An old 'friend' returns to the spotlight... Meet his next cash-burning business... The appetite for throwing money at nonsense is alive and well... The worst garbage in the market is bouncing back (again)... Most folks aren't taking things seriously yet... The 'wealth effect' is weakening... The belts will soon get tighter... He's baaaack... I (Dan Ferris) am talking about Adam Neumann. Longtime Digest readers will recognize Neumann as the former CEO and co-founder of WeWork. We covered the disastrous saga of Neumann and his coworking company in several essays back in 2019. (If you're bored, you can catch up here, here, here, and here.) Neumann started WeWork in 2010. He dreamed big and spent lavishly. By 2018, the company was doing $1.8 billion in annual sales... and $1.6 billion in annual losses. Then... Neumann tried to take WeWork public in 2019 at a valuation of about $47 billion. However, his effort failed when investors and the media saw the company's books. Oh, and I almost forgot... Neumann also tried to sell the rights to the name "We" to the company for $6 million and leased property he owned to the company. Plus, he borrowed heavily against his stock – presumably to help amass a large portfolio of high-end real estate, much of which he sold after leaving the company. Ultimately, Neumann stepped down as CEO in September 2019. And in October 2021, WeWork finally went public at a $9 billion valuation through a special purpose acquisition company. In other words, it was valued at 80% below what Neumann originally wanted. Neumann is reportedly an avid tequila drinker and pot smoker. He apparently also dreams of living forever. And he would love to become Israel's prime minister, the world's first trillionaire, or president of the world. After WeWork's initial public offering ("IPO") blew up, he later admitted that the company's exorbitant valuation "maybe... went to [his] head." Just a little. The fact that Neumann is still a billionaire suggests that you and I might be too concerned with not drinking too much, spending too much, and appearing to be out of our minds every time we open our mouths... But maybe that's just my second cup of coffee talking. And yes, like I said... he's baaaack. This week, Neumann resurfaced in the news through his blockchain startup Flowcarbon... He co-founded Flowcarbon. The company sells carbon credits and tracks the transactions through the blockchain. And part of its stated mission is "to drive billions of dollars directly to projects that reduce or remove carbon from the atmosphere." If you're sitting around trying to figure out the next cash-burning business that you might be able to talk up to an exorbitant valuation... you'll eventually contemplate carbon credits. Carbon credits are fake political money. Politicians created them out of thin air so they can charge productive enterprises for the privilege of staying in business. One carbon credit usually represents the right to emit a certain amount of carbon dioxide or other so-called "greenhouse gases" into the atmosphere. Of course, it's a mystery how using the blockchain to sell and trade something that allows a company to put carbon into the atmosphere will reduce or remove carbon from the atmosphere. Only geniuses like Neumann can understand how that works. But given all the shareholder money Neumann has lit on fire, it seems like a good fit. Carbon credits currently trade in an opaque, inefficient, and probably highly corrupt market. And they haven't been demonstrated to do any good whatsoever – unless you're a fearmongering reptile like Al Gore. Then, they can make you a billionaire! (I can hear the keyboard cowboys typing furiously. Just know that I will ignore every syllable of your e-mails. Like the rest of us, you don't really know anything about climate.) Anyway, Flowcarbon recently announced that it raised $70 million in venture capital ("VC") funding from several firms. It's not $47 billion – or even $9 billion. But give it time... Neumann is just getting started. Now, if you're like me, you might be wondering who would bet on this daffy wingnut... Big VC firm Andreessen Horowitz led the charge through its crypto division. It was joined by the VC arms of Samsung, Invesco, and at least nine other companies (including Neumann's family office). Unfortunately, none of the VC firms commented on whether they'll support Neumann in his bid for president of the world. (It's rumored that Microsoft co-founder Bill Gates and World Economic Forum "Supreme Leader" Klaus Schwab are in contention as well.) Israeli Prime Minister Naftali Bennett couldn't be reached for comment, either. So we're also unsure about how this endeavor could play into Neumann's other political aspirations. And of course a useless tool like Neumann wants to live forever. He sort of reminds me of Roman Stoic philosopher Seneca, who once said, "Life is long, if you know how to use it." I wonder if Seneca's bucket list included getting wasted all the time... doing a lot of scummy self-dealing... and letting vast sums of money go to his head. Probably not. I hope my main point is clear by now... If someone like Neumann can still raise $70 million from folks who allegedly know what they're doing... there's clearly still an appetite for throwing money at nonsense today. I'm not saying VC firms don't know what they're doing. I'm simply saying that they're run by humans. And they're as likely to get caught up in Neumann's drivel as everybody else. When legendary investor Warren Buffett says, "You don't know who's swimming naked until the tide goes out"... he's talking about folks like Neumann. You would think the tide went out far enough to reveal Neumann's choice of bathing attire rather well when WeWork's IPO failed in 2019. And yet, here we are again today... Neumann's $1.5 billion net worth, according to Forbes, suggests that he's still several cases of tequila and many pounds of pot away from totally giving up on his bid for president of the world... And it tells us a lot more downside exists in financial markets from here. But maybe I'm working too hard at this whole thing... It's all relative, after all. A $70 million investment spread over several firms is a drop in the bucket compared to the roughly $22 trillion that has been shaved off global equity markets since November, according to Bloomberg's World Exchange Market Capitalization Index. Maybe I need to step back and look at the bigger signs right in front of me. If I want to suggest a $22 trillion loss hasn't been enough to quell animal spirits, maybe I should... Check out the price action of some of the worst garbage in the market... Yes, it's time to talk about the "meme stocks" again. As you know, GameStop (GME) and AMC Entertainment (AMC) are the poster children of this motley group. Both stocks soared more than 1,000% in early 2021... and then crashed. GameStop fell more than 75% from its January 2021 all-time high through earlier this year. And AMC plunged more than 80% from its June 2021 peak. But investors still won't quit dabbling in these stocks... Off their most recent bottoms, GameStop is up around 65% and AMC is up about 40%. They're monsters that won't die. I could pick on either company's equity buyers, but let's go with AMC... The company has more than $5.5 billion in debt and less than $1.2 billion in cash. It has lost more than $3 billion over the past three years. And yet, its CEO thought it was a good idea to invest $28 million in a gold mine that hasn't been operational since last November. While the "dumb money" keeps buying AMC's stock, the "smart money" is dumping its bonds... Bloomberg lists 10 outstanding AMC bonds. And it provides data for nine of them. They're all rated "CCC+" or worse. In other words, they're all rated as "junk" credits today. Plus, these bonds are all trading for less than their stated (or "par") value. They're trading at discounts ranging from 10% to 50% in the open market right now. Four of these bonds carry 10% coupons, too. With interest rates still scraping 5,000-year lows, you don't agree to pay 10% interest unless you're a lousy, desperate company. AMC's "apes" don't understand that, though. They're still shouting about holding the stock forever and the next "Mother of All Short Squeezes" (or "MOASS," as the cool kids call it.) The original, rocket-like action in meme stocks was the result of massive squeezes in a bunch of heavily shorted garbage stocks. So it's pretty obvious to me... Today's meme-stock buyers are like drivers on a crowded highway. They're ignoring all the hazards in front of them through the windshield. Instead, they're focused on the scene in the rearview mirror. After all, they successfully navigated those hazards, right? By the time these drivers realize they're moving farther and farther away from that scene, it will be too late... They'll get wiped out. If only these drivers – I mean, meme-stock buyers – could ask simple questions like... "If $5 billion in AMC debt is worth between 50% and 90% of its stated value in the bond market today, is the equity worth anywhere near its current $6 billion market cap?" Having made our own mistakes, some of us both know how to ask that question and how to answer it. And to us, the answer is obvious... "No way!" I could stop here. Between Neumann and the meme stocks catching a bid, it's clear that some people will never learn until their capital has been vaporized out of existence for all eternity. And I'm not the only one who realizes folks aren't taking the current situation seriously enough... The world's biggest hedge fund also sees misplaced optimism in the markets... I'm talking about Connecticut-based Bridgewater Associates. On a recent podcast, Bridgewater Co-Chief Investment Officer Greg Jensen said... The markets are pricing in actually a pretty darn smooth landing here... And so I think today's market pricing is still overly optimistic. It's been a small move relative to the secular change that we're actually experiencing. See? I told you $22 trillion was just the beginning! Jensen is right. Despite the market's declines so far this year, two different measures of hedging activity aren't signaling true panic... First, look at the Chicago Board Options Exchange's ("CBOE") Volatility Index ("VIX"). We've discussed the VIX in the Digest many times over the years. It's often referred to as the market's "fear gauge." In other words, it tells us how scared investors are at any time. The VIX is around 26 today. It spiked up to more than 36 in March. Importantly, that was still less than halfway to its March 2020 all-time high of 82.69. Panic mode starts around 40 (indicated by the red line on the following chart). We got close to that level in March. But as you can see, we're still not there yet... The second indicator is the CBOE's Equity Put-Call ratio. It measures the number of traded equity put options compared to traded call options each day. When investors are panicking and buying puts like crazy, this ratio surges to more than 1.0 (the red line on the next chart). That means more than one put option is being traded for each call option. You can see the various spikes over the long term... However, this ratio is around 0.63 today. That's roughly in line with its long-term average (0.61). Its most recent bottom of 0.38 occurred in January. And it has mostly headed higher since then. But as I said, it hasn't spiked into panic mode above 1.0 since March 2020. Both of these indicators have moved higher lately. So you can say that investors are getting more bearish these days. However, you can't say that most folks are panicking. And as we've learned, bear markets don't tend to end until the real panic sets in. Jensen also warned of a toxic combination of slower economic growth and higher inflation... The idea is simple... Rising prices eventually get too high. And in turn, that causes consumers to stop buying. That's happening today in the gasoline and housing markets... The average gas price in the U.S. made another all-time high this week. It's at $4.60 per gallon. That's roughly 50% higher than a year ago. And at the same time, gasoline demand is down. According to Bloomberg, demand is at its lowest level for this time of year since 2013 (excluding 2020's pandemic-induced plunge). Higher prices, lower demand. It's the same story in the housing industry. Both home prices and mortgage rates have soared over the past year. Through April 30, the average sale price of newly built homes in the U.S. was up nearly 20% year over year. And Bankrate's 30-year mortgage rate index is up over the past year from 3.06% to 5.28%. That's a jump of about 70%. This combination of higher home prices and higher interest rates caused sales of newly built homes to fall off a cliff in April. They were down 16.6% versus the same time last year. Higher prices, lower demand. The trends in housing and gasoline suggest the 'wealth effect' might've already moved sharply into reverse... The "wealth effect" is when high asset prices – along with acceptable levels of economic growth and inflation – make people feel wealthier. That prompts them to spend more. When it's in reverse, maybe we should call it the "poverty effect." After all, it seems like folks feel poorer and spend less. Measuring economic activity by spending alone is an abomination. But the simple fact is that multiple generations of investors have been taught to focus on spending and asset prices... When asset prices and spending fall, folks see it as a reduced level of economic activity. And they'll invest accordingly – which usually means raising cash by selling stocks, bonds, and whatever else seems too risky. The rise of so-called "passive investing" has compounded the issue... It forces more and more investors to turn away from the fundamentals. And instead, it leads them to focus totally on asset prices. Passive investing is simply price-insensitive momentum investing. As long as prices go up or don't fall too much each year, passive investors keep pouring money into stocks – regardless of valuation. In other words, a heavy focus on asset prices combined with the long-running bull market has led folks to believe that they can pay any price for stocks. It doesn't matter how high they go. When you think about it, this behavior isn't isolated to the stock market... People do it with homes, too. As long as folks think they can make the loan payments, no other calculations are needed. The same thing has been happening with college tuitions for years. Rising costs don't matter. Most folks will still do whatever it takes to attend the best possible college. Stock ownership, home ownership, and a college degree are apparently worth any price. It doesn't matter how high they go. But as value guru Ben Graham taught investors, the reality is that every investment is "cheap at one price and dear at another price." In the end, the core of the wealth effect in the U.S. – stocks and housing – has weakened lately... And wealth effects are self-reinforcing in both directions... Feeling wealthy begets spending... which proves to you that you really are more wealthy... which begets more spending. And on the flip side, feeling poorer begets belt tightening... which proves to you that you really are poorer... which begets more belt tightening. You can see this idea playing out in investor behavior right now... "Investors fled most major asset classes" last week, according to Bloomberg. They took more than $17 billion out of stocks and bonds. And many folks also exited cash and gold. (If you're curious, U.S. Treasury debt experienced inflows over that span.) Meanwhile, Bank of America currently recommends selling rallies rather than buying dips. The banking giant is taking that stance despite its proprietary bull-bear indicator flashing a clear contrarian "buy" signal recently. We've covered a lot in today's Digest, but I hope you see why... We're living in a world that keeps giving lunatics like Adam Neumann chances to light millions (or billions) of dollars on fire. That's a scary place for investors like you and I. Don't forget about the meme stocks, either. No matter how many times these pieces of garbage burn people, they keep leaping right out of the dumpster. In the end, as I said... The appetite for throwing money at nonsense is alive and well. Plus, pure panic hasn't set in. A couple of common "fear" indicators haven't yet reached an extreme like back in March 2020. That tells us things could keep getting worse from here. And at the same time, the wealth effect is weakening. People are starting to tighten their belts. They realize they're getting poorer. And before long, their belts will get even tighter. It's a vicious cycle. And whether you like it or not, the end is nowhere in sight. Recommended Links: | A Massive Wave of Bankruptcies Is Coming It's actually much bigger and more important than what happens to the Nasdaq or S&P 500. Yet some of the world's best investors are practically drooling in anticipation. This crash will create a slew of 100%-plus opportunities... backed by legal protections that stocks can only dream of. A top analyst tracking the story believes this could happen within months – and you must prepare now. Get the full story here right away. | |
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| New 52-week highs (as of 5/26/22): Continental Resources (CLR), ProShares Ultra Oil & Gas Fund (DIG), Enterprise Products Partners (EPD), Suncor Energy (SU), Energy Select Sector SPDR Fund (XLE), and SPDR S&P Oil & Gas Exploration & Production Fund (XOP). In today's mailbag, your thoughts on yesterday's Digest, including how big a trillion actually is... plus more feedback about inflation. Do you have a comment or question? As always, send your notes to feedback@stansberryresearch.com. "Most people don't realize how big a trillion or a billion is. "My favorite way to describe a billion is to ask the person if they had $10,000 they could remove from their bank today. If they say yes or no, it doesn't make a difference, since I then say if you spent the $10,000 every day since July 4, 1776 you still have not spent $1,000,000,000 [one billion]. "If that isn't bad enough then tell them that $1,000,000,000,000 [one trillion] is $10,000,000 (10 million) spent for the same number of days. Now tell them our government is over $30 trillion in debt and that's $300 million a day for over 246 years. "We need to tell people how BIG a TRILLION is in terms they can understand. "I do enjoy your letter." – Paid-up subscriber Ray G. "Remind people [a trillion] is a million million. That is something that people can relate to." – Paid-up subscriber Dwayne O. "Just another bit of inflation news. Our local (non-chain) pizza and sub shop hiked its prices 25% across the board this past January 1." – Paid-up subscriber L.B. Good investing, Dan Ferris Eagle Point, Oregon May 27, 2022 P.S. One other housekeeping note before we wrap up... In this weekend's Masters Series, we plan to share a brand-new, two-part interview with our colleague and Stansberry's Credit Opportunities editor Mike DiBiase. After that, you'll next hear from us on Tuesday... Our offices and the U.S. markets are closed in observance of Memorial Day on Monday. We'll take time to reflect on the sacrifices by the men and women who've served (and continue to serve) our country. Enjoy the long weekend. Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock | Buy Date | Return | Publication | Analyst |
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MSFT Microsoft | 11/11/10 | 951.5% | Retirement Millionaire | Doc | MSFT Microsoft | 02/10/12 | 817.9% | Stansberry's Investment Advisory | Porter | ADP Automatic Data | 10/09/08 | 769.6% | Extreme Value | Ferris | ETH/USD Ethereum | 02/21/20 | 626.0% | Stansberry Innovations Report | Wade | HSY Hershey | 12/07/07 | 495.0% | Stansberry's Investment Advisory | Porter | BRK.B Berkshire Hathaway | 04/01/09 | 454.1% | Retirement Millionaire | Doc | AFG American Financial | 10/12/12 | 430.3% | Stansberry's Investment Advisory | Porter | FSMEX Fidelity Sel Med | 09/03/08 | 287.3% | Retirement Millionaire | Doc | ALS-T Altius Minerals | 02/16/09 | 269.6% | Extreme Value | Ferris | TTD The Trade Desk | 10/17/19 | 253.8% | Stansberry Innovations Report | Engel |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. Top 10 Totals |
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3 | Retirement Millionaire | Doc | 3 | Stansberry's Investment Advisory | Porter | 2 | Extreme Value | Ferris | 2 | Stansberry Innovations Report | Engel/Wade | Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock | Buy Date | Return | Publication | Analyst |
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ONE-USD Harmony | 12/16/19 | 1,430.9% | Crypto Capital | Wade | ETH/USD Ethereum | 12/07/18 | 1,413.9% | Crypto Capital | Wade | POLY/USD Polymath | 05/19/20 | 1,076.6% | Crypto Capital | Wade | MATIC/USD Polygon | 02/25/21 | 781.1% | Crypto Capital | Wade | BTC/USD Bitcoin | 11/27/18 | 678.7% | Crypto Capital | Wade |
Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment | Symbol | Duration | Gain | Publication | Analyst |
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Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | Band Protocol crypto | 0.32 years | 1,169% | Crypto Capital | Wade | Terra crypto | 0.41 years | 1,164% | Crypto Capital | Wade | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | Frontier crypto | 0.08 years | 978% | Crypto Capital | Wade | Binance Coin crypto | 1.78 years | 963% | Crypto Capital | Wade | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | Rite Aid 8.5% bond | 4.97 years | 773% | True Income | Williams |
^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. |