Time's Monopoly on Truth

The music has stopped in China... The incentive problem... Time is the ultimate standard of truth... How to tell if you have real wealth... Why you should change your idea of time... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] The music has stopped in China... The incentive problem... Time is the ultimate standard of truth... How to tell if you have real wealth... Why you should change your idea of time... --------------------------------------------------------------- 'As long as the music is playing, you've got to get up and dance...' Regular Digest readers probably recognize Citigroup CEO Chuck Prince's famous excuse for throwing good money after bad during the U.S. housing bubble. In July 2007, as the housing bubble was on the verge of bursting, Prince said Citigroup was "still dancing." A few months later, Citi took a $1.5 billion write-down on a loan portfolio... and Prince resigned. Similarly, the music and dancing stopped in the Chinese property bubble in 2021 when property developer Evergrande defaulted on its debts after the government tightened lending standards in 2020. You see, the Chinese government had viewed property as an important economic growth engine around the same time the U.S. housing bubble was inflating in 2005 and 2006. But by 2017, it was obvious the market was in a bubble. And in 2021, it blew up. A recent Wall Street Journal headline declared that: "The Folly of China's Real-Estate Boom Was Easy to See, but No One Wanted to Stop It." I bet they'd like to stop what's happening now. As the Wall Street Journal says: More than 50 Chinese developers have defaulted on their international debt. Around 500,000 people have lost their jobs, according to Keyan, a private think tank focused on Chinese property. Some 20 million housing units across China have been left unfinished, and an estimated $440 billion is needed to complete them. It's a typical boom-and-bust tale... and more evidence that all government-backed financial endeavors are doomed (we wrote more about it [here]( and [here](. But China's property bubble also shows that when people respond to incentives, you don't always get the response you want... and the people quite as you imagined them. You see, from 2017 to 2021, big Wall Street investment banks like Goldman Sachs and Morgan Stanley underwrote trashy Chinese property company debt – which they knew was garbage – to earn $1.7 billion in fees. Meanwhile, portfolio managers didn't want their investors to believe they were falling behind the competition by failing to own the highest-yielding bonds. So even though these managers likely knew the Chinese property bonds they were buying were doomed to blow up, they continued buying them. As the Wall Street Journal says: Chinese banks and international institutions such as Fidelity, Invesco, BlackRock and Pimco invested in Chinese property bonds. Demand for the bonds, which yielded double-digit returns, far exceeded supply, so investors appeared willing to tolerate dubious deal structures. I wonder what kind of yields they're earning now that so many Chinese properties and their developers have become worthless. I'm sure many of them intoned the magic incantation of "diversification" to justify buying garbage. But how diversified are they now that their investments have gone to zero? The truth is, investors were so blindly desperate for double-digit yields that they tolerated lousy credit quality and deal structures that virtually guaranteed they'd lose money. (So... were they desperate for yields or not? If you're desperate for something, don't you go out of your way to make damn sure that, once you get it, it won't be taken away from you at the first sign of trouble? Apparently not in the money management business.) And portfolio managers got their fees and bonuses for sending their clients headlong into a massive mega-bubble destined to end badly. The incentive problem is often a time issue... Over a short period of time, portfolio managers – who probably have Ivy League diplomas and Wall Street pedigrees – can look good and earn some kind of bonus by buying garbage with other people's money. But over the long term, all the garbage they bought will go to zero. The thing is... no one knows the precise length of "short term" and "long term." But anyone with a passing knowledge of market history should expect the long term to arrive sooner than advertised. However, it seems like too many folks continue to follow John Maynard Keynes' famous quote from his 1923 book A Tract on Monetary Reform: This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again. If that was ever true, it isn't anymore. And the long run seems a far superior guide to current affairs than the twisted short-term in which bankers and portfolio managers are incentivized to underwrite and buy billions of dollars in garbage securities. The long run would have kept the Federal Reserve from taking interest rates to zero and keeping them there for most of the period from 2008 to 2022. Any reasonable assessment of the long term would have us all far more willing to endure some present discomfort for the sake of avoiding much worse future pain. You see, although people and financial bubbles are all dead in the long run, bubbles usually blow up soon after they become evident. For example, the Fed loosened monetary policy in 1928 to try to save the British pound, and it all came crashing down the following year. The dot-com mania lasted about two years, from 1998 to early 2000. The U.S. housing bubble was obvious by 2006 (the year home prices peaked). The trouble began in March 2007 with the failure of Bear Stearns and was a full-blown crisis by September 2008. And as we said, from around 2017 to 2020, it was very obvious China's real estate market was in a bubble. If three years is the "long run," there must be a vast army of wise toddlers in the world. We need to round them up and give them the reigns to the global economy. They couldn't possibly do worse than those currently in power. So be careful how you think about time. Assume the "long run" will arrive sooner and last longer than you expect. Then you can prepare for it and live through it. Time is the ultimate standard of truth... People want money quickly and rarely question whether that's a good goal. It has been my experience that, the more money you make in a hurry (especially in financial markets), the more likely you'll lose it, one way or another. So before you consider how you'll build wealth, you should probably consider how long you'll remain committed to doing so. Creating real wealth takes time. It takes decades to compound a modest stake into a retirement-sized fortune. And you'll need to endure a lot of painful short-term periods along the way. Real wealth creation takes time because time is the ultimate standard of truth. Time alone reveals the ultimate truth about everything and everyone, including whatever wealth you've created in your life. For example, bubble wealth isn't real. But there's a reason folks have been using gold to preserve wealth for thousands of years. Gold is durable, easily divisible, fungible (pure gold is all the same), and portable. We're far more confident in gold's value today than if we had discovered it in 2009 (when bitcoin was born). Our confidence is a function of time. That's the "Lindy effect" I've written about before... The longer humans use or do something, the longer you can expect them to continue doing so. The Bible, the Quran, and the Bhagavad Gita are all Lindy. Gold is Lindy. The "wealth" folks create during financial bubbles is not Lindy. Maybe wealth is similar to how Athenian statesman and philosopher Solon saw happiness. Solon is quoted as saying, "Count no man happy until he is dead." The idea is that, as long as you're alive, your luck could turn against you... so you can't really say you've had a happy life until you die. Likewise, maybe you don't really know how wealthy you are until the end of your life. The Solon mindset is about taking the time to build something lasting and worthwhile. It's about how you spend your whole life, not how fast you can flip an options trade. It's about creating wealth that can survive and grow through the ravages of taxes, financial crises, inflation, recession, wars, political upheaval, and natural disasters. That's why a good chunk of the world's old money is in items like art, gold, and land. Art and gold are portable and maintain value (unless you buy crappy art), and land lasts forever. Most investors' ideas about time need to change... Unfortunately, that's not going to happen anytime soon. And investors' obsession with short time frames is about to get a shot of adrenaline straight to the heart. You see, right now, the U.S. stock market opens at 9:30 a.m. Eastern time and closes at 4:00 p.m. It's possible to trade outside those hours, but it's not a seamless undertaking, and for many, it's not worth the bother. However, the New York Stock Exchange ("NYSE") wants to remove the obstacles to 24/7 trading. It's currently considering the proposal of a new startup company to create the first 24/7 stock exchange. So you can obsess about your 401(k) all day and night, every day and night. No matter what time of the day you want to overtrade your account and rack up more losses, the market will be ready for you. Trader and hedge-fund mogul Steve Cohen is backing the new company. He probably saw 24/7 crypto trading and wanted a way to get a piece of the relentless action. Or maybe he has always wanted to own a casino, so he wants to make the stock market even more like a casino than it already is. Steve is a billionaire financial genius. So he must know what he's getting into, but it seems risky to me as a business proposition. If the U.S. Securities and Exchange Commission approves the company's plan, I wonder if it'll even be around long enough to go public. How many minutes will it take for every other exchange in the world to start 24/7 trading? It'll face competition from the biggest, most experienced, well-financed companies in the industry who all want a piece of the action. It's hard to believe the folks at the NYSE, Nasdaq, Financial Times Stock Exchange, and other big global exchanges aren't already preparing for round-the-clock equities trading. They already offer after-hours trading. Switching to 24/7 is a logical next step. I won't make any predictions about the potential effects of 24/7 stock trading. I'm not even sure if it'll make a big difference in the way markets operate… or none at all. No matter what the effects are, investors (and I use that term lightly) have already turned financial markets into giant casinos by piling into 0DTE (zero days to expiration) options. They're the shortest, hottest-burning matches in finance and people are in love with them. Barron's accurately portrayed 0DTE trading as a speculative mania about a month ago: The obsession with short-dated options – a relatively new phenomenon that is generating extraordinary trading volume – is reminiscent of the 1920s bucket shops that enabled people to gamble on stock price movements without owning shares. In 1929, the speculative fever finally broke, the stock market collapsed, and the Great Depression began. It's almost comical that the word "zero" represents the amount of time these folks are willing to wait before finding out if they made or lost money. These 0DTE traders are the mayflies of the financial world. Mayflies have the shortest life span in the animal kingdom at about one day. But unlike 0DTE traders, mayflies are productive over a short period of time. A single mayfly can lay up to 10,000 eggs. And an abundance of mayflies in aquatic ecosystems means the water is clean. They're the opposite of 0DTE options traders, who pollute the global financial waters. However, even if you're not a 0DTE trader, odds are your current skill at handling time could use an upgrade by focusing more on the long term. It's a good way to stop fooling yourself about what you have and what you're likely to have 10 or 20 years from now. Here's a good exercise... If you're tempted to trade nonsense like 0DTE options, think of every $1 you'll lose doing it as $10 or $20 (or more) you won't have when you need it in the future. It could keep your capital from passing out of your hands in the lifespan of a mayfly. --------------------------------------------------------------- Recommended Links: # ['I Haven't Seen These Warning Signals Since 2007 – Watch Out']( Porter Stansberry correctly predicted the 1998 emerging market crisis, the 2008 financial crash, the loss of America's AAA credit rating, and the recent banking collapses. Now, Porter is stepping forward with an urgent financial warning that cuts directly against the establishment's narrative. If you have any money invested in the stock market, [you could be blindsided – unless you take this step](. --------------------------------------------------------------- # [This Power-Mad Politician Has a Dangerous 'Master Plan']( He's not Joe Biden. He's not Donald Trump. He's not anyone from Washington you've heard about lately, either. But that hasn't stopped this power-mad politician from unleashing a "master plan" that could plunge more than 1,900 companies into bankruptcy... even as the same plan helps mint new American millionaires. How so? [Get the full story at this link](. --------------------------------------------------------------- New 52-week highs (as of 4/25/24): Agnico Eagle Mines (AEM), Grupo Aeroportuario del Sureste (ASR), Alpha Architect 1-3 Month Box Fund (BOXX), Liberty Energy (LBRT), Ryder System (R), Sprouts Farmers Market (SFM), SilverCrest Metals (SILV), Teck Resources (TECK), Tyler Technologies (TYL), Veralto (VLTO), Vertiv (VRT), and Wheaton Precious Metals (WPM). In today's mailbag, a subscriber shares an interesting analysis about portfolio allocation – and gold – from recent Stansberry Investor Hour guest Meb Faber... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Thought everyone would be interested in seeing this:" – Subscriber Boyce W. Corey McLaughlin comment: Thanks for sharing, Boyce. That is interesting. What I take from this is more evidence that the 60/40 portfolio isn't all it's cracked up to be... especially with inflation and interest rates likely staying higher than expected for longer looking ahead. Meb, the chief investment officer and co-founder of Cambria Investment Management, is actually a longtime friend of Stansberry Research, and Dan and I [interviewed him on the Stansberry Investor Hour podcast a few weeks ago](. He's a good follow on X (Twitter) for all kinds of thought-provoking charts and market observations, just like this one... For some context, he says that these numbers do include total return, meaning reinvestment of stock dividends and coupons in bonds, and he does note that the time horizon you want to use matters. Yet for those who might take umbrage with the start date for whatever reason, he also ran the analysis going back to 1928 and found a similar outcome, with a conventional stock-bond allocation returning 8.35% on average per year versus 8.68% for a hypothetical 60-40 stock-gold portfolio. Meb's also a regular speaker at our exclusive annual Stansberry Research conference, which you can get tickets for at a special discounted rate for just a few more days. This year's event is October 21 through 23 at the Aria Resort & Casino in Las Vegas. [Click here for more information]( on the event, our speaker lineup, and more. Our early-bird ticket pricing ends May 1. Good investing, Dan Ferris Eagle Point, Oregon April 26, 2024 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios Investment Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,332.2% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,266.3% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 893.9% Extreme Value Ferris WRB W.R. Berkley 03/16/12 709.8% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 617.9% Retirement Millionaire Doc HSY Hershey 12/07/07 459.3% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 449.2% Stansberry's Investment Advisory Porter TT Trane Technologies 04/12/18 380.1% Retirement Millionaire Doc NVO Novo Nordisk 12/05/19 355.4% Stansberry's Investment Advisory Gula TTD The Trade Desk 10/17/19 339.0% 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 5 Stansberry's Investment Advisory Porter/Gula 3 Retirement Millionaire Doc 1 Extreme Value Ferris 1 Stansberry Innovations Report Engel --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Investment Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 2,291.8% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,615.8% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,238.7% Crypto Capital Wade MATIC/USD Polygon 02/25/21 814.0% Crypto Capital Wade AGI/USD Delysium AI 01/16/24 392.0% 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 Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud 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 PNC Warrants PNC-WS 6.16 years 706% True Wealth Systems Sjuggerud Maxar Technologies^ MAXR 1.90 years 691% Venture Tech. Lashmet Silvergate Capital SI 1.95 years 681% Amer. Moonshots Root ^ 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%. --------------------------------------------------------------- Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio Investment Symbol Duration Gain Publication Analyst Band Protocol BAND/USD 0.31 years 1,169% Crypto Capital Wade Terra LUNA/USD 0.41 years 1,166% Crypto Capital Wade Polymesh POLYX/USD 3.84 years 1,157% Crypto Capital Wade Frontier FRONT/USD 0.09 years 979% Crypto Capital Wade Binance Coin BNB/USD 1.78 years 963% Crypto Capital Wade You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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