez Kalir: [Laughter] Porter Stansberry: So, let’s just go back
to those three, because they’re definitely the most important. Erez, what do you think about the impact that
crypto has as a leading indicator of speculative froth? Erez Kalir: I’m totally with you on that,
you know, Porter. You know, at some of the SAM events that we’ve
held around the country, I often quote or paraphrase Warren Buffett’s aphorism, “To
be greedy when others are fearful, and fearful when others are greedy.” And I ask the folks who come to those events,
you know, “Does this seem more like a greed environment to you or more like a fear environment
to you?” And to help sort of stoke their imaginations
about that, I ask them to reflect on whether people are approaching the crypto opportunity
with the mindset of fear or greed. And to me, it seems pretty obviously the case
that at least to date, it’s been kinda greed all the way. You know, when you have sort of proverbial
taxi drivers or casual sort of participants in the stock market boasting about the multithousand
percent gains that they either have made or are going to make buying various kind of esoteric
crypto assets within sort of a short amount of time, I don’t know that it gets more extreme
in terms of an advertisement for that being a greed environment. So, yes, I agree with you about crypto being
a lead asset class or a bellwether or a canary in the coalmine. The analogy to the tax bubble of a couple
decades ago is a terrific and spot-on analogy that I agree with. I guess where I may be a bit more agnostic
or would push back is, it’s not slam-dunk clear to me that we’ve seen the top in that
asset class. We might have. It’s certainly been a kind of brutal correction
in bitcoin from—you know, from 20,000 or wherever it peaked back to roughly 7,000 or
whatever it is today. That’s, whatever, close to a 60% correction,
so I get it. We may have seen the top. At the same time, I was at an event in New
York, The Economic Club of New York hosted Peter Thiel last week. As you know, Peter was the founder of PayPal,
the first external investor in Facebook. He has a massive investment in bitcoin that
he owned early on and he was asked if he’s a seller. He’s surely one of the most kind of sophisticated
and accomplished technology and speculative investors in the world. And, you know, he said he’s not selling,
so I don’t know. You asked me about whether we’ve kind of seen
the top in crypto currencies. That’s really tough for me, personally,
to say. To me, that’s a kind of close to 50/50 percent
call. Porter Stansberry: Huh, interesting. Interesting take on that. I guess I would walk back part of what I said,
only in one regard. There may be a higher price for bitcoin someday,
but I don’t think that someday is any time soon, and I think there will be a lot more
pain before that happens, and I would point you to something like Amazon or Priceline
or eBay or any of these things that became great companies, but you didn’t want to own
them between January of 2000 and late 2002. It was a long, brutal bear market where they
all declined 90% or thereabouts. So, that would be my rejoinder to that. More importantly, I know you follow capital
structure very closely, and this is something that I think people who are considering investing
with Stansberry Asset Management should know about you. One of the things that Erez can do that a
lot of money managers simply can’t because they don’t have the experience, they don’t
have frankly, the intellectual firepower. When Erez is considering an investment, he
doesn’t just look at the stocks, he looks at the entire credit structure. So, he’s looking at all the different bonds,
he’s maybe looking at the senior debt, maybe looking at the subordinated debt. He’s trying to find the best vehicle to
express his view on that particular business. Now, if it’s something like American Express,
that’s probably going to be equity, because you know, I think we’re long-term believers
in the quality of that business and want to be owners of it. But there’s other things where we’re not
necessarily confident in the long-term future of the business, but we’re very confident
in the ability for a bond to be paid, and we want to earn money for 18 months or 24
months at a very high rate. So, Erez, I know you really do specialize
in corporate bonds, and I know you’ve studied capital structure for 20 years – what did
you think of the events at Toys “R” Us? Was that liquidation surprising to you, or
in your mind was that inevitable, and does that mean anything for the market as a whole? Erez Kalir: I’ve sort of seen it coming. I do think it’s been, to my mind, inevitable
or close to inevitable. You know, and I don’t know if I believe, Porter,
that as a matter of cause and effect, it’s a significant enough bankruptcy to trigger
a kind of cascade of other domino effects in the credit market. I do agree with you regarding its symbolic
meaning. And I do agree with you that people may look
back at it as a watershed or as an early kind of marker of a new era in which we transition
from a kind of unnatural calm in the credit market where credit markets benefited from
this artificial volatility suppression and money printing that has characterized the
post-financial crisis era to a time when credit risk came back with a vengeance. So, that part I kind of strongly agree with,
and I think that one of the other – you’re right to say, Porter, that we try and pay
attention here to not just what’s happening in equity markets, but also what’s happening
throughout credit markets. And it’s been worrying and disturbing to
us, out of the corner of our eye, to see, for instance, the LIBOR OIS spread really
kind of blow out to levels that it has not seen since the heyday of the financial crisis. So, I think we’re – this is really me just
saying there are other corners of the credit market that are, I think rightly, perceived
as being indicators that are starting to show signs of a return of kind of credit stress
that’s unquestionably sort of worrisome to us. Porter Stansberry: And finally, fundamentals
here, talking about where we are in this cycle. We saw last year a record number of all-time
lows hit, and the VIX, the volatility index, measures the premiums on put options across
the S&P 500. And now, of course, that spread, that index
was blown out, what was it, three weeks ago, four weeks ago? We saw these ridiculous inverse volatility
ETFs just get hammered. One or two of them went completely to zero. And that trade has kind of disappeared, and
we all knew it would. About a year ago, Fortune or New York Times
or somebody did a profile on a manager at Target in Ocala, Florida, who had amassed
a $12,000,000.00 brokerage account by consistently buying the inverse volatility ETFs. And so, from 2011 until last year, every year,
volatility just went lower and lower and lower, and every month, he collected nice income
from this strategy, which he, of course, was leveraged to the hilt in, and he did very
well. I don’t know if he survived the collapse or
not. This isn’t about one person, this is about
this idea that many investors came to see shorting volatility in one way or another
as a one-way trade and as free money. And as a result, the VIX got all the way below
10, which has essentially never happened before. So, it was just one of these trades that we
all knew, professionals all knew, was simply inevitable. And Erez, I don’t know if you saw this or
not, but there was an institutional guy who was buying, I think it was $50,000,000.00
worth of calls on the VIX every month. Every single month. And of course, when it blew up, he hit the
jackpot and made several billion dollars. It hasn’t come out yet who that was, but
my money is on Taconic. And you know that firm very well, Erez, and
Taconic gave a presentation about that strategy exactly at the last Grant’s conference last
fall. So, you know, it hasn’t come out whether
or not it was Taconic, but there were certainly a lot of very intelligent and wealthy people
betting on a big spike in volatility. In fact, I’m not that smart and I’m not that
wealthy, but I was one of them, too. My strategy didn’t work nearly as well. We were buying puts on highly indebted companies
on the idea that once volatility spikes, it’ll be much harder for these companies to get
additional financing and then they would start going bankrupt. Whether that strategy will win or not, over
the next year or so, we’ll find out. But it really hasn’t been a great strategy
yet, so I’m still pursuing it, but if I had been smarter, I would’ve just bought call
options on those inverse volatility ETFs. Dadgum it. It’s always easier to invest in hindsight. But Erez, the question is – do you think
volatility returning back to a.k.a. normal – or maybe even a little elevated, I think
the VIX was over 20 yesterday and the term spread got all whacked out again. Do you think that that, again, is something
that is a precursor to a bear market? Meaning, a 20% decline in the S&P 500? Erez Kalir: I think it’s a precursor, Porter,
I just don’t know whether it’s an immediate precursor or whether it’s also kind of a
precursor to a last and kind of significant leg up of a kind that would resemble Steve
Sjuggerud’s Melt Up thesis, because I think that it can look awfully similar both ways. I’m surely, by the way, going to agree with
you in our mutual respect for Frank Brosens at Taconic. I think he’s one of the most exceptionally
high quality people and investors I’ve ever come across on Wall Street. And I also agree with you that, you know,
it’s sometimes fun and useful to play the parlor game of, you know, what’s the biggest
bubble in the world? What’s the asset class of the security that’s
the biggest bubble in the world? And my answer to that for a while now has
been one of two things. They’ve traded off in my mind. One has been kind of the bubble in volatility
or, if you will, sort of the bubble in shorting volatility, and the other has been the bubble
in bonds. And I think they’re clearly related to one
another, because global central banks have used their financial repression and control
of the bond market to in effect, to create an environment of artificially suppressed
or low volatility. And I don’t think that it’s an accident
that their attempt to – at least in the case of the Federal Reserve – their attempt
to try and quote-unquote exit from those programs or see if they can unwind those programs or
begin to unwind them has coincided with the return of volatility with some vengeance. And I, for one, think that we’re still in
the really, really early innings of that. Like, to my mind, even what we saw in January,
which was factually or historically pretty extreme when you saw, in the span of, I think,
nine or 10 trading days, the benchmark S&P 500 dropped sort of 10% in – 10 or 11% in
nine trading days. That is up there on the list in terms of the
speed of that decline, the speed and magnitude of the decline. To my mind, that’s just a blip relative
to what we’re likely to see before this is all said and done. Porter Stansberry: And then the fourth thing
that did come back to me – my mind’s on a 10 minute delay – is, of course, the rising
interest rate environment. But I want to just skip over that, because
everyone understands rising interest rates and the potential impact that has for the
multiple in the market. I don’t need to go through those basics with
you. You know, it’s very uncertain about when
that will matter, and it won’t matter until it does matter, and then suddenly, it’s
going to matter a lot. And, unfortunately, the timing of that is
very uncertain. But what I would like to point out to people
is, you’ve got an aging bull market here, and you’ve got a collapsing speculative bubble
in cryptocurrencies, which is an asset class that didn’t even exist in the last bull market
– think about that for a minute. You’ve got a change in sentiment, certainly,
in the corporate bond market, and of course in the volatility space, and you’ve got the
Fed raising interest rates. None of those things sound like tailwinds
to equity valuation to me, and that doesn’t mean that you shouldn’t invest in stocks,
and that doesn’t mean the stocks can’t still go up. But it does mean, in my mind, that you’re
unlikely to see an environment where stocks go up 20%. Of course, stranger things have happened. And that was the last part of what I wanted
to get to in this interview with you, Erez, and that is, what I wanted to say about all
this stuff is, we follow all these macro factors, because every now and then, they really do
matter. They mattered in 2008 and they impacted my
analysis greatly. They mattered in 2002 and they impacted my
analysis greatly. At some point, all these things will matter,
more than anything else. More than earnings, more than new technologies,
more than demographics. They will matter, and they will be all the
markets will focus on. So, you have to kind of keep up with them,
because when it matters, you have to know how to make changes to your portfolio if you
want to succeed in that environment, and that’s what we’re hoping that we can help you do. But most of the time, this stuff doesn’t
really matter at all, and over the long term, it doesn’t matter at all. It’s completely irrelevant. And that’s what I wanted to get to next
with you. I have this idea that if investors would stop
– if they would completely ignore all macro factors and they would instead become connoisseurs
of great businesses and if they could discipline themselves and learn how to only buy great
businesses when, for whatever reason, they become unloved or unwanted. And I’ll give you three quick examples. In the mid-2000s – 2006, 2007 period – the
market became obsessed with the idea that Hershey’s chocolate – Hershey, the greatest
chocolate company in the world, the company that invented the use of fresh milk and turned
it into chocolate. I mean, this is Hershey’s process. Still the only large chocolate company that
uses fresh milk, by the way. That Hersey would no longer be successful
because it couldn’t compete globally with Nestlé unless it purchased Cadbury. And for various reasons, they couldn’t purchase
Cadbury because of the nature of their corporate structure and the charity that owns most of
their stock and blah blah blah. I’m not going to get into the details. But unless, I mean, Wall Street investment
banks were pushing this idea so hard – unless Hershey buys Cadbury, it’s going to be a
loser. And the stock got all the way down to trading
for below 10 years’ worth of cash earnings. It was as cheap as it had ever been. I recommended it. I recommended it in my newsletter – correct
me if I’m wrong, somebody, but in December of 2007. Which was pretty much the worst time you could
buy an equity in this lifetime, right? It was on the verge, on the cusp of the worst
bear market of our careers. Stocks fell roughly 50% from top to bottom
from November 2007 until the bottom in March of 2009. I recommended Hershey right at the peak. But did it matter? No! You’ve made, I don’t know, 200% or more gains,
you’ve had your dividend increased every year, you’re now earning close to 10% a year in
dividends on the money you would’ve put into Hershey back in 2007, and you never stopped
out. It never declined more than 25% from our original
purchase price or more than 20% from any high price it’s hit since. Low volatility, dividend growing, global business,
world class business. And it didn’t make any difference what happened
in the macro space. Another quick example: American Express three
years ago. I’m writing about the problems that are going
to break out in the credit markets. AmEx, one of its businesses is credit. Stock goes down. By late 2015, it was trading at the lowest
price it had been in 50 years in terms of multiples. AmEx, of course, is a great business. There’s no question about that. It has one of the top five most valuable brands
in the world. It has, unlike other companies, has three
lines of business. It has network transactions, it has credit
transactions, and has fees from customers, people – idiots like me pay American Express
$500.00 a year just to carry their card. And, of course, I’m going to keep doing it,
because the service I get is the best. And then, the last example, current example
– Walt Disney, right? Disney is now trading at a price that’s,
I don’t know, about as cheap as it’s been in 30 years, but it is very cheap relative
to the S&P 500, and it’s cheap for Disney. And of course, nothing’s gone wrong with
these businesses, right? The theme parks are more crowded than they’ve
ever been. I talked to a guy who went a couple weeks
ago, he said it was just nuts, and that’s been the case every time I’ve been with my
kids. It has the best content, it has theme parks,
it has movies, and of course, it has ESPN. And everybody is worried that ESPN is going
to go into the toilet because people are cutting the cable and blah blah blah blah blah blah. And also because the guy running ESPN for
the last five years is a maniac and a moron, and he turned ESPN into a political network,
which it should never be. All that stuff can be fixed. Disney is going to be here in 30 years, and
the stock is very cheap today. That’s why I wrote about it a couple weeks
ago in the Digest – Erez, I’m sure you saw it. The point I’m making, Erez, is I know for
a fact that that is what Stansberry Asset Management is going to be focused on, and
that’s what it can do for people. It can keep you disciplined and keep you in
the best long-term investments, regardless of what happens in the macro standpoint. And I just wanted to ask you about that. Is there anything that you’re willing to talk
about that you’re buying in your managed accounts today that fits that bill, that you have a
lot of confidence in and that you think investors should have in their portfolio? Erez Kalir: This is the topic that I’ve enjoyed
our conversations about over the years. It’s been a topic of mutual fascination
to us. First off, let me just go back to something
that you said earlier when you introduced this thread, which is that, the truly kind
of great investors know when to get deep in the weeds and to focus on business fundamentals
and security fundamentals of individual securities and when to pay attention to the big picture. That was the kind of signature hallmark that
I remember from my old mentor, Julian Robertson, who ran Tiger. It was the characteristic that enabled him
to generate triple-digit returns in his personal accounts in 2007, the last year of the great
bull market before the financial crisis, and then to turn around and post another triple-digit
up year going the other way in 2008 into his personal account. That was purely driven by his ability to accurately
and decisively read when the big picture mattered. And it’s also something that I’ve always
deeply respected and admired about you. I think it’s quite unusual, you know? Folks usually are either good at one or the
other. They’re either sort of characterized or pigeonholed
as big-picture guys or as in-the-weeds thought guys. And this has always been a facet that I’ve
loved and appreciated about your newsletter that you’re not afraid to stick your neck
out and make a big-picture call when you do think it matters to your readers. And you also, you’re really kind of capable
of doing some of the best fundamental, nitty gritty, bottom up work that I’ve ever seen,
including the terrific work you’ve done on insurance companies and creating the Stansberry
Insurance Monitor to figure out sort of which insurance companies are really kind of underwriting
properly and where the value resides. So, I just wanted to kind of mention all that
by way of background. You know, with respect to your question about
what are we buying now in the category of companies that one should be content to hold
forever, I’ll give two examples of my own that we earn on behalf of clients here at
SAM. One of them is one of the very, very first
stocks that we bought for SAM clients when we launched about two years ago, and that’s
Boeing. You know, I think Boeing is really a truly
kind of exceptional business. It’s a duopoly, right? If you’re an airline and you’re in the business
of kind of moving people or freight from one part of the world to another, there are really
only two companies you can buy those planes from, and Boeing is one of them. It’s probably the better one of the two,
the better run of the two. So, that’s in its commercial airline segment. In the other part of its business, it’s
one of the country’s sort of preferred defense contractors, which is also a highly, highly
defensible and kind of moat business. And I don’t know about you, Porter, but I
certainly kind of think that we’re entering an era geopolitically where defense spending
in the U.S. is likely to go up, not go down. So, Boeing, even after a kind of incredible
run, has been the best performing stock in the Dow, I think, you know, the past kind
of 36 months, it’s increased several hundred percent over that time period. Still, you know, today, it can be bought for
something in between a kind of 6 to 7 percent free cash flow yield with free cash flow likely
to be growing double digits over the years to come. So, it’s still an attractive kind of opportunity
to own there. The other stock that I’ll kinda nominate in
that category is very much in the vein of your Hershey’s recommendation, and it’s
also based in Baltimore, and that’s McCormick. What’s the one thing that’s better and
more resilient than chocolate. And, you know, the answer to that is salt
or spice, you know? So, that’s the business that McCormick is
in, and that’s another, I think, incredibly resilient, high quality business that is almost
certain to be here and making money hand over fist in the same way that it has in the past
50 years from now, so. Porter Stansberry: Yeah, McCormick is really
an incredible business, and I would encourage everybody to take a deep look at it. It’s fun to study it and think about this. I mean, spices have been a great business
and a sign of wealth and success for thousands of years. And I don’t care how technology changes,
that’s probably not going to change. And if you study the spices that are out there,
McCormick’s are just clearly superior. They have a superior product, they have superior
sourcing, they’ve got superior packaging, superior distribution, they’ve got a superior
brand. It’s the best spice company that there is. And they’ve risen—they’ve grown their dividend,
they’ve increased their dividend every quarter, every year for something like, some crazy
number, 32 years or something nutty like that. It’s one of the longest increasing dividend
companies in the stock market, and it is the largest single position in the ETF, the—oh,
what is it called? The dividend growers, the dividend royalty
ETF? Erez Kalir: The Dividend Aristocrats? Porter Stansberry: Yes, that’s it—the
Dividend Aristocrats. It’s the largest position in there. And it’s the answer to one of my favorite
tough questions to ask people in the money management business, which is—if you had
to put all of your money into one stock, every single penny into one stock, and you were
not going to be able to sell ever, so that, you know, as long as you live, you still have
to hold it, which one would that be? Which stock is secure enough for all of your
wealth? And you don’t have to do that, of course. You can diversify, and you should. I’m not suggesting that you should put all
your money into one stock. I’m just saying it’s a great mental exercise
so you start thinking about what kind of businesses really has longevity and really is safe and
really is going to be here. I’m pretty sure that my great, great, great,
great, great, great, great, great grandkids are going to be using salt. And I’m also pretty sure that, you know, that
you’d have be a really dumb monkey to screw up McCormick’s business. Not that they can’t find somebody. [Laughter] But one of the things that Buffett
would always say is, “You better invest in companies that can be run by monkeys, because
eventually, they will be.” [Laughter] So, Erez, listen, you’ve been so great with
your time with us today, and I always enjoy our conversations. It’s great to talk to someone as intelligent
and as experienced as you, and I know it’s great for our listeners. For folks who have more than half a million
dollars and want to have a really, truly, professional, top-notch experience, world-class
asset manager, Erez, has my endorsement. This is especially important for people who
love our newsletters but simply don’t have the time or the wherewithal to implement the
stuff that we write about. So, if you love what we do and you love our
philosophy of building wealth, then go with Erez, because he follows our newsletters and
so you don’t have to. But when you talk to Erez and you talk to
his people, you’re going to be speaking the same language. They’re going to be following a strategy that
you admire and that you respect and that you can follow successfully. Erez, for folks who want to reach out to you
to discuss opening an account—again, your minimum currently is half a million dollars. Erez, of course, has a business to run, and
he can’t make enough money charging the fees he charges, which are very low, unless
you have enough money to make it worth his while. So, please don’t bother Erez if you’re going
to call him and say, “I’ve got $100,000. Won’t you please take me?” Sorry, the answer is no. Come back when you have half a million dollars—that’s
why it’s called a minimum. So, anyways, Erez—please, tell the folks,
how can they reach out and get in touch with you at Stansberry Asset Management? Erez Kalir: So, thanks very much for that,
Porter. Our website is www.stansberryam—the am is
for asset management—.com. So, www.stansberryam.com, and folks who prefer
the phone, our main line is (646) 854-4370—again, (646) 854-4370. Porter Stansberry: Very good, and
I’m sure we’ll put that information on an e-mail and send it to people, but one more
time, the website is Stanberry—that’s my last name—S-T-A-N-S-B-E-R-R-Y—am.com. And that’s not Stansberry morning, that’s
Stansberry Asset Management—am.com. Stansberryam.com. Erez, thanks again for being here, and good
luck with the accounts. Erez Kalir: Thanks so much, Porter. As ever, it’s a pleasure and a privilege
speaking with you. [Music plays 01:00:45 – 01:00:48] Porter Stansberry: For the listeners out there,
I want to make just one point very clear: Stansberry Asset Management is a separate
business entity… completely different board of directors, completely different ownership
group than my publishing company, which, as you all know, is Stansberry Research. And the two don’t mix. Erez manages Stansberry Asset Management in
New York, and I, of course, am involved in the management of Stansberry Research in Baltimore,
Maryland. It’s important for me to make sure everyone
understands that Erez does not have any kind of early access to our newsletters. He is a subscriber, just like everybody else. And his management choices, his investment
choices, are going to be different for each individual client… So it’s not as though you get to invest in
a newsletter if you put your money with Erez. He’s a money manager who relies on our research,
but there’s no… it’s not as though you’re going to have Porter Stansberry or Steve Sjuggerud
managing your money, because we don’t do that. We just do research. Buck Sexton: Want to get into some mailbag,
Mr. Porter? Porter Stansberry: Yeah, let’s do, but let’s
talk briefly—I know we were running long, but let’s just talk briefly about Facebook. Can you tell me, Buck, what Facebook did? I hear all this stuff and it goes right over
my head. I have no idea what they’re talking about. Buck Sexton: Yeah, so the very short version
of what’s turned into a quote bombshell story—and I think it’s wildly overhyped,
and the people that I know and respect in this space who actually understand the social
media metrics and the technology involved here also are saying this is really overhyped. The basics are that you have this group, Cambridge
Analytica, that says that they’re the new hotness, they’re the new hot sauce when it
comes to pulling together all the information that you can get when you introduce a third
party—essentially, a third-party app onto a social-media platform like Facebook. So, if I’m Cambridge Analytica, I work with
a third-party company trying to get as much information as I possibly can, and then I
sift through it to figure out what the trends are, right? So, it’s like, on your Facebook page, Porter,
it’ll say, you know, “Will you take this survey? And oh, by the way, we’ll get access to your
open profile information—your name, your network, all that stuff.” And people click yes because they want to
be a part of the survey or they want to play the video game or whatever it is, not understanding—well,
now, you’re actually giving your information in to a third party. And all this stuff, all the Facebook social
media platforms are built on taking your information and monetizing it. Everyone thinks it’s free, but they don’t
understand the exchange. The problem that everyone’s saying about
Cambridge Analytica is, they don’t like how they did it, this is not the way Facebook
is supposed to operate. There was some fraud or deception and that
your information was going to go to a third party. The reality is that the Obama team, the Obama
digital team back in 2012 was bragging about this, and they—Facebook knew about it, that
they were doing something very similar, and they said, “Well, these people are on our
side,” meaning the Obama team, “so, we’re just going to let it go.” So, what you’re seeing, really, is (1) people
just don’t understand how social-media networks work, and (2) there is an enormous—and I’ve
been yelling about this for a while—enormous politicization that has occurred of social
media that it used to be how you talked to your high school girlfriend 20 years, 10 years
later or whatever if you wanted to catch up. Now, Porter, this is how people are building
their businesses. And all of a sudden, Facebook will shut you
down with your algorithm and say, “You can’t sell on our site or on our portal anymore,”
and that’s it, that’s end of story. So, there’s a lot of politics involved in
it, too. It’s a big, complicated discussion, but
I think that’s most of the important stuff. Porter Stansberry: Yeah, but it’s not like
Facebook was stealing people’s Social Security numbers—you know what I mean? It wasn’t private information, it was whatever
the public profile information is. And then these people are aggregating it and
they’re selling it to marketers. Buck Sexton: And they’re willfully given. To your point about signing a contract— Porter Stansberry: Right. Buck Sexton: – you’re clicking, “Will you”— Porter Stansberry: You agree to it. Buck Sexton: – yeah. “Will you share your info with these people?” And what they’re saying as “Well, we’ll
share it with ABC online company, but we don’t want it to—we didn’t know it was going to
Cambridge Analytica.” But you’re sharing the data. I mean, and maybe they want more disclosure. But the point is, this is just another version
of fill in the blank, “Hillary didn’t win because.” Hillary didn’t win because—fill in the blank. And now, it’s, “Hillary didn’t win because
Trump hired this Cambridge Analytica.” By the way, Cambridge Analytica is only such
a big deal because of the Mercers, who are the billionaires working with Bannon and some
of the other people on the right. And it was believed—and this is what the
people who actually know what the heck is going on say—it was believed that if you
wanted access to the Mercer’s checkbook during the election, you had to work with
Cambridge Analytica. So, there was an access component of this,
too, but Cambridge Analytica wasn’t that good, and there are tons of people that are
trying to do this already. So, it’s a big tempest in a teapot. There was some kid from Cambridge Analytica—I
mean, kid, he’s my age—but he’s on TV saying that they weaponized psychological
vulnerabilities. No! They just figured out, you know, you live
in this area, you vote Republican, and you’re a male 45 to 65 or something. Big freakin’ deal! Porter Stansberry: [Laughter] I got ya. Yeah, it’s just a whole bunch of nonsense. Okay, great. Well, that’s good to know. I still don’t understand it, but okay. Buck Sexton: It did crush the stock price,
though, yesterday, as you know. I mean, that does matter, right? It went down—people lost, on paper, there’s
billions of dollars of value that disappeared because of this whole thing. Porter Stansberry: None of that bothers me. We’re long Facebook in my newsletter. Facebook is two things. First of all, it was the largest aggregation
of private wealth in the shortest amount of time, ever. Second of all, it’s the most capital-efficient
company I’ve ever seen. And third of all, it’s the greatest marketing
engine that’s ever been created. So, if the stock goes down, you should buy
more. It’s not going away. Buck Sexton: There you have it. [Music plays 01:06:37 – 01:06:40] Buck Sexton: Mailbag this week—thanks to
everybody for writing in, filling our inbox with useful feedback. People like Chris B., Jason W., Steve W.,
Emilo V., and Taylor L., just to name a few. Your comments and questions are an important
part of the show. Keep ‘em coming. Please do write to us at [email protected] Alright, first up here from Michael E. “Dear
Porter and Buck: I enjoy the podcast and look forward to listening every week. Regarding Porter’s analysis of Berkshire
returns and its stated failure to beat the S&P 500—where did he get his numbers? When I review their performance numbers on
Morningstar for my Class B shares, it appears that the stock has beaten the S&P for the
15-year period, trailed for the 10-year period, beaten for the five-year period, beaten for
the three-year period, and slightly trailed on the 1-year period. These returns look reasonable to me. Please advise”—from Michael. Porter Stansberry: Great. Well, Michael, if you see the letter that
Buffett publishes at the front of his letter to shareholders every year, you have the entire
record. You see Berkshire’s share price, Berkshire’s
book value, and the S&P 500. And so, the data is very easy to get. What you may not realize is that Buffett himself,
for many years, said that Berkshire will never, ever underperform the S&P 500 in any rolling
five-year period. “And if it does, then we should begin to
pay a dividend, because we’re not doing you any favors by holding the capital.” And, unfortunately, in 2014, he didn’t beat
the five-year rolling returns of the S&P 500 for the first time, ever. And so, we expected that he would announce
that Berkshire was going to begin paying a dividend. He didn’t. He said, “Oh, no. Actually, five years is not the best period
to measure. We’re going to do six-year period measurements.” And so, the point that I’m making is that,
clearly, Buffett no longer routinely can beat the S&P 500. He didn’t over a 10-year period, he didn’t
over a five-year period back in 2014, and he didn’t last year. Going forward, he’s not going to be able
to, I promise, because of the investments he’s made in very marginal industrial companies. And my advice is, he should split the company
into two parts. There should be a company that owns the insurance
firms—and that would be the one to own, by the way—and then there would be the one
that owns all of the industrial firms and all the other companies, and that one should
be conservatively managed and pay a very large dividend. So, you can choose—do you want to have a
safe income producing stock, or do you want to have a very high return but much more volatile
stock? Because insurance is definitely going to be
more volatile. And that way, the shareholders can choose. When you lump them together, what you get
is sort of the worst of both worlds. You get a very high-performance insurance
business and you get a whole bunch of laggards that are hanging off of it, and then you don’t
get a dividend. Buck Sexton: Alright. Next up, we have Dan W. He writes, “Hey,
Porter and Buck—love listening to you guys. It’s like hanging out with a couple of old
friends. Question about the Jubilee—let’s say that
student loans are forgiven. What do you think the outcome would be for
a company like Navient, the student-loan company? Do you think it would get them off the hook? Take care, and tell Ariana that I’ll be home
soon”—I’ll pass that along, Dan—“Kind regards.” Porter Stansberry: Jeez, that’s a great
question. And the answer is, unfortunately, I have nothing
intelligent to say about it, because we just can’t know what in the heck a real Jubilee
would look like. The way Jubilees have been done in the past
would be a nightmare for Navient, because in the past, the government just says, “You
don’t have to pay them back.” That’s it. There’s no—there’s no compensation for
companies like Navient that own these bonds that are packages of student debt. So, it could easily be a wipeout for Navient. On the other hand, if the government says,
“You don’t have to pay them back, and what we’re going to do is give you treasury
bonds in exchange for your student loans to Navient”—well, then, yeah, it would be
a boon for Navient. Because all of a sudden, the quality of their
debt has gone up exponentially, right? They own a bunch of lousy student loans and
now they own treasury bonds. So, I can’t—unfortunately, I can’t know. I just can’t know. What I can tell you is that before that occurs,
there is going to be a very long period of uncertainty that’s going to be very tough
for investors to survive. And however it goes, if you start forgiving
trillions in debt, you’re going to have a massive—a massive inflation. So, I think the thing to do is to be conservative
and probably to own some things that are going to do well during an inflationary period. Buck Sexton: Number three up this week comes
from Dennis. He writes, “Gentlemen, I must commend you
on having by far the most interesting podcast I have listened to. It really shines a flashlight into the shadows
to see what is going on. My two questions are—one, it was obvious
when Treasury Secretary Don Regan told Ronald Reagan to speed it up the way the President
wasn’t a supreme commander, but just a Wall Street puppet. Was Reagan the first president to be a Wall
Street lackey? And two, do you feel that the U.S. will ever
have a government that isn’t looking out for Wall Street and the industrial military
complex? Best regards, Dennis.” Porter Stansberry: Ah. Well, I have a very brief answer to that question—every
president has been a Wall Street lackey since the creation of the Central Bank, because
every politician needs the Central Bank desperately. Every president has to have the Central Bank,
especially now that we’re $20,000,000,000,000 in debt. Without the Central Bank, we can’t finance
that. If we can’t finance that, the lights don’t
turn on in the government. That’s cats and dogs living together, that’s
real chaos. Every politician is going to avoid that no
matter what. And that’s why, when the Treasury Secretary
came to Congress in late 2008 and said, “You have to pass this bailout. You have to, or else the Central Bank is not
going to help us print away these bad mortgages,” Congress did what it was told. Period. You remember Congress had the one vote that
failed? The TARP originally failed? Buck Sexton: Yeah. Porter Stansberry: And the stock market fell,
like—I don’t know, 1,000 points the next day, and they called them all back in and
they said, “You’re going to pass this,” and they did? I mean, that just shows you the power of the
Central Bank and the power of Wall Street and the power of what has become a financial
led zeppelin, if you will. I mean, we’re all tied into this together
because we can’t survive without it now, and we’re not in control of it any more. And so, for me, after the creation of the
Central Bank in 1913, every president has been a Wall Street lackey. And then, the second question, I’m sorry,
was about— Buck Sexton: “Do you feel the U.S. government
will ever”— Porter Stansberry: Oh, that’s easy. So, Eisenhower, right? Ever since Eisenhower, every administration
has been subject to manipulation by the industrial-military complex. And what I love about that is, you know, declaring
war was just too much of a hurdle for those guys, so we don’t even bother doing that
any more. We just send the troops everywhere and keep
arming everybody. Buck Sexton: Overseas-contingency operations
now, Porter. Porter Stansberry: Oh, contingency operations—yes. What’s your bet, what’s your best guess
today for who the Austin bomber is? Is it (a) a foreign terrorist group, is it
(b) a Mexican drug lord, is it (c) an angry white man who fits the profile of a Trump
voter, and who the FBI will begin looking for first? Buck Sexton: Um, I would put my money right
now on it being an angry, psychotic, lone male, probably Caucasian, who has a personal
grudge, and might even have a personal grudge against the state of Texas, specifically. I would be looking at former Texas state employees,
but it could just be somebody who worked for a company and things went bad, things went
south. But, I’m talking mad bomber with a personal
grudge. I do not see terrorism, I do not see cartels,
I do not see any of that tied into this. And there might be some anti-government manifesto,
but it would come out of a personal—a perceived personal slight. That’s what I see. Porter Stansberry: Alright. And then one other question about all this—you
were an analyst at the CIA, so you have some idea of maybe not the specifics, but certainly
the scope of these numbers that I’m going to ask you. So, just a brief question. Over the last, let’s see, almost 20 years—so,
since the buildup to the first Gulf War, so almost 30 years ago, correct? Alright, so over the last 30 years, how many
people do you believe the U.S. Armed Forces have given enough training to so that one
of them could be this bomber? Buck Sexton: I mean, if you’re wondering how
many people have a—I mean, I have basic explosives training, right? I mean, it’s not hard to do. Porter Stansberry: No. It’s also not hard to find out more specifics
on the Internet. Buck Sexton: Yeah, exactly. Porter Stansberry: Just pretending that the
introduction was done by something in connection to the U.S. military or the other shadowy
military like things like the CIA—how many people are we talking? Ten thousand a year, 25,000 a year, 100,000
people a year? Buck Sexton: Huge—huge amount. Huge amounts. Because of IED familiarization alone— Porter Stansberry: Right. Buck Sexton: – which, IEDs were the single
biggest threat in Iraq and Afghanistan by far— Porter Stansberry: I know. Buck Sexton: – half of U.S. casualties from
IEDs—so, yeah, you’re going to have a lot of people with a lot of explosive familiarity
bouncin’ around. But again, you’re asking me—I don’t see
it. I would be surprised if this person had any
actual experience with U.S. military explosives training. Porter Stansberry: Oh, no—it’s a lock
for me. It’s a lock. Buck Sexton: Really? Porter Stansberry: Has to be—has to be,
has to be. It absolutely has to be. But the problem is, you’re never going to
find them by going through those people, because there’s too many of them. Everybody who was in the military in Iraq
or Afghanistan knows something about these weapons and, of course, can figure out how
to build them with just a little bit more work, even if they weren’t taught directly. My point is that, this is one of these things,
it’s the dogs of war. You as a country get into a war footing, you
start teaching your people how to murder and maim, and you’re going to have more problems
in your own society. This is the classic blowback. This is a form of it. Buck Sexton: We’ll see. I mean, Metesky and Kaczynski didn’t have
any military training and they’re probably the two most well-known serial bombers. Porter Stansberry: Yeah, but they weren’t
using tripwires and building mines, right? They were using fertilizer and oil. I’m not saying that you can’t build a bomb
if you haven’t had military training. I’m saying that these particular kinds of
bombs, in my opinion only—and you know way more about it than I do—speak to someone
with a military background. That’s all I’m saying. Buck Sexton: We will see. But by the way, we might not see for a long
time. The history of searches for serial bombers
spans not even just months or years, but sometimes decades. And if the person doesn’t make a dumb mistake? Porter Stansberry: Mueller handled the anthrax
thing so well. I’m sure the FBI is going to be right on top
of this, and I’m sure they would never let a political bias influence their stellar work
as investigators. Buck Sexton: Yes, indeed. So, we’ll see. Maybe we’ll have an update—I mean, hopefully,
they’ll find this guy by the next time we’re on the podcast, we’ll see. It’s a guy, though. Mad bombers are always dudes. Porter Stansberry: Any more mailbag, or are
we done? Buck Sexton: We’re dunzo. Porter Stansberry: Oh, okay. Well, I don’t know. I don’t know if it was a good show or not. You guys will have to let us know. Love us or hate us, just don’t ignore us. Buck Sexton: Exactly. Feedback at investorhour.com, people—keep
it comin’. Even the ones we don’t read on air get sent
to Big P and me, so send them along, [email protected] If we use your question, we’ll send you some
Stansberry Research goodies. Thanks again, everybody. Thank you, Porter. Porter Stansberry: You’re welcome, Buck, and
thanks, everybody, for listening. We’ll see you next week. Announcer: Thank you for listening to The
Stansberry Investor Hour. To access today’s notes and receive notice
of upcoming episodes, go to investorhour.com and enter your e-mail. Have a question for Porter and Buck? Send them an e-mail at [email protected] If we use your question on air, we’ll send
you one of our studio mugs. This broadcast is provided for entertainment
purposes only and should not be considered personalized investment advice. Trading stocks and all other financial instruments
involves risks. You should not make any investment decision
based solely on what you hear. The Stansberry Investor Hour is produced by
Stansberry Research and is copyrighted by the Stansberry Radio Network. [End of Audio]

12 comments on “This is How the Bull Market Ends”

  1. jjakejones says:

    Is Porter insinuating that the NBA is not on the level????? Perish the thought (LOL)!!!!!!

  2. jjakejones says:

    Porter makes way too much sense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  3. rabbie28173 says:

    Hi Porter, its not the defending of yourself or your family that is the problem. It is the easy availability of automatic weapons that is the issue. Why does anyone need an automatic weapon for hunting ? USA is one of the most dangerous places to live because of guns.

  4. Aaron Peters says:

    We've got till 2020 could double.
    If you were to just look technical indicators they are at there highest levels since the mid 90's. I like the monthly RSI period of 12.
    As government grows, political cycles become more important in the economy. Year three and four of presidential cycle outperform the first two.
    Gann's financial timtable has bull market till 2020.
    Stocks tend to rise with rising Libor rates.
    Martin Armstrong's model/computer has the bull market going to 2020. He's been calling for DOW 40K since this 2015 and likely earlier.

  5. Dan B. says:

    You asked so I will reply — Yup, GOOD show!

  6. Chris Saxon says:

    Missed a bleep lol but very well said. While I disagree that payday loans aren’t predatory, the typical risk takers of these loans are probably desperate for money, and needed it for whatever hopeful something legitimate. That said, I agree just like anything in finance, the terms of the loans are literally in black and white and subject to risk that you may not be able to afford the interest. You agree to take this risk? Great here’s your cash good luck, work some overtime and pay off the loan!

  7. Brad Boesel says:

    TILA. Tucker fucked people over by not fully disclosing the actual terms.

  8. JinK says:

    I think the main stream media message is clear. You must rely on the government for all your needs like self protection. god forbid you learn you think for yourself and defend yourself.

  9. George McGovern says:

    "On October 15, 2010, Mozilo reached a settlement with the Securities and Exchange Commission over securities fraud and insider trading charges. Mozilo agreed to pay $67.5 million in fines, and accepted a lifetime ban from serving as an officer or director of any public company. It is the largest settlement by an individual or executive connected to the 2008 housing collapse. Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement that "Mozilo's record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite." By settling the SEC charges, Mozilo will avoid a trial that could have provided fodder for future criminal charges.The terms of the settlement allowed Mozilo to avoid acknowledgment of wrongdoing. Countrywide was to pay $20 million of the $67.5 million penalty because of an indemnification agreement that was part of Mozillo's employment contract.In February 2011, the US dropped its criminal investigation into the facts behind the civil settlement."–per wikipdedia. He paid for his crimes to go away.

  10. Robert Terlaak says:

    As usual Porter is exactly right only problem is he is always way to early. Markets and Bitcoin will go up to highs you can't imagine.

  11. Murrell Selden says:

    Maybe control of a railroad has some benefits. Benefits like rates on freight, control of contracts between the railroad and suppliers. Also influence about the future and the politics of coal and oil. Maybe so far Buffet has not been right about pipelines versus trains!

  12. Murrell Selden says:

    Mozilla sold those loans, when he knew the loans were made based upon lies and lack of due diligence.

Leave a Reply

Your email address will not be published. Required fields are marked *