The 'Gambling Parlor' of the Markets... And Buffett, Bitcoin, and the Mailbag

Warren Buffett stated the obvious at Berkshire Hathaway's (BRK-B) annual meeting over the weekend when he said the markets have become a 'gambling parlor'... The reality is, they've always been. After all, the saying "play the market" has been around forever... It's Wall Street's version of "playing the ponies." The difference this time was the […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The 'Gambling Parlor' of the Markets... And Buffett, Bitcoin, and the Mailbag By Herb Greenberg --------------------------------------------------------------- [Top accountant: Where next wave of money is headed]( U.S. Pentagon consultant says next big wave of money headed to an asset you've probably never heard of – not digital technologies, gold, cryptos, or oil. [Click here to learn more](. --------------------------------------------------------------- Warren Buffett stated the obvious at Berkshire Hathaway's (BRK-B) annual meeting over the weekend when he said the markets have become a 'gambling parlor'... The reality is, they've always been. After all, the saying "play the market" has been around forever... It's Wall Street's version of "playing the ponies." The difference this time was the intensity – so many people were making so much money so quickly that it wasn't mere gambling. Or as Buffett's longtime partner Charlie Munger said... It's almost a mania of speculation. Indeed, the combo of special purpose acquisition companies ("SPACs"), "meme stock" mania, and all things bitcoin and crypto were scratch cards, roulette, and craps all rolled into one. That didn't stop the Wall Street Journal's editorial page from taking issue with Buffett and Munger, when it wrote... Our quibble with the two investing veterans concerns their diagnosis for today's stock trading volatility. They've nailed the symptom but not the disease. Greed is always with us; it's part of the human condition. The willingness of financial companies to facilitate and finance trading also isn't new. Wall Street is a convenient scapegoat. The editorial went on to point to the U.S. Federal Reserve's non-stop printing press, and added... The explicit Fed goal has been to encourage risk-taking, and investors have obliged by pushing up asset prices as they hunt for yield. This elevated stock prices to historically high price-earnings ratios, and it has also played a role in the speculation over bitcoin, non-fungible tokens, and meme stocks. That's a good point, but Wall Street shouldn't get let off the hook... When SPACs were coming off the assembly line faster than the conveyor belt in the classic I Love Lucy chocolate factory episode, the bankers knew exactly what they were doing. Just as they did when they fueled the market for securitized subprime mortgages... and just as they did with the dot-com initial public offerings ("IPOs"). Or as Buffett said... Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism. They don't make money unless people do things, and they get a piece of them. They make a lot more money when people are gambling than when they are investing. Exactly. The ducks were quacking, so they were feeding the ducks. The Fed was providing the food... this time. --------------------------------------------------------------- Recommended Link: [Missed out on FAANG? Here's your second chance]( Facebook, Apple, Amazon, Netflix, and Google have monopolized their industries for a while. But now, a new industry is finally making its presence felt. And one little-known company has the potential to become as big as the FAANG... if not more. It's no wonder Barron's calls it the next big thing, and Forbes says this company could be the next Apple or Microsoft. But the man who famously bought Apple, Amazon, and Netflix long before they were the FAANGs isn't holding back. He's calling it "[America's Next Big Monopoly]( --------------------------------------------------------------- Moving on, Buffett's comments on bitcoin also ruffled some feathers... I don't have a strong opinion one way or the other on bitcoin. The closest I have gotten was to buy and sell and make a great return on the Grayscale Bitcoin Trust (GBTC), but let's not confuse brains with a bull market – I did that in a mania when momentum trumped diligence. The crazy thing is that I know some exceedingly smart people on both sides of the bitcoin divide, and they're all equally as smart. Some of them think years from now you will look back and kick yourself for not buying it here... while others think it's a Ponzi scheme. I concede I haven't spent enough time on it to know, other than the higher the demand and the scarcer the coin, the higher the price. In theory, at least. Don't think that didn't go through my head when I saw the news that Fidelity plans to allow bitcoin purchases in 401(k) plans. And then there was Buffett and Munger, repeating their criticisms of it at the Berkshire meeting, with Buffett saying... It's got a magic to it, but people have attached magic to lots of things. Munger took it one step further, saying... In my life, I try to avoid things that are stupid and evil and make me look bad... and bitcoin does all three. Their comments obviously sparked backlash in the crypto community, but the response that caught my attention was from my friend, Mike Alfred, who has made a bunch of money starting and selling a few companies. I quoted him in the [December 3 Empire Financial Daily]( – back when bitcoin was much higher than it is today – as saying that he viewed bitcoin as a long-term investment, almost like a value stock. As he said at the time... Most long-term value investors are afraid of new things. I'm trying to be a long-term value investor who isn't afraid of new things. What's interesting about Mike is that he historically has been a Buffett fan. "I'm a value guy at heart," he says, so much so that he has been to the Berkshire annual meetings and has owned Berkshire stock since 2007. But... Mike holds less today than he did before the most recent annual meeting. Writing on LinkedIn, he explained... I've always admired Buffett's value orientation. But after hearing his nearly incoherent Bitcoin rant yesterday I am slashing my stake. Berkshire won't outperform going forward with a CEO & board that is afraid, unwilling, or incapable of understanding the tectonic shifts reshaping society at an exponential rate in the modern world. Adding to his confusion: How can Buffett attack bitcoin despite investing in something like Nubank, which is a digital bank in Brazil? Mike continues... This is what I find most perplexing. They would rather speculate in wildly overpriced and overhyped equities like Snowflake (SNOW) and StoneCo (STNE) where they have no special knowledge, insight, or edge, rather than take the time to follow the logical thread of a lifetime of experience with the fundamentals of inflation and the potential use cases for Bitcoin. When I caught up with Mike to see if he minded me publishing his comments, he said he didn't, adding... I've thought about this deeply for a long time. No doubt. Next up is the mailbag... First, some readers respond to [Friday's essay]( on the hype surrounding electric vertical take-off and landing ("eVTOL") aircraft, and in particular, Archer Aviation (ACHR)... and another comments on Edwards Lifesciences (EW), the "free" idea I mentioned in the launch for my Investment Opportunities newsletter. "Really appreciated your perspective on Archer Herb. So much hype in the financial media. It is too easy to get drawn in which I almost did after reading a different analyst's report. I really appreciate your work and enjoy your regular reports as well as your Investment Opportunities work." – Scott M. "As a retired Coast Guard aviator with over 4,000 hours flying helicopters in all sorts of environments, I'm very curious as to who will be flying all these eVTOL air taxis around and what the FAA will require in terms of licensing. I have yet to read one article about these aircraft which discusses the all important aspect of who will be operating them, what standard they'll be trained to, and how they will be compensated. With pilot error now accounting for about 85% of all aircraft mishaps, well trained pilots will be essential for these new aircraft to operate safely." – Patrick B. "F my money (to coin a phrase), the only one of the eVTOLs companies that has cut enough metal, flown enough hours, and has enough logical (and cash supporting) partnerships would be Joby (JOBY). And even then, they remain tech that's a 'wanna have' not a 'HAFTA have.' "I simply accept that until the always-shifting headwinds cease and the market stops behaving like a paranoid schizophrenic, those ventures have been put on a deep back burner. They are not all pies (or cars) in the sky, but they have no urgency in the current geopolitical scenario." – Charles G. Herb comment: Thanks, all. I'm glad to see I'm not the only one leery of the hype. Charles, regarding Joby – that seems to be the one consistent I have heard since I've been paying attention to these over the past year. Patrick, who said anything about needing pilots? These will all be controlled remotely from the ground. And Scott, everybody has an opinion... There's no doubt that if you have a very long-term outlook, some of these will be real. What I can say with almost certainty is that 2024 will not be the year most of these are flying people here and there on a regular basis. It's a date for Wall Street... close enough to generate enthusiasm, far enough that nobody will remember if the goal posts are moved. "Bought some EW Herb. Took your advice" – Ed P. Herb comment: Best of luck with it, Ed. As I said in the presentation when we launched Investment Opportunities, my one big reservation was that, at the price it was at the time, it was expensive. I subsequently added it to the informal Watch List in []Investment Opportunities with a much longer explanation of what I like about it, but also an additional risk that concerns me... and I explain why we haven't added it to our portfolio. The lower its price gets, the more interested I get. If you aren't already a subscriber, you can find out more about Investment Opportunities [right here](. As always, feel free to reach out via e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Herb). And if you're on Twitter, feel free to follow me there at [@herbgreenberg](. My DMs are open. I look forward to hearing from you. Regards, Herb Greenberg May 3, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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